0000802681 bmtc:HomeEquityLoansAndLinesOfCreditPortfolioSegmentMember bmtc:InterestRateChangeAndOrInterestOnlyPeriodMember 2019-01-01 2019-12-31


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

Form 10-K

(Mark One)

☒

☒ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

2019

☐

☐TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period fromto


Commission file number001-35746.

BRYN MAWR BANK CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania

23-2434506

BRYN MAWR BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania23-2434506
(State of other jurisdiction ofIncorporation or Organization)

(I.R.S. Employer Identification Number)

  

801 Lancaster Avenue,

Bryn Mawr, Pennsylvania

Pennsylvania

19010

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code) (610) 525-1700

(Registrant’s telephone number, including area code)(610)525-1700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock ($1 par value)

BMTC

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ☒    No  ☐

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 ofor 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (& 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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Large Accelerated Filer

☒

Accelerated Filer

☐

Large Accelerated Filer☒Accelerated Filer☐
Non-Accelerated Filer

☐

Smaller Reporting Company

☐

  Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by checkmark whether the Registrantregistrant is a shell company (as defined by Rule 126-212b-2 of the Exchange Act):

Yes☐    No  ☒

The aggregate market value of shares of common stock held by non-affiliates of Registrantthe registrant (including fiduciary accounts administered by affiliates) was $711,760,477$742,260,441 on June 30, 20172019 and was based onupon the last sales price at which our common stock was last soldquoted on that date.the NASDAQ Stock Market on June 30, 2019.*

As of February 23, 201820, 2020, there were 20,225,269 20,088,025 shares of common stock outstanding.

Documents Incorporated by Reference: Portions of the Definitive Proxy Statement of Registrantregistrant to be filed with the Commission pursuant to Regulation 14A with respect to the Registrant’sregistrant’s Annual Meeting of Shareholders to be held on April 19, 201816, 2020 (“20182020 Proxy Statement”), as indicated in Parts II and III, are incorporated into this Form 10-K by reference.

*

Registrant

*The registrant does not admit by virtue of the foregoing that its officers and directors are “affiliates” as defined in Rule 405.




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Form 10-K

Bryn Mawr Bank Corporation

Index

Item No.

 

Page 

   

 

Part I

 

1.

Business

1

1A.

Risk Factors

11

1B.

Unresolved Staff Comments

20

2.

Properties

21

3.

Legal Proceedings

23

4.

Mine Safety Disclosures

23

   

 

Part II

 

   

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

23

6.

Selected Financial Data

26

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

27

7A.

Quantitative and Qualitative Disclosures about Market Risk

53

8.

Financial Statements and Supplementary Data

53

9.

Change in and Disagreements with Accountants on Accounting and Financial Disclosure

121

9A.

Controls and Procedures

121

9B.

Other Information

122

   

 

Part III

 

   

10.

Directors and Executive Officers of the Registrant

122

11.

Executive Compensation

122

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

122

13.

Certain Relationships and Related Transactions

123

14.

Principal Accountant Fees and Services

123

   

 

Part IV

 

   

15.

Exhibits and Financial Statement Schedules

123

Item No. 
Page 
   
 
Part I
 
1.
Business
3
1A.
Risk Factors
14
1B.
Unresolved Staff Comments
28
2.
Properties
28
3.
Legal Proceedings
28
4.
Mine Safety Disclosures
28
   
 
Part II
 
   
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
29
6.
Selected Financial Data
31
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
33
7A.
Quantitative and Qualitative Disclosures about Market Risk
62
8.
Financial Statements and Supplementary Data
63
9.
Change in and Disagreements with Accountants on Accounting and Financial Disclosure
135
9A.
Controls and Procedures
135
9B.
Other Information
136
   
 
Part III
 
   
10.
Directors, Executive Officers and Corporate Governance
136
11.
Executive Compensation
136
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
136
13.
Certain Relationships and Related Transactions, Director Independence
136
14.
Principal Accounting Fees and Services
136
   
 
Part IV
 
   
15.
Exhibits and Financial Statement Schedules
137



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PART I

ITEM 1.BUSINESS

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements contained in this report and the documents incorporated by reference herein may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). As such, they are only predictionsand may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (theand its direct and indirect subsidiaries (collectively, the “Corporation”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to the Corporation’s financial goals, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words “may,,” “might,” “would,,” “could,“could,” “will,“will,” “likely,“likely,” “expect,“expect,” “anticipate,” “intend,,” “estimate,“estimate,” “plan,“plan,” “forecast,“forecast,” “project,“project,” “believe “predict,”“believe”and similar expressions are intended to identify suchstatements that constitute forward-looking statements. The Corporation’s actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:

•

local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;

•

our need for capital;

•

reduced demand for our products and services, and lower revenues and earnings due to an economic recession;

•

lower earnings due to other-than-temporary impairment charges related to our investment securities portfolios or other assets;

•

changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions that adversely affect our business, including changes in federal income tax or other tax regulations;

•

changes in the level of non-performing assets and charge-offs;

•effectiveness of capital management strategies and activities;

•

changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

•

other changes in accounting requirements or interpretations;

•

the accuracy of assumptions underlying the establishment of provisions for loan and lease losses and estimates in the value of collateral, and various financial assets and liabilities;

•

inflation, securities market and monetary fluctuations;

•

changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets;

•

changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;

•

prepayment speeds, loan originations and credit losses;

•

changes in the value of our mortgage servicing rights;

•

sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;

•

legislation or other governmental action affecting the financial services industry as a whole, the Corporation, or its subsidiaries individually or collectively, including changes in laws and regulations (including laws and regulations concerning banking, securities and insurance) with which we must comply;

•

results of examinations by the Federal Reserve Board of the Corporation or its subsidiaries, including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability to: engage in new products or services; engage in future mergers or acquisitions; open new branches; pay future dividends; or otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may violate applicable law or constitute an unsafe or unsound banking practice;

•

our common stock outstanding and common stock price volatility;

•

fair value of and number of stock-based compensation awards to be issued in future periods;

•

with respect to mergers and acquisitions, our business and the acquired business will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; • following the completion of a merger or acquisition, revenues may be lower than expected and/or expenses may be higher than expected;

•

deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without limitation, difficulties in maintaining relationships with employees, customers, and/or suppliers may be greater than expected;

•

material differences in the actual financial results of our merger and acquisition activities compared with expectations, such as with respect to the full realization of anticipated cost savings and revenue enhancements within the expected time frame;

•

our success in continuing to generate new business in our existing markets, as well as their success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;

•

our ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that meets customers’ needs;

 
local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;
our need for capital;
reduced demand for our products and services, and lower revenues and earnings due to an economic recession;
lower earnings due to other-than-temporary impairment charges related to our investment securities portfolios or other assets;
changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions, including those concerning banking, securities. insurance or taxes, that adversely affect our business, the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;
changes in the level of non-performing assets and charge-offs;
effectiveness of capital management strategies and activities;
the accuracy of assumptions underlying the establishment of provisions for loan and lease losses, estimates in the value of collateral, and various financial assets and liabilities;
uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021;
the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“CECL”) model, which will change how we estimate credit losses and will increase the required level of our allowance for credit losses after adoption on January 1, 2020;
inflation, securities market and monetary fluctuations, including changes in the market values of financial assets and the stability of particular securities markets;
changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;
prepayment speeds, loan originations and credit losses;
changes in the value of our mortgage servicing rights;
sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;
results of examinations by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) of the Corporation, including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability to: engage in new products or services;

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•

changes in consumer and business spending, borrowing and savings habits and demand for financial services in the relevant market areas;

•

rapid technological developments and changes;

•

competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and elsewhere including institutions operating locally, regionally, nationally and internationally together with such competitors offering banking products and services by mail, telephone, computer and the internet;

•

our ability to continue to introduce competitive new products and services on a timely, cost-effective basis and the mix of those products and services;

•

our ability to contain costs and expenses;

•

protection and validity of intellectual property rights;

•

reliance on large customers;

•

technological, implementation and cost/financial risks in contracts;

•

the outcome of pending and future litigation and governmental proceedings;

•

any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);

•

ability to retain key employees and members of senior management;

•

the ability of key third-party providers to perform their obligations to us and our subsidiaries;

•

the need for capital, ability to control operating costs and expenses, and to manage loan and lease delinquency rates;

•

the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;

•

the inability of key third-party providers to perform their obligations to us;

•other material adverse changes in operations or earnings;
•risks related to our recent merger with Royal Bancshares of Pennsylvania, Inc. (“RBPI”), including, but not limited to: reputational risks and the reaction of the former RBPI customers to the transaction; diversion of management time on integration-related issues; integration of the acquired business may take longer than anticipated or cost more than expected; the anticipated benefits of the merger, including any anticipated cost savings or strategic gains may be significantly harder to achieve or take longer than anticipated or fail to be achieved; and

•

our success in managing the risks involved in the foregoing.


engage in future mergers or acquisitions; open new branches; pay future dividends; or otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may violate applicable law or constitute an unsafe or unsound banking practice;
variances in common stock outstanding and/or volatility in common stock price;
fair value of and number of stock-based compensation awards to be issued in future periods;
risks related to our past or future, if any, mergers and acquisitions, including, but not limited to: reputational risks; client and customer retention risks; diversion of management’s time for integration-related issues; integration may take longer than anticipated or cost more than expected; anticipated benefits of the merger or acquisition, including any anticipated cost savings or strategic gains, may take longer or be significantly harder to achieve, or may not be realized;
deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without limitation, difficulties in maintaining relationships with employees, customers, and/or suppliers may be greater than expected;
the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;
our success in continuing to generate new business in our existing markets, as well as identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;
our ability to continue to generate investment results for customers or introduce competitive new products and services on a timely, cost-effective basis, including investment and banking products that meet customers’ needs;
changes in consumer and business spending, borrowing and savings habits and demand for financial services in the relevant market areas;
extent to which products or services previously offered (including but not limited to mortgages and asset back securities) require us to incur liabilities or absorb losses not contemplated at their initiation or origination;
rapid technological developments and changes;
technological systems failures, interruptions and security breaches, internally or through a third-party provider, could negatively impact our operations, customers and/or reputation;
competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
protection and validity of intellectual property rights;
reliance on large customers;
technological, implementation and cost/financial risks in contracts;
the outcome of pending and future litigation and governmental proceedings;
any extraordinary events (such as natural disasters, global health risks or pandemics, acts of terrorism, wars or political conflicts);
ability to retain key employees and members of senior management;
changes in relationships with employees, customers, and/or suppliers;
the ability of key third-party providers to perform their obligations to us and our subsidiaries;
our need for capital, or our ability to control operating costs and expenses or manage loan and lease delinquency rates;
other material adverse changes in operations or earnings; and
our success in managing the risks involved in the foregoing.



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All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety bythe factors, risks, and uncertainties set forth inthe foregoing cautionary statements,, along with those set forth under the caption titled “Risk Factors” beginning on page 1114 of this Report.Report. All forward-looking statements included in this Report and the documents incorporated by reference herein are based upon the Corporation’s beliefs and assumptions as of the date of this Report. The Corporation assumes no obligation to update any forward-looking statement,, whether the result of new information, future events, uncertainties or otherwise, as of any future date.In light of these risks, uncertainties and assumptions,you should not put undue reliance on any forward-looking statementsdiscussed in this Report or incorporated documents.

documents.

GENERAL
 
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PART I

ITEM  1.

BUSINESS

GENERAL

The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”(“BMBC”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation.BMBC. The Bank and CorporationBMBC are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The CorporationBMBC and its direct and indirect subsidiaries (collectively, the “Corporation”) offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from 37 full-service branches, eight limited-hour retirement community offices, two limited-service branches, six43 banking locations, seven wealth management offices and a full-servicetwo insurance agency. The Corporation’s branches and offices are located throughoutrisk management locations in the following counties: Montgomery, Chester, Delaware, Chester, Philadelphia, Berks and Dauphin counties of Pennsylvania,Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden countiesCounties in New Jersey. The common stock of New Jersey and New Castle county in Delaware. The Corporation’s common stockBMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The goal of the Corporation is to become the premier community bank and wealth management organization in the greater Philadelphia area. The Corporation’s strategy to achieve this goal includes investing in people and technology to support its growth, leveraging the strength of its brand, targeting high-potential markets for expansion, basing its sales strategy on relationships and concentrating on core product solutions. The Corporation strives to strategically broaden the scope of its product offerings, engaging in inorganic growth by selectively acquiring small to mid-sized banks, insurance brokerages, wealth management companies, and advisory and planning services firms, and lifting outhiring high-performing teams where strategically advantageous.

The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many agencies, including the Securities and Exchange Commission (“SEC”), the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Pennsylvania and Delaware Departments of Banking.

WEBSITE DISCLOSURES

The Corporation

BMBC files with the SEC and makes available, free of charge, through its website, itsBMBC's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with the SEC. These reports can be obtained on the Corporation’s website at www.bmtc.comwww.bmt.com by following the link, “About BMT,” followed by “Investor Relations.” The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 10-K. Further copies of these reports are located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings, at www.sec.gov.

OPERATIONS

•Bryn Mawr Bank Corporation

The


Bryn Mawr Bank Corporation has no active staffis a Pennsylvania corporation, formed in 1986 and registered as a bank holding company pursuant to the Bank Holding Company Act of December 31, 2017. The Corporation1956. BMBC is the sole shareholder of the stock of the Bank. Additionally,

BMBC had no active staff as of December 31, 2019. Collectively, the Corporation performs several functions including shareholder communications, shareholder recordkeeping, the distribution of dividends and the periodic filing of reports and payment of fees to NASDAQ, the SEC and other regulatory agencies.

As of December 31, 2017, the Corporation and its subsidiaries had 623632 full-time and 5752 part-time employees, totaling 652661 full time equivalent staff.

staff as of December 31, 2019.







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ACTIVESUBSIDIARIES OF THE CORPORATION

The CorporationBMBC

As of December 31, 2019, BMBC has four active subsidiaries which provide various services as described below. Additionally, the CorporationBMBC and the Bank acquired certain subsidiaries in the merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC on December 15, 2017 (the “Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the “RBPI Merger”), pursuant to the Agreement and Plan of Merger, by and between RBPI Mergerand BMBC, dated as of January 30, 2017 (the “Agreement”) that are not included in the below descriptions as they are not integral or significant to our business.

Further, in connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II, which are discussed in more detail in Note 1, “Summary of Significant Accounting Policies,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

•The Bryn Mawr Trust Company


The Bank is engaged in commercial and retail banking business, providing basic banking services, including the acceptance of demand, time and savings deposits and the origination of commercial, real estate and consumer loans and other extensions of credit including leases. The Bank also provides a full range of wealth management services including trust administration and other related fiduciary services, custody services, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax services, financial planning and brokerage services. The Bank’s employees are included in the Corporation’s employment numbers above.

1
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The Bank presently operates 37 full-service branches, eight limited-hour retirement community offices, two limited-service branches and four wealth management offices located throughout Montgomery, Delaware, Chester, Philadelphia, Berks, and Dauphin counties of Pennsylvania. See the section titled “COMPETITION” later in this item for additional information.

•Lau AssociatesLLC


Lau Associates LLC, a registeredSEC-registered investment advisor, is an independent, family wealth office serving high net worth individuals and families, with special expertise in planning intergenerational inherited wealth. Lau Associates LLC employed 13 full time employees as of December 31, 2017, which are includedis headquartered in the Corporation’s employment numbers. Lau Associates LLCGreenville, Delaware, and is a wholly-owned subsidiary of BMBC. Effective January 1, 2020, the Corporation.

business of Lau Associates LLC was transitioned into the Wealth Management Division of the Bank.

•The Bryn Mawr Trust Company of Delaware


The Bryn Mawr Trust Company of Delaware (“BMTC-DE”) is a limited-purpose trust company located in Greenville, DE and has the ability to be named and serve as a corporate fiduciary under Delaware law. BMTC-DE employed nine full-time and three part time employees as of December 31, 2017. BMTC-DE employees are included in the Corporation’s employment numbers. Being able to serve as a corporate fiduciary under Delaware law is advantageous as Delaware statutes are widely recognized as being favorable with respect to the creation of tax-advantaged trust structures, LLCs and related wealth transfer vehicles for families and individuals throughout the United States. BMTC-DE is a wholly-owned subsidiary of the Corporation.

BMBC.

•BMT Investment Advisers


BMT Investment Advisers (“BMTIA”), a Delaware statutory trust and wholly-owned subsidiary of the Corporation,BMBC, was established in May 2017. BMTIA is a SEC registeredan SEC-registered investment adviser which serves as investment adviser to BMT Investment Funds, a Delaware statutory trust. There is an Investment Advisory Agreement between BMT Investment AdvisersBMTIA and BMT Investment Funds, on behalf of the BMT Multi-Cap Fund. The BMT-Multi-CapBMT Multi-Cap Fund is a broadly diversified mutual fund focused on equity investments. BMT Investment Advisers had no employees as of December 31, 2017.

ACTIVE SUBSIDIARIES OF THE BANK

The Bank has three active subsidiaries providing various services as described below:

●

KCMI Capital, Inc.


•KCMI Capital, Inc.
KCMI Capital, Inc. (“KCMI”) is a wholly-owned subsidiary of the Bank,, located in Media, Pennsylvania, which was established on October 1, 2015. KCMI specializes in providing non-traditional commercial mortgage loans to small businesses throughout the United States. As of December 31, 2017, KCMI employed eight full-time employees which are included in the Corporation’s employment numbers above.

•BMT Insurance Advisors, Inc. f/k/aPowers Craft Parker and Beard, Inc.


BMT Insurance Advisors, Inc. (“BMT Insurance Advisors”), formerly known as Powers Craft Parker and Beard, Inc. (“PCPB”), is a wholly-owned subsidiary of the Bank, headquartered in Rosemont,Berwyn, Pennsylvania. BMT Insurance Advisors is a full-service insurance agency, through which the Bank offers insurance and related products and services to its customer base.

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This includes casualty, property and allied insurance lines, as well as life insurance, annuities, medical insurance and accident and health insurance for groups and individuals.

As of December 31, 2017, BMT Insurance Advisors employed 31 full-time employees, of whom 28 are licensed insurance agents, along with one part-time employee, who is also a licensed insurance agent. BMT Insurance Advisors employees are included in the Corporation’s employment numbers above.

Bryn Mawr

•BrynMawr Equipment Finance,, Inc.

Bryn


Bryn Mawr Equipment Finance, Inc. (“BMEF”), a wholly-owned subsidiary of the Bank, is a Delaware corporation registered to do business in Pennsylvania. BMEF is a small-ticket equipment financing company servicing customers nationwide from its Montgomery County, Pennsylvania location. BMEF had ten employees as of December 31, 2017. BMEF employees are included in the Corporation’s employment numbers above.


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BUSINESS COMBINATIONS

The Corporation and its subsidiaries engaged in the following business combinations since January 1, 2013:

●

Royal Bancshares of Pennsylvania, Inc.

2014:

•Domenick & Associates

The Bank’s subsidiary, BMT Insurance Advisors, completed the acquisition of Domenick & Associates (“Domenick”), a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and two contingent cash payments, not to exceed $250 thousand each, will be payable in 2020 and 2021, subject to the attainment of certain targets during the related periods.

•Royal Bancshares of Pennsylvania, Inc.
On December 15, 2017, the mergerRBPI Merger was completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation (the “RPBI Merger”), and the merger of Royal Bank America with and into the Bank, were completed. Consideration totaled $138.6 million, comprised of 3,098,7543,101,316 shares of the Corporation’sBMBC’s common stock. Shareholders of RBPI received 0.1025 shares of BMBC's common stock the assumptionfor each share of 140,224 warrants to purchase CorporationRBPI Class A common stock valued at $1.9 million, $112 thousandand 0.1179 shares of BMBC's common stock for each share of RBPI Class B common stock owned as of the cash-outEffective Date of certain options and $7 thousand cash in lieuthe RBPI Merger, with cash-in-lieu of fractional shares.shares totaling $7 thousand. The RBPI Merger initially added $570.4$566.2 million of loans, $121.6 million of investments, $593.2 million of deposits, twelve new branches and a loan production office. The acquisition of RBPI expanded the Corporation’s footprint within Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as well as Camden and Mercer Counties in New Jersey.

●

Harry R. Hirshorn & Company, Inc.

•Harry R. Hirshorn & Company, Inc.
On May 24, 2017, the Bank acquired Harry R. Hirshorn & Company, Inc. (“Hirshorn”), an insurance agency headquartered in the Chestnut Hill section of Philadelphia. Consideration totaled $7.5 million, of which $5.8 million was paid at closing, with threetwo contingent cash payments of $575 thousand were paid in 2018 and 2019, and one contingent cash payment not to exceed $575 thousand each, towill be payable on each of May 24, 2018, May 24, 2019, and May 24,in 2020, subject to the attainment of certain targets during the related periods.conditions. The acquisition of Hirshorn expanded the Bank’s footprint into this desirable northwest corner of Philadelphia. Immediately after acquisition, Hirshorn was merged into PCPB.

PCPB (now BMT Insurance Advisors).

3•Robert J. McAllister Agency, Inc.
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Robert J. McAllister Agency, Inc.

On April 1, 2015, the acquisition of Robert J. McAllister, Inc. (“RJM”), an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed. Consideration totaled $1.0 million, of which $500 thousand was paid at closing, two contingent payments of $85 thousand (out of a maximum of $100 thousand) and $100 thousand were paid during the second quarters of 2018 and 2016, one contingent payment of $100 thousand was paid during the second quarter of 2017, one contingent payment of $75 thousand was paid during the second quarter of 2019, and 2017, respectively and threeone remaining contingent cash payments,payment, not to exceed $100 thousand, each, will be payable on each of March 31, 2018, March 31, 2019 and March 31,in 2020, subject to the attainment of certain revenue targets during the related periods.conditions. Shortly after acquisition, RJM was merged into PCPB.

●

Continental Bank Holdings, Inc.

PCPB (now BMT Insurance Advisors).

•Continental Bank Holdings, Inc.
On January 1, 2015, the merger of Continental Bank Holdings, Inc. (“CBH”) with and into the CorporationBMBC (the “CBH Merger”), and the merger of Continental Bank with and into the Bank, were completed. Consideration totaled $125.1 million, comprised of 3,878,304 shares of the Corporation’sBMBC’s common stock, the assumption of options to purchase CorporationBMBC's common stock valued at $2.3 million, $1.3 million for the cash-out of certain warrants, and $2 thousand cash in lieu of fractional shares. The CBH Merger initially added $424.7 million of loans, $181.8 million of investments, $481.7 million of deposits and ten new branches. The acquisition of CBH enabled the Corporation to expand its footprint within Montgomery County, Pennsylvania.

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BMT Insurance Advisors, Inc. f/k/a Powers Craft Parker and Beard, Inc.


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•BMT Insurance Advisors, Inc. f/k/aPowers Craft Parker and Beard, Inc.
On October 1, 2014, the acquisition of PCPB, an insurance brokerage previously headquartered in Rosemont, Pennsylvania, was completed. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing and three contingent payments, of $542 thousand each, which were paid during the fourth quarters of 2015, 2016 and 2017. The addition enabled the Corporation to offer a full range of insurance products to both individual and business clients. As described above, the subsequent acquisitions of RJM and Hirshorn were merged into PCPB, which was recently renamed BMT Insurance Advisors. The resulting combined entity, operating from two locations, under the name BMT Insurance Advisors, has enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients.


SOURCES OF THE CORPORATION’S REVENUE

Continuing Operations

See Note 28,31, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements located in this Annual Report on Form 10-K for additional information. The Corporation had no discontinued operations in 2015, 20162017, 2018 or 2017.

FINANCIAL INFORMATION ABOUT SEGMENTS

The financial information concerning the Corporation’s business segments is incorporated by reference to this Annual Report on Form 10-K in the section captioned Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Note 28, “Segment Information,” in the Notes to Consolidated Financial Statements.

2019.

DESCRIPTION OF BUSINESS ANDCOMPETITION

The Corporation

BMBC and its subsidiaries, including the Bank, compete for deposits, loans,loans, wealth management and insurance services in Delaware, Montgomery, Chester, Delaware, Philadelphia, Berks, and Dauphin countiesCounties in Pennsylvania, Mercer and Camden counties in New Jersey, and New Castle County in Delaware.Delaware, and Mercer and Camden Counties in New Jersey. The Corporation has a significant presence in the Philadelphia suburbs along the Route 30 corridor, also known as the “Main Line”. The Corporation has 37 full-service branches, eight limited-hour retirement community offices, two limited-service branches, one insurance agency (operating from two locations) and six43 banking locations, seven wealth management offices.

offices and two insurance and risk management locations.

The markets in which the Corporation competes are highly competitive. The Corporation’sCorporation’s direct competition in attracting business is mainly from commercial banks, investment management companies, savings and loan associations, trust companies and insurance agencies. The Corporation also competes with credit unions, on-line banking enterprises, consumer finance companies, mortgage companies, insurance companies, stock brokerage companies, investment advisory companies and other entities providing one or more of the services and products offered by the Corporation.

The

The Corporation is able to compete with the other firms because of its consistent level of customer service, excellent reputation, professional expertise, comprehensive product line, and its competitive rates and fees. However, there are several negative factors which can hinder the Corporation’s ability to compete with larger institutions such as its limited number of locations, smaller advertising and technology budgets, and a general inability to scale its operating platform, due to its size.

Mergers, acquisitions and organic growth through subsidiaries have contributed significantly to the growth and expansion of the Corporation. The acquisition of Lau Associates LLC in July 2008 and the formation of BMTC-DE allowed the Corporation to establish a presence in the State of Delaware, where it competes for wealth management business. The November 2012 acquisition of certain loan and deposit accounts and a branch location from First Bank of Delaware enabled the Corporation to further expand its banking segment in the greater Wilmington, Delaware area.


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TheThe Corporation’s first significant bank acquisition, the July 2010 merger with First Keystone Financial, Inc., expanded the Corporation’s footprint significantly into Delaware County, Pennsylvania. This was followed by the January 2015 merger with CBH and the December 2017 merger with RBPI. These bank mergers further expanded the Corporation’s reach well into the surrounding counties in Pennsylvania, including five branches within the City of Philadelphia, and also expanded the Bank’s footprint into southern and central New Jersey.

The

The acquisition of the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May 2011 enabled the Bank’s Wealth Management Division to extend into central Pennsylvania by continuing to operate the former PWMG offices located in Hershey, Pennsylvania. The May 2012 acquisition of the Davidson Trust Company allowed the Corporation to further expand its range of services and bring deeper market penetration in our core market area.

The October 2014 acquisition of PCPB,, April 2015 acquisition of RJM, and the May 2017 acquisition of Hirshorn, and the May 2018 acquisition of Domenick enabled the Bank to expand its range of insurance solutions to both individuals as well as business clients. The Hirshorn transaction, in particular, established a key location in the desirable northwest corner of Philadelphia, affording the Bank greater opportunity to provide insurance and other financial solutions to both existing and potential clients.


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In October 2015, KCMI was established which enabled the Corporation to compete, on a national level, for a specialized lending market that focuses on non-traditional small business borrowers with well-established businesses. In addition to KCMI, BMEF, which specializes in equipment leases for small- and mid-sized businesses, also competes on a national scale.

In

In May 2017, BMTIA was established. BMTIA is a SEC registeredan SEC-registered investment adviser which serves as investment adviser to BMT Investment Funds, a Delaware statutory trust. There is an Investment Advisory Agreement between BMT Investment AdvisersBMTIA and BMT Investment Funds, on behalf of the BMT Multi-Cap Fund. The BMT-Multi-CapBMT Multi-Cap Fund is a broadly diversified mutual fund focused on equity investments which the Corporation’s wealth management division is able to offer as an investment choice to its client base.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

The geographic information required by Item 101(d) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, is impracticable for the Corporation to calculate; however, the Corporation does not believe that a material amount of revenues in any of the last three years was attributable to customers outside of the United States, nor does it believe that a material amount of its long-lived assets, in any of the past three years, was located outside of the United States.


SUPERVISION AND REGULATION

The Corporation

BMBC and its subsidiaries, including the Bank, are subject to extensive regulation under both federal and state law. To the extent that the following information describes statutorystatutory provisions and regulations which apply to the Corporation and its subsidiaries, it is qualified in its entirety by reference to those statutory provisions and regulations:

•Bank Holding Company Regulation

The Corporation,


BMBC, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the “Act”). The Act limits the business of bank holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. The CorporationBMBC and its non-bank subsidiaries are subject to the supervision of the Federal Reserve Board and the CorporationBMBC is required to file, with the Federal Reserve Board, an annual report and such additional information as the Federal Reserve Board may require pursuant to the Act and the regulations which implement the Act. The Federal Reserve Board also conducts inspections of the CorporationBMBC and each of its non-banking subsidiaries.

The Act requires each bank holding company to obtain prior approval by the Federal Reserve Board before it may acquire (i) direct or indirect ownership or control of more than 5% of the voting shares of any company, including another bank holding company or a bank, unless it already owns a majority of such voting shares, or (ii) all, or substantially all, of the assets of any company.

The Act also prohibits a bank holding company from engaging in, or from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or to managing or controlling banks as to be appropriate. The Federal Reserve Board has, by regulation, determined that certain activities are so closely related to banking or to managing or controlling banks, so as to permit bank holding companies, such as the Corporation,BMBC, and its subsidiaries formed for such purposes, to engage in such activities, subject to obtaining the Federal Reserve Board’sBoard’s approval in certain cases.


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Under the Act, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension or provision of credit, lease or sale of property or furnishing any service to a customer on the condition that the customer provide additional credit or service to the bank, to its bank holding company or any other subsidiaries of its bank holding company or on the condition that the customer refrain from obtaining credit or service from a competitor of its bank holding company. Further, the Bank, as a subsidiary bank of a bank holding company, such as the Corporation,BMBC, is subject to certain restrictions on any extensions of credit it provides to the CorporationBMBC or any of its non-bank subsidiaries, investments in the stock or securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower.

In addition, the Federal Reserve Board may issue cease-and-desist orders against bank holding companies and non-bank subsidiaries to stop actions believed to present a serious threat to a subsidiary bank. The Federal Reserve Board also regulates certain debt obligations and changes in control of bank holding companies.

Under the Federal Deposit Insurance Act, as amended by the Dodd-Frank Act, a bank holding company is required to serve as a source of financial strength to each of its subsidiary banks and to commit resources, when so required, including capital funds during periods of financial stress, to support each such bank. Consistent with this requirement to serve as a “source of strength” requirement for subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common

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shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the company’scompany’s capital needs, asset quality and overall financial condition.

Federal law also grants to federal banking agencies the power to issue cease and desist orders when a depository institution or a bank holding company or an officer or director thereof is engaged in or is about to engage in unsafe and unsound practices. The Federal Reserve Board may require a bank holding company, such as the Corporation,BMBC, to discontinue certain of its activities or activities of its other subsidiaries, other than the Bank, or divest itself of such subsidiaries if such activities cause serious risk to the Bank and are inconsistent with the Bank Holding Company Act or other applicable federal banking laws.


•Federal Reserve Board and Pennsylvania Department of Banking and Securities Regulation


The Corporation’s Pennsylvania state chartered bank, The Bryn Mawr Trust Company,Bank is regulated and supervised by the Pennsylvania Department of Banking and Securities (the “Department of Banking”) and subject to regulation by Thethe Federal Reserve Board and the FDIC. The Department of Banking and the Federal Reserve Board regularly examine the Bank’s reserves, loans, investments, management practices and other aspects of its operations and the Bank must furnish periodic reports to these agencies. The Bank is a member of the Federal Reserve System.

The Bank’sBank’s operations are subject to certain requirements and restrictions under federal and state laws, including requirements to maintain reserves against deposits, limitations on the interest rates that may be paid on certain types of deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, limitations on the types of investments that may be made and the types of services which may be offered. Various consumer laws and regulations also affect the operations of the Bank. These regulations and laws are intended primarily for the protection of the Bank’s depositors and customers rather than holders of the Corporation’sBMBC’s stock.

The regulations of the Department of Banking restrict the amount of dividends that can be paid to the CorporationBMBC by the Bank. Payment of dividends is restricted to the amount of the Bank’s 2018Bank's net income during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve Board. Accordingly, the dividend payable by the Bank to BMBC beginning on January 1, 2020 is limited to net income not yet earned in 2020 plus itsthe Bank’s total retained net retained earningsincome for the previouscombined two years. Asyears ended December 31, 2018 and 2019 of January 1, 2018, this amount was $38.5$57.3 million. However, theThe amount of dividends paid by the Bank cannot reducemay not exceed a level that reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized. The payment of dividends by the Bank to the CorporationBMBC is the source on which the CorporationBMBC currently depends to pay dividends to its shareholders.

As a bank incorporated under and subject to Pennsylvania banking laws and insured by the FDIC, the Bank must obtain the prior approval of the Department of Banking and the Federal Reserve Board before establishing a new branch banking office. Depending on the type of bank or financial institution, a merger of the Bank with another institution is subject to the prior approval of one or more of the following: the Department of Banking, the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency and any other regulatory agencies having primary supervisory authority over any other party to the merger. An approval of a merger by the appropriate bank regulatory agency would depend upon several factors, including whether the merged institution is a federally insuredfederally-insured state bank, a member of the Federal Reserve System, or a national bank. Additionally, any new branch expansion or merger must comply with branching restrictions provided by state law. The Pennsylvania Banking Code permits Pennsylvania banks to establish branches anywhere in the state.

On October 24, 2012, Pennsylvania enacted three new laws known as the “Banking Law Modernization Package,” all of which became effective on December 24, 2012. The intended goal of the new law, which applies to the Bank, is to modernize Pennsylvania’sPennsylvania’s banking laws and to reduce regulatory burden at the state level where possible, given the increased regulatory demands at the federal level as described below.


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The law also permits banks as well as the Department of Banking to disclose formal enforcement actions initiated by the Department of Banking, clarifies that the Department of Banking has examination and enforcement authority over subsidiaries as well as affiliates of regulated banks and bolsters the Department of Banking’s enforcement authority over its regulated institutions by clarifying its ability to remove directors, officers and employees from institutions for violations of laws or orders or for any unsafe or unsound practice or breach of fiduciary duty. Changes to existing law also allow the Department of Banking to assess civil money penalties of up to $25,000 per violation.

The new law also sets a new standard of care for bank officers and directors, applying the same standard that exists for non-banking corporations in Pennsylvania. The standard is one of performing duties in good faith, in a manner reasonably believed to be in the best interests of the institutions and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. Directors may rely in good faith on information, opinions

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and reports provided by officers, employees, attorneys, accountants, or committees of the board, and an officer may not be held liable simply because he or she served as an officer of the institution.

•Deposit Insurance Assessments


The deposits of the Bank are insured by the FDIC up to the limits set forth under applicable law and are subject to deposit insurance premium assessments. The FDIC imposes a risk based deposit premium assessment system, under which the amount of FDIC assessments paid by an individual insured depository institution, such as the Bank, is based on the level of risk incurred in its activities.

In addition to deposit insurance assessments, banks are subject to assessments to pay the interest on Financing Corporation bonds. The Financing Corporation was created by Congress to issue bonds to finance the resolution of failed thrift institutions. The FDIC setsFinancing Corporation assessment became final in 2019. Payments of the Financing Corporation assessment rate every quarter. The Financing Corporation assessment for the fourth quarter of 2017 was an annualized rate of .64 basis points. Payments of the FICO assessment during the twelve monthsyear ended December 31, 20172019 totaled $165$12 thousand. Included in our FICO assessment paid in 2017 was $8 thousand related to RBPI as a result of the RBPI Merger.

•Government Monetary Policies

The monetary and fiscal policies of the Federal Reserve Board and the other regulatory agencies have had, and will probably continue to have, an important impact on the operating results of the Bank through their power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The monetary policies of the Federal Reserve Board may have a major effect upon the levels of the Bank’sBank’s loans, investments and deposits through the Federal Reserve Board’s open market operations in United States government securities, through its regulation of, among other things, the discount rate on borrowing of depository institutions, and the reserve requirements against depository institution deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

The earnings of the Bank and, therefore, of the CorporationBMBC are affected by domestic economic conditions, particularly those conditions in the trade area as well as the monetary and fiscal policies of the United States government and its agencies.

•Safety and Soundness


The Federal Reserve Board also has authority to prohibit a bank holding company from engaging in any activity or transaction deemed by the Federal Reserve Board to be an unsafe or unsound practice. The payment of dividends could, depending upon the financial condition of the Bank or Corporation,BMBC, be such an unsafe or unsound practice and the regulatory agencies have indicated their view that it generally would be an unsafe and unsound practice to pay dividends except out of current operating earnings. The ability of the Bank to pay dividends in the future is presently and could be further influenced, among other things, by applicable capital guidelines discussed below or by bank regulatory and supervisory policies. The ability of the Bank to make funds available to the CorporationBMBC is also subject to restrictions imposed by federal law. The amount of other payments by the Bank to the CorporationBMBC is subject to review by regulatory authorities having appropriate authority over the Bank or CorporationBMBC and to certain legal limitations.

•Capital Adequacy


Federal and state banking laws impose on banks certain minimum requirements for capital adequacy. Federal banking agencies have issued certain “risk-based capital” guidelines, and certain “leverage” requirements on member banks such as the Bank. By policy statement, the Department of Banking Department also imposes those requirements on the Bank. Banking regulators have authority to require higher minimum capital ratios for an individual bank or bank holding company in view of its circumstances.

Minimum Capital Ratios: The risk-based guidelines require all banks to maintain three “risk-weighted assets” ratios. The first is a minimum ratio of total capital (“Tier I” and “Tier II” capital) to risk-weighted assets equal to 8.00%; the second is a minimum ratio of “Tier I” capital to risk-weighted assets equal to 6.00%; and the third is a minimum ratio of “Common Equity Tier I” capital to risk-weighted assets equal to 4.5%. Assets are assigned to five risk categories, with higher levels of capital being required for the categories perceived as representing greater risk. In making the calculation, certain intangible assets must be deducted from the capital base. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets.


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The risk-based capital rules also account for interest rate risk. Institutions with interest rate risk exposure above a normal level would be required to hold extra capital in proportion to that risk. A bank’sbank’s exposure to declines in the economic


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value of its capital due to changes in interest rates is a factor that the banking agencies will consider in evaluating a bank’s capital adequacy. The rule does not codify an explicit minimum capital charge for interest rate risk. Management currently monitors and manages its assets and liabilities for interest rate risk, and believes its interest rate risk practices are prudent and are in-line with industry standards. Management is not aware of any new or proposed rules or standards relating to interest rate risk that would materially adversely affect our operations.

The “leverage” ratio rules require banks which are rated the highest in the composite areas of capital, asset quality, management, earnings, liquidity and sensitivity to market risk to maintain a ratio of “Tier I” capital to “adjusted total assets” (equal to the bank’sbank’s average total assets as stated in its most recent quarterly Call Report filed with its primary federal banking regulator, minus end-of-quarter intangible assets that are deducted from Tier I capital) of not less than 4.00%.

For purposes of the capital requirements, “Tier I” or “core” capital is defined to include common stockholders’stockholders’ equity and certain noncumulative perpetual preferred stock and related surplus. “Tier II” or “qualifying supplementary” capital is defined to include a bank’s allowance for loan and lease losses up to 1.25% of risk-weighted assets, plus certain types of preferred stock and related surplus, certain “hybrid capital instruments” and certain term subordinated debt instruments. “Common Equity Tier I” capital is defined as the sum of common stock instruments and related surplus net of treasury stock, retained earnings, accumulated other comprehensive income, and qualifying minority interests.

In addition to the capital requirements discussed above, banks are required to maintain a “capital conservation buffer” above the regulatory minimum capital requirements, which must consist entirely of common equity Tier I capital.


The capital conservation buffer was beinghas been phased-in over four years beginninga four-year period, which began on January 1, 2016, as follows: the maximum buffer will bewas 0.625% of risk-weighted assets for 2016, 1.25% for 2017 and 1.875% for 2018, and 2.5% foreffective as of January 1, 2019, and thereafter. All of the U.S. banking regulators have delayed the last phase of the capital rules’ transition provisions relating to certain deductions from capital and limitations on the recognition of minority interests. The final rule, released on November 21, 2017, effectively freezes the currently applicable phase-in of the transition provisions for these capital requirements until separate rulemaking is finalized.

Institutionsconservation buffer has been fully phased in at 2.5%.


Institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The Bank’s and the Corporation’s regulators have the power to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier I capital to take into account the macro-financial environment and periods of excessive credit growth. However, this buffer is only applicable to “advanced approach banks” ( i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Corporation and the Bank.


The capital requirement rules, which were finalized in July 2013, implement revisions and clarifications consistent with Basel III regarding the various components of Tier I capital, including common equity, unrealized gains and losses, as well as certain instruments that no longer qualify as Tier I capital, some of which are being phased out over time. However, small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in Tier I or Tier II capital prior to May 19, 2010 in additional Tier I or Tier II capital until they redeem such instruments or until the instruments mature.

The Basel III final framework provides for a number of deductions from and adjustments to Common Equity Tier 1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from Common Equity Tier 1 to the extent that any one such category exceeds 10% of Common Equity Tier 1 or all such categories in the aggregate exceed 15% of Common Equity Tier 1.

In addition, smaller banking institutions (less than $250 billion in consolidated assets) were granted an opportunity to make a one-time election to opt out of including most elements of accumulated other comprehensive income in regulatory capital. Importantly, the opt-out excludes from regulatory capital not only unrealized gains and losses on available-for-saleavailable for sale debt securities, but also accumulated net gains and losses on cash-flow hedges and amounts attributable to defined benefit postretirement plans. The Corporation elected to opt-out, and indicated its election on the Call Report filed after January 1, 2015.

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Prompt Corrective Action


In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards. These proposals touched on such areas as commercial real estate exposure, credit loss allowances under generally accepted accounting principles, capital requirements for covered swap entities, among others. Public statements by key agency officials have also suggested a revisiting of capital policy and supervisory approaches on a going-forward basis. We will be assessing the impact on us of these new regulations and supervisory approaches as they are proposed and implemented.

In addition, the federal banking agencies have jointly issued a final rule whereby most qualifying community banking organizations with less than $10 billion in total consolidated assets that meet risk-based qualifying criteria and have a community bank leverage ratio (“CBLR”) of greater than 9 percent would be able to opt into a new CBLR framework. Such a

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community banking organization would not be subject to other risk-based and leverage capital requirements (including the Basel III and Basel IV requirements) and would be considered to have met the well capitalized ratio requirements. The CBLR is determined by dividing a financial institution’s tangible equity capital by its average total consolidated assets. The final rule further describes what is included in tangible equity capital and average total consolidated assets. An insured depository institution that opts into the CBLR and that subsequently ceases to meet any qualifying criteria in a future period and has a leverage ratio greater than 8% will be allowed a grace period of two reporting periods to satisfy the CBLR qualifying criteria or comply with the generally applicable capital requirements.  An insured depository institution that opts into the CBLR may opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rule.  Although we have not yet determined to opt into the CBLR framework, we will continue to analyze the framework and in the future may determine to opt into the framework, though there can be no assurances that we will be eligible to opt into the framework in the future, or that we will continue to be eligible for the CBLR framework if and when we opt into the CBLR framework. We are continuing to review how this and other capital rules and proposals might impact the operations of the Bank.

•Prompt Corrective Action
Federal banking law mandates certain “prompt corrective actions,” which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a Federally regulated depository institution falls. Regulations have been adopted by the Federal bank regulatory agencies setting forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution that is not adequately capitalized.


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Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized:”

(i)

a new common equity Tier I capital ratio of 6.5%;

(ii)

a Tier I capital ratio of 8% (increased from 6%);

(iii)

a total capital ratio of 10% (unchanged from current rules); and

(iv)

a Tier I leverage ratio of 5% (increased from 4%).

capitalized”:

(i)a new common equity Tier I capital ratio of 6.5%;
(ii)a Tier I capital ratio of 8%;
(iii)a total capital ratio of 10%; and
(iv)a Tier I leverage ratio of 5%.

An undercapitalized institution is required to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on the payment of dividends, a limitation on asset growth and expansion, and in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person”. Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’sinstitution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership. The Bank is currently regarded as “well capitalized” for regulatory capital purposes. See Note 2528, “Regulatory Capital Requirements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding the Bank’s and Corporation’sBMBC’s regulatory capital ratios.

•Gramm-Leach-Bliley Act


The Gramm-Leach-Bliley Act (“GLB Act”) repealed provisions of the Glass-Steagall Act, which prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’sother’s businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.

The GLB Act amended the Glass-Steagall Act to allow new “financial holding companies” (“FHC”) to offer banking, insurance, securities and other financial products to consumers. Specifically, the GLB Act amendsamended section 4 of the Act in order to provide for a framework for the engagement in new financial activities. A bank holding company may elect to become a financial holding company if all its subsidiary depository institutions are well-capitalized and well-managed. If these requirements are met, a bank holding company may file a certification to that effect with the Federal Reserve Board and declare that it elects to become aan FHC. After the certification and declaration is filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in nature or incidental to such financial activity. Bank holding companies may engage in financial activities without prior notice to the Federal Reserve

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Board if those activities qualify under the new list in section 4(k) of the Act. However, notice must be given to the Federal Reserve Board, within 30 days after the FHC has commenced one or more of the financial activities. The Corporation has not elected to become an FHC at this time.

Under the GLB Act, a bank subject to various requirements is permitted to engage through “financial subsidiaries” in certain financial activities permissible for affiliates of FHC’s.FHC’s. However, to be able to engage in such activities a bank must continue to be “well-capitalized” and well-managed“well-managed” and receive at least a “satisfactory” rating in its most recent Community Reinvestment Act examination.

•Community Reinvestment Act

and Fair Lending


The Community Reinvestment Act requires banks to help serve the credit needs of their communities, including providing credit to low and moderate income individuals and areas. Should the Bank fail to serve adequately the communities it serves, potential penalties may include regulatory denials to expand branches, relocate, add subsidiaries and affiliates, expand into new financial activities and merge with or purchase other financial institutions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau (the “CFPB”), the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and future prospects.

•Privacy of Consumer Financial Information


The GLB Act also contains a provision designed to protect the privacy of each consumer’sconsumer’s financial information in a financial institution. Pursuant to the requirements of the GLB Act, the Consumer Financial Protection Bureau has promulgated final regulations intended to better protect the privacy of a consumer’s financial information maintained inby financial institutions. The regulations are designed to prevent financial institutions, such as the Bank, from disclosing a consumer’s nonpublic personal information to third parties that are not affiliated with the financial institution.

However, financial institutions canmay share a customer’scustomer’s nonpublic personal information or information about business and corporations with their affiliated companies. The regulations also provide that financial institutions can disclose nonpublic personal information to nonaffiliated third parties for marketing purposes but the financial institution must provide a description of its privacy policies to theits consumers and give thesuch consumers an opportunity to opt-out of such disclosure and, thus, prevent disclosure by the financial institution of the consumer’s nonpublic personal information to nonaffiliated third parties.


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These privacy regulations will affect how consumer’s information is transmitted through diversified financial companies and conveyed to outside vendors. Management does not believe theThese privacy regulations will have not had a material adverse impact on itsthe Corporation's operations in the near term.

thus far.

•Consumer Protection Rules – Sale of Insurance Products


In addition, as mandated by the GLB Act, the regulatorsregulatory agencies have published consumer protection rules which apply to the retail sales practices, solicitation, advertising or offers of insurance products, including annuities, by depository institutions such as banks and their subsidiaries.

The rules provide that before the sale of insurance or annuity products can be completed, disclosures must be made that state (i) such insurance products are not deposits or other obligations of or guaranteed by the FDIC or any other agency of the United States, the Bank or its affiliates; and (ii) in the case of an insurance product that involves an investment risk, including an annuity, that there is an investment risk involved with the product, including a possible loss of value.

The rules also provide that the Bank may not condition an extension of credit on the consumer’sconsumer’s purchase of an insurance product or annuity from the Bank or its affiliates or on the consumer’s agreement not to obtain or a prohibition on the consumer obtaining an insurance product or annuity from an unaffiliated entity.


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The rules also require formal acknowledgement from the consumer that such disclosures have been received. In addition, to the extent practical, the Bank must keep insurance and annuity sales activities physically separate from the areas where retail banking transactions are routinely accepted from the general public.

•Sarbanes-Oxley Act


The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) addresses, among other matters, increased disclosures; audit committees; certification of financial statements by the principal executive officer and the principal financial officer; evaluation by management of our disclosure controls and procedures and our internal control over financial reporting; auditor reports on our internal control over financial reporting; forfeiture of bonuses and profits made by directors and senior officers in the twelve (12) month period covered by restated financial statements; a prohibition on insider trading during CorporationBMBC's stock blackout periods; disclosure of off-balance sheet transactions; a prohibition applicable to companies, other than federally insured financial institutions, on personal loans to their directors and officers; expedited filing of reports concerning stock transactions by a company’s directors and executive officers; the formation of a public accounting oversight board; auditor independence; and increased criminal penalties for violation of certain securities laws.

•USA PATRIOT Act of 2001


The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism. The USA PATRIOT Act and the regulations which implement it contain many obligations which must be satisfied by financial institutions, including the Bank. Those regulations impose obligations on financial institutions, such as the Bank, to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the financial institution.

•Government Policies and Future Legislation


As the enactment of the GLB Act and the Sarbanes-Oxley Act confirm, from time to time various laws are passed in the United States Congress as well as the Pennsylvania legislature and by various bank regulatory authorities which would alter the powers of, and place restrictions on, different types of banks and financial organizations. It is impossible to predict whether any potential legislation or regulations will be adopted and the impact, if any, of such adoption on the business of the CorporationBMBC or its subsidiaries, especially the Bank.


The Trump administration has indicated its intent toU.S. 2020 presidential election may bring changes to the U.S.national financial services industrypolicy and supervision. If a different political party gains control of the Executive Branch of the Federal government, such will very likely bring changes that we cannot now predict. Public commentsstatements by President Donald J. Trump, as well as his appointees at various federal agencies,some presidential candidates suggest that if a new political party takes control of the Executive Branch, such may suggest the Administration’s intent toresult in a change in policies and regulations that implement current federal law, including those implementinglaws that implement the Dodd-Frank Act. At this point we are unable to determine what impactAct, and otherwise affect the Trump Administration’s policyfinancial services industry. Such changes might have on the Corporation ormay result in increased compliance costs and burden for BMBC and its subsidiaries.


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•Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank“Dodd-Frank Act”)


The Dodd-Frank Act was passed by Congress on July 15, 2010, and was signed into law by President Obama on July 21, 2010. It is intended to promote financial stability in the U.S., reduce the risk of bailouts and protect against abusive financial services practices by improving accountability and transparency in the financial system and ending the concept of “too big to fail” institutions by giving regulators the ability to liquidate large financial institutions. It is the broadest overhaul of the U.S. financial system since the Great Depression and the overall impact on the CorporationBMBC and its subsidiaries is a general increase in costs related to compliance with the Dodd-Frank Act.

The Dodd-Frank Act has significantly changed the current bank regulatory structure and will affect into the immediate future the lending and investment activities and general operations of depository institutions and their holding companies.

As discussed earlier, the Dodd-Frank Act requires the Federal Reserve Board to establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required for insured depository institutions; the components of Tier I capital are restricted to capital instruments that are considered to be Tier I capital for insured depository institutions. In addition, the proceeds of trust preferred securities are excluded from Tier I capital unless (i) such securities are

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issued by bank holding companies with assets of less than $500 million or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.

The Dodd-Frank Act also created a new Consumer Financial Protection Bureau (the “CFPB”) with extensive powers to implement and enforce consumer protection laws. The Consumer Financial Protection BureauCFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks, among other things, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. However, institutions of less than $10 billion in assets, such as the Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their prudential regulators.

The Dodd-Frank Act made many other changes in banking regulation. These include allowing depository institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange fees and establishing a number of reforms for mortgage originations. Effective October 1, 2011, the debit-card interchange fee was capped at $0.21 per transaction, plus an additional 5 basis point charge to cover fraud losses. These fees are much lower than the current market rates. The regulation only impacts banks with assets above $10.0$10 billion.

The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to promulgate rules revising its assessment system so that it is based on the average consolidated total assets less tangible equity capital of an insured institution instead of deposits. That rule took effect April 1, 2011. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008.

Although many of the provisions of the Dodd-Frank Act are currently effective, there remain some regulations yet to be implemented. It is therefore difficult to predict at this time what impact the Dodd-Frank Act and implementing regulations will have on the CorporationBMBC and the Bank. The changes resulting from the Dodd-Frank Act could limit our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise materially and adversely affect us. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.

ITEM  1A.

RISK FACTORS

ITEM 1A.RISK FACTORS
Investment in the Corporation’sBMBC’s Common Stock involves risk. The market price of the Corporation’s Common Stock may fluctuate significantly in response to a number of factors including those that follow. The following list, which contains certain risks that may be unique to the Corporation and to the banking industry. The following list of risks should not be viewed as anindustry, is neither all-inclusive list ornor are the factors in any particular order.


Risks Related to Our Business
The Corporation’sCorporation’s performance and financial condition may be adversely affected by regional economic conditions and real estate values

values.

The Bank’sBank’s loan and deposit activities are largely based in eastern Pennsylvania. As a result, the Corporation’s consolidated financial performance depends largely upon economic conditions in this eastern Pennsylvania region. This region experienced deteriorating local economic conditions during 2008 through 2011, and a resumption of this deterioration in the regional real estate market could harm our financial condition and results of operations because of the geographic concentration of loans within this regional area and because a large percentage of our loans are secured by real property. If there is further decline in real estate values, the collateral for the Corporation’s loans will provide less security. As a result, the Corporation’s ability to recover on defaulted loans by selling the underlying real estate will be diminished, and the Bank will be more likely to suffer losses on defaulted loans.


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Additionally, a significant portion of the Corporation’sCorporation’s loan portfolio is invested in commercial real estate loans. Often in a commercial real estate transaction, repayment of the loan is dependent on rental income. Economic conditions may affect the tenant’s ability to make rental payments on a timely basis, andor may cause some tenants not to renew their leases, each of which may impact the debtor’s ability to make loan payments. Further, if expenses associated with commercial properties increase dramatically, the tenant’s ability to repay, and therefore the debtor’s ability to make timely loan payments, could be adversely affected.

All of these factors could increase the amount of the Corporation’sCorporation’s non-performing loans, increase its provision for loan and leasecredit losses and reduce the Corporation’s net income.


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 Climate change, severe weather, natural disasters, global health risks or pandemics, acts of war or terrorism, and other external events could significantly impact our business.

Natural disasters, including severe weather events of increasing strength and frequency due to climate change, global health risks or pandemics, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us or our customers. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional expenses.

Rapidly changing interest rate environment could reduce the Corporation’sCorporation’s net interest margin, net interest income, fee income and net income

income.

Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a significant part of the Corporation’sCorporation’s net income. Interest rates are key drivers of the Corporation’s net interest margin and subject to many factors beyond the control of the Corporation. As interest rates change, net interest income is affected. Rapidly increasing interest rates in the future could result in interest expenseexpenses increasing faster than interest income because of divergence in financial instrument maturities and/or competitive pressures. Further, substantially higher interest rates generally reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a negative effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net interest income. Also, changesChanges in interest rates might also impact the values of equity and debt securities under management and administration by the Wealth Management Division which may have a negative impact on fee income. See the section captioned “Net Interest Income” in the MD&A section of this Annual Report on Form 10-K for additional details regarding interest rate risk.

Economic troubles may negatively affect our leasing business

business.

The Corporation’sCorporation’s leasing business, which began operations in September 2006, consists of the nationwide leasing of various types of equipment to small- and medium-sized businesses. Continued economicEconomic sluggishness may result in higher credit losses than we would experience in our traditional lending business, as well as potential increases in state regulatory burdens such as state income taxes, personal property taxes and sales and use taxes.

A general economic slowdown could impact Wealth Management Division revenues

revenues.

A general economic slowdown couldmay cause current clients to seek alternative investment opportunities with other providers, which would decrease the value of Wealth Management DivisionDivision's assets under management and administration resulting in lower fee income to the Corporation.
Revenues from our capital markets business line may be adversely affected by adverse market or economic conditions.

Unfavorable financial or economic conditions have the ability to reduce the number and size of transactions in which we provide capital markets advisory and other advisory services.  Specifically, a number of our clients potentially seeking alternative investment opportunitiesengaging in capital markets and strategic and other types of transactions often rely on access to the equity and credit markets to finance their transactions.  A lack of available equity investments or credit or an increased cost of credit can adversely affect the size, volume and timing of these transactions by our clients. Because the revenues of our capital markets business are in the form of financial advisory other fees and are directly related to the number and size of the transactions in which we participate, a decrease in the number and size of transactions would adversely affect our capital markets business.

Our ability to attract and maintain customer and investor relationships depends largely on our reputation.

Damage to our reputation could undermine the confidence of our current and potential customers and investors in our ability to provide high-quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described in this report, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, customer personal information and privacy issues, customer and other third-party fraud, record-keeping, technology-related issues including but not limited to cyber fraud, regulatory investigations and any litigation that may arise from the failure or perceived failure to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on our brands and associated trademarks and our other

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intellectual property. Defense of our reputation, trademarks and other providers, whichintellectual property, including through litigation, could result in lower fee income to the Corporation.

costs that could have a material adverse effect on our business, financial condition, or results of operations.


If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could negatively affect our earnings.

Managing or servicing assets with reasonable prudence in accordance with the terms of governing documents and applicable laws is important to client satisfaction, which in turn is important to the earnings and growth of our investment businesses. Failure to comply with these standards, adequately manage these risks or manage the differing interests often involved in the exercise of fiduciary responsibilities could also result in liability.

Provision for loan and lease losses and level of non-performing loans may need to be modified in connection with internal or external changes

changes.

All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously loaned. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which represents the Corporation’sCorporation’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of the Corporation, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan losses reflects the Corporation’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different than those of the Corporation. An increase in the allowance for loan losses results in a decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our financial condition and results of operations.


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The design of the allowance for loan loss methodology is a dynamic process that must be responsive to changes in environmental factors. Accordingly, at times the allowance methodology may be modified in order to incorporate changes in various factors including, but not limited to, levels and trends of delinquencies and charge-offs, trends in volume and types of loans, national and economic trends and industry conditions.


Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the results of our operations.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offering Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Efforts in the United States to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. Uncertainty as to the nature of alternative reference rates and as to potential changes in other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures and trust preferred securities. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently and we may incur significant costs to transition both our borrowing arrangements and the loan agreements with our customers from LIBOR, which may have an adverse effect on our results of operations. Management’s transition plan includes a number of key work streams, including developing an inventory of financial instruments and contracts impacted by LIBOR; identifying and evaluating the scope of existing financial instruments and contracts that may be affected by the transition, and the extent to which such financial instruments and contracts already contain appropriate fallback language or would require amendment; conducting appropriate outreach to clients, as needed; and, risk management, among other things, to facilitate the transition to alternative reference rates.




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Potential acquisitions may disrupt the Corporation’sCorporation’s business and dilute shareholder value

value.

We regularly evaluate opportunities to advance our strategic objectives by opening new branches or offices or acquiring and investing in banks and in other complementary businesses, such as wealth advisory or insurance agencies, or opening new branches or offices.agencies. As a result, we may engage in negotiations or discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short and long-term liquidity. Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a purchase transaction, which could dilute current shareholders’ ownership interest. These activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not directly impact cash flow or tangible capital.

Our acquisition activities could involve a number of additional risks, including the risks of:

incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in the Corporation’s attention being diverted from the operation of our existing business;

using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets;

potential exposure to unknown or contingent liabilities of banks and businesses we acquire;

the time and expense required to integrate the operations and personnel of the combined businesses;

experiencing higher operating expenses relative to operating income from the new operations;

creating an adverse short-term effect on our results of operations;

losing key employees and customers as a result of an acquisition that is poorly received;

risk of significant problems relating to the conversion of the financial and customer data of the entity being acquired into the Corporation’s financial and customer product systems; and,

potential impairment of intangible assets created in business acquisitions.


There is no assurance that we will be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions. Our inability to overcome these risks could have an adverse effect on our levels of reported net income, return on average equity and return on average assets, and our ability to achieve our business strategy and maintain our market value.

Decreased residential mortgage origination, volume and pricing decisions of competitors could affect our net income.

income.

The Corporation originates, sells and services residential mortgage loans. Changes in interest rates and pricing decisions by our loan competitors affect demand for the Corporation’s residential mortgage loan products, the revenue realized on the sale of loans and revenues received from servicing such loans for others, ultimately reducing the Corporation’s net income. New regulations, increased regulatory reviews, and/or changes in the structure of the secondary mortgage markets which the Corporation utilizes to sell mortgage loans may be introduced and may increase costs and make it more difficult to operate a residential mortgage origination business.

Ourmortgage servicing rightscould become impaired, which may require us to take non-cash charges.

Because we retain the servicing rights on many loans we sell in the secondary market, we are required to record a mortgage servicing right asset, which we test quarterly for impairment. The value of mortgage servicing rights is heavily dependent on market interest rates and tends to increase with rising interest rates and decrease with falling interest rates. If we are required to record an impairment charge, it would adversely affect our financial condition and results of operations.

Accounting standards periodically change and the application of our accounting policies and methods may requiremanagementto make estimates about matters that are uncertain.
The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of
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our consolidated financial statements. The effect of such revised or new standards on our financial statements can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.
In addition, management must exercise judgment in appropriately applying many of our accounting policies and methods so they comply with generally accepted accounting principles. In some cases, management may have to select a particular accounting policy or method from two or more alternatives. In some cases, the accounting policy or method chosen might be reasonable under the circumstances and yet might result in our reporting materially different amounts than would have been reported if we had selected a different policy or method. Accounting policies are critical to fairly presenting our financial condition and results of operations and may require management to make difficult, subjective or complex judgments about matters that are uncertain.
FASB ASU 2016-13 will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.

Issued in June 2016, ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”), eliminates the Provision for Loan and Lease Losses (the “Provision”) and Allowance for Loan and Lease Losses (the “Allowance”) line items and establishes the Provision for Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.

Under the legacy “Incurred Loss” notion, management presents an Allowance intended to represent “probable and estimable” incurred but not yet realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific reserve is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical loss experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not allow for projections beyond the likely ‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in 2022 are not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.

In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for prepayment tendencies. Further, management’s specific expectations for the future economic environment must be incorporated in the projection, with loss expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable forecast. This valuation reserve will be established in the ACL and maintained through expense (provision) in the PCL. In the event that additional allocation is required to fund the ACL at adoption, investors will see a cumulative-effect (one-time) adjustment to retained earnings upon adoption of the new standard.

The new CECL standard became effective for the Corporation beginning January 1, 2020. Management is validating the Corporation's CECL model and methodologies, however we expect an initial increase to the ACL, including reserves for unfunded commitments, not to exceed 130% of the December 31, 2019 Allowance, or an incremental increase to the December 31, 2019 Allowance of approximately $6.8 million. When finalized, this one-time increase as a result of the adoption of CECL will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2020. This estimate is subject to change based on continuing refinement and validation of the model and methodologies. For more information regarding the CECL standard, see Note 2, “Recent Accounting Pronouncements” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Declines in asset values may result in impairment charges and may adversely affect the value of the Company’sCorporation’s results of operations, financial condition and cash flows.

A majority of the Corporation’sCorporation’s investment portfolio is comprised of securities which are collateralized by residential mortgages. These residential mortgage-backed securities include securities of U.S. government agencies, U.S. government-sponsored entities, and private-label collateralized mortgage obligations. The Corporation’s securities portfolio also includes obligations of U.S. government-sponsored entities, obligations of states and political subdivisions thereof, and equity securities. The fair value of investments may be affected by factors other than the underlying performance of the issuer or composition of the obligations themselves, such as rating downgrades, adverse changes in the business climate and a lack of liquidity for resale of certain investment securities. Quarterly, the Corporation evaluates investments and other assets for impairment indicators in accordance with U.S. GAAP. A decline in the fair value of the securities in our investment portfolio could result in an other-than temporary impairment (“OTTI”) write-down that would reduce our earnings. Further, givenGiven the significant judgments involved, if we are incorrect in our impairment assessment, of OTTI, this error could have a material adverse effect on our results of operation, financial condition, and cash flows. If the Corporation incurs OTTIimpairment charges that result in its falling below the “well capitalized” regulatory requirement, it may need to raise additional capital.

Accounting standards periodically change and Further, a decline in the applicationfair value of the securities in our accounting policies and methods may require management to make estimates about matters that are uncertain

The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements. Theinvestment portfolio could have a material adverse effect of such revised or new standards on our financial statements can be difficult to predict and can materially impact how we record and report ourresults of operation, financial condition, and resultscash flows.


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In addition, management must exercise judgment in appropriately applying many of our accounting policies and methods so they comply with generally accepted accounting principles. In some cases, management may have to select a particular accounting policy or method from two or more alternatives. In some cases, the accounting policy or method chosen might be reasonable under the circumstances and yet might result in our reporting materially different amounts than would have been reported if we had selected a different policy or method. Accounting policies are critical to fairly presenting our financial condition and results of operations and may require management to make difficult, subjective or complex judgments about matters that are uncertain.

The FASB’s recently adopted ASU 2016-13 will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.

           In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss model, or CECL. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan and lease losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

The new CECL standard will become effective for the Corporation for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. We are currently evaluating the impact the CECL model will have on our accounting, but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our financial condition or results of operations.

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Legal proceedings to which we are subject or may become subject may have a material adverse impact on our financial position and results of operations.

Like many banks and other financial services organizations in our industry, we are from time to time involved in various legal proceedings and subject to claims and other legal actions related to our business activities brought by customers, employees and others.others. All such legal proceedings are inherently unpredictable and, regardless of the merits of the claims, litigation is often expensive, time-consuming, disruptive to our operations and resources, and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our business. Similarly, if we settle such legal proceedings, it may affect our financial condition and how we operate our business. Future court decisions, alternative dispute resolution awards, matters arising due to business expansion, or legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial non-economic remedies or punitive damages may be sought. Although we maintain liability insurance coverage,coverage; there can be no assurance that such coverage will cover any particular verdict, judgment, or settlement that may be entered against us, that such coverage will prove to be adequate, or that such coverage will continue to remain available on acceptable terms, if at all. Legal proceedings to which we are subject or may become subject may have a material adverse impact on our financial position and results of operations.

A return to recessionary conditionsor a large and unexpected rise in interest ratescould result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Falling home prices and sharply reduced sales volumes, along with the collapse of the United States’States’ subprime mortgage industry in 2008 that followed a national home price peak in mid-2006, significantly contributed to a recession that officially lasted until June 2009, although the effects continued thereafter. Dramatic declines in real estate values and high levels of foreclosures resulted in significant asset write-downs by financial institutions, which caused many financial institutions to seek additional capital, to merge with other institutions and, in some cases, to fail. A return of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and a return to higher unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. A large or unexpected rise in interest rates could materially impact consumer and business ability to repay, thus increasing our level of nonperforming loans and reducing demand for loans. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.


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IncreasesIncreasesin FDIC insurance premiums may adversely affect the Corporation’s earnings

In response to the impact of economic conditions since 2008 on banks generally and on the FDIC Deposit Insurance Fund (the “DIF”), the FDIC changed its risk-based assessment system and increased base assessment rates. On November 12, 2009, the FDIC adopted a rule requiring banks to prepay three years’ worth of premiums to replenish the depleted insurance fund. earnings.

In February 2011, as required under the Dodd-Frank Act, the FDIC issued a ruling pursuant to whichthat changed the assessment base against which FDIC assessments for deposit insurance are made will change.made. Instead of FDIC insurance assessments being based upon an insured bank’s deposits, FDIC insurance assessments are now generally based on an insured bank’s total average assets minus average tangible equity. With this change, the Corporation expects that its overall FDIC insurance cost will decline. However, aA change in the risk categories applicable to the Corporation’sBMBC’s bank subsidiaries, further adjustments to base assessment rates, and any special assessments could have a material adverse effect on the Corporation.

The Dodd-Frank Act also requires that

In addition, should bank failures begin to increase in number or the FDIC take steps necessary toinsurance fund become depleted in others ways, FDIC premiums could increase the level of the DIF to 1.35% of total insured deposits by September 30, 2020. In October 2010, the FDIC adopted a Restoration Plan to achieve that goal. Certain elements of the Restoration Plan are left to future FDIC rulemaking, as are the potential for increases to the assessment rates, which may become necessary to achieve the targeted level of the DIF. Future FDIC rulemaking in this regard mayor additional special assessments could be imposed. These increased premiums would have a materialan adverse effect on the Corporation.

our net income and results of operations.

Thestabilityof other financial institutions could have detrimental effectson our routine funding transactions

transactions.

Routine funding transactions may be adversely affected by the actions and soundness of other financial institutions. Financial service institutions are interrelated as a result of trading, clearing, lending, borrowing or other relationships. Transactions are executed on a daily basis with different industries and counterparties, and routinely executed with counterparties in the financial services industry. As a result, a rumor, default or failures within the financial services industry could lead to market-wide liquidity problems which in turn could materially impact the financial condition of the Corporation.


The Corporation may need to raise additional capital in the future and such capital may not be available when needed or at all

all.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations and may need to raise additional capital in the future, whether in the form of debt or equity, to provide us with

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sufficient capital resources to meet our regulatory and business needs. We cannot assure you that such capital will be available to us on acceptable terms or at all. Our ability to raise additional capital will depend on, among other things, conditions in the capital markets at the time, which are outside of our control, and our financial condition. If the Corporation is unable to generate sufficient additional capital though its earnings, or other sources, including sales of assets, it would be necessary to slow earning asset growth and or pass up possible acquisition opportunities, which may result in a reduction of future net income growth. Further, an inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations. 

If sufficient wholesale funding to support earning-assetearning-asset growth is unavailable, the Corporation’s net income may decrease

decrease.

Management recognizes the need to grow both non-wholesale and wholesale funding sources to support earning asset growth and to provide appropriate liquidity. The Corporation’s asset growth over the past few years has been supplemented by various forms of wholesale funding which is defined as wholesale deposits (primarily wholesale certificates of deposit) and borrowed funds (FHLB advances,(Federal Home Loan Bank of Pittsburgh (“FHLB”), Federal advances and Federal fund line borrowings). Wholesale funding at December 31, 20172019 represented approximately 15.9%18.0% of total funding compared to 18.0%17.1% at December 31, 20162018 and 17.9%15.9% at December 31, 2015.2017. Wholesale funding is subject to certain practical limits such as the FHLB’s Maximum Borrowing Capacity and the Corporation’s liquidity targets. Additionally, regulators might consider wholesale funding beyond certain points to be imprudent and might suggest that future asset growth be reduced or halted.

In the absence of wholesale funding sources, the Corporation may need to reduce earning asset growth through the reduction of current production, sale of assets, and/or the participating out of future and current loans or leases. This in turn might reduce future net income of the Corporation.

The amount loaned to us is generally dependentdependent on the value of the collateral pledged and the Corporation’s financial condition. These lenders could reduce the percentages loaned against various collateral categories, eliminate certain types of collateral and otherwise modify or even terminate their loan programs, particularly to the extent they are required to do so because of capital adequacy or other balance sheet concerns, or if disruptions in the capital markets occur. Any change or termination of our borrowings from the FHLB, the Federal Reserve or correspondent banks may have an adverse effect on our liquidity and profitability.


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The capitalcapital and credit marketsarevolatileand could cause the price of our stock to fluctuate

fluctuate.

The capital and credit markets periodically experience volatility. In some cases, the markets may produce downward pressure on stock prices and credit availability for certain issuers seemingly without regard to those issuers’ underlying financial strength. Market volatility may result in a material adverse effect on our business, financial condition and results of operations and/or our ability to access capital. Several factors could cause the market price for our common stock to fluctuate substantially in the future, including without limitation:

announcements of developments related to our business, any of our competitors or the financial services industry in general;

fluctuations in our results of operations;

sales of substantial amounts of our securities into the marketplace;

general conditions in our markets or the worldwide economy;

a shortfall in revenues or earnings compared to securities analysts’ expectations;

changes in analysts’ recommendations or projections;

•

our announcement of new acquisitions or other projects; and

•compliance with regulatory changes.

our announcement of new acquisitions or other projects; and
compliance with regulatory changes.


Any failure of the Corporation andBMBC, the Bank or their subsidiaries to comply with federal and state regulatory requirements could adversely affect our business.

The Corporation

BMBC and the Bank are supervised by the FederalFederal Reserve Bank,Board, the Pennsylvania Department of Banking and Securities and the State of Delaware. Accordingly, the Corporation,BMBC, the Bank and our subsidiaries are subject to extensive federal and state legislation, regulation and supervision that governadministrative decisions imposing requirements and restrictions on almost all aspects of our

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business operations and which are primarily designed to protect consumers, depositors and the government's deposit insurance funds, and to accomplish other governmental policy objectives such as combating terrorism. That regulatory framework is not designed to protect shareholders. WeThese include, but are requirednot limited to, comply with a variety of laws and regulations, including the Bank Secrecy Act and anti-money laundering regulations, the USA PATRIOT Act, the Gramm Leach BlileyGLB Act, the Equal Credit Opportunity Act, regulations and sanctions programs administered by the Office of Foreign Assets Control, real estate-secured consumer lending regulations (such as Truth-in-Lending), Real Estate Settlement Procedures Act regulations, trust laws and regulations, and licensing and registration requirements for mortgage originators. Recentoriginators and potential future changesinsurance brokers. Federal and state banking regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and bank holding companies in the performance of their supervisory and enforcement duties.

Because our business is highly regulated, the laws, rules and regulations escalating regulatory expectationsapplicable to us are subject to regular modification and heightened regulatory attention to mortgage and foreclosure-related activities and exposureschange. Regulations affecting banks and other business practices requirefinancial institutions, such as the Dodd-Frank Act, are continuously reviewed and change frequently. For instance, the Dodd-Frank Act has changed the bank regulatory framework, created an independent consumer protection bureau that we devote substantial management attentionhas assumed the consumer protection responsibilities of the various federal banking agencies, and resources to regulatory compliance.established more stringent capital standards for banks and bank holding companies. The ultimate effect of such changes cannot be predicted. While the Corporation has policies and procedures designed to ensure compliance with regulatory requirements,the applicable laws, rule and regulations, there is risk that the CorporationBMBC and the Bank may be determined not to have complied with applicable requirements. Anyrequirements, and any failure, by the Corporation or the Bank to comply with these requirements, even if such failure was unintentional or inadvertent, could result in adverse action to be taken by regulators, including through formal or informal supervisory enforcement actions, and could result in the assessment of fines and penalties. In some circumstances, additional negative consequences also may result from regulatory action, including restrictions on the Corporation’s business activities, acquisitions and other growth initiatives. The occurrence of one or more of these events may have a material adverse effect on our business and reputation.


There is also no assurance that laws, rules and regulations will not be proposed or adopted in the future, which could (i) make compliance much more difficult or expensive, (ii) restrict our ability to originate, modify, broker or sell loans or accept certain deposits, (iii) restrict our ability to foreclose on property securing loans, (iv) further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by us, or (v) otherwise materially and adversely affect our business or prospects for business. These risks could affect our deposit funding and the performance and value of our loan and investment securities portfolios, which could negatively affect our financial performance and financial condition.
Previously enacted and potential future legislation, including legislation to reform the U.S. financial regulatory system, could adversely affect our business

With the 2016 U.S. presidential election resultingbusiness.

The change in a new President and a new political party controlling the Executive Branch of the Federal Government resulting from the new administration2016 U.S. presidential election has brought changes to laws and regulations of the U.S. financial services industry, including the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), and may continue to bring changes to the U.S. financial services industry that we cannot now predict. Public comments by President Donald J. Trump may suggest his intent to change policies and regulations that implement current federal law, including those implementingThe EGRRCPA, which amended the Dodd-Frank Act. At this point weAct, directed certain federal banking regulatory agencies, including the Federal Reserve, to take action to reduce the regulatory burden on certain banks and financial institutions. Federal banking regulatory agencies are unable to determine whatcurrently working on taking the actions congressionally mandated by the EGRRCPA; however,uncertainty about the timing and scope of any such changes as well as the cost of complying with a new regulatory regime, may negatively impact our business, at least in the Trump Administration’s policyshort-term, even if the long-term impact of any such changes might have on the Corporation or its subsidiaries.

are positive for our business.

Market conditions have resulted in the creation of various programs by the United States Congress, the Treasury, the Federal Reserve and the FDIC that were designed to enhance market liquidity and bank capital. As these programs expire, are withdrawn or reduced, the impact on the financial markets, banks in general and their customers is unknown. This could have the effect of, among other things, reducing liquidity, raising interest rates, reducing fee revenue, limiting the ability to raise capital, all of which could have an adverse impact on the financial condition of the Bank and the Corporation.

BMBC.

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Additionally, the federal government has passed a variety of other reforms related to banking and the financial industry including, without limitation, the Dodd-Frank Act. The Dodd-Frank Act imposesimposed significant regulatory and compliance changes. Effects of the Dodd-Frank Act on our business include:

●

changes to regulatory capital requirements;

●

exclusion of hybrid securities, including trust preferred securities, issued on or after May 19, 2010 from Tier I capital;

●

creation of new government regulatory agencies (such as the Financial Stability Oversight Council, which will oversee systemic risk, and the Consumer Financial Protection Bureau, which will develop and enforce rules for bank and non-bank providers of consumer financial products);

●

potential limitations on federal preemption;

●

changes to deposit insurance assessments;

●

regulation of debit interchange fees we earn;

●

changes in retail banking regulations, including potential limitations on certain fees we may charge; and

●

changes in regulation of consumer mortgage loan origination and risk retention.


changes to regulatory capital requirements;
exclusion of hybrid securities, including trust preferred securities, issued on or after May 19, 2010 from Tier I capital;

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creation of new government regulatory agencies (such as the Financial Stability Oversight Council, which will oversee systemic risk, and the Consumer Financial Protection Bureau, which will develop and enforce rules for bank and non-bank providers of consumer financial products);
potential limitations on federal preemption;
changes to deposit insurance assessments;
regulation of debit interchange fees we earn;
changes in retail banking regulations, including potential limitations on certain fees we may charge; and
changes in regulation of consumer mortgage loan origination and risk retention.

In addition, the Dodd-Frank Act restricts the ability of banks to engage in certain proprietary trading or to sponsor or invest in private equity or hedge funds,, commonly referred to as the VolkerVolcker Rule. The EGRRCPA provided an exemption from the Volcker Rule’s restrictions for banks with less than $10 billion in assets. The Dodd-Frank Act also contains provisions designed to limit the ability of insured depository institutions, their holding companies and their affiliates to conduct certain swaps and derivatives activities and to take certain principal positions in financial instruments.


Some provisions of the Dodd-Frank Act became effective immediately upon its enactment. Many provisions, however, require regulations to be promulgated by various federal agencies in order to be implemented, some of which have been proposed by the applicable federal agencies. The provisions of the Dodd-Frank Act may have unintended effects, which will not be clear until implementation. The changes resulting from the Dodd-Frank Act could limit our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise materially and adversely affect us. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.


The Consumer Financial Protection Bureau (“CFPB”) may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of depository institutions offering consumer financial products or services including the Bank.

The CFPB has broad rulemaking authority to administer and carry out the purposes and objectives of the “Federal consumer financial laws, and to prevent evasions thereof,” with respect to all financial institutions that offer financial products and services to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service (“UDAAP authority”). The potential reach of the CFPB’s broad rulemaking powers and UDAAP authority on the operations of financial institutions offering consumer financial products or services, including the Bank, is currently unknown.

Governmental discretionary policies may impact the operations and earnings of the Corporation and its subsidiaries

Corporation.

The operations of the Corporation and its subsidiaries are affected not only by general economic conditions, but also by the policies of various regulatory authorities. In particular, the Federal Reserve Board regulates monetary policy and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits. Federal Reserve Board monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future.


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Potential losses incurred in connection with possible repurchases and indemnification payments related to mortgages that we have sold into the secondary market may require us to increase our financial statement reserves in the future

future.

We engage in the origination and sale of residential mortgages into the secondary market. In connection with such sales, we make certain representations and warranties, which, if breached, may require us to repurchase such loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. These representations and warranties vary based on the nature of the transaction and the purchaser’s or insurer’s requirements, but generally pertain to the ownership of the mortgage loan, the real property securing the loan and compliance with applicable laws and applicable lender and government-sponsored entity underwriting guidelines in connection with the origination of the loan. While we believe our mortgage lending practices and standards to be adequate, we have settled a small number of claims we consider to be immaterial; however we may receive requests in the future, however, which could be material in volume. If that were to happen, we

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could incur losses in connection with loan repurchases and indemnification claims, and any such losses might exceed our financial statement reserves, requiring us to increase such reserves. In that event, any losses we might have to recognize and any increases we might have to make to our reserves could have a material adverse effect on our business, financial position, liquidity, results of operations or cash flows.

Our ability to realize our deferred tax asset may be reduced as a result of the tax reform legislation enacted in late 2017, which maycould adversely impact results of operations

operation and negatively affect our financial condition.

Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. The deferred tax asset may be reduced in the future if estimates of future income or our tax planning strategies do not support the amount of the deferred tax asset. If it is determined that a valuation allowance of its deferred tax asset is necessary, the Corporation may incur a charge to earnings.earnings. The value of our deferred tax asset is directly related to effectivethe income tax rates in effect at the time of uses.use. In late 2017, the U.S. Congress passed significant legislation reforming the Internal Revenue Code known as the Tax Cuts and Jobs Act of 2017 ("Tax Reform" or the “Tax Act”). On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Reform”), was signed into law. The Tax Reform,Act, among other changes, reducesreduced the U.S. federal corporate income tax rate from 35% to 21%. As a result of the Tax Reform,Act, the Corporation has recorded a provisional one-time tax expense of $15.2 million which consisted primarily ofone-time income tax charge related to the re-measurement of the Corporation’s net deferred tax assetsasset, triggered by the Tax Act, during the year ended December 31, 2017, and liabilities froma $2.6 million tax benefit recorded during the enacted federal rateyear ended December 31, 2018 for certain discrete items included on our 2017 tax return that was filed during the fourth quarter of 35% to 21%.

2018.

Environmental risk associated with our lending activities could affect our results of operations and financial condition

A significant portion of our loan portfolio iscondition.

Although we perform limited environmental due diligence in conjunction with originating loans secured by properties, we believe have environmental risk, we could be subject to environmental liabilities on real property. In the course of our business,estate properties we may own, acquire in bank acquisition such as the RBPI Merger, or foreclose upon and take title to real estate and could become subjectin the normal course of our business. In connection with environmental contamination, we may be held liable to environmental liabilities with respectgovernmental entities or to these properties. We may become responsible to a governmental agency or third parties for property damage, personal injury, investigation and clean-up costs incurred by thosethese parties, in connection with environmental contamination, or we may be required to investigate or clean-up hazardous or toxic substances or chemical releases at a property. The investigation or remediation costs associated with environmental investigation or remediationsuch activities could be substantial. IfFurthermore, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination even if we were to become subject tothe former owner of a contaminated site. The incurrence of a significant environmental liabilities, itliability could have a material adverse effectadversely affect our business, financial condition and results of operations. These risks are present even though we perform environmental due diligence on our resultscollateral properties. Such diligence may not reflect all current risks or threats, and unforeseen or unpredictable future events may cause a change in the environmental risk profile of operations and financial condition.

a property after a loan has been made.


Technological systems failures, interruptions and security breaches could negatively impact our operationsand reputation

reputation.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits, and our loans. While we have established policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, any compromise of our security systems could deter customers from using our web site and our online banking service, which involve the transmission of confidential information. Although we rely on commonly used security and processing systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

In addition, we outsource certain of our data processing to third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for customer transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any systems failure, interruption, or breach of security could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to civil litigation and possible financial liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.




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We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our customers and other institutions, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.

Our computer systems and network infrastructure and those of third parties, on which we are highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities, or identity theft. Our business relies on the secure processing, transmission, storage, and retrieval of confidential, proprietary, and other information in our computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products, and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.

We, our customers, regulators, and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of confidential, proprietary, and other information of ours, our employees, our customers, or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies, and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches. Cyber threats are rapidly evolving, and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Additionally, the existence of cyber attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.

Although to date we have not experienced any material losses or other material consequences relating to technology failure, cyber attacks or other information or security breaches, whether directed at us or third parties, there can be no assurance that we will not suffer such losses or other consequences in the future. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial intermediaries such as clearing agents, exchanges and clearing houses; vendors; regulators; and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses.

Cyber attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. A successful penetration or circumvention of system security could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our

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confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations and financial condition.

Failure to meet customer expectations for technology-driven products and services could reduce demand for bank and wealth services

services.

Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to market new technology-driven products and services. The ability to keep pace with technological change is important, and the failure to do so on our part could significantly reduce the number of new wealth and bank customers resulting in a material adverse impact on our business and therefore on our financial condition and results of operations.


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The Corporation is subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors

errors.

Employee errors and misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.

We maintain a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors and customer or employee fraud. Management diligently reviews and updates its internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, results of operations and financial condition.

Attractive acquisition opportunities may not be available to us in the futurewhich could limit the growth of our business

business.

We may not be able to sustain a positive rate of growth or be able to expand our business. We expect that other banking and financial service companies, many of which have significantly greater resources than us, will compete with us in acquiring other financial institutions if we pursue such acquisitions. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals for a transaction, we will not be able to consummate such transaction which we believe to be in our best interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Other factors, such as economic conditions and legislative considerations, may also impede or prohibit our ability to expand our market presence. If we are not able to successfully grow our business, our financial condition and results of operations could be adversely affected.

The financial services industry is very competitive,, especially in the Corporation’s market area,and such competition could affect our operating results

results.

The Corporation faces competition in attracting and retaining deposits, making loans, and providing other financial services such as trust and investment management services throughout the Corporation’sCorporation’s market area. The Corporation’s competitors include other community banks, larger banking institutions, trust companies and a wide range of other financial institutions such as credit unions, registered investment advisors, financial planning firms, leasing companies, government-sponsored enterprises, on-line banking enterprises, mutual fund companies, insurance companies and other non-bank businesses. Many of these competitors have substantially greater resources than the Corporation. This is especially evident in regardsregard to advertising and public relations spending. For a more complete discussion of our competitive environment, see “Business—“Description of Business and Competition” in Item 1 above. If the Corporation is unable to compete effectively, the Corporation may lose market share and income from deposits, loans, and other products may be reduced.

Additionally, increased competition among financial services companies due to consolidation of certain competing financial institutions and the conversion of certain investment banks to bank holding companies may adversely affect our ability to market our products and services.

The Corporation’s common stock is subordinate to all of our existing and future indebtedness; regulatory and contractual restrictions may limit or prevent us from paying dividends on our common stock; and we are not limited on the amount of indebtedness we and our subsidiaries may incur in the future

Our common stock ranks junior to all indebtedness, including our outstanding subordinated notes, junior subordinated debentures and other non-equity claims on the Corporation with respect to assets available to satisfy claims on the Corporation, including in a liquidation of the Corporation. Additionally, unlike indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of our common stock, dividends are payable only when, as and if authorized and declared by our Board of Directors and depend on, among other things, our results of operations, financial condition, debt service requirements, other cash needs and any other factors our Board of Directors deems relevant. Under Pennsylvania law we are subject to restrictions on payments of dividends out of lawfully available funds. Also, the Corporation’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

In addition, we are not limited by our common stock in the amount of debt or other obligations we or our subsidiaries may incur in the future. Accordingly, we and our subsidiaries may incur substantial amounts of additional debt and other obligations that will rank senior to our common stock or to which our common stock will be structurally subordinated.

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There may be future sales of additional common stock or other dilution of our equity, which may adversely affect the market price of our common stock

We are not restricted from issuing additional common stock or other securities. Additionally, our shareholders may in the future approve the authorization of additional classes or series of stock which may have distribution or other rights senior to the rights of our common stock, or may be convertible into or exchangeable for, or may represent the right to receive, common stock or substantially similar securities. The future issuance of shares of our common stock or any other such future equity classes or series could have a dilutive effect on the holders of our common stock. Additionally, the market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or any future class or series of stock in the market or the perception that such sales could occur.


Downgrades in U.S.governmentgovernment and federal agency securities could adversely affect the Corporation

InCorporation.

In addition to causing economic and financial market disruptions, any downgrades in U.S. government and federal agency securities, or failures to raise the U.S. debt limit if necessary in the future, could, among other things, have a materially adversely affectadverse effect on the market value of the U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our ability to access capital markets on favorable terms, as well as have other material adverse effects on the operation of our business and our financial results and condition. In particular, it could increase interest rates and disrupt payment systems, money markets, and long-term or short-term fixed income markets, adversely affecting the cost and availability of funding, which could negatively affect profitability. Also, the adverse consequences asof a result of the downgrade could extend to the borrowers of the loans the bank makes and, as a result, could adversely affect its borrowers’ ability to repay their loans.

The CorporationCorporationis dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the Corporation’sCorporation’s operations and prospects

prospects.

The Corporation currently depends on the services of a number of key management personnel. The loss of key personnel could materially and adversely affect the results of operations and financial condition. The Corporation’s success also depends in part on the ability to attract and retain additional qualified management personnel. Competition for such personnel is strong and the Corporation may not be successful in attracting or retaining the personnel it requires.

Additional risk factors also include


Risks Related to Ownership of Our Common Stock
The price of our common stock, like many of our peers, has fluctuated significantly over the following all ofrecent past and may fluctuate significantly in the future, which may reduce revenues and/make it difficult for you to resell your shares of common stock at times or increase expenses and/or pullat prices you find attractive.

Stock price volatility may make it difficult for holders of our common stock to resell their common stock when desired and at desirable prices. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

Inaccurate management decisions regarding the Corporation’s attention away from core banking operationsfair value of assets and liabilities acquired which may ultimately reduce the Corporation’s net income:

could materially affect our financial condition;

changes in securities analysts’ estimatesNatural disasters, fires, and severe weather;

Failure of financial performance;

internal controls;

volatility of stock market prices and volumes;

rumorsRumors or erroneous information;

changes in market valuesReliance on other companies to provide key components of similar companies;

our business processes;

new developmentsMeeting capital adequacy standards and the need to raise additional capital in the banking industry;

future if needed, including through future sales of our common stock;

Actual or anticipated variations in quarterly or annual operating results;

results of operations;

new litigationRecommendations by securities analysts;

Failure of securities analysts to cover, or continue to cover, us;
Operating and stock price performance of other companies that investors deem comparable to us;
News reports relating to trends, concerns and other issues in the financial services industry, including the failures of other financial institutions in the current economic downturn;
Perceptions in the marketplace regarding us and/or our competitors;
Departure of our management team or other key personnel;
New technology used, or services offered, by competitors;
Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
Failure to integrate acquisitions or realize anticipated benefits from acquisitions;

Table of Contents

Existing or increased regulatory and compliance requirements, changes or proposed changes in existing litigation;

laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations;

regulatoryGovernmental investigations and actions;

Changes in government regulations or restructuring of government-sponsoredgovernment sponsored enterprises such as Fannie Mae and Freddie Mac;

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.  

New litigation or changes in existing litigation; and
Geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results as evidenced by the current volatility and disruption of capital and credit markets.

We may reduce or discontinue the payment of dividends on common stock.

Our shareholders are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we currently pay quarterly dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. Our ability to pay dividends to our shareholders is subject to the restrictions set forth in Pennsylvania law, by the Federal Reserve, and by certain covenants contained in our subordinated debentures, and depends on, among other things, our results of operations, financial condition, debt service requirements, other cash needs and any other factors our Board of Directors deems relevant. Notification to the Federal Reserve is also required prior to our declaring and paying a cash dividend to our shareholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the Federal Reserve objects or until such time as we receive approval from the Federal Reserve or we no longer need to provide notice under applicable regulations. In addition, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends to our shareholders. We cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all. A reduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock.

Any decisions to suspend or discontinue our stock repurchase plan could cause the market price of our common stock to decline.

Although BMBC has previously repurchased its common stock pursuant to stock repurchase programs, our stock repurchase plan may be suspended or discontinued at any time. A suspension or discontinuation of our stock repurchase plan could cause the market price of our common stock to decline.  Additionally, the existence of a stock repurchase program could cause the market price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the liquidity of our stock.  As a result, any repurchase program may not ultimately result in enhanced value to our shareholders and may not prove to be the best use of our cash resources.

BMBC’s common stock is subordinate to all of our existing and future indebtedness; and we are not limited on the amount of indebtedness we and our subsidiaries may incur in the future.

Our common stock ranks junior to all indebtedness, including our outstanding subordinated notes, junior subordinated debentures and other non-equity claims on BMBC with respect to assets available to satisfy claims on BMBC, including in a liquidation of BMBC. BMBC’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In addition, we are not limited by our common stock in the amount of debt or other obligations we or our subsidiaries may incur in the future. Accordingly, we and our subsidiaries may incur substantial amounts of additional debt and other obligations that will rank senior to our common stock or to which our common stock will be structurally subordinated.

There may be future sales of additional common stock or other dilution of our equity, which may adversely affect the market price of our common stock.

We are not restricted from issuing additional common stock or other securities. Further, our shareholders may in the future approve the authorization of additional classes or series of stock which may have distribution or other rights senior to the rights of our common stock, or may be convertible into or exchangeable for, or may represent the right to receive, common
20
Table of Contents

ITEM 2.

PROPERTIES


stock or substantially similar securities. The future issuance of shares of our common stock or any other such future equity classes or series could have a dilutive effect on the holders of our common stock. Additionally, the market value of our common stock could decline as a result of sales by us of a large number of shares of common stock, or any future class or series of stock in the market, or the perception that such sales could occur.

ITEM 1B.UNRESOLVED STAFF COMMENTS
None.

ITEM 2.PROPERTIES

The Corporation’s headquarters are located at 801 Lancaster Ave, Bryn Mawr, Pennsylvania. As of December 31, 2017,2019, the Corporation owns or leases 37 full-service branchoperates banking locations, eight limited-hourincluding retirement home community branches, two limited-service branch locations, six wealth management offices, one insurance agency and eight other office properties which serve asrisk management locations, and administrative offices.

Theoffices in the following table detailscounties: Montgomery (14 leased, 7 owned), Chester (6 leased, 3 owned), Delaware (7 leased, 5 owned), Philadelphia (3 leased, 3 owned), and Dauphin (1 leased) Counties in Pennsylvania; New Castle County in Delaware (2 leased); and Mercer (2 leased) and Camden (1 leased) Counties in New Jersey. Management believes the Corporation’scurrent facilities are suitable for their present and intended purposes. For additional detail regarding our properties and deposits as of December 31, 2017:

Property Address

Owned/Leased

Full Service Branches (Banking Segment):

801 Lancaster Ave., Bryn Mawr, PA 19010*

Owned

105 W. 4th St., Bridgeport, PA 19405

Owned

3218 Edgemont Ave., Brookhaven, PA 19015

Owned

18 W. Eagle Rd., Havertown, PA 19083

Owned

655 W. DeKalb Pk., King of Prussia, PA 19406

Owned

22 W. State St., Media, PA 19063

Owned

732 Montgomery Ave., Narberth, PA 19072

Owned

39 W. Lancaster Ave., Paoli, PA 19301

Owned

6331 Castor Ave., Philadelphia, PA 19149

Owned

1650 Grant Ave., Philadelphia, PA 19115

Owned

330 Dartmouth Ave., Swarthmore, PA 19081

Owned

330 E. Lancaster Ave., Wayne, PA 19087

Owned

50 W. Lancaster Ave., Ardmore, PA 19003

Leased

5000 Pennell Rd., Aston, PA 19014

Leased

135 E. City Ave., Bala Cynwyd, PA 19004

Leased

1651 Blackwood Clementon Rd., Blackwood, NJ 08012

Leased

599 Skippack Pk., Blue Bell, PA 19422

Leased

US Rts. 1 and 100, Chadds Ford, PA 19317

Leased

23 E. Fifth St., Chester, PA 19013

Leased

31 Baltimore Pk., Chester Heights, PA 19017

Leased

528 Fayette St., Conshohocken, PA 19428

Leased

113 W. Germantown Pk., East Norriton, PA 19401

Leased

237 N. Pottstown Pk., Exton, PA 19341

Leased

106 E. Street Rd., Kennett Square, PA 19348

Leased

197 E. DeKalb Pk., King of Prussia, PA 19406

Leased

33 W. Ridge Pk., Limerick, PA 19468

Leased

21

3601 West Chester Pk., Newtown Square, PA 19073

Leased

7133 Ridge Ave., Philadelphia, PA 19128

Leased

180 W. Girard Ave., Philadelphia, PA 19123

Leased

1230 Walnut St., Philadelphia, PA 19107

Leased

124 Main St., Phoenixville, PA 19460

Leased

516 E. Lancaster Ave., Shillington, PA 19607

Leased

795 E. Lancaster Ave., Villanova, PA 19085

Leased

849 Paoli Pk., West Chester, PA 19380

Leased

436 Egypt Rd., West Norriton, PA 19428

Leased

155 York Rd., Willow Grove, PA 19046

Leased

1000 Rocky Run Parkway, Wilmington, DE 19803

Leased

Life Care Community Offices (Banking Segment):

10000 Shannondell Dr., Audubon, PA 19403

Leased

404 Cheswick Pl., Bryn Mawr, PA 19010

Leased

601 N. Ithan Ave., Bryn Mawr, PA 19010

Leased

1400 Waverly Rd., Gladwyne, PA 19035

Leased

3300 Darby Rd., Haverford, PA 19041

Leased

11 Martins Run, Media, PA 19063

Leased

535 Gradyville Rd., Newtown Square, PA 19073

Leased

1615 E. Boot Rd., West Chester, PA 19380

Leased

Limited Service Branches (Banking Segment):

20 Montchanin Rd., Suite 185 Greenville, DE 19807**

Leased

20 Nassau St., 100A, Princeton, NJ

Leased

Other Administrative Offices (Banking and Wealth Management Segments)

10 S. Bryn Mawr Ave., Bryn Mawr, PA 19010***

Owned

322 E. Lancaster Ave., Wayne, PA 19087

Owned

2, 6 S. Bryn Mawr Ave., Bryn Mawr, PA 19010

Leased

4093 W. Lincoln Hwy., Exton, PA 19341**

Leased

16 Campus Blvd., Newtown Square, PA 19073**

Leased

1 West Chocolate Ave., Hershey, PA 17033***

Leased

        620 W. Germantown Pk., Plymouth Mtg, PA 19462**

Leased

       20 North Waterloo Rd., Devon PA 19380***

Leased

22

15 Garrett Ave, Rosemont, PA 19010****

Leased

14 E Highland Ave., Philadelphia, PA 19118****

Leased

47 Hulfish St. 400, Princeton, NJ***

Leased

115 West Ave., Jenkintown, PA

Leased

3411 Silverside Rd., #103 Springer, Wilmington, DE

Leased

Subsidiary Offices (Wealth Management Segment):

Lau Associates - 20 Montchanin Rd., Suite 110, Greenville, DE 19087

Leased

BMTC-DE - 20 Montchanin Rd., Suite 100 Greenville, DE 19807

Leased

*Corporate headquartersequipment, See Note 6, “Premises and executive offices

 **Lending office

***    Wealth Management office

**** Insurance Agency

ITEM  3.

LEGAL PROCEEDINGS

On April 11, 2017, Paul Parshall, a purported shareholder of Royal Bancshares of Pennsylvania, Inc., filed a purported class action lawsuit (the “Parshall lawsuit”)Equipment,” in the U.S. District Court foraccompanying Notes to the Eastern District of Pennsylvania (the “Court’) against RBPIConsolidated Financial Statements in this Annual Report on Form 10-K.


Business locations and the Corporation.  Mr. Parshall alleged that the Corporation, as a “control person” of RBPI, should be liable for what he claimed to be inadequate disclosures in the proxy statement/prospectus RBPI sent to its shareholders in connection with soliciting approval ofhours are available on the Corporation’s acquisition of RBPI.  Mr. Parshall did not articulate any monetary damages in his complaint, but sought the right to prevent the Corporation’s acquisition of RBPI (or in the alternative, if it does proceed, rescind it or award rescissory damages), an order for an amended proxy statement/prospectus, a declaratory judgment that the defendants, including the Corporation, violated federal securities laws, and unspecified attorney's fees and litigation costs.  On September 28, 2017, the Court approved a joint stipulation dismissing as “moot” the Parshall lawsuit with prejudice as to Mr. Parshall’s claims and without prejudice as to the putative class.  Management considers this matter closed.

website at www.bmt.com.


ITEM 3.LEGAL PROCEEDINGS
The information required by this Item is set forth in the “Legal Matters” discussion in Note 23, “Contingencies”25, “Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K, which is included in Item 8 of this Report, and which is incorporated herein by reference in response to this Item.

ITEM  4.

MINE SAFETY DISCLOSURES


ITEM 4.MINE SAFETY DISCLOSURES
Not Applicable.


Table of Contents

PART II

ITEM  5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Corporation’s common stock of BMBC is traded on the NASDAQ Stock Market under the symbol BMTC. As of February 23, 201820, 2020, there were 763815 holders of record of the Corporation’sBMBC’s common stock.

During 2019, the Corporation declared and paid quarterly cash dividends on shares of its common stock. The following table sets forth the range of high and low sales pricesCorporation currently expects that it will continue to pay comparable quarterly cash dividends for the common stock for each full quarterly period withinforeseeable future, subject to the two most recent fiscal years as well as the quarterly dividends paid.

  

2017

  

2016

 
  

High

  

Low

  

Dividend

Declared

  

High

  

Low

  

Dividend

Declared

 

1st Quarter

 $42.60  $36.80  $0.21  $29.18  $23.92  $0.20 

2nd Quarter

 $43.85  $38.50  $0.21  $30.53  $24.83  $0.20 

3rd Quarter

 $44.40  $38.75  $0.22  $32.50  $28.13  $0.21 

4th Quarter

 $46.55  $41.40  $0.22  $42.45  $29.50  $0.21 

The information regarding dividend restrictions is set forthlimitations described in Note 24 – “Dividend Restrictions” in the accompanying Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

23
Table“Federal Reserve Board and Pennsylvania Department of ContentsBanking and Securities Regulation” at page 8.

Comparison of Cumulative Total Return Chart


The following chart compares the yearly percentage change in the cumulative shareholder return on the Corporation’sCorporation’s common stock during the five years ended December 31, 2017,2019, with (1) the Total Return of the NASDAQ Community Bank Index; (2) the Total Return of the NASDAQ Market Index; (3) the Total Return of the SNL Bank and Thrift Index; and (4) the Total Return of the SNL Mid-Atlantic Bank Index. This comparison assumes $100.00 was invested on December 31, 2012,2014, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends.

chart-42ee520abdd9585ebd3.jpg

Five Year Cumulative Return Summary

 
  

As of December 31,

 
  

2012

  

2013

  

2014

  

2015

  

2016

  

2017

 
                         

Bryn Mawr Bank Corporation

 $100.00  $139.27  $148.16  $139.62  $210.83  $225.62 
                         

NASDAQ Community Bank Index

 $100.00  $141.68  $148.28  $162.44  $225.41  $231.20 
                         

NASDAQ Market Index

 $100.00  $140.12  $160.78  $171.97  $187.22  $242.71 
                         

SNL Bank and Thrift

 $100.00  $136.92  $152.85  $155.94  $196.86  $231.49 
                         

SNL Mid-Atlantic Bank

 $100.00  $134.79  $146.85  $152.36  $193.66  $237.34 



Table of Contents

Five Year Cumulative Return Summary
 As of December 31,
 2014 2015 2016 2017 2018 2019
Bryn Mawr Bank Corporation$100.00
 $94.23
 $142.30
 $152.28
 $121.07
 $149.13
NASDAQ Community Bank Index$100.00
 $109.55
 $152.01
 $155.92
 $132.65
 $163.60
NASDAQ Market Index$100.00
 $106.96
 $116.45
 $150.96
 $146.67
 $200.49
SNL Bank and Thrift$100.00
 $102.02
 $128.80
 $151.45
 $125.81
 $170.04
SNL Mid-Atlantic Bank$100.00
 $103.75
 $131.87
 $161.62
 $138.10
 $196.39
Equity Compensation Plan Information


The information set forth under the caption “Equity Plan Compensation Information” in the 20182020 Proxy Statement is incorporated by reference herein. Additionally, equity compensation plan information is incorporated by reference to Item 12 of this Annual Report on Form 10-K. Additional information regarding the Corporation’s equity compensation plans can be found at Note 20 –21, “Stock-Based Compensation”Compensation,” in the accompanying Notes to the Consolidated Financial Statements found in this Annual Report on Form 10-K.


24

•Issuer Purchases of Equity Securities

The following tables present the repurchasing activity of the Corporation during the fourth quarter of 2017:

2019:

Shares Repurchased in the 4thQuarter of2017

Period:

 

Total
Number  of
Shares
Purchased 

  

Average
Price Paid
per  Share 

  

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs 

  

Maximum Number of
Shares that May Yet Be
Purchased Under the
Plan or Programs(1) 

 

Oct. 1, 2017 – Oct. 31, 2017(2)

  610  $44.65   —   189,300 

Nov. 1, 2017 – Nov. 30, 2017

  —   —   —   189,300 

Dec. 1, 2017 – Dec. 31, 2017(3)

  400  $44.36   —   189,300 

Total

  1,010  $44.54   —   189,300 

2019
Period
Total Number of Shares Purchased(1)(2)
 Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)
 
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
October 1, 2019 – October 31, 2019—
 $—
 —
 917,233
November 1, 2019 – November 30, 2019—
 —
 —
 917,233
December 1, 2019 – December 31, 20192,203
 38.85
 —
 917,233
Total2,203
 $38.85
 —
 


(1)

(1)On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million. There is no expiration date on the 2015 Program and the Corporation has no plans for an early termination of the 2015 Program. During the three months ended December 31, 2017, no repurchases occurred under2019, 894 shares were purchased by the 2015 Program. As of December 31, 2017, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.

Corporation’s deferred compensation plans through open market transactions.

(2)

On October 5, 2017, 610

(2)Includes shares were purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation.

BMBC or Bank as follows: 656 shares on December 16, 2019 and 653 shares on December 27, 2019.

(3)

(3)On December 29, 2017, 400April 18, 2019, BMBC announced a new stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. All share repurchases during the period presented under the 2019 Program were purchased by the Corporation’s deferred compensation plans throughaccomplished in open market transactions.

As of December 31, 2019, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 917,233, at an aggregate purchase price not to exceed $42.0 million.


25
Table of Contents

ITEM  6.

SELECTED FINANCIAL DATA

Earnings

 

As of or for the Twelve Months Ended December 31,

(dollars in thousands)

 

2017

 

2016

 

2015

 

2014

 

2013

Interest income

  

$

129,559

 

  

$

116,991

 

  

$

108,542

 

  

$

82,906

 

  

$

78,417

 

Interest expense

  

14,432

   

10,755

   

8,415

   

6,078

   

5,427

 

Net interest income

  

115,127

   

106,236

   

100,127

   

76,828

   

72,990

 

Provision for loan and lease losses

  

2,618

   

4,326

   

4,396

   

884

   

3,575

 

Net interest income after provision for loan and lease losses

  

112,509

   

101,910

   

95,731

   

75,944

   

69,415

 

Non-interest income

  

59,132

   

53,968

   

55,785

   

48,223

   

48,283

 

Non-interest expense

  

114,395

   

101,674

   

125,590

   

81,319

   

80,668

 

Income before income taxes

  

57,246

   

54,204

   

25,926

   

42,848

   

37,030

 

Income taxes

  

34,230

   

18,168

   

9,172

   

15,005

   

12,586

 

Net Income

 

$

23,016

  

$

36,036

  

$

16,754

  

$

27,843

  

$

24,444

 
                     

Per Share Data

   

   

   

   

   

   

   

   

    

Weighted-average shares outstanding

  

17,150,125

   

16,859,623

   

17,488,325

   

13,566,239

   

13,311,215

 

Dilutive potential Common Stock 

  

248,798

   

168,499

   

267,996

   

294,801

   

260,395

 

Adjusted weighted-average shares

  

17,398,923

   

17,028,122

   

17,756,321

   

13,861,040

   

13,571,610

 

Earnings per common share:

                    

Basic

 

$

1.34

  

$

2.14

  

$

0.96

  

$

2.05

  

$

1.84

 

Diluted

 

$

1.32

  

$

2.12

  

$

0.94

  

$

2.01

  

$

1.80

 

Dividends declared

 

$

0.86

  

$

0.82

  

$

0.78

  

$

0.74

  

$

0.69

 

Dividends declared per share to net income per basic common share

  

59.79

%

  

38.3

%

  

81.3

%

  

36.1

%

  

37.5

%

Shares outstanding at year end

  

20,161,395

   

16,939,715

   

17,071,523

   

13,769,336

   

13,650,354

 

Book value per share

 

$

26.19

  

$

22.50

  

$

21.42

  

$

17.83

  

$

16.84

 

Tangible book value per share

 

$

15.98

  

$

15.11

  

$

13.89

  

$

13.59

  

$

13.02

 
                     

Profitability Ratios

                    

Tax-equivalent net interest margin

  

3.69

%

  

3.76

%

  

3.75

%

  

3.93

%

  

3.98

%

Return on average assets

  

0.67

%

  

1.16

%

  

0.57

%

  

1.32

%

  

1.23

%

Return on average equity

  

5.76

%

  

9.75

%

  

4.49

%

  

11.56

%

  

11.53

%

Non-interest expense to net interest income and non-interest income

  

65.6

%

  

63.5

%

  

80.6

%

  

65.0

%

  

66.5

%

Non-interest income to net interest income and non-interest income

  

33.9

%

  

33.7

%

  

35.8

%

  

38.6

%

  

39.8

%

Average equity to average total assets

  

11.69

%

  

11.90

%

  

12.68

%

  

11.38

%

  

10.63

%

                     

Financial Condition

                    

Total assets

 

$

4,449,720

  

$

3,421,530

  

$

3,030,997

  

$

2,246,506

  

$

2,061,665

 

Total liabilities

  

3,921,601

   

3,040,403

   

2,665,286

   

2,001,032

   

1,831,767

 

Total shareholders’ equity

  

528,119

   

381,127

   

365,711

   

245,474

   

229,898

 

Interest-earning assets

  

4,039,763

   

3,153,015

   

2,755,506

   

2,092,164

   

1,905,398

 

Portfolio loans and leases

  

3,285,858

   

2,535,425

   

2,268,988

   

1,652,257

   

1,547,185

 

Investment securities

  

701,744

   

573,763

   

352,916

   

233,473

   

289,245

 

Goodwill

  

179,889

   

104,765

   

104,765

   

35,502

   

32,843

 

Intangible assets

  

25,966

   

20,405

   

23,903

   

22,998

   

19,365

 

Deposits

  

3,373,798

   

2,579,675

   

2,252,725

   

1,688,028

   

1,591,347

 

Borrowings

  

496,837

   

423,425

   

378,509

   

283,970

   

216,535

 

Wealth assets under management, administration, supervision and brokerage

  

12,968,738

   

11,328,457

   

8,364,805

   

7,699,908

   

7,268,273

 
                     

Capital Ratios

                    

Tier I leverage ratio (Tier I capital to total quarterly average assets)

  

10.04

%

  

8.73

%

  

9.02

%

  

9.54

%

  

9.29

%

Tier I capital to risk weighted assets

  

10.36

%

  

10.51

%

  

10.72

%

  

12.00

%

  

11.57

%

Total regulatory capital to risk weighted assets

  

13.85

%

  

12.35

%

  

12.61

%

  

12.87

%

  

12.55

%

                     

Asset quality

                    

Allowance as a percentage of portfolio loans and leases

  

0.53

%

  

0.69

%

  

0.70

%

  

0.88

%

  

1.00

%

Non-performing loans and leases as a % of portfolio loans and leases

  

0.26

%

  

0.33

%

  

0.45

%

  

0.61

%

  

0.68

%


ITEM 6.SELECTED FINANCIAL DATA
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EarningsAs of or for the Year Ended December 31,
(dollars in thousands)2019 2018 2017 2016 2015
Interest income$193,389
 $181,055
 $129,559
 $116,991
 $108,542
Interest expense45,748
 31,584
 14,432
 10,755
 8,415
Net interest income147,641
 149,471
 115,127
 106,236
 100,127
Provision for loan and lease losses8,507
 7,193
 2,618
 4,326
 4,396
Net interest income after provision for loan and lease losses139,134
 142,278
 112,509
 101,910
 95,731
Noninterest income82,184
 75,982
 59,132
 53,968
 55,785
Noninterest expense146,515
 140,303
 114,395
 101,674
 125,590
Income before income taxes74,803
 77,957
 57,246
 54,204
 25,926
Income taxes15,607
 14,165
 34,230
 18,168
 9,172
Net income$59,196
 $63,792
 $23,016
 $36,036
 $16,754
Net loss income attributable to noncontrolling interest(10) —
 —
 —
 —
Net income attributable to Bryn Mawr Bank Corporation$59,206
 $63,792
 $23,016
 $36,036
 $16,754
Per Share Data
         
Weighted-average shares outstanding20,142,306
 20,234,792
 17,150,125
 16,859,623
 17,488,325
Dilutive potential common stock 91,065
 155,375
 248,798
 168,499
 267,996
Adjusted weighted-average shares20,233,371
 20,390,167
 17,398,923
 17,028,122
 17,756,321
Earnings per common share:         
Basic$2.94
 $3.15
 $1.34
 $2.14
 $0.96
Diluted2.93
 3.13
 1.32
 2.12
 0.94
Dividends paid or accrued1.02
 0.94
 0.86
 0.82
 0.78
Dividends paid or accrued per share to net income per basic common share34.69% 29.8% 64.2% 38.3% 81.3%
Shares outstanding at year end20,126,296
 20,163,816
 20,161,395
 16,939,715
 17,071,523
Book value per share$30.42
 $28.01
 $26.19
 $22.50
 $21.42
Tangible book value per share20.36
 17.75
 16.02
 15.11
 13.89
Profitability Ratios
         
Tax-equivalent net interest margin3.55% 3.80% 3.69% 3.76% 3.75%
Return on average assets1.26
 1.47
 0.67
 1.16
 0.57
Return on average equity10.05
 11.78
 5.76
 9.75
 4.49
Noninterest expense to net interest income and noninterest income63.8
 62.2
 65.6
 63.5
 80.6
Noninterest income to net interest income and noninterest income35.8
 33.7
 33.9
 33.7
 35.8
Average equity to average total assets12.57
 12.44
 11.69
 11.90
 12.68
Financial Condition         
Total assets$5,263,259
 $4,652,485
 $4,449,720
 $3,421,530
 $3,030,997
Total liabilities4,651,032
 4,087,781
 3,921,601
 3,040,403
 2,665,286
Total shareholders’ equity612,227
 564,704
 528,119
 381,127
 365,711
Interest-earning assets4,763,072
 4,216,888
 4,039,763
 3,153,015
 2,755,506
Portfolio loans and leases3,689,313
 3,427,154
 3,285,858
 2,535,425
 2,268,988
Investment securities1,027,182
 753,628
 701,744
 573,763
 352,916
Goodwill184,012
 184,012
 179,889
 104,765
 104,765
Intangible assets19,131
 23,455
 25,966
 20,405
 23,903
Deposits3,842,245
 3,599,087
 3,373,798
 2,579,675
 2,252,725
Borrowings665,946
 427,847
 496,837
 423,425
 378,509
Wealth assets under management, administration, supervision and brokerage16,548,060
 13,429,544
 12,968,738
 11,328,457
 8,364,805
Capital Ratios         
Tier I leverage ratio (Tier I capital to total quarterly average assets)9.33% 9.06% 10.10% 8.73% 9.02%
Tier I capital to risk weighted assets11.42
 10.92
 10.42
 10.51
 10.72
Total regulatory capital to risk weighted assets14.69
 14.30
 13.92
 12.35
 12.61
Asset quality         
Allowance as a percentage of portfolio loans and leases0.61
 0.57
 0.53
 0.69
 0.70
Non-performing loans and leases as a % of portfolio loans and leases0.29
 0.37
 0.26
 0.33
 0.45

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Information related to business combinations and accounting changes may be found under the captionscaption “Nature of Business” at Note 1, “Summary of Significant Accounting Policies, – Nature of Business” at” and Note 1-A and2, “Recent Accounting Pronouncements” at Note 1-W,Pronouncements,” respectively, in the accompanying Notes to the Consolidated Financial Statements found in this Annual Report on Form 10-K.

ITEM  7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS (“MD&A”)

Management’s


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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS (“MD&A”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Brief History of the Corporation


Brief History of the Corporation

The Bryn Mawr Trust Company (the “Bank”“Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”(“BMBC”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation.BMBC. The Bank and CorporationBMBC are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The CorporationBMBC and its direct and indirect subsidiaries (collectively, the “Corporation”) offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from 37 full-service branches, eight limited-hour retirement community offices, two limited-service branches, six43 banking locations, seven wealth management offices and a full-servicetwo insurance agency located throughoutand risk management locations in the following counties: Montgomery, Chester, Delaware, Chester, Philadelphia, Berks, and Dauphin countiesCounties in Pennsylvania,Pennsylvania; New Castle County in Delaware; and Mercer and Camden counties ofCounties in New Jersey, and New Castle county in Delaware.Jersey. The common stock of the CorporationBMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The CorporationBMBC and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“(“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Pennsylvania Department of Banking and Securities.Securities (the “Department of Banking”). The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

Since January 1, 2010,, the Corporation and Bank completed the following nineten acquisitions:

●

Royal Bancshares of Pennsylvania, Inc. (“RBPI”) – December 15, 2017 (the “RBPI Merger”)

●

Harry R. Hirshorn & Company, Inc. (“Hirshorn”) – May 24, 2017

●

Robert J. McAllister Agency, Inc. (“RJM”) – April 1, 2015

●

Continental Bank Holdings, Inc. (“CBH”) – January 1, 2015 (the “CBH Merger”)

●

Powers Craft Parker and Beard, Inc. (“PCPB”) – October 1, 2014

●

First Bank of Delaware (“FBD”) – November 17, 2012

●

Davidson Trust Company (“DTC”) – May 15, 2012

●

The Private Wealth Management Group of the Hershey Trust Company (“PWMG”) – May 11, 2011

●

First Keystone Financial, Inc. (“FKB”) – July 1, 2010


Domenick & Associates (“Domenick”) - May 1, 2018
Royal Bancshares of Pennsylvania, Inc. ("RBPI") - December 15, 2017 (the "RBPI Merger")
Harry R. Hirshorn & Company, Inc. ("Hirshorn") - May 24, 2017
Robert J. McAllister Agency, Inc. ("RJM") - April 1, 2015
Continental Bank Holdings, Inc. ("CBH") - January 1, 2015 (the CBH Merger)
Powers Craft Parker and Beard, Inc. ("PCPB") - October 1, 2014
First Bank of Delaware ("FBD") - November 17, 2012
Davidson Trust Company ("DTC") - May 15, 2012
The Private Wealth Management Group of the Hershey Trust Company ("PWMG") - May 11, 2011
First Keystone Financial, Inc. ("FKB") - July 1, 2010

For a more complete discussion regarding certain of these acquisitions, see Item 1 – Business – Business Combinations beginning at page 15 in this Form 10-K.


Results of Operations

The following is management’s discussion and analysis of the significant changes in the financial condition, results of operations, capital resources and liquidity presented in the accompanying Consolidated Financial Statements. The Corporation’s consolidated financial condition and results of operations are comprised primarily of the Bank’s financial condition and results of operations. Current performance does not guarantee, and may not be indicative of, similar performance in the future. For more information on the factors that could affect performance, see “Special Cautionary Notice Regarding Forward Looking Statements” immediately following the index at the beginning of this document.

Critical Accounting Policies, Judgments and Estimates


The geographic information required by Item 101(d) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, is impracticable for the Corporation to calculate; however, the Corporation does not believe that a material amount of revenue in any of the last three years was attributable to customers outside of the United States, nor does it believe that a material amount of its long-lived assets, in any of the past three years, was located outside of the United States.


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Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform to U.S. generally accepted accounting principles (“GAAP”). All inter-companysignificant intercompany balances and transactions are eliminated in consolidation and certain reclassifications are made when necessary in order to conform the previous years' consolidated financial statements to the current year’syear's presentation. In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates.


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TheAllowanceAllowance forLoanLoan andLease LossesLeaseLosses(the “Allowance”)

The Allowance involves a higher degree of judgment and complexity than other significant accounting policies. The Allowance is estimated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses present in the loan portfolio as of the reporting date. Management’s determination of the adequacy of the Allowance is based on frequent evaluations of the loan and lease portfolio and other relevant factors. Consideration is given to a variety of factors in establishing the estimate. Quantitative factors in the form of historical charge-off historyrates by portfolio segment are considered. In connection with these quantitative factors, management establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 2017,2019, management utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition, management develops an estimate of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan. As of December 31, 2017,2019, management utilized a two-year LEP for its commercial loan segments and a one-year LEP for its consumer loan segments based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual loss. In addition, various qualitative factors are considered, including specific terms and conditions of loans and leases, underwriting standards, delinquency statistics, industry concentration, overall exposure to a single customer, adequacy of collateral, the dependence on collateral, and results of internal loan review, including a borrower’s perceived financial and management strengths, the amounts and timing of the present value of future cash flows, and the access to additional funds. It should be noted that this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, the amounts and timing of expected cash flows on impaired loans and leases, the value of collateral, estimated losses on consumer loans and residential mortgages and the relevance of historical loss experience. The process also considers economic conditions and inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provision for loan and lease losses (the “Provision”) may be required that would adversely impact earnings in future periods. See the section of this document titled Asset Quality and Analysis of Credit Riskbeginning at page 46 for additional information.

Fair Value Measurement of Investment Securities Available-for-Sale


On January 1, 2020, ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”) became effective for the Corporation. CECL will change the way we estimate credit losses for loans and Assessmentleases, including off-balance sheet (“OBS”) credit exposures, as well as change the accounting for Impairment of Certain Investment Securities

Management may designate its investmentavailable for sale debt securities as held-to-maturity, available-for-sale or trading. Each of these designations affords different treatment for changesreporting periods beginning after January 1, 2020. For more information regarding the CECL standard, see Note 2, “Recent Accounting Pronouncements” in the fair market values of investment securities inaccompanying Notes to the Corporation’s Consolidated Financial Statements that are otherwise identical. Should evidence emerge which indicates that management’s intent or ability to maintain the securities as originally designated is not supported, reclassifications among the three designations may be necessary and, as a result, may require adjustments to the Corporation’s Consolidated Financial Statements. As of December 31, 2017, the Corporation’s investment portfolio was primarily comprised of investment securities classified as available for sale.

Valuation of Goodwill and Intangible Assets

Goodwill and intangible assets have been recordedin this Annual Report on the books of the Corporation in connection with its acquisitions. Management completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. Management also completes an annual impairment test for other intangible assets, or more often, if events and circumstances indicate a possible impairment. During 2016, management made a voluntary change in the method of applying an accounting principle related to the timing of the annual goodwill impairment assessment from December 31st to October 31st based on the time-intensive nature of the goodwill impairment assessment. Management does not consider this change in impairment testing date to be a material change in application of an accounting principle. There was no goodwill impairment recorded during the twelve-month periods ended December 31, 2017, 2016 or 2015. There was no impairment of identifiable intangible assets during the twelve-month periods ended December 31, 2017 or 2016. For the twelve-month period ended December 31, 2015, a $387 thousand impairment related to a favorable lease asset was incurred. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

Other significant accounting policies are presented in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements. The Corporation’s accounting policies have not substantively changed any aspect of its overall approach in the application of the foregoing policies.

Overview of General Economic, Regulatory and Governmental Environment

Domestic economic growth in the U.S. accelerated in the middle two quarters of 2017, after a slow start to the year. U.S. Real GDP grew by +3.2% in the third quarter, after a growth level of +3.1% in the second quarter. On a preliminary basis, Real GDP grew at +2.6% in the fourth quarter of 2017, with forecasts for faster growth in the first half of 2018.

At the Federal Open Market Committee’s last meeting of 2017 on December 12-13, the Federal Reserve raised the target range for the federal funds rate by 0.25% to a range of 1.25% - 1.50%, as expected. On January 31 of this year, the FOMC completed its first two-day meeting of 2018 and delivered a more hawkish tone in its statement concerning growth and inflation. Currently, Fed Funds futures are implying that the Fed will raise short term rates three times over the course of the year.

Form 10-K.


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With monetary policy turning less accommodative, fiscal policy has become more supportive of growth. H.R.1, or the “Tax Cuts and Jobs Act” (“Tax Reform”) was signed into law by President Trump on December 22, 2017, and became effective on January 1, 2018. The legislation is designed to lower both corporate and individual income rates, with the dual goals of making U.S. corporations more competitive globally with a less onerous tax structure, as well as providing U.S. individual taxpayers with more after-tax discretionary income.

Financial markets entered 2018, with the major stock market indices registering new highs and interest rates, both at the short and long ends of the yield curve, rising. Fundamental drivers of financial asset prices remain very strong. However, we believe that volatility will run at a higher level this year versus 2017.

Executive Overview

Executive Overview

The following Executive Overview provides a summary-level review of thethe results of operation for 20172019 compared to 20162018 and 20162018 compared to 20152017 as well as a comparison of the December 31, 20172019 balance sheet as compared to the December 31, 20162018 balance sheet. More detailed information regarding these comparisons can be found in the sections that follow.

2017


2019Compared to 2016

2018

Income Statement

The Corporation reported net income attributable to Bryn Mawr Bank Corporation of $23.0$59.2 million, or $1.32$2.93 diluted earnings per share for the twelve monthsyear ended December 31, 2017,2019, decreases of $4.6 million and $0.20, respectively, as compared to $36.0net income attributable to Bryn Mawr Bank Corporation of $63.8 million, or $2.12$3.13 diluted earnings per share, for the same period in 2016.year ended December 31, 2018. Return on average equity ("ROE") and return on average assets ("ROA") for the twelve monthsyear ended December 31, 2017,

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2019, were 5.76%10.05% and 0.67%1.26%, respectively, as compared to 9.75%11.78% and 1.16%1.47%, respectively, for the same period in 2016. The primary cause for2018. Contributing to the $13.0net income decrease was a decrease of $1.8 million decrease in net interest income was the one-timeand increases of $6.2 million, $1.4 million, and $1.3 million in noninterest expense, income tax charge of $15.2 million recorded for the re-measurement of the Corporation’s net deferred tax asset. The re-measurement was required asexpense, and Provision, respectively, offset by a result of the passage of Tax Reform signed into law on December 22, 2017, which lowered the top federal corporate income tax rate from 35% to 21%. In addition to this one-time tax charge, due diligence, merger-related and merger integration costs increased by $6.1 million year over year primarily related to the RBPI Merger.

Average loans and investments increased $309.1 million over the prior year driving a $12.8$6.2 million increase in tax-equivalentnoninterest income.


Tax-equivalent net interest income. Average interest-bearing deposits and borrowings increased $210.6income of $148.1 million contributingfor the year ended December 31, 2019 decreased $1.8 million as compared to $149.9 million for the year ended December 31, 2018. The decrease was primarily due to a $3.7$15.4 million increase in interest expense over the prior year. Theon interest-bearing deposits, partially offset by increases of $9.8 million and $2.2 million in interest income on tax-equivalent yield earnedinterest and fees on loans and leases and tax-equivalent interest income on available for sale investment securities, respectively, and decreases of $708 thousand and $600 thousand in interest expense on long-term FHLB advances and short-term borrowings, respectively.

The Provision of $8.5 million for the twelve monthsyear ended December 31, 2017 decreased one basis point from2019 increased $1.3 million as compared to $7.2 million for the year ended December 31, 2018. The primary driver for the increased Provision was the $262.2 million increase in portfolio loans during the twelve month period ended December 31, 2019, as compared to the $141.3 million increase in portfolio loans during the same period in 2016, while2018.

Noninterest income of $82.2 million for the tax-equivalent yield in available for sale investments increased 24 basis points over the same period. The rate paid on interest-bearing deposits and borrowings also increased by twelve and six basis points, respectively.

For the twelve monthsyear ended December 31, 2017, the Provision of $2.62019 increased $6.2 million, was a $1.7 million decrease from the $4.3 million recorded for the same period in 2016. Slightly lower net loan and lease charge-offs for 2017or 8.2%, as compared to 2016, combined with stable credit quality and improvements in certain qualitative indicators which factor into the calculation of the Allowance, accounted$76.0 million for the decrease in Provision.

Non-interest income for the twelve monthsyear ended December 31, 20172018. The increase was $59.1primarily due to increases of $6.4 million a $5.2and $2.1 million in capital markets revenue and fees for wealth management services, respectively, partially offset by decreases of $1.3 million and $941 thousand in other operating income and net gain on sale of loans, respectively. The increase fromin capital markets revenue was primarily due to increased volume and size of interest rate swap transactions with commercial loan customers for the same period in 2016. Anyear ended December 31, 2019 as compared to the year ended December 31, 2018 driven by the continued organic growth of our capital markets group. The increase of $2.0 million in fees for wealth management services resulted aswas primarily related to the $3.12 billion increase in wealth assets under management, administration, supervision and brokerage increased $1.64from $13.43 billion fromat December 31, 20162018 to $16.55 billion at December 31, 2017. Insurance revenue increased $8672019, and was comprised of a $1.7 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $1.91 billion increase in fixed rate flat-fee account balances, and a $328 thousand increase in fees derived from market-value based fee accounts. The decrease in other operating income was primarily due to the $4.3 million decrease in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger, partially offset by increases of $1.5 million and $1.2 million in gain on trading investments and miscellaneous other income, respectively.


Noninterest expense of $146.5 million for the twelve monthsyear ended December 31, 20172019 increased $6.2 million, or 4.4%, as compared to $140.3 million for the year ended December 31, 2018. The increase was primarily due to a $7.7 million increase in salaries and wages. During the first quarter of 2019, the Corporation adopted a voluntary Years of Service Incentive Program (the “Incentive Program”) which offered certain benefits to eligible employees who met the Incentive Program requirements and voluntarily exited from service with the Corporation during 2019. The increase in salaries and wages was largely driven by a pre-tax, non-recurring, charge of $4.5 million related to the Incentive Program recognized during the first quarter of 2019, and to a lesser extent, additional recruiting efforts and increases in our incentive accruals. Also contributing to the increase were increases of $1.4 million, $1.3 million, $1.2 million and $992 thousand in other operating expenses, furniture, fixtures and equipment expenses, professional fees, and occupancy and bank premises expenses, respectively. Partially offsetting these increases in noninterest expense was a decrease of $7.8 million in due diligence, merger-related and merger integration expenses for the year ended December 31, 2019 as compared to the same period in 2016, due to the May 2017 acquisition of Hirshorn Boothby. Revenue from our capital markets initiative, which was launched in the second quarter of 2017, contributed $2.4 million to non-interest income for the twelve-months ended December 31, 2017. These increases were partially offset by a $607 thousand decrease in net gain on sale of loans.

Non-interest expense for the twelve months ended December 31, 2017, was $114.4 million, an increase of $12.7 million, as compared to the same period in 2016. The increase was largely related to a $6.1 million increase in due diligence and merger-related expenses primarily related to the RBPI Merger. A $5.8 million increase in salaries and wages was largely due to staffing increases from our capital markets initiative, the Hirshorn Boothby acquisition and the Princeton wealth management office and to a smaller extent, the December 15, 2017 RBPI Merger. Annual salary and wage increases and increases in incentive compensation also contributed to the increase.

2018.

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Balance Sheet

Asset quality as of December 31, 2017 is2019 remained stable, with nonperforming loans and leases comprising 0.26%0.29% of portfolio loans and leases as compared to 0.33% of portfolio loans as of December 31, 2016. The Allowance of $17.5 million was 0.53%0.37% of portfolio loans and leases as of December 31, 2017, as compared to $17.5 million, or 0.69% of portfolio loans and leases, at December 31, 2016. The 16 basis point decrease in the Allowance as a percentage of portfolio loans was primarily related to the addition of $570.4 million of loans acquired in the RBPI Merger, for which no Allowance was carried-over in acquisition. These acquired loans were recorded at fair value, which considers an estimate of lifetime credit losses, and therefore excludes the loans, initially, from the requirement for an Allowance.

Total portfolio loans and leases of $3.29 billion as of December 31, 2017 increased $750.4 million, or 29.6%, from $2.54 billion as of December 31, 2016. As noted previously, this increase includes $570.4 million of loans acquired in the RBPI Merger.

The Corporation’s available for sale investment portfolio was $689.2 million as compared to $567.0 million at December 31, 2016. The $122.2 million increase in available for sale investments over the period was the result of purchases made during 2017 in anticipation of the RBPI Merger and the immediate sale of the acquired investment portfolio.

Deposits of $3.37 billion, as of December 31, 2017, increased $794.1 million from December 31, 2016. The RBPI Merger added $593.2 million of deposits. The portion of the deposits in the noninterest-bearing category was 27.4% of total deposits.

Wealth Assets

Wealth assets under management, administration, supervision and brokerage increased to $12.97 billion as of December 31, 2017, an increase of $1.64 billion from $11.33 billion as of December 31, 2016. The increase in wealth assets was comprised of a $582 million increase in account balances whose fees are based on market value, and a $1.06 billion increase in fixed rate flat-fee account balances.

2016 Compared to 2015

Income Statement

The Corporation reported net income of $36.0 million or $2.12 diluted earnings per share for the twelve months ended December 31, 2016, as compared to $16.8 million, or $0.94 diluted earnings per share, for the same period in 2015. Return on average equity ("ROE") and return on average assets ("ROA") for the twelve months ended December 31, 2016, were 9.75% and 1.16%, respectively, as compared to 4.49% and 0.57%, respectively, for the same period in 2015. The increase in net income for the twelve months ended December 31, 2016, as compared to the same period in 2015, was largely related to the $17.4 million pre-tax loss on the settlement of the corporate pension plan, which was recorded for the twelve months ended December 31, 2015. In addition to the absence of the pension settlement charge, net interest income for the twelve months ended December 31, 2016 increased by $6.1 million and due diligence, merger-related and merger integration expenses decreased by $6.7 million from the same period in 2015.

The $6.2 million increase in the Corporation’s tax-equivalent net interest income for the twelve months ended December 31, 2016, as compared to the same period in 2015, was related to a $268.8 million increase in average loans offset by a $117.8 million decrease in interest-earning deposits with other banks. This redeployment of low-yielding cash on deposit with other banks to higher yielding loans resulted in an $8.2 million increase in tax-equivalent interest income. The tax-equivalent yield earned on loans for the twelve months ended December 31, 2016 was 4.57%, while the tax-equivalent yield earned on interest-earning deposits with other banks was only 0.39%. Partially offsetting the increase in average loans, average interest-bearing deposits increased by $86.4 million, accompanied by an eight basis point increase in rate paid on deposits. Average long-term Federal Home Loan Bank (“FHLB”) advances and other borrowings decreased by $29.0 million between the twelve month periods ended December 31, 2015 and 2016 as the inflow of deposits during 2016 alleviated the need to increase borrowings to support loan growth.

For the twelve months ended December 31, 2016, the Provision of $4.3 million was virtually unchanged from the $4.4 million recorded for the same period in 2015. Net loan and lease charge offs for the twelve months ended December 31, 2016 totaled $2.7 million, a decrease of $428 thousand from the same period in 2015.

Non-interest income for the twelve months ended December 31, 2016 was $54.0 million, a $1.8 million decrease from the same period in 2015. Decreases of $1.0 million in gain on sale of available for sale investment securities, $319 thousand in dividends on FHLB and Federal Reserve Bank (“FRB”) stocks and $204 thousand in fees for wealth management services were the primary contributors to this decrease.

30

Non-interest expense for the twelve months ended December 31, 2016, was $101.7 million, a decrease of $23.9 million, as compared to the same period in 2015. The primary causes of this decrease were the absences of the $17.4 million loss on settlement of the corporate pension and the $6.7 million in due diligence, merger-related and merger integration costs recorded in 2015. Partially offsetting these improvements were increases of $2.8 million and $679 thousand in salaries and wages and furniture, fixtures and equipment, respectively.

Balance Sheet

Asset quality as of December 31, 2016 was stable, with nonperforming loans and leases comprising 0.33% of portfolio loans as compared to 0.45% of portfolio loans as of December 31, 2015.2018. The Allowance of $17.5$22.6 million was 0.69%0.61% of portfolio loans and leases as of December 31, 2016,2019, as compared to $15.9$19.4 million, or 0.70%0.57% of portfolio loans and leases at December 31, 2015. The relatively unchanged level of Allowance reflects the continued strength of credit quality in the loan portfolio.

2018.

Total portfolio loans and leases of $2.54$3.69 billion as of December 31, 20162019 increased $266.4by $262.2 million or 11.7%, from $2.27December 31, 2018, an increase of 7.6%. Increases of $256.0 million, $20.5 million, $13.7 million, and $10.3 million in commercial mortgages, leases, commercial and industrial loans, and consumer loans, respectively, were offset by decreases of $21.2 million, $12.7 million, and $4.5 million in construction loans, home equity loans and lines, and residential mortgages, respectively.
Investment securities available for sale of $1.01 billion as of December 31, 2015.

The Corporation’s available for sale investment portfolio2019 increased $268.5 million, or 36.4%, from $737.4 million as of December 31, 2016 had a fair value2018. The increase was primarily due to the purchase of $567.0$500.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2019, an increase of $300.0 million as compared to $349.0 million at December 31, 2015. Largely responsible for the increase was thea


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similar purchase in December 2016, of $200$200.0 million of short-term treasury bills.

DepositsU.S. Treasury securities included on the balance sheet as of $2.58December 31, 2018. This increase in U.S. Treasury securities coupled with a $76.1 million increase in mortgage-backed securities, respectively, were partially offset by decreases of $93.8 million, $7.4 million, and $6.0 million in U.S. government and agency securities, collateralized mortgage obligations, and state & political subdivision securities, respectively.


Total deposits of $3.84 billion as of December 31, 2016,2019 increased $327.0$243.2 million, or 6.8%, from $3.60 billion as of December 31, 2015. One third2018. Increases of the increase$280.2 million, $243.8 million, and $122.8 million in interest-bearing demand accounts, money market accounts, and wholesale non-maturity deposits, wasrespectively, were offset by decreases of $236.0 million, $137.6 million, $26.6 million, and $3.4 million in the non-interest-bearing segment of the portfolio.

wholesale time deposits, retail time deposits, savings accounts, and noninterest bearing deposits, respectively.

Wealth Assets

Wealth assets under management, administration, supervision and brokerage increased to $11.33of $16.55 billion as of December 31, 2016, an increase of $2.962019
increased $3.12 billion, or 23.22%, from $8.36$13.43 billion as of December 31, 2015. Approximately two-thirds2018. Wealth assets consisted of $9.57 billion of wealth assets where fees are set at fixed amounts and $6.98 billion of wealth assets where fees are predominantly determined based on the market value of the assets held in their accounts as of December 31, 2019, an increase of $1.91 billion and $1.21 billion, respectively, from December 31, 2018.

Recent Developments

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. On May 1, 2019, the Court rendered a decision in favor of Snyder and ordered Crusader to pay Snyder the amount of $2,190,000 plus interest at the rate of 6% from December 1, 2006. Crusader continues to pursue appeal with the Superior Court of the Commonwealth of Pennsylvania, and is considering other strategic options with respect to this matter during the pendency of the appeal. We do not believe that this ruling and the monetary award, if any, ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

2018Comparedto 2017
Income Statement
The Corporation reported net income attributable to Bryn Mawr Bank Corporation of $63.8 million, or $3.13 diluted earnings per share for the year ended December 31, 2018, increases of $40.8 million and $1.81, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation of $23.0 million, or $1.32 diluted earnings per share, for the year ended December 31, 2017. ROE and ROA for the year ended December 31, 2018 were 11.78% and 1.47%, respectively, as compared to 5.76% and 0.67%, respectively, for the same period in 2017. Contributing to the net income increase were increases of $34.4 million and $16.9 million in net interest income and noninterest income, respectively, and a decrease of $20.1 million in income tax expense, offset by increases of $25.9 million and $4.6 million in noninterest expense and Provision, respectively.

Tax-equivalent net interest income of $149.9 million for the year ended December 31, 2018 increased $34.0 million as compared to $115.9 million for the year ended December 31, 2017. Average loans and leases for the year ended December 31, 2018 increased $691.3 million from the same period in 2017 and experienced a 48 basis point increase in tax-equivalent yield. The increase in average loans and leases was partially related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $566.2 million, as well as organic loan growth between the periods. Average interest-bearing deposits for the year ended December 31, 2018 increased $604.0 million from the same period in 2017 and experienced a 36 basis point increase in rates paid. The increase in average interest-bearing deposits was partially related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million.
The Provision of $7.2 million for the year ended December 31, 2018 increased $4.6 million as compared to $2.6 million for the year ended December 31, 2017. Primary contributors to the increased Provision were the $2.7 million increase in net loan and lease charge-offs as well as the additional Allowance associated with increased loan volume.


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Noninterest income of $76.0 million for the year ended December 31, 2018 increased $16.9 million, or 28.5%, as compared to $59.1 million for the year ended December 31, 2017. Other operating income increased $6.2 million, primarily due to the $4.0 million increase in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. Fees for wealth management services increased $3.6 million, primarily related to the $460.8 million increase in wealth assets under management, administration, supervision and brokerage from $12.97 billion at December 31, 2017 to $13.43 billion at December 31, 2018. Capital markets revenue increased $2.5 million, primarily related to a full year of operations for our capital markets group, which was formed during the second quarter on 2017. Insurance commissions increased $2.2 million partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in flat-feeaddition to organic growth.
Noninterest expense of $140.3 million for the year ended December 31, 2018 increased $25.9 million, or fixed-fee accounts.

Components22.6%, as compared to $114.4 million for the year ended December 31, 2017. These increases were largely due to the additional expenses associated with the staff and facilities assumed in the RBPI Merger and to a lesser extent, recruiting efforts of Net Income

certain key leadership positions as well as increases in our incentive accruals.



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Components of Net Income

Net income is comprised of five major elements:


●

•

Net Interest Income,, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;

●

•

Provision for Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;

●

•

Non-Interest

Noninterest Income, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;

●

•

Non-Interest

Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and

●

•

Income Tax Expense,, which include state and federal jurisdictions.


31
Net Interest Income

Table of Contents

Net Interest Income

Rate/Volume Analyses(Tax-equivalentBasis)*

(1)

The rate volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in average balances (volume) and the change in average interest rates (rate) of tax-equivalent net interest income for the years 20172019 as compared to 2016,2018, and 20162018 as compared to 2015, allocated by rate and volume.2017. The change in interest income / expense due to both volume and rate has been allocated to changes indue to volume.

  

Year Ended December 31,

 

(dollars in thousands)

 

2017 Compared to 2016

  

2016 Compared to 2015

 

increase/(decrease)

 

Volume

  

Rate

  

Total

  

Volume

  

Rate

  

Total

 

Interest Income:

                        

Interest-bearing deposits with banks

 $(35

)

 $41  $6  $(300

)

 $59  $(241

)

Investment securities - taxable

  1,427   1,018   2,445   213   373   586 

Investment securities -nontaxable

  (216

)

  49   (167

)

  (19

)

  20   1 

Loans and leases

  10,733   (267

)

  10,466   12,636   (4,418

)

  8,218 

Total interest income

  11,909   841   12,750   12,530   (3,966

)

  8,564 

Interest expense:

                        

Savings, NOW and market rate accounts

  161   643   804   167   —   167 

Wholesale deposits

  186   639   825   192   276   468 

Retail time deposits

  500   786   1,286   48   938   986 

Borrowed funds – short-term

  226   1,071   1,297   1   44   45 

Borrowed funds – long-term

  (971

)

  238   (733

)

  (404

)

  203   (201

)

Subordinated notes

  182   (30

)

  152   864   11   875 

Junior subordinated debentures

  46   —   46   —   —   — 

Total interest expense

  330   3,347   3,677   868   1,472   2,340 

Interest differential

 $11,579  $(2,506

)

 $9,073  $11,662  $(5,438

)

 $6,224 

*

 Year Ended December 31,
(dollars in thousands)2019 Compared to 2018  2018 Compared to 2017
increase/(decrease)Volume Rate Total  Volume Rate Total
Interest income:            
Interest-bearing deposits with banks$62
 $217
 $279
  $18
 $72
 $90
Investment securities – taxable1,257
 1,219
 2,476
  2,131
 1,494
 3,625
Investment securities – nontaxable(195) 16
 (179)  (215) (14) (229)
Loans and leases9,087
 718
 9,805
  31,524
 16,109
 47,633
Total interest income10,211
 2,170
 12,381
  33,458
 17,661
 51,119
Interest expense:            
Savings, NOW and market rate accounts1,330
 9,718
 11,048
  792
 4,779
 5,571
Wholesale deposits981
 906
 1,887
  695
 2,261
 2,956
Retail time deposits(586) 3,035
 2,449
  2,147
 1,130
 3,277
Borrowed funds – short-term(936) 336
 (600)  552
 1,450
 2,002
Borrowed funds – long-term(796) 88
 (708)  (1,096) 253
 (843)
Subordinated notes9
 (6) 3
  3,203
 (256) 2,947
Junior subordinated debentures10
 75
 85
  945
 297
 1,242
Total interest expense12
 14,152
 14,164
  7,238
 9,914
 17,152
Interest differential$10,199
 $(11,982) $(1,783)  $26,220
 $7,747
 $33,967
(1)The tax rate used in the calculation of thetax-equivalentincome is 21% for 2019 and 2018 and 35%.

for 2017.

32
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Analysis


Analysis of Interest Rates and Interest Differential

The table below presents the major asset and liability categories on an average daily basis for the periods presented, along with tax-equivalent interest income and expense and key rates and yields:

  

For the Year Ended December 31,

 
  

2017

  

2016

  

2015

 

(dollars in thousands)

 

Average
Balance

  

Interest
Income/
Expense

  

Average
Rates
Earned/
Paid

  

Average
Balance

  

Interest
Income/
Expense

  

Average
Rates
Earned/
Paid

  

Average
Balance

  

Interest
Income/
Expense

  

Average
Rates
Earned/
Paid

 

Assets:

                                    

Interest-bearing deposits with banks

 $34,122  $174   0.51

%

 $43,214  $168   0.39

%

 $161,032  $409   0.25

%

Investment securities - available for sale:

                                    

Taxable

  409,813   8,229   2.01

%

  329,161   5,784   1.76

%

  315,741   5,124   1.62

%

Tax –Exempt

  27,062   575   2.12

%

  38,173   742   1.94

%

  39,200   741   1.89

%

Total investment securities – available for sale

  436,875   8,804   2.02

%

  367,334   6,526   1.78

%

  354,941   5,865   1.65

%

Investment securities – held to maturity

  5,621   4   0.07

%

  2,060   4   0.19

%

  —   —   — 

Investment securities – trading

  4,185   2   0.05

%

  3,740   2   0.05

%

  3,881   80   2.06

%

Loans and leases(1)(2)(3)

  2,664,944   121,391   4.56

%

  2,429,416   110,925   4.57

%

  2,160,628   102,707   4.75

%

Total interest-earning assets

  3,145,747   130,375   4.14

%

  2,845,764   117,625   4.13

%

  2,680,482   109,061   4.07

%

Cash and due from banks

  13,293           16,317           17,615         

Allowance for loan and lease losses

  (17,181

)

          (17,159

)

          (15,099

)

        

Other assets

  274,287           260,728           259,515         

Total assets

 $3,416,146          $3,105,650          $2,942,513         

Liabilities:

                                    

Savings, NOW, and market rate accounts

 $1,383,560  $3,289   0.24

%

 $1,292,228  $2,485   0.19

%

 $1,249,567  $2,318   0.19

%

Wholesale deposits

  188,179   2,065   1.10

%

  163,724   1,240   0.76

%

  130,773   772   0.59

%

Time deposits

  330,797   3,394   1.03

%

  266,772   2,108   0.79

%

  255,961   1,122   0.44

%

Total interest-bearing deposits

  1,902,536   8,748   0.46

%

  1,722,724   5,833   0.34

%

  1,636,301   4,212   0.26

%

Short-term borrowings

  128,008   1,390   1.09

%

  37,041   93   0.25

%

  36,010   48   0.13

%

Long-term FHLB advances

  161,004   2,620   1.63

%

  225,815   3,353   1.48

%

  254,828   3,554   1.39

%

Subordinated notes

  33,153   1,628   4.91

%

  29,503   1,476   5.00

%

  12,013   601   5.00

%

Junior subordinated debt

  997   46   4.61

%

  —   —   —   —   —   — 

Total interest-bearing liabilities

  2,225,698   14,432   0.65

%

  2,015,083   10,755   0.53

%

  1,939,152   8,415   0.43

%

Non-interest-bearing deposits

  751,069           687,134           594,122         

Other liabilities

  40,109           33,904           36,151         

Total non-interest-bearing liabilities

  791,178           721,038           630,273         

Total liabilities

  3,016,876           2,736,121           2,569,425         

Shareholders’ equity

  399,270           369,529           373,088         

Total liabilities and shareholders’ equity

 $3,416,146          $3,105,650          $2,942,513         

Net interest spread

          3.49

%

          3.60

%

          3.64

%

Effect of non-interest-bearing sources

          0.20

%

          0.16

%

          0.11

%

Net interest income/margin on earning assets

     $115,943   3.69

%

     $106,870   3.76

%

     $100,646   3.75

%

Tax-equivalent adjustment (tax rate 35%)

     $816   0.03

%

     $634   0.02

%

     $519   0.02

%

 For the Year Ended December 31,
 2019  2018  2017
(dollars in thousands)
Average
Balance
 
Interest
Income/
Expense
 
Average
Rates
Earned/
Paid
  
Average
Balance
 
Interest
Income/
Expense
 
Average
Rates
Earned/
Paid
  
Average
Balance
 
Interest
Income/
Expense
 
Average
Rates
Earned/
Paid
Assets:                   
Interest-bearing deposits with banks$46,408
 $543
 1.17%  $37,550
 $264
 0.70%  $34,122
 $174
 0.51%
Investment securities - available for sale:                   
Taxable566,645
 13,862
 2.45
  513,114
 11,457
 2.23
  409,813
 8,022
 1.96
Tax –Exempt7,428
 167
 2.25
  16,966
 346
 2.04
  27,062
 575
 2.12
Total investment securities – available for sale574,073
 14,029
 2.44
  530,080
 11,803
 2.23
  436,875
 8,597
 1.97
Investment securities – held to maturity11,099
 302
 2.72
  8,232
 234
 2.84
  5,621
 159
 2.83
Investment securities – trading8,237
 172
 2.09
  8,237
 169
 2.05
  4,185
 54
 1.29
Loans and leases(1)(2)(3)
3,533,702
 178,829
 5.06
  3,356,295
 169,024
 5.04
  2,664,944
 121,391
 4.56
Total interest-earning assets4,173,519
 193,875
 4.65
  3,940,394
 181,494
 4.61
  3,145,747
 130,375
 4.14
Cash and due from banks12,703
      9,853
      13,293
    
Allowance for loan and lease losses(20,828)      (18,447)      (17,181)    
Other assets518,507
      420,322
      274,287
    
Total assets$4,683,901
      $4,352,122
      $3,416,146
    
Liabilities:                   
Savings, NOW, and market rate accounts$1,969,205
 $19,908
 1.01%  $1,715,239
 $8,860
 0.52%  $1,383,560
 $3,289
 0.24%
Wholesale deposits300,148
 6,908
 2.30
  251,384
 5,021
 2.00
  188,179
 2,065
 1.10
Time deposits492,110
 9,120
 1.85
  539,934
 6,671
 1.24
  330,797
 3,394
 1.03
Total interest-bearing deposits2,761,463
 35,936
 1.30
  2,506,557
 20,552
 0.82
  1,902,536
 8,748
 0.46
Short-term borrowings129,457
 2,792
 2.16
  178,582
 3,392
 1.90
  128,008
 1,390
 1.09
Long-term FHLB advances51,709
 1,069
 2.07
  93,503
 1,777
 1.90
  161,004
 2,620
 1.63
Subordinated notes98,612
 4,578
 4.64
  98,462
 4,575
 4.65
  33,153
 1,628
 4.91
Junior subordinated debt21,660
 1,373
 6.34
  21,491
 1,288
 5.99
  997
 46
 4.61
Total interest-bearing liabilities3,062,901
 45,748
 1.49
  2,898,595
 31,584
 1.09
  2,225,698
 14,432
 0.65
Noninterest-bearing deposits900,156
      856,506
      751,069
    
Other liabilities131,889
      55,436
      40,109
    
Total noninterest-bearing liabilities1,032,045
      911,942
      791,178
    
Total liabilities4,094,946
      3,810,537
      3,016,876
    
Shareholders’ equity588,955
      541,585
      399,270
    
Total liabilities and shareholders’ equity$4,683,901
      $4,352,122
      $3,416,146
    
Net interest spread    3.16
      3.52
      3.49
Effect of noninterest-bearing sources    0.39
      0.28
      0.20
Net interest income/margin on earning assets  $148,127
 3.55%    $149,910
 3.80%    $115,943
 3.69%
Tax-equivalent adjustment(4)
  $486
 0.01%    $439
 0.01%    $816
 0.03%


Table of Contents

(1)

(1)
Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposespurposes of determining interestincome.

(2)

Includes

(2)
Includesportfolio loans and leases and loans held for sale.

(3)(3)
Interest on loans and leases includes deferred fees of $2.3 million, $1.5 million and$947, $522 and $424 thousandfor the years ended December 31, 2017, 20162019, 2018and 2015,2017, respectively.

(4)Tax rate used for tax-equivalent calculations is 21% for 2019 and 2018 and 35% for 2017, respectively.


Tax-Equivalent Net Interest Income and Margin– 2017 2019Compared to 2016

Tax-equivalent2018

Tax-equivalent net interest income increased $9.1of $148.1 million whilefor the year ended December 31, 2019 decreased $1.8 million as compared to $149.9 million for the year ended December 31, 2018. Tax-equivalent net interest margin decreased seven basis point to 3.69%of 3.55% for the twelve monthsyear ended December 31, 2017. The $10.5 million increase in tax-equivalent interest income on loans was2019 decreased 25 basis points as compared to 3.80% for the year ended December 31, 2018. These decreases were primarily volume-driven, with average loans increasing $235.5 million year over year with yields remaining relatively flat. Tax-equivalent interest income on available for sale securities increased $2.3 million overdriven by the prior year as average available for sale investment securities increased $69.5 million and experienced a 24 basis point increase in tax-equivalent yield.

Average interest-bearing deposits increased $179.8 million accompanied by a twelve48 basis point increase in the rate paid on theseinterest-bearing deposits for the year ended December 31, 2019 as compared to the year ended December 31, 2018.


Interest expense on interest-bearing deposits of $35.9 million for the year ended December 31, 2019 increased $15.4 million as compared to $20.6 million for the year ended December 31, 2018. The increase was primarily due to a 48 basis point increase in the rate paid on interest-bearing deposits for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The increase in rate paid was related to the competitive dynamics in the markets in which we operate during the year ended 2019 and certain promotional interest rates offered during the first and second quarters of 2019. A $254.9 million increase in average interest-bearing deposits also contributed to the increase in interest expense on deposits.

Partially offsetting the effect on net interest income associated with the increase in average balances and rates paid on interest-bearing deposits were increases in interest income on tax-equivalent interest and fees on loans and leases and tax-equivalent interest income on available for sale investment securities, and decreases in interest expense on long-term FHLB advances and short-term borrowings.

Tax-equivalent interest and fees on loans and leases of $178.8 million for the year ended December 31, 2019 increased $9.8 million as compared to $169.0 million for the year ended December 31, 2018. Average loans and leases for the year ended December 31, 2019 increased $177.4 million from the same period in 2018 and experienced a two basis point increase in tax-equivalent yield. The increase in average loans and leases was related to organic loan growth between the periods.

Tax-equivalent interest income on available for sale investment securities of $14.0 million for the year ended December 31, 2019 increased $2.2 million as compared to $11.8 million for the year ended December 31, 2018. Average available for sale investment securities for the year ended December 31, 2019 increased $44.0 million from the same period in 2018 and experienced a 21 basis point increase in tax-equivalent yield.
Interest expense on long-term FHLB advances of $1.1 million for the year ended December 31, 2019 decreased $708 thousand as compared to $1.8 million for the year ended December 31, 2018. Average long-term FHLB advances decreased $41.8 million, offset by a 17 basis point increase in the rate paid for the year ended December 31, 2019 as compared to the same period in 2018.

Interest expense on short-term borrowings of $2.8 million for the year ended December 31, 2019 decreased $600 thousand as compared to $3.4 million for the year ended December 31, 2018. Average short-term borrowings decreased $49.1 million, offset by a 26 basis point increase in the rate paid for the year ended December 31, 2019 as compared to the same period in 2018.

Tax-Equivalent Net Interest Income and Margin–2018Compared to 2017
Tax-equivalent net interest income of $149.9 million for the year ended December 31, 2018 increased $30.8$34.0 million as compared to $115.9 million for the year ended December 31, 2017. Tax-equivalent net interest margin of 3.80% for the year ended December 31, 2018 increased 11 basis points as compared to 3.69% for the year ended December 31, 2017.

Tax-equivalent interest and fees on loans and leases of $169.0 million for the year ended December 31, 2018 increased $47.6 million as compared to $121.4 million for the year ended December 31, 2017. Average loans and leases for the year ended December 31, 2018 increased $691.3 million from the same period in 2017 and experienced a 48 basis point increase in tax-equivalent yield. The increase in average loans and leases was primarily related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $566.2 million, as well as organic loan growth between the periods.


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Tax-equivalent interest income on available for sale investment securities of $11.8 million for the year ended December 31, 2018 increased $3.2 million as compared to $8.6 million for the year ended December 31, 2017. Average available for sale investment securities for the year ended December 31, 2018 increased $93.2 million from the same period in 2018 and experienced a 26 basis point increase in tax-equivalent yield.

Partially offsetting the effect on net interest income associated with an eightthe increase in average balances and yields in loans and leases and available for sale investment securities were increases in interest expense on deposits and borrowings.

Interest expense on interest-bearing deposits of $20.6 million for the year ended December 31, 2018 increased $11.9 million as compared to $8.7 million for the year ended December 31, 2017. Average interest-bearing deposits for the year ended December 31, 2018 increased $604.0 million from the same period in 2017 and experienced a 36 basis point increase in rates paid. The increases in average interest-bearing deposits and borrowings along with the increase in related rates paid corresponded to a $3.7 million increase in interest expense over the prior period. The contribution to the tax-equivalent net interest margin from the accretion of purchase accounting adjustments was lower in 2017 than 2016, adding seven basis points in 2017 as compared to 13 basis points in 2016.

33

Tax-Equivalent Net Interest Income and Margin– 2016 Compared to 2015

The tax-equivalent net interest margin increased 1 basis point to 3.76% for the twelve months ended December 31, 2016, as compared to 3.75%, for the same period in 2015. The effect on interest income of the $268.8 million increase in average loans between periods was partially offset by an 18 basis point decrease in tax-equivalent yield earned on loans and leases between periods. On the liability side, the $86.4 million increase in average interest-bearing deposits accompaniedwas primarily related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million.


Interest expense on borrowings of $11.0 million for the year ended December 31, 2018 increased $5.3 million as compared to $5.7 million for the year ended December 31, 2017. The increase related to increases in interest expense on subordinated notes, short-term borrowings, and junior subordinated debt of $2.9 million, $2.0 million, and $1.2 million, respectively, partially offset by an 8 basis point increasea decrease in rate paidinterest expense on deposits and the $29.0 million decrease in long-term FHLB advances and other borrowings whose rate paid increased by 9 basis points, combined to offset the margin improvement from the asset growth. The contribution to the tax-equivalent net interest margin from the accretion of purchase accounting adjustments was lower in 2016 than 2015, adding 13 basis points in 2016 as compared to 18 basis points in 2016.

Tax-equivalent net interest income$843 thousand. Average subordinated notes for the twelve monthsyear ended December 31, 2016 of $106.92018 increased $65.3 million was $6.2 million higher than the tax-equivalent net interest income of $100.6 million forfrom the same period in 2015.2017 and experienced a 26 basis point decrease in rates paid. The primary driver for the increase in tax-equivalent net interest income was the volume increase in average loanssubordinated notes was the result of the December 13, 2017 issuance of $70 million ten-year, 4.25% fixed-to-floating subordinated notes. Average short-term borrowings and leases, partially offset by a yield decrease, which added $8.2junior subordinated notes for the year ended December 31, 2018 increased $50.6 million and $20.5 million, respectively, from the same period in interest income.2017 and experienced an 81 and 138 basis point increase, respectively, in rates paid. The impact of this loan growth was partially offset by a volume increase and an increase in junior subordinated debt was related to the $21.4 million of floating rate paid for interest-bearing deposits, which decreased tax-equivalent net interest income by $1.6 million.

junior subordinated debentures assumed in the RBPI Merger.


Tax-EquivalentNet Interest Margin– Quarterly Comparison

The tax-equivalent net interest margin and related components for the past five quarters are shown in the table below:

Quarter

 

Year

 

Earning-Asset

Yield

  

Interest-

Bearing

Liability Cost

  

Net Interest

Spread

  

Effect of Non-

Interest-

Bearing Sources

  

Tax-Equivalent

Net Interest

Margin

 

4th

 

2017

  4.15

%

  0.74

%

  3.41

%

  0.21

%

  3.62

%

3rd

 

2017

  4.18

%

  0.67

%

  3.51

%

  0.20

%

  3.71

%

2nd

 

2017

  4.11

%

  0.61

%

  3.50

%

  0.18

%

  3.68

%

1st

 

2017

  4.14

%

  0.56

%

  3.58

%

  0.16

%

  3.74

%

4th

 

2016

  4.05

%

  0.56

%

  3.49

%

  0.16

%

  3.65

%

Quarter Year 
Earning-Asset
Yield
 
Interest-
Bearing
Liability Cost
 
Net Interest
Spread
 
Effect of Non-
Interest-
Bearing Sources
 
Tax-Equivalent
Net Interest
Margin
4th
 2019 4.39% 1.41% 2.98% 0.38% 3.36%
3rd
 2019 4.69
 1.55
 3.14
 0.40
 3.54
2nd
 2019 4.69
 1.56
 3.13
 0.42
 3.55
1st
 2019 4.83
 1.46
 3.37
 0.38
 3.75
4th
 2018 4.74
 1.30
 3.44
 0.35
 3.79

Interest Rate Sensitivity

Management actively manages itsthe Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to riskschanges associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures approved by the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities. This is accomplished through the management of the investment portfolio, the pricings of loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, federal funds from correspondent banks, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, Charity Deposits Corporation (“CDC”) (formerly known as Institutional Deposit Corporation (“IDC”)),and Insured Cash Sweep (“ICS”) and Pennsylvania Local Government Investment Trust (“PLGIT”).

Management utilizes several tools to measure the effect of interest rate risk on net interest income. These methods include gap analysis, market value of portfolio equity analysis, and net interest income simulations under various scenarios. The results of these reportsanalyses are compared to limits established by the Corporation’s ALCO policies and appropriatemake adjustments are madeas appropriate if the results are outside the established limits.


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The followingbelow table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift,, or “shock”, in the yield curve and subjective adjustments in deposit pricing, might have on management’s projected net interest income over the next 12 months.

This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. By definition, the simulation is assumes static interest rates and does not incorporate forecasted changes in the yield curve. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.

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Summary of Interest Rate Simulation

  

Change in Net Interest Income

Over the Twelve Months

Beginning After

December 31, 2017

  

Change in Net Interest Income

Over the Twelve Months

Beginning After

December 31, 2016

 
  

Amount

  

Percentage

  

Amount

  

Percentage

 

+300 basis points

 $15,953   10.66

%

 $10,207   9.01

%

+200 basis points

 $10,644   7.11

%

 $6,653   5.87

%

+100 basis points

 $5,316   3.55

%

 $3,048   2.69

%

-100 basis points

 $(6,913

)

  (4.62

%)

 $(4,397

)

  (3.88

%)

 Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2019 Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2018
(dollars in thousands)Amount Percentage Amount Percentage
+300 basis points$15,357
 10.52 % $5,644
 3.74 %
+200 basis points10,217
 7.00
 3,734
 2.47
+100 basis points5,079
 3.48
 1,860
 1.23
-100 basis points(6,817) (4.67) (6,546) (4.34)
The above interest rate simulation suggests that the Corporation’sCorporation’s balance sheet is asset sensitive as of December 31, 20172019 in the +100 basis point scenario, demonstrating that a 100 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is more asset sensitive in a rising-rate environment as of December 31, 20172019 than it was as of December 31, 2016. This2018. The increase in sensitivity iswas related to a decrease in cash balances, ansignificant increase in floatingvariable rate loans,assets in the issuance4th quarter of subordinated debt which has a fixed rate for five years, and an2019. The increase in fixed rate certificates of deposit. The magnitude of the changeloss in net interest income resulting from a 100the -100 basis point decreasescenario is due the rate reduction in rates as compared to the magnitude of the increase in net income accompanying a 100 basis point increase in ratesvariable rate assets is the result ofgreater than the ability to decrease loan rates to more of a degree than deposits rates in a down 100 basis point rate shift.

on interest bearing liabilities.

The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along with expectations of future behavior relative to interest rate changes. In today’s uncertain economic environment and the currentemerging from an extended period of very low interest rates, the reliability of management’s assumptions in the interest rate simulation model is more uncertain than in prior periods.years. Actual customer behavior, as it relates to deposit activity, may be significantly different than expected behavior, which could cause an unexpected outcome and may result in lower net interest income than that derived from the analysis referenced above.

Gap


GapAnalysis

The interest sensitivity,, or gap analysis, identifies interest rate risk by showing repricing gaps in the Corporation’s balance sheet. All assets and liabilities are reflected based on behavioral sensitivity, which is usually the earliest of: repricing, maturity, contractual amortization, prepayments or likely call dates. Non-maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the expected sensitivity of these rates considering liquidity and the investment preferences of management.liquidity. Non-rate-sensitive assets and liabilities are spread over time periods to reflect management’s view of the maturity of these funds.


35
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Non-maturity deposits (demand(demand deposits in particular) are recognized by the Bank’s regulatory agenciesindustry to have different sensitivities to interest rate environments. Consequently, it is an accepted practice to spread non-maturity deposits over defined time periods to capture that sensitivity. Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of these deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the Bank’s regulatory agencies haveindustry practice has suggested distribution limits for non-maturity deposits. However, management has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity. These assumptions are also reflected in the above interest rate simulation.











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The following table presents the Corporation’s gap analysis as of as of December 31, 2017:

(dollars in millions)

 

0 to 90

Days

  

91 to 365

Days

  

1 - 5

Years

  

Over

5 Years

  

Non-Rate

Sensitive

  

Total

 

Assets:

                        

Interest-bearing deposits with banks

 $48.4  $—  $—  $—  $—  $48.4 

Investment securities(1)

  224.3   61.1   290.4   125.9   —   701.7 

Loans and leases(2)

  1,237.4   393.6   1,205.7   453.0   —   3,289.7 

Allowance

  —   —   —   —   (17.5)  (17.5)

Cash and due from banks

  —   —   —   —   11.7   11.7 

Other assets

  —   —   —   —   415.7   415.7 

Total assets

 $1,510.1  $454.7  $1,496.1  $578.9  $409.9  $4,449.7 

Liabilities and shareholders’ equity:

                        

Demand, non-interest-bearing

 $56.3  $168.9  $233.2  $466.4  $—  $924.8 

Savings, NOW and market rate

  114.8   344.6   814.9   408.2   —   1,682.5 

Time deposits

  58.2   321.6   149.0   3.4   —   532.2 

Wholesale non-maturity deposits

  62.3   —   —   —   —   62.3 

Wholesale time deposits

  94.4   62.6   14.9   —   —   171.9 

Short-term borrowings

  237.9   —   —   —   —   237.9 

Long-term FHLB advances

  31.4   52.4   55.3   —   —   139.1 

Subordinated notes

  —   —   98.4   —   —   98.4 

Junior subordinated debentures

  21.4   —   —   —   —   21.4 

Other liabilities

  —   —   —   —   51.1   51.1 

Shareholders’ equity

  18.9   56.6   301.8   150.8   —   528.1 

Total liabilities and shareholders’ equity

 $695.6  $1,006.7  $1,667.5  $1,028.8  $51.1  $4,449.7 

Interest-earning assets

 $1,510.1  $454.7  $1,496.1  $578.9  $—  $4,039.8 

Interest-bearing liabilities

  620.4   781.2   1,132.5   411.6   —   2,945.7 

Difference between interest-earning assets and interest-bearing liabilities

 $889.7  $(326.5) $363.6  $167.3  $—  $1,094.1 

Cumulative difference between interest earning assets and interest-bearing liabilities

 $889.7  $563.2  $926.8  $1,094.1  $—  $1,094.1 

Cumulative earning assets as a % of cumulative interest-bearing liabilities

  243

%

  140

%

  137

%

  137

%

        

2019:
(dollars in millions)
0 to 90
Days
 
91 to 365
Days
 
1 - 5
Years
 
Over
5 Years
 
Non-Rate
Sensitive
 Total
Assets:           
Interest-bearing deposits with banks$42.3
 $—
 $—
 $—
 $—
 $42.3
Investment securities(1)
546.7
 106.7
 241.0
 132.8
 —
 1,027.2
Loans and leases(2)
1,732.6
 381.6
 1,228.0
 351.3
 —
 3,693.5
Allowance—
 —
 —
 —
 (22.6) (22.6)
Cash and due from banks—
 —
 —
 —
 11.6
 11.6
Operating lease right-of-use assets0.7
 2.1
 10.5
 27.7
 —
 41.0
Other assets—
 —
 —
 —
 470.2
 470.2
Total assets$2,322.3
 $490.4
 $1,479.5
 $511.8
 $459.2
 $5,263.2
Liabilities and shareholders’ equity:           
Demand, noninterest-bearing$25.4
 $76.0
 $263.6
 $533.2
 $—
 $898.2
Savings, NOW and market rate89.7
 269.3
 848.9
 1,063.9
 —
 2,271.8
Time deposits66.8
 200.0
 137.1
 1.2
 —
 405.1
Wholesale non-maturity deposits177.9
 —
 —
 —
 —
 177.9
Wholesale time deposits35.2
 48.0
 6.0
 —
 —
 89.2
Short-term borrowings493.2
 —
 —
 —
 —
 493.2
Long-term FHLB advances5.0
 7.4
 39.9
 —
 —
 52.3
Subordinated notes—
 30.0
 68.7
 —
 —
 98.7
Junior subordinated debentures21.8
 —
 —
 —
 —
 21.8
Operating lease liabilities0.8
 2.4
 11.6
 30.5
 —
 45.3
Other liabilities—
 —
 —
 —
 97.5
 97.5
Shareholders’ equity21.9
 65.6
 349.8
 174.9
 —
 612.2
Total liabilities and shareholders’ equity$937.7
 $698.7
 $1,725.6
 $1,803.7
 $97.5
 $5,263.2
Interest-earning assets$2,321.6
 $488.3
 $1,469.0
 $484.1
 $—
 $4,763.0
Interest-bearing liabilities889.6
 554.7
 1,100.6
 1,065.1
 —
 3,610.0
Difference between interest-earning assets and interest-bearing liabilities$1,432.0
 $(66.4) $368.4
 $(581.0) $—
 $1,153.0
Cumulative difference between interest earning assets and interest-bearing liabilities$1,432.0
 $1,365.6
 $1,734.0
 $1,153.0
 $—
 $1,153.0
Cumulative earning assets as a % of cumulative interest-bearing liabilities261% 195% 168% 132%    

(1)

Investment securities include available for sale,, held to maturityand trading.

(2)(2)Loans include portfolio loans and leases and loans held for sale.


The table above indicates that the Corporation is asset sensitiveasset-sensitive in the immediate 90-day time frame and shouldmay experience an increase in net interest income in the near term,during that time period if interest rates rise. Accordingly,Conversely, if rates decline, net interest income may decline. It should decline. Actual results may differ from expected results for many reasons including market reactions, competitor responses, customer behavior and/or regulatory actions.

Provision for Loanbe noted that the gap analysis is only one tool used to measure interest rate sensitivity and Lease Losses

should be used in conjunction with other measures such as the interest rate simulation discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the Corporation’s balance sheet. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at December 31, 2018.


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Provision for Loan and Lease Losses

General Discussion of the Allowance for Loan and Lease Losses

The balance of the Allowance for loan and lease losses is determined based on management’s review and evaluation of the loan and lease portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management’s assumptions as to future delinquencies, recoveries and losses.

Increases to the Allowance are implemented through a corresponding Provision (expense) in the Corporation’s statement of income. Loans and leases deemed uncollectible are charged against the Allowance. Recoveries of previously charged-off amounts are credited to the Allowance.

While management considers the Allowance to be adequate, based on information currently available, future additions to the Allowance may be necessary due to changes in economic conditions or management’s assumptions as to future delinquencies, recoveries and losses and management’s intent regarding the disposition of loans. In addition, the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia, as an integral part of their examination processes, periodically review the Corporation’s Allowance.

The Corporation’sCorporation’s Allowance is comprised of four components that are calculated based on various independent methodologies. All components of the Allowance are based on management’s estimates. These estimates are summarized earlier in this document under the heading “Critical Accounting Policies, Judgments and Estimates.”


36
Table of Contents

The four components of the Allowance are as follows:

●

•

Specific Loan Evaluation Component – - Loans and leases for which management has reason to believe it is probable that it will not be able to collect all contractually due amounts of principal and interest are evaluated for impairment on an individual basis and a specific allocation of the Allowance is assigned, if necessary.

●

•

Historical Charge-Off Component – - Homogeneous pools of loans are evaluated to determine average historic charge-off rates. Management applies a rolling, twenty quarter charge-off history as a look-back period to determine these average charge-off rates. Management evaluates the length of this look-back period to determine its appropriateness. In addition, management develops an estimate of a loss emergence period for each segment of the loan portfolio. The loss emergence period estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan.

●

•

Qualitative Factors Component – - Various qualitative factors are considered as they relate to the different homogeneous loan pools to adjust the historic charge-off rates so that they reflect current economic conditions that may not be accurately reflected in the historic charge-off rates. These factors include delinquency trends, economic conditions, loan terms, credit grades, concentrations of credit, regulatory environment and other relevant factors. The resulting adjustments are combined with the historic charge-off rates and result in an allocation rate for each homogeneous loan pool.

●

•

Unallocated Component –- This amount represents the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating the specific, historical, and qualitative losses in the portfolio discussed above. There are many factors considered, such as the inherent delay in obtaining information regarding a customer’s financial information or changes in their business condition, the judgmental nature of loan and lease evaluations, the delay in interpreting economic trends, and the judgmental nature of collateral assessments.


As part of the process of calculating the Allowance for the different segments of the loan and lease portfolio, management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by both in-house employees as well as an external loan review service. The results of these reviews are reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:


●

•

Pass – - Loans considered satisfactory with no indications of deterioration.

●

•

Special mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

●

•

Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have well-defined weaknesses that may jeopardize the liquidation of the collateral and repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.


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liquidation of the collateral and repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

●

•

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.


Consumer credit exposure, which includes residential mortgages, home equity lines and loans, leases and consumer loans, are assigned a credit risk profile based primarily on payment activity (that is, their delinquency status).

Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5-F5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for details regarding credit quality indicators associated with the Corporation’s loan and lease portfolio.

ALLL Portfolio Segmentation – The Corporation’s loan and lease portfolio is divided into specific segments of loans and leases having similar characteristics. These segments are as follows:


●

•

Commercial mortgage

(1)

●

Home equity lines and loans

●

Residential mortgage

●

Construction

●

Commercial and industrial

●

Consumer

●

Leases

Home equity lines and loans
37Residential mortgage
Table of ContentsConstruction
Commercial and industrial

Consumer
Leases

(1) Management further segments commercial mortgages between owner-occupied and non-owner occupied to account for different risk profiles and sensitivity to market factors that are attributed to each sub-segment.

Refer to Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K and the section of this MD&A under the heading “PortfolioPortfolio Loans and Leases”Leases for details of the Corporation’s loan and lease portfolio, broken down by portfolio segment.


Impairment Measurement –- In accordance with guidance provided by ASC 310-10, "Receivables", the Corporation employs one of three methods to determine and measure impairment:

●

the Present Value of Future Cash Flow Method;

●

the Fair Value of Collateral Method;

●

the Observable Market Price of a Loan Method.

Loans


the Present Value of Future Cash Flow Method;
the Fair Value of Collateral Method;
the Observable Market Price of a Loan Method.

Loans and leases for which there is an indication that all contractual payments may not be collectible are evaluated for impairment on an individual basis. Loans that are evaluated on an individual basis include non-performing loans, troubled debt restructurings and purchased credit-impaired loans.

Nonaccrual Loans–In general, loans and leases that are delinquent on contractually due principal or interest payments for more than 89 days are placed on nonaccrual status and any unpaid interest is reversed as a charge to interest income. When the loan resumes payment, all payments (principal and interest) are applied to reduce principal. After a period of six months of satisfactory performance, the loan may be placed back on accrual status. Any interest payments received during the nonaccrual period that had been applied to reduce principal are reversed and recorded as a deferred fee which accretes to interest income over the remaining term of the loan or lease. In certain cases, management may have information about a loan or lease that may indicate a future disruption or curtailment of contractual payments. In these cases, management will preemptively place the loan or lease on nonaccrual status.

Troubled Debt Restructurings (“TDRs”(“TDRs”)–Management follows guidance provided by ASC 310-40, “Troubled Debt Restructurings by Creditors.” A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of repayment terms which would not normally be granted, a reduction of interest rate or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a concession, management will make the necessary disclosures related to the TDR. In certain cases, a modification may be

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made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered to be a TDR. Once a loan or lease has been modified and is considered a TDR, it is reported as an impaired loan or lease. If the loan or lease deemed a TDR has performed for at least six months at the level prescribed by the modification, it is not considered to be non-performing; however, it will generally continue to be reported as impaired. Loans and leases that have performed for at least six months are reported as TDRsin compliance with modified terms.

Refer to Section G, “Troubled Debt Restructurings,” of Note 5-G5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements for more information regarding the Corporation's TDRs.

in this Annual Report on Form 10-K.

Charge-off Policy -The Corporation’s charge-off policy is that, on a periodic basis, not less often than quarterly, delinquent and non-performing loans that exceed the following limits are considered for full or partial charge-off:

●

Open-ended consumer loans exceeding 180 days past due.

●

Closed-ended consumer loans exceeding 120 days past due.

●

All commercial/business purpose loans exceeding 180 days past due.

●

All leases exceeding 120 days past due.


Open-ended consumer loans exceeding 180 days past due.
Closed-ended consumer loans exceeding 120 days past due.
All commercial/business purpose loans exceeding 180 days past due.
All leases exceeding 120 days past due.
Any other loan or lease, for which management has reason to believe collectability is unlikely, and for which sufficient collateral does not exist, is also charged off.

Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5-F5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding the Corporation's charge-offs and factors which influenced management’s judgment with respect thereto.


38
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Loans Acquired in Mergers and Acquisitions

In accordance with GAAP, the loans acquired from RBPI, FKB, FBD and CBH were recorded at their fair value with no carryover of the previously associated allowance for loan loss.

Certain

Certain loans were acquired which exhibited deteriorated credit quality since origination and for which management does not expect to collect all contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done in accordance with ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The loans were recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield. On a regular basis, at least quarterly, an assessment is made on PCI loans to determine if there has been any improvement or deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected cash flows of a PCI loan, an allowance is recorded in connection with the loan. Management evaluates PCI loans individually for further impairment as well as for improvements to expected cash flows.

Loans acquired in acquisitions which do not exhibit deteriorated credit quality at the time of acquisition are accounted for under ASC 310-20 and receive a loan mark based on a credit and interest-rate analysis. The resulting discount or premium is accreted or amortized, respectively, to interest income over their remaining maturity. These non-impaired acquired loans, along with the balance of the Corporation's loan and lease portfolio are evaluated on either an individual basis or on a collective basis for impairment. For a more information regarding the Corporation's impaired loans and leases, refer to Section F, “Allowance for Loan and Lease Losses,” and Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the accompanying Notes 5-F and 5-H and forto the Consolidated Financial Statements in this Annual Report on Form 10-K. For more information regarding loan marks, refer to Section I, “Loan Mark,” of Note 5-I5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements.

Statements in this Annual Report on Form 10-K.

Asset Quality and Analysis of Credit Risk

As of December 31, 2017,2019, total non-performing loans and leases were $8.6$10.6 million, representing 0.26%0.29% of portfolio loans and leases, as compared to $8.4$12.8 million, or 0.33%0.37% of portfolio loans and leases, as of December 31, 2016.2018. The $216 thousand increase$2.2 million decrease in non-performing loans and leases was comprised ofprimarily due to increases of $1.8$2.2 million and $552 thousand$1.7 million in residential mortgages and commercial mortgages, respectively. These increases were partially offset by decreases of $1.3 million and $808 thousand in non-performing commercial and industrial loans and commercial mortgage loans, respectively, offset by decreases of $3.1 million, $2.8 million, $92 thousand, and $47 thousand in non-performing residential mortgage loans, home equity loans and lines, leases, and consumer loans, respectively.


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The Provision for the twelve-month periodsyears ended December 31, 2019, 2018 and 2017 2016 and 2015 was $2.6$8.5 million, $4.3$7.2 million and $4.4$2.6 million, respectively. The Provision recorded during any given period reflects an allocation related to net new loan volume, changes in the economic environment, and the replenishment of Allowance consumed by charge-offs of loans and leases for which the Corporation had not specifically reserved. Net loan charge-offs for the twelve monthsyears ended December 31, 20172019 and 2018 each totaled $2.6$5.3 million as compared to $2.7$2.6 million for the same period in 2016.2017. Total portfolio loans increased by $750.4$262.2 million during the twelve monthsyear ended December 31, 20172019 as compared to $266.4$141.3 million and $750.4 million for the same periodperiods in 2016.2018 and 2017, respectively. The increase in 2017 was largely the result of the loans and leases acquired in the RBPI Merger. As of December 31, 2017,2019, the Allowance of $17.5$22.6 million represents 0.53%represented 0.61% of portfolio loans and leases, as compared to the Allowance as of December 31, 20162018 of $17.5$19.4 million, which represented 0.69%0.57% of portfolio loans and leases as of that date.

As of December 31, 2017,2019, the Corporation had no other real estate owned (“OREO”) valued at $304 thousand, as compared to $1.0 million$417 thousand as of December 31, 2016.2018. The decrease was relatedprimarily due to the sale of five residential properties, carried at $1.2 million, which resulted in a $104 thousand loss on sale. Additions to OREO during 2017 includedthe one residential property added through foreclosure and two manufactured homes that had been carried at $417 thousand as of December 31, 2018. In addition to the sale of these properties, acquired inone $87 thousand commercial property was foreclosed and subsequently sold during the RBPI Merger.

twelve months ended December 31, 2019.

As of December 31, 2017,2019, the Corporation had $9.1$8.0 million of TDRs, of which $5.8$5.1 million were in compliance with their modified terms for six months or greater, and hence, excluded from non-performing loans and leases. As of December 31, 2016,2018, the Corporation had $9.0$11.0 million of TDRs, of which $6.4$9.7 million were in compliance with their modified terms.

Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest payments in accordance with the original terms of the loans and leases. Included in impaired loans and leases are non-accrual loans and leases and TDRs in compliance with modified terms. Purchased credit-impairedPCI loans are not included in impaired loan and lease totals. As of December 31, 2017,2019, the Corporation had $14.2$15.7 million of impaired loans and leases, as compared to $14.4$22.6 million as of December 31, 2016. Refer to Note 5-H in the Notes to Consolidated Financial Statements for2018. For more information regarding the Corporation's impaired loans and leases.

leases, refer to Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Management continues to be diligent in its credit underwriting process and very proactive with its loan review process, including engaging the services of an independent outside loan review firm, which helps identify developing credit issues. These proactive steps include the procurement of additional collateral (preferably outside the current loan structure) whenever possible. Management believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall losses.


39
Table of Contents


Non-Performing Assets,, TDRsand Related Ratiosasas oforforfor the Twelve MonthsYear EndedDecember 31,,

(dollars in thousands)

 

2017

  

2016

  

2015

  

2014

  

2013

 

Non-accrual loans and leases

 $8,579  $8,363  $10,244  $10,096  $10,530 

Loans 90 days or more past due and still accruing

  —   —   —   —   — 

Total non-performing loans and leases

  8,579   8,363   10,244   10,096   10,530 

Other real estate owned

  304   1,017   2,638   1,147   855 

Total non-performing assets

 $8,883  $9,380  $12,882  $11,243  $11,385 
                     

TDRs included in non-performing assets

 $3,289  $2,632  $1,935  $4,315  $1,699 

TDRs in compliance with modified terms

  5,800   6,395   4,880   4,157   7,277 

Total TDRs

 $9,089  $9,027  $6,815  $8,472  $8,976 
                     
                     

Allowance for loan and lease losses to non-performing loans and leases

  204.3

%

  209.1

%

  154.8

%

  144.5

%

  147.3

%

Non-performing loans and leases to total loans and leases

  0.26

%

  0.33

%

  0.45

%

  0.61

%

  0.68

%

Allowance for loan losses to total portfolio loans and leases

  0.53

%

  0.69

%

  0.70

%

  0.88

%

  1.00

%

Non-performing assets to total assets

  0.20

%

  0.27

%

  0.43

%

  0.50

%

  0.55

%

Period-end portfolio loans and leases

 $3,285,858  $2,535,425  $2,268,988  $1,652,257  $1,547,185 

Average portfolio loans and leases

 $2,660,999  $2,419,950  $2,153,542  $1,608,248  $1,453,555 

Allowance for loan and lease losses

 $17,525  $17,486  $15,857  $14,586  $15,515 

Interest income that would have been recorded on impaired loans if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination

 $708  $1,098  $1,100  $533  $1,074 

Interest income on impaired loans included in net income for the period

 $485  $551  $513  $341  $365 

(dollars in thousands)2019 2018 2017 2016 2015
Non-accrual loans and leases$10,648
 $12,820
 $8,579
 $8,363
 $10,244
Loans 90 days or more past due and still accruing—
 —
 —
 —
 —
Total non-performing loans and leases10,648
 12,820
 8,579
 8,363
 10,244
Other real estate owned—
 417
 304
 1,017
 2,638
Total non-performing assets$10,648
 $13,237
 $8,883
 $9,380
 $12,882
TDRs included in non-performing assets$3,018
 $1,217
 $3,289
 $2,632
 $1,935
TDRs in compliance with modified terms5,071
 9,745
 5,800
 6,395
 4,880
Total TDRs$8,089
 $10,962
 $9,089
 $9,027
 $6,815
Allowance for loan and lease losses to non-performing loans and leases212.3% 151.5% 204.3% 209.1% 154.8%
Non-performing loans and leases to total loans and leases0.29
 0.37
 0.26
 0.33
 0.45
Allowance for loan losses to total portfolio loans and leases0.61
 0.57
 0.53
 0.69
 0.70
Non-performing assets to total assets0.20
 0.28
 0.20
 0.27
 0.43
Period-end portfolio loans and leases$3,689,313
 $3,427,154
 $3,285,858
 $2,535,425
 $2,268,988
Average portfolio loans and leases3,594,449
 3,397,479
 2,660,999
 2,419,950
 2,153,542
Allowance for loan and lease losses22,602
 19,426
 17,525
 17,486
 15,857
Interest income that would have been recorded on impaired loans if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination$984
 $1,240
 $708
 $1,098
 $1,100
Interest income on impaired loans included in net income for the period440
 774
 485
 551
 513

As of December 31, 2017,2019, management is not aware of any loan or lease, other than those disclosed in the table above, for which it has any serious doubt as to the borrower’s ability to pay in accordance with the terms of the loan.

Summary of Changes in the Allowance for Loan and Lease Losses

(dollars in thousands)

 

2017

  

2016

  

2015

  

2014

  

2013

 

Balance, January 1

 $17,486  $15,857  $14,586  $15,515  $14,425 

Charge-offs:

                    

Consumer

  (154

)

  (173

)

  (177

)

  (144

)

  (194

)

Commercial and industrial

  (692

)

  (1,298

)

  (1,220

)

  (415

)

  (781

)

Real estate

  (1,056

)

  (1,008

)

  (1,615

)

  (1,231

)

  (891

)

Construction

  —   —   —   —   (737

)

Leases

  (1,224

)

  (808

)

  (442

)

  (410

)

  (376

)

Total charge-offs

  (3,126

)

  (3,287

)

  (3,454

)

  (2,200

)

  (2,979

)

Recoveries:

                    

Consumer

  8   23   29   17   10 

Commercial and industrial

  25   93   35   98   65 

Real estate

  182   178   160   47   105 

Construction

  4   64   4   60   24 

Leases

  328   232   101   165   290 

Total recoveries

  547   590   329   387   494 

Net charge-offs

  (2,579

)

  (2,697

)

  (3,125

)

  (1,813

)

  (2,485

)

Provision for loan and lease losses

  2,618   4,326   4,396   884   3,575 

Balance, December 31

 $17,525  $17,486  $15,857  $14,586  $15,515 

Ratio of net charge-offs to average portfolio loans outstanding

  0.10

%

  0.17

%

  0.15

%

  0.11

%

  0.17

%

Losses
40
(dollars in thousands)2019 2018 2017 2016 2015
Balance, January 1$19,426
 $17,525
 $17,486
 $15,857
 $14,586
Charge-offs:         
Consumer(720) (311) (154) (173) (177)
Commercial and industrial(781) (1,374) (692) (1,298) (1,220)
Real estate(3,450) (1,018) (1,056) (1,008) (1,615)
Leases(2,565) (3,132) (1,224) (808) (442)
Total charge-offs(7,516) (5,835) (3,126) (3,287) (3,454)
Recoveries:         
Consumer103
 10
 8
 23
 29
Commercial and industrial153
 24
 25
 93
 35
Real estate1,211
 74
 182
 178
 160
Construction4
 2
 4
 64
 4
Leases714
 43
 328
 232
 101
Total recoveries2,185
 543
 547
 590
 329
Net charge-offs(5,331) (5,292) (2,579) (2,697) (3,125)
Provision for loan and lease losses8,507
 7,193
 2,618
 4,326
 4,396
Balance, December 31$22,602
 $19,426
 $17,525
 $17,486
 $15,857
Ratio of net charge-offs to average portfolio loans outstanding0.15% 0.16% 0.10% 0.17% 0.15%


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Allocation of Allowance for Loan and Lease Losses

The following table sets forth an allocation of the Allowance by portfolio segment. The specific allocations in any portfolio segment may be changed in the future to reflect then-current conditions. Accordingly, management considers the entire Allowance to be available to absorb losses in any portfolio segment.

  

December 31,

 
  

2017

  

2016

  

2015

  

2014

  

2013

 

(dollars in thousands)

 

Allowance

  

%
Loans

to
Total

Loans

  

Allowance

  

%
Loans

to
Total

Loans

  

Allowance

  

%
Loans

to
Total

Loans

  

Allowance

  

%
Loans

to
Total

Loans

  

Allowance

  

%
Loans

to
Total

Loans

 

Allowance at end of period
applicable to:

                                        

Commercial mortgage

 $7,550   46.4

%

 $6,227   43.8

%

 $5,199   42.5

%

 $3,948   41.8

%

 $3,797   40.4

%

Home equity lines and loans

  1,086   6.6   1,255   8.2   1,307   9.2   1,917   11.0   2,204   12.3 

Residential mortgage

  1,926   14.0   1,917   16.3   1,740   17.9   1,736   19.0   2,446   19.4 

Construction

  937   6.5   2,233   5.6   1,324   4.0   1,367   4.0   845   3.0 

Commercial and industrial

  5,038   21.9   5,142   22.9   5,609   23.1   4,533   20.3   5,011   21.2 

Consumer

  246   1.1   153   1.0   142   1.0   238   1.1   259   1.1 

Leases

  742   3.5   559   2.2   518   2.3   468   2.8   604   2.6 

Unallocated

  —   —   —   —   18   —   379   —   349   — 

Total

 $17,525   100.0

%

 $17,486   100.0

%

 $15,857   100.0

%

 $14,586   100.0

%

 $15,515   100.0

%

Non-Interest Income

2017

 December 31,
 2019 2018 2017 2016 2015
(dollars in thousands)Allowance 
%
Loans
to
Total
Loans
 Allowance 
%
Loans
to
Total
Loans
 Allowance 
%
Loans
to
Total
Loans
 Allowance 
%
Loans
to
Total
Loans
 Allowance 
%
Loans
to
Total
Loans
Allowance at end of period applicable to:                   
Commercial mortgage$10,434
 51.9% $7,567
 48.3% $7,550
 46.4% $6,227
 43.8% $5,199
 42.5%
Home equity lines and loans890
 5.3
 1,003
 6.1
 1,086
 6.6
 1,255
 8.2
 1,307
 9.2
Residential mortgage1,538
 13.3
 1,813
 14.4
 1,926
 14.0
 1,917
 16.3
 1,740
 17.9
Construction997
 4.3
 1,485
 5.3
 937
 6.5
 2,233
 5.6
 1,324
 4.0
Commercial and industrial6,029
 19.2
 5,461
 20.3
 5,038
 21.9
 5,142
 22.9
 5,609
 23.1
Consumer353
 1.5
 229
 1.4
 246
 1.1
 153
 1.0
 142
 1.0
Leases2,361
 4.5
 1,868
 4.2
 742
 3.5
 559
 2.2
 518
 2.3
Unallocated—
 —
 —
 —
 —
 —
 —
 —
 18
 —
Total$22,602
 100.0% $19,426
 100.0% $17,525
 100.0% $17,486
 100.0% $15,857
 100.0%

Noninterest Income

2019Compared to 2016

Non-interest2018

Noninterest income of $82.2 million for the twelve monthsyear ended December 31, 20172019 increased $6.2 million, or 8.2%, as compared to $76.0 million for the year ended December 31, 2018. The increase was $59.1primarily due to increases of $6.4 million anand $2.1 million in capital markets revenue and fees for wealth management services, respectively, partially offset by decreases of $1.3 million and $941 thousand in other operating income and net gain on sale of loans, respectively.

The increase in capital markets revenue was primarily due to increased volume and size of $5.2 millioninterest rate swap transactions with commercial loan customers during the year ended December 31, 2019 as compared to the same period in 2016. Anyear ended December 31, 2019 driven by the continued organic growth of our capital markets group. The increase of $2.0 million in fees for wealth management services resulted aswas primarily related to the $3.12 billion increase in wealth assets under management, administration, supervision and brokerage increased $1.64from $13.43 billion fromat December 31, 20162018 to $16.55 billion at December 31, 2019, and was comprised of a $1.7 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $1.91 billion increase in fixed rate flat-fee account balances, and a $328 thousand increase in fees derived from market-value based fee accounts.

The decrease in other operating income, which is further detailed in the table below, was primarily due to the $4.3 million decrease in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger, partially offset by increases of $1.5 million and $1.2 million in gain on trading investments and miscellaneous other income, respectively.











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Components of other operating income for the indicated years ended December 31 include:
(dollars in thousands)2019 2018 2017
Visa debit card income$1,795
 $1,700
 $1,443
Bank owned life insurance income1,239
 1,177
 959
Commissions and fees1,353
 1,270
 621
Safe deposit box rentals369
 386
 365
Other investment income552
 337
 48
Rent income31
 150
 193
Gain (loss) on trading investments1,335
 (153) 613
Recovery of purchase accounting fair value loan mark60
 4,338
 337
Miscellaneous other income3,554
 2,341
 742
Other operating income$10,288
 $11,546
 $5,321
2018Compared to 2017
Noninterest income of $76.0 million for the year ended December 31, 2018 increased $16.9 million, or 28.5%, as compared to $59.1 million for the year ended December 31, 2017. InsuranceThe increase was primarily due to increases of $6.2 million, $3.6 million, $2.5 million, and $2.2 million in other operating income, fees for wealth management services, capital markets revenue, increased $867 thousandand insurance commissions, respectively. The increase in other operating income, which is further detailed in the table above, was primarily due to the $4.0 million increase in recoveries of purchase accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. The increase in fees for wealth management services was primarily related to the $460.8 million increase in wealth assets under management, administration, supervision and brokerage from $12.97 billion at December 31, 2017 to $13.43 billion at December 31, 2018. The increase in capital markets revenue was primarily related to a full year of operations for our capital markets group, which was formed during the second quarter of 2017, as well as organic growth. The increase in insurance commissions was partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition.

Noninterest Expense

2019Compared to 2018

Noninterest expense of $146.5 million for the twelve monthsyear ended December 31, 20172019 increased $6.2 million, or 4.4%, as compared to $140.3 million for the year ended December 31, 2018.

The increase was primarily due to a $7.7 million increase in salaries and wages, largely driven by a pre-tax, non-recurring, charge of $4.5 million related to the Incentive Program recognized during the first quarter of 2019, and to a lesser extent, additional recruiting efforts and increases in our incentive accruals.

Also contributing to the increase were increases of $1.4 million, $1.3 million, $1.2 million and $992 thousand in other operating expenses, furniture, fixtures and equipment expenses, professional fees, and occupancy and bank premises expenses, respectively.

Partially offsetting these increases in noninterest expense was a decrease of $7.8 million in due diligence, merger-related and merger integration expenses for the year ended December 31, 2019 as compared to the same period in 2016, due to the May 2017 acquisition2018.











Table of Hirshorn Boothby. Gain on trading investments, which is reported under “Other operating income” increased $501 thousand between periods. The Corporation’s trading investments are comprised solely of investments held in deferred compensation plan trusts whose investment decisions are at the sole discretion of the plan participants. Revenue from our capital markets initiative, which was launched in the second quarter of 2017, contributed $2.4 million to non-interest income for the twelve months ended December 31, 2017. Partially offsetting these increases was a $607 thousand decrease in net gain on sale of loans as mortgage refinancing activity slowed during 2017 with increasing interest rates.

Contents


Components of other operating incomeexpense for the indicated years ended December 31 include:

(dollars in thousands)

 

2017

  

2016

  

2015

 

Merchant interchange fees

 $1,443  $1,381  $1,238 

Bank owned life insurance income

  959   908   783 

Commissions and fees

  621   673   867 

Safe deposit box rentals

  365   382   384 

Other investment income

  48   223   248 

Rent income

  193   163   175 

Gain (loss) on trading investments

  613   112   (9

)

Miscellaneous other income

  1,079   1,026   1,163 

Other operating income

 $5,321  $4,868  $4,849 

2016

(dollars in thousands)2019 2018 2017
Contributions$1,709
 $1,659
 $1,511
Deferred compensation expense1,228
 (492) 783
Director fees469
 544
 542
Dues and subscriptions1,652
 1,150
 871
FDIC insurance817
 1,716
 1,580
Impairment of OREO and other repossessed assets—
 89
 208
Insurance865
 851
 838
Loan processing816
 1,068
 423
Miscellaneous other expense4,287
 3,765
 2,545
MSR amortization and impairment597
 830
 745
Other taxes185
 60
 39
Outsourced services200
 243
 315
Portfolio maintenance410
 435
 417
Postage685
 763
 575
Stationary and supplies553
 536
 488
Telephone and data lines1,752
 1,909
 1,616
Temporary help and recruiting703
 416
 852
Travel and entertainment1,141
 1,093
 900
Other operating expense$18,069
 $16,635
 $15,248
2018Compared to 2015

Non-interest income2017


Noninterest expense of $140.3 million for the twelve monthsyear ended December 31, 2016 was $54.02018 increased $25.9 million, a decrease of $1.8 millionor 22.6%, as compared to $114.4 million for the same period in 2015. The decrease was related to a $1.0 million decrease in gain on sale of available for sale investment securities, a $319 thousand decrease in dividends on FHLB and FRB stocks and a $204 thousand decrease in fees for wealth management services. The decrease in gain on sale of available for sale investment securities resulted from the very limited sales during the twelve monthsyear ended December 31, 2016, which resulted2017. The increase was primarily due to increases of $13.4 million and $2.7 million in a loss on sale of $77 thousand as compared to the sale of $64.0 million of available for sale investment securities sold during the same period in 2015, which resulted in a gain on sale of $931 thousand. Thesalaries and wages and employee benefits, respectively. A majority of the investments sold in 2015 had been acquired in the CBH Merger andthese increases were strategically sold to shorten the duration of the portfolio. The $319 thousand decrease in dividends on FHLB and FRB stocks occurred due to the special dividend paid on FHLB stock in 2015 which was not repeated in 2016. The $204 thousand decrease in fees for wealth management services was related to the shiftadditional expenses associated with the staff assumed in the composition of the wealth management portfolio, with more of the portfolio being comprised of assets held in lower-yielding fixed-fee accounts as of December 31, 2016 as compared to December 31, 2015.

41

Non-Interest Expense

2017 Compared to 2016

Non-interest expense for the twelve months ended December 31, 2017 was $114.4 million, an increase of $12.7 million, compared to the same period in 2016. The increase was largely related to a $6.1 million increase in due diligence and merger-related and merger integration expenses primarily related to the RBPI Merger, and to a $5.8 millionlesser extent, recruiting efforts of certain key leadership positions and increases in our incentive accruals. The remaining increase in salarynoninterest expense consisted of increases of $1.7 million, $1.7 million, $1.4 million, $1.3 million, and wages due to staffing increases from our Capital Markets initiative, the Hirshorn Boothby acquisition$1.0 million in occupancy and the Princeton wealth management office, annual salary and wage increases, increases in incentive compensation and to a smaller extent, the additional staff added in the December 15, 2017 RBPI Merger.

Components of other operating expense for the indicated years ended December 31 include:

(dollars in thousands)

 

2017

  

2016

  

2015

 

Telephone and data lines

 $1,616  $1,620  $1,704 

FDIC insurance

  1,580   1,616   1,447 

Temporary help and recruiting.

  852   1,522   1,362 

Loan processing

  291   93   1,110 

Debt prepayment penalty

  —   —   1,131 

Travel and entertainment

  900   894   868 

Insurance

  838   788   770 

MSR amortization and impairment / (recovery)

  745   881   660 

Stationary and supplies

  488   518   623 

Director fees

  542   566   568 

Postage

  575   551   540 

Outsourced services

  315   569   508 

Contributions

  1,511   957   468 

Dues and subscriptions

  871   456   441 

Portfolio maintenance

  417   391   385 

Other taxes

  39   45   80 

Deferred compensation expense

  783   664   15 

Miscellaneous other expense

  2,603   1,505   1,643 

Other operating expense

 $14,966  $13,636  $14,323 

2016 Compared to 2015

Non-interest expense for the twelve months ended December 31, 2016 was $101.7 million, a decrease of $23.9 million, as compared to the same period in 2015. The primary driver for the decrease related to the $17.4 million loss on settlement of the corporate pension plan and the $6.7 million ofbank premises expenses, due diligence, merger-related and merger integration expenses, which had been recordeddata processing expenses, other operating expenses, and furniture, fixtures and equipment expenses, respectively. These increases were also primarily due to the additional expenses associated with the facilities assumed in the twelve months ended December 31, 2015 but not repeatedRBPI Merger. While much of the merger-related expenses associated with the RBPI Merger were recorded at the time of the merger, certain expenses incurred in 2016. Decreases in several other noninterest expense categories also occurredconnection with the banking system conversion, contract terminations and lease terminations are recorded as the efficiencies and cost-saves related to the CBH Merger began to be realized. Partially offsetting these decreases was a $2.8 million increase in salaries and wages related to annual salary increases, incentive increases and the hiring of several new senior and executive officers during 2016.

they are incurred.

Secondary Market Sold-Loan Repurchase Demands

In the course of originating residential mortgage loans and selling those loans in the secondary market, the Corporation makes various representations and warranties to the purchasers of the mortgage loans. Each residential mortgage loan originated by the Corporation is evaluated by an automated underwriting application, which verifies the underwriting criteria and certifies the loan’s eligibility for sale to the secondary market. Any exceptions discovered during this process are remedied prior to sale. These representations and warranties also apply to underwriting the real estate appraisal opinion of value for the collateral securing these loans. Under the representations and warranties, failure by the Corporation to comply with the underwriting and appraisal standards could result in the Corporation’s being required to repurchase the mortgage loan or to reimburse the investor for losses incurred (make whole requests) if such failure cannot be cured by the Corporation within the specified period following discovery. As of December 31, 2017,2019, there were no pending or unsettled loan repurchase demands.


42
Table of Contents

Income Tax Expense

Income Tax Expense

Income tax expense of $15.6 million for the twelve monthsyear ended December 31, 2017 was $34.22019 increased $1.4 million as compared to $18.2 million and $9.2$14.2 million for the same periods in 2016 and 2015, respectively.year ended December 31, 2018. The effective tax rates for the twelve-month periodsyears ended December 31, 2017, 20162019 and 20152018 were 59.8%, 33.5%

Table of Contents

20.9% and 35.4%18.2%, respectively. The increase was primarily related to a $2.6 million decrease in rate from 33.5%discrete benefits for the year ended December 31, 2019 as compared to 59.8% between 2016the year ended December 31, 2018. The $2.6 million discrete benefit recorded in 2018 primarily related to certain tax return versus provision adjustments made upon the filing of the Corporation’s 2018 tax return.

Income tax expense of $14.2 million for the year ended December 31, 2018 decreased $20.1 million as compared to $34.2 million for the year ended December 31, 2017. The effective tax rates for the years ended December 31, 2018 and 2017 were 18.2% and 59.8%, respectively. The decrease was directly related to the Tax Reform enacted on December 22, 2017. The Tax Reform2017, which lowered the top federal corporate rate from 35% to 21%. In accordance with GAAP, this requiredAlso contributing to the re-measurement,decrease in income tax expense was the period includingabsence of the enactment,$15.2 million one-time income tax charge related to the re-measurement of the Corporation’s net deferred tax asset, to reflecttriggered by Tax Reform, during the rate at which they will be recognized in future periods. The result was a $15.2year ended December 31, 2017, and the previously discussed $2.6 million one-time charge to income tax expense. Excludingbenefit recorded during the $15.2 million discrete incomeyear ended December 31, 2018 made upon the filing of the Corporation’s tax charge, the effective tax rate for 2017 was 33.3%. return.

For more information related to income taxes, refer to Note 1917, “Income Taxes,” in the accompanying Notes to the Consolidated Financial Statements.

Balance Sheet Analysis

Statements in this Annual Report on Form 10-K.



Table of Contents

Balance Sheet Analysis

Asset Changes

Total assets of $5.26 billion as of December 31, 2019 increased $610.8 million, or 13.1%, from $4.65 billion as of December 31, 2018. The increase was primarily due to the increases in portfolio loans and leases and available for sale investment securities discussed in the following sections, as well as $41.0 million of operating lease right-of-use assets as of December 31, 2017 increased to $4.45 billion from $3.42 billion2019 included on the balance sheet as a result of a required accounting pronouncement adopted in the first quarter of 2019.

Investment Securities

Available for sale investment securities as of December 31, 2016. The $1.032019 totaled $1.01 billion, an increase was largely attributable to the $859.4of $268.5 million of assets acquired in the RBPI Merger. The following pro forma balance sheets detail the changes in balance sheet items, excluding the effect of the RBPI Merger from December 31, 20162018. The increase was primarily due to the purchase of $500.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2017. The RBPI balances shown are2019, an increase of $300.0 million as compared to a similar purchase of $200.0 million of short-term U.S. Treasury securities included on the balance sheet as of the merger dateDecember 31, 2018. This increase in U.S. Treasury securities coupled with a $76.1 million increase in mortgage-backed securities, respectively, were partially offset by decreases of December 15, 2017.

(dollars in thousands)

 

Bryn Mawr Bank Corporation

December 31, 2017

(Actual)

  

Royal Bancshares of

Pennsylvania, Inc.

December 15,

2017 Opening

Balances

  

Bryn Mawr Bank Corporation

December 31, 2017 (Excluding RBPI

Opening Balances)

  

Bryn Mawr Bank Corporation

December 31, 2016

(Actual)

  

Change from

December 31, 2016

to December 31,

 2017 (Excluding

RBPI Opening Balances)

($)

  

Change from

December 31, 2016

 to December 31, 2017 (Excluding RBPI Opening Balances)

(%)

 

Assets

                        

Cash and due from banks

 $11,657  $4,822  $6,835  $16,559  $(9,724

)

  (58.7

)%

Interest-bearing deposits with banks

  48,367   12,271   36,096   34,206   1,890   5.5

%

Cash and cash equivalents

  60,024   17,093   42,931   50,765   (7,834

)

  (15.4

)%

Investment securities available for sale

  689,202   121,586   567,616   566,996   620   0.1

%

Investment securities held to maturity

  7,932   —   7,932   2,879   5,053   175.5

%

Investment securities, trading

  4,610   —   4,610   3,888   722   18.6

%

Loans held for sale

  3,794   —   3,794   9,621   (5,827

)

  (60.6

)%

Portfolio loans and leases

  3,285,858   570,374   2,715,484   2,535,425   180,059   7.1

%

Less: Allowance for loan and lease losses

  (17,525

)

  —   (17,525

)

  (17,486

)

  (39

)

  0.2

%

Net portfolio loans and leases

  3,268,333   570,374   2,697,959   2,517,939   180,020   7.1

%

Premises and equipment, net

  54,458   8,264   46,194   41,778   4,416   10.6

%

Accrued interest receivable

  14,246   2,535   11,711   8,533   3,178   37.2

%

Mortgage servicing rights

  5,861   —   5,861   5,582   279   5.0

%

Bank-owned life insurance

  56,667   16,550   40,117   39,279   838   2.1

%

FHLB stock

  20,083   —   20,083   17,305   2,778   16.1

%

Goodwill

  179,889   72,762   107,127   104,765   2,362   2.3

%

Intangible assets

  25,966   5,235   20,731   20,405   326   1.6

%

Other investments

  12,470   5,902   6,568   8,627   (2,059

)

  (23.9

)%

Other assets

  46,185   39,118   7,067   23,168   (16,101

)

  (69.5

)%

Total assets

 $4,449,720  $859,419  $3,590,301  $3,421,530  $168,771   4.9

%

Liabilities

                        

Deposits:

                        

Non-interest-bearing

 $924,844  $98,418  $826,426  $736,180  $90,246   12.3

%

Interest-bearing

  2,448,954   494,754   1,954,200   1,843,495   110,705   6.0

%

Total deposits

  3,373,798   593,172   2,780,626   2,579,675   200,951   7.8

%

Short-term borrowings

  237,865   15,000   222,865   204,151   18,714   9.2

%

FHLB advances and other borrowings

  139,140   59,568   79,572   189,742   (110,170

)

  (58.1

)%

Subordinated notes

  98,416   —   98,416   29,532   68,884   233.3

%

Junior subordinated debentures

  21,416   21,416   —   —   —   — 

Accrued interest payable

  3,527   2,816   711   2,734   (2,023

)

  (74.0

)%

Other liabilities

  47,439   29,621   17,818   34,569   (16,751

)

  (48.5

)%

Total liabilities

  3,921,601   721,593   3,200,008   3,040,403   159,605   5.2

%

Shareholders’ equity

                        

Common stock

  24,360   3,099   21,261   21,111   150   0.7

%

Paid-in capital in excess of par value

  371,486   135,410   236,076   232,806   3,270   1.4

%

Common stock in treasury, at cost

  (68,179

)

  —   (68,179

)

  (66,950

)

  (1,229

)

  1.8

%

Accumulated other comprehensive loss, net of tax benefit

  (4,414

)

  —   (4,414

)

  (2,409

)

  (2,005

)

  83.2

%

Retained earnings

  205,549   —   205,549   196,569   8,980   4.6

%

Total Bryn Mawr Bank Corporation shareholders’ equity

  528,802   138,509   390,293   381,127   9,166   2.4

%

Noncontrolling interest

  (683

)

  (683

)

  —   —   —   — 

Total shareholders’ equity

  528,119   137,826   390,293   381,127   9,166   2.4

%

Total liabilities and shareholders’ equity

 $4,449,720  $859,419  $3,590,301  $3,421,530  $168,771   4.9

%

$93.8 million, $7.4 million, and $6.0 million in U.S. government and agency securities, collateralized mortgage obligations, and state & political subdivision securities, respectively.

43
Table of Contents

The following table details the maturity and weighted average tax-equivalent yield (1) of the available for sale investment portfolio (2) as of December 31, 2017:

(dollars in thousands)

 

Maturing

During

2018

  

Maturing

From

2019

Through

2022

  

Maturing

From

2023

Through

2027

  

Maturing

After

2027

  

Total

 

U.S. Treasury securities:

                    

Amortized cost

 $200,077  $—  $—  $—  $200,077 

Weighted average yield

  1.41

%

  —   —   —   1.41

%

Obligations of the U.S. government and agencies:

                    

Amortized cost

  1,268   114,357   21,964   15,439   153,028 

Weighted average yield

  1.54

%

  2.07

%

  2.25

%

  2.68

%

  2.15

%

State and political subdivisions(1):

                    

Amortized cost

  9,174   10,995   1,183   —   21,352 

Weighted average yield

  1.50

%

  1.68

%

  1.60

%

  —   1.60

%

Mortgage-related securities(3):

                    

Amortized cost

  107   9,199   44,797   259,451   313,554 

Weighted average yield

  2.48

%

  2.77

%

  2.59

%

  2.37

%

  2.41

%

Other investment securities:

                    

Amortized cost

  500   1,100   —   —   1,600 

Weighted average yield

  2.38

%

  2.19

%

  —   —   2.25

%

Total amortized cost

 $211,126  $135,651  $67,944  $274,890  $689,611 

Weighted average yield

  1.41

%

  2.08

%

  2.46

%

  2.39

%

  2.04

%

2019:  
(dollars in thousands)
Maturing
During
2020
 
Maturing
From
2021
Through
2024
 
Maturing
From
2025
Through
2029
 
Maturing
After
2029
 Total
U.S. Treasury securities:

 

 

 

 

Amortized cost$500,066
 $—
 $—
 $—
 $500,066
Weighted average yield1.01% —% —% —% 1.01%
Obligations of the U.S. government and agencies:

 

 

 

 

Amortized cost1,555
 36,592
 52,930
 11,102
 102,179
Weighted average yield1.63% 1.97% 2.58% 2.61% 2.35%
State and political subdivisions:

 

 

 

 

Amortized cost3,230
 1,468
 668
 —
 5,366
Weighted average yield2.20% 2.95% 2.19% —% 2.40%
Mortgage-related securities(1):


 

 

 

 

Amortized cost240
 12,051
 64,460
 316,022
 392,773
Weighted average yield2.93% 2.77% 2.47% 2.62% 2.60%
Other investment securities:

 

 

 

 

Amortized cost—
 650
 —
 —
 650
Weighted average yield—% 3.51% —% —% 3.51%
Total amortized cost$505,091
 $50,761
 $118,058
 $327,124
 $1,001,034
Weighted average yield1.02% 2.21% 2.52% 2.62% 1.78%

(1)

Weighted average yields on tax-exempt obligations have not been computed on a tax-equivalent basis.

(1)
(2)Excluded from the above table is the Corporation’s investment in bond mutual funds with an amortized cost of $3.2million, which have no stated maturity or constant stated yield.
(3)Mortgage-related securities are included in the above table based on their contractual maturity. However, mortgage-related securities, by design, have scheduled monthly principal payments which are not reflected in this table.









Table of Contents

The following table details the amortized cost of the available for sale investment portfolio as of the dates indicated:

  

Amortized Cost as of December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

U.S. Treasury securities

 $200,077  $200,094  $101 

Obligations of the U.S. government and agencies

  153,028   83,111   101,342 

Obligations of state and political subdivisions

  21,352   33,625   41,892 

Mortgage-backed securities

  275,958   185,997   157,422 

Collateralized mortgage obligations

  37,596   49,488   29,756 

Other investment securities

  4,813   16,575   17,263 

Total amortized cost

 $692,824  $568,890  $347,776 

44
 Amortized Cost as of December 31,
(dollars in thousands)2019 2018 2017 2016 2015
U.S. Treasury securities$500,066
 $200,026
 $200,077
 $200,094
 $101
Obligations of the U.S. government and agencies102,179
 198,604
 153,028
 83,111
 101,342
Obligations of state and political subdivisions5,366
 11,372
 21,352
 33,625
 41,892
Mortgage-backed securities360,977
 294,076
 275,958
 185,997
 157,422
Collateralized mortgage obligations31,796
 40,150
 37,596
 49,488
 29,756
Other investment securities650
 1,100
 4,813
 16,575
 17,263
Total amortized cost$1,001,034
 $745,328
 $692,824
 $568,890
 $347,776

Table of Contents

Portfolio Loans and Leases

The table below details the loan portfolio as of the dates indicated:

  

December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

  

2014

  

2013

 

Commercial mortgage

 $1,523,377  $1,110,898  $964,259  $689,528  $625,341 

Home equity lines & loans

  218,275   207,999   209,473   182,082   189,571 

Residential mortgage

  458,886   413,540   406,404   313,442   300,243 

Construction

  212,454   141,964   90,421   66,267   46,369 

Commercial & industrial

  719,312   579,791   524,515   335,645   328,459 

Consumer

  38,153   25,341   22,129   18,480   16,926 

Leases

  115,401   55,892   51,787   46,813   40,276 

Total portfolio loans and leases

  3,285,858   2,535,425   2,268,988   1,652,257   1,547,185 

Loans held for sale

  3,794   9,621   8,987   3,882   1,350 

Total

 $3,289,652  $2,545,046  $2,277,975  $1,656,139  $1,548,535 

The

 December 31,
(dollars in thousands)2019 2018 2017 2016 2015
Commercial mortgage$1,913,430
 $1,657,436
 $1,523,377
 $1,110,898
 $964,259
Home equity lines & loans194,640
 207,351
 218,275
 207,999
 209,473
Residential mortgage489,903
 494,355
 458,886
 413,540
 406,404
Construction159,867
 181,078
 212,454
 141,964
 90,421
Commercial and industrial709,257
 695,584
 719,312
 579,791
 524,515
Consumer57,138
 46,814
 38,153
 25,341
 22,129
Leases165,078
 144,536
 115,401
 55,892
 51,787
Total portfolio loans and leases3,689,313
 3,427,154
 3,285,858
 2,535,425
 2,268,988
Loans held for sale4,249
 1,749
 3,794
 9,621
 8,987
Total loans and leases$3,693,562
 $3,428,903
 $3,289,652
 $2,545,046
 $2,277,975
The following table summarizes the loan maturity distribution and interest rate sensitivity as of December 31, 2017.2019. Excluded from the table are residential mortgage, home equity lines and loans, and consumer loans:

(dollars in thousands)

 

Maturing

During

2018

  

Maturing

From

2019

Through

2022

  

Maturing

After

2022

  

Total

 

Loan portfolio maturity:

                

Commercial and industrial

 $287,145  $210,978  $221,189  $719,312 

Construction

  154,304   38,849   19,301   212,454 

Commercial mortgage

  93,063   492,261   938,053   1,523,377 

Leases

  7,829   106,929   643   115,401 

Total

 $542,341  $849,017  $1,179,186  $2,570,544 

Interest sensitivity on the above loans:

                

Loans with predetermined rates

 $132,976  $654,397  $466,097  $1,253,470 

Loans with adjustable or floating rates

  409,365   194,620   713,089   1,317,074 

Total

 $542,341  $849,017  $1,179,186  $2,570,544 

(dollars in thousands)
Maturing
During
2020
 
Maturing
From
2021
Through
2024
 
Maturing
After
2024
 Total
Loan portfolio maturity:
       
Commercial and industrial$213,392
 $264,819
 $231,046
 $709,257
Construction57,755
 58,233
 43,879
 159,867
Commercial mortgage104,791
 570,574
 1,238,065
 1,913,430
Leases8,321
 155,588
 1,169
 165,078
Total$384,259
 $1,049,214
 $1,514,159
 $2,947,632
Interest sensitivity on the above loans:       
Loans with fixed rates$103,908
 $711,515
 $279,070
 $1,094,493
Loans with adjustable or floating rates280,351
 337,699
 1,235,089
 1,853,139
Total$384,259
 $1,049,214
 $1,514,159
 $2,947,632
The list below identifies certain key characteristics of the Corporation’sCorporation’s loan and lease portfolio. Refer to the loan and lease portfolio tables in Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K and the section of this MD&A under the heading “Portfolio Loans and Leases” for further details.


●

•

Portfolio Loans and Leases –- The Corporation’s $3.29$3.69 billion loan and lease portfolio is predominantly based in the Corporation’s traditional market areas of Chester, DelawareSoutheastern Pennsylvania, Southern and Montgomery counties in Pennsylvania,Central New Castle county in Delaware,Jersey, and in the greater Philadelphia area, none of which has experienced the real estate price appreciation and subsequent decline that many other areas of the country have experienced over the last ten years. As indicated in the pro forma balance sheet above, under the heading “Asset Changes,” the RBPI Merger initially added $570.4 million of portfolio loans.

Delaware.


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These markets have exhibited relatively stable economic attributes, and have generally not seen the high levels of real estate price volatility experienced in other regions nationwide.

●

•

Concentrations –- The Corporation has a significant portion of its portfolio loans (excluding leases) in real estate-related loans. As of December 31, 20172019 and December 31, 2016,2018, respectively, loans secured by real estate were $2.41$2.76 billion and $1.87$2.54 billion, or 73.4%74.8% and 73.9%74.1%, of the total loan portfolio of $3.29$3.69 billion and $2.54$3.43 billion. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is within Pennsylvania, Delaware and Southern and Central New Jersey. Management is aware of this concentration and mitigates this risk to the extent possible in many ways, including maintaining a diverse group of collateral property types within the portfolio, and by exercising underwriting anddiscipline which includes assessment of the borrower’s capacity to repay, equity in the underlying real estate collateral and a review of a borrower’s global cash flows. For a substantial portion of the loans in the real estate portfolio, the Corporation has recourse to the owners/sponsors, primarily through personal guaranties, in addition to liens on collateral. This recourse provides credit strength, as it incorporates the borrowers’ global cash flows.


In addition to loans secured by real estate, commercial and industrial loans comprise 19.2% of the total loan portfolio as of December 31, 2019.

•In addition to loans secured by real estate, commercial and industrial loans comprise 21.9% of the total loan portfolio as of December 31, 2017.

●

Construction –- The construction portfolio of $212.5$159.9 million accounts for 6.5%4.3% of the total loan and lease portfolio at December 31, 2017, an increase2019, a decrease of $70.5$21.2 million from December 31, 2016. Construction loans acquired in the RBPI Merger totaled $84.2 million as of December 31, 2017.2018. The construction loan segment of the portfolio, which consists of residentialsite development loans, commercial construction loans, and loans for construction of individual homes, had no delinquent or nonperforming loans as of both December 31, 20172019 and 2016.

2018.

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●

•

Residential Mortgages – - Residential mortgage loans were $458.9$489.9 million as of December 31, 2017, an increase2019, a decrease of $45.3$4.5 million from December 31, 2016. Residential mortgage loans acquired in the RBPI Merger totaled $39.2 million as of December 31, 2017.2018. The residential mortgage segment accounts for 14.0%13.3% of the total loan and lease portfolio as of December 31, 2017.2019. The residential mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2017,2019, of 0.32%0.38%, as compared to 0.32%0.52% as of December 31, 2016.2018. Nonperforming residential mortgage loans comprised 0.96%0.06% of the residential mortgage segment of the portfolio as of December 31, 2017,2019, as compared to 0.64%0.70% as of December 31, 2016.2018. Management believes it is well protected with its collateral position on this portfolio.

●

•

Commercial Mortgages –- Commercial mortgages were $1.52$1.91 billion as of December 31, 2017,2019, an increase of $412.5$256.0 million from December 31, 2016. Commercial mortgages acquired in the RBPI Merger totaled $275.1 million as of December 31, 2017.2018. Management has made a concerted effort, over several operating cycles, to attract strong commercial real estate entrepreneurs in its primary trade area. The commercial mortgage segment accounts for 46.4%51.9% of the total loan and lease portfolio as of December 31, 2017.2019. The commercial mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2017,2019, of 0.25%0.13%, as compared to 0.12%0.06% as of December 31, 2016.2018. Nonperforming commercial mortgage loans comprised 0.06%0.22% of the commercial mortgage segment of the portfolio as of December 31, 2017,2019, as compared to 0.03%0.15% as of December 31, 2016.2018. The borrowers comprising this segment of the portfolio generally have strong, global cash flows, which are regularly assessed and have remained stable in this tough economic environment.

stable.

●

•

Commercial and Industrial –- Commercial and industrial loans were $719.3$709.3 million as of December 31, 2017,2019, an increase of $139.5$13.7 million from December 31, 2016. Commercial and industrial loans acquired in the RBPI Merger totaled $107.9 million as of December 31, 2017.2018. The commercial and industrial segment accounts for 21.9%19.2% of the total loan and lease portfolio as of December 31, 2017.2019. The commercial and industrial segment of the portfolio had a delinquency rate on performing loans, as of both December 31, 2017, of 0.13%, as compared to 0.01% as of2019 and December 31, 2016.2018 of 0.09%. Nonperforming commercial and industrial loans comprised 0.24%0.61% of the commercial and industrial segment of the portfolio as of December 31, 2017,2019, as compared to 0.51%0.30% as of December 31, 2016.2018. The commercial and industrial segment of the portfolio consists primarily of loans to privately held institutions, family businesses and non-profit institutions and private banking relationships. While certain of theseheadquartered within the Corporation’s traditional market area. These loans are collateralized by real estate, others are collateralizedgenerally secured by non-real estate business assets, including accounts receivable, inventory and inventory.

equipment, as the primary source of collateral, and often include commercial real estate as secondary collateral.

●

•

Home

Home Equity Loans and Lines of Credit–- Home equity loans and lines of credit were $218.3$194.6 million as of December 31, 2017, an increase2019, a decrease of $10.3$12.7 million from December 31, 2016. Home equity loans and lines of credit acquired in the RBPI Merger totaled $11.9 million as of December 31, 2017.2018. The home equity loans and lines of credit segment accounts for 6.6%5.3% of the total loan and lease portfolio as of December 31, 2017.2019. The home equity loans and lines of credit segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2017,2019, of 0.16%0.28%, as compared to 0.01%0.05% as of December 31, 2016.2018. Nonperforming home equity loans and lines of credit comprised 0.68%0.40% of the home equity loans and lines of credit segment of the portfolio as of December 31, 2017,2019, as compared to 1.10%1.74% as of December 31, 2016.2018. The CorporationBank originates the majority of its home equity loans and lines of credit through its branch network.

retail channel.


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●

•

Consumer loans –Loans - Consumer loans were $38.2$57.1 million as of December 31, 2017,2019, an increase of $12.8$10.3 million from December 31, 2016. Consumer loans acquired in the RBPI Merger totaled $2.9 million as of December 31, 2017.2018. The consumer loan segment accounted for 1.2%1.5% of the total loan and lease portfolio as of December 31, 2017.2019. The consumer loan segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2017,2019, of 2.9%0.42%, as compared to 0.06%0.09% as of December 31, 2016.2018. Nonperforming consumer loans comprised 0.00%0.11% of the consumer loan segment of the portfolio as of December 31, 2017,2019, as compared to 0.01%0.23% as of December 31, 2016.

2018. Consumer loans consist primarily of small-balance revolving or installment loans originated through the Bank's retail channel.

●

•

Leasing – - Leases totaled $115.4$165.1 million as of December 31, 2017,2019, an increase of $59.5$20.5 million from December 31, 2016. Leases acquired in the RBPI Merger totaled $47.3 million as of December 31, 2017.2018. The lease segment of the portfolio accounted for 3.5%4.5% of the total loan and lease portfolio as of December 31, 2017.2019. The lease segment of the portfolio had a delinquency rate on performing leases, as of December 31, 2017,2019, of 0.26%0.89%, as compared to 0.47%0.77% as of December 31, 2016.2018. Nonperforming leases comprised 0.09%0.54% of the leasing segment of the portfolio as of December 31, 2017,2019, as compared to 0.24%0.67% as of December 31, 2016.

2018.

46
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Goodwill and Intangible Assets –

Goodwill of $184.0 million as of December 31, 2017 increased by $75.1 million from2019 was unchanged as compared to December 31, 2016 as a result of the RBPI Merger and the acquisition of Hirshorn. 2018.

Intangible assets, other than Mortgage Servicing Rights (“MSRs”mortgage servicing rights ("MSRs"), increased by $5.6of $19.1 million fromas of December 31, 2016.2019 decreased $4.3 million, or 18.4%, from $23.5 million as of December 31, 2018. The RBPI Merger and the acquisition of Hirshorn added $8.3 million of intangible assets, whichdecrease was partially offset by $2.7primarily due to $3.8 million of amortization. Also contributing to the decrease was the derecognition of $541 thousand of favorable lease assets, with a corresponding adjustment to the operating lease right-of-use asset, in connection with the adoption of FASB ASU 2016-02 (Topic 842), “Leases” in the first quarter of 2019.

For more information regarding goodwill and intangible assets, see NotesNote 1, “Summary of Significant Accounting Policies,” Note 2, “Recent Accounting Pronouncements,” Note 3, “Business Combinations,” and 3Note 8, “Goodwill and Intangible Assets,” respectively, in the accompanying Notes to the Consolidated Financial Statements.

Statements in this Annual Report on Form 10-K.


FHLB Stock -

The Corporation’s investment in stock issued by the FHLB was $23.7 million as of December 31, 2017 increased by $2.82019, an increase of $9.2 million, or 63.4%, from $14.5 million as of December 31, 2016.2018. The Corporation must purchase, or the FHLB must redeem, its stock based on the Corporation’s borrowings balance with the FHLB.



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Mortgage Servicing Rights-

MSRs increased $279 thousand to $5.9of $4.5 million as of December 31, 20172019 decreased $597 thousand, or 11.8%, from $5.6$5.0 million as of December 31, 2016. This increase2018. The decrease was primarily due to amortization of $576 thousand for the result of $1.0 million of MSRs recorded during the twelve monthsyear ended December 31, 2017, reduced by amortization of $791 thousand and a recovery of previously recorded impairments of $45 thousand during2019. There were no mortgage loans sold with servicing retained for the period.

Theyear ended December 31, 2019.


The following table details activity related to mortgage servicing rights for the periods indicated:

  

For the Twelve Months Ended or as of December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

Mortgage originations

 $190,007  $280,059  $231,049 

Mortgage loans sold:

            

Servicing retained

 $103,439  $138,134  $107,351 

Servicing released

  27,871   22,829   29,630 

Total mortgage loans sold

 $131,310  $160,963  $136,981 

Percentage of originated mortgage loans sold

  69.1

%

  57.5

%

  59.3

%

Servicing retained %

  78.8

%

  85.8

%

  78.4

%

Servicing released %

  21.2

%

  14.2

%

  21.6

%

Residential mortgage loans serviced for others

 $650,703  $631,889  $601,939 

Mortgage servicing rights

 $5,861  $5,582  $5,142 

Gain on sale of mortgage loans

 $2,038  $2,693  $2,327 

Loan servicing and other fees

 $1,939  $1,939  $2,087 

Amortization of MSRs

 $791  $750  $590 

(Recovery) / Impairment of MSRs

 $(45

)

 $131  $70 

 For the Year Ended or as of December 31,
(dollars in thousands)2019 2018 2017
Mortgage originations$173,025
 $162,854
 $190,007
Mortgage loans sold:     
Servicing retained$—
 $1,850
 $103,439
Servicing released88,365
 86,518
 27,871
Total mortgage loans sold$88,365
 $88,368
 $131,310
Percentage of originated mortgage loans sold51.1% 54.3% 69.1%
Servicing retained %—% 2.1% 78.8%
Servicing released %100.0% 97.9% 21.2%
Residential mortgage loans serviced for others$502,832
 $578,788
 $650,703
Mortgage servicing rights$4,450
 $5,047
 $5,861
Gain on sale of mortgage loans$1,503
 $2,477
 $2,038
Loan servicing and other fees$2,206
 $2,259
 $1,939
Amortization of MSRs$576
 $803
 $791
(Impairment) / Recovery of MSRs$(21) $(27) $45

Liability Changes

Total liabilities of $4.65 billion as of December 31, 2019 increased $563.3 million, or 13.8%, from $4.09 billion as of December 31, 2018. The increase was primarily due to the increases in total deposits and short-term borrowings discussed in the following sections, as well as $45.3 million of operating lease liabilities as of December 31, 2017 increased $881.2 million, to $3.92 billion from December 31, 2016. The increase was largely related to2019 included on the $721.6 millionbalance sheet as a result of liabilities assumeda required accounting pronouncement adopted in the RBPI Merger.

first quarter of 2019.


Deposits -

Deposits of $3.37 $3.84 billion as of December 31, 2017,2019 increased $794.1$243.2 million, or 6.8%, from $3.60 billion as of December 31, 2016. The 30.8% increase was largely related to the $593.22018. Increases of $280.2 million, $243.8 million, and $122.8 million in interest-bearing demand accounts, money market accounts, and wholesale non-maturity deposits, respectively, were offset by decreases of $236.0 million, $137.6 million, $26.6 million, and $3.4 million in wholesale time deposits, assumed in the RBPI Merger, along with $200.9 million of organic deposit growth.

retail time deposits, savings accounts, and noninterest bearing deposits, respectively.


The following table details deposits as of the dates indicated:

  

As of December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

  

2014

  

2013

 

Interest-bearing checking

 $481,336  $379,424  $338,861  $277,228  $266,787 

Money market

  862,639   761,657   749,726   566,354   544,310 

Savings

  338,572   232,193   187,299   138,992   135,240 

Wholesale non-maturity deposits

  62,276   74,272   67,717   66,693   42,936 

Wholesale time deposits

  171,929   73,037   53,185   73,458   34,640 

Retail time deposits

  532,202   322,912   229,253   118,400   140,794 

Interest-bearing deposits

 $2,448,954  $1,843,495  $1,626,041  $1,241,125  $1,164,707 

Non-interest-bearing deposits

  924,844   736,180   626,684   446,903   426,640 

Total deposits

 $3,373,798  $2,579,675  $2,252,725  $1,688,028  $1,591,347 

indicated:
47
 As of December 31,
(dollars in thousands)2019 2018 2017 2016 2015
Interest-bearing demand$944,915
 $664,749
 $481,336
 $379,424
 $338,861
Money market1,106,478
 862,644
 862,639
 761,657
 749,726
Savings220,450
 247,081
 338,572
 232,193
 187,299
Retail time deposits405,123
 542,702
 532,202
 322,912
 229,253
Wholesale non-maturity deposits177,865
 55,031
 62,276
 74,272
 67,717
Wholesale time deposits89,241
 325,261
 171,929
 73,037
 53,185
Total interest-bearing deposits$2,944,072
 $2,697,468
 $2,448,954
 $1,843,495
 $1,626,041
Noninterest-bearing deposits898,173
 901,619
 924,844
 736,180
 626,684
Total deposits$3,842,245
 $3,599,087
 $3,373,798
 $2,579,675
 $2,252,725


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The following table summarizes the maturitiesmaturities of certificates of deposit of $100,000 or greater atas of December 31, 2017:

(dollars in thousands)

 

Retail

  

 

Wholesale

 

Three months or less

 $24,719  $92,663 

Three to six months

  52,355   50,305 

Six to twelve months

  120,052   10,239 

Greater than twelve months

  62,548   14,993 

Total

 $259,674  $168,200 

2019:

(dollars in thousands)Retail Wholesale
Three months or less$33,169
 $35,105
Three to six months20,566
 4,629
Six to twelve months89,693
 42,402
Greater than twelve months78,721
 6,034
Total$222,149
 $88,170
For more information regarding deposits, including average amount of deposits and average rate paid, refer to the sections of this MD&A under the headings “Balance Sheet Analysis” and “Analysis of Interest Rates and Interest Differential”.

Differential.”


Borrowings

Borrowings - Short-termof $665.9 million as of December 31, 2019, which include short-term borrowings, long-term FHLB advances, subordinated notes and junior subordinated debentures, increased $238.1 million, or 55.7%, from $427.8 million as of December 31, 2018. The increase was primarily due to a $240.9 million increase in short-term borrowings (original maturity of one year or less) as of December 31, 2017,, which consisted of funds obtained from overnight repurchase agreements with commercial customers and short-term FHLB advances increased $33.7 million from December 31, 2016. Asadvances.

The following table details borrowings as of December 31, 2017, long-term FHLB advances decreased $50.6 million from December 31, 2016. the dates indicated:
 As of December 31,
(dollars in thousands)2019 2018 2017 2016 2015
Short-term borrowings$493,219
 $252,367
 $237,865
 $204,151
 $94,167
Long-term FHLB advances52,269
 55,374
 139,140
 189,742
 254,863
Subordinated notes98,705
 98,526
 98,416
 29,532
 29,479
Jr. subordinated debentures21,753
 21,580
 21,416
 —
 —
Total borrowings$665,946
 $427,847
 $496,837
 $423,425
 $378,509
See the Liquidity Section of this MD&A under the heading “Liquidity” for further details on the Corporation’s FHLB available borrowing capacity.

Subordinated Notes– Subordinated notes, as of December 31, 2017, totaled $98.4 million and were comprised of $29.6 million of 10-year 4.75% fixed-to-floating notes which mature in August 2025, and $68.8 million of 4.25% 10-year fixed-to-floating notes which mature in December 2027.

Junior subordinated debentures – In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although the Corporation owns $774,000 of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation’s Consolidated Financial Statements as the Corporation is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, RBPI issued, and the Corporation assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7 million each, totaling $21.4 million representing the Corporation’s maximum exposure to loss. The junior subordinated debentures incur interest at a coupon rate of 3.74% as of December 31, 2017. The rate resets quarterly based on 3-month LIBOR plus 2.15%. On the date acquired, management recorded these junior subordinated debentures at fair value. The amortization of the fair value mark will adjust interest expense to closer reflect market rates paid on similar debt.

Trust I and Trust II each issued an aggregate principal amount of $12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the Corporation. As a result of the RBPI Merger, the Corporation has fully and unconditionally guaranteed the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15, 2034, and may be called at par by the Corporation any time after December 15, 2009. The Corporation records its investments in the Trusts’ common securities of $387,000 each as investments in unconsolidated entities, within Other Assets, and records dividend income upon declaration by Trust I and Trust II within Other Income.

Discussion of Segments


Discussion of Segments

The Corporation has two operating segments: Wealth Management and Banking. These segments are discussed below. Detailed segment information appears in Note 2831, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements.

Statements in this Annual Report on Form 10-K.

WealthManagementSegment Activity

The Wealth Management segment, which includes the insurance reporting unit, reported a pre-tax segment profit (“PTSP”) for the twelve monthsyear ended December 31, 20172019 of $15.1$16.4 million, a $702 thousand, or 4.9%, increase fromrelatively unchanged as compared to $16.5 million for the same period in 2016.year ended December 31, 2018. Fees for wealth management services of $44.4 million for 2017the year ended December 31, 2019 increased by $2.0$2.1 million, fromor 4.9%, as compared to $42.3 million for the amount recorded in 2016, while expenses increased by $2.3 million during the same period.year ended December 31, 2018. The increase in fees year over year, is related to the $1.64 billionwas comprised of a $1.7 million increase in assets under management, administration, supervision and brokerage. Approximately two-thirds of the growth of the wealth asset portfolio was from accounts whose fees are charged on a flat or fixed basis. However, nearly two-thirds of thebasis, primarily due to a $1.91 billion increase in wealth managementfixed rate flat-fee account balances, and a $328 thousand increase in fees was derived from market-value based fee accounts, as a result of the strong market performance experienced in 2017.accounts. Revenue from the insurance division which is reported as part of the Wealth Management segment, increased by $867 thousand, or 23.3%, partially as a result of the Hirshorn acquisition, in addition to organic growth.

48

The Wealth Management segment, which includes the insurance reporting unit, reported a PTSP$6.9 million for the twelve monthsyear ended December 31, 2016 of $14.4 million, a $1.4 million, or 8.6%, decrease from the same period in 2015. Fees for wealth management services for 2016 decreased by $204 thousand from the amount recorded in 2015, while expenses increased by $1.1 million during the same period. The decrease in fees, year over year, despite the $2.96 billion increase in wealth assets from December 31, 2015 to December 31, 2016, is indicative of the continuing shift, during 2016, in the composition of the wealth portfolio. Much of the increase in wealth assets during 2016 was comprised of accounts with flat-fee arrangements, rather than market-based fees. Revenue from the insurance division,2019, which is reported as part of the Wealth Management segment, was relatively unchanged for the twelve months ended December 31, 2016 as compared to the same periodyear ended December 31, 2018. Effective January 1, 2020, the business of Lau Associates LLC, which is reported in 2015.

the Wealth Management segment, was transitioned into the Wealth Management Division of the Bank, also reported in the Wealth Management segment.


The PTSP of the Wealth Management segment for the year ended December 31, 2018 was $16.5 million, an increase of $1.4 million, or 9.7%, as compared to $15.1 million for the year ended December 31, 2017. Fees for wealth management services of $42.3 million for the year ended December 31, 2018 increased $3.6 million, or 9.3%, as compared to $38.7 million for the year

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ended December 31, 2017. The increase in fees was comprised of a $2.1 million increase from accounts whose fees are charged on a flat or fixed basis, primarily due to a $581.3 million increase in fixed rate flat-fee account balances, and a $1.4 million increase in fees derived from market-value based fee accounts, primarily due to strong market performance experienced during 2018. Revenue from the insurance division of $6.8 million for the year ended December 31, 2018, which is reported as part of the Wealth Management segment, increased by $2.2 million, or 48.4%, partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.

Wealth Assets Under Management, Administration, SupervisionManagement,Administration,Supervision andBrokerage (“Brokerage(“Wealth Assets”)

Wealth Asset accounts are categorized into two groups; the first account group consists predominantly of clients whose fees are determined based on the market value of the assets held in their accounts (“Market Value” fee basis). The second account group consists predominantly of clients whose fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are not affected by market value changes.

The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management services:

(dollars in thousands)

 

Wealth Assets as of:

 

Fee Basis

 

December 31,

2017

  

December 31,

2016

  

December 31,

2015

 

Market value

 $5,884,692  $5,302,463  $4,971,636 

Fixed fee

  7,084,046   6,025,994   3,393,169 

Total

 $12,968,738  $11,328,457  $8,364,805 

(dollars in thousands)

 

Percentage of Wealth Assets as of:

 

Fee Basis

 

December 31,

2017

  

December 31,

2016

  

December 31,

2015

 

Market value

  45.4%  46.8%  59.4%

Fixed fee

  54.6%  53.2%  40.6%

Total

  100.0%  100.0%  100.0%

(dollars in thousands)Wealth Assets as of:
Fee BasisDecember 31,
2019		 December 31,
2018		 December 31,
2017
Market value$6,977,009
 $5,764,189
 $5,884,692
Fixed fee9,571,051
 7,665,355
 7,084,046
Total$16,548,060
 $13,429,544
 $12,968,738
 Percentage of Wealth Assets as of:
Fee BasisDecember 31,
2019		 December 31,
2018		 December 31,
2017
Market value42.2% 42.9% 45.4%
Fixed fee57.8% 57.1% 54.6%
Total100.0% 100.0% 100.0%

The following tablestables detail the composition of fees for wealth management services for the periods indicated:

(dollars in thousands)

 

For the Twelve Months Ended:

 

Fee Basis

 

December 31,

2017

  

December 31,

2016

  

December 31,

2015

 

Market value

 $29,752  $28,418  $29,219 

Fixed fee

  8,983   8,272   7,675 

Total

 $38,735  $36,690  $36,894 

(dollars in thousands)

 

Percentage of Fees for Wealth Management Services:

 

Fee Basis

 

December 31,

2017

  

December 31,

2016

  

December 31,

2015

 

Market value

  76.8%  77.5%  79.2%

Fixed fee

  23.2%  22.5%  20.8%

Total

  100.0%  100.0%  100.0%

(dollars in thousands)For the Year Ended:
Fee BasisDecember 31,
2019		 December 31,
2018		 December 31,
2017
Market value$31,470
 $31,142
 $29,752
Fixed fee12,930
 11,184
 8,983
Total$44,400
 $42,326
 $38,735
 
Percentage of Fees for Wealth Management Services
For the Year Ended:
Fee BasisDecember 31,
2019		 December 31,
2018		 December 31,
2017
Market value70.9% 73.6% 76.8%
Fixed fee29.1% 26.4% 23.2%
Total100.0% 100.0% 100.0%
Banking Segment Activity

Banking segment data as presented in Note 2831, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K indicates a PTSP of $58.4 million in 2019, $61.4 million in 2018 and $42.2 million in 2017, $39.8 million in 2016 and $10.2 million in 2015.2017. See the section of this MD&A under the heading “Components of Net Income” for a discussion of the Banking Segment.

Segment results.

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Capital and Regulatory Capital Ratios


Capital and Regulatory Capital Ratios

Consolidated shareholders’shareholders’ equity of the Corporation was $528.1$612.2 million, or 11.9%11.6% of total assets, as of December 31, 2017,2019, as compared to $381.1$564.7 million, or 11.1%12.1% of total assets, as of December 31, 2016.

2018.

In March 2015, the CorporationMay 2018, BMBC filed a shelf registration statement on Form S-3, SEC File No. 333-224849 (the “Shelf Registration Statement”). The Shelf Registration Statement allows the CorporationBMBC to raise additional capital from time to time through offers and sales of registered securities consisting of common stock, debt securities, warrants, to purchase common stock, stock purchase contracts, rights and units or units consisting of any combination of the foregoing securities. UsingBMBC may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar amount up to $200 million, in the aggregate.

offerings.

In addition, the CorporationBMBC has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which allows it to issue up to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’sPlan’s maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’sBMBC’s common stock and general economic and market conditions.

For the twelve monthsyear ended December 31, 2017, the Corporation2019, BMBC did not issue any shares through the Plan. NoPlan, nor were any RFWs were approved during the twelve months ended December 31, 2017.approved. The Plan administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were executed under the Shelf Registration Statement during the twelve monthsyear ended December 31, 2017.

2019.

Accumulated other comprehensive loss (“AOCL”),comprehensive income of $2.2 million as of December 31, 2017 was $4.42019 increased $9.7 million, or 129.1%, from an increaseaccumulated other comprehensive loss of $2.0$7.5 million fromas of December 31, 2016.2018. The primary cause of the increase in AOCL was the increase in net unrealized losses on available for sale investment securities whose fair values were affected by risingprimarily due to increasing interest rates. In addition, the Corporation early-adopted ASU 2018-02, which allowed for the reclassification of $782 thousand of stranded tax effects from AOCL to retained earnings.

As detailed in Section E, “Regulatory Capital Ratios,” of Note 25-E28, “Regulatory Capital Requirements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K, the capital ratios, as of December 31, 20172019 and 20162018 indicate levels above the regulatory minimum to be considered “well capitalized.” In addition to the capital issued in the RBPI Merger, during the fourth quarter of 2017, regulatory capital increases at the

Liquidity

The Corporation included the net issuance of $68.8 million of subordinated notes, which qualify as Tier II capital and the acquisition of $21.4 million of junior subordinated debentures, which are carried in Tier I capital. On the Bank level, the Corporation down-streamed $15.0 million of capital to the Bank in the fourth quarter of 2017, increasing its Tier I capital balance.

Liquidity

The Corporation has significant sources of liquidity atas of December 31, 2017.2019. The liquidity position is managed on a daily basis as part of the daily settlement function, and on a monthly basis as part of the asset liability management process. The Corporation’s primary liquidity is maintained by managing its deposits, along with the utilization of borrowings from the FHLB, purchased federal funds, and utilization of other wholesale funding sources. Secondary sources of liquidity include the sale of certain investment securities and certain loans in the secondary market.

Other wholesale funding sources include certificates of deposit from brokers, generally available in blocks of $1.0 million or more. Funds obtained through these programs totaled $172$213.2 million as of December 31, 2017.

2019.

As of December 31, 2017,2019, the maximum borrowing capacity with the FHLB was $1.37$1.65 billion, with an unused borrowing availability of $1.02$1.11 billion. Borrowing availability at the Federal Reserve Discount Window was $121.3$174.3 million, and overnight Fed Funds lines, consisting of lines from seven banks, totaled $79.0 million. On a monthly basis, the Corporation’s Asset Liability CommitteeALCO reviews the Corporation’s liquidity needs. This information is reported to the Risk Management Committee of the Board of Directors on a quarterly basis.

As of December 31, 2017,2019, the Corporation held $20.1$23.7 million of FHLB stock as required by the borrowing agreement between the FHLB and the Corporation.

The Corporation has an agreement with CDC to provide up to $5 million, plus interest, of money market deposits at an agreed upon rate currently at 0.40%.

The Corporation had $10 thousand in balances as of December 31, 2017 under this program. The Corporation can request an increase in the agreement amount as it deems necessary. In addition, the Corporation has an agreement with IND to provide up to $40$55 million, plus interest, of money market and NOW funds at an agreed upon interest rate equal to the current Fed Funds rate plus 20 basis points. The Corporation had $31$53.9 million in balances as of December 31, 20172019 under this program.


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The Corporation’sCorporation’s available for sale investment portfolio of $689.2 million$1.01 billion as of December 31, 20172019 was 15.5%19.1% of total assets. Some of these investments were in short-term, high-quality, liquid investments to earn more than the 25 basis points currently earned on Fed Funds. The Corporation’s policy is to maintain its investment portfolio at a minimum level of 10% of total assets. The portion of the investment portfolio that is not already pledged against borrowings from the FHLB or other funding


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sources, provides the Corporation with the ability to utilize the securities to borrow additional funds through the FHLB, Federal Reserve or through other repurchase agreements.

Management continually evaluates its borrowing capacity and sources of liquidity. Management currently believes that it has sufficient capacity to fund expected 2018short- and long-term earning asset growth with wholesale sources, along with deposit growth from its internal branch and wealth products.

Off Balance Sheet Risk


Off Balance Sheet Risk

The Corporation becomes party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and create off-balance sheet risk.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers.

The following chart presents the off-balance sheet commitments of the Corporation as of December 31, 2017,2019, listed by dates of funding or payment:

(dollars in millions)

 

Total

  

Within
1 Year

  

2 - 3
Years

  

4 - 5
Years

  

After
5 Years

 

Unfunded loan commitments

 $748.3  $468.5  $94.0  $19.8  $166.0 

Standby letters of credit

  17.0   11.3   5.5   0.2   — 

Total

 $765.3  $479.8  $99.5  $20.0  $166.0 

(dollars in thousands)Total 
Within
1 Year
 
2 - 3
Years
 
4 - 5
Years
 
After
5 Years
Unfunded loan commitments$828,872
 $369,214
 $142,813
 $69,333
 $247,512
Standby letters of credit20,749
 17,301
 3,065
 20
 363
Total$849,621
 $386,515
 $145,878
 $69,353
 $247,875

Estimated fair values of the Corporation’sCorporation’s off-balance sheet instruments are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Collateral requirements for off-balance sheet items are generally based upon the same standards and policies as booked loans. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.

Contractual Cash Obligations of the Corporation as of December 31, 2017

(dollars in millions)

 

Total

  

Within
1 Year

  

2 - 3
Years

  

4 - 5
Years

  

After
5 Years

 

Deposits without a stated maturity

 $2,669.7  $2,669.7  $—  $—  $— 

Wholesale and retail certificates of deposit

  704.1   537.1   136.5   29.7   0.8 

Short-term borrowings

  237.9   237.9   —   —   — 

Long-term FHLB Advances

  189.7   75.0   102.2   12.5   — 

Subordinated Notes

  100.0   —   —   —   100.0 

Junior subordinated debentures

  25.8   —   —   —   25.8 

Operating leases

  32.6   6.9   8.5   6.1   11.1 

Purchase obligations

  5.1   3.4   1.7   —   — 

Total

 $3,964.9  $3,530.0  $248.9  $48.3  $137.7 


51
Contractual Cash Obligations of the Corporation as of December 31, 2019
(dollars in thousands)Total 
Less than
1 Year
 
1 - 3
Years
 
3 - 5
Years
 
More than
5 Years
Deposits without a stated maturity$3,347,881
 $3,347,881
 $—
 $—
 $—
Wholesale and retail certificates of deposit494,364
 349,519
 134,590
 9,461
 794
Short-term borrowings493,219
 493,219
 —
 —
 —
Long-term FHLB Advances52,269
 12,363
 39,906
 —
 —
Subordinated Notes100,000
 —
 —
 —
 100,000
Junior subordinated debentures25,774
 —
 —
 —
 25,774
Operating leases58,815
 4,705
 8,679
 8,123
 37,308
Purchase obligations9,518
 6,601
 2,917
 —
 —
Total$4,581,840
 $4,214,288
 $186,092
 $17,584
 $163,876







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Other Information


Other Information

Effects of Inflation

Inflation has some impact on the Corporation’sCorporation’s operating costs. Unlike many industrial companies, however, substantially all of the Corporation’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.

Effect of Government Monetary Policies

The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.

The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Corporation’sCorporation’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM  7A.

QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item 7A is incorporated by reference to information appearing in the MD&A Section of this Annual Report on Form 10-K, more specifically in the sections entitled “Interest Rate Sensitivity,” “Summary of Interest Rate Simulation,” and “Gap Analysis.”

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited Consolidated Financial Statements and related documents are set forth in this Annual Report on Form 10-K on the following pages:

 

Page

Report of Independent Registered Public Accounting Firm

54

64

Consolidated Balance Sheets

55

66

Consolidated Statements of Income

56

67

Consolidated Statements of Comprehensive Income

57

68

Consolidated Statements of Cash Flows

58

69

Consolidated Statements of Changes in Shareholders’Shareholders’ Equity

59

71

Notes to Consolidated Financial Statements

60

73


53
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Report of Independent Registered Public Accounting Firm

To

To the Shareholders and the Board of Directors
Bryn Mawr Bank Corporation:

Opinions

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank Corporation and subsidiaries (the “Company”)Company) as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2019, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control– - Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019 based on criteria established in Internal Control – - Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinion

Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


Definition and Limitations of Internal Control Over Financial Reporting

A company’scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(signed)


Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for originated loan and lease losses related to loans collectively evaluated for impairment

As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan and lease losses related to loans collectively evaluated for impairment (ALLL) was $22.1 million of a total allowance for loans and lease losses of $22.6 million as of December 31, 2019. The Company estimated the ALLL using a historical loss methodology that estimates quantitative factors in the form of historical charge-off rates for performing loans by segment. Such amounts are adjusted for certain qualitative factors.

We identified the assessment of the ALLL as a critical audit matter because it involved significant measurement uncertainty requiring complex auditor judgment, and knowledge and experience in the industry. This assessment encompassed the evaluation of the ALLL methodology, inclusive of the methodologies used to estimate: 1) the historical charge-off rates and their key factors and assumptions, including the loan risk grades for commercial loans, the look-back periods, and the loss emergence periods, and 2) the qualitative factors.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the development and approval of the ALLL methodology and determination of the key factors and assumptions used to estimate the historical charge-off rates and qualitative factors. We tested the process to develop the ALLL estimate. Specifically, we tested the sources of data, factors, and assumptions used by considering their relevance and reliability, and considering additional factors and alternative assumptions. We involved credit risk professionals with industry knowledge and experience who assisted in:

–Evaluating the Company’s ALLL methodology for compliance with U.S. generally accepted accounting principles,

–Testing the look-back period assumptions used in calculating historical charge-off rates to evaluate the length of that period, and

–Evaluating the framework for determining qualitative factors and the effect of those factors on the ALLL compared with relevant credit risk metrics such as delinquency, nonperforming balances and charge-offs, and consistency with trends in those metrics.

We tested individual loan risk grades for a selection of commercial loans by involving credit risk professionals to assist in evaluating the loan risk grades. We also tested the loss emergence period assumptions used in calculating the historical charge-off rates by involving credit risk professionals to evaluate the methodology used to develop those assumptions and testing the accuracy of those calculations and inputs.

/s/ KPMG LLP

We have served as the Company’sCompany’s auditor since 2004.

Philadelphia,

Philadelphia, Pennsylvania
March 1, 2018

February 28, 2020

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Consolidated Balance Sheets

  

December 31,

  

December 31,

 

(dollars in thousands)

 

2017

  

2016

 

Assets

        

Cash and due from banks

 $11,657  $16,559 

Interest bearing deposits with banks

  48,367   34,206 

Cash and cash equivalents

  60,024   50,765 

Investment securities available for sale, at fair value (amortized cost of $692,824 and $568,890 as of December 31, 2017 and December 31, 2016 respectively)

  689,202   566,996 

Investment securities held to maturity, at amortized cost (fair value of $7,851 and $2,818 as of December 31, 2017 and December 31, 2016, respectively)

  7,932   2,879 

Investment securities, trading

  4,610   3,888 

Loans held for sale

  3,794   9,621 

Portfolio loans and leases, originated

  2,487,296   2,240,987 

Portfolio loans and leases, acquired

  798,562   294,438 

Total portfolio loans and leases

  3,285,858   2,535,425 

Less: Allowance for originated loan and lease losses

  (17,475)  (17,458)

Less: Allowance for acquired loan and lease losses

  (50)  (28)

Total allowance for loans and lease losses

  (17,525)  (17,486)

Net portfolio loans and leases

  3,268,333   2,517,939 

Premises and equipment, net

  54,458   41,778 

Accrued interest receivable

  14,246   8,533 

Mortgage servicing rights

  5,861   5,582 

Bank owned life insurance

  56,667   39,279 

Federal Home Loan Bank stock

  20,083   17,305 

Goodwill

  179,889   104,765 

Intangible assets

  25,966   20,405 

Other investments

  12,470   8,627 

Other assets

  46,185   23,168 

Total assets

 $4,449,720  $3,421,530 

Liabilities

        

Deposits:

        

Non-interest-bearing

 $924,844  $736,180 

Interest-bearing

  2,448,954   1,843,495 

Total deposits

  3,373,798   2,579,675 
         

Short-term borrowings

  237,865   204,151 

Long-term FHLB advances

  139,140   189,742 

Subordinated notes

  98,416   29,532 

Junior subordinated debentures

  21,416   - 

Accrued interest payable

  3,527   2,734 

Other liabilities

  47,439   34,569 

Total liabilities

  3,921,601   3,040,403 

Shareholders' equity

        

Common stock, par value $1; authorized 100,000,000 shares; issued 24,360,049 and 21,110,968 shares as of December 31, 2017 and December 31, 2016, respectively, and outstanding of 20,161,395 and 16,939,715 as of December 31, 2017 and December 31, 2016, respectively

  24,360   21,111 

Paid-in capital in excess of par value

  371,486   232,806 

Less: Common stock in treasury at cost - 4,198,654 and 4,171,253 shares as of December 31, 2017 and December 31, 2016, respectively

  (68,179)  (66,950)

Accumulated other comprehensive loss, net of tax 

  (4,414)  (2,409)

Retained earnings

  205,549   196,569 

Total Bryn Mawr Bank Corporation shareholders' equity

  528,802   381,127 

Noncontrolling interest

  (683)  - 

Total shareholders' equity

  528,119   381,127 

Total liabilities and shareholders' equity

 $4,449,720  $3,421,530 
Consolidated Balance Sheets

The accompanying notes are an integral part of the consolidated financial statements.

55
(dollars in thousands) December 31,
2019		 December 31,
2018
Assets    
Cash and due from banks $11,603
 $14,099
Interest bearing deposits with banks 42,328
 34,357
Cash and cash equivalents 53,931
 48,456
Investment securities available for sale, at fair value (amortized cost of $1,001,034 and $745,328 as of December 31, 2019 and December 31, 2018, respectively) 1,005,984
 737,442
Investment securities held to maturity, at amortized cost (fair value of $12,661 and $8,438 as of December 31, 2019 and December 31, 2018, respectively) 12,577
 8,684
Investment securities, trading 8,621
 7,502
Loans held for sale 4,249
 1,749
Portfolio loans and leases, originated 3,320,816
 2,885,251
Portfolio loans and leases, acquired 368,497
 541,903
Total portfolio loans and leases 3,689,313
 3,427,154
Less: Allowance for originated loan and lease losses (22,526) (19,329)
Less: Allowance for acquired loan and lease losses (76) (97)
Total allowance for loans and lease losses (22,602) (19,426)
Net portfolio loans and leases 3,666,711
 3,407,728
Premises and equipment, net 64,965
 65,648
Operating lease right-of-use assets 40,961
 —
Accrued interest receivable 12,482
 12,585
Mortgage servicing rights 4,450
 5,047
Bank owned life insurance 59,079
 57,844
Federal Home Loan Bank stock 23,744
 14,530
Goodwill 184,012
 184,012
Intangible assets 19,131
 23,455
Other investments 16,683
 16,526
Other assets 85,679
 61,277
Total assets $5,263,259
 $4,652,485
Liabilities    
Deposits:    
Noninterest-bearing $898,173
 $901,619
Interest-bearing 2,944,072
 2,697,468
Total deposits 3,842,245
 3,599,087
Short-term borrowings 493,219
 252,367
Long-term FHLB advances 52,269
 55,374
Subordinated notes 98,705
 98,526
Junior subordinated debentures 21,753
 21,580
Operating lease liabilities 45,258
 —
Accrued interest payable 6,248
 6,652
Other liabilities 91,335
 54,195
Total liabilities 4,651,032
 4,087,781
Shareholders' equity    
Common stock, par value $1; authorized 100,000,000 shares; issued 24,650,051 and 24,545,348 shares as of December 31, 2019 and December 31, 2018, respectively, and outstanding of 20,126,296 and 20,163,816 as of December 31, 2019 and December 31, 2018, respectively 24,650
 24,545
Paid-in capital in excess of par value 378,606
 374,010
Less: Common stock in treasury at cost - 4,523,755 and 4,381,532 shares as of December 31, 2019 and December 31, 2018, respectively (81,174) (75,883)
Accumulated other comprehensive income (loss), net of tax 2,187
 (7,513)
Retained earnings 288,653
 250,230
Total Bryn Mawr Bank Corporation shareholders' equity 612,922
 565,389
Noncontrolling interest (695) (685)
Total shareholders' equity 612,227
 564,704
Total liabilities and shareholders' equity $5,263,259
 $4,652,485

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Consolidated Statements of Income
 Year Ended December 31,
 2019 2018 2017
(dollars in thousands, except share and per share data)     
Interest income:     
Interest and fees on loans and leases$178,367
 $168,638
 $120,762
Interest on cash and cash equivalents543
 264
 174
Interest on investment securities:     
Taxable14,330
 11,854
 8,136
Non-taxable143
 293
 388
Dividends6
 6
 99
Total interest income193,389
 181,055
 129,559
Interest expense:     
Interest on deposits35,936
 20,552
 8,748
Interest on short-term borrowings2,792
 3,392
 1,390
Interest on FHLB advances and other borrowings1,069
 1,777
 2,620
Interest on subordinated notes4,578
 4,575
 1,628
Interest on junior subordinated debentures1,373
 1,288
 46
Total interest expense45,748
 31,584
 14,432
Net interest income147,641
 149,471
 115,127
Provision for loan and lease losses8,507
 7,193
 2,618
Net interest income after provision for loan and lease losses139,134
 142,278
 112,509
Noninterest income:     
Fees for wealth management services44,400
 42,326
 38,735
Insurance commissions6,877
 6,808
 4,589
Capital markets revenue11,276
 4,848
 2,396
Service charges on deposits3,374
 2,989
 2,608
Loan servicing and other fees2,206
 2,259
 2,106
Net gain on sale of loans2,342
 3,283
 2,441
Net gain on sale of investment securities available for sale—
 7
 101
Net (loss) gain on sale of other real estate owned ("OREO")(84) 295
 (104)
Dividends on FHLB and FRB stock1,505
 1,621
 939
Other operating income10,288
 11,546
 5,321
Total noninterest income82,184
 75,982
 59,132
Noninterest expenses:     
Salaries and wages74,371
 66,671
 53,251
Employee benefits13,456
 12,918
 10,170
Occupancy and bank premises12,591
 11,599
 9,906
Furniture, fixtures, and equipment9,693
 8,407
 7,385
Advertising2,105
 1,719
 1,454
Amortization of intangible assets3,801
 3,656
 2,734
Due diligence, merger-related and merger integration expenses—
 7,761
 6,104
Professional fees5,434
 4,203
 3,268
Pennsylvania bank shares tax1,478
 1,792
 1,294
Data processing5,517
 4,942
 3,581
Other operating expenses18,069
 16,635
 15,248
Total noninterest expenses146,515
 140,303
 114,395
Income before income taxes74,803
 77,957
 57,246
Income tax expense15,607
 14,165
 34,230
Net income$59,196
 $63,792
 $23,016
Net loss attributable to noncontrolling interest(10) —
 —
Net income attributable to Bryn Mawr Bank Corporation$59,206
 $63,792
 $23,016
Basic earnings per common share$2.94
 $3.15
 $1.34
Diluted earnings per common share$2.93
 $3.13
 $1.32
Dividends declared per share$1.02
 $0.94
 $0.86
Weighted-average basic shares outstanding20,142,306
 20,234,792
 17,150,125
Dilutive shares91,065
 155,375
 248,798
Adjusted weighted-average diluted shares20,233,371
 20,390,167
 17,398,923
 

Consolidated Statements of Income

  

Twelve Months Ended December 31,

 
  

2017

  

2016

  

2015

 

(dollars in thousands, except per share data)

            

Interest income:

            

Interest and fees on loans and leases

 $120,762  $110,536  $102,432 

Interest on cash and cash equivalents

  174   168   409 

Interest on investment securities:

            

Taxable

  8,136   5,575   5,018 

Non-taxable

  388   497   497 

Dividends

  99   215   186 

Total interest income

  129,559   116,991   108,542 

Interest expense:

            

Interest on deposits

  8,748   5,833   4,212 

Interest on short-term borrowings

  1,390   93   48 

Interest on FHLB advances and other borrowings

  2,620   3,353   3,554 

Interest on subordinated notes

  1,628   1,476   601 

Interest on junior subordinated debentures

  46   -   - 

Total interest expense

  14,432   10,755   8,415 

Net interest income

  115,127   106,236   100,127 

Provision for loan and lease losses

  2,618   4,326   4,396 

Net interest income after provision for loan and lease losses

  112,509   101,910   95,731 

Noninterest income:

            

Fees for wealth management services 

  38,735   36,690   36,894 

Insurance commissions

  4,589   3,722   3,745 

Capital markets revenue

  2,396   -   - 

Service charges on deposits

  2,608   2,791   2,927 

Loan servicing and other fees

  2,106   1,939   2,087 

Net gain on sale of loans

  2,441   3,048   2,847 

Net gain (loss) on sale of investment securities available for sale

  101   (77)  931 

Net (loss) gain on sale of other real estate owned ("OREO")

  (104)  (76)  123 

Dividends on FHLB and FRB stock

  939   1,063   1,382 

Other operating income

  5,321   4,868   4,849 

Total noninterest income

  59,132   53,968   55,785 

Noninterest expenses:

            

Salaries and wages

  53,251   47,411   44,575 

Employee benefits

  10,452   9,548   10,205 

Loss on pension plan settlement

  -   -   17,377 

Occupancy and bank premises

  9,906   9,611   10,305 

Branch lease termination expense

  -   -   929 

Furniture, fixtures, and equipment

  7,385   7,520   6,841 

Advertising

  1,454   1,381   2,102 

Amortization of intangible assets

  2,734   3,498   3,827 

Impairment of intangible assets

  -   -   387 

Due diligence, merger-related and merger integration expenses

  6,104   -   6,670 

Professional fees

  3,268   3,659   3,353 

Pennsylvania bank shares tax

  1,294   1,749   1,253 

Information technology

  3,581   3,661   3,443 

Other operating expenses

  14,966   13,636   14,323 

Total noninterest expenses

  114,395   101,674   125,590 

Income before income taxes

  57,246   54,204   25,926 

Income tax expense

  34,230   18,168   9,172 

Net income

 $23,016  $36,036  $16,754 
             

Basic earnings per common share

 $1.34  $2.14  $0.96 

Diluted earnings per common share

 $1.32  $2.12  $0.94 

Dividends declared per share

 $0.86  $0.82  $0.78 
             

Weighted-average basic shares outstanding

  17,150,125   16,859,623   17,488,325 

Dilutive shares

  248,798   168,499   267,996 

Adjusted weighted-average diluted shares

  17,398,923   17,028,122   17,756,321 
The accompanying notes are an integral part of the Consolidated Financial Statements.

The accompanying notes are an integral part of the consolidated financial statements.

56
Table of Contents


Consolidated Statements of Comprehensive Income
 

Consolidated Statements of Comprehensive Income

(dollars in thousands)

 

Twelve Months Ended December 31,

 
  

2017

  

2016

  

2015

 
             

Net income

 $23,016  $36,036  $16,754 
             

Other comprehensive (loss) income:

            

Net change in unrealized losses on investment securities available for sale:

            

Net unrealized losses arising during the period, net of tax (benefit) of $(640), $(1,053) and $(618), respectively

  (1,189)  (1,955)  (1,147)

Less: reclassification adjustment for net (gain) loss on sale realized in net income, net of tax benefit (expense) of $(35), $27, and $(326), respectively

  (66)  50   (605)

Unrealized investment (losses), net of tax (benefit) of $(605), $(1,079) and $(292), respectively

  (1,123)  (2,005)  (542)

Net change in fair value of derivative used for cash flow hedge:

            

Net unrealized losses arising during the period, net of tax benefit of $0, $0 and $(228), respectively

  -   -   (422)

Less: realized loss on cash flow hedge reclassified to earnings, net of tax benefit of $0, $0, and $214, respectively

  -   -   397 

Change in fair value of hedging instruments, net of tax expense (benefit) of $0, $0 and $14, respectively

  -   -   25 

Net change in unfunded pension liability:

            

Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax (benefit) expense of $(54), $5 and $264, respectively

  (100)  8   514 

Change in unfunded pension liability related to settlement of pension plan, net of tax expense of $0, $0 and $6,082

  -   -   11,295 

Total change in unfunded pension liability, net of tax expense (benefit) of $(54), $5 and $6,346, respectively

  (100)  8   11,809 
             

Total other comprehensive (loss) income

  (1,223)  (1,997)  11,292 
             

Total comprehensive income

 $21,793  $34,039  $28,046 

The accompanying notes are an integral part of the consolidated financial statements.

57
(dollars in thousands)Year Ended December 31,
 2019 2018 2017
Net income attributable to Bryn Mawr Bank Corporation$59,206
 $63,792
 $23,016
      
Other comprehensive income (loss):     
Net change in unrealized gains (losses) on investment securities available for sale:     
Net unrealized gains (losses) arising during the period, net of tax expense (benefit) of $2,696, $(806) and $(570), respectively10,139
 (3,033) (1,057)
Reclassification adjustment for net (gain) loss on sale realized in net income, net of tax (expense) benefit of $0, $(1) and $(35), respectively—
 (6) (66)
Reclassification adjustment for net gain realized on transfer of investment securities available for sale to trading, net of tax expense of $0, $(88) and $0, respectively—
 (329) —
Unrealized investment losses, net of tax expense (benefit) of $2,696, $(895) and $(605), respectively10,139
 (3,368) (1,123)
Net change in unfunded pension liability:     
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax (benefit) expense of $(118), $72 and $(54), respectively(439) 269
 (100)
Total other comprehensive income (loss)9,700
 (3,099) (1,223)
Total comprehensive income$68,906
 $60,693
 $21,793
The accompanying notes are an integral part of the Consolidated Financial Statements.


Table of Contents


Consolidated Statements of Cash Flows

(dollars in thousands)

 

Twelve Months Ended December 31,

 
  

2017

  

2016

  

2015

 

Operating activities:

            

Net Income

 $23,016  $36,036  $16,754 

Adjustments to reconcile net income to net cash provided by operating activities:

            

Provision for loan and lease losses

  2,618   4,326   4,396 

Depreciation of fixed assets

  5,551   5,630   4,925 

Net amortization of investment premiums and discounts

  2,990   3,200   3,280 

Net loss on settltment of pension plan

  -   -   17,377 

Net (gain) loss on sale of investment securities available for sale

  (101)  77   (931)

Net gain on sale of loans

  (2,441)  (3,048)  (2,847)

Stock-based compensation

  2,068   1,713   1,441 

Amortization and net impairment of mortgage servicing rights

  744   880   661 

Net accretion of fair value adjustments

  (2,376)  (3,776)  (4,942)

Amortization of intangible assets

  2,733   3,498   3,827 

Impairment of intangible assets

  -   -   387 

Impairment of other real estate owned ("OREO") and other repossessed assets

  208   94   90 

Net loss (gain) on sale of OREO

  104   76   (123)

Net increase in cash surrender value of bank owned life insurance ("BOLI")

  (838)  (908)  (782)

Other, net

  (568)  (970)  874 

Loans originated for resale

  (125,482)  (161,597)  (141,578)

Proceeds from loans sold

  132,639   162,762   138,964 

Provision for deferred income taxes

  20,418   1,676   (2,834)

Settlement of pension liability acquired in RBPI Merger

  (15,233)  -   - 

Excess tax benefit from stock-based compensation

  -   -   (783)

Change in income taxes payable/receivable

  (7,917)  4,340   (529)

Change in accrued interest receivable

  (3,178)  (664)  (215)

Change in accrued interest payable

  (2,023)  883   516 

Net cash provided by operating activities

  32,932   54,228   37,928 
             

Investing activities:

            

Purchases of investment securities available for sale

  (445,294)  (350,669)  (176,034)

Purchases of investment securities held to maturity

  (5,189)  (2,928)  - 

Proceeds from maturity and paydowns of investment securities available for sale

  283,545   65,176   66,209 

Proceeds from maturity and paydowns of investment securities held to maturity

  108   34   - 

Proceeds from sale of investment securities available for sale

  130,858   276   64,851 

Net change in FHLB stock

  (2,778)  (4,363)  3,562 

Proceeds from calls of investment securities

  25,682   60,840   104,240 

Proceeds from sales of other investments

  -   664   - 

Net change in other investments

  2,059   264   (4,184)

Purchase of domain name

  (151)  -   - 

Net portfolio loan and lease originations

  (180,869)  (266,331)  (194,066)

Purchases of premises and equipment

  (8,304)  (2,207)  (7,611)

Purchases of BOLI

  -   -   (5,000)

Acquisitions, net of cash acquired

  12,301   -   16,129 

Proceeds from sale of OREO

  1,048   1,806   1,215 

Net cash used in investing activities

  (186,984)  (497,438)  (130,689)
             

Financing activities:

            

Change in deposits

  201,015   327,169   83,784 

Change in short-term borrowings

  18,714   109,995   (38,128)

Dividends paid

  (14,799)  (13,961)  (13,837)

Change in long-term FHLB advances and other borrowings

  (110,049)  (65,000)  (24,883)

Payment of contingent consideration for business combinations

  (642)  (627)  (542)

Net proceeds from issuance of subordinated notes

  68,829   -   29,456 

Excess tax benefit from stock-based compensation

  -   -   783 

Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation

  (1,140)  (745)  - 

Net purchase of treasury stock for deferred compensation plans

  (115)  (133)  (128)

Net purchase of treasury stock through publicly announced plans

  -   (7,971)  (26,418)

Proceeds from issuance of common stock

  -   -   20 

Proceeds from exercise of stock options

  1,498   2,181   6,452 

Net cash provided by financing activities

  163,311   350,908   16,559 
             

Change in cash and cash equivalents

  9,259   (92,302)  (76,202)

Cash and cash equivalents at beginning of period

  50,765   143,067   219,269 

Cash and cash equivalents at end of period

 $60,024  $50,765  $143,067 
             

Supplemental cash flow information:

            

Cash paid during the year for:

            

Income taxes

 $21,632  $12,261  $11,703 

Interest

 $13,639  $9,872  $7,604 
             

Non-cash information:

            

Change in other comprehensive loss

 $(1,223) $(1,997) $11,292 

Change in deferred tax due to change in comprehensive income

 $(659) $(1,074) $6,068 

Transfer of loans to other real estate owned and repossessed assets

 $342  $546  $2,283 

Issuance of shares, warrants and options for acquisitions

 $138,509  $-  $123,734 

Acquisition of noncash assets and liabilities:

            

Assets acquired

 $849,610  $-  $727,908 

Liabilities assumed

 $724,085  $-  $620,303 
Consolidated Statements of Cash Flows

The accompanying notes are an integral part of the consolidated financial statements.

58
(dollars in thousands)Year Ended December 31,
 2019 2018 2017
Operating activities:     
Net income attributable to Bryn Mawr Bank Corporation$59,206
 $63,792
 $23,016
Adjustments to reconcile net income to net cash provided by operating activities:     
Provision for loan and lease losses8,507
 7,193
 2,618
Depreciation of premises and equipment7,801
 6,610
 5,551
Amortization of operating lease right-of-use assets3,647
 —
 —
Loss on disposal of premises and equipment69
 1,627
 —
Net amortization of investment premiums and discounts2,800
 3,044
 2,990
Net gain on sale of investment securities available for sale—
 (7) (101)
Net gain on sale of loans(2,342) (3,283) (2,441)
Stock-based compensation3,725
 2,750
 2,068
Amortization and net impairment of mortgage servicing rights597
 830
 744
Net accretion of fair value adjustments(6,088) (9,883) (2,376)
Amortization of intangible assets3,801
 3,656
 2,734
Impairment of other real estate owned ("OREO") and other repossessed assets—
 89
 208
Net loss (gain) on sale of OREO84
 (295) 104
Net increase in cash surrender value of bank owned life insurance ("BOLI")(1,235) (1,177) (838)
Other, net(475) 532
 (788)
Loans originated for resale(90,865) (86,323) (125,482)
Proceeds from loans sold93,459
 91,353
 132,639
Provision for deferred income taxes1,539
 9,839
 20,418
Settlement of pension liability acquired in RBPI Merger—
 —
 (15,233)
Change in income taxes payable/receivable5,897
 415
 (7,917)
Change in accrued interest receivable103
 1,661
 (3,178)
Change in accrued interest payable(404) 3,125
 (2,023)
Change in operating lease liabilities(3,525) —
 —
Change in other assets(33,018) (19,222) (3,471)
Change in other liabilities40,098
 2,909
 3,690
Net cash provided by operating activities93,381
 79,235
 32,932
Investing activities:     
Purchases of investment securities available for sale(719,700) (338,421) (445,294)
Purchases of investment securities held to maturity(4,868) (1,328) (5,189)
Proceeds from maturity and paydowns of investment securities available for sale293,987
 278,895
 283,545
Proceeds from maturity and paydowns of investment securities held to maturity891
 532
 108
Proceeds from sale of investment securities available for sale—
 7
 130,858
Net change in FHLB stock(9,214) 5,553
 (2,778)
Proceeds from calls of investment securities167,290
 810
 25,682
Net change in other investments(157) (4,056) 2,059
Purchase of domain name—
 —
 (151)
Purchase of customer relationships(18) (366) —
Purchase of portfolio loans and leases—
 (14,974) —
Net portfolio loan and lease originations(264,822) (127,589) (180,869)
Purchases of premises and equipment(7,187) (19,426) (8,304)
Acquisitions, net of cash acquired—
 (380) 12,301
Proceeds from sale of OREO418
 525
 1,048
Net cash used in investing activities(543,380) (220,218) (186,984)
Financing activities:     
Change in deposits243,836
 226,598
 201,015
Change in short-term borrowings240,852
 14,502
 18,714
Dividends paid(20,685) (19,289) (14,799)
Change in long-term FHLB advances and other borrowings(3,240) (83,872) (110,049)
Payment of contingent consideration for business combinations(875) (660) (642)
Net proceeds from issuance of subordinated notes—
 —
 68,829
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation(625) (1,639) (1,140)
Net proceeds from sale of (purchase of) treasury stock for deferred compensation plans(172) 2
 (115)
Repurchase of warrants from U.S. Treasury—
 (1,755) —
Net purchase of treasury stock through publicly announced plans(4,524) (5,936) —
Proceeds from exercise of stock options907
 1,464
 1,498
Net cash provided by financing activities455,474
 129,415
 163,311
      

Table of Contents

Consolidated Statements of Changes in Shareholders' Equity

(dollars in thousands, except per share information)

                         
  

For the Years Ended December 31, 2015, 2016 and 2017

 
  

Shares of Common Stock Issued

  

Common Stock

  

Paid-in Capital

  

Treasury Stock

  

Accumulated Other Comprehensive Loss

  

Retained Earnings

  

Noncontrolling Interest

  

Total Shareholders' Equity

 
                                 

Balance December 31, 2014

  16,742,135  $16,742  $100,486  $(31,642) $(11,704) $171,592  $-  $245,474 
                                 

Net income

  -   -   -   -   -   16,754   -   16,754 

Dividends declared, $0.78 per share

  -   -   -   -   -   (13,824)  -   (13,824)

Other comprehensive income, net of tax expense of $6,080

  -   -   -   -   11,292   -   -   11,292 

Stock based compensation

  -   -   1,441   -   -   -   -   1,441 

Excess tax benefit from stock-based compensation

  -   -   783   -   -   -   -   783 

Retirement of treasury stock

  (4,418)  (4)  (40)  44   -   -   -   - 

Cancellation of forfeited restricted stock awards

  (27,375)  (27)  27   -   -   -   -   - 

Net purchase of treasury stock

  -   -       (26,546)  -   -   -   (26,546)

Shares issued in acquisitions

  3,878,304   3,878   117,513   -   -   -   -   121,391 

Options assumed in acquisitions

  -   -   2,343   -   -   -   -   2,343 

Common stock issued:

                                

Dividend Reinvestment and Stock Purchase Plan

  663   1   19   -   -   -   -   20 

Share-based awards and options exercises

  342,107   341   6,242   -   -   -   -   6,583 
                                 

Balance December 31, 2015

  20,931,416  $20,931  $228,814  $(58,144) $(412) $174,522  $-  $365,711 
                                 

Net income

  -   -   -   -   -   36,036   -   36,036 

Tax provision-to-return adjustment related to excess tax benefit on stock-based compensation

  -   -   197   -   -   -   -   197 

Dividends declared, $0.82 per share

  -   -   -   -   -   (13,989)  -   (13,989)

Other comprehensive loss, net of tax benefit of $1,074

  -   -   -   -   (1,997)  -   -   (1,997)

Stock based compensation

  -   -   1,713   -   -   -   -   1,713 

Retirement of treasury stock

  (4,320)  (4)  (39)  43   -   -   -   - 

Net purchase of treasury stock through publicly announced plans

  -   -   -   (7,971)  -   -   -   (7,971)

Net purchase of treasury stock from stock award and deferred compensation plans

  -   -   -   (878)  -   -   -   (878)

Common stock issued:

                                

Common stock issued through share-based awards and options exercises

  183,872   184   2,121   -   -   -   -   2,305 
                                 

Balance December 31, 2016

  21,110,968  $21,111  $232,806  $(66,950) $(2,409) $196,569  $-  $381,127 
                                 

Net income

  -   -   -   -   -   23,016   -   23,016 

Dividends declared, $0.86 per share

  -   -   -   -   -   (14,818)  -   (14,818)

Other comprehensive loss, net of tax benefit of $659

  -   -   -   -   (1,223)  -   -   (1,223)

Reclassification due to the adoption of ASU No. 2018-02

  -   -   -   -   (782)  782   -   - 

Stock-based compensation

  -   -   2,068   -   -   -   -   2,068 

Form S-4 stock issuance costs

  -   -   (233)  -   -   -   -   (233)

Retirement of treasury stock

  (2,628)  (3)  (23)  26   -   -   -   - 

Net purchase of treasury stock from stock awards for statutory tax withholdings

  -   -   -   (1,140)  -   -   -   (1,140)

Net purchase of treasury stock for deferred compensation trusts

  -   -   -   (115)  -   -   -   (115)

Stock warrants assumed in acquisitions

  -   -   1,854   -   -   -   -   1,854 

Noncontrolling interest assumed in acquisitions

  -   -   -   -   -   -   (683)  (683)

Common stock issued:

                                

Shares issued in acquisitions

  3,098,754   3,099   133,556   -   -   -   -   136,655 

Common stock issued through share-based awards and options exercises

  152,955   153   1,458   -   -   -   -   1,611 
                                 

Balance December 31, 2017

  24,360,049  $24,360  $371,486  $(68,179) $(4,414) $205,549  $(683) $528,119 

The accompanying notes are an integral part of the consolidated financial statements.

59
(dollars in thousands)Year Ended December 31,
 2019 2018 2017
Change in cash and cash equivalents5,475
 (11,568) 9,259
Cash and cash equivalents at beginning of period48,456
 60,024
 50,765
Cash and cash equivalents at end of period$53,931
 $48,456
 $60,024
Supplemental cash flow information:     
Cash paid during the year for:     
Income taxes$12,716
 $3,449
 $21,632
Interest$46,152
 $28,453
 $13,639
Non-cash information:     
Change in other comprehensive income (loss)$9,700
 $(3,099) $(1,223)
Change in deferred tax due to change in comprehensive income$2,578
 $(823) $(659)
Transfer of loans to other real estate owned and repossessed assets$72
 $372
 $342
Issuance of shares, warrants and options for acquisitions$—
 $—
 $138,509
Acquisition of noncash assets and liabilities:     
Assets acquired$—
 $1,096
 $849,610
Liabilities assumed$—
 $687
 $724,085
The accompanying notes are an integral part of the Consolidated Financial Statements.


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Consolidated Statements of Changes In Shareholders’ Equity
(dollars in thousands, except share and per share data)
 For the Years Ended December 31, 2017, 2018, and 2019
 
Shares of
Common
Stock
Issued
 
Common
Stock
 
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Shareholders'
Equity
Balance December 31, 201621,110,968
 $21,111
 $232,806
 $(66,950) $(2,409) $196,569
 $—
 $381,127
Net income—
 —
 —
 —
 —
 23,016
 —
 23,016
Dividends paid or accrued, $0.86 per share—
 —
 —
 —
 —
 (14,818) —
 (14,818)
Other comprehensive loss, net of tax benefit of $659—
 —
 —
 —
 (1,223) —
 —
 (1,223)
Reclassification due to the adoption of ASU No. 2018-02—
 —
 —
 —
 (782) 782
 —
 —
Stock-based compensation—
 —
 2,068
 —
 —
 —
 —
 2,068
Form S-4 stock issuance costs—
 —
 (233) —
 —
 —
 —
 (233)
Retirement of treasury stock(2,628) (3) (23) 26
 —
 —
 —
 —
Net purchase of treasury stock from stock awards for statutory tax withholdings—
 —
 —
 (1,140) —
 —
 —
 (1,140)
Net purchase of treasury stock for deferred compensation trusts—
 —
 —
 (115) —
 —
 —
 (115)
Stock warrants assumed in acquisitions—
 —
 1,854
 —
 —
 —
 —
 1,854
Noncontrolling interest assumed in acquisitions—
 —
 —
 —
 —
 —
 (683) (683)
Common stock issued:               
Shares issued in acquisitions3,098,754
 3,099
 133,556
 —
 —
 —
 —
 136,655
Common stock issued through share-based awards and options exercises152,955
 153
 1,458
 —
 —
 —
 —
 1,611
Balance December 31, 201724,360,049
 $24,360
 $371,486
 $(68,179) $(4,414) $205,549
 $(683) $528,119
                
Net income attributable to Bryn Mawr Bank Corporation—
 —
 —
 —
 —
 63,792
 —
 63,792
Net income attributable to noncontrolling interest—
 —
 —
 —
 —
 —
 —
 —
Goodwill measurement period adjustment effect on noncontrolling interest—
 —
 2
 —
 —
 —
 (2) —
Dividends paid or accrued, $0.94 per share—
 —
 —
 —
 —
 (19,209) —
 (19,209)
Other comprehensive loss, net of tax benefit of $823—
 —
 —
 —
 (3,099) —
 —
 (3,099)
Stock based compensation—
 —
 2,750
 —
 —
 —
 —
 2,750
Retirement of treasury stock(2,253) (2) (20) 22
 —
 —
 —
 —
Net purchase of treasury stock from stock awards for statutory tax withholdings—
 —
 —
 (1,639) —
 —
 —
 (1,639)
Net treasury stock activity for deferred compensation trusts—
 —
 153
 (151) —
 —
 —
 2
Purchase of treasury stock through publicly announced plans—
 —
 —
 (5,936) —
 —
 —
 (5,936)
Repurchase of warrants from U.S. Treasury—
 —
 (1,853) —
 —
 98
 —
 (1,755)
Common stock issued:              

Common stock issued through share-based awards and options exercises184,990
 184
 1,382
 —
 —
 —
 —
 1,566
Shares issued in acquisitions(1)
2,562
 3
 110
 —
 —
 —
 —
 113
Balance December 31, 201824,545,348
 $24,545
 $374,010
 $(75,883) $(7,513) $250,230
 $(685) $564,704
                

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 For the Years Ended December 31, 2017, 2018, and 2019
 
Shares of
Common
Stock
Issued
 
Common
Stock
 
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Retained
Earnings
 
Noncontrolling
Interest
 
Total
Shareholders'
Equity
Net income attributable to Bryn Mawr Bank Corporation—
 —
 —
 —
 —
 59,206
 —
 59,206
Net loss attributable to noncontrolling interest—
 —
 —
 —
 —
 —
 (10) (10)
Dividends paid or accrued, $1.02 per share—
 —
 —
 —
 —
 (20,783) —
 (20,783)
Other comprehensive income, net of tax expense of $2,578—
 —
 —
 —
 9,700
 —
 —
 9,700
Stock based compensation—
 —
 3,725
 —
 —
 —
 —
 3,725
Retirement of treasury stock(2,704) (3) (27) 30
 —
 —
 —
 —
Net purchase of treasury stock from stock awards for statutory tax withholdings—
 —
 —
 (625) —
 —
 —
 (625)
Net treasury stock activity for deferred compensation trusts—
 —
 —
 (172) —
 —
 —
 (172)
Purchase of treasury stock through publicly announced plans—
 —
 —
 (4,524) —
 —
 —
 (4,524)
Common stock issued:               
Common stock issued through share-based awards and options exercises107,407
 108
 898
 —
 —
 —
 —
 1,006
Balance December 31, 201924,650,051
 $24,650
 $378,606
 $(81,174) $2,187
 $288,653
 $(695) $612,227
                

(1) Shares relating to the RBPI Merger (defined in Note 3, “Business Combinations,” below) recorded in April 2018.

The accompanying notes are an integral part of the Consolidated Financial Statements.


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Notes to Consolidated Financial Statements

Note 1 -Summary of Significant Accounting Policies

A. Nature of Business

The Bryn Mawr Trust Company (the “Bank”“Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”(“BMBC”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation.BMBC. The Bank and CorporationBMBC are headquartered in Bryn Mawr, Pennsylvania, located in the western suburbs of Philadelphia. The CorporationBMBC and its direct and indirect subsidiaries (collectively, the “Corporation”) offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from 37 full-service branches, eight limited-hour retirement community offices, two limited-service branch, six43 banking locations, 7 wealth management offices and a full-service2 insurance agency located throughoutand risk management locations in the following counties: Montgomery, Chester, Delaware, Chester, Philadelphia, Berks, and Dauphin countiesCounties in Pennsylvania,Pennsylvania; New Castle County in Delaware; and Mercer and Camden counties ofCounties in New Jersey, and New Castle county in Delaware.Jersey. The common stock of the CorporationBMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993 and headquartered in Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and 2 contingent cash payments, not to exceed $250 thousand each, will be payable in 2020 and 2021, subject to the attainment of certain targets during the related periods.

On December 15, 2017, the mergerpreviously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the CorporationBMBC (the “RPBI Merger”“Effective Date”), and the merger of Royal Bank America with and into the Bank were(collectively, the "RBPI Merger"), pursuant to the Agreement and Plan of Merger, by and between RBPI and BMBC, dated as of January 30, 2017 (the “Agreement”) was completed. Consideration paid totaled $138.6$138.7 million, comprised of 3,098,7543,101,316 shares of the Corporation’sBMBC's common stock, the assumption of 140,224 warrants to purchase BMTCBMBC's common stock valued at $1.9 million, $112 thousand for the cash-out of certain options and $7 thousand of cash in lieu of fractional shares. The RBPI Merger initially added $570.4 million of loans, $121.6 million of investments, $593.2 million of deposits, and twelve12 new branches. The acquisition of RBPI expands the Corporation further into Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as well as Mercer and Camden Counties in New Jersey.

On May 24, 2017, the acquisition of Harry R. Hirshorn & Company, Inc. (“Hirshorn”), an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed. Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, with three2 contingent cash payments of $575 thousand were paid in 2018 and 2019, and 1 contingent cash payment, not to exceed $575 thousand, each, towill be payable on each of May 24, 2018, May 24, 2019, and May 24,in 2020, subject to the attainment of certain targets during the related periods.conditions. The acquisition enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted areas.

On April 1, 2015, the acquisition of Robert J. McAllister Agency, Inc. (“RJM”), an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed. Consideration paid totaled $1.0 million, of which $500 thousand was paid at closing, $85 thousand and $100 thousand of the first two annual payments not to exceed $100 thousand were paid during the second quarter of 2016 and 2017, respectively and three remaining contingent cash payments, not to exceed $100 thousand each, will be payable on each of March 31, 2018, March 31, 2019, and March 31, 2020, subject to the attainment of certain revenue targets during the related periods. The acquisition enhanced the Corporation’s ability to offer comprehensive insurance solutions to both individual and business clients.

On January 1, 2015, the merger of Continental Bank Holdings, Inc. (“CBH”) with and into the Corporation (the “CBH Merger”), and the merger of Continental Bank with and into the Bank, were completed. Consideration paid totaled $125.1 million, comprised of 3,878,383 shares (which included fractional shares paid in cash) of the Corporation’s common stock, the assumption of options to purchase Corporation common stock valued at $2.3 million and $1.3 million for the cash-out of certain warrants. The CBH Merger initially added $424.7 million of loans, $181.8 million of investments, $481.7 million of deposits and ten new branches. The acquisition of CBH enabled the Corporation to expand its footprint into a significant portion of Montgomery County, Pennsylvania.


The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many regulatory agencies including the Securities and Exchange Commission (“SEC”), Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Pennsylvania Department of Banking.


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B. Basis of Presentation

and Principles of Consolidation

The accounting policies of the Corporation conform to U.S. generally accepted accounting principles (“GAAP”).

The Consolidated Financial Statements include the accounts of the CorporationBMBC and its wholly ownedconsolidated subsidiaries. BMBC’s primary subsidiary is the Bank. The Corporation’sCorporation’s consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. In connection with the RBPI Merger, the Corporation acquired 2 Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II. These two entities are not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All inter-companysignificant intercompany balances and transactions are eliminated

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in consolidation and balances have been eliminated.

certain reclassifications are made when necessary in order to conform the previous years' consolidated financial statements to the current year's presentation.

In preparing the Consolidated Financial Statements, the Corporationmanagement is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in 2018,2019, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan and lease losses and lending related commitments, goodwill and intangible assets, pension and post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending-related commitments as well as increased pension and post-retirement expense.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries; the Corporation’s primary subsidiary is the Bank. In connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II. These two entities are not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current-year presentation.


C. Cash and Cash Equivalents

Cash and cash equivalents include cash,, interest-bearing and noninterest-bearing amounts due from banks, and federal funds sold. Cash balances required to meet regulatory reserve requirements of the Federal Reserve Board amounted to $5.8$24.6 million and $10.4$4.3 million at December 31,2017 2019 and December 31,2016, 2018, respectively.

D. Investment Securities

Investment securities which are held for indefinite periods of time, which the Corporation intends to use as part of its asset/liability strategy, or which may be sold in response to changes in credit quality of the issuer, interest rates, changes in prepayment risk, increases in capital requirements, or other similar factors, are classified as available for sale and are carried at fair value. Net unrealized gains and losses for such securities, net of tax, are required to be recognized as a separate component of shareholders’ equity and excluded from determination of net income. Gains or losses on disposition are based on the net proceeds and cost of the securities sold, adjusted for the amortization of premiums and accretion of discounts, using the specific identification method.

The

The Corporation follows ASC 370-10-65-1370-10-65-1 “Recognition and Presentation of Other-Than-Temporary Impairments” that provides guidance related to accounting for recognition of other-than-temporary impairment for debt securities and expands disclosure requirements for other-than-temporarily impaired debt and equity securities. Companies are required to record other-than-temporary impairment charges through earnings if they have the intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, companies are required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. Non-credit-related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the Corporation has no intent, or it is more likely than not that the Corporation would not be required, to sell an impaired security before a recovery of its amortized cost basis. The Corporation did not have any other-than-temporary impairments for 2017,20162019, 2018 or 2015.

2017.

Investments for which management has the intent and ability to hold until maturity are classified as held-to-maturityheld to maturity and are carried at their amortized cost on the balance sheet. No adjustment for market value fluctuations are recorded related to the held to maturity portfolio.

Investment securities held in trading accounts consist of deferred compensation trust accountsaccounts, which are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income.

E. Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized temporary losses, if any, are recognized through a valuation allowance by charges to income.




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F. Portfolio Loans and Leases

The Corporation originates construction, commercial and industrial, commercial mortgage, residential mortgage, home equity and consumer loans to customers primarily in southeastern Pennsylvania, as well as small-ticket equipment leases to customers nationwide. Although the Corporation has a diversified loan and lease portfolio, its debtors’ ability to honor their contracts is substantially dependent upon the real estate and general economic conditions of the region.

Loans and leases that management has the intention and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their outstanding principal balance adjusted for charge-offs, the allowance for loan and lease losses and any deferred fees or costs on originated loans and leases. Interest income is accrued on the unpaid principal balance.

Loan and lease origination fees and loan and lease origination costs are deferred and recognized as an adjustment to the related yield using the interest method.

The accrual of interest on loans and leases is generally discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Loans and leases are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued, but not collected for loans that are placed on nonaccrual status or charged-off is charged against interest income. All interest accrued, but not collected, on leases that are placed on nonaccrual status is not charged against interest income until the lease becomes 120 days delinquent, at which point it is charged off. The interest received on these nonaccrual loans and leases is applied to reduce the carrying value of loans and leases. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and remain current for at least six months, and future payments are reasonably assured. Once a loan returns to accrual status, any interest payments collected during the nonaccrual period which had been applied to the principal balance are reversed and recognized as interest income over the remaining term of the loan.

Certain loans which have reached maturity and have been approved for extension or renewal, but for which all required documents have not been fully executed as of the reporting date, are classified as Administratively Delinquent and are not considered to be delinquent. These loans are reported as current in all disclosures.

Loans acquired in mergers are recorded at their fair values. The difference between the recorded fair value and the principal value is accreted to interest income over the contractual lives of the loans in accordance with ASC 310-20.310-20. Certain acquired loans which were deemed to be credit impaired at acquisition are accounted for in accordance with ASC 310-30,310-30, as discussed below, in subsection H of this footnote.

G. Allowance for Loan and Lease Losses

The allowance for loan and lease losses (the “Allowance”“Allowance”) is established through a provision for loan and lease losses (the “Provision”) charged as an expense. The principal balances of loans and leases are charged against the Allowance when management believes that the principal is uncollectible. The Allowance is maintained at a level that the Corporation believes is sufficient to absorb estimated potential credit losses.

Management’s

Management’s determination of the adequacy of the Allowance is based on guidance provided in ASC 450 – Contingencies and ASC 310 - Receivables, and involves the periodic evaluations of the loan and lease portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires significant estimates by management. Consideration is given to a variety of factors in establishing these estimates. Quantitative factors in the form of historical net charge-off rates by portfolio segment are considered. In connection with these quantitative factors, management establishes what it deems to be an adequate look-back period (“LBP”) for the charge-off history. As of December 31, 20172019, management utilized a five-year LBP, which it believes adequately captures the trends in charge-offs. In addition, management develops an estimate of a loss emergence period (“LEP”) for each segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a borrower and an actual charge-off of a loan. As of December 31, 2017,2019, management utilized a two-year LEP for its commercial loan segments, and a one-year LEP for its consumer loan segments, based on analyses of actual charge-offs tracked back in time to the triggering event for the eventual loss. In addition, various qualitative factors are considered, including the specific terms and conditions of loans, changes in underwriting standards, delinquency statistics, industry concentrations and overall exposure of a single customer. In addition, consideration is given to the adequacy of collateral, the dependence on collateral, and the results of internal loan reviews, including a borrower’s financial strengths, their expected cash flows, and their access to additional funds.

As part of the process of calculating the Allowance for the different segments of the loan andand lease portfolio, management considers certain credit quality indicators. For the commercial mortgage, construction, and commercial and industrial loan

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segments, periodic reviews of the individual loans are performed by both in-house staff as well as external third-party loan review specialists. The result of these reviews is reflected in the risk grade assigned to each loan. For the consumer segments of the loan portfolio, the indicator of credit quality is reflected by the performance/non-performance status of a loan.

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The evaluation process also considers the impact of competition, current and expected economic conditions, national and international events, the regulatory and legislative environment, and inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’smanagement’s estimates, an additional Provision may be required that might adversely affect the Corporation’s results of operations in future periods. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the adequacy of the Allowance. Such agencies may require the Corporation to record additions to the Allowance based on their judgment of information available to them at the time of their examination.

H.

H. Impaired Loans and Leases

A loan or lease is considered impaired when, based on current information, it is probable that management will be unable to collect the contractually scheduled payments of principal or interest. When assessing impairment, management considers various factors,factors, which include payment status, realizable value of collateral and the probability of collecting scheduled principal and interest payments when due. Loans and leases that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

For loans that indicate possible signs of impairment, which in most cases is based on the performance/non-performancenon-performance status of the loan, an impairment analysis is conducted based on guidance provided by ASC 310-10. Impairment is measured by (i) the fair value of the collateral, if the loan is collateral-dependent, (ii) the present value of expected future cash flows discounted at the loan’s contractual effective interest rate, or (iii), less frequently, the loan’s obtainable market price.

In addition to originating loans, the Corporation occasionally acquires loans through mergers or loan purchase transactions. Some ofof these acquired loans may exhibit deteriorated credit quality that has occurred since origination and, as such, management may not expect to collect all contractual payments. Accounting for these purchased credit-impaired (“PCI”) loans is done in accordance with ASC 310-30. The loans are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral-dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. On a regular basis, at least quarterly, an assessment is made on PCI loans are assessed to determine if there has been any improvement or deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected cash flows of a PCI loan, a Provision is recorded in connection with the loan.

I.

I. Troubled Debt Restructurings (“TDR”s)

TDRs")

A TDR occurs when a creditor, for economic or legal reasons related to a borrower’sborrower’s financial difficulties, modifies the original terms of a loan or lease, or grants a concession to the borrower that it would not otherwise have granted. A concession may include an extension of repayment terms, a reduction in the interest rate, or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a concession, the Corporation will make the necessary disclosures related to the TDR. In certain cases, a modification or concession may be made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered a TDR.

J.

J. Other Real Estate Owned (“OREO”)

OREO consists of assets that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that were used as loan collateral. The Corporation reports OREO on the balance sheet as part of other assets, at the lower of cost or fair value less cost to sell, adjusted periodically based on current appraisals. Costs relating to the development or improvement of assets, as well as the costs required to obtain legal title to the property, are capitalized, while costs related to holding the property are charged to expense as incurred.




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K. Other Investments andEquity Stocks WithoutEquityStocksWithout aReadily Determinable Fair Value

ReadilyDeterminableFairValue

Other investments include Community Reinvestment Act (“CRA”) investments and equity stocks without a readily determinable fair value. The Corporation’sCorporation’s investments in equity stocks include those issued by the Federal Home Loan Bank of Pittsburgh (“FHLB”), the Federal Reserve Bank (“FRB”) and Atlantic Central Bankers Bank. The Corporation is required to hold FHLB stock as a condition of its borrowing funds from the FHLB. As of December 31, 2017, 2019, the carrying value of the Corporation’s FHLB stock was $20.1$23.7 million. In addition, the Corporation is required to hold FRB stock based on the Corporation’s capital. As of December 31, 2017, 2019, the carrying value of the Corporation’s FRB stock was $6.9$12.0 million. Ownership of FHLB and FRB stock is restricted and there is no market for these securities. For further information on the FHLB stock, see Note 10 –11, “Short-Term Borrowings and Long-Term FHLB Advances”.

Advances,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

L. Premises and Equipment

Premises and equipment are stated at cost,, less accumulated depreciation. Depreciation and predetermined rent are recorded using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the expected lease term or the estimated useful lives, whichever is shorter.


63M. Operating Leases
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The Corporation’s operating leases consist of Contentsvarious retail branch locations and corporate offices. Management determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets (“ROU assets”) and operating lease liabilities in our Consolidated Balance Sheets.

M.

ROU assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of unpaid lease payments, including extension options that the Corporation is reasonably certain will be exercised. As the majority of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the lease commencement date to determine the present value of unpaid lease payments. ROU assets represent our right to use underlying assets and are recorded as operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of ROU assets.

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize ROU assets and lease liabilities for short-term leases, which consist of certain leases of the Corporation’s limited-hour retirement community offices.

N. Pension and Postretirement Benefit Plan

As of December 31, 2017,2019, the Corporation had two2 non-qualified defined-benefit supplemental executive retirement plans and a postretirement benefit plan as discussed in Note 17 –16, “Pension and Postretirement Benefit Plans”.Plans,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. Net pension expense related to the defined-benefit consists of service cost, interest cost, return on plan assets, amortization of prior service cost, amortization of transition obligations and amortization of net actuarial gains and losses. Prior to December 31, 2015, the Corporation had a qualified pension plan which was settled on December 31, 2015. As it relates to the costs associated with the post-retirement benefit plan, the costs are recognized as they are incurred.

N.

O. Bank Owned Life Insurance (“BOLI”)

BOLI is recorded at its cash surrender value.value. Income from BOLI is tax-exempt and included as a component of non-interestnoninterest income.

O.

P. Derivative Financial Instruments

The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. The Corporation enters into interest rate swaps that allow commercial loan customerscustomers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Corporation originates variable-rate loans with customers in addition to interest rate swap

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agreements, which serve to effectively swap the customers’ variable-rate loans into fixed-rate loans. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its exposure on the variable and fixed components of the customer agreements. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.

In addition to interest rate swaps with customers, the Corporation may also enter into a risk participation agreement with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold”.sold.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation may purchase a risk participation agreement from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased”.

purchased.”

If a derivative has qualified as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedgedhedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings immediately. To determine fair value, management uses valuations obtained from a third party which utilizes a pricing model that incorporates assumptions about market conditions and risks that are current as of the reporting date. Management reviews, annually, the inputs utilized by its independent third-party valuation organization.

The Corporation may use interest-rate swap agreements to modify the interest rate characteristics from variable to fixed, or fixed to variable, in order to reduce the impact of interest rate changes on future net interest income. If present, the Corporation accounts for its interest-rate swap contracts in cash flow hedging relationships by establishing and documenting the effectiveness of the instrument in offsetting the change in cash flows of assets or liabilities that are being hedged. To determine effectiveness, the management performs an analysis to identify if changes in fair value or cash flow of the derivative correlate to the equivalent changes in the forecasted interest receipts or payments related to a specified hedged item. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The change in fair value of the ineffective part of the instrument would need to be charged to the Statement of Income, potentially causing material fluctuations in reported earnings in the period of the change relative to comparable periods. In a fair value hedge, the fair value of the interest rate swap agreements and changes in the fair value of the hedged items are recorded in the Corporation’s consolidated balance sheets with the corresponding gain or loss being recognized in current earnings. The difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge ineffectiveness, and is recorded in net interest income in the statement of income. Management performs an assessment, both at the inception of the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged items. In December 2012, the Corporation entered into a $15 million forward-starting interest rate swap in order to hedge the cash flows of a $15 million floating-rate FHLB borrowing. On November 30, 2015, the start date of the swap, the Corporation elected to terminate the swap.

P.

Q. Accounting for Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period.


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All share-based payments, including grants of stock options, restricted stock awards and performance-based stock awards, are recognized as compensation expense in the statement of income at their fair value. The fair value of stock option grants is determined using the Black-Scholes pricing model which considers the expected life of the options, the volatility of our stock price, risk-free interest rate and annual dividend yield. The fair value of the restricted stock awards and performance-based awards whose performance is measured based on an internally produced metric is based on their closing price on the grant date, while the fair value of the performance-based stock awards which use an external measure, such as total stockholder return, is based on their grant-date market value adjusted for the likelihood of attaining certain pre-determined performance goals and is calculated by utilizing a Monte Carlo Simulation model.

Q.

R. Earningsperper Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share takes into account the potential dilution that would occur if in-the-money stock options were exercised and converted into shares of common sharesstock and restricted stock awards and performance-based stock awards were vested. Proceeds assumed to have been received on

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options exercises are assumed to be used to purchase shares of the Corporation’sBMBC’s common stock at the average market price during the period, as required by the treasury stock method of accounting. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

R.

S. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Net deferred tax assets are included within the other assets line item on the Consolidated Balance Sheets.

The Corporation recognizes the benefit of a tax position only after determining that the Corporation would more-likely-than-not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognizedrecognized in the Consolidated Financial Statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. Management applies these criteria to tax positions for which the statute of limitations remains open.

S.

T. Revenue Recognition

With the exception of nonaccrual loans and leases, the Corporation recognizes all sources of income on the accrual method.

Additional

Additional information relating to wealth management fee revenue recognition follows:

The Corporation earns wealth managementmanagement fee revenue from a variety of sources including fees from trust administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage. These fees are generally based on asset values and fluctuate with the market. Some revenue is not directly tied to asset value but is based on a flat fee for services provided. For many of our revenue sources, amounts are not received in the same accounting period in which they are earned. However, each source of wealth management fees is recorded on the accrual method of accounting.

The most significantsignificant portion of the Corporation’s wealth management fees is derived from trust administration and other related services, custody, investment management and advisory services, and employee benefit account and IRA administration. These fees are generally billed monthly, in arrears, based on the market value of assets at the end of the previous billing period. A smaller number of customers are billed in a similar manner, but on a quarterly or annual basis, and some revenues are not based on market values.

The

The balance of the Corporation’s wealth management fees includes estate settlement fees and tax service fees, which are recorded when the related service is performed, and asset management and brokerage fees on non-depository investment products, which are received one month in arrears, based on settled transactions, but are accrued in the month the settlement occurs.

Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.

Insurance revenue is primarily related to commissions earned on insurance policies and is recognized over the related policy coverage period.

T.


U. Mortgage Servicing

A portion of the residential mortgage loans originated by the Corporation is sold to third parties; parties; however, the Corporation often retainsmay retain the servicing rights related to these loans. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received in return for these services. Gains on the sale of these loans are based on the specific identification method.


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An intangible asset, referred to as mortgagemortgage servicing rights (“MSR”s)MSRs") is recognized when a loan’s servicing rights are retained upon sale of a loan. These MSRs amortize to non-interestnoninterest expense in proportion to, and over the period of, the estimated future net servicing life of the underlying loans.


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MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is determined by stratifying the MSRs by predominant characteristics, such as interest rate and terms. Fair value is determined based upon discounted cash flows using market-based assumptions. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount for the stratum. A valuation allowance is utilized to record temporary impairment in MSRs. Temporary impairment is defined as impairment that is not deemed permanent. Permanent impairment is recorded as a reduction of the MSR and is not reversed.

U.

V. Goodwill and Intangible Assets

The Corporation accounts for goodwill and intangible assets in accordance with ASC 350, “Intangibles“Intangibles – Goodwill and Other.” The amount of goodwill initially recorded is based on the fair value of the acquired entity at the time of acquisition. Management performs goodwill and intangible assets impairment testing annually, as of October 31, or when events occur or circumstances change that would more likely than not reduce the fair value of the acquisition or investment. Prior to October 31, 2016, management had performed the goodwill and intangible assets impairment testing as of December 31. During 2016, management made a voluntary change in the method of applying an accounting principle related to the timing of the annual goodwill impairment assessment from December 31 to October 31. Management made this decision based on the time intensive nature of the goodwill impairment assessment. Management does not consider this change in impairment testing date to be a material change in application of an accounting principle. Goodwill impairment is tested on a reporting unit level. The Corporation currently has three3 reporting units: Banking, Wealth Management and Insurance. As of December 31, 2017,2019, the Insurance reporting unit did not meet the quantitative thresholds for separate disclosure as an operating segment, and is therefore reported as a component of the Wealth Management segment, based on its internal reporting structure. While the Insurance reporting unit did not meet the threshold for reporting as a separate operating segment for goodwill testing, the Insurance segment was tested for impairment. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Management’s

Management’s impairment testing methodology is consistent with the methodology prescribed in ASC 350. IntangibleManagement completes a goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. Management also reviews other intangible assets include core deposit intangibles, customer relationships, trade names, a domain name, and non-competition agreements. The customer relationships, non-competition agreement, and core deposit intangibles are amortized over the estimated usefulwith finite lives of the assets and are evaluated for impairment annually. The trade names, except for Hirshorn Boothby which has a three-year life,if events and circumstances indicate that the domain name intangibles have indefinite lives and are evaluated for impairment annually.

V. Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

W. carrying value may not be recoverable.


Note 2 - Recent Accounting Pronouncements


The following Financial Accounting Standards Board ("FASB") Accounting Standards Updates ("ASUs") are divided into pronouncements which have been adopted by the Corporation since January 1, 2017, during the year ended December 31, 2019, and those which are not yet effective as of December 31, 2019 and have been evaluated or are currently being evaluated by management as of December 31, 2017.

management.


Adopted Pronouncements:

Pronouncements in 2019:


FASB ASU 2017-08 (Subtopic 310-20)2016-02 (Topic 842), “Nonrefundable Fees“Leases”
In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and Other Costs (Subtopic 310-20): Premium Amortizationdisclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on Purchased Callable Debt Securities”

the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.


The new standard became effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Management has elected to use the effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provided a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

This standard will have a material effect on our Consolidated Balance Sheet and related disclosures but is not expected to have a material impact on our Consolidated Statement of Income. Any additional assets recorded as a result of adoption is expected to have a negative impact on the Corporation and Bank capital ratios under current regulatory guidance. On adoption, we have:


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recognized operating lease liabilities of approximately $49.1 million, with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases, and

derecognized $541 thousand of favorable lease assets, $2.2 million in unfavorable lease liabilities, and $2.5 million in deferred rent, with a corresponding adjustment to the ROU asset for the same amounts.

The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also have elected the practical expedient to not separate lease and non-lease components for all of our leases.

FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”

Issued in March 2017, June 2018, ASU 20172018-07: Compensation -08 shortens Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting” expands the amortizationscope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period for certain callable debt securities held atof time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a premium. Specifically, the amendment requires the premiumgrantor acquires goods or services to be amortizedused or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the earliest call date. The amendments do not require an accounting changeissuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, theunder Topic 606, Revenue from Contracts with Customers.

The amendments in this update arebecame effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Earlyus January 1, 2019. The adoption is permitted, including adoption in an interim period. The Corporation early adopted this ASU as of October 1, 2017. Adoption of this ASU did not have an impact on our Consolidated Financial Statements and related disclosures as management determined that it follows the guidance relatedCorporation has not historically granted share based payment awards to premium amortization on callable debt securities.

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Tablenonemployees other than to the Corporation’s Board of ContentsDirectors, who are treated as employees for share-based payment accounting.

FASB ASU 2018-02 -Income Statement – Reporting Comprehensive Income2018-15 (Topic 220): “Reclassification of Certain Tax Effects from350), "Intangibles - Goodwill and Other Comprehensive Income”

- Internal-Use Software"


Issued in FebruaryAugust 2018, ASU 2018-02 allows2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a reclassification from accumulated other comprehensive income to retained earningsservice contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for stranded tax effects resulting from the Tax Cuts and Jobs Act (H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018) and will improve the usefulness of information reported to financial statement users.impairment. The amendmentsguidance is effective in this update are effective for all entities for fiscal years,annual and interim periods within thosein fiscal years beginning after December 15, 2018. 2019. Early adoption is permitted, including adoption in an interim period for public businesses for reporting periods for which financial statements have not yet been issued.permitted. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Corporation early adopted this ASU as2018-15 in the third quarter of January 1, 2017 2019 and elected to reclassify income tax effects related to net unrealized losses on available for sale investment securities and unrealized losses on nonqualified pension liabilities. The reclassification of income tax effects associated with the net unrealized losses on available for sale investment securities and unrealized losses on nonqualified pension liabilities totaled $507 thousand and $275 thousand, respectively. The net effect of the reclassifications was a $782 thousand increase to both retained earnings and accumulated other comprehensive loss.

PronouncementsNot Yet Effective:

FASB ASU 2014-09(Topic 606), “Revenue from Contracts with Customers”

Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No.2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016- 08, “Principal versus Agent Considerations (Reporting Gross versus Net),” which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers and 2016-12, Narrow-Scope Improvements and Practical Expedients, both of which provide additional clarification of certain provisions in Topic 606. These Accounting Standards Codification (“ASC”) updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or retrospectively with the cumulative effect transition method.

Because the ASU doesdid not apply to revenue associated with leases and financial instruments (including loans and securities), management does not expect the new guidance to have a material impact on the elements of its Consolidated Statement of Income most closely associated with leases and financial instruments (such as interest income, interest expense, and net (loss) gain on sale of investment securities). The review is on-going, however our preliminary evaluation of other revenue streams that are within the scope of the new guidance suggests that adoption of this guidance is not expected to have a material effect on our Consolidated Statement of Income. The Corporation will adopt this ASU in the first quarter of 2018 with no impact to our Consolidated Financial Statements.Statements and related disclosures as the Corporation has historically evaluated implementation costs for capitalization of cloud computing arrangements using the framework applicable to costs incurred to develop or obtain internal-use software as required by ASU 2018-15.


Pronouncements Not Effective as of December 31, 2019:
FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”), eliminates the Provision for Loan and Lease Losses (the “Provision”) and Allowance for Loan and Lease Losses (the “Allowance”) line items and establishes the Provision for Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.

Under the legacy “Incurred Loss” notion, management presents an Allowance intended to represent “probable and estimable” incurred but not yet realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific reserve is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical loss experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not allow for projections beyond the likely ‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in 2022 are not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.


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In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for prepayment tendencies. Further, management’s specific expectations for the future economic environment must be incorporated in the projection, with loss expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable forecast. This valuation reserve will be established in the ACL and maintained through expense (provision) in the PCL.

CECL became effective for the Corporation on January 1, 2020 and will change the way we estimate credit losses for loans and leases, including off-balance sheet (“OBS”) credit exposures, for reporting periods beginning on or after January 1, 2020.

The Corporation has engaged with a leading vendor to assist in computing and establishing the ACL to operationalize the practice for establishing the ACL. Management’s ongoing implementation efforts include evaluatingmethodology for estimating the ACL under CECL includes the use of relevant available information, from internal and developingexternal sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience, including examination of loss experience at representative peer institutions when the additional quantitativeCorporation’s first-party loss history does not result in estimations that are meaningful to users of the Corporation’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. Ongoing evaluations have been performed by discounting instrument-level cashflows adjusted for timing (e.g. prepayments and qualitative disclosures required uponcurtailments) and credit (default and loss) expectations. For portfolio segments that do not provide adequate loss history (with or without peer information), management expects to use a weighted average remaining maturity methodology, which contemplates loss expectations on a pool basis, relying on historic loss rates.

Management is validating the Corporation's CECL model and methodologies, however we expect an initial increase to the ACL, including reserves for unfunded commitments, not to exceed 130% of the December 31, 2019 Allowance, or an incremental increase to the December 31, 2019 Allowance of approximately $6.8 million. When finalized, this one-time increase as a result of the adoption of CECL will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2020. This estimate is subject to change based on continuing refinement and validation of the new guidance, if applicable.

model and methodologies.


Financial statement users should be aware that the ACL is, by design, inherently sensitive to changes in economic outlook, loan and lease portfolio composition, portfolio duration, and other factors. Ongoing impacts of the CECL methodology are dependent on the following factors, among others, which could lead to a material impact to the ACL and PCL - in either direction - in future reporting periods:

Increases / decreases to the time period management deems reasonably and supportably forecastable
Inclusion / exclusion of forecast factors
Adverse changes to reasonable and supportable forecasts
Detectable increases / decreases in the Corporation’s or comparable industry credit loss parameters
Deterioration / improvement in the risk profile of the Corporation’s loan and lease portfolio
Decreased / increased prepayment behavior or other factors impacting loan and lease portfolio duration
Changes in credit risk through the ordinary course of operations, such as launch or expansion of higher risk-bearing products
Interest rate fluctuations impacting effective yield on certain instruments.

Management cautions that this list is not exhaustive. Further, the impact of accounting treatment changes for establishing the ACL for purchased assets under future acquisitions may lead to a material impact to the ACL and PCL in future reporting periods.

Ongoing financial statement behavior will be impacted by the standard, regardless of any cumulative-effect adjustment at adoption. Under our currently contemplated cashflow projection model, assets will originate with a specific allocation for the contract life of that instrument, adjusted for prepayment behavior and probabilistic credit performance expectations to arrive at an expected cashflow projection. All else being equal, as that continues toward its contract maturity, estimates of lifetime credit loss at the instrument level will decrease. Under steady-state conditions, portfolio-segment-level aggregation of management’s expected loss estimates should be stable or track with portfolio-segment growth (contraction and runoff). When management’s expectations of the likely future economic environment change based on reasonable and supportable forecasts, portfolio allocation may increase (decrease) rapidly between periods. The establishment of the ACL will be more responsive to deteriorating (improving) economic conditions than prior establishment of the ALLL, which is based on historical experience and agnostic to future conditions. In dynamic economic environments, users of financial statements should expect expense (income) in the PCL to be concentrated in fewer quarters than was typical for the PLLL. Users of financial statements should

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be aware that this accounting treatment does not determine the ultimate, realized loss or recovery for assets in scope; ASU 2016-13 impacts timing.

Specific reserve impact to instruments meeting the legacy “impairment” criteria are not anticipated to materially change.

FASB ASU 2017-04 (Topic 350), “Intangibles“Intangibles – Goodwill and Others”

Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 isbecame effective for annual periods beginning after December 15, 2019 including interim periods within those periods.the Corporation on January 1, 2020. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2017-012018-12 (Topic 805)944), “Business Combinations”

“Targeted Improvements to the Accounting for Long-Duration Contracts”


Issued in January 2017,August 2018, ASU 2017-01 clarifies2018-12 makes targeted improvements to the definitionexisting recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. Specifically, the ASU is intended to 1) improve the timeliness of a businessrecognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows, 2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, 3) simplify the objectiveamortization of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)deferred acquisition costs, and 4) improve the effectiveness of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.the required disclosures. ASU 2017-012018-12 is effective for annualpublic business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 including interim periods within those periods. The2020. Early application of the amendments is permitted. As an independent insurance agent, the Corporation will adoptdoes not issue insurance contracts. As a result, management does not expect the adoption of this ASU to have an impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"

Issued in August 2018, ASU 2018-13 modifies, adds and removes certain disclosures aimed to improve the first quarteroverall usefulness of 2018.the disclosure requirements for fair value measurements. ASU 2018-13 became effective for the Corporation on January 1, 2020. Adoption is required on both a prospective and retrospective basis depending on the amendment. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.


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FASB ASU 2016-152018-14 (Topic 320)715), “Classification of Certain Cash Receipts and Cash Payments”

"Compensation-Retirement Benefits - Defined Benefit Plans-General"


Issued in August 2016,2018, the ASU 2016-15 provides guidance on eight specific cash flow issues2018-14, modifies, adds and their disclosure inremoves certain disclosures aimed to improve the consolidated statements of cash flows. The issues addressed include debt prepayment, settlement of zero-coupon debt, contingent consideration in business combinations, proceeds from settlement of insurance claims, proceeds from settlement of BOLI, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and applicationoverall usefulness of the predominance principle. ASU 2016-15disclosure requirements to financial statement users. The guidance is effective for the annual and interim periods in fiscal years beginning after December 15, 2017, with early2020. Early adoption is permitted. The Corporation will adopt this ASU inUse of the first quarter of 2018.retrospective method is required. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.


FASB ASU 2016-13 (Topic 326), “Measurement of2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, onTopic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”


Issued in June 2016,April 2019, ASU 2016-13 significantly changes how companies measure2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and recognize credit impairment for many financial assets.instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The new currentamendments to estimating expected credit loss (“CECL”) model will require companieslosses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to immediately recognize anthe Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to occur over the remaining life of the financial assetsbe written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management has incorporated recoveries and extension options when estimating expected credit losses under the CECL methodology further described above.

FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the scope of the standard. The ASU alsoaccounting for certain income tax transactions and makes targeted amendmentsminor improvements to the current impairment model for available-for-sale debt securities. ASU 2016-13codification. The guidance is effective for the annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. Adoption of this new guidance can be applied only on a prospective basis as a cumulative-effect adjustment to retained earnings.

It is expected that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset, and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to the Corporation’s allowance for credit losses, which will depend upon the nature and characteristics of the Corporation 's portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at the adoption date. The Corporation has engaged the services of a third-party consultant as well as invested in software designed to assist management in the development and implementation of the new CECL model. Management is currently in the process of evaluating our contract-level data. The adoption of this ASU will also require the addition of an allowance for held-to-maturity debt securities. The Corporation currently does not intend to early adopt this new guidance.

FASB ASU 2016-02 (Topic 842), “Leases”

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Management has begun to inventory the Corporation’s various leases to evaluate the effect that this ASU will have on our consolidated financial statements and related disclosures. Management is aware that the adoption of this ASU will impact the Corporation’s balance sheet for the recording of assets and liabilities for operating leases. Any additional assets recorded as a result of implementation will have a negative impact on the Corporation and Bank capital ratios under current regulatory guidance.

FASB ASU 2016-01 (Subtopic 825-10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”

Issued in January 2016, ASU 2016-01 provides that equity investments will be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable an entity may elect to measure the equity investment at cost, minus impairment, plus or minus any change in the investment’s observable price. For financial liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument-specific credit risk. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.2020. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. The Corporation will adopt this ASU in the first quarter of 2018 on a prospective basis. Upon adoption, the Corporation will record a cumulative-effect adjustment of $296 thousand by reclassifying the amount of net unrealized gain related to our available-for-sale equity securities portfolio as of December 31, 2017 from other comprehensive loss to retained earnings.

Management is evaluating the amendments related to equity securities without readily determinable fair values (except for FHLB, FRB, and Atlantic Central Bankers Bank stock, which are outside of the scope of this ASU), butManagement does not expect it to have a material impact on our consolidated financial statements and related disclosures. Additionally, for purposes of disclosing the fair value of loans carried at amortized cost, we are evaluating our valuation methods to determine the necessary changes to present fair value disclosures based on “exit price” as required by this update. Accordingly, the fair value amounts disclosed for such loans may change upon adoption.

68

FASB ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”

Issued in March 2017, ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Corporation will adopt this ASU in the first quarter of 2018.

Upon adoption, the components of net periodic benefit cost other than the service cost component will be reclassified from “Employee benefits” to “Other operating expenses” in the Consolidated Statements of Income. Since both “Employee benefits” and “Other operating expenses” line items of these income statement line items are within “Non-interest expenses”, total “Non-interest expenses” will not change, nor will there be any change in “Net income.” The components of net periodic benefit cost are currently disclosed in Note 17 – “Pension and Postretirement Benefit Plans” in the accompanying Notes to consolidated financial statements found in this Annual Report on Form 10-K. Additionally, the Corporation does not currently capitalize any components of its net periodic benefit costs. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.


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Note 23 - Business Combinations


Domenick & Associates (“Domenick”)

The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and 2 contingent cash payments, not to exceed $250 thousand each, will be payable in 2020 and 2021, subject to the attainment of certain targets during the related periods.

The following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:

(dollars in thousands) 
Consideration paid: 
Cash paid at closing$750
Contingent payment liability (present value)706
Value of consideration$1,456
  
Assets acquired: 
Cash and due from banks370
Intangible assets - customer relationships779
Premises and equipment1
Other assets316
Total assets1,466
  
Liabilities assumed: 
Accounts payable657
Other liabilities30
Total liabilities$687
  
Net assets acquired$779
  
Goodwill resulting from acquisition of Domenick$677


As of June 30, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Domenick acquisition were final.

Royal Bancshares of Pennsylvania,Inc.

On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation,BMBC (the “Effective Date”), and the merger of Royal Bank America with and into the Bank as contemplated by(collectively, the "RBPI Merger"), pursuant to the Agreement and Plan of Merger, by and between RBPI and the Corporation,BMBC, dated as of January 30, 2017 (the “Agreement”) werewas completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,098,7543,101,316 shares of the Corporation’sBMBC's common stock. Shareholders of RBPI received 0.1025 shares of CorporationBMBC's common stock for each share of RBPI Class A common stock and 0.1179 shares of CorporationBMBC's common stock for each share of RBPI Class B common stock owned as of the effective dateEffective Date of the RBPI Merger, with cash-in-lieu of fractional shares totaling $7 thousand. Holders of in-the-money options to purchase RBPI Class A common stock received cash totaling $112 thousand. In addition, 1,368,040 warrants to purchase Class A common stock of RBPI, valued at $1.9 million were converted to 140,224 warrants to purchase CorporationBMBC's common stock. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were preliminarily adjusted to their fair values as of the date of the RBPI Merger.Effective Date. The excess of consideration paid above the fair value of net assets acquired was recorded as goodwill. This goodwill is not amortizable nor is it deductible for income tax purposes.


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In connection with the RBPI Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of the dateEffective Date, which include the effects of the RBPI Mergerany measurement period adjustments in accordance with ASC 805-10, are summarized in the following table:

(dollars in thousands)

     

Consideration paid:

     

Common shares issued (3,098,754)

 $136,655 
Common shares issued (3,101,316)$136,768

Cash in lieu of fractional shares

  7 7

Cash-out of certain options

  112 112

Fair value of warrants assumed

  1,853 1,853

Value of consideration

  138,627 $138,740
     

Assets acquired:

     

Cash and due from banks

  17,092 17,092

Investment securities available for sale

  121,587 121,587

Loans

  570,373 566,228

Premises and equipment

  8,264 8,264

Deferred income taxes

  33,135 34,823

Bank-owned life insurance

  16,550 16,550

Core deposit intangible

  4,670 4,670

Favorable lease asset

  566 566

Other assets

  14,487 13,611

Total assets

  786,724 $783,391
     

Liabilities assumed:

     

Deposits

  593,172 593,172

FHLB and other long-term borrowings

  59,568 59,568

Short-term borrowings

  15,000 15,000

Junior subordinated debentures

  21,416 21,416

Unfavorable lease liability

  322 322

Other liabilities

  31,381 31,381

Total liabilities

  720,859 $720,859
     

Net assets acquired

  65,865 $62,532
     

Goodwill resulting from acquisition of RBPI

 $72,762 $76,208

Provisional Estimates

As of Fair ValueDecember 31, 2018, the estimates of Certain Assets Acquiredthe fair value of identifiable assets acquired and liabilities assumed in the RBPI Merger

As of December 31, 2017, the accounting for the estimates of fair value for certain loans acquired in the RBPI Merger is incomplete. The Corporation is in the process of obtaining new information that will allow management to better estimate fair values that existed as of December 15, 2017. When this information is obtained, management anticipates an adjustment to the provisional fair value assigned to certain acquired loans. This adjustment will result in corresponding adjustments to goodwill and net deferred tax asset. The adjustments will be recorded in the period in which the new information is obtained and reviewed.

Methods Used to Fair Value Assets and Liabilities

The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. In many cases, determining the fair value of the acquired assets and assumed liabilities required management to estimate cash flows expected from those assets and liabilities and to discount those cash flows at appropriate rates of interest. This required the utilization of significant estimates and management judgment in accounting for the RBPI Merger.

Cash and due from banks: The estimated fair values of cash and due from banks approximate their stated value.

Investment securities available-for-sale: The estimated fair values of the investment securities available for sale, comprised of obligations of the U.S. government and agencies, state and political subdivisions, mortgage-backed securities and collateralized mortgage obligations, were based on actual sales of the investments securities immediately subsequent to the close of the RBPI Merger. No gains or losses were recorded resulting from the sales.

Loans held for investment: The acquisition resulted in loans acquired with and without evidence of credit quality deterioration. There was no carryover related allowance for loan and lease losses.

final.

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The acquired loan portfolio was valued based on current guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs were utilized to value the portfolio and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, management used assumptions in an effort to determine reasonable fair value. Specifically, management utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate loan fair value analysis; 2) general credit fair value analysis; and 3) specific credit fair value analysis.

For loans acquired without evidence of credit quality deterioration, management prepared the interest rate loan fair value analysis. Loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment. Additionally, a general credit fair value adjustment was calculated using a two-part general credit fair value analysis: 1) expected lifetime losses; and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the RBPI. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to a lack of specific familiarity with RBPI's underwriting process. RBPI's loan portfolio without evidence of credit quality deterioration received a fair value discount of $730 thousand to reflect an interest rate fair value adjustment and a fair value discount of $13.1 million to reflect the general credit risk of the loan portfolio. The adjustment will be substantially recognized as interest income on a level yield basis over the remaining lives of the underlying loans.

For loans acquired with evidence of credit quality deterioration management prepared a specific credit fair value adjustment. Management reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans or over the recovery period of the underlying collateral on a level yield basis as an adjustment to yield. In certain cases, the appraisal of the underlying collateral may have not been current and new appraisals are underway. Once the current appraisals are finalized and accurately reflect the fair value of the collateral as of December 15, 2017, the fair values of the loans will be finalized. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the derecognition of the loan at its carrying value with differences in actual results reflected in interest income.

At the acquisition date, the Corporation recorded a nonaccretable difference of $13.0 million. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount of $2.3 million.

The following table summarizes the acquired impaired loans and leases as of December 15, 2017 resulting from the RBPI Merger:

(dollars in thousands)

Contractually required principal and interest payments

 $36,138 

Contractual cash flows not expected to be collected (nonaccretable difference)

  (13,042

)

Cash flows expected to be collected

  23,096 

Interest component of expected cash flows (accretable yield)

  (2,319

)

Fair value of loans acquired with deterioration of credit quality

 $20,777 

Bank premises - owned: The Corporation acquired five owned properties and obtained appraisals from an independent real estate appraiser. A fair value adjustment was recorded on the owned properties, increasing their carrying value by $2.3 million.

Core deposit intangible: Core deposit intangible represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of the RBPI Merger. The core deposit intangible fair value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost of alternative funding sources and was valued utilizing Level 3 inputs. The core deposit intangible of $4.7 million will be amortized using the sum of the years digits method over an estimated life of 10 years.

Deposits: The fair values of demand and saving deposits, with no stated maturities, approximated the carrying value as these accounts are payable on demand. The fair values of time deposits with fixed maturities were estimated by discounting the final maturity using current market interest rate for similar instruments. A fair value premium of $2.5 million was recognized and will be recognized as a reduction to interest expense using a level yield amortization method over the life of the time deposit. The fair value of time deposits was determined using Level 2 inputs in the fair value hierarchy.

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Junior subordinated debentures: The fair value of junior subordinated debentures was determined by present valuing the expected cash flows using current market rates for similar instruments. A fair value discount of $4.4 million was recognized and will be recognized as an increase to interest expense on a level-yield basis over the remaining life of the debentures. The fair value of junior subordinated debentures was determined using Level 2 inputs in the fair value hierarchy.

Deferred tax assets and liabilities: Deferred tax assets and liabilities were established for purchase accounting fair value adjustments as the future amortization/accretion of these adjustments represent temporary differences between book income and taxable income. The federal income tax rate utilized to determine the deferred tax assets and liabilities was the enacted rate as of December 15, 2017.

Harry R. Hirshorn & Company, Inc., d/b/a Hirshorn Boothby (“Hirshorn”)

The acquisition of Hirshorn, an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed on May 24, 2017. Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5$7.5 million, of which $5.8$5.8 million was paid at closing, with three2 contingent cash payments of $575 thousand were paid in 2018 and 2019, and 1 contingent cash payment, not to exceed $575$575 thousand, each, towill be payable on each of May 24, 2018, May 24, 2019, and May 24,in 2020, subject to the attainment of certain targets during the related periods.conditions. The acquisition enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted areas.

In connection with the Hirshorn acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:

(dollars in thousands)

Consideration paid:

Cash paid at closing

$5,770

Contingent payment liability (present value)

1,690

Value of consideration

7,460

Assets acquired:

Cash operating accounts

978

Intangible assets – trade name

195

Intangible assets – customer relationships

2,672

Intangible assets – non-competition agreements

41

Premises and equipment

1,795

Accounts receivable

192

Other assets

27

Total assets

5,900

Liabilities assumed:

Accounts payable

800

Other liabilities

2

Total liabilities

802

Net assets acquired

5,098

Goodwill resulting from acquisition of Hirshorn

$2,362


Table of Contents

(dollars in thousands) 
Consideration paid: 
Cash paid at closing$5,770
Contingent payment liability (present value)1,690
Value of consideration7,460
  
Assets acquired: 
Cash operating accounts978
Intangible assets – trade name195
Intangible assets – customer relationships2,672
Intangible assets – non-competition agreements41
Premises and equipment1,795
Accounts receivable192
Other assets27
Total assets5,900
  
Liabilities assumed: 
Accounts payable800
Other liabilities2
Total liabilities802
  
Net assets acquired5,098
  
Goodwill resulting from acquisition of Hirshorn$2,362

As of December 31, 2017, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Hirshorn acquisition are final.


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Pro Forma Income Statements (unaudited)

The following pro forma income statements for the twelve monthsyear ended December 31, 2017,2016 and 20152017 present the pro forma results of operations of the combined institution (RBPI and the Corporation) as if the RBPI Merger occurred on January 1, 2015, January 1, 2016 and January 1, 2017, respectively.2017. The pro forma income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization. amortization, and include the impacts of measurement period adjustments made in accordance with ASC 805-10. No cost savings or additional merger expenses have been included in the pro forma results of operations. Due to the immaterial contribution to net income of the RJMDomenick and Hirshorn acquisitions, which occurred during the three-year period shown in the table, the pro forma effects of these acquisitions are excluded.

  

Twelve Months Ended December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

Total interest income

 $169,677  $155,798  $143,926 

Total interest expense

  20,113   17,134   13,963 

Net interest income

  149,564   138,664   129,963 

Provision for loan and lease losses

  3,454   5,568   3,648 

Net interest income after provision for loan and lease losses

  146,110   133,069   126,315 

Total non-interest income

  61,423   58,275   58,898 

Total non-interest expenses*

  140,853   124,358   149,791 

Income before income taxes

  66,680   67,013   35,422 

Income tax expense

  39,871   22,461   12,531 

Net income

 $26,809  $44,552  $22,891 

Per share data**:

            

Weighted-average basic shares outstanding

  20,248,879   19,958,377   20,587,079 

Dilutive shares

  257,591   168,499   267,996 

Adjusted weighted-average diluted shares

  20,506,470   20,126,876   20,855,075 

Basic earnings per common share

 $1.32  $2.23  $1.11 

Diluted earnings per common share

 $1.31  $2.21  $1.10 

*


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  Year Ended December 31,
(dollars in thousands, except share and per share data) 2017
Total interest income $171,155
Total interest expense 20,065
Net interest income 151,090
Provision for loan and lease losses 3,454
Net interest income after provision for loan and lease losses 147,636
Total noninterest income 61,423
Total noninterest expenses(1)
 140,756
Income before income taxes 68,303
Income tax expense 40,841
Net income $27,462
Per share data(2):
  
Weighted-average basic shares outstanding 20,248,879
Dilutive shares 257,591
Adjusted weighted-average diluted shares 20,506,470
Basic earnings per common share $1.36
Diluted earnings per common share $1.34

(1)Total non-interestnoninterest expense includes RBPI Net Income Attributable to Noncontrolling Interest and Preferred Stock Series A Accumulated Dividend and Accretion for pro-forma presentation.

**

(2)Assumes that the shares of RBPI common stock outstanding as of December 31, 20172018 were outstanding for the full twelve month periodsperiod ended December 31, 2017, 2016, and 2015, respectively.

2017.


Due Diligence, Merger-Related and Merger IntegrationExpenses

Due diligence, merger-related and merger integration expenses include consultant costs, investment banker fees, contract breakage fees, retention bonuses for severed employees, salary and wages for redundant staffing involved in the integration of the institutions and bonus accruals for members of the merger integration team. The following table details the costs identified and classified as due diligence, merger-related and merger integration costs for the periods indicated:

  

Twelve Months Ended December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

Advertising

 $180  $—  $162 

Employee Benefits

  21   —   258 

Furniture, fixtures, and equipment

  109   —   159 

Information technology

  837   —   1,168 

Professional fees

  3,160   —   2,471 

Salaries and wages

  1,285   —   1,868 

Other

  512   —   584 

Total due diligence, and merger-related and merger integration expenses

 $6,104  $—  $6,670 

73
 Year Ended December 31,
(dollars in thousands)2019 2018 2017
Advertising$—
 $61
 $180
Employee Benefits—
 271
 21
Occupancy and bank premises—
 2,145
 —
Furniture, fixtures, and equipment—
 365
 109
Data processing—
 421
 837
Professional fees—
 1,450
 3,160
Salaries and wages—
 852
 1,285
Other—
 2,196
 512
Total due diligence, merger-related and merger integration expenses$—
 $7,761
 $6,104



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Note4-Investment Securities

 

Note 3 - Goodwill and Intangible Assets

The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other than MSRs, for the twelve months ended December 31,2017 and 2016:

(dollars in thousands)

 

Balance December 31, 2016

  

Additions

  

Amortization

  

Balance December 31, 2017

  

Amortization
Period

 

Goodwill – Wealth

 $20,412  $—  $—  $20,412  

 

 Indefinite  

Goodwill – Banking

  80,783   72,762   —   153,545  

 

 Indefinite  

Goodwill – Insurance

  3,570   2,362   —   5,932  

 

 Indefinite  

Total Goodwill

 $104,765  $75,124  $—  $179,889       

Core deposit intangible

 $3,447  $4,670  $(737

)

 $7,380    10 Years  

Customer relationships

  13,056   2,672   (1,555

)

  14,173   10to20 Years 

Non-compete agreements

  1,634   41   (356

)

  1,319   5to10 Years 

Trade name

  2,165   195   (38

)

  2,322  

 

3 yearstoIndefinite 

Domain name

  —   151   —   151  

 

 Indefinite  

Favorable lease assets

  103   566   (48

)

  621   1to16 Years 

Total Intangible Assets

 $20,405  $8,295  $(2,734

)

 $25,966       

Grand Total

 $125,170  $83,419  $(2,734

)

 $205,855       

(dollars in thousands)

 

Balance December 31, 2015

  

Additions

  

Amortization

  

Balance December 31, 2016

  

Amortization
Period

 

Goodwill – Wealth

 $20,412  $—  $—  $20,412    Indefinite  

Goodwill – Banking

  80,783   —   —   80,783    Indefinite   

Goodwill – Insurance

  3,570   —   —   3,570    Indefinite   

Total Goodwill

 $104,765  $—  $—  $104,765       

Core deposit intangible

 $4,272  $—  $(825

)

 $3,447    10 years  

Customer relationships

  14,384   —   (1,328

)

  13,056   10to20 years 

Non-compete agreements

  2,932   —   (1,298

)

  1,634   5to10 years 

Trade name

  2,165   —   —   2,165  

 

 Indefinite  

Favorable lease assets

  150   —   (47

)

  103  

 

17to75 months 

Total Intangible Assets

 $23,903  $—  $(3,498

)

 $20,405       

Grand total

 $128,668  $—  $(3,498

)

 $125,170       

Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31,2017 using generally accepted valuation methods. Management determined that no impairment of goodwill or indefinite-lived intangible assets was identified as a result of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the two months ended December 31, 2017, management determined there were no events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.

Amortization expense on finite-lived intangible assets was $2.7 million, $3.5 million, and $3.8 million for the twelve months ended December 31,2017,2016, and 2015, respectively. The estimated aggregate amortization expense related to finite-lived intangible assets for each of the five succeeding fiscal years ending December 31 is:

(dollars in thousands)

 

Fiscal Year Amount

 

Fiscal year ending

    

2018

 $3,520 

2019

 $3,218 

2020

 $2,980 

2021

 $2,764 

Thereafter

 $11,167 

Note 4 - Investment Securities

The amortized cost and fair value of investments,, which were classified as available for sale, are as follows:

As of December 31, 2017

2019

(dollars in thousands)

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

 

Fair Value

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value

U.S. Treasury securities

 $200,077  $11  $—  $200,088 $500,066
 $35
 $—
 $500,101

Obligations of the U.S. government and agencies

  153,028   75   (2,059

)

  151,044 102,179
 193
 (352) 102,020

Obligations of state and political subdivisions

  21,352   11   (53

)

  21,310 5,366
 13
 —
 5,379

Mortgage-backed securities

  275,958   887   (1,855

)

  274,990 360,977
 5,182
 (157) 366,002

Collateralized mortgage obligations

  37,596   14   (948

)

  36,662 31,796
 195
 (159) 31,832

Other investment securities

  4,813   318   (23

)

  5,108 650
 —
 —
 650

Total

 $692,824  $1,316  $(4,938

)

 $689,202 $1,001,034
 $5,618
 $(668) $1,005,984


As of December 31, 2016

2018

(dollars in thousands)

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

 

Fair Value

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value

U.S. Treasury securities

 $200,094  $3  $—  $200,097 $200,026
 $—
 $(13) $200,013

Obligations of the U.S. government and agencies

  83,111   167   (1,080

)

  82,198 198,604
 107
 (2,856) 195,855

Obligations of state and political subdivisions

  33,625   26   (121

)

  33,530 11,372
 3
 (43) 11,332

Mortgage-backed securities

  185,997   1,260   (1,306

)

  185,951 294,076
 554
 (4,740) 289,890

Collateralized mortgage obligations

  49,488   108   (902

)

  48,694 40,150
 141
 (1,039) 39,252

Other investment securities

  16,575   105   (154

)

  16,526 1,100
 —
 —
 1,100

Total

 $568,890  $1,669  $(3,563

)

 $566,996 $745,328
 $805
 $(8,691) $737,442


The following tablestables present the aggregate amount of gross unrealized losses as of December 31, 2017 2019 and December 31, 2016 2018 on available for sale investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of December 31, 2017

  

Less than 12
Months

  

12 Months
or Longer

  

Total

 

(dollars in thousands)

 

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

 

Obligations of the U.S. government and agencies

 $114,120  $(1,294

)

 $26,726  $(765

)

 $140,846  $(2,059

)

Obligations of state and political subdivisions

  11,144   (29

)

  2,709   (24

)

  13,853   (53

)

Mortgage-backed securities

  177,919   (1,293

)

  31,787   (562

)

  209,706   (1,855

)

Collateralized mortgage obligations

  5,166   (47

)

  26,686   (901

)

  31,852   (948

)

Other investment securities

  1,805   (23

)

  —   —   1,805   (23

)

Total

 $310,154  $(2,686

)

 $87,908  $(2,252

)

 $398,062  $(4,938

)

2019

75
 
Less than 12
Months
 
12 Months
or Longer
 Total
(dollars in thousands)
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses
Obligations of the U.S. government and agencies$48,497
 $(315) $7,966
 $(37) $56,463
 $(352)
Mortgage-backed securities33,783
 (119) 5,977
 (38) 39,760
 (157)
Collateralized mortgage obligations6,978
 (67) 10,861
 (92) 17,839
 (159)
Total$89,258
 $(501) $24,804
 $(167) $114,062
 $(668)


Table of Contents


As of December 31, 2016

2018
 

Less than 12
Months

  

12 Months
or Longer

  

Total

 
Less than 12
Months
 
12 Months
or Longer
 Total

(dollars in thousands)

 

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses
U.S. Treasury securities$199,912
 $(13) $—
 $—
 $199,912
 $(13)

Obligations of the U.S. government and agencies

 $62,211  $(1,080

)

 $—  $—  $62,211  $(1,080

)

12,916
 (62) 140,506
 (2,794) 153,422
 (2,856)

Obligations of state and political subdivisions

  24,482   (121

)

  —   —   24,482   (121

)

—
 —
 3,989
 (43) 3,989
 (43)

Mortgage-backed securities

  101,433   (1,306

)

  —   —   101,433   (1,306

)

43,276
 (352) 195,697
 (4,388) 238,973
 (4,740)

Collateralized mortgage obligations

  35,959   (902

)

  —   —   35,959   (902

)

540
 (1) 27,077
 (1,038) 27,617
 (1,039)

Other investment securities

  2,203   (93

)

  11,895   (61

)

  14,098   (154

)

Total

 $226,288  $(3,502

)

 $11,895  $(61

)

 $238,183  $(3,563

)

$256,644
 $(428) $367,269
 $(8,263) $623,913
 $(8,691)



Management evaluates the Corporation’sCorporation’s investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. The investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state and local municipalities and other issuers. All fixed income investment securities in the Corporation’s investment portfolio are rated as investment-grade or higher. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers or collateral. Management does not believe that these unrealized losses are other-than-temporary. Management does not have the intent to sell these securities prior to their maturity or the recovery of their cost bases, and believes that it is more likely than not that it will not have to sell these securities prior to their maturity or the recovery of their cost bases.

As

As of December 31, 2017, 2019 and 2016,2018, securities having a fair value of $126.2$156.4 million and $119.4$123.5 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the FRB discount window program, FHLB borrowings, collateral requirements in derivative contracts, and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of December 31, 2017 2019 and 2016,December 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

  

December 31, 2017

  

December 31, 2016

 

(dollars in thousands)

 

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

 

Investment securities1:

                

Due in one year or less

 $211,019  $211,019  $213,876  $213,885 

Due after one year through five years

  126,452   124,797   40,335   40,270 

Due after five years through ten years

  23,147   22,804   45,840   44,914 

Due after ten years

  15,439   15,421   18,079   18,055 

Subtotal

  376,057   374,041   318,130   317,124 

Mortgage-related securities1

  313,554   311,652   235,485   234,644 

Mutual funds with no stated maturity

  3,213   3,509   15,275   15,228 

Total

 $692,824  $689,202  $568,890  $566,996 

 December 31, 2019 December 31, 2018
(dollars in thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Investment securities:       
Due in one year or less$504,851
 $504,890
 $209,129
 $209,099
Due after one year through five years38,710
 38,623
 180,657
 177,972
Due after five years through ten years53,598
 53,457
 7,258
 7,268
Due after ten years11,102
 11,180
 14,058
 13,961
Subtotal608,261
 608,150
 411,102
 408,300
Mortgage-related securities(1)
392,773
 397,834
 334,226
 329,142
Total$1,001,034
 $1,005,984
 $745,328
 $737,442

1
(1) Expected maturities of mortgage-related securities maydiffer from contractual maturities as borrowers mayhave the right to call or prepay obligations with or without call or prepayment penalties.

The Corporation did 0t have any sales of available for sale investment securities for the year ended December 31, 2019. Proceeds from the sale of available for sale investment securities totaled $130.9 million, $276$7 thousand and $64.9$130.9 million for the twelve monthsyears ended December 31, 2017, 20162018 and 2015,2017, respectively. Net gain (loss) on sale of available for sale investment securities totaled $101 thousand, $(77)$7 thousand and $931$101 thousand for the twelve monthsyears ended December 31, 2018, and 2017, 2016, and 2015,respectively.

76
Table of Contents



The amortized cost and fair value of investment securities held to maturity as of December 31, 2017 2019 and 2016December 31, 2018 are as follows:

As of December 31, 2017

December 31, 2019

(dollars in thousands)

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

 

Fair Value

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value

Mortgage-backed securities

 $7,932  $5  $(86

)

 $7,851 $12,577
 $104
 $(20) $12,661

Total

 $7,932  $5  $(86

)

 $7,851 


As of December 31, 2016

December 31, 2018

(dollars in thousands)

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

 

Fair Value

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value

Mortgage-backed securities

 $2,879  $—  $(61

)

 $2,818 $8,684
 $—
 $(246) $8,438

Total

 $2,879  $—  $(61

)

 $2,818 


The following tablestables present the aggregate amount of gross unrealized losses as of December 31, 2017 2019 and December 31, 2016 2018 on held to maturitysecurities classified according to the amount of time those securities have been in a continuous unrealized loss position:


As of December 31, 2017

December 31, 2019
 

Less than 12
Months

  

12 Months
or Longer

  

Total

 
Less than 12
Months
 
12 Months
or Longer
 Total

(dollars in thousands)

 

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

  

Fair
Value

  Unrealized Losses 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses

Mortgage-backed securities

 $2,756  $(25

)

 $3,866  $(61

)

 $6,622  $(86

)

$3,159
 $(20) $—
 $—
 $3,159
 $(20)

Total

 $2,756  $(25

)

 $3,866  $(61

)

 $6,622  $(86

)


As of December 31, 2016

December 31, 2018
 

Less than 12
Months

  

12 Months
or Longer

  

Total

 
Less than 12
Months
 
12 Months
or Longer
 Total

(dollars in thousands)

 

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

  

Fair
Value

  

Unrealized Losses

 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses

Mortgage-backed securities

 $2,818  $(61

)

 $—  $—  $2,818  $(61

)

$1,315
 $(4) $7,123
 $(242) $8,438
 $(246)

Total

 $2,818  $(61

)

 $—  $—  $2,818  $(61

)


The amortized cost and fair value of held to maturity investment securities as of December 31, 2017 2019 and 2016,December 31, 2018, by contractual maturity, are shown below:

  

December 31, 2017

  

December 31, 2016

 

(dollars in thousands)

 

Amortized

Cost

  

Fair Value

  

Amortized

Cost

  

Fair Value

 

Mortgage-backed securities1

 $7,932  $7,851  $2,879  $2,818 

Total

 $7,932  $7,851  $2,879  $2,818 
 December 31, 2019 December 31, 2018
(dollars in thousands)
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
Mortgage-backed securities(1)
$12,577
 $12,661
 $8,684
 $8,438


(1)1Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

77
Table of Contents

As of December 31, 2017, 2019 and December 31, 2016, 2018, the Corporation’s investment securities held in trading accounts totaled $4.6$8.6 million and $3.9$7.5 million, respectively, and consisted primarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants.participants and a rabbi trust account established to fund certain unqualified pension obligations. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income.

Changes in the fair value of investments held in the deferred compensation trust accounts create corresponding changes in the liability to the deferred compensation plan participants.







Table of Contents

Note 5 - Loans and Leases

The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers and acquisitions. These mergers and acquisitions include the December 2017 RBPI Merger, the January 2015 CBH Merger, the November 2012 transaction with First Bank of Delaware and the July 2010 acquisition of First Keystone Financial, Inc. Certain tables in this footnoteNote 5 are presented for allwith a breakdown between originated and acquired loans as well as supplemental tables for originated and acquired loans.

leases.

A. The table below detailsallportfolioloans and leases as of the dates indicated:

(dollars in thousands) 

December 31,

2017

  

December 31,

2016

 

Loans held for sale

 $3,794  $9,621 

Real estate loans:

        

Commercial mortgage

 $1,523,377  $1,110,898 

Home equity lines and loans

  218,275   207,999 

Residential mortgage

  458,886   413,540 

Construction

  212,454   141,964 

Total real estate loans

  2,412,992   1,874,401 

Commercial and industrial

  719,312   579,791 

Consumer

  38,153   25,341 

Leases

  115,401   55,892 

Total portfolio loans and leases

  3,285,858   2,535,425 

Total loans and leases

 $3,289,652  $2,545,046 

Loans with fixed rates

 $1,573,052  $1,130,172 

Loans with adjustable or floating rates

  1,716,600   1,414,874 

Total loans and leases

 $3,289,652  $2,545,046 

Net deferred loan origination fees included in the above loan table

 $(887

)

 $(735

)

The table below details the Corporation’s originated portfolio loans and leases as of the dates indicated:

(dollars in thousands) 

December 31,

2017

  

December 31,

2016

 

Loans held for sale

 $3,794  $9,621 

Real estate loans:

        

Commercial mortgage 

 $1,122,327  $946,879 

Home equity lines and loans 

  183,283   178,450 

Residential mortgage

  360,935   342,268 

Construction

  128,266   141,964 

Total real estate loans

  1,794,811   1,609,561 

Commercial and industrial

  589,304   550,334 

Consumer

  35,146   25,200 

Leases

  68,035   55,892 

Total originated portfolio loans and leases

  2,487,296   2,240,987 

Total originated loans and leases

 $2,491,090  $2,250,608 

Loans with fixed rates 

 $1,034,542  $992,917 

Loans with adjustable or floating rates

  1,456,548   1,257,691 

Total originated loans and leases 

 $2,491,090  $2,250,608 

Net deferred loan origination fees included in the above loan table

 $(887

)

 $(735

)

78
 December 31, 2019 December 31, 2018
(dollars in thousands)Originated Acquired Total Loans and Leases Originated Acquired Total Loans and Leases
Loans held for sale$4,249
 $—
 $4,249
 $1,749
 $—
 $1,749
Real estate loans:           
Commercial mortgage$1,674,768
 $238,662
 $1,913,430
 $1,327,822
 $329,614
 $1,657,436
Home equity lines and loans174,804
 19,836
 194,640
 181,506
 25,845
 207,351
Residential mortgage424,254
 65,649
 489,903
 411,022
 83,333
 494,355
Construction159,867
 —
 159,867
 174,592
 6,486
 181,078
Total real estate loans2,433,693
 324,147
 2,757,840
 2,094,942
 445,278
 2,540,220
Commercial and industrial675,345
 33,912
 709,257
 624,643
 70,941
 695,584
Consumer54,811
 2,327
 57,138
 44,099
 2,715
 46,814
Leases156,967
 8,111
 165,078
 121,567
 22,969
 144,536
Total portfolio loans and leases3,320,816
 368,497
 3,689,313
 2,885,251
 541,903
 3,427,154
Total loans and leases$3,325,065
 $368,497
 $3,693,562
 $2,887,000
 $541,903
 $3,428,903
Loans with fixed rates$1,251,762
 $216,269
 $1,468,031
 $1,204,070
 $323,604
 $1,527,674
Loans with adjustable or floating rates2,073,303
 152,228
 2,225,531
 1,682,930
 218,299
 1,901,229
Total loans and leases$3,325,065
 $368,497
 $3,693,562
 $2,887,000
 $541,903
 $3,428,903
            
Net deferred loan origination (costs) fees included in the above loan table$(193) $—
 $(193) $2,226
 $—
 $2,226


Table of Contents

The table below details the Corporation’s acquired portfolio loans as of the dates indicated:

(dollars in thousands) 

December 31,

2017

  

December 31,

2016

 

Real estate loans:

        

Commercial mortgage

 $401,050  $164,019 

Home equity lines and loans

  34,992   29,549 

Residential mortgage

  97,951   71,272 

Construction

  84,188   — 

Total real estate loans

  618,181   264,840 

Commercial and industrial

  130,008   29,457 

Consumer

  3,007   141 

Leases

  47,366   — 

Total acquired portfolio loans and leases

 $798,562  $294,438 

Loans with fixed rates

 $538,510  $137,255 

Loans with adjustable or floating rates

  260,052   157,183 

Total acquired portfolio loans and leases

 $798,562  $294,438 

B. Components of the net investment inallleases are detailed as follows:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Minimum lease payments receivable

 $130,811  $62,379 

Unearned lease income

  (19,861

)

  (8,608

)

Initial direct costs and deferred fees

  4,451   2,121 

Total leases

 $115,401  $55,892 

Components of the net investment in originated leases are detailed as follows:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Minimum lease payments receivable

 $75,592  $62,379 

Unearned lease income

  (10,338

)

  (8,608

)

Initial direct costs and deferred fees

  2,781   2,121 

Total originated leases

 $68,035  $55,892 

Components of the net investment in acquired leases are detailed as follows:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Minimum lease payments receivable

 $55,219  $— 

Unearned lease income

  (9,523

)

  — 

Initial direct costs and deferred fees

  1,670   — 

Total acquired leases

 $47,366

 

 $— 

79
 December 31, 2019 December 31, 2018
(dollars in thousands)Originated Acquired Total Leases Originated Acquired Total Leases
Minimum lease payments receivable$174,385
 $8,753
 $183,138
 $135,313
 $25,372
 $160,685
Unearned lease income(23,641) (813) (24,454) (19,388) (3,005) (22,393)
Initial direct costs and deferred fees6,223
 171
 6,394
 5,642
 602
 6,244
Total Leases$156,967
 $8,111
 $165,078
 $121,567
 $22,969
 $144,536


Table of Contents

C. Non-Performing Loans and Leases

The following table details all non-performing portfolio loans and leases as

 December 31, 2019 December 31, 2018
(dollars in thousands)Originated Acquired Total Loans and Leases Originated Acquired Total Loans and Leases
Commercial mortgage$380
 $3,890
 $4,270
 $435
 $2,133
 $2,568
Home equity lines and loans779
 —
 779
 3,590
 26
 3,616
Residential mortgage190
 128
 318
 2,813
 639
 3,452
Commercial and industrial3,521
 816
 4,337
 1,786
 315
 2,101
Consumer19
 42
 61
 45
 63
 108
Leases747
 136
 883
 392
 583
 975
Total non-performing loans and leases$5,636
 $5,012
 $10,648
 $9,061
 $3,759
 $12,820



Table of the dates indicated:

Contents

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Non-accrual loans and leases(1)

        

Commercial mortgage

 $872  $320 

Home equity lines and loans

  1,481   2,289 

Residential mortgage

  4,417   2,658 

Commercial and industrial

  1,706   2,957 

Consumer

  —   2 

Leases

  103   137 

Total

 $8,579  $8,363 

(1)

Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of $167 thousand and $344 thousand of purchased credit-impaired loans as of December 31, 2017 and December 31, 2016, respectively, which became non-performing subsequent to acquisition.

    The following table details non-performing originated portfolio loans and leases as of the dates indicated:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Non-accrual originated loans and leases:

        

Commercial mortgage

 $90  $265 

Home equity lines and loans

  1,221   2,169 

Residential mortgage

  1,505   1,654 

Commercial and industrial

  826   941 

Consumer

  —   2 

Leases

  103   137 

Total

 $3,745  $5,168 

The following table details non-performing acquired portfolio loans as of the dates indicated:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Non-accrual acquired loans and leases (1)

        

Commercial mortgage

 $782  $55 

Home equity lines and loans

  260   120 

Residential mortgage

  2,912   1,004 

Commercial and industrial

  880   2,016 

Total 

 $4,834  $3,195 

(1)

Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of $167 thousand and $344 thousand of purchased credit-impaired loans as of December 31, 2017 and December 31, 2016, respectively, which became non-performing subsequent to acquisition.

D. Purchased Credit-Impaired Loans

The outstanding principal balance and related carrying amount of purchased credit-impaired loans, for which the Corporation applies ASC 310-30,310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, to account for the interest earned, as of the dates indicated, are as follows:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 

Outstanding principal balance

 $46,543  $18,091 

Carrying amount(1)

 $30,849  $12,432 

(1) Includes $1.9 million and $368 thousand of purchased credit-impaired loans as of December 31, 2017 and December 31, 2016, respectively, for which the Corporation could not estimate the timing or amount of expected cash flows to be collected at acquisition, and for which no accretable yield is recognized. Additionally, the table above includes $167 thousand and $344 thousand of purchased credit-impaired loans as of December 31, 2017 and December 31, 2016, respectively, which became non-performing subsequent to acquisition, which are disclosed in Note 5C, above, and which also have no accretable yield.

80
Table of Contents

(dollars in thousands)December 31, 2019 December 31, 2018
Outstanding principal balance$9,798
 $17,904
Carrying amount$7,897
 $12,304

The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Corporation applies ASC 310-30,310-30, for the twelve monthsyear ended December 31, 2017:

2019:

(dollars in thousands)

 

Accretable
Discount

 
Accretable
Discount

Balance, December 31, 2016

 $3,233 
Balance, December 31, 2018$2,697

Accretion

  (1,934

)

(1,640)

Reclassifications from nonaccretable difference

  — 1,471

Additions/adjustments

  2,784 —

Disposals

  — (526)

Balance, December 31, 2017

 $4,083 
Balance, December 31, 2019$2,002



E. Age Analysis of Past Due Loans and Leases

The following tables present an aging of all portfolio loans and leases as of the dates indicated:

  

Accruing Loans and Leases

  

 

  

 

 

 

As of December 31, 2017

 

(dollars in thousands)

 

30 – 59

Days
Past Due

  

60 – 89

Days
Past Due

  

Over 89 Days
Past Due

  

Total Past Due

  

Current*

  

Total

Accruing

Loans and

Leases

  

Nonaccrual

Loans and

Leases

  

Total

Loans and

Leases

 

Commercial mortgage

 $1,366  $2,428  $—  $3,794  $1,518,711  $1,522,505  $872  $1,523,377 

Home equity lines and loans

  338   10   —   348   216,446   216,794   1,481   218,275 

Residential mortgage

  1,386   79   —   1,465   453,004   454,469   4,417   458,886 

Construction

  —   —   —   —   212,454   212,454   —   212,454 

Commercial and industrial

  658   286   —   944   716,662   717,606   1,706   719,312 

Consumer

  1,106   —   —   1,106   37,047   38,153   —   38,153 

Leases

  125   177   —   302   114,996   115,298   103   115,401 
Total $4,979  $2,980  $—  $7,959  $3,269,320  $3,277,279  $8,579  $3,285,858 

  

Accruing Loans and Leases

         

 

As of December 31, 2016

 

(dollars in thousands)

 

30 – 59

Days
Past Due

  

60 – 89

Days
Past Due

  

Over 89 Days
Past Due

  

Total Past Due

  

Current*

  

Total Accruing Loans and Leases

  

Nonaccrual

Loans and

Leases

  

Total

Loans and

Leases

 

Commercial mortgage

 $666  $722  $—  $1,388  $1,109,190  $1,110,578  $320  $1,110,898 

Home equity lines and loans

  11   —   —   11   205,699   205,710   2,289   207,999 

Residential mortgage

  823   490   —   1,313   409,569   410,882   2,658   413,540 

Construction

  —   —   —   —   141,964   141,964   —   141,964 

Commercial and industrial

  36   —   —   36   576,798   576,834   2,957   579,791 

Consumer

  10   5   —   15   25,324   25,339   2   25,341 

Leases

  177   86   —   263   55,492   55,755   137   55,892 
Total $1,723  $1,303  $—  $3,026  $2,524,036  $2,527,062  $8,363  $2,535,425 

*Included

 Accruing Loans and Leases    
As of December 31, 2019
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89 Days
Past Due
 Total Past Due Current 
Total
Accruing
Loans and
Leases
 
Nonaccrual
Loans and
Leases
 
Total
Loans and
Leases
(dollars in thousands)       
Commercial mortgage$2,441
 $—
 $—
 $2,441
 $1,906,719
 $1,909,160
 $4,270
 $1,913,430
Home equity lines and loans182
 365
 —
 547
 193,314
 193,861
 779
 194,640
Residential mortgage1,646
 221
 —
 1,867
 487,718
 489,585
 318
 489,903
Construction—
 —
 —
 —
 159,867
 159,867
 —
 159,867
Commercial and industrial486
 167
 —
 653
 704,267
 704,920
 4,337
 709,257
Consumer98
 140
 —
 238
 56,839
 57,077
 61
 57,138
Leases857
 594
 —
 1,451
 162,744
 164,195
 883
 165,078
Total portfolio loans and leases$5,710
 $1,487
 $—
 $7,197
 $3,671,468
 $3,678,665
 $10,648
 $3,689,313
 Accruing Loans and Leases    
As of December 31, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89 Days
Past Due
 Total Past Due 
Current(1)
 Total Accruing Loans and Leases 
Nonaccrual
Loans and
Leases
 
Total
Loans and
Leases
(dollars in thousands)       
Commercial mortgage$821
 $251
 $—
 $1,072
 $1,653,796
 $1,654,868
 $2,568
 $1,657,436
Home equity lines and loans92
 —
 —
 92
 203,643
 203,735
 3,616
 207,351
Residential mortgage2,330
 218
 —
 2,548
 488,355
 490,903
 3,452
 494,355
Construction—
 —
 —
 —
 181,078
 181,078
 —
 181,078
Commercial and industrial280
 332
 —
 612
 692,871
 693,483
 2,101
 695,584
Consumer35
 5
 —
 40
 46,666
 46,706
 108
 46,814
Leases641
 460
 —
 1,101
 142,460
 143,561
 975
 144,536
Total portfolio loans and leases$4,199
 $1,266
 $—
 $5,465
 $3,408,869
 $3,414,334
 $12,820
 $3,427,154

Table of Contents


(1) Included as “current” are $4.1 million and $15.3$3.2 million of loans and leases as of December 31, 2017 and 2016,2018, respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

The following tables present an aging of originated portfolio loans and leases as of the dates indicated:

  

Accruing Loans and Leases

         

 

As of December 31, 2017

 

(dollars in thousands)

 

30 – 59

Days
Past Due

  

60 – 89

Days
Past Due

  

Over 89 Days
Past Due

  

Total Past Due

  

Current*

  

Total Accruing Loans and Leases

  

Nonaccrual

Loans and

Leases

  

Total

Loans and

Leases

 

Commercial mortgage

 $1,255  $81  $—  $1,336  $1,120,901  $1,122,237  $90  $1,122,327 

Home equity lines and loans

  26   —   —   26   182,036   182,062   1,221   183,283 

Residential mortgage

  721   —   —   721   358,709   359,430   1,505   360,935 

Construction

  —   —   —   —   128,266   128,266   —   128,266 

Commercial and industrial

  439   236   —   675   587,803   588,478   826   589,304 

Consumer

  21   —   —   21   35,125   35,146   —   35,146 

Leases

  125   177   —   302   67,630   67,932   103   68,035 
Total $2,587  $494  $—  $3,081  $2,480,470  $2,483,551  $3,745  $2,487,296 

81

 

Accruing Loans and Leases

         

As of December 31, 2016

(dollars in thousands)

 

30 – 59

Days
Past Due

  

60 – 89

Days
Past Due

  

Over 89 Days
Past Due

  

Total Past Due

  

Current*

  

Total Accruing Loans and Leases

  

Nonaccrual

Loans and

Leases

  

Total

Loans and

Leases

 
Accruing Loans and Leases    
As of December 31, 2019
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89 Days
Past Due
 Total Past Due Current 
Total
Accruing
Loans and
Leases
 
Nonaccrual
Loans and
Leases
 
Total
Loans and
Leases
(dollars in thousands) 

Commercial mortgage

 $—  $722  $—  $722  $945,892  $946,614  $265  $946,879 $2,441
 $—
 $—
 $2,441
 $1,671,947
 $1,674,388
 $380
 $1,674,768

Home equity lines and loans

  11   —   —   11   176,270   176,281   2,169   178,450 82
 365
 —
 447
 173,578
 174,025
 779
 174,804

Residential mortgage

  773   64   —   837   339,778   340,615   1,653   342,268 924
 102
 —
 1,026
 423,038
 424,064
 190
 424,254

Construction

  —   —   —   —   141,964   141,964   —   141,964 —
 —
 —
 —
 159,867
 159,867
 —
 159,867

Commercial and industrial

  —   —   —   —   549,393   549,393   941   550,334 460
 —
 —
 460
 671,364
 671,824
 3,521
 675,345

Consumer

  10   5   —   15   25,183   25,198   2   25,200 18
 88
 —
 106
 54,686
 54,792
 19
 54,811

Leases

  177   86   —   263   55,492   55,755   137   55,892 781
 566
 —
 1,347
 154,873
 156,220
 747
 156,967
Total $971  $877  $—  $1,848  $2,233,972  $2,235,820  $5,167  $2,240,987 
Total originated portfolio loans and leases$4,706
 $1,121
 $—
 $5,827
 $3,309,353
 $3,315,180
 $5,636
 $3,320,816

*

 Accruing Loans and Leases    
As of December 31, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89 Days
Past Due
 Total Past Due 
Current(1)
 Total Accruing Loans and Leases 
Nonaccrual
Loans and
Leases
 
Total
Loans and
Leases
(dollars in thousands)       
Commercial mortgage$816
 $251
 $—
 $1,067
 $1,326,320
 $1,327,387
 $435
 $1,327,822
Home equity lines and loans25
 —
 —
 25
 177,891
 177,916
 3,590
 181,506
Residential mortgage1,545
 —
 —
 1,545
 406,664
 408,209
 2,813
 411,022
Construction—
 —
 —
 —
 174,592
 174,592
 —
 174,592
Commercial and industrial280
 332
 —
 612
 622,245
 622,857
 1,786
 624,643
Consumer35
 5
 —
 40
 44,014
 44,054
 45
 44,099
Leases350
 233
 —
 583
 120,592
 121,175
 392
 121,567
Total originated portfolio loans and leases$3,051
 $821
 $—
 $3,872
 $2,872,318
 $2,876,190
 $9,061
 $2,885,251


(1) Included as “current” are $4.0 million and $13.5$2.0 million of loans and leases as of December 31, 2017 and 2016,2018, respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

The

The following tables present an aging of acquiredacquired portfolio loans and leases as of the dates indicated:

  

Accruing Loans and Leases

         

 

As of December 31, 2017

 

(dollars in thousands)

 

30 – 59

Days
Past Due

  

60 – 89

Days
Past Due

  

Over 89 Days
Past Due

  

Total Past Due

  

Current*

  

Total Accruing Loans and Leases

  

Nonaccrual

Loans and

Leases

  

Total

Loans and

Leases

 

Commercial mortgage

 $111  $2,347  $—  $2,458  $397,810  $400,268  $782  $401,050 

Home equity lines and loans

  312   10   —   322   34,410   34,732   260   34,992 

Residential mortgage

  665   79   —   744   94,295   95,039   2,912   97,951 

Construction

  —   —   —   —   84,188   84,188   —   84,188 

Commercial and industrial

  219   50   —   269   128,859   129,128   880   130,008 

Consumer

  1,085   —   —   1,085   1,922   3,007   —   3,007 

Leases

  —   —   —   —   47,366   47,366   —   47,366 
Total $2,392  $2,486  $—  $4,878  $788,850  $793,728  $4,834  $798,562 

 

Accruing Loans and Leases

         

As of December 31, 2016

(dollars in thousands)

 

30 – 59

Days
Past Due

  

60 – 89

Days
Past Due

  

Over 89 Days
Past Due

  

Total Past Due

  

Current*

  

Total Accruing Loans and Leases

  

Nonaccrual

Loans and

Leases

  

Total

Loans and

Leases

 
Accruing Loans and Leases    
As of December 31, 2019
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89 Days
Past Due
 Total Past Due Current Total Accruing Loans and Leases 
Nonaccrual
Loans and
Leases
 
Total
Loans and
Leases
(dollars in thousands) 

Commercial mortgage

 $666  $—  $—  $666  $163,298  $163,964  $55  $164,019 $—
 $—
 $—
 $—
 $234,772
 $234,772
 $3,890
 $238,662

Home equity lines and loans

  —   —   —   —   29,429   29,429   120   29,549 100
 —
 —
 100
 19,736
 19,836
 —
 19,836

Residential mortgage

  50   426   —   476   69,791   70,267   1,005   71,272 722
 119
 —
 841
 64,680
 65,521
 128
 65,649

Construction

  —   —   —   —   —   —   —   — —
 —
 —
 —
 —
 —
 —
 —

Commercial and industrial

  36   —   —   36   27,405   27,441   2,016   29,457 26
 167
 —
 193
 32,903
 33,096
 816
 33,912

Consumer

  —   —   —   —   141   141   —   141 80
 52
 —
 132
 2,153
 2,285
 42
 2,327
Total $752  $426  $—  $1,178  $290,064  $291,242  $3,196  $294,438 
Leases76
 28
 —
 104
 7,871
 7,975
 136
 8,111
Total acquired portfolio loans and leases$1,004
 $366
 $—
 $1,370
 $362,115
 $363,485
 $5,012
 $368,497

*



Table of Contents

 Accruing Loans and Leases    
As of December 31, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89 Days
Past Due
 Total Past Due 
Current(1)
 Total Accruing Loans and Leases 
Nonaccrual
Loans and
Leases
 
Total
Loans and
Leases
(dollars in thousands)       
Commercial mortgage$5
 $—
 $—
 $5
 $327,476
 $327,481
 $2,133
 $329,614
Home equity lines and loans67
 —
 —
 67
 25,752
 25,819
 26
 25,845
Residential mortgage785
 218
 —
 1,003
 81,691
 82,694
 639
 83,333
Construction—
 —
 —
 —
 6,486
 6,486
 —
 6,486
Commercial and industrial—
 —
 —
 —
 70,626
 70,626
 315
 70,941
Consumer—
 —
 —
 —
 2,652
 2,652
 63
 2,715
Leases291
 227
 —
 518
 21,868
 22,386
 583
 22,969
Total acquired portfolio loans and leases$1,148
 $445
 $—
 $1,593
 $536,551
 $538,144
 $3,759
 $541,903


(1) Included as “current” are $102 thousand and $1.8$1.2 million of loans and leases as of December 31, 2017 and 2016,2018, respectively, which are classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

82
Table of Contents

F. Allowance for Loan and Lease Losses (the “Allowance”)

The following tables detail the roll-forward of the Allowance for the twelve monthsyear ended December 31, 20172019 and December 31, 2016:

2018: 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total

Balance, December 31, 2016

 $6,227  $1,255  $1,917  $2,233  $5,142  $153  $559  $—  $17,486 
Balance, December 31, 2018$7,567
 $1,003
 $1,813
 $1,485
 $5,461
 $229
 $1,868
 $19,426

Charge-offs

  (55

)

  (675

)

  (326

)

  —   (692

)

  (154

)

  (1,224

)

  —   (3,126

)

(2,332) (348) (770) —
 (781) (720) (2,565) (7,516)

Recoveries

  12   5   165   4   25   8   328   —   547 1,087
 110
 14
 4
 153
 103
 714
 2,185

Provision for loan and lease losses

  1,366   501   170   (1,300

)

  563   239   1,079   —   2,618 4,112
 125
 481
 (492) 1,196
 741
 2,344
 8,507

Balance, December 31, 2017

 $7,550  $1,086  $1,926  $937  $5,038  $246  $742  $—  $17,525 
Balance, December 31, 2019$10,434
 $890
 $1,538
 $997
 $6,029
 $353
 $2,361
 $22,602


(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total

Balance, December 31, 2015

 $5,199  $1,307  $1,740  $1,324  $5,609  $142  $518  $18  $15,857 
Balance, December 31, 2017$7,550
 $1,086
 $1,926
 $937
 $5,038
 $246
 $742
 $17,525

Charge-offs

  (110

)

  (592

)

  (306

)

  —   (1,298

)

  (173

)

  (808

)

  —   (3,287

)

(331) (333) (354) —
 (1,374) (311) (3,132) (5,835)

Recoveries

  62   68   48   64   93   23   232   —   590 16
 2
 56
 2
 24
 10
 433
 543

Provision for loan and lease losses

  1,076   472   435   845   738   161   617   (18

)

  4,326 332
 248
 185
 546
 1,773
 284
 3,825
 7,193

Balance, December 31, 2016

 $6,227  $1,255  $1,917  $2,233  $5,142  $153  $559  $—  $17,486 
Balance, December 31, 2018$7,567
 $1,003
 $1,813
 $1,485
 $5,461
 $229
 $1,868
 $19,426


The following tablestables detail the allocation of the Allowance for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2017 2019 and December 31, 2016:

2018:

As of December 31, 2017

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 

Allowance on loans and leases:

                                    

Individually evaluated for impairment

 $—  $19  $230  $—  $5  $4  $—  $—  $258 

Collectively evaluated for impairment

  7,550   1,067   1,696   937   5,033   242   742   —   17,267 

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   —   — 

Total

 $7,550  $1,086  $1,926  $937  $5,038  $246  $742  $—  $17,525 

As of December 31, 2016

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 
As of December 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands) 

Allowance on loans and leases:

                                                   

Individually evaluated for impairment

 $—  $—  $73  $—  $5  $8  $—  $—  $86 $—
 $165
 $231
 $—
 $—
 $22
 $64
 $482

Collectively evaluated for impairment

  6,227   1,255   1,844   2,233   5,137   145   559   —   17,400 10,434
 725
 1,307
 997
 6,029
 331
 2,297
 22,120

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   —   — —
 —
 —
 —
 —
 —
 —
 —

Total

 $6,227  $1,255  $1,917  $2,233  $5,142  $153  $559  $—  $17,486 $10,434
 $890
 $1,538
 $997
 $6,029
 $353
 $2,361
 $22,602

(1)

Purchased credit-impaired loans are evaluated for impairment on an individual basis.

83
Table of Contents


As of December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $162
 $272
 $—
 $—
 $28
 $—
 $462
Collectively evaluated for impairment7,567
 841
 1,541
 1,485
 5,461
 201
 1,868
 18,964
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
Total$7,567
 $1,003
 $1,813
 $1,485
 $5,461
 $229
 $1,868
 $19,426
(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

The following tablestables detail the carrying value for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2017 2019 and December 31, 2016:

2018: 

 

As of December 31, 2017

 

 

Commercial

  

Home

Equity
Lines and

  

Residential

      

Commercial

and

             

(dollars in thousands)

 Mortgage  Loans  Mortgage  Construction  Industrial  Consumer  Leases  Total 

Carrying value of loans and leases:

                                

Individually evaluated for impairment

 $2,128  $2,162  $7,726  $—  $1,897  $27  $—  $13,940 

Collectively evaluated for impairment

  1,503,825   215,604   451,160   204,088   712,865   38,126   115,401   3,241,069 

Purchased credit-impaired(1)

  17,424   509   —   8,366   4,550   —   —   30,849 

Total

 $1,523,377  $218,275  $458,886  $212,454  $719,312  $38,153  $115,401  $3,285,858 

As of December 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$4,454
 $2,328
 $3,040
 $—
 $4,722
 $85
 $1,090
 $15,719
Collectively evaluated for impairment1,901,602
 191,790
 486,862
 159,867
 704,535
 57,053
 163,988
 3,665,697
Purchased credit-impaired(1)
7,374
 522
 1
 —
 —
 —
 —
 7,897
Total$1,913,430
 $194,640
 $489,903
 $159,867
 $709,257
 $57,138
 $165,078
 $3,689,313
(1)(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

As of December 31, 2016

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial and Industrial

  

Consumer

  

Leases

  

Total

 
As of December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands) 

Carrying value of loans and leases:

                                               

Individually evaluated for impairment

 $1,576  $2,354  $7,266  $—  $2,946  $31  $—  $14,173 $7,008
 $4,998
 $6,608
 $—
 $2,629
 $134
 $—
 $21,377

Collectively evaluated for impairment

  1,098,788   205,540   406,271   141,964   575,055   25,310   55,892   2,508,820 1,642,117
 201,841
 487,747
 178,673
 691,879
 46,680
 144,536
 3,393,473

Purchased credit-impaired(1)

  10,534   105   3   —   1,790   —   —   12,432 8,311
 512
 —
 2,405
 1,076
 —
 —
 12,304

Total

 $1,110,898  $207,999  $413,540  $141,964  $579,791  $25,341  $55,892  $2,535,425 $1,657,436
 $207,351
 $494,355
 $181,078
 $695,584
 $46,814
 $144,536
 $3,427,154


(1)(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

The following tablestables detail the allocation of the Allowance for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2017 2019 and December 31, 2016:

As of December 31, 2017

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 

Allowance on loans and leases:

                                    

Individually evaluated for impairment

 $—  $19  $180  $—  $5  $4  $—  $—  $208 

Collectively evaluated for impairment

  7,550   1,067   1,696   937   5,033   242   742   —   17,267 

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   —   — 

Total

 $7,550  $1,086  $1,876  $937  $5,038  $246  $742  $—  $17,475 
2018: 

As of December 31, 2016

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 

Allowance on loans and leases:

                                    

Individually evaluated for impairment

 $—  $—  $45  $—  $5  $8  $—  $—  $58 

Collectively evaluated for impairment

  6,227   1,255   1,844   2,233   5,137   145   559   —   17,400 

Total

 $6,227  $1,255  $1,889  $2,233  $5,142  $153  $559  $—  $17,458 

84
As of December 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $165
 $160
 $—
 $—
 $22
 $59
 $406
Collectively evaluated for impairment10,434
 725
 1,307
 997
 6,029
 331
 2,297
 22,120
Total$10,434
 $890
 $1,467
 $997
 $6,029
 $353
 $2,356
 $22,526
As of December 31, 2018
Commercial
Mortgage
 
Home
Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $162
 $175
 $—
 $—
 $28
 $—
 $365
Collectively evaluated for impairment7,567
 841
 1,541
 1,485
 5,461
 201
 1,868
 18,964
Total$7,567
 $1,003
 $1,716
 $1,485
 $5,461
 $229
 $1,868
 $19,329







Table of Contents


The following tablestables detail the carrying value for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2017 2019 and December 31, 2016:

2018: 

As of December 31, 2017

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

Carrying value of loans and leases:

                                

Individually evaluated for impairment

 $1,345  $1,902  $4,418  $—  $1,186  $27  $—  $8,878 

Collectively evaluated for impairment

  1,120,982   181,381   356,517   128,266   588,118   35,119   68,035   2,478,418 

Total

 $1,122,327  $183,283  $360,935  $128,266  $589,304  $35,146  $68,035  $2,487,296 

As of December 31, 2016

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

Carrying value of loans and leases:

                                

Individually evaluated for impairment

 $1,521  $2,319  $4,111  $—  $1,190  $31  $—  $9,172 

Collectively evaluated for impairment

  945,358   176,131   338,157   141,964   549,144   25,169   55,892   2,231,815 

Total

 $946,879  $178,450  $342,268  $141,964  $550,334  $25,200  $55,892  $2,240,987 

As of December 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$564
 $2,328
 $2,354
 $—
 $3,906
 $43
 $884
 $10,079
Collectively evaluated for impairment1,674,204
 172,476
 421,900
 159,867
 671,439
 54,768
 156,083
 3,310,737
Total$1,674,768
 $174,804
 $424,254
 $159,867
 $675,345
 $54,811
 $156,967
 $3,320,816
As of December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$4,874
 $4,972
 $5,106
 $—
 $2,314
 $71
 $—
 $17,337
Collectively evaluated for impairment1,322,948
 176,534
 405,916
 174,592
 622,329
 44,028
 121,567
 2,867,914
Total$1,327,822
 $181,506
 $411,022
 $174,592
 $624,643
 $44,099
 $121,567
 $2,885,251

The following tablestables detail the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2017 2019 and December 31, 2016:

As of December 31, 2017

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

Allowance on loans and leases:

                                

Individually evaluated for impairment

 $—  $—  $50  $—  $—  $—  $—  $50 

Collectively evaluated for impairment

  —   —   —   —   —   —   —   — 

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   — 

Total

 $—  $—  $50  $—  $—  $—  $—  $50 
2018:

(1)

Purchased credit-impaired loans are evaluated for impairment on an individual basis.

As of December 31, 2016

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home

Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

Allowance on loans and leases:

                                

Individually evaluated for impairment

 $—  $—  $28  $—  $—  $—  $—  $28 

Collectively evaluated for impairment

  —   —   —   —   —   —   —   — 

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   — 

Total

 $—  $—  $28  $—  $—  $—  $—  $28 

(1)

Purchased credit-impaired loans are evaluated for impairment on an individual basis.

85
As of December 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $—
 $71
 $—
 $—
 $—
 $5
 $76
Collectively evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
Total$—
 $—
 $71
 $—
 $—
 $—
 $5
 $76

Table of Contents
(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

As of December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $—
 $97
 $—
 $—
 $—
 $—
 $97
Collectively evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
Total$—
 $—
 $97
 $—
 $—
 $—
 $—
 $97

(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

The following tables detail the carrying value for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 20172019 and December 31, 2016:

2018:

 

As of December 31, 2017

 

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

Carrying value of loans and leases:

                                

Individually evaluated for impairment

 $783  $260  $3,308  $—  $711  $—  $—  $5,062 

Collectively evaluated for impairment

  382,843   34,223   94,643   75,822   124,747   3,007   47,366   762,651 

Purchased credit-impaired(1)

  17,424   509   —   8,366   4,550   —   —   30,849 

Total

 $401,050  $34,992  $97,951  $84,188  $130,008  $3,007  $47,366  $798,562 

(1)

Purchased credit-impaired loans are evaluated for impairment on an individual basis.

As of December 31, 2016

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 
As of December 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands) 

Carrying value of loans and leases:

                                               

Individually evaluated for impairment

 $55  $35  $3,155  $—  $1,756  $—  $—  $5,001 
Individually evaluated for impairment$3,890
 $—
 $686
 $—
 $816
 $42
 $206
 $5,640

Collectively evaluated for impairment

  153,430   29,409   68,114   —   25,911   141   —   277,005 227,398
 19,314
 64,962
 —
 33,096
 2,285
 7,905
 354,960

Purchased credit-impaired(1)

  10,534   105   3   —   1,790   —   —   12,432 7,374
 522
 1
 —
 —
 —
 —
 7,897

Total

 $164,019  $29,549  $71,272  $—  $29,457  $141  $—  $294,438 $238,662
 $19,836
 $65,649
 $—
 $33,912
 $2,327
 $8,111
 $368,497

(1)

Purchased credit-impaired loans are evaluated for impairment on an individual basis.


(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

Table of Contents

As of December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$2,134
 $26
 $1,502
 $—
 $315
 $63
 $—
 $4,040
Collectively evaluated for impairment319,169
 25,307
 81,831
 4,081
 69,550
 2,652
 22,969
 525,559
Purchased credit-impaired(1)
8,311
 512
 —
 2,405
 1,076
 —
 —
 12,304
Total$329,614
 $25,845
 $83,333
 $6,486
 $70,941
 $2,715
 $22,969
 $541,903


(1)Purchased credit-impaired loans are evaluated for impairment on an individual basis.

As part of the process of determining the Allowance for the different segments of the loan and lease portfolio, Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodicPeriodic reviews of the individual loans are performed by both in-house staff as well as external loan reviewers. The result of these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

•

Pass – Loans considered satisfactory with no indications of deterioration.

•

Special mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

•

Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.


Pass – Loans considered satisfactory with no indications of deterioration.

Special mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

In addition, for the remaining segments of the loan and lease portfolio, which include residential mortgage, home equity lines and loans, consumer, and leases, the credit quality indicator used to determine this component of the Allowance is based on performance status.


86
Table of Contents

The following tables detail the carrying value of all portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of December 31, 2017 2019 and December 31, 2016:

2018: 
  

Credit Risk Profile by Internally Assigned Grade

 

 

 

Commercial Mortgage

  

Construction

  

Commercial and Industrial

  

Total

 
(dollars in thousands) 

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

 

Pass

 $1,490,862  $1,099,557  $193,227  $140,370  $711,145  $570,342  $2,395,234  $1,810,269 

Special Mention

  13,448   1,892   3,902   —   889   2,315   18,239   4,207 

Substandard

  18,194   9,449   15,325   1,594   6,013   5,512   39,532   16,555 

Doubtful

  873   —   —   —   1,265   1,622   2,138   1,622 

Total

 $1,523,377  $1,110,898  $212,454  $141,964  $719,312  $579,791  $2,455,143  $1,832,653 
  Credit Risk Profile by Internally Assigned Grade
As of December 31, 2019  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $1,857,765
 $15,069
 $40,596
 $—
 $1,913,430
Home equity loans and lines 193,861
 —
 779
 —
 194,640
Residential 489,431
 —
 472
 —
 489,903
Construction 154,071
 —
 5,796
 —
 159,867
Commercial and industrial 690,663
 4,853
 13,741
 —
 709,257
Consumer 52,505
 —
 4,633
 —
 57,138
Leases 164,195
 —
 883
 —
 165,078
Total $3,602,491
 $19,922
 $66,900
 $—
 $3,689,313


Credit Risk Profile by Payment Activity

 

 

 

Residential Mortgage

  

Home Equity Lines and Loans

  

Consumer

  

Leases

      

Total

 
(dollars in thousands) 

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

 

Performing

 $454,469  $410,882  $216,794  $205,710  $38,153  $25,339  $115,298  $55,755  $824,714  $697,686 

Non-performing

  4,417   2,658   1,481   2,289   —   2   103   137   6,001   5,086 

Total

 $458,886  $413,540  $218,275  $207,999  $38,153  $25,341  $115,401  $55,892  $830,715  $702,772 


Table of Contents

  Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $1,635,068
 $631
 $20,639
 $1,098
 $1,657,436
Home equity loans and lines 203,037
 —
 4,314
 —
 207,351
Residential 490,789
 —
 3,566
 —
 494,355
Construction 171,353
 938
 8,787
 —
 181,078
Commercial and industrial 684,444
 2,737
 8,402
 1
 695,584
Consumer 46,588
 —
 226
 —
 46,814
Leases 143,561
 —
 975
 —
 144,536
Total $3,374,840
 $4,306
 $46,909
 $1,099
 $3,427,154


The following tables detail the carrying value of originatedportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of December 31, 2017 2019 and December 31, 2016:

2018:
  

Credit Risk Profile by Internally Assigned Grade

 

 

 

Commercial Mortgage

  

Construction

  

Commercial and Industrial

  

Total

 
(dollars in thousands) 

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

 

Pass

 $1,114,171  $936,737  $126,260  $140,370  $586,896  $544,876  $1,827,327  $1,621,983 

Special Mention

  —   1,892   —   —   664   2,279   664   4,171 

Substandard

  8,156   8,250   2,006   1,594   1,389   3,054   11,551   12,898 

Doubtful

  —   —   —   —   355   125   355   125 

Total

 $1,122,327  $946,879  $128,266  $141,964  $589,304  $550,334  $1,839,897  $1,639,177 

Credit Risk Profile by Payment Activity

 

 

 

Residential Mortgage

  

Home Equity Lines and Loans

  

Consumer

  

Leases

  

Total

 
(dollars in thousands) 

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

 

Performing

 $359,430  $340,615  $182,062  $176,281  $35,146  $25,198  $67,932  $55,755  $644,570  $597,849 

Non-performing

  1,505   1,653   1,221   2,169   —   2   103   137   2,829   3,961 

Total

 $360,935  $342,268  $183,283  $178,450  $35,146  $25,200  $68,035  $55,892  $647,399  $601,810 

87
Table of Contents

  Credit Risk Profile by Internally Assigned Grade
As of December 31, 2019  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $1,636,961
 $10,142
 $27,665
 $—
 $1,674,768
Home equity loans and lines 174,025
 —
 779
 —
 174,804
Residential 423,910
 —
 344
 —
 424,254
Construction 154,071
 —
 5,796
 —
 159,867
Commercial and industrial 657,740
 4,853
 12,752
 —
 675,345
Consumer 50,220
 —
 4,591
 —
 54,811
Leases 156,219
 —
 748
 —
 156,967
Total $3,253,146
 $14,995
 $52,675
 $—
 $3,320,816

  Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $1,321,973
 $631
 $5,218
 $—
 $1,327,822
Home equity loans and lines 177,916
 —
 3,590
 —
 181,506
Residential 408,095
 —
 2,927
 —
 411,022
Construction 167,272
 938
 6,382
 —
 174,592
Commercial and industrial 615,817
 2,511
 6,314
 1
 624,643
Consumer 43,936
 —
 163
 —
 44,099
Leases 121,175
 —
 392
 —
 121,567
Total $2,856,184
 $4,080
 $24,986
 $1
 $2,885,251


The following tables detail the carrying value of acquiredportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of December 31, 2017 2019 and December 31, 2016:

2018:
  

Credit Risk Profile by Internally Assigned Grade

 

 

 

Commercial Mortgage

  

Construction

  

Commercial and Industrial

  

Total

 
(dollars in thousands) 

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

 

Pass

 $376,691  $162,820  $66,967  $—  $124,249  $25,466  $567,907  $188,286 

Special Mention

  13,448   —   3,902   —   225   36   17,575   36 

Substandard

  10,038   1,199   13,319   —   4,624   2,458   27,981   3,657 

Doubtful

  873   —   —   —   910   1,497   1,783   1,497 

Total

 $401,050  $164,019  $84,188  $—  $130,008  $29,457  $615,246  $193,476 

Credit Risk Profile by Payment Activity

 

 

 

Residential Mortgage

  

Home Equity Lines and Loans

  

Consumer

  

Leases

  

Total

 
(dollars in thousands) 

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

  

December 31,

2017

  

December 31,

2016

 

Performing

 $95,039  $70,267  $34,732  $29,429  $3,007  $141  $47,366  $—  $180,144  $99,837 

Non-performing

  2,912   1,005   260   120   —   —   —   —   3,172   1,125 

Total

 $97,951  $71,272  $34,992  $29,549  $3,007  $141  $47,366  $—  $183,316  $100,962 
Table of Contents


  Credit Risk Profile by Internally Assigned Grade
As of December 31, 2019  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $220,804
 $4,927
 $12,931
 $—
 $238,662
Home equity loans and lines 19,836
 —
 —
 —
 19,836
Residential 65,521
 —
 128
 —
 65,649
Construction —
 —
 —
 —
 —
Commercial and industrial 32,923
 —
 989
 —
 33,912
Consumer 2,285
 —
 42
 —
 2,327
Leases 7,976
 —
 135
 —
 8,111
Total $349,345
 $4,927
 $14,225
 $—
 $368,497

  Credit Risk Profile by Internally Assigned Grade
As of December 31, 2018  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $313,095
 $—
 $15,421
 $1,098
 $329,614
Home equity loans and lines 25,121
 —
 724
 —
 25,845
Residential 82,694
 —
 639
 —
 83,333
Construction 4,081
 —
 2,405
 —
 6,486
Commercial and industrial 68,627
 226
 2,088
 —
 70,941
Consumer 2,652
 —
 63
 —
 2,715
Leases 22,386
 —
 583
 —
 22,969
Total $518,656
 $226
 $21,923
 $1,098
 $541,903


G. TroubledTroubled Debt Restructurings (“TDRs”)

The restructuring of a loan is considered a “troubled debt restructuring” if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

The following table presents the balance of TDRs as of the indicated dates:

(dollars in thousands)

 

December 31,

2017

  

December 31,

2016

 December 31, 2019 December 31, 2018

TDRs included in nonperforming loans and leases

 $3,289  $2,632 $3,018
 $1,217

TDRs in compliance with modified terms

  5,800   6,395 5,071
 9,745

Total TDRs

 $9,089  $9,027 $8,089
 $10,962




Table of Contents

The following table presentspresents information regarding loanloans and lease modificationsleases categorized as TDRs for modifications made during the twelve monthsyear ended December 31, 2017:

2019:
  

For the Twelve Months Ended December 31, 2017

 

(dollars in thousands)

 

Number of Contracts

  

Pre-Modification

Outstanding Recorded

Investment

  

Post-Modification

Outstanding Recorded

Investment

 

Residential

  3  $432  $432 

Home equity lines and loans

  3   582   582 

Leases

  4   100   100 

Total

  10  $1,114  $1,114 

88
 For the Year Ended December 31, 2019
(dollars in thousands)Number of Contracts 
Pre-Modification
Outstanding Recorded
Investment
 
Post-Modification
Outstanding Recorded
Investment
Commercial mortgage1 $184
 $184
Home equity lines and loans3 226
 226
Commercial and industrial4 2,649
 2,649
Leases4 200
 200
Total12 $3,259
 $3,259

Table of Contents

The following table presentspresents information regarding the types of loan and lease modifications made for the twelve monthsyear ended December 31, 2017:

2019: 

Number of Contracts

Loan Term

Extension

Interest Rate

Change and

Term Extension

Interest Rate

Change and/or

Interest-Only

Period

Contractual

Payment

Reduction

(Leases only)

Temporary

Payment

Deferral

Residential

111——

Home equity lines and loans

——3——

Leases

———4—

Total

1144—
 Number of Contracts
 
Loan Term
Extension
 
Interest Rate
Change and
Term Extension
 
Interest Rate
Change and/or
Interest-Only
Period
 
Contractual
Payment
Reduction
(Leases only)
 
Temporary
Payment
Deferral
Commercial mortgage1 — — — —
Home equity lines and loans— 3 — — —
Commercial and industrial2 — 2 — —
Leases— — — 4 —
Total3 3 2 4 —


The following table presentspresents information regarding loanloans and lease modificationsleases categorized as TDRs for modifications made during the twelve monthsyear ended December 31, 2016:

2018:  
 

For the Twelve Months Ended December 31, 2016

 For the Year Ended December 31, 2018

(dollars in thousands)

 

Number of Contracts

  

Pre-Modification

Outstanding Recorded

Investment

  

Post-Modification

Outstanding Recorded

Investment

 Number of Contracts 
Pre-Modification
Outstanding Recorded
Investment
 
Post-Modification
Outstanding Recorded
Investment

Commercial mortgage

  1  $1,256  $1,256 1 $4,439
 $4,439
Home equity lines and loans3 961
 961

Residential

  2   141   148 6 620
 640

Home equity lines and loans

  6   265   265 

Commercial and industrial

  4   1,006   1,006 2 156
 156
Consumer1 20
 20

Leases

  3   104   104 4 173
 173

Total

  16  $2,772  $2,779 17 6,369
 6,389










Table of Contents

The following table presentspresents information regarding the types of loan and lease modifications made for the twelve monthsyear ended December 31, 2016:

2018:  

Number of Contracts

Loan Term

Extension

Interest Rate

Change and

Term

Extension

Interest Rate

Change and/or

Interest-Only

Period

Contractual

Payment

Reduction

(Leases only)

Temporary

Payment

Deferral

Commercial mortgage

1————

Residential

—2———

Home equity lines and loans

——6——

Commercial and industrial

3———1

Leases

———3—

Total

42631
 Number of Contracts
 
Loan Term
Extension
 
Interest Rate
Change and
Term
Extension
 
Interest Rate
Change and/or
Interest-Only
Period
 
Contractual
Payment
Reduction
(Leases only)
 
Temporary
Payment
Deferral
Commercial mortgage1 — — — —
Home equity lines and loans— 3 — — —
Residential2 1 — — 3
Commercial and industrial1 1 — — —
Consumer— — — — 1
Leases— — — 4 —
Total4 5 — 4 4


During the twelve monthsyear ended December 31, 2017, one2019, 2 commercial and industrial loanloans with a principal balance of $63balances totaling $300 thousand, which had been previously modified to a troubled debt restructuring, defaulted and waswere charged off.

89
Table of Contents

H. Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related allowance for loan and lease lossesAllowance and interest income recognized for the twelve monthsyear ended December 31, 2017, 20162019, 2018 and 20152017 (purchased credit-impaired loans are not included in the tables):

As of or for the Twelve Months

Ended December 31, 2017

(dollars in thousands)

 

Recorded

Investment**

  

Principal

Balance

  

Related

Allowance

  

Average

Principal

Balance

  

Interest

Income

Recognized

  

Cash-Basis

Interest

Income

Recognized

 

Impaired loans with related allowance:

                        

Home equity lines and loans

 $577  $577  $19  $232  $7  $— 
As of or for the Year Ended December 31, 2019
Recorded
Investment(2)
 
Principal
Balance
 
Related
Allowance
 
Average
Principal
Balance
 
Interest
Income
Recognized
 
Cash-Basis
Interest
Income
Recognized
(dollars in thousands) 
Impaired loans with related allowance:           
Home equity lines and loans$1,307
 $1,307
 $165
 $1,311
 $44
 $—
Residential mortgage1,845
 1,845
 231
 1,863
 87
 —
Consumer43
 43
 22
 44
 2
 —
Total$3,195
 $3,195
 $418
 $3,218
 $133
 $—
Impaired loans without related allowance(1):
           
Commercial mortgage$4,454
 $5,591
 $—
 $5,826
 $98
 $—
Home equity lines and loans1,020
 1,021
 —
 1,034
 29
 —

Residential mortgage

  2,436   2,435   230   2,467   127   — 1,196
 1,196
 —
 1,218
 61
 —

Commercial and industrial

  18   19   5   19   1   — 4,722
 4,996
 —
 4,835
 119
 —

Consumer

  27   27   4   28   1   — 42
 57
 —
 45
 —
 —

Total

 $3,058  $3,058  $258  $2,746  $136  $— $11,434
 $12,861
 $—
 $12,958
 $307
 $—

Impaired loans* without related allowance:

                        

Commercial mortgage

 $2,128  $2,218  $—  $2,205  $85  $— 

Home equity lines and loans

  1,585   1,645   —   1,636   38   — 

Residential mortgage

  5,290   5,529   —   4,994   191   — 

Commercial and industrial

  1,879   3,613   —   2,079   35   — 

Total

 $10,882  $13,005  $—  $10,914  $349  $— 

Grand total

 $13,940  $16,063  $258  $13,660  $485  $— $14,629
 $16,056
 $418
 $16,176
 $440
 $—

*


(1) The table above does not include the recorded investment of $272 thousand$1.1 million of impaired leases withoutwith a $64 thousand related allowance for loan and lease losses.

**

(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

As of or for the Twelve Months

Ended December 31, 2016

(dollars in thousands)

 

Recorded

Investment**

  

Principal

Balance

  

Related

Allowance

  

Average

Principal

Balance

  

Interest

Income

Recognized

  

Cash-Basis

Interest

Income

Recognized

 

Impaired loans with related allowance:

                        

Residential mortgage

 $622  $622  $73  $639  $27  $— 

Commercial and industrial

  84   84   5   103   5   — 

Consumer

  31   31   8   33   2   — 

Total

 $737  $737  $86  $775  $34  $— 
                         

Impaired loans* without related allowance:

                        

Commercial mortgage

 $1,577  $1,577  $—  $1,583  $70  $— 

Home equity lines and loans

  2,354   2,778   —   2,833   25   — 

Residential mortgage

  6,644   6,970   —   7,544   276   — 

Commercial and industrial

  2,862   3,692   —   8,362   146   — 

Total

 $13,437  $15,017  $—  $20,322  $517  $— 

Grand total

 $14,174  $15,754  $86  $21,097  $551  $— 

*

Table of Contents

As of or for the Year Ended December 31, 2018
Recorded
Investment(2)
 
Principal
Balance
 
Related
Allowance
 
Average
Principal
Balance
 
Interest
Income
Recognized
 
Cash-Basis
Interest
Income
Recognized
(dollars in thousands)     
Impaired loans with related allowance:           
  Home equity lines and loans$1,280
 $1,280
 $162
 $640
 $27
 $—
Residential mortgage1,966
 1,966
 272
 1,983
 94
 —
Consumer50
 50
 28
 56
 4
 —
Total$3,296
 $3,296
 $462
 $2,679
 $125
 $—
Impaired loans without related allowance(1):
           
Commercial mortgage$7,007
 $7,264
 $—
 $7,010
 $320
 $—
Home equity lines and loans3,718
 3,724
 —
 3,537
 67
 —
Residential mortgage4,641
 4,728
 —
 4,750
 133
 —
Commercial and industrial2,629
 3,803
 —
 3,349
 126
 —
Consumer83
 86
 —
 100
 3
 —
Total$18,078
 $19,605
 $—
 $18,746
 $649
 $—
Grand total$21,374
 $22,901
 $462
 $21,425
 $774
 $—


(1)The table above does not include the recorded investment of $240 thousand$1.2 million of impaired leases without a related allowance for loan and lease losses.

**


(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

90
As of or for the Year Ended December 31, 2017
Recorded
Investment(2)
 
Principal
Balance
 
Related
Allowance
 
Average
Principal
Balance
 
Interest
Income
Recognized
 
Cash-Basis
Interest
Income
Recognized
(dollars in thousands)     
Impaired loans with related allowance:           
Home equity lines and loans$577
 $577
 $19
 $232
 $7
 $—
Residential mortgage$2,436
 $2,436
 $230
 $2,467
 $127
 $—
Commercial and industrial18
 18
 5
 19
 1
 —
Consumer27
 27
 4
 28
 1
 —
Total$3,058
 $3,058
 $258
 $2,746
 $136
 $—
Impaired loans without related allowance(1):
           
Commercial mortgage$2,128
 $2,218
 $—
 $2,205
 $85
 $—
Home equity lines and loans1,585
 1,645
 —
 1,636
 38
 —
Residential mortgage5,290
 5,529
 —
 4,994
 191
 —
Commercial and industrial1,879
 3,613
 

 2,079
 35
 —
Total$10,882
 $13,005
 $—
 $10,914
 $349
 $—
Grand total$13,940
 $16,063
 $258
 $13,660
 $485
 $—

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As of or for the Twelve Months

Ended December 31, 2015

(dollars in thousands)

 

Recorded

Investment**

  

Principal

Balance

  

Related

Allowance

  

Average

Principal

Balance

  

Interest

Income

Recognized

  

Cash-Basis

Interest

Income

Recognized

 

Impaired loans with related allowance:

                        

Home equity lines and loans

 $115  $115  $115  $125  $4  $— 

Residential mortgage

  515   527   54   531   23   — 

Commercial and industrial

  2,011   2,002   519   2,215   49   — 

Consumer

  30   30   5   31   1   — 

Total

 $2,671  $2,674  $693  $2,902  $77  $— 

Impaired loans* without related allowance:

                        

Commercial mortgage

 $349  $358  $—  $361  $9  $— 

Home equity lines and loans

  1,865   2,447   —   2,605   46   — 

Residential mortgage

  7,239   8,166   —   8,085   257   — 

Construction

  33   996   —   1,087   —   — 

Commercial and industrial

  2,229   3,089   —   4,985   124   — 

Total

 $11,715  $15,056  $—  $17,123  $436  $— 

Grand total

 $14,386  $17,730  $693  $20,025  $513  $— 

*(1)The table above does not include the recorded investment of $77$272 thousand of impaired leases without a related allowance for loan and lease losses.

**


(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge-offs and interest payments on non-performing loans that have been applied to principal.



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I.LoanMark

Loans acquired in mergers and acquisitions are recorded at fair value as of the date of the transaction. This adjustment to the acquired principal amount is referred to as the “Loan Mark”. With the exception of purchased credit impaired loans, for which the Loan Mark is accounted under ASC 310-30,310-30, the Loan Mark is amortized or accreted as an adjustment to yield over the lives of the loans.

The following tables detail, for acquired loans, the outstanding principal, remaining loan mark, and recorded investment, by portfolio segment, as of the dates indicated:

  

As of December 31, 2017

(dollars in thousands)

 

Outstanding

Principal

  

Remaining

Loan Mark

  

Recorded

Investment

  

Commercial mortgage

 $412,263  $(11,213

)

 $401,050  

Home equity lines and loans

  37,944   (2,952

)

  34,992  

Residential mortgage

  101,523   (3,572

)

  97,951  

Construction

  86,081   (1,893

)

  84,188  

Commercial and industrial

  141,960   (11,952

)

  130,008  

Consumer

  3,051   (44

)

  3,007  

Leases

  50,530   (3,164

)

  47,366  

Total

 $833,352  $(34,790

)

 $798,562  

  

As of December 31, 2016

 

(dollars in thousands)

 

Outstanding

Principal

  

Remaining

Loan Mark

  

Recorded

Investment

 

Commercial mortgage

 $168,612  $(4,593

)

 $164,019 

Home equity lines and loans

  31,236   (1,687

)

  29,549 

Residential mortgage

  73,902   (2,630

)

  71,272 

Commercial and industrial

  32,812   (3,355

)

  29,457 

Consumer

  163   (22

)

  141 

Total

 $306,725  $(12,287

)

 $294,438 

91

 As of December 31, 2019
(dollars in thousands)
Outstanding
Principal
 
Remaining
Loan Mark
 
Recorded
Investment
Commercial mortgage$244,364
 $(5,702) $238,662
Home equity lines and loans21,739
 (1,903) 19,836
Residential mortgage67,831
 (2,182) 65,649
Commercial and industrial34,780
 (868) 33,912
Consumer2,416
 (89) 2,327
Leases8,272
 (161) 8,111
Total$379,402
 $(10,905) $368,497

 As of December 31, 2018
(dollars in thousands)
Outstanding
Principal
 
Remaining
Loan Mark
 
Recorded
Investment
Commercial mortgage$339,241
 $(9,627) $329,614
Home equity lines and loans28,212
 (2,367) 25,845
Residential mortgage86,111
 (2,778) 83,333
Construction6,780
 (294) 6,486
Commercial and industrial72,948
 (2,007) 70,941
Consumer2,828
 (113) 2,715
Leases23,695
 (726) 22,969
Total$559,815
 $(17,912) $541,903


Note 6 - Other Real Estate Owned

The summary of the change in other real estate owned, which is included as a component of other assets on the Corporation's Consolidated Balance Sheets, is as follows:

  

December 31,

 

(dollars in thousands)

 

2017

  

2016

 

Balance January 1

 $1,017  $2,638 

Additions

  560   355 

Impairments

  (121

)

  (94

)

Sales

  (1,152

)

  (1,882

)

Balance December 31

 $304  $1,017 

As of December 31, 2017, the balance of OREO is comprised of two residential properties which resulted from loan foreclosures and OREO acquired in the RBPI Merger.

Note 7 - Premises and Equipment

A.

A summary of premises and equipment is as follows:

 

December 31,

 December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018

Land

 $9,522  $5,306 $11,219
 $11,219

Buildings

  31,376   24,998 45,321
 40,947

Furniture and equipment.

  38,775   36,930 
Furniture and equipment48,311
 44,862

Leasehold improvements

  26,636   24,713 26,951
 25,186

Construction in progress

  4,171   56 1,389
 4,400

Less: accumulated depreciation

  (56,022

)

  (50,225

)

(68,226) (60,966)

Total

 $54,458  $41,778 $64,965
 $65,648


Depreciation and amortization expense related to the assets detailed in the above table for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 amounted to $5.7$7.8 million, $5.8$6.6 million, and $5.1$5.7 million, respectively.

B. Future minimum cash rent commitments under various operating leases as of December 31, 2017 are as follows:

(dollars in thousands)

 

Commitments

 

2018

 $6,833 

2019

  4,535 

2020

  3,959 

2021

  3,333 

2022

  2,776 

2023 and thereafter

  11,082 

Total

 $32,518 

Rent expense on leased premises and equipment for the years ended December 31, 2017, 2016 and 2015 amounted to $4.7 million, $4.6 million, and $5.1 million, respectively.






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Note 87 - Mortgage Servicing Rights (“MSR”s)

A.


The following summarizes the Corporation’sCorporation’s activity related to MSRs for the years ended December 31:

(dollars in thousands)

 

2017

  

2016

  

2015

 2019 2018 2017

Balance, January 1

 $5,582  $5,142  $4,765 $5,047
 $5,861
 $5,582

Additions

  1,025   1,321   1,037 —
 16
 1,025

Amortization

  (791

)

  (750

)

  (590

)

(576) (803) (791)

Recovery / (Impairment)

  45   (131

)

  (70

)

(Impairment) / Recovery(21) (27) 45

Balance, December 31

 $5,861  $5,582  $5,142 $4,450
 $5,047
 $5,861

Fair value

 $6,397  $6,154  $5,726 $4,838
 $6,277
 $6,397

Residential mortgage loans serviced for others

 $650,703  $631,889  $601,939 $502,832
 $578,788
 $650,703

B.

The following summarizes the Corporation’sCorporation’s activity related to changes in the impairment valuation allowance of MSRs for the years ended December 31:

(dollars in thousands)

 

2017

  

2016

  

2015

 2019 2018 2017

Balance, January 1

 $(1,805

)

 $(1,674

)

 $(1,604

)

$(1,787) $(1,760) $(1,805)

Impairment

  (52

)

  (715

)

  (123

)

(70) (103) (52)

Recovery

  97   584   53 49
 76
 97

Balance, December 31

 $(1,760

)

 $(1,805

)

 $(1,674

)

$(1,808) $(1,787) $(1,760)

C. Other MSR Information – At


As of December 31, 2017, 2019 and 2018, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:

(dollars in thousands)

    

Fair value amount of MSRs

 $6,397 

Weighted average life (in years)

  6.1 

Prepayment speeds (constant prepayment rate)*

  10.3

%

Impact on fair value:

    

10% adverse change

 $(194

)

20% adverse change

 $(394

)

Discount rate

  9.55

%

Impact on fair value:

    

10% adverse change

 $(225

)

20% adverse change

 $(434

)

*

Represents the weighted average prepayment rate for the life of the MSR asset.

 December 31,
(dollars in thousands)2019 2018
Fair value amount of MSRs$4,838
 $6,277
Weighted average life (in years)6.0
 6.7
Prepayment speeds (constant prepayment rate)(1)
10.5% 9.1%
Impact on fair value:   
10% adverse change$(149) $(124)
20% adverse change$(297) $(257)
Discount rate9.55% 9.55%
Impact on fair value:   
10% adverse change$(166) $(234)
20% adverse change$(321) $(451)

(1)Represents the weighted average prepayment rate for the life of the MSR asset.
At December 31, 2017, 2016,2019 and 2015,2018, the fair value of the MSRs was $6.4 million, $6.2$4.8 million and $5.7$6.3 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party which utilizes a valuation model which calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent third-partythird-party valuation experts.

These assumptions and sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which could magnify or counteract the sensitivities.

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Note 8 - Goodwill and Intangible Assets
 

The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other than MSRs, for the years ended December 31, 2019 and 2018:

(dollars in thousands)Balance
December 31, 2018		 Additions Adjustments Amortization Balance
December 31, 2019		 Amortization
Period
Goodwill – Wealth$20,412
 $—
 $—
 $—
 $20,412
 Indefinite
Goodwill – Banking156,991
 —
 —
 —
 156,991
 Indefinite
Goodwill – Insurance6,609
 —
 —
 —
 6,609
 Indefinite
Total Goodwill$184,012
 $—
 $—
 $—
 $184,012
  
Core deposit intangible5,906
 —
 —
 (1,308) 4,598
 10 years
Customer relationships13,607
 18
 —
 (1,805) 11,820
 10 to 20 years
Non-compete agreements1,101
 —
 —
 (190) 911
 5 to 10 years
Trade names2,149
 —
 —
 (498) 1,651
 3 to 5 years
Domain name151
 —
 —
 —
 151
 Indefinite
Favorable lease assets541
 —
 (541) —
 —
 
Total Intangible Assets$23,455
 $18
 $(541) $(3,801) $19,131
  
Grand Total$207,467
 $18
 $(541) $(3,801) $203,143
  
(dollars in thousands)Balance
December 31, 2017		 Additions Adjustments Amortization Balance
December 31, 2018		 Amortization
Period
Goodwill – Wealth$20,412
 $—
 $—
 $—
 $20,412
 Indefinite
Goodwill – Banking153,545
 —
 3,446
 —
 156,991
 Indefinite
Goodwill – Insurance5,932
 677
 —
 —
 6,609
 Indefinite
Total Goodwill$179,889
 $677
 $3,446
 $—
 $184,012
  
Core deposit intangible7,380
 —
 —
 (1,474) 5,906
 10 years
Customer relationships14,173
 1,145
 —
 (1,711) 13,607
 10 to 20 years
Non-compete agreements1,319
 —
 —
 (218) 1,101
 5 to 10 years
Trade names2,322
 —
 —
 (173) 2,149
 3 to 5 years
Domain name151
 —
 —
 —
 151
 Indefinite
Favorable lease assets621
 —
 —
 (80) 541
 1 to 16 years
Total Intangible Assets$25,966
 $1,145
 $—
 $(3,656) $23,455
  
Grand total$205,855
 $1,822
 $3,446
 $(3,656) $207,467
  

Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31, 2019 using generally accepted valuation methods. Management determined that 0 impairment of goodwill or indefinite-lived intangible assets was identified as a result of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the two months ended December 31, 2019, management determined there were 0 events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.

Amortization expense on finite-lived intangible assets was $3.8 million, $3.7 million, and $2.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. As of October 1, 2018, due to changes in branding strategies, the estimate of the remaining useful lives of certain trade name intangible assets were changed from indefinite to five years. The effect of this change in estimate increased amortization of intangible asset expense by $433 thousand and $108 thousand for the years ended December 31 2019 and 2018.


Table of Contents

The estimated aggregate amortization expense related to finite-lived intangible assets for each of the five succeeding fiscal years ending December 31 is:
(dollars in thousands)Fiscal Year Amount
Fiscal year ending 
2020$3,578
20213,367
20223,027
20232,646
Thereafter6,361


Note 9 - Other Real Estate Owned
The summary of the change in other real estate owned, which is included as a component of other assets on the Corporation's Consolidated Balance Sheets, is as follows:
 December 31,
(dollars in thousands)2019 2018
Balance January 1$417
 $304
Additions87
 372
Impairments—
 (89)
Sales(504) (170)
Balance December 31$—
 $417

As of December 31, 2019, the Corporation did not have any OREO. As of December 31, 2018, the balance of OREO was comprised of 1 residential property and 2 manufactured homes, which resulted from loan foreclosures.
Note 10 - Deposits

A. The following table details the components of deposits:

 

As of December 31,

 As of December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018
Interest-bearing demand$944,915
 $664,749
Money market1,106,478
 862,644

Savings

 $338,572  $232,193 220,450
 247,081

NOW accounts*

  482,252   380,057 

Market rate accounts*

  923,999   835,296 

Retail time deposits, less than $100

  272,528   139,276 

Retail time deposits, $100 or more

  259,674   183,636 
Retail time deposits405,123
 542,702
Wholesale non-maturity deposits177,865
 55,031

Wholesale time deposits

  171,929   73,037 89,241
 325,261

Total interest-bearing deposits

 $2,448,954  $1,843,495 $2,944,072
 $2,697,468

Non-interest-bearing deposits

  924,844   736,180 
Noninterest-bearing deposits898,173
 901,619

Total deposits

 $3,373,798  $2,579,675 $3,842,245
 $3,599,087

*

Includes wholesale deposits.


The aggregate amount of deposit and mortgage escrow overdrafts included as loans were $529 thousand and $408 thousand as of December 31, 2017 2019 and 2016 were $669 thousand and $818 thousand,2018, respectively.

The aggregate amount of time deposits in denominationsdenominations over $250$250 thousand were $193.3$130.1 million and $117.8$324.4 million as of December 31, 20172019 and 2016,2018, respectively.







Table of Contents

B. The following tables detail the maturities ofretailtime deposits:

 

As of December 31, 2017

 As of December 31, 2019

(dollars in thousands)

 

Less than

$100

  

$100

or more

 Less than
$100		 $100
or more

Maturing during:

           

2018

 $183,049  $197,127 

2019

  52,972   40,707 

2020

  16,794   11,020 

2021

  13,737   8,471 

2022 and thereafter

  5,976   2,349 
2020$122,981
 $143,428
202143,210
 60,192
202210,300
 14,758
20232,838
 1,844
2024 and thereafter3,645
 1,927

Total

 $272,528  $259,674 $182,974
 $222,149


C. The following tables detail the maturities of wholesale time deposits:

 

As of December 31, 2017

 As of December 31, 2019

(dollars in thousands)

 

Less than

$100

  

$100

or more

 Less than
$100		 $100
or more

Maturing during:

           

2018

 $3,729  $153,207 

2019

  —   14,993 
2020$974
 $82,136
202197
 388
2022—
 5,646

Total

 $3,729  $168,200 $1,071
 $88,170

 

Note 1011 - Short-Term Short-Term Borrowings and Long-Term FHLB Advances

A. Short-term borrowings

As of December 31, 2017 and 2016, the Corporation had $237.9 million and $204.2 million of

The Corporation’s short-term borrowings (original maturity of one year or less), respectively, which consistedconsist of funds obtained from overnight repurchase agreements with commercial customers, FHLB advances with original maturities of one year or less, and short-term FHLB advances.

overnight fed funds, are detailed below.


A summary of short-term borrowings is as follows:

 

As of December 31,

 As of December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018

Repurchase agreements* – commercial customers

 $25,865  $39,151 
Repurchase agreements(1) – commercial customers
$10,819
 $22,717

Short-term FHLB advances

  212,000   165,000 482,400
 229,650

Total short-term borrowings

 $237,865  $204,151 $493,219
 $252,367

*


(1) Overnight repurchase agreements with no expiration date

date.

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The following table sets forth information concerning short-term borrowings:

 

As of or Twelve Months Ended December 31,

 As for the Year Ended December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018

Balance at period-end

 $237,865  $204,151 $493,219
 $252,367

Maximum amount outstanding at any month end

 $237,865  $204,151 $493,219
 $302,932

Average balance outstanding during the period

 $128,008  $37,041 $129,545
 $186,290

Weighted-average interest rate:

           

As of the period-end

  1.40

%

  0.66

%

1.82% 2.23%

Paid during the period

  1.09

%

  0.25

%

2.07% 1.90%



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Average balances outstanding during the year represent daily average balances and average interest rates represent interest expense divided by the related average balance.


B.Long-termFHLB Advances

As of December 31, 2017, and 2016, the Corporation had $139.1 million and $189.7 million, respectively, of long-term FHLB advances (original maturities exceeding one year).


The following table presents the remaining periods until maturity of long-term FHLB advances:

advances (original maturities exceeding one year):
 

As of December 31,

 As of December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018

Within one year

 $83,766  $75,000 $12,363
 $28,105

Over one year through five years

  55,374   114,742 39,906
 27,269

Total

 $139,140  $189,742 $52,269
 $55,374


The following table presents rate and maturity information on long-term FHLB advances and other borrowings:

advances:
 

Maturity Range(1)

  

Weighted

Average

  

Coupon Rate(1)

  

Balance at

December 31,

 
(dollars in thousands)
Maturity Range(1)
 
Weighted
Average
Rate(1)
 
Coupon Rate(1)
 
Balance at
December 31,

Description

 

From

   To  Rate(1)  

From

   To   2017   2016 From   To From To 2019 2018

Bullet maturity – fixed rate

 

 

2/14/2018  

 

8/24/2021   1.63

%

  1.05

%

  2.13

%

  118,131   153,612 1/2/2020 11/12/2021 1.58% 1.40% 2.13% $52,269
 $55,374

Bullet maturity – variable rate

  N/A   N/A   N/A   N/A   N/A   —   15,000 

Convertible-fixed(2)

 

 

1/3/2018  

 

8/20/2018   2.94

%

  2.58

%

  3.50

%

  21,009   21,130 N/A N/A N/A
 N/A
 N/A
 —
 —

Total

                     $139,140  $189,742      
  
  
 $52,269
 $55,374

(1)


(1) Maturity range, weighted average rate and coupon rate range refers to December 31, 2017 balances
(2)2019 balances.

(2) FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of December 31,, 2017, 2019, substantially all FHLB advances with this convertible feature are subject to conversion in fiscal 2018.2018. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to conversion.

C. OtherBorrowingsInformation

In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of capital stock held was $20.1$23.7 million at December 31, 2017, 2019, and $17.3$14.5 million at December 31, 2016. 2018. The carrying amount of the FHLB stock approximates its redemption value.


The level of required investment in FHLB stock is based on the balance of outstanding loans the Corporation has from the FHLB. Although FHLB stock is a financial instrument that represents an equity interest in the FHLB, it does not have a readily determinable fair value. FHLB stock is generally viewed as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, its value should be determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

value.

The Corporation had a maximum borrowing capacity with the FHLB of $1.37$1.65 billion as of December 31, 2017 2019 of which the unused capacity was $1.02$1.11 billion. In addition, there were $79.0$79.0 million in the overnight federal funds line available and $121.3$174.3 million of Federal Reserve Discount Window capacity.

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Note 12 – Subordinated Notes
 

Note 11– Subordinated Notes

On December 13, 2017, the CorporationBMBC completed the issuance of $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the "2027 Notes") in an underwritten public offering.Theoffering. On August 6, 2015, BMBC completed the issuance of $30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the "2025 Notes") in a private placement transaction to institutional accredited investors. The net proceeds of the offering, which totaled $68.8 million,both offerings increased Tier II regulatory capital at the CorporationBMBC level.






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The Corporation intends to usefollowing tables detail the net proceeds for working capital and general corporate purposes, which may include, but not be limited to, investments in the Bank and our other subsidiaries for regulatory capital purposes. Thesubordinated notes, including debt issuance costs, are included as a direct deduction from the debt liabilityof December 31, 2019 and the costs are amortized to interest expense using the effective interest method.

2018:

 December 31, 2019 December 31, 2018
(dollars in thousands)Balance 
Rate(1)(2)
 Balance 
Rate(1)(2)
Subordinated notes – due 2027$69,009
 4.25% $68,885
 4.25%
Subordinated notes – due 202529,696
 4.75% 29,641
 4.75%
Total subordinated notes$98,705
   $98,526
  

(1) The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until December 14, 2022, with the first interest payment occurring on June 15, 2018 and semi-annuallywill thereafter each December 15 and June 15 through December 15, 2022. Thereafter, the 2027 Notes will bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 2.050% until December 15, 2027, or any early redemption date, payable quarterly on March 15, June 15, September 15 and December 15 of each year. Beginning with the interest payment date of December 15, 2022, and on any scheduled interest payment date thereafter, the Corporation has the option to redeem the 2027 Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed 2027 Notes, plus accrued and unpaid interest to the date of the redemption.

On August 6, 2015, the Corporation completed the issuance of $30 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the "2025 Notes") in a private placement transaction to institutional accredited investors. The net proceeds of the offering, which totaled $29.5 million, increased Tier II regulatory capital at the Corporation level. The debt issuance costs are included as a direct deduction from the debt liability and the costs are amortized to interest expense using the effective interest method.

date.


(2) The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until August 14, 2020, with the first interest payment occurring on February 15, 2016 and semi-annuallywill thereafter each August 15 and February 15 through August 15, 2020. Thereafter, the 2025 Notes will bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 3.068% until August 15, 2025, or any early redemption date, payable quarterly on November 15, February 15, May 15 and August 15 of each year. Beginning with the interest payment date of August 15, 2020, and on any scheduled interest payment date thereafter, the Corporation has the option to redeem the 2025 Notes in whole or in part at a redemption price equal to 100% of the principal amount of the redeemed 2025 Notes, plus accrued and unpaid interest to the date of the redemption.

In conjunction with the issuance of the 2025 Notes, the Corporation engaged the Kroll Bond Rating Agency (“KBRA”) to assign a senior unsecured long-term debt rating, a subordinated debt rating and a short-term rating to the Corporation. As a result of their evaluation, KBRA assigned the Corporation a senior unsecured debt rating of A-, a subordinated debt rating of BBB+ and a short-term debt rating of K2. The ratings shown remain in effect as of December 31, 2017.

date.


Note 13 – Junior Subordinated Debentures
 

Note 12 – Junior Subordinated Debentures

In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although the CorporationBMBC owns $774,000$774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation’s consolidated financial statements as the Corporation is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, RBPI issued, and the CorporationBMBC assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7$10.7 million each, totaling $21.4$21.4 million representing the Corporation’sBMBC’s maximum exposure to loss. The junior subordinated debentures incur interest at a coupon rate of 3.74%4.04% as of December 31, 2017. 2019. The rate resets quarterly based on 3-month3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5$12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387$387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the Corporation. BMBC. As a result of the RBPI Merger, the CorporationBMBC has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.


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The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15, 2034, and may be called at par by the CorporationBMBC any time after December 15, 2009. The Corporation records its investments in the Trusts’ common securities of $387,000$387 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

Note

Note 14 – Operating Leases

On January 1,3 2019, the Corporation adopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 2, Recent Accounting Pronouncements.

The Corporation’s operating leases consist of various retail branch locations and corporate offices. As of December 31, 2019, the Corporation’s leases have remaining lease terms ranging from nine months to 23 years, including extension options that the Corporation is reasonably certain will be exercised.

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize ROU assets and lease liabilities for short-term leases, which consist of certain leases of the Corporation’s limited-hour retirement community offices.

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As of December 31, 2019 the Corporation’s ROU assets and related lease liabilities were $41.0 and $45.3, respectively.

The components of lease expense were as follows:
 Year Ended
December 31, 2019
(dollars in thousands) 
Operating lease expense$5,295
Short term lease expense59
Variable lease expense1,795
Sublease income(32)
Total lease expense$7,117

Supplemental cash flow information related to leases was as follows:
 Year Ended
December 31, 2019
(dollars in thousands) 
Cash paid for amounts included in the measurement of lease liabilities: 
   Operating cash flows from operating leases$5,174
ROU assets obtained in exchange for lease liabilities44,609


Maturities of operating lease liabilities under FASB ASC 842 “Leases” as of December 31, 2019 are as follows:
 December 31, 2019
(dollars in thousands) 
2019$4,705
20204,479
20214,200
20224,047
20234,076
2024 and thereafter37,308
Total lease payments58,815
Less: imputed interest13,557
Present value of operating lease liabilities$45,258


As of December 31, 2019, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised, for all operating leases is 14.26 years.

Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of December 31, 2019 is 3.57%.

As of December 31, 2019, the Corporation had not entered into any material leases that have not yet commenced.


Note15- DerivativesDerivatives and Hedging Activities


Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. The CorporationManagement manages these risks as part of its asset and liability management process and through credit policies and procedures. The CorporationManagement seeks to minimize counterparty credit risk by establishing credit limits and collateral agreements and utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative transactions entered into by the Corporation are an economic hedge of a derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.



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Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps that allowwith commercial loan customers and correspondent banks wishing to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Corporation originates variable-rate loans with customers in addition tomanage interest rate swap agreements, which serve to effectively swap the customers’ variable-rate loans into fixed-rate loans.risk. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge itsthe exposure on the variable and fixed components of the customer agreements.arising from these contracts. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of December 31, 2017, 2019, there were no fair value adjustments related to credit quality.


Foreign Exchange Forward Contracts. The Corporation enters into foreign exchange forward contracts (“FX forwards”) with customers to exchange one currency for another on an agreed date in the future at an agreed exchange rate. The Corporation then enters into corresponding FX forwards with swap dealer counterparties to economically hedge its exposure on the exchange rate component of the customer agreements. The FX forwards with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. As the FX forwards are structured to offset each other, changes to the underlying term structure of currency exchange rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of December 31, 2019, there were no fair value adjustments related to credit quality.

Risk Participation Agreements. The Corporation may enter into a risk participation agreement (“RPA”) with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold”.sold.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation may purchase a risk participation agreementan RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased”.

purchased.”


The following tables detail the derivative instruments as of December 31, 2017 2019 and December 31, 2016:

  

Asset Derivatives

  

Liability Derivatives

 

(dollars in thousands)

 

Notional

Amount

  

Fair

Value

  

Notional

Amount

  

Fair

Value

 

Derivatives not designated as hedging instruments

                

As of December 31, 2017:

                

Customer derivatives – interest rate swaps

 $124,627  $1,895  $124,627  $1,895 

Risk participation agreements sold

  —   —   899   3 

Risk participation agreements purchased

  14,710   21   —   — 

Total derivatives

 $139,337  $1,916  $125,526  $1,898 
                 

As of December 31, 2016:

                

Customer derivatives – interest rate swaps

 $—  $—  $—  $— 

Risk participation agreements

  —   —   —   — 

Total derivatives

 $—  $—  $—  $— 
2018:

97
 Asset Derivatives Liability Derivatives
(dollars in thousands)
Notional
Amount
 
Fair
Value
 
Notional
Amount
 
Fair
Value
Derivatives not designated as hedging instruments       
As of December 31, 2019:       
Customer derivatives – interest rate swaps$790,209
 $47,627
 $790,209
 $47,627
RPAs sold—
 —
 4,232
 16
RPAs purchased20,249
 90
 —
 —
Total derivatives$810,458
 $47,717
 $794,441
 $47,643
        
As of December 31, 2018:       
Customer derivatives – interest rate swaps$369,623
 $12,550
 $369,623
 $12,549
RPAs sold—
 —
 854
 2
RPAs purchased35,305
 71
 —
 —
Total derivatives$404,928
 $12,621
 $370,477
 $12,551

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The Corporation has International Swaps and Derivatives Association agreements with third parties that requires a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with the third party parties at December 31, 2017 2019 and December 31, 2016 2018 was $1.3$63.8 million and $0,$8.8 million, respectively. The amount of collateral posted with the third party parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with the third party parties was $1.6$46.7 million and $0$11.5 million as of December 31, 2017 2019 and December 31, 2016, 2018, respectively.

Note 14–Disclosure about Fair Value of Financial Instruments

FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate their fair values.

Investment Securities

Fair values for investment securities are generally determined by management including the use of an independent third party based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. Management reviews, annually, the process utilized by its independent third-party valuation service provider. On a quarterly basis, management tests the validity of the prices provided by the third party by selecting a representative sample of the portfolio and obtaining actual trade results, or if actual trade results are not available, competitive broker pricing. On an annual basis, management evaluates, for appropriateness, the methodology utilized by the independent third-party valuation service provider.

Loans Held for Sale

The fair value of loans held for sale is based on pricing obtained from secondary markets.

Net Portfolio Loans and Leases

For variable rate loans that reprice frequently and which have no significant change in credit risk, estimated fair values are based on carrying values. Fair values of certain fixed rate mortgage loans and consumer loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and is indicative of an entry price. The estimated fair value of nonperforming loans is based on discounted estimated cash flows as determined by the internal loan review of the Bank or the appraised market value of the underlying collateral, as determined by independent third party appraisers. This technique does not reflect an exit price.

Impaired Loans

Management evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.




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Other Real Estate Owned

Other real estate owned consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties are classified as OREO and are reported at the lower of cost or fair value less cost to sell, and are classified as Level 3 in the fair value hierarchy.

Mortgage Servicing Rights

The fair value of the MSRs for these periods was determined using a proprietary third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Due to the proprietary nature of the valuation model used and the lack of observable inputs, the Corporation classifies the value of MSRs as using Level 3 inputs.

Other Assets

Due to their short-term nature, the carrying amounts of accrued interest receivable, income taxes receivable and other investments approximate their fair value.

Interest Rate Swaps and Risk Participation Agreements

The Corporation’s interest rate swaps and RPAs are reported at fair value utilizing Level 2 inputs. Prices of these instruments are obtained through an independent pricing source utilizing pricing information which may include market observed quotations for swaps, LIBOR rates, forward rates and rate volatility. When entering into a derivative contract, the Corporation is exposed to fair value changes due to interest rate movements, and the potential non-performance of our contract counterparty. The Corporation has developed a methodology to value the non-performance risk based on internal credit risk metrics and the unique characteristics of derivative instruments, which include notional exposure rather than principle at risk and interest payment netting. The results of this methodology are used to adjust the base fair value of the instrument for the potential counterparty credit risk.

Deposits

The fair values disclosed for non-interest-bearing demand deposits, savings, NOW accounts, and market rate accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on the certificates of deposit. FASB Codification 825 defines the fair value of demand deposits as the amount payable on demand, as of the reporting date, and prohibits adjusting estimated fair value from any value derived from retaining those deposits for an expected future period of time.

Short-term borrowings

Due to their short-term nature, the carrying amount of short-term borrowings, which include overnight repurchase agreements approximate their fair value.

FHLB Advances and Other Borrowings

The fair value of FHLB advances and other borrowings is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long-term borrowings.

Subordinated Notes

The fair value of the Notes is estimated by discounting the principal balance using the FHLB yield curve for the term to the call date as the Corporation has the option to call the Notes. The Notes are classified within Level 2 in the fair value hierarchy.

Junior subordinated debentures

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.

Other Liabilities

The carrying amounts of accrued interest payable and other accrued payables approximate fair value. The fair value of the interest-rate swap derivative is derived from quoted prices for similar instruments in active markets and is classified as using Level 3 inputs.


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Off-Balance Sheet Instruments

The fair values of the Corporation’s commitments to extend credit, standby letters of credit and financial guarantees are not included in the table below as their carrying values generally approximate their fair values. These instruments generate fees that approximate those currently charged to originate similar commitments.

The carrying amount and fair value of the Corporation’s financial instruments are as follows:

      

As of December 31,

 
      

2017

  

2016

 

(dollars in thousands)

 

Fair Value

Hierarchy

Level*

  

Carrying

Amount

  

Fair Value

  

Carrying

Amount

  

Fair Value

 

Financial assets:

                    

Cash and cash equivalents

 

Level 1

  $60,024  $60,024  $50,765  $50,765 

Investment securities - available for sale

 

See Note 15

   689,202   689,202   566,996   566,996 

Investment securities - trading

 

See Note 15

   4,610   4,610   3,888   3,888 

Investment securities – held to maturity

 

Level 2

   7,932   7,851   2,879   2,818 

Loans held for sale

 

Level 2

   3,794   3,794   9,621   9,621 

Net portfolio loans and leases

 

Level 3

   3,268,333   3,293,802   2,517,939   2,505,546 

Mortgage servicing rights

 

Level 3

   5,861   6,397   5,582   6,154 

Interest rate swaps

 

Level 2

   1,895   1,895   —   — 

Risk participation agreements purchased

 

Level 2

   21   21   —   — 

Other assets

 

Level 3

   46,799   46,799   34,465   34,465 

Total financial assets

     $4,088,471  $4,114,395  $3,192,135  $3,180,253 

Financial liabilities:

                    

Deposits 

 

Level 2

  $3,373,798  $3,368,276  $2,579,675  $2,579,011 

Short-term borrowings

 

Level 2

   237,865   237,865   204,151   204,151 

Long-term FHLB advances

 

Level 2

   139,140   138,685   189,742   186,863 

Subordinated notes

 

Level 2

   98,416   95,044   29,532   29,228 

Junior subordinated debentures

 

Level 2

   21,416   19,366   —   — 

Interest rate swaps

 

Level 2

   1,895   1,895   —   — 

Risk participation agreements sold

 

Level 2

   3   3   —   — 

Other liabilities

 

Level 3

   49,071   49,071   37,303   37,303 

Total financial liabilities

     $3,921,604  $3,910,205  $3,040,403  $3,036,556 

*See Note 15 in the Notes to consolidated financial statements for a description of hierarchy levels.

Note 1516 - Fair Value Measurement

FASB ASC 820, “Fair Value Measurement” establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under which the Corporation is required to value each asset using assumptions that market participants would utilize to value that asset. When the Corporation uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.

The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government and its agencies, mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies, obligations of state and political subdivisions, corporate bonds, other debt securities, as well as bond mutual funds are determined by the Corporation, including the use of an independent third party. Management performs tests to assess the validity of these third-party values. The third party’s evaluations are based on market data. They utilize pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

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U.S. Government agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage-backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available-for-sale investments are evaluated using a broker-quote based application, including quotes from issuers.

The value of the investment portfolio is determined using three broad levels of inputs:

Level 1 – Quoted prices in active markets for identical securities.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Instruments whose significant value drivers are unobservable.

These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets at December 31, 2017 and 2016 that are recognized on the Corporation’s Consolidated Balance Sheets using fair value measurement determined based on the differing levels of input.

Fair value of assets measured on a recurring basis as of December 31, 2017:

(dollars in millions)

Total

 

Level 1

 

Level 2

 

Level 3

Investment securities (available for sale and trading):

  

  

 

             

  

 

             

  

 

             

U.S. Treasury securities

$

200.1

 

$

200.1

 

$

—

 

$

—

Obligations of U.S. government & agencies

 

151.0

  

—

  

151.0

  

—

Obligations of state & political subdivisions

 

21.3

  

—

  

21.3

  

—

Mortgage-backed securities

 

275.0

  

—

  

275.0

  

—

Collateralized mortgage obligations

 

36.7

  

—

  

36.7

  

—

Mutual funds

 

8.1

  

8.1

  

—

  

—

Other debt securities

 

1.6

  

—

  

1.6

  

—

Interest rate swaps

 

1.9

  

—

  

1.9

  

—

Total assets measured on a recurring basis at fair value

$

695.7

 

$

208.2

 

$

487.5

 

$

—

Fair value of assets measured on a non-recurring basis as of December 31, 2017:

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Mortgage servicing rights

 $6.4  $—  $—  $6.4 

Impaired loans and leases

  14.0   —   —   14.0 

OREO

  0.3   —   —   0.3 

Total assets measured at fair value on a non-recurring basis

 $20.7  $—  $—  $20.7 

Fair value of assets measured on a recurring basis as of December 31, 2016:

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Investment securities (available for sale and trading):

                

U.S. Treasury securities

 $200.1  $200.1  $—  $— 

Obligations of U.S. government & agencies

  82.2   —   82.2   — 

Obligations of state & political subdivisions

  33.5   —   33.5   — 

Mortgage-backed securities

  188.8   —   188.8   — 

Collateralized mortgage obligations

  48.7   —   48.7   — 

Mutual funds

 

19.1

  

19.1

   —   — 

Other debt securities

  1.3   —   1.3   — 

Total assets measured on a recurring basis at fair value

 $573.7  $219.2  $354.5  $— 

101

Fair value of assets measured on a non-recurring basis as of December 31, 2016:

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Mortgage servicing rights

 $6.2  $—  $—  $6.2 

Impaired loans and leases

  14.3   —   —   14.3 

OREO

  1.0   —   —   1.0 

Total assets measured at fair value on a non-recurring basis

 $21.5  $—  $—  $21.5 

For the twelve months ended December 31, 2017, a net increase of $175 thousand in the Allowance was recorded and for the twelve months ended December 31, 2016, a net decrease of $607 thousand in the Allowance was recorded as a result of adjusting the carrying value and estimated fair value of the impaired loans in the above tables. As it relates to the fair values of assets measured on a recurring basis, there have been no transfers between levels during the twelve months ended December 31, 2017.

Note 16- 401(K) Plan and Other Defined Contribution Plans

The Corporation has a qualified defined contribution plan (the “401(K) Plan”) for all eligible employees, under which the Corporation matches employee contributions up to a maximum of 3.0% of the employee’s base salary. The Corporation recognized expense for matching contributions to the 401(K) Plan of $1.2 million, $1.0 million, and $920 thousand for the twelve months ended December 31, 2017, 2016 and 2015, respectively.

In addition to the matching contribution above, the Corporation provides a discretionary, non-matching employer contribution to the 401(K) Plan. The Corporation recognized expense for the non-matching discretionary contributions of $489 thousand, $126 thousand, and $1.3 million for the twelve months ended December 31, 2017, 2016 and 2015, respectively. In connection with the December 31, 2015 settlement of the Qualified Defined Benefit Plan, $2.3 million of excess assets were transferred to the Corporation’s 401(K) plan. As a result, the expense recorded for the non-matching discretionary contribution for the twelve months ended December 31, 2015 was significantly higher, as compared to the succeeding two years.

On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “EDCP”), a non-qualified defined-contribution plan which was restricted to certain senior officers of the Corporation. The intended purpose of the EDCP is to provide deferred compensation to a select group of employees. The Corporation recognized expense for contributions to the EDCP of $238 thousand, $272 thousand, and $164 thousand for the twelve months ended December 31, 2017, 2016 and 2015, respectively.

Note 17- Pension and Postretirement Benefit Plans

A. General Overview – Prior to December 31, 2015, theThe Corporation had three defined-benefit pension plans comprised of a qualified defined benefit plan (the “QDBP”) which covered all employees over age 201/sponsors 2 who met certain service requirements, and two non-qualified defined-benefit supplemental executive retirement plans (“SERP I” and “SERP II”) which are restricted to certain senior officers of the Corporation.

On May 29, 2015, by unanimous consent, the Board of Directors of the Corporation voted to settle the QDBP. On June 2, 2015, notices were sent to participants informing them of the settlement. Final distributions to participants were completed by December 31, 2015. As a result of the settlement of the QDBP, a loss on pension settlement of $17.4 million was recorded for the twelve months ended December 31, 2015.

SERP I provides each participant with the equivalent pension benefit provided by the QDBP on any compensation and bonus deferrals that exceed the IRS limit applicable to the QDBP.

On February12,2008, the Corporation amended the QDBP and SERP I to freeze further increases in the defined benefit amounts to all participants, effective March 31,2008.

OnApril 1,2008, the Corporation added SERP II, a non-qualified defined benefit plan which was restricted to certain senior officers of the Corporation. Effective March 31, 2013, the Corporation curtailed SERP II, as further increases to the defined benefit amounts to over 20% of the participants were frozen.

The Corporation also has a postretirement benefit plan (“PRBP”) that covers certain retired employees and a group of current employees.

Effective March 31, 2008, the Corporation amended SERP I to freeze further increases in the defined benefit amounts to all participants. Effective March 31, 2013, the Corporation curtailed SERP II, as further increases to the defined benefit amounts to over 20% of the participants were frozen. The PRBP was closed to new participants in 1994. In 2007, the Corporation amended the PRBP to allow for settlement of obligations to certain current and retired employees. Certain retired participant obligations were settled in 2007 and current employee obligations were settled in 2008.

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TheThe following table provides information with respect to our QDBP, SERP and PRBP, including benefit obligations and funded status, net periodic pension costs, plan assets, cash flows, amortization information and other accounting items.


B. Actuarial Assumptions used to determine benefit obligations as ofDecember 31 of the years indicated:

indicated:

QDBP

SERP I and SERP II

PRBP

2017

2016

2017

2016

2017

2016

Discount rate

N/AN/A3.30

%

3.75

%

2.75

%

2.80

%

Rate of increase for future compensation

N/AN/AN/AN/AN/AN/A

Expected long-term rate of return on plan assets

N/AN/AN/AN/AN/AN/A
 SERP I and SERP II PRBP
 2019 2018 2019 2018
Discount rate2.80% 3.95% 2.20% 3.45%
Rate of increase for future compensationN/A
 N/A
 N/A
 N/A
Expected long-term rate of return on plan assetsN/A
 N/A
 N/A
 N/A



C. Changes in Benefit Obligations and Plan Assets:

  

QDBP

  

SERP I & SERP II

  

PRBP

 

(dollars in thousands)

 

2017

  

2016

  

2017

  

2016

  

2017

  

2016

 

Change in benefit obligations

                        

Benefit obligation at January 1

 $—  $169  $4,786  $4,830  $418  $493 

Service cost

  —   —   —   —   —   — 

Interest cost

  —   —   176   184   11   17 

Plan participants contribution

  —   —   —   —   44   49 

Actuarial loss (gain)

  —   —   282   32   (9

)

  (6

)

Settlements

  —   —   —   —   —   — 

Benefits paid

  —   (169

)

  (261

)

  (260

)

  (111

)

  (135

)

Benefit obligation at December 31

 $—  $—  $4,983  $4,786  $353  $418 

Change in plan assets

                        

Fair value of plan assets at January 1

 $—  $169  $—  $—  $—  $— 

Actual return on plan assets

  —   —   —   —   —   — 

Settlements

  —   —   —   —   —   — 

Excess assets transferred to defined contribution plan

  —   —   —   —   —   — 

Employer contribution

  —   —   261   260   67   86 

Plan participants’ contribution

  —   —   —   —   44   49 

Benefits paid

  —   (169

)

  (261

)

  (260

)

  (111

)

  (135

)

Fair value of plan assets at December 31

 $—  $—  $—  $—  $—  $— 

Funded status at year end (plan assets less benefit obligations)

 $—  $—  $(4,983

)

 $(4,786

)

 $(353

)

 $(418

)

  

For the Twelve Months Ended December 31,

 
  QDBP  SERP I & SERP II  PRBP 
Amounts included in the Consolidated Balance Sheet as Other assets (liabilities) and accumulated other comprehensive income including the following: 

2017

  

2016

  

2017

  

2016

  

2017

  

2016

 

Prepaid benefit cost/(accrued liability)

 $—  $—  $(3,221

)

 $(3,248

)

 $(149

)

 $(170

)

Net actuarial loss

  —   —   (1,762

)

  (1,539

)

  (204

)

  (248

)

Prior service cost

  —   —   —   —   —   — 

Unrecognized net initial obligation

  —   —   —   —   —   — 

Net included in Other liabilities in the Consolidated Balance Sheets

 $—  $—  $(4,983

)

 $(4,787

)

 $(353

)

 $(418

)

103
 SERP I & SERP II PRBP
(dollars in thousands)2019 2018 2019 2018
Change in benefit obligations       
Benefit obligation at January 1$4,687
 $4,983
 $241
 $353
Service cost—
 —
 —
 —
Interest cost179
 160
 8
 9
Plan participants contribution—
 —
 38
 44
Actuarial loss (gain)595
 (180) 40
 (61)
Settlements—
 —
 —
 —
Benefits paid(303) (276) (92) (104)
Benefit obligation at December 31$5,158
 $4,687
 $235
 $241
Change in plan assets       
Fair value of plan assets at January 1$—
 $—
 $—
 $—
Actual return on plan assets—
 —
 —
 —
Settlements—
 —
 —
 —
Excess assets transferred to defined contribution plan—
 —
 —
 —
Employer contribution303
 278
 54
 60
Plan participants’ contribution—
 —
 38
 44
Benefits paid(303) (278) (92) (104)
Fair value of plan assets at December 31$—
 $—
 $—
 $—
Funded status at year end (plan assets less benefit obligations)$(5,158) $(4,687) $(235) $(241)

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 For the Year Ended December 31,
 SERP I & SERP II PRBP
Amounts included in the Consolidated Balance Sheet as Other liabilities and accumulated other comprehensive income including the following:2019 2018 2019 2018
Accrued liability$(3,112) $(3,174) $(99) $(129)
Net actuarial loss(2,046) (1,513) (136) (112)
Prior service cost—
 —
 —
 —
Unrecognized net initial obligation—
 —
 —
 —
Net included in Other liabilities in the Consolidated Balance Sheets$(5,158) $(4,687) $(235) $(241)


D. The following tables provide the components of net periodic pension costs for theperiods indicated:

periodsindicated:

QDBP Net Periodic Pension Cost

 

For the Twelve Months Ended December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

Service cost

 $—  $—  $— 

Interest cost

  —   —   1,589 

Expected return on plan assets

  —   —   (3,217

)

Amortization of prior service cost

  —   —   — 

Recognition of net actuarial loss

  —   —   1,913 

Recognition of net actuarial loss due to settlement

  —   —   17,377 

Net periodic pension cost

 $—  $—  $17,662 

SERP I and SERP II Periodic Pension Cost

 

For the Twelve Months Ended December 31,

 
SERP I and SERP II Periodic Pension CostFor the Year Ended December 31,

(dollars in thousands)

 

2017

  

2016

  

2015

 2019 2018 2017

Service cost

 $—  $—  $— $—
 $—
 $—

Interest cost

  176   184   184 179
 160
 176

Amortization of prior service cost

  —   —   — —
 —
 —

Recognition of net actuarial loss

  59   57   63 62
 70
 59

Net periodic pension cost

 $235  $241  $247 $241
 $230
 $235

PRBP Net Periodic Pension Cost

 

For the Twelve Months Ended December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

Service cost

 $—  $—  $— 

Interest cost

  11   17   18 

Amortization of prior service cost

  —   —   — 

Recognition of net actuarial loss

  36   41   37 

Net periodic pension cost

 $47  $58  $55 

For the Twelve Months Ended December 31,

Discount Rate Used in the Calculation of Periodic Pension Costs

2017

2016

2015

SERP I and SERP II

3.75

%

3.90

%

3.70

%

PRBP

2.80

%

3.90

%

3.70

%

PRBP Net Periodic Pension Cost
For the Year Ended December 31,
(dollars in thousands)2019 2018 2017
Service cost$—
 $—
 $—
Interest cost8
 9
 11
Amortization of prior service cost—
 —
 —
Recognition of net actuarial loss17
 30
 36
Net periodic pension cost$25
 $39
 $47


 For the Year Ended December 31,
Discount Rate Used in the Calculation of Periodic Pension Costs2019 2018 2017
SERP I and SERP II3.95% 3.30% 3.75%
PRBP3.45% 2.75% 2.80%

E. Plan Assets:



The PRBP, SERP I and SERP II are unfunded plans and, as such, have no related plan assets.

F. Cash Flows

The following benefit payments, which reflect expected future service, are expected to be paid over the next ten years:

(dollars in thousands)

 

SERP I & SERP II

  

PRBP

 

Fiscal year ending

        

2018

 $260  $67 

2019

 $259  $58 

2020

 $258  $51 

2021

 $255  $43 

2022

 $283  $37 
2023-2027 $1,751  $105 

104
(dollars in thousands) SERP I & SERP II PRBP
Fiscal year ending    
2020 $342
 $49
2021 339
 41
2022 335
 35
2023 342
 29
2024 349
 24
2024-2028 1,600
 62


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G. Other Pension and Post Retirement Benefit Information

In 2005, the Corporation placed a cap on the future annual benefit payable through the PRBP. This cap is equal to 120% of the 2005 annual benefit.

H. Expected Contribution to be Paid in the Next Fiscal Year

The 20182020 expected contribution for the SERP I and SERP II is $260$342 thousand.

I. Actuarial Losses

As indicated in section C of this footnote, the Corporation’sCorporation’s pension plans had cumulative actuarial losses as of December 31, 2017 2019 that will result in an increase in the Corporation’s future pension expense because such losses at each measurement date exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan assets. In accordance with GAAP, net unrecognized gains or losses that exceed that threshold are required to be amortized over the expected service period of active employees, and are included as a component of net pension cost. Amortization of these net actuarial losses has the effect of increasing the Corporation’s pension costs as shown on the table in section D of this footnote.

 

Note 18– Accumulated Other Comprehensive Loss

The following table details the components of accumulated other comprehensive (loss) income for the twelve months ended December 31, 2017, 2016 and 2015:

(dollars in thousands)

 

Net Change in

Unrealized Gains

on Available-for-

Sale Investment

Securities

  

Net Change in

Fair Value of

Derivative Used

for Cash Flow

Hedge

  

Net Change in

Unfunded

Pension Liability

  

Accumulated

Other

Comprehensive

Loss

 

Balance, December 31, 2014

 $1,316  $(25

)

 $(12,995

)

 $(11,704

)

Other comprehensive (loss) income

  (542

)

  25   11,809   11,292 

Balance, December 31, 2015

 $774  $—  $(1,186

)

 $(412

)

                 

Balance, December 31, 2015

 $774  $—  $(1,186

)

 $(412

)

Other comprehensive (loss) income  (2,005

)

  —   8   (1,997

)

Balance, December 31, 2016

 $(1,231

)

 $—  $(1,178

)

 $(2,409

)

                 

Balance, December 31, 2016

 $(1,231

)

 $—  $(1,178

)

 $(2,409

)

Other comprehensive (loss) income  (1,123

)

  —   (100

)

  (1,223

)

Reclassification due to the adoption of ASU No. 2018-02  (507)  —   (275)  (782)

Balance, December 31, 2017

 $(2,861

)

 $—  $(1,553

)

 $(4,414

)

105

The following tables detail the amounts reclassified from each component of accumulated other comprehensive loss for the twelve months ended December 31, 2017, 2016 and 2015:

 

 

Amount Reclassified from Accumulated Other Comprehensive Loss

 

 

Description of Accumulated Other 

For the Twelve Months Ended

December 31,

 Affected Income Statement
Comprehensive Loss Component 

2017

  

2016

  

2015

  Category

Net unrealized gain on investment securities available for sale:

             

Realization of (loss) gain on sale of investment securities available for sale

 $101  $(77

)

 $931 

Net gain (loss) on sale of available for sale investment securities

Less: income tax (expense) benefit

  (35

)

  27   (326

)

Less: income tax benefit (expense)

Net of income tax

 $66  $(50

)

 $605 

Net of income tax

              

Cash flow hedge:

             

Realized loss on cash flow hedge

 $—  $—  $(611

)

Other operating expenses

Less: income tax benefit

  —   —   214 

Less: income tax benefit

Net of income tax

 $—  $—  $(397

)

Net of income tax

Unfunded pension liability:

             

Amortization of net loss included in net periodic pension costs*

 $95  $98  $2,013 

Employee benefits

Settlement of pension plan settlement

  —   —   17,377 

Loss on pension plan settlement

Amortization of prior service cost included in net periodic pension costs*

  —   —   — 

Employee benefits

Gain on curtailment of SERP II

  —   —   — 

Net gain on curtailment of nonqualified pension plan

Total $95  $98  $19,390 

Total expense before income tax benefit

Less: income tax benefit  33   34   6,787 

Less: income tax benefit

Net of income tax $62  $64  $12,603 

Net of income tax

*Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note17 - Pension and Other Post-Retirement Benefit Plans.

106

Note 19– Income Taxes

A.Components of Net Deferred Tax Asset:

 

December 31,

 December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018

Deferred tax assets:

           

Loan and lease loss reserve

 $3,948  $6,492 $5,128
 $4,476

Other reserves

  3,169   3,611 3,619
 2,919

Net operating loss carry-forward

  11,113   471 8,107
 9,728

Alternative minimum tax credits

  1,116   567 833
 1,100

Unrealized depreciation of available for sale securities

  761   663 —
 1,656
Operating lease liabilities10,030
 —

Defined benefit plans

  1,361   2,068 1,505
 1,377

RBPI Merger Fair Values

  4,726   — 647
 2,580

Total deferred tax asset

 $26,194  $13,872 $29,869
 $23,836

Deferred tax liabilities:

           
Intangibles and other amortizing fair value adjustments$5,154
 $5,290
Originated MSRs969
 1,105
Unrealized appreciation of available for sale securities1,040
 —
Operating lease right-of-use assets8,948
 —
Deferred loan costs909
 1,105

Other reserves

 $19  $52 1,166
 535

Originated MSRs

  1,253   1,969 

Amortizing fair value adjustments

  970   1,336 

Other

  53   — 

Total deferred tax liability

 $2,295  $3,357 $18,186
 $8,035

Total net deferred tax asset

 $23,899  $10,515 $11,683
 $15,801


Not included in the table above are deferred tax assets for state net operating losses and unrealized capital losses for partnership investments and their respective valuation allowance of $211$706 thousand and $445$608 thousand. The state net operating losses of our leasing subsidiary as of December 31, 2017 2019 will expire between 2023 and 2036.

2037.

As a result of the RBPI Merger, deferred tax assets were initially increased by $33.1$33.1 million related to purchase accounting adjustments and net deferred tax assets carried over from RBPI.

During 2018, adjustments were made to the original purchase accounting adjustments that resulted in an incremental deferred tax asset of $1.1 million.





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B. The provision(benefit) for income taxes consists of the following:

 December 31, December 31,

(dollars in thousands)

 

2017

  

2016

  

2015

 2019 2018 2017

Current

 $13,812  $16,492  $12,006 $14,068
 $4,326
 $13,812

Deferred

  20,418   1,676   (2,834

)

1,539
 9,839
 20,418

Total

 $34,230  $18,168  $9,172 $15,607
 $14,165
 $34,230


C. Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as follows:

(dollars in thousands)

 

2017

  

Tax

Rate

  

2016

  

Tax

Rate

  

2015

  

Tax

Rate

 2019 
Tax
Rate
 2018 
Tax
Rate
 2017 
Tax
Rate

Computed tax expense at statutory federal rate

 $20,036   35.0

%

 $18,972   35.0

%

 $9,074   35.0

%

$15,711
 21.0 % $16,371
 21.0 % $20,036
 35.0 %

Tax-exempt income

  (600)  (1.0)  (758

)

  (1.4

)

  (622

)

  (2.4

)

(562) (0.8)% (470) (0.6)% (600) (1.0)%

State tax (net of federal tax benefit)

  303   0.5   425   0.8   299   1.2 1,045
 1.4 % 874
 1.1 % 303
 0.5 %

Non-deductible merger expense

  455   0.8   —   —   105   0.4 —
 — % —
 — % 455
 0.8 %

Excess tax benefit – stock based compensation

  (1,049)  (1.8)  (565

)

  (1.0)  —   — (144) (0.2)% (848) (1.1)% (1,049) (1.8)%

Adjustment to net deferred tax assets for enacted changes in tax laws and rates

  15,193   26.5   —   —   —   — 
Adjustment to net deferred tax assets for enacted changes in tax laws, rates and return to provision adjustments—
 — % (1,895) (2.4)% 15,193
 26.5 %

Other, net

  (108)  (0.2)  94   0.1   316   1.2 (443) (0.5)% 133
 0.2 % (108) (0.2)%

Total income tax expense

 $34,230   59.8

%

 $18,168   33.5

%

 $9,172   35.4

%

$15,607
 20.9 % $14,165
 18.2 % $34,230
 59.8 %



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D. Tax Law Changes – Impact to Tax Expense

With the enactment of the Tax Cuts and Jobs Act (“Tax Reform” or the “Tax Act”) on December 22, 2017, the federal corporate income tax rate was reduced from 35% to 21% effective January 1, 2018. The Corporation's 2017 financial results included a charge of $15.2 million to income tax expense, primarily resulting from re-measuring the Corporation's net deferred tax assets to reflect the recently enacted lower tax rate effective January 1, 2018.

During 2018, we recorded certain tax provision to tax return true-up adjustments associated with items that were finalized as part of our 2017 tax return filing. We recorded a $2.5 million tax benefit in 2018, primarily for deferred tax temporary difference items that were claimed on the 2017 tax return at a 35% federal tax rate that were recorded at December 31, 2017 as anticipating to be deducted at a 21% federal tax rate. Also during 2018, as a result of additional purchase accounting adjustments during the year, $611 thousand of such purchase accounting adjustments were charged to income tax expense as a result of reducing their original 35% tax benefit to the new 21% tax rate in effect for 2018. There are no remaining provisional items as of December 31, 2018.

Under ASC 740, Income Taxes, the effect of income tax law changeschanges on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensive income. AsThe income tax expense recognized as a result of the reduction in the U.S. federal statutory income tax rate, we recognized a net income tax expense totaling $15.2 million, determinedTax Reform is as follows:

Components of Provisional Tax Expense Related to Tax Law Changes

     Year Ended
December 31,
(dollars in thousands)     2019 2018 2017

Deferred taxes related to items recognized in continuing operations

 $14,410  $—
 $(1,895) $14,411

Deferred taxes on net actuarial loss on defined benefit post-retirement benefit plans

  275  —
 —
 275

Deferred taxes on net unrealized losses on available for sale investment securities

  507  —
 —
 507
 $15,192  
Total income tax (benefit) / expense related to Tax Reform$—
 $(1,895) $15,193



Because ASC 740 requires the effect of income tax law changes on deferred taxes to be recognized as a component of income tax expense related to continuing operations rather than backward tracing the adjustment through the accumulated other comprehensive income component of shareholders' equity, the net adjustment to deferred taxes for the year ending December

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31, 2017 detailed above included a net expense totaling $782 thousand related to items recognized in other comprehensive income.

E. Other Income Tax Information

In accordance with the provisions of ASC 740, “Accounting“Accounting for Uncertainty in Income Taxes”, management recognizes the financial statement benefit of a tax position only after determining that the Corporation would more likely than not sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. Management applied these criteria to tax positions for which the statute of limitations remained open.

There were no0 reserves for uncertain tax positions recorded during the twelve monthsyears ended December 31, 2017, 20162019, 2018 or 2015.

2017.

The CorporationCorporation is subject to income taxes in the U.S. federal jurisdiction, and in multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by tax authorities for the years before 2014.

2016.

The Corporation’sCorporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued in 2017.

2019.

As of December 31, 2017,2019, the Corporation has net operating loss (“NOL”) carry-forwards for federal income tax purposes of $52.9$38.6 million, all of which approximately $40 thousand was relatedrelate to the 2010 merger with First Keystone Financial, Inc. (“FKF”) and is available to offset future federal taxable income through 2030. The remaining $52.9 million of federal net operating loss carry-forwards are a result of the RBPI Merger which are subject to an annual usage limitation of approximately $2.7 million. Management estimates it will be able to utilize an additional $6.0$5.0 million per year of the NOLs acquired in the RBPI Merger for a five-year period subsequent to December 15, 2017 due to the existence of net unrealized built-in gains (“NUBIG”) under IRC Section 382, these NOLs will begin to expire in 2030. In addition, the Corporation has alternative minimum tax (“AMT”) credits of $1.1 million,$833 thousand, approximately $548$532 thousand of which are related to the RBPI Merger. The credit amounts do not expire. The amount of AMT credits that can be used per year are limited under IRC section 383. The Corporation has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to these amounts.

As a result of the July 1, 2010 merger with FKF, the Corporation succeeded to $2.5 million of tax bad debt reserves that existed at FKF as of June 30, 2010. As of December 31, 2017,2019, the Corporation hashas not recognized a deferred income tax liability with respect to these reserves. These reserves could be recognized as taxable income and create a current and/or deferred tax liability at the income tax rates then in effect if one of the following conditions occurs: (1) the Bank’s retained earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose other than to absorb losses from bad debts; (2) the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or (3) there is a change in federal tax law.


Note 18 – Accumulated Other Comprehensive Income (Loss)

The following table details the components of accumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017:
108
(dollars in thousands)Net Change in Unrealized Gains on Available for Sale Investment Securities Net Change in Unfunded Pension Liability Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2016$(1,231) $(1,178) $(2,409)
Other comprehensive (loss)(1,123) (100) (1,223)
Reclassification due to the adoption of ASU No. 2018-02(507) (275) (782)
Balance, December 31, 2017(2,861) (1,553) (4,414)
Other comprehensive (loss) income(3,368) 269
 (3,099)
Balance, December 31, 2018(6,229) (1,284) (7,513)
Other comprehensive income (loss)10,139
 (439) 9,700
Balance, December 31, 2019$3,910
 $(1,723) $2,187



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The following tables detail the amounts reclassified from each component of accumulated other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017:

 

  Amount Reclassified from Accumulated Other Comprehensive Income (Loss)  
Description of Accumulated Other
Comprehensive Income (Loss) Component
 For the Year Ended
December 31,		 Affected Income Statement Category
(dollars in thousands) 2019 2018 2017  
Net unrealized gain on investment securities available for sale:        
Realization of gain on sale of investment securities available for sale $—
 $(7) $(101) Net gain on sale of investment securities available for sale
Realization of gain on transfer of investment securities available for sale to trading —
 (417) —
 Other operating income
Total $—
 $(424) $(101)  
Income tax effect —
 89
 35
 Income tax expense
Net of income tax $—
 $(335) $(66) Net income
         
Unfunded pension liability:        
Amortization of net loss included in net periodic pension costs(1)
 $79
 $100
 $95
 Other operating expenses
Income tax effect (17) (21) (33) Income tax expense
Net of income tax $62
 $79
 $62
 Net income


(1) Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 2016, “Pension and Postretirement Benefit Plans,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Note 19 - Earnings per Common Share
The calculation of basic earnings per share and diluted earnings per share is presented below:
 Year Ended December 31,
(dollars in thousands, except share and per share data)2019 2018 2017
Numerator:     
Net income available to common shareholders$59,206
 $63,792
 $23,016
Denominator for basic earnings per share – Weighted average shares outstanding(1)
20,142,306
 20,234,792
 17,150,125
Effect of dilutive potential common shares91,065
 155,375
 248,798
Denominator for diluted earnings per share – Adjusted weighted average shares outstanding
20,233,371
 20,390,167
 17,398,923
Basic earnings per share$2.94
 $3.15
 $1.34
Diluted earnings per share2.93
 3.13
 1.32
Antidilutive shares excluded from computation of average dilutive earnings per share3,671
 19,422
 27,159


(1) Excludes restricted stock.
All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and splits. See Section R, “Earnings per Common Share” of Note 1, “Summary of Significant Accounting Policies,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion on the calculation of earnings per share.


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Note 20 -Revenue from Contracts with Customers
All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following table presents the Corporation’s noninterest income by revenue stream and reportable segment for the years ended December 31, 2019 and 2018 and 2017, respectively. Items outside the scope of ASC 606 are noted as such.
 For the Year Ended December 31,
 2019 2018 2017
(dollars in thousands)Banking Wealth
Management		 Consolidated Banking Wealth
Management		 Consolidated Banking Wealth
Management		 Consolidated
Fees for wealth management services$—
 $44,400
 $44,400
 $—
 $42,326
 $42,326
 $—
 $38,735
 $38,735
Insurance commissions—
 6,877
 6,877
 —
 6,808
 6,808
 —
 4,589
 4,589
Capital markets revenue(1)
11,276
 —
 11,276
 4,848
 —
 4,848
 2,396
 —
 2,396
Service charges on deposit accounts3,374
 —
 3,374
 2,989
 —
 2,989
 2,608
 —
 2,608
Loan servicing and other fees(1)
2,206
 —
 2,206
 2,259
 —
 2,259
 2,106
 —
 2,106
Net gain on sale of loans(1)
2,342
 —
 2,342
 3,283
 —
 3,283
 2,441
 —
 2,441
Net gain on sale of investment securities available for sale(1)
—
 —
 —
 7
 —
 7
 101
 —
 101
Net (loss) gain on sale of OREO(84) —
 (84) 295
 —
 295
 (104) —
 (104)
Dividends on FHLB and FRB stock(1)
1,505
 —
 1,505
 1,621
 —
 1,621
 939
 —
 939
Other operating income(2)
10,182
 106
 10,288
 11,360
 186
 11,546
 5,124
 197
 5,321
Total noninterest income$30,801
 $51,383
 $82,184
 $26,662
 $49,320
 $75,982
 $15,611
 $43,521
 $59,132
(1) Not within the scope of ASC 606.
(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling $2.2 million, $2.2 million and $2.0 million for the years ended December 31, 2019 and 2018 and 2017, respectively, which are within the scope of ASC 606.
A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:
Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Wealth Management Fees: The Corporation earns wealth management fee revenue from a variety of sources including fees from trust administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage.
Fees that are determined based on the market value of the assets held in their accounts are generally billed monthly, in arrears, based on the market value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date.

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Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.
Insurance Commissions: The Corporation earns commissions from the sale of insurance policies, which are generally calculated as a percentage of the policy premium, and contingent income, which is calculated based on the volume and performance of the policies held by each carrier. Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point in time in which the amounts are knownand collection is reasonably assured. Performance metrics for contingent income are generally satisfied over time, not exceeding one year, and are recognized at the point in time in which the amounts are known and collection is reasonably assured.

Visa Debit Card Income: The Corporation earns income fees from debit cardholder transactions conducted through the Visa payment network. Fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

Note 21 - Stock–Based Compensation

A. General Information

The Corporation

BMBC permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation rights and restricted stock units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is identical. The terms and conditions of awards under the plans are determined by the Corporation’s Management Development and Compensation Committee.

Prior to April 25, 2007, all shares authorizedauthorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the shareholders approved the Corporation’sBMBC’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’sBMBC’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’sBMBC’s “2010 Long Term Incentive Plan” under which a total of 445,002 shares of the Corporation’sBMBC’s common stock were made available for award grants, and on April 30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010 LTIP”) to, among other things, increase the number of shares available for award grants by 500,000 to 945,002.

In addition to thethe shareholder-approved plans mentioned in the preceding paragraph, the CorporationBMBC periodically authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)(4) of the Nasdaq listing rules.

The equity awards are authorized to be in the form of, among others, options to purchase the Corporation’sBMBC’s common stock, time-based restricted stock awards or units (“RSAs” or “RSUs”RSUs”) and performanceperformance-based restricted stock awards or units (“PSAs” or “PSUs”PSUs”).

RSAs and

RSUs have a restriction based on the passage of time. The grant date fair value of the RSAs and RSUs is based on the closing price on the date of the grant.

PSAs and

PSUs have a restriction based on the passage of time and alsoalso have a restriction based on a performance criteria. The performance criteria may be a market-based criteria measured by the Corporation’sBMBC’s total shareholder return (“TSR”) relative to the performance of the community bank index for the respective period. The fair value of the PSAs and PSUs based on the Corporation’sBMBC’s TSR relative to the performance of a designated peer group or the NASDAQ Community Bank Index is calculated using the Monte Carlo Simulation method. The performance criteria may also be based on a non-market-based criteria such as return on average equity relative to that designated peer group. The grant date fair value of these PSUs and PSAs is based on the closing price of the Corporation’sBMBC’s stock on the date of the grant. PSU and PSA grants may have a vesting percent ranging from 0% to 150%.







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The following table summarizes the remaining shares authorized to be granted under the 2010 LTIP:

 

Shares

Authorized for

Grant

Balance, December 31, 2014

2016		552,959182,843

Shares authorized for grant under shareholder approved plans

500,000

Grants of RSUs

(40,137(24,514

)

Grants of PSUs

(41,323(92,474

)

Expiration of unexercised options

2503,180

Non-vesting PSAs*

PSUs(1)
—25,929

Forfeitures of PSAs and PSUs

3,89922,801

Forfeitures of RSUs

4,305
Balance, December 31, 2015

2017		479,953617,765

Grants of RSUs

(38,806(33,142

)

Grants of PSUs

(40,722(45,346

)

Expiration of unexercised options

——

Non-vesting PSUs*

PSUs(1)
—10,088

Forfeitures of PSUs

5,6792,344

Forfeitures of RSUs

1,5151,250

Balance, December 31, 2016

2018		407,619552,959

Grants of RSUs

(71,716(40,137

)

Grants of PSUs

(72,273(41,323

)

Expiration of unexercised options

—250

Non-vesting PSUs*

PSUs(1)
12,689—

PSUs added by performance factor(2)
(3,688)
Forfeitures of PSUs

17,1503,899

Forfeitures of RSUs

9,4614,305

Balance, December 31, 2017

2019		299,242479,953

*


(1) Non-vesting PSAs and PSUsrepresent awardsPSUsthat did not meet their performance criteria,, were cancelled and are available for future grant.


109
Table(2) PSUs added by performance factor represent additional PSUs that vested as a result of Contentsperformance factor exceeding the target performance at which they were granted.

B. Fair Value of Options Granted

In connection with the CBH Merger, 181,256 fully vested options, with a value of $2.3 million which had been granted to former CBH employees and directors, were assumed by the Corporation.

No other

NaN stock options were granted or assumed during the twelve-month periodsyears ended December 31, 2017, 20162019, 2018 and 2015.

2017.

C. Other Stock Option Information –

The following table provides information about options outstanding:

 

For the Twelve Months Ended December 31,

 
 

2017

  

2016

  

2015

 For the Year Ended December 31,
 

Shares

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Grant Date

Fair Value

  

Shares

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Grant Date

Fair Value

  

Shares

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Grant Date

Fair Value

 2019  2018  2017
                           Shares
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
  Shares
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
  Shares
Weighted
Average
Exercise
Price
Weighted
Average
Grant Date
Fair Value
Options outstanding, beginning of period  185,023  $21.04  $4.88   290,853  $20.88  $4.85   447,966  $20.94  $4.75 50,601
$18.28
$4.68
  115,246
$20.73
$4.86
  185,023
$21.04
$4.88

Assumed in the CBH Merger

  —  $—  $—   —  $—  $—   181,256  $17.73  $— 

Expired

  (250

)

 $22.00  $4.90   —  $—  $—   (3,180

)

 $21.33  $4.84 —
—
—
  —
—
—
  (250)22.00
4.90

Exercised

  (69,527

)

 $21.55  $4.91   (105,830

)

 $20.61  $7.32   (335,189

)

 $19.25  $4.62 (49,700)18.26
4.46
  (64,645)22.65
5.00
  (69,527)21.55
4.91

Options outstanding, end of period

  115,246  $20.73  $4.86   185,023  $21.04  $4.88   290,853  $20.88  $4.85 901
19.33
16.78
  50,601
18.28
4.68
  115,246
20.73
4.86



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The following table provides information related to options as of December 31, 2017:

2019: 

Range of Exercise

Prices

 

Options

Outstanding

and Exercisable

  

Remaining

Contractual

Life (in years)

  

Weighted

Average

Exercise

Price*

 

$10.36

to$17.15  1,383   1.21  $12.58 

$17.16

to$18.30  65,050   1.64   18.27 

$18.31

to$21.30  563   6.05   18.33 

$21.31

to$24.27  48,250   0.63   24.27 
Total Outstanding and Exercisable  115,246         
Range of Exercise
Prices
 
Options
Outstanding
and Exercisable
 
Remaining
Contractual
Life (in years)
 
Weighted
Average
Exercise
Price(1)
$16.02
to$17.17
 338
 0.07 $16.02
17.18
to18.33
 563
 4.05 18.33
Total Outstanding and Exercisable 901
    

*


(1) Price of exercisable options

options.

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For the years ended December 31, 2017, 2016,2019, 2018 and 20152017 there are no0 unvested options:

options.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:

 

For the Twelve Months Ended December 31,

 Year Ended December 31,

(dollars in thousands)

 

2017

  

2016

  

2015

 2019 2018 2017

Proceeds from strike price of value of options exercised

 $1,498  $2,181  $6,452 $907
 $1,464
 $1,498

Related tax benefit recognized

  506   256   515 212
 312
 506

Proceeds of options exercised

 $2,004  $2,437  $6,967 $1,119
 $1,776
 $2,004

Intrinsic value of options exercised

 $1,445  $1,125  $3,615 $1,010
 $1,512
 $1,445


The following table provides information about options outstanding and exercisable options:

 

As of December 31,

 
 

2017

  

2016

  

2015

 
 

Options

Outstanding

  

Exercisable

Options

  

Options

Outstanding

  

Exercisable

Options

  

Options

Outstanding

  

Exercisable

Options

 As of December 31,
2019  2018  2017
(dollars in thousands, except share data and exercise price)
Options
Outstanding
Exercisable
Options
  
Options
Outstanding
Exercisable
Options
  
Options
Outstanding
Exercisable
Options

Number

  115,246   115,246   185,023   185,023   290,853   290,853 901
901
  50,601
50,601
  115,246
115,246

Weighted average exercise price

 $20.73  $20.73  $21.03  $21.03  $20.88  $20.88 $19.33
$19.33
  $18.28
$18.28
  $20.73
$20.73

Aggregate intrinsic value

 $2,704,824  $2,704,824  $3,907,758  $3,907,758  $2,280,288  $2,280,288 $20
$20
  $1,478
$1,478
  $2,705
$2,705

Weighted average contractual term

  1.2 yrs   1.2 yrs   2.0 yrs   2.0 yrs   2.9 yrs   2.9 yrs 2.6 years
2.6 years
  0.7 years
0.7 years
  1.2 years
1.2 years


As of December 31, 2017, 2019, all compensation expense related to stock options has been recognized.

D. Restricted StockRSUs and Performance Stock Awards and Units

The CorporationPSUs

BMBC has granted RSAs, RSUs PSAs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with Rule 5635(c)(4)5635(c)(4) of the Nasdaq listing standards.

RSAs and

RSUs

The compensation

Compensation expense for the RSAsRSUs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight-line basis over the vesting period.


For the twelve monthsyear ended December 31, 2017, 2019, the Corporation recognized $752 thousand$1.8 million of expense related to the Corporation’s RSAs andBMBC’s RSUs. As of December 31, 2017, 2019, there was $2.0$2.8 million of unrecognized compensation cost related to RSAs and RSUs. This cost will be recognized over a weighted average period of 2.32.1 years.


During the first quarter of 2019, the Corporation adopted a voluntary Years of Service Incentive Program (the "Incentive Program") which offered certain benefits to eligible employees who met the Incentive Program requirements and voluntarily exited from service with the Corporation during 2019. As part of the Incentive Program, the Corporation elected to waive the service requirement as an RSU vesting condition for employees who held RSUs and chose to participate in the Incentive
111
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Program. As a result, 3,494 RSUs were modified which resulted in $112 thousand of incremental expense recognized during the three months ended March 31, 2019.

The following table details the RSAs and RSUs for the twelve-month periodsyears ended December 31, 2017, 20162019, 2018 and 2015:

2017:
Year Ended December 31,
 

Twelve Months Ended

December 31, 2017

  

Twelve Months Ended

December 31, 2016

  

Twelve Months Ended

December 31, 2015

 2019 2018 2017
 

Number of

Shares

  

Weighted

Average

Grant Date

Fair Value

  

Number of

Shares

  

Weighted

Average

Grant Date

Fair Value

  

Number of

Shares

  

Weighted

Average

Grant Date

Fair Value

 Number of SharesWeighted
Average
Grant Date
Fair Value		 Number of SharesWeighted
Average
Grant Date
Fair Value		 Number of SharesWeighted
Average
Grant Date
Fair Value

Beginning balance

  58,862  $29.57   42,802  $28.58   46,281  $23.17 76,746
$39.71
 75,707
$35.80
 58,862
$29.57

Granted

  40,137  $41.23   33,142  $29.67   24,514  $29.83 71,716
36.28
 38,806
42.23
 40,137
41.23

Vested

  (18,987

)

 $29.40   (15,832

)

 $27.14   (27,993

)

 $20.73 (23,535)34.66
 (36,252)34.38
 (18,987)29.40

Forfeited

  (4,305

)

 $29.54   (1,250

)

 $29.12   —  $— (9,461)40.23
 (1,515)36.52
 (4,305)29.54

Ending balance

  75,707  $35.80   58,862  $29.57   42,802  $28.58 115,466
38.57
 76,746
39.71
 75,707
35.80

PSAs and

PSUs

The compensation

Compensation expense for PSAs and PSUs is measured based on their grant date fair value as calculated using the Monte Carlo Simulation and is recognized on a straight-line basis over the vesting period. The grant date fair value of each grant was determined independently using the Monte Carlo Simulation. Assumptions used in the Monte Carlo Simulation for the grantgrants of 21,33014,834 PSUs in February 2019 and 11,631 PSUs in May 2019, whose performance is based on TSR, in August 2017, included expected volatilityvolatilities of 20.91%20.60% and 21.28% and a risk-free rate of interest of 1.43%.

2.46% and 2.31%, respectively.

The Corporation recognized $1.3$1.9 million of expense related to the PSUs for the twelve monthsyear ended December 31, 2017. 2019. As of December 31, 2017, 2019, there was $2.5$2.5 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 1.8 years.


As part of the Incentive Program, the Corporation elected to waive the service requirement as a PSU vesting condition for employees who held PSUs and chose to participate in the Incentive Program. As a result, 8,208 PSUs were modified which resulted in $250 thousand of incremental expense recognized during the three months ended March 31, 2019.
The following table details the PSAs and PSUs for the twelve-month periods ending years ended December 31, 2017, 20162019, 2018 and 2015:

2017:
Year Ended December 31,
 

Twelve Months Ended

December 31, 2017

  

Twelve Months Ended

December 31, 2016

  

Twelve Months Ended

December 31, 2015

 2019 2018 2017
 

Number of Shares

  

Weighted

Average

Grant Date

Fair Value

  

Number

of

Shares

  

Weighted

Average

Grant Date

Fair Value

  

Number

of

Shares

  

Weighted

Average

Grant Date

Fair Value

 Number of SharesWeighted
Average
Grant Date
Fair Value		 Number of SharesWeighted
Average
Grant Date
Fair Value		 Number of SharesWeighted
Average
Grant Date
Fair Value

Beginning balance

  192,844  $18.77   216,820  $15.07   217,318  $13.41 121,656
$36.82
 168,453
$24.76
 192,844
$18.77

Granted

  41,323  $37.86   45,346  $28.34   92,474  $16.42 72,273
34.26
 40,722
44.56
 41,323
37.86

Vested

  (61,815

)

 $15.05   (56,890

)

 $13.38   (44,242

)

 $11.80 

Non-vesting*

  —  $—   (10,088

)

 $13.38   (25,929) $11.80 
Vested(1)
(31,507)29.38
 (81,840)16.40
 (61,815)15.05
Added by performance factor3,688
30.45
 —
—
 —
—
Non-vesting(2)
(12,689)27.13
 —
—
 —
—

Forfeited

  (3,899

)

 $21.45   (2,344

)

 $15.37   (22,801

)

 $14.75 (17,150)37.15
 (5,679)28.79
 (3,899)21.45

Ending balance

  168,453  $24.76   192,844  $18.77   216,820  $15.07 136,271
37.87
 121,656
36.82
 168,453
24.76

*


(1) Includes an aggregate of 39 shares paid in cash in lieu of fractional shares for the year ended December 31, 2019 .

(2) Non-vesting PSAs PSUsrepresent PSAs PSUsthat did not meet their performance criteria, were cancelled and were therefore cancelled. The associated expense, however, was incurred over the vesting period.

are available for future grant.





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Note 22 - 401(K) Plan and Other Defined Contribution Plans


The Corporation has a qualified defined contribution plan (the “401(K) Plan”) for all eligible employees, under which the Corporation matches employee contributions up to a maximum of 3.0% of the employee’s base salary. The Corporation recognized expense for matching contributions to the 401(K) Plan of $1.4 million, $1.4 million, and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In addition to the matching contribution above, the Corporation provides a discretionary, non-matching employer contribution to the 401(K) Plan. The Corporation recognized expense for the non-matching discretionary contributions of $1.8 million, $1.5 million, and $489 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.

On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “EDCP”), a non-qualified defined-contribution plan which was restricted to certain senior officers of the Corporation. The intended purpose of the EDCP is to provide deferred compensation to a select group of employees. The Corporation recognized expense for contributions to the EDCP of $298 thousand, $441 thousand, and $238 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.

Note 23 - Fair Value Measurement
 

Note 21- Earnings per Share

The calculationFASB ASC 820, “Fair Value Measurement” establishes a fair value hierarchy based on the nature of basic earnings per sharedata inputs for fair value determinations, under which the Corporation is required to value each asset using assumptions that market participants would utilize to value that asset. When the Corporation uses its own assumptions, it is required to disclose additional information about the assumptions used and diluted earnings per share is presented below:

(dollars in thousands,

 

Year Ended December 31,

 
except per share data) 

2017

  

2016

  

2015

 
             

Numerator - Net income available to common shareholders

 $23,016  $36,036  $16,754 

Denominator for basic earnings per share – Weighted average shares outstanding*

  17,150,125   16,859,623   17,488,325 

Effect of dilutive potential common shares

  248,798   168,499   267,996 

Denominator for diluted earnings per share – Adjusted weighted average shares outstanding

  17,398,923   17,028,122   17,756,321 

Basic earnings per share

 $1.34  $2.14  $0.96 

Diluted earnings per share

 $1.32  $2.12  $0.94 

Antidilutive shares excluded from computation of average dilutive earnings per share

  27,159   —   — 

*Excludes restricted stock

All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividendsthe measurement on earnings or the net change in assets for the period.

The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government and splits.its agencies, mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies, obligations of state and political subdivisions, corporate bonds, other debt securities, as well as bond mutual funds are determined by the Corporation, including the use of an independent third party. Management performs tests to assess the validity of these third-party values. The third party’s evaluations are based on market data. They utilize pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bid, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

U.S. Government agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage-backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available for sale investments are evaluated using a broker-quote based application, including quotes from issuers.
The value of the investment portfolio is determined using three broad levels of inputs:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant value drivers are unobservable.
These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets at December 31, 2019 and 2018 that are recognized on the Corporation’s Consolidated Balance Sheets using fair value measurement determined based on the differing levels of input.





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Fair value of assets measured on a recurring basis as of December 31, 2019:
(dollars in thousands)Total Level 1 Level 2 Level 3
Investment securities available for sale:               
              
              
U.S. Treasury securities$500,101
 $500,101
 $—
 $—
Obligations of U.S. government & agencies102,020
 —
 102,020
 —
Obligations of state & political subdivisions5,379
 —
 5,379
 —
Mortgage-backed securities366,002
 —
 366,002
 —
Collateralized mortgage obligations31,832
 —
 31,832
 —
Other investment securities650
 —
 650
 —
Total investment securities available for sale$1,005,984
 $500,101
 $505,883
 $—
        
Investment securities trading:       
Mutual funds$8,621
 $8,621
 $—
 $—
        
Derivatives:       
Interest rate swaps47,627
 —
 47,627
 —
RPAs purchased90
 —
 90
 —
Total Derivatives$47,717
 $—
 $47,717
 $—
        
Total assets measured on a recurring basis at fair value$1,062,322
 $508,722
 $553,600
 $—

Fair value of assets measured on a non-recurring basis as of December 31, 2019:
(dollars in thousands)Total Level 1 Level 2 Level 3
Mortgage servicing rights$4,838
 $—
 $—
 $4,838
Impaired loans and leases15,311
 —
 —
 15,311
Total assets measured at fair value on a non-recurring basis$20,149
 $—
 $—
 $20,149

Fair value of assets measured on a recurring basis as of December 31, 2018: 
(dollars in thousands)Total Level 1 Level 2 Level 3
Investment securities available for sale:       
U.S. Treasury securities$200,013
 $200,013
 $—
 $—
Obligations of U.S. government & agencies195,855
 —
 195,855
 —
Obligations of state & political subdivisions11,332
 —
 11,332
 —
Mortgage-backed securities289,890
 —
 289,890
 —
Collateralized mortgage obligations39,252
 —
 39,252
 —
Other investment securities1,100
 —
 1,100
 —
Total investment securities available for sale$737,442
 $200,013
 $537,429
 $—
        
Investment securities trading:       
Mutual funds$7,502
 $7,502
 $—
 $—
        
Derivatives:       
Interest rate swaps12,550
 —
 12,550
 —
RPAs purchased71
 —
 71
  
Total derivatives$12,621
 $—
 $12,621
 $—
        
     Total recurring fair value measurements$757,565
 $207,515
 $550,050
 $—




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Fair value of assets measured on a non-recurring basis as of December 31, 2018: 
(dollars in thousands)Total Level 1 Level 2 Level 3
Mortgage servicing rights$6,277
 $—
 $—
 $6,277
Impaired loans and leases22,112
 —
 —
 22,112
OREO417
 —
 —
 417
Total assets measured at fair value on a non-recurring basis$28,806
 $—
 $—
 $28,806

For the year ended December 31, 2019, a net decrease of $44 thousand in the Allowance was recorded, and for the year ended December 31, 2018, a net increase of $204 thousand in the Allowance was recorded as a result of adjusting the carrying value and estimated fair value of the impaired loans in the above tables. As it relates to the fair values of assets measured on a recurring basis, there have been no transfers between levels during the year ended December 31, 2019. 

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Note 24 – Disclosure about Fair Value of Financial Instruments
FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies based on the exit price notion. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.
The carrying amount and fair value of the Corporation’s financial instruments are as follows:
  As of December 31,
  2019 2018
(dollars in thousands)
Fair Value
Hierarchy
Level(1)
Carrying
Amount		 Fair Value Carrying
Amount		 Fair Value
Financial assets:        
Cash and cash equivalentsLevel 1$53,931
 $53,931
 $48,456
 $48,456
Investment securities - available for saleSee Note 231,005,984
 1,005,984
 737,442
 737,442
Investment securities - tradingSee Note 238,621
 8,621
 7,502
 7,502
Investment securities – held to maturityLevel 212,577
 12,661
 8,684
 8,438
Loans held for saleLevel 24,249
 4,249
 1,749
 1,749
Net portfolio loans and leasesLevel 33,666,711
 3,596,268
 3,407,728
 3,414,921
Mortgage servicing rightsLevel 34,450
 4,838
 5,047
 6,277
Interest rate swapsLevel 247,627
 47,627
 12,550
 12,550
Risk participation agreements purchasedLevel 290
 90
 71
 71
Other assetsLevel 352,908
 52,908
 43,641
 43,641
Total financial assets $4,857,148
 $4,787,177
 $4,272,870
 $4,281,047
Financial liabilities:        
DepositsLevel 2$3,842,245
 $3,842,014
 $3,599,087
 $3,594,123
Short-term borrowingsLevel 2493,219
 493,219
 252,367
 252,367
Long-term FHLB advancesLevel 252,269
 52,380
 55,374
 54,803
Subordinated notesLevel 298,705
 97,199
 98,526
 100,120
Junior subordinated debenturesLevel 221,753
 25,652
 21,580
 31,176
Interest rate swapsLevel 247,627
 47,627
 12,549
 12,549
Risk participation agreements soldLevel 216
 16
 2
 2
Other liabilitiesLevel 350,251
 50,251
 60,847
 60,847
Total financial liabilities $4,606,085
 $4,608,358
 $4,100,332
 $4,105,987


(1) See Note 1-Q – “Summary of Significant Accounting Policies: Earnings per Common Share”23, “Fair Value Measurement,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion on the calculationdescription of earnings per share.

hierarchy levels.

 

Note 22– Related Party Transactions

In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. The outstanding balances of loans, including undrawn commitments to lend, to such related parties at December 31,2017 and 2016 were $8.1 million and $11.7 million, respectively.

Related party deposits amounted to $4.8 million and $6.0 million at December 31, 2017 and 2016, respectively.

Note 2325 - Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk

Off-Balance Sheet Risk

The Corporation is a party to financial instruments with off-balanceoff-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in

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the consolidated statements of financial condition. The contractual amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation’sCorporation’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument of commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments.

Commitments to extend credit, which include unused lines of credit and unfunded commitments to originate loans, are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Some of the commitments are expected to expire without being drawn upon, and the total commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at December 31, 2017 2019 were $748.3$828.9 million. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on a credit evaluation of the counterparty. Collateral varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income-producing commercial properties.


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Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credits are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in extending loan facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and residential real estate for those commitments for which collateral is deemed necessary. The Corporation’s obligation under standby letters of credit as of December 31, 2017 2019 was $17.0$20.7 million. There were no outstanding bankers’ acceptances as of December 31, 2017.

Contingencies

Legal Matters

In the ordinary course of its operations, the CorporationBMBC and its subsidiaries are parties to various claims, litigation, investigations, and legal and administrative cases and proceedings. Such pending or threatened claims, litigation, investigations, legal and administrative cases and proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions. Based on the information currently available, the Corporation believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the CorporationBMBC and its shareholders.

On a regular basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latestlatest information available. For those matters where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, a liability may be recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount or range of the loss is not estimable, legal reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI Merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. Subsequent to the end of the first quarter of 2019, on May 1, 2019, the Court rendered a decision against Crusader. Crusader continues to pursue appeal with the Superior Court of the Commonwealth of Pennsylvania, and is considering other strategic options with respect to this matter during the pendency of the appeal. We do

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not believe that this ruling and the monetary award, if any, ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Indemnifications

In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These indemnifications may include the repurchase of loans by the Corporation and are considered customary provisions in the secondary market for conforming mortgage loan sales. AsRepurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such repurchases for the year ended December 31, 2017, there are no pending make-whole requests. As of December 31, 2017, the Corporation had no loans sold with recourse outstanding.

2019.


Concentrations of Credit Risk

The Corporation has a material portion of its loans in real estate-relatedestate-related loans. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is in the Corporation’s primary trade area, which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and attempts to mitigate this risk to the extent possible in many ways, including the underwriting and assessment of borrower’s capacity to repay. See Note 5, – “Loans and Leases”Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

 

Note 2426 – Related Party Transactions
In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. The outstanding balances of loans, including undrawn commitments to lend, to such related parties at December 31, 2019 and 2018 were $9.4 million and $9.3 million, respectively.
Related party deposits amounted to $4.8 million and $6.7 million at December 31, 2019 and 2018, respectively.
Note 27 - Dividend Restrictions

The Bank is subject to the Pennsylvania Banking Code of 1965 (the “Code”), as amended, and is restricted in the amount of dividends that can be paid to its sole shareholder, the Corporation.BMBC. The Code restricts the payment of dividends by the Bank to the amount of its net income during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Board of Governors of the Federal Reserve System. TheBoard. Accordingly, the dividend payable by the Bank to BMBC beginning on January 1, 2020 is limited to net income not yet earned in 2020 plus the Bank’s total retained net income for the combined two years ended December 31, 2016 2018 and 2017 was $38.52019 of $57.3 million. The Bank did not issue anyissued $32.0 million and $26.0 million of dividends to the CorporationBMBC during the twelve monthsyears ended December 31, 2017. Accordingly, the dividend payable by the Bank to the Corporation beginning on January 1,2019 and December 31, 2018, is limited to net income not yet earned in 2018 plus $38.5 million.respectively. The amount of dividends paid by the Bank may not exceed a level that reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized as detailed in Note 2528 – “Regulatory Capital Requirements”.

Requirements.”

 

Note 2528 - Regulatory Capital Requirements

A. General Regulatory Capital Information

Both the CorporationBMBC and the Bank are subject to various regulatory capital requirements, administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if taken, could have a direct material effect on the Corporation’sBMBC and the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the CorporationBMBC and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Beginning in 2015, new regulatory capital reforms, known as Basel III, issued as part of the Dodd-Frank Act began to be phased in. For more information, refer to the “Other Information” section of Management’s Discussiontitled Capital Adequacy within Item 1 - Business - Supervision and Analysis of Financial Condition and Results of OperationsRegulation beginning at page 7 in this Annual Report on Form 10-K.

10-K.

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B. S-3S-3 Shelf Registration Statement and Offerings Thereunder

In March 2015, the CorporationMay 2018, BMBC filed a shelf registration statement on Form S-3,S-3, SEC File No. 333-202805333-224849 (the “Shelf Registration Statement”). The Shelf Registration Statement allows the CorporationBMBC to raise additional capital from time to time through offers and sales

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of registered securities consisting of common stock, debt securities, warrants, to purchase common stock, stock purchase contracts, rights and units or units consisting of any combination of the foregoing securities. UsingBMBC may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar amount up to $200 million, in the aggregate.

offerings.

In addition, the CorporationBMBC has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which allows it to issue up to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’sPlan’s maximum investment of $120$120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’sBMBC’s common stock and general economic and market conditions.

For the twelve monthsyear ended December 31, 2017, the Corporation2019, BMBC did not0t issue any shares through the Plan. NoPlan, nor were any RFWs were approved during the twelve months ended December 31, 2017. approved. The Plan administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were executed under the Shelf Registration Statement during the twelve monthsyear ended December 31, 2017.

2019.

C. Shares Issued in Mergers and Acquisitions

In connection with the RBPI Merger, the CorporationBMBC issued 3,098,7543,101,316 common shares, valued at $136.7$136.8 million, to former shareholders of RBPI. These shares were registered on an S-4 registration statement filed by the Corporation in April 2017 (SEC File No. 333-216995).

D. Share Repurchases

For

On August 6, 2015, BMBC announced a stock repurchase program (the “2015 Program”) pursuant to which BMBC may repurchase up to 1,200,000 shares of its common stock, at an aggregate purchase price not to exceed $40 million. During the twelve-month periodsyears ended December 31, 20172019 and 2016, the Corporation repurchased 02018, 40,016 and 862,500149,284 shares, respectively, were repurchased under the 2015 Program at an average price of Corporation$38.12 and $39.76, respectively.

On April 18, 2019, BMBC announced a new stock throughrepurchase program (the “2019 Program”) pursuant to which BMBC may repurchase up to 1,000,000 shares of its announcedcommon stock. Under the 2019 Program, BMBC may repurchase program. its common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program became effective in the second quarter of 2019 upon the completion of BMBC’s existing 2015 Program. During the year ended December 31, 2019, 82,767 shares were repurchased under the 2019 Program at an average price of $36.22. All share repurchases were accomplished in open market transactions. As of December 31, 2019, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 917,233, at an aggregate purchase price not to exceed $43.9 million.

In addition, it is the Corporation’sBMBC’s practice to retire shares to its treasury account upon the vesting of stock awards to certain officers, in order to cover the statutory income tax withholdings related to such vesting.

E. Regulatory Capital Ratios

As set forth in the following table, quantitative measures have been established to ensure capital adequacy ratios required of both the CorporationBMBC and the Bank. As of December 31, 20172019 and 2016, the Corporation2018, BMBC and the Bank had met all capital adequacy requirements to which they were subject. Federal banking regulators have defined specific capital categories, and categories range from a best of “well capitalized” to a worst of “critically under-capitalized.” Both the CorporationBMBC and the Bank were classified as “well capitalized” as of December 31, 20172019 and 2016.

2018.

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The Corporation’sfollowing table presents BMBC's and the Bank’s regulatory capital amountsratios and ratiosthe minimum capital requirements for the Bank to be considered “Well Capitalized” by regulators as of December 31, 2017 2019 and 2016 are presented in the following table:

  

Actual

  

Minimum

to be Well

Capitalized

 

(dollars in thousands)

 

Amount

  

Ratio

  

Amount

  

Ratio

 

December 31, 2017

                
                 

Total capital to risk weighted assets:

                

Corporation

 $461,414   13.85% $333,068   10.00%

Bank

 $387,067   11.65% $332,388   10.00%
                 

Tier I capital to risk weighted assets:

                

Corporation

 $344,964   10.36% $266,454   8.00%

Bank

 $369,033   11.10% $265,910   8.00%
                 

Common equity Tier I risk weighted assets:

                

Corporation

 $326,454   9.80% $216,494   6.50%

Bank

 $369,033   11.10% $216,052   6.50%
                 

Tier I leverage ratio (Tier I capital to total quarterly average assets):

                

Corporation

 $344,964   10.04% $171,804   5.00%

Bank

 $369,033   10.75% $171,609   5.00%
                 

December 31, 2016

                
                 

Total capital to risk weighted assets:

                

Corporation

 $318,191   12.35% $257,651   10.00%

Bank

 $287,897   11.19% $257,179   10.00%
                 

Tier I capital to risk weighted assets:

                

Corporation

 $270,845   10.51% $206,121   8.00%

Bank

 $270,083   10.50% $205,743   8.00%
                 

Common equity Tier I to risk weighted assets:

                

Corporation

 $270,845   10.51% $167,474   6.50%

Bank

 $270,083   10.50% $167,166   6.50%
                 

Tier I leverage ratio (Tier I capital to total quarterly average assets):

                

Corporation

 $270,845   8.73% $155,035   5.00%

Bank

 $270,083   8.73% $154,761   5.00%
2018:

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 Actual 
Minimum
to be Well
Capitalized
(dollars in thousands)Amount Ratio Amount Ratio
December 31, 2019       
Total capital to risk weighted assets:       
BMBC$547,440
 14.69% $372,690
 10.00%
Bank$450,212
 12.09% $372,435
 10.00%
Tier I capital to risk weighted assets:       
BMBC$425,773
 11.42% $298,152
 8.00%
Bank$427,250
 11.47% $297,948
 8.00%
Common equity Tier I risk weighted assets:       
BMBC$404,715
 10.86% $242,249
 6.50%
Bank$427,250
 11.47% $242,083
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
BMBC$425,773
 9.33% $228,216
 5.00%
Bank$427,250
 9.37% $227,997
 5.00%
December 31, 2018       
Total capital to risk weighted assets:       
BMBC$500,375
 14.30% $349,918
 10.00%
Bank$419,136
 11.99% $349,692
 10.00%
Tier I capital to risk weighted assets:       
BMBC$382,151
 10.92% $279,934
 8.00%
Bank$399,438
 11.42% $279,754
 8.00%
Common equity Tier I to risk weighted assets:       
BMBC$361,256
 10.32% $227,446
 6.50%
Bank$399,438
 11.42% $227,300
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
BMBC$382,151
 9.06% $210,830
 5.00%
Bank$399,438
 9.48% $210,615
 5.00%


The capital ratios for the Bank and BMBC as of December 31, 2019 and 2018, as shown in the above tables, indicate levels above the regulatory minimum to be considered “well capitalized.”


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Note 2629 - Selected Quarterly Financial Data (Unaudited)

  

2017

 

(dollars in thousands, except per share data)

 

1st Quarter

  

2nd Quarter

  

3rd Quarter

  

4th Quarter

 

Interest income

 $30,326  $31,237  $33,198  $34,798 

Interest expense

  2,923   3,272   3,760   4,477 

Net interest income

  27,403   27,965   29,438   30,321 

Provision for / (release of) loan and lease losses

  291   (83)  1,333   1,077 

Non-interest income

  13,227   14,785   15,584   15,536 

Non-interest expense

  26,660   28,495   28,184   31,056 

Income before income taxes

  13,679   14,338   15,505   13,724 

Income taxes

  4,635   4,905   4,766   19,924 

Net income / (loss)

 $9,044  $9,433  $10,739  $(6,200)

Basic earnings (loss) per common share*

 $0.53  $0.56  $0.63  $(0.35)

Diluted earnings (loss) per common share*

 $0.53  $0.55  $0.62  $(0.35)

Dividend declared

 $0.21  $0.21  $0.22  $0.22 

2016

(dollars in thousands, except per share data)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Interest income

$28,269$29,286$29,514$29,922

Interest expense

2,3672,6592,7972,932

Net interest income

25,90226,62726,71726,990

Provision for loan and lease losses

1,4104451,4121,059

Non-interest income

13,15313,78113,78613,248

Non-interest expense

24,99626,22025,37125,087

Income before income taxes

12,64913,74313,72014,092

Income taxes

4,3284,8104,3464,684

Net income

$8,321$8,933$9,374$9,408

Basic earnings per common share*

$0.49$0.53$0.56$0.56

Diluted earnings per common share*

$0.49$0.52$0.55$0.55

Dividend declared

$0.20$0.20$0.21$0.21
 2019
(dollars in thousands, except per share data)
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Interest income$48,468
 $48,388
 $49,573
 $46,960
Interest expense10,821
 11,777
 12,175
 10,975
Net interest income37,647
 36,611
 37,398
 35,985
Provision for loan and lease losses3,736
 1,627
 919
 2,225
Noninterest income19,253
 20,221
 19,455
 23,255
Noninterest expense39,724
 35,188
 35,173
 36,430
Income before income taxes13,440
 20,017
 20,761
 20,585
Income taxes2,764
 4,239
 4,402
 4,202
Net income10,676
 15,778
 16,359
 16,383
Net loss attributable to noncontrolling interest(1) (7) (1) (1)
Net income attributable to Bryn Mawr Bank Corporation$10,677
 $15,785
 $16,360
 $16,384
Basic earnings per common share(1)
$0.53
 $0.78
 $0.81
 $0.81
Diluted earnings per common share(1)
$0.53
 $0.78
 $0.81
 $0.81
Dividend paid or accrued$0.25
 $0.25
 $0.26
 $0.26

*

 2018
(dollars in thousands, except per share data)
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Interest income$43,534
 $44,754
 $45,233
 $47,534
Interest expense6,095
 7,438
 8,504
 9,547
Net interest income37,439
 37,316
 36,729
 37,987
Provision for loan and lease losses1,030
 3,137
 664
 2,362
Noninterest income19,536
 20,075
 18,274
 18,097
Noninterest expense36,030
 35,836
 33,592
 34,845
Income before income taxes19,915
 18,418
 20,747
 18,877
Income taxes4,630
 3,723
 4,066
 1,746
Net income15,285
 14,695
 16,681
 17,131
Net (loss) income attributable to noncontrolling interest(1) 7
 (1) (5)
Net income attributable to Bryn Mawr Bank Corporation$15,286
 $14,688
 $16,682
 $17,136
Basic earnings per common share(1)
$0.76
 $0.73
 $0.82
 $0.85
Diluted earnings per common share(1)
$0.75
 $0.72
 $0.82
 $0.84
Dividend paid or accrued$0.22
 $0.22
 $0.25
 $0.25

(1) Earnings per share is computed independently for each period shown. As a result, the sum of the quarters may not equal the total earnings per share for the year.

year.

117
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Note 30 - Parent Company-Only Financial Statements

 

Note 27- Parent Company-Only Financial Statements

The condensed financial statements of the CorporationBMBC (parent company only) are presented below. These statements should be read in conjunction with the Notes to the Consolidated Financial Statements.

A. Condensed Balance Sheets

 

December 31,

 December 31,

(dollars in thousands)

 

2017

  

2016

 2019 2018

Assets:

           

Cash

 $68,535  $23,663 
Cash and cash equivalents$93,250
 $78,143

Investment securities

  458   400 543
 418

Investments in subsidiaries, as equity in net assets

  580,230   384,751 638,770
 606,023

Premises and equipment, net

  2,189   2,288 1,993
 2,091

Goodwill

  245   245 245
 245

Other assets

  1,135   1,435 1,184
 1,060

Total assets

 $652,792  $412,782 735,985
 687,980

Liabilities and shareholders’ equity:

        
Liabilities and shareholders’ equity:   

Subordinated notes

  98,416   29,532 98,705
 98,526

Junior subordinated debentures

  21,416   — 21,753
 21,580

Other liabilities

  4,158   2,123 2,605
 2,485

Total liabilities

 $123,990  $31,655 123,063
 122,591

Common stock, par value $1, authorized 100,000,000 shares issued 24,360,049 shares and 21,110,968 shares as of December 31, 2017 and 2016, respectively, and outstanding 20,161,395 shares and 16,939,715 shares as of December 31, 2017 and 2016, respectively

 $24,360  $21,111 
Common stock, par value $1; authorized 100,000,000 shares; issued 24,650,051 and 24,545,348 shares as of December 31, 2019 and December 31, 2018, respectively, and outstanding of 20,126,296 and 20,163,816 as of December 31, 2019 and December 31, 2018, respectively24,650
 24,545

Paid-in capital in excess of par value

  371,486   232,806 378,606
 374,010

Less common stock in treasury, at cost – 4,198,654 shares and 4,171,253 shares as of December 31, 2017 and 2016, respectively

  (68,179

)

  (66,950

)

Accumulated other comprehensive loss, net of deferred income taxes benefit

  (4,414

)

  (2,409

)

Less: Common stock in treasury at cost - 4,523,755 and 4,381,532 shares as of December 31, 2019 and December 31, 2018, respectively(81,174) (75,883)
Accumulated other comprehensive income (loss), net of deferred income taxes2,187
 (7,513)

Retained earnings

  205,549   196,569 288,653
 250,230

Total shareholders’ equity

 $528,802  $381,127 

Total liabilities and shareholders’ equity

 $652,792  $412,782 
Total shareholders’ equity612,922
 565,389
Total liabilities and shareholders’ equity$735,985
 $687,980


B.Condensed Statements of Income

   

Twelve Months Ended December 31,

 

(dollars in thousands)

 

2017

  

2016

  

2015

 

Dividends from subsidiaries

 $950  $17,718  $34,234 

Net interest and other income

  2,761   2,714   2,128 

Total operating income

  3,711   20,432   36,362 

Expenses

  2,782   2,443   2,140 

Income before equity in undistributed income of subsidiaries

  929   17,989   34,222 

Equity in undistributed income of subsidiaries

  21,053   17,600   (17,427

)

Income before income taxes

  21,982   35,589   16,795 

Income tax (benefit) expense

  (1,034

)

  (447

)

  41 

Net income

 $23,016  $36,036  $16,754 

118
 Year Ended December 31,
(dollars in thousands)2019 2018 2017
Dividends from subsidiaries$35,731
 $30,900
 $950
Net interest and other income10,962
 2,615
 2,761
Total operating income46,693
 33,515
 3,711
Expenses10,517
 3,527
 2,782
Income before equity in undistributed income of subsidiaries36,176
 29,988
 929
Equity in undistributed income of subsidiaries23,048
 32,779
 21,053
Income before income taxes59,224
 62,767
 21,982
Income tax expense (benefit)18
 (1,025) (1,034)
Net income$59,206
 $63,792
 $23,016






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C. Condensed Statements of Cash Flows

 

Twelve Months Ended December 31,

 Year Ended December 31,

(dollars in thousands)

 

2017

  

2016

  

2015

 2019 2018 2017

Operating activities:

                 

Net Income

 $23,016  $36,036  $16,754 
Net income$59,206
 $63,792
 $23,016

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Equity in undistributed income of subsidiaries

  (21,053

)

  (17,600

)

  17,427 (23,048) (32,779) (21,053)

Depreciation and amortization

  154   151   121 98
 98
 154

Stock-based compensation cost

  2,068   1,713   1,441 3,725
 2,750
 2,068

Other, net

  1,241   1,000   508 225
 2,860
 1,241

Net cash provided by operating activities

  5,426   21,300   36,251 40,206
 36,721
 5,426

Investing Activities:

                 

Investment in subsidiaries

  (15,300

)

  (15,000

)

  — —
 —
 (15,300)

Net change in trading securities

  (58

)

  —   16 —
 40
 (58)

Acquisitions, net of cash acquired

  531   —   128 —
 —
 531

Net cash (used in) provided by investing activities

  (14,827

)

  (15,000

)

  144 
Net cash provided by (used in) investing activities—
 40
 (14,827)

Financing activities:

                 

Dividends paid

  (14,799

)

  (13,961

)

  (13,837

)

(20,685) (19,289) (14,799)

Proceeds from issuance of subordinated notes

  68,829   —   29,456 —
 —
 68,829

Net purchase of treasury stock for deferred compensation plans

  (115)  (133

)

  (128

)

Net (purchase of) proceeds from sale of treasury stock for deferred compensation plans(172) 2
 (115)

Net purchase of treasury stock through publicly announced plans

  —

 

  (7,971

)

  (26,418

)

(4,524) (5,936) —

Proceeds from issuance of common stock

  —   —   20 

Excess tax benefit from stock-based compensation

  —   —   783 

Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation

  (1,140)  (745

)

  — (625) (1,639) (1,140)

Proceeds from exercise of stock options

  1,498   2,181   6,452 907
 1,464
 1,498

Net cash provided by (used in) financing activities

  54,273   (20,629

)

  (3,672

)

Repurchase of treasury warrants—
 (1,755) —
Net cash (used in) provided by financing activities
(25,099) (27,153) 54,273

Change in cash and cash equivalents

  44,872   (14,329

)

  32,723 15,107
 9,608
 44,872

Cash and cash equivalents at beginning of period

  23,663   37,992   5,269 
Cash and cash equivalents at beginning of period78,143
 68,535
 23,663

Cash and cash equivalents at end of period

 $68,535  $23,663  $37,992 $93,250
 $78,143
 $68,535

 

Note 2831 - Segment Information

FASB Codification 280– “Segment Reporting” identifies operating segments as components of an enterprise which are evaluated regularly by the Corporation’s chief operating decision maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

The Corporation’sCorporation’s Banking segment consists of commercial and retail banking. The Banking segment is evaluated as a single strategic unit which generates revenues from a variety of products and services. The Banking segment generates interest income from its lending (including leases) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale in available for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering. Also included in the Banking segment are two subsidiaries of the Bank, KCMI Capital, Inc. and Bryn Mawr Equipment Financing, Inc., both of which provide specialized lending solutions to our customers.

The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related fiduciary services, custody, investment management and advisory services, employee benefits andand IRA administration, estate settlement, tax services and brokerage. Bryn Mawr Trust of Delaware and Lau Associates are included in the Wealth Management segment of the Corporation since they have similar economic characteristics, products and services to those of the Wealth Management Division of the Corporation. BMT Investment Advisers, formed in May 2017, which serves as investment adviser to BMT Investment Funds, a

Table of Contents

Delaware statutory trust, is also reported under the Wealth Management segment.

In addition, with Effective January 1, 2020, the October 1, 2014 acquisitionbusiness of PCPB, followed byLau Associates, which is reported in the April 1, 2015 acquisition of RJM and the May 2017 acquisition of Hirshorn Boothby, both of which were mergedWealth Management segment, was transitioned into PCPB (which was recently renamed BMT Insurance Advisors), the Wealth Management Division assumed responsibility forof the Bank, also reported in the Wealth Management segment. In addition, the Wealth Management Division oversees all insurance services of the Corporation.

Corporation, which are conducted through the Bank’s insurance subsidiary, BMT Insurance Advisors, Inc., and are reported in the Wealth Management segment.

119
Table of Contents

The accounting policies of the Corporation are applied by segment in the following tables. The segments areare presented on a pre-tax basis.

The following table detailsdetails the Corporation’s segments:

 

As of or for the Twelve Months Ended December 31,

 As of or for the Year Ended December 31,
 

2017

  

2016

  

2015

 2019  2018  2017

(dollars in thousands)

 

Banking

  

Wealth

Management

  

Consolidated

  

Banking

  

Wealth

Management

  

Consolidated

  

Banking

  

Wealth

Management

  

Consolidated

 Banking
Wealth
Management
Consolidated  Banking
Wealth
Management
Consolidated  BankingWealth
Management		Consolidated
                                    

Net interest income

 $115,124  $3  $115,127  $106,233  $3  $106,236  $100,124  $3  $100,127 $147,635
$6
$147,641
  $149,464
$7
$149,471
  $115,124
$3
$115,127

Less: loan loss provision

  2,618   —   2,618   4,326   —   4,326   4,396   —   4,396 
Provision for loan and lease losses8,507
—
8,507
  7,193
—
7,193
  2,618
—
2,618

Net interest income after loan loss provision

  112,506   3   112,509   101,907   3   101,910   95,728   3   95,731 139,128
6
139,134
  142,271
7
142,278
  112,506
3
112,509

Other income:

                                    
Noninterest income:    

   

Fees for wealth management services

  —   38,735   38,735   —   36,690   36,690   —   36,894   36,894 —
44,400
44,400
  —
42,326
42,326
  —
38,735
38,735
Insurance commissions—
6,877
6,877
  —
6,808
6,808
  —
4,589
4,589
Capital markets revenue11,276
—
11,276
  4,848
—
4,848
  2,396
—
2,396

Service charges on deposit accounts

  2,608   —   2,608   2,791   —   2,791   2,927   —   2,927 3,374
—
3,374
  2,989
—
2,989
  2,608
—
2,608

Loan servicing and other fees

  2,106   —   2,106   1,939   —   1,939   2,087   —   2,087 2,206
—
2,206
  2,259
—
2,259
  2,106
—
2,106

Net gain on sale of loans

  2,441   —   2,441   3,048   —   3,048   2,847   —   2,847 2,342
—
2,342
  3,283
—
3,283
  2,441
—
2,441

Net gain (loss) on sale of available for sale securities

  101   —   101   (77

)

  —   (77

)

  931   —   931

)

Net (loss) gain on sale of other real estate owned

  (104

)

  —   (104

)

  (76

)

  —   (76

)

  123   —   123

)

Insurance commissions.

  —   4,589   4,589   —   3,722   3,722   —   3,745   3,745 
Capital markets revenue 2,396  —  2,396  —  —  —  —  —  — 
Net gain on sale of investment securities available for sale—
—
—
  7
—
7
  101
—
101
Net (loss) gain on sale of OREO(84)—
(84)  295
—
295
  (104)—
(104)

Other operating income

  6,063   197   6,260   5,773   158   5,931   6,082   149   6,231 11,687
106
11,793
  12,981
186
13,167
  6,063
197
6,260

Total other income

  15,611   43,521   59,132   13,398   40,570   53,968   14,997   40,788   55,785 
Total noninterest income30,801
51,383
82,184
  26,662
49,320
75,982
  15,611
43,521
59,132
                                           

Other expenses:

                                    
Noninterest expenses:       

Salaries & wages

  36,559   16,692   53,251   32,321   15,090   47,411   30,391   14,184   44,575 54,076
20,295
74,371
  46,936
19,735
66,671
  36,559
16,692
53,251

Employee benefits

  6,632   3,820   10,452   6,257   3,291   9,548   7,298   2,907   10,205 9,572
3,884
13,456
  9,046
3,872
12,918
  6,350
3,820
10,170

Loss on pension plan settlement

  —   —   —   —   —   —   17,377   —   17,377 

Occupancy and bank premises

  8,208   1,698   9,906   8,005   1,606   9,611   8,662   1,643   10,305 
Occupancy and bank premise10,547
2,044
12,591
  9,588
2,011
11,599
  8,208
1,698
9,906

Amortization of intangible assets

  783   1,951   2,734   872   2,626   3,498   1,172   2,655   3,827 1,309
2,492
3,801
  1,555
2,101
3,656
  783
1,951
2,734

Professional fees

  2,998   270   3,268   3,516   143   3,659   3,227   126   3,353 4,840
594
5,434
  3,747
456
4,203
  2,998
270
3,268

Other operating expenses

  30,323   4,461   34,784   24,112   3,835   27,947   31,975   3,973   35,948 30,599
6,263
36,862
  35,928
5,328
41,256
  30,605
4,461
35,066

Total other expenses

  85,503   28,892   114,395   75,083   26,591   101,674   100,102   25,488   125,590 
Total noninterest expenses110,943
35,572
146,515
  106,800
33,503
140,303
  85,503
28,892
114,395

Segment profit

  42,614   14,632   57,246   40,222   13,982   54,204   10,623   15,303   25,926 58,986
15,817
74,803
  62,133
15,824
77,957
  42,614
14,632
57,246

Intersegment (revenues) expenses*

  (448

)

  448   —   (396

)

  396   —   (422

)

  422   — 
Intersegment (revenues) expenses(1)
(613)613
—
  (715)715
—
  (448)448
—

Pre-tax segment profit after eliminations

 $42,166  $15,080  $57,246  $39,826  $14,378  $54,204  $10,201  $15,725  $25,926 $58,373
$16,430
$74,803
  $61,418
$16,539
$77,957
  $42,166
$15,080
$57,246

% of segment pre-tax profit after eliminations

  73.7

%

  26.3

%

  100.0%  73.5%  26.5%  100.0%  39.3%  60.7%  100.0%78.0%22.0%100.0%  78.8%21.2%100.0%  73.7%26.3%100.0%

Segment assets (dollars in millions)

 $4,398.5  $51.2  $4,449.7  $3,377.1  $44.4  $3,421.5  $2,983.2  $47.8  $3,031.0 $5,210.4
$52.9
$5,263.3
  $4,601.7
$50.8
$4,652.5
  $4,398.5
$51.2
$4,449.7

*

Intersegment revenues consist of rental payments, deposit interest and management fees.

Other segment information:



(1)Inter-segment revenues consist of rental payments, interest on deposits and management fees.

Wealth Management Segment Information

(dollars in millions) 

December 31,

2017

  

December 31,

2017

 

Assets under management, administration, supervision and brokerage

 $12,968.7  $11,328.5 
(dollars in millions)December 31,
2019		 December 31,
2018
Assets under management, administration, supervision and brokerage$16,548.1
 $13,429.5


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ITEM  9.

CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



ITEM 9.CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM  9A.

CONTROLS AND PROCEDURES

ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures


The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’sCorporation’s management, including the Corporation’s Chief Executive Officer, Francis J. Leto, and Chief Financial Officer, Michael W. Harrington, of the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 20172019 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as of December 31, 20172019 are effective.

Changes in Internal Control over Financial Reporting


There were no changes in the Corporation’s internal control over financial reporting during the fourth quarter of 20172019 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Design and Evaluation of Internal Control Over Financial Reporting


Pursuant to Section 404 of Sarbanes-Oxley, the following is a report of management’s assessment of the design and effectiveness of our internal controls for the fiscal year ended December 31, 2017,2019, and a report from our independent registered public accounting firm attesting to the effectiveness of our internal controls:


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Management’sManagement’s Report on Internal Control Over Financial Reporting



The Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this Annual Report on Form 10-K have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on Management’s best estimates and judgments.

The Corporation’sCorporation’s Management is responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; provide a reasonable assurance that receipts and expenditures of the Corporation are only being made in accordance with authorizations of Management and directors of the Corporation; and provide a reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by Management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are noted.

Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. 

The Corporation’sCorporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, assessed the Corporation’s system of internal control over financial reporting as of December 31, 2017,2019, in relation to the criteria for effective control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on

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this assessment, Management concludes that, as of December 31, 2017,2019, the Corporation’s system of internal control over financial reporting is effective.

KPMG, LLP, which is the independent registered public accounting firm that audited the financial statements in this Annual Report on Form 10-K, has issued an attestation report on the Corporation’s internal control over financial reporting, which can be found under the heading “Report of Independent Registered Public Accounting Firm” at page 54,64, and is incorporated by reference herein.

ITEM  9B.

OTHER INFORMATION

ITEM 9B.OTHER INFORMATION
None.


PART III

ITEM  10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


ITEM 10.DIRECTORS,EXECUTIVE OFFICERSAND CORPORATE GOVERNANCE
The information required for Item 10 is incorporated by reference to the sections titled “Our Board of Directors and Board Committees,” “Information About ourOur Directors,” “Information About our Executive Officers,” “Corporate Governance,” “Our Board of Directors and Board Committees, ” and “Audit Committee Report” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the 20182020 Proxy Statement.

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 11.EXECUTIVE COMPENSATION
The information required for Item 11 is incorporated by reference to sectionthe sections titled “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Our Board of Directors and Board Committees,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in the 20182020 Proxy Statement.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required for Item 12 is incorporated by reference to the sectionsections titled “Security“Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 20182020 Proxy Statement.

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ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required for Item 13 is incorporated by reference to sections titled “Transactions with Related Persons” and “Corporate Governance – Director Independence” in the 20182020 Proxy Statement.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required for Item 14 is incorporated by reference to the section “Independent Registered Public Accounting Firm” in the 20182020 Proxy Statement.


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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Item 15(a) (1 & 2) Financial Statements and Schedules

The financial statements listed in the accompanying index to financial statements are filed as part of this Annual Report.

 

Page

Report of Independent Registered Public Accounting Firm

54

64

Consolidated Balance Sheets

55

66

Consolidated Statements of Income

56

67

Consolidated Statements of Comprehensive Income

57

68

Consolidated Statements of Cash Flows

58

69

Consolidated StatementStatements of Changes in Shareholders’Shareholders’ Equity

59

71

Notes to Consolidated Financial Statements

60

73


Item 15(a) (3) and (b)—Exhibits


Exhibit No.

 

Description and References

2.1

 

Stock Purchase Agreement, dated as of February 18, 2011, by and between Bryn Mawr Bank Corporation and Hershey Trust Company, incorporated by reference to Exhibit 2.1 of the Corporation’sCorporation’s 8-K filed with SEC on February 18,22, 2011

   

2.2

 

Amendment to Stock Purchase Agreement, dated as of May 27, 2011, by and between Hershey Trust Company and Bryn Mawr Bank Corporation, incorporated by reference to Exhibit 2.2 of the Corporation’sCorporation’s 8-K filed with the SEC on May 27, 2011

   

2.3

 

Assignment and Assumption Agreement, dated as of May 27, 2011, by and between Hershey Trust Company and PWMG Bank Holding Company Trust, incorporated by reference to Exhibit 2.3 of the Corporation’sCorporation’s 8-K filed with the SEC on May 27, 2011

   

2.4

 

Stock Purchase Agreement, dated as of February 3, 2012, by and among Bryn Mawr Bank Corporation, Davidson Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert, James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and Alvin A. Clay III, incorporated by reference to Exhibit 2.1 of the Corporation’sCorporation’s 8-K filed with the SEC on February 7, 2012

   

2.5

 

Purchase and Assumption Agreement, dated as of April 27, 2012, by and between The Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation’sCorporation’s 8-K filed with the SEC on May 2, 2012

   

2.6

 

Amendment to Stock Purchase Agreement, datesdated as of May 15, 2012, by and among Bryn Mawr Bank Corporation, Davidson Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert, James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and Alvin A. Clay III, incorporated by reference to Exhibit 2.1 of the Corporation’sCorporation’s 8-K filed with the SEC on May 18, 2012

   

2.7

 

Amendment to Purchase and Assumption Agreement, dated as of October 12, 2012, by and between The Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation’sCorporation’s 8-K filed with the SEC on October 18, 2012

Exhibit No. Description and References

2.8

 

Amendment to Purchase and Assumption Agreement, dated as of November 14, 2012, by and between The Bryn Mawr Trust Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation’sCorporation’s 8-K filed with the SEC on November 19, 2012

   

2.9

 

Agreement and Plan of Merger, dated as of May 5, 2014, by and between Bryn Mawr Bank Corporation and Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’sCorporation’s Form 8-K filed with the SEC on May 5, 2014

   

2.10

 

Amendment to Agreement and Plan of Merger, dated as of October 23, 2014, between Bryn Mawr Bank Corporation and Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’sCorporation’s Form 8-K filed with the SEC on October 23, 2014

   

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2.11

Exhibit No. 

Description and References

2.11
Stock Purchase Agreement, dated as of August 21, 2014, by and among The Bryn Mawr Trust Company, Donald W. Parker, Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’sCorporation’s Form 10-Q filed with the SEC on November 7, 2014

   

2.12

 

Amendment to Stock Purchase Agreement, dated as of October 1, 2014, by and among The Bryn Mawr Trust Company, Donald W. Parker, Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’sCorporation’s Form 8-K filed with the SEC on October 3, 2014

   

2.13

 

Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’sCorporation’s Form 8-K filed with the SEC on January 31, 2017

   

2.14

 

Amendment No. 1 to Agreement and Plan of Merger, dated December 14, 2017, by and between Bryn Mawr Bank Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’sCorporation’s Form 8-K filed with the SEC on December 18, 2017

   

3.1

 

Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’sCorporation’s Form 8-K filed with the SEC on November 21, 2007

   

3.2

 

Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’sCorporation’s Form 8-K filed with the SEC on November 21, 2007

   

4.1

 

Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’sCorporation’s Form 8-K filed with the SEC on November 21, 2007

   

4.2

 

Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’sCorporation’s Form 8-K filed with the SEC on November 21, 2007

   
4.3 
Indenture, dated August 6, 2015, by and between Bryn Mawr Bank Corporation and U.S. Bank National Association, as trustee, incorporated by reference to the Corporation’sCorporation’s Form 8-K filed with the SEC on August 7, 2015
   
4.4 
Forms of 4.75% Subordinated Note due 2025 (included as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.1), incorporated by reference to the Corporation’sCorporation’s Form 8-K filed with the SEC on August 7, 2015
   

4.5

 

Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National Association, as trustee, incorporated by reference to the Corporation’sCorporation’s Form 8-K filed with the SEC on December 13, 2017

   

4.6

 

First Supplemental Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National Association as trustee, incorporated by reference to the Corporation’sCorporation’s Form 8-K filed with the SEC on December 13, 2017

   

4.7

 

Form of 4.25% Fixed-to-Floating Rate Subordinated Note due December 15, 2027 (included as Exhibit A to the Indenture filed as Exhibit 4.2), incorporated by reference to the Corporation’sCorporation’s Form 8-K filed with the SEC on December 13, 2017

   

4.8

 

Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as Institutional Trustee, dated October 27, 2004,, incorporated by reference to Exhibit 4.1 to RBPI’s Current Report on Form 8-K (included as Exhibit A to Exhibit 10.1) filed with the SEC on November 1, 2004

   

4.9

 

Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as Institutional Trustee, dated October 27, 2004,, incorporated by reference to Exhibit 4.2 to RBPI’s Current Report on Form 8-K (included as Exhibit A to Exhibit 10.2) filed with the SEC on November 1, 2004

   

4.10

 

Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27, 2004,, incorporated by reference to Exhibit 10.1 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

   

4.11

 

Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27, 2004,, incorporated by reference to Exhibit 10.2 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

   

4.12

 

Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee Trustee, dated October 27, 2004,, incorporated by reference to Exhibit 10.3 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

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Exhibit No. Description and References

4.13

 

Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee Trustee, October 27, 2004,, incorporated by reference to Exhibit 10.4 to RBPI’s Current Report on Form 8-K filed with the Commission on November 1, 2004

   

4.14

 

Warrant to Purchase Class A Common Stock, issued February 20, 2009, by Royal Bancshares of Pennsylvania, Inc. to the United States Department of the Treasury, incorporated by reference to Exhibit 4.1 to RBPI’s Current Report on Form 8-K filed with the Commission on February 26, 2009

   

10.1*    

4.15		 

Description of Registrant’s Securities, filed herewith
10.1*    
Amended and Restated Supplemental Employee Retirement Plan of the Bryn Mawr Bank Corporation, effective January 1, 1999, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-K filed with the SEC on March 13, 2008

   

10.2**  

 

Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.3 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 16, 2011

   

10.3*    

 

Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective January 1, 2008 incorporated by reference to Exhibit 10.4 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 16, 2009

   

10.4*    

 

Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Bank Corporation, effective January 1, 20082009 incorporated by reference to Exhibit 10.5 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 16, 2009

   

10.5*    

 

Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Trust Company, effective January 1, 20082009 incorporated by reference to Exhibit 10.6 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 16, 2009

   

10.6*    

 

Employment Letter Agreement, dated as of April 25, 2014, between the Corporation and Francis J. Leto, incorporated by reference to Exhibit 10.1 to the Corporation’sCorporation’s Form 8-K filed with the SEC on April 25, 2014

   

10.7*

 

Amendment to 2012Standard Form of Restricted Stock Unit Agreement datedfor Executives (Time/Performance Based), as of August 20, 2014, between Bryn Mawr Bank Corporation and Fredrick C. Peters, II,2018, incorporated by reference to Exhibit 10.1 to10.7 of the Corporation’sCorporation’s Form 8-K10-K filed with the SEC on August 21, 2014March 1, 2019

10.8*  

Amendment to 2013 Restricted Stock Unit Agreement, dated August 20, 2014, between Bryn Mawr Bank Corporation and Fredrick C. Peters, II, incorporated by reference to Exhibit 10.2 to the Corporation’s Form 8-K filed with the SEC on August 21, 2014

   

10.9*

10.8*  		 

Standard Form of Executive Change-of-ControlRestricted Stock Unit Agreement for Non-Employee Directors (Time/Performance Based), as of August 2018, incorporated by reference to Exhibit 10.210.8 of the Corporation’sCorporation’s Form 8-K10-K filed with the SEC on December 18, 2017March 1, 2019

   

10.10*  

10.9*		 

Standard Form of Executive Change-of-Control Agreement, updated January 2019, incorporated by reference to Exhibit 10.9 of the Corporation’s Form 10-K filed with the SEC on March 1, 2019
10.10*  
Executive Change-of-Control Amended and Restated Severance Agreement, dated May 21, 2004, between the Bryn Mawr Trust Company and Alison E. Gers, incorporated by reference to Exhibit 10.M of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 15, 2007

   

10.11*

*		 

2019 Voluntary Years of Service Incentive Program – Executive Change-of-Control Amended and Restated SeveranceTier – Form of Separation Agreement, dated May 21, 2004, between the Bryn Mawr Trust Company and Joseph G. Keefer, incorporated by reference to Exhibit 10.N10.4 of the Corporation’sCorporation’s Form 10-K10-Q filed with the SEC on March 15, 2007May 8, 2019

   

10.12*  

 

Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), incorporated by reference to Exhibit 10.12 of the Corporation's Form 10-K filed herewithwith the SEC on March 2, 2018

   

10.13**

 

2019 Standard Form of Key Employee Non-QualifiedRestricted Stock OptionUnit Agreement for Executives (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.310.1 of the Corporation’sCorporation’s Form 10-Q filed with the SEC on May 10, 20058, 2019

   

10.14**

 

2019 Standard Form of Non-QualifiedRestricted Stock OptionUnit Agreement for Non-Employee Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.2 of the Corporation’sCorporation’s Form 10-Q filed with the SEC on May 10, 20058, 2019

   

10.15**  

 

Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based) – Multi-Year Vesting, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on September 17, 2014

   

10.16**

 

2007 Long Term Incentive Plan, effective April 25, 2007, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Form 10-Q filed with the SEC May 10, 2007


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Exhibit No.Description and References
   

10.17**

 

Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed December 8, 2008, incorporated by reference to Exhibit 10.20 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 16, 2009

   

10.18

 

Form of Director Letter Agreement, incorporated by reference to Exhibit 10.2 to the Corporation’sCorporation’s Form 10-Q filed with the SEC on August 8, 2014

   

10.19*  

 

Executive Change-of-Control Amended and Restated Severance Agreement, dated November 2, 2009, between the Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s 8-K filed with the SEC on November 6, 2009

   

10.20**

 

Form of Restricted Stock Unit Agreement for Employees (Time-Based Cliff Vesting), incorporated by reference to Exhibit 10.2 to the Corporation’sCorporation’s Form 10-Q filed with the SEC on August 7, 2015

  

10.21**

 

Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan, effective April 28, 2010, incorporated by reference to Exhibit 10.24 of the Corporation’sCorporation’s Form 10-Q filed with the SEC on May 10, 2010

  

10.22**

 

Amended and Restated Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan, effective April 30, 2015, incorporated by reference to Appendix A of the Corporation’sCorporation’s Proxy Statement on Definitive Schedule 14A filed with the SEC on March 20, 2015

Exhibit No.

 Description and References

10.23**

 

First Keystone Financial, Inc. Amended and Restated 1998 Stock Option Plan, as assumed by Bryn Mawr Bank Corporation, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Post-Effective Amendment No.1 to Form S-4 on Form S-3, filed with the SEC on July 9, 2010

   

10.24

 

Continental Bank Holdings, Inc. Amended and Restated 2005 Stock Incentive Plan, incorporated by reference to Exhibit 4.3 of the Corporation’sCorporation’s Form S-8 filed with the SEC on January 22, 2015

   

10.25**

 

Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, dated as of January 10, 2011, for Francis J. Leto, incorporated by reference to Exhibit 10.30 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 16, 2011

   

10.26

 

Amendment No. 2 to Stock Purchase Agreement by and between PWMG Bank Holding Company Trust and Bryn Mawr Bank Corporation dated September 29, 2011, filed with the SEC on Form 8-K on October 4, 2011

   

10.27**

 

Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.32 of the Corporation’sCorporation’s Form 10-Q filed with the SEC on November 9, 2011

   

10.28**

 

Form of Restricted Stock Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term IncentiveIncentive Plan, incorporated by reference to Exhibit 10.33 of the Corporation’s Form 10-Q filed with the SEC on November 9, 2011

   

10.29*

 

Amendment No. 1 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective as of January 1, 2013, incorporated by reference to Exhibit 10.29 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 15, 2013

   

10.30*

 

Amendment No. 2 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective as of January 1, 2013, incorporated by reference to Exhibit 10.30 of the Corporation’sCorporation’s Form 10-K filed with the SEC on March 15, 2013

   

10.31*

 

Form of Letter Agreement entered into with certain executive officers of the Corporation in connection with the curtailment of benefits under the Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed December 8, 2008 (SERP II), incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Form 8-K filed with the SEC on April 4, 2013

   

10.32*

 

Bryn Mawr Bank Corporation Executive Deferred Compensation Plan, effective January 1, 2013, incorporatedincorporated by reference to Exhibit 10.32 of the Corporation’s Form 10-K filed with the SEC on March 14, 2014

   

10.33*

 

Retention Bonus Agreement, dated as of June 10, 2013, by and between The Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Form 8-K filed with the SEC on June 14, 2013

   

10.34*

*		 

Form of Restricted Stock Unit Agreement for Directors (Time/Performance Based), incorporated by reference to Exhibit 10.34 of the Corporation's Form 10-K filed herewithwith the SEC on March 2, 2018

   

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10.35**

Exhibit No. 

Description and References

10.35**
Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based), incorporated by reference to Exhibit 10.4 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

   

10.36**

 

Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based), incorporated by reference to Exhibit 10.5 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

   

10.37**

 

Form of Restricted Stock Unit Agreement – Inducement Grant, incorporated by reference to Exhibit 10.6 to the Corporation’s Form 10-Q filed with the SEC on November 7, 2014

   
10.38 
SecondThird Amended and Restated Dividend Reinvestment and Stock Purchase Plan, effective April 30, 2015,May 25, 2018, incorporated by reference to the Corporation’s prospectus supplementCorporation’s Prospectus (Form 424B2) filed with the SEC on May 1, 2015 pursuant to Rule 424 (b) under the Securities Act of 1933, as amended25, 2018
   
10.39*10.39* 
Employment Letter Agreement, dated December 15, 2017, by and between The Bryn Mawr Trust Company and F. Kevin Tylus, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Form 8-K filed with the SEC on December 18, 2017

Exhibit No. Description and References
10.40 
Form of Subordinated Note Purchase Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation and the Purchasers identified therein, incorporated by reference to Exhibit 10.1 the Corporation’sCorporation’s Form 8-K filed with the SEC on August 7, 2015
   
10.41 
Form of Registration Rights Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation and Purchasers identified therein, incorporated by reference to Exhibit 10.2 the Corporation’sCorporation’s Form 8-K filed with the SEC on August 7, 2015
   
10.42* 
Employment Letter Agreement, dated September 8, 2015, by and among Bryn Mawr Bank Corporation, The Bryn Mawr Trust Company and Michael W. Harrington, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Form 8-K filed with the SEC on September 9, 2015
   
10.43* 
Executive Change-of-Control Severance Agreement, dated as of September 8, 2015, by and between The Bryn Mawr Trust Company and Michael W. Harrington, incorporated by reference to Exhibit 10.2 to the Corporation’sCorporation’s Form 8-K filed with the SEC on September 9, 2015
   

10.44*

10.44*		 

Employment Agreement.Agreement dated as of April 1, 2015, between The Bryn Mawr Trust Company and Lori Goldman, incorporated by reference to Exhibit 10.1 of the Corporation’sCorporation’s Form 10-Q filed with the SEC on November 3, 2017

   

10.45*

10.45*		 

Employment Letter Agreement, dated November 20, 2017, by and between Bryn Mawr Bank Corporation, The Bryn Mawr Trust Company and Jennifer Dempsey Fox, incorporated by reference to Exhibit 10.45 of the Corporation’s Form 10-K filed herewithwith the SEC on March 2, 2018

   
10.46* 
Form of Restricted Stock Unit Agreement for New Employee, incorporated by reference to Exhibit 10.46 of the Corporation’s Form 10-K filed herewithwith the SEC on March 2, 2018
   

12.1

10.47**		 

RatioForm of EarningsRestricted Stock Unit Agreement for New Employee, incorporated by reference to Fixed Charges,Exhibit 10.47 of the Corporation’s Form 10-K filed herewithwith the SEC on March 1, 2019

   

21.1      

10.48**		 

ListForm of Subsidiaries,Restricted Stock Unit Agreement (Performance Based), incorporated by reference to Exhibit 10.48 of the Corporation’s Form 10-K filed herewithwith the SEC on March 1, 2019

   

23.1      

10.49**		 

Consent2019 Voluntary Years of KPMG LLP,Service Incentive Program – Executive Tier – Plan Document, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-Q filed herewithwith the SEC on May 8, 2019

   

31.1      

21.1		 

List of Subsidiaries, filed herewith
23.1
Consent of KPMG LLP, filed herewith
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

   

31.2

 

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

  

32.1

 

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

   

32.2

 

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

   

Table of Contents

99.1      

Exhibit No. 

Corporation’sDescription and References

99.1Corporation’s Proxy Statement for 20172020 Annual Meeting to be held on April 19, 2018,16, 2020, expected to be filed with the SEC on or about March 9, 2018

6, 2020
   

101.INS XBRL

 

Instance Document, filed herewith

   

101.SCH XBRL

 

Taxonomy Extension Schema Document, filed herewith

   

101.CAL XBRL

 

Taxonomy Extension Calculation Linkbase Document, filed herewith

   

101.DEF XBRL

 

Taxonomy Extension Definition Linkbase Document, filed herewith

   

101.LAB XBRL

 

Taxonomy Extension Label Linkbase Document, filed herewith

   

101.PRE XBRL

 

Taxonomy Extension Presentation Linkbase Document, filed herewith

*

104The cover page of Bryn Mawr Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (contained in Exhibit 101)
* Management contract or compensatory plan arrangement.

**

Shareholder approved compensatory plan pursuant to which the Registrant’sRegistrant’s Common Stock may be issued to employees of the Corporation.


Item 15(c) — Not Applicable

Item 16 —Applicable.


ITEM 16.FORM 10-K SUMMARY
None.


127
Table of Contents


SIGNATURES

Pursuant to the requirements of section 13 or 15d of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

Bryn Mawr Bank Corporation

By /s/ Michael W. Harrington
         Michael W. Harrington
         Chief Financial Officer

         (Principal Financial Officer)

Date: March 1, 2018

128
Bryn Mawr Bank Corporation
By:/s/ Michael W. Harrington
Michael W. Harrington
Chief Financial Officer
(Principal Financial Officer)
Date: February 28, 2020


Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Corporation and in the capacities and on the date indicated.


NAME

 

TITLE

 

DATE

     

/s/ Britton H. Murdoch

 

Chairman and Director

 

March 1, 2018

February 28, 2020

Britton H. Murdoch

 

 

     

/s/ Francis J. Leto

 

President and Chief Executive Officer

 

March 1, 2018

February 28, 2020

Francis J. Leto

 

(Principal Executive Officer) and Director

 

     

/s/ Michael W. Harrington

 

Chief Financial Officer

 

March 1, 2018

February 28, 2020

Michael W. Harrington

 

(Principal Financial Officer)

 

     
/s/ Michael T. LaPlante Chief Accounting Officer March 1, 2018February 28, 2020
Michael T. LaPlante (Principal Accounting Officer)  
     

/s/ Diego F. Calderin

 

Director

 

March 1, 2018

February 28, 2020

Diego F. Calderin

    
     

/s/ Michael J. Clement

 

Director

 

March 1, 2018

February 28, 2020

Michael J. Clement

/s/ Andrea F. Gilbert

Director

March 1, 2018

Andrea F. Gilbert

/s/ Wendell F Holland

Director

March 1, 2018

Wendell F. Holland

/s/ Scott M. Jenkins

Director

March 1, 2018

Scott M. Jenkins

/s/ Jerry L. Johnson

Director

March 1, 2018

Jerry L. Johnson

/s/ A. John May, III

Director

March 1, 2018

A.John May, III

    
     

/s/ Lynn B. McKee

Andrea F. Gilbert		 

Director

 

March 1, 2018

February 28, 2020

Lynn B. McKee

Andrea F. Gilbert		    
     

/s/ Wendell F. Holland

DirectorFebruary 28, 2020
Wendell F. Holland
/s/ Scott M. JenkinsDirectorFebruary 28, 2020
Scott M. Jenkins
/s/ A. John May, IIIDirectorFebruary 28, 2020
A. John May, III
/s/ Lynn B. McKeeDirectorFebruary 28, 2020
Lynn B. McKee
/s/ F. Kevin Tylus

 

President and Director

 

March 1, 2018

February 28, 2020

F. Kevin Tylus

 

 

129



144