Indicate by checkmark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that 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 ~~checkmark~~check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting company, or an emerging growth company. See ~~definition~~the definitions of ~~“accelerated filer”,~~ “large accelerated ~~filer”,~~filer,” “accelerated filer,” “smaller reporting ~~company”,~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act.~~Act..

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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The accompanying notes are an integral part of the ~~unaudited consolidated financial statements.~~Unaudited Consolidated Financial Statements.

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited

	Three Months Ended March 31,					Three Months Ended March 31,
	2017		2016			2018		2017
(dollars in thousands, except per share data)
Interest income:
Interest and fees on loans and leases	$	28,482	$	26,696		$	40,689	$	28,482
Interest on cash and cash equivalents		66		46			53		66
Interest on investment securities:
Taxable		1,623		1,351			2,706		1,623
Non-taxable		110		128			84		110
Dividends		45		48			2		45
Total interest income		30,326		28,269			43,534		30,326
Interest expense:
Interest on deposits		1,828		1,076			3,472		1,828
Interest on short-term borrowings		27		17			630		27
Interest on FHLB advances and other borrowings		698		908			562		698
Interest on subordinated notes		370		366			1,143		370
Interest on junior subordinated debentures							288		-
Total interest expense		2,923		2,367			6,095		2,923
Net interest income		27,403		25,902			37,439		27,403
Provision for loan and lease losses		291		1,410			1,030		291
Net interest income after provision for loan and lease losses		27,112		24,492			36,409		27,112
Non-interest income:
Noninterest income:
Fees for wealth management services		9,303		8,832			10,308		9,303
Insurance commissions		763		1,276			1,693		763
Capital markets revenue							666		-
Service charges on deposits		647		702			713		647
Loan servicing and other fees		503		492			686		503
Net gain on sale of loans		629		705			518		629
Net gain (loss) on sale of investment securities available for sale		1		(15	)
Net loss on sale of other real estate owned ("OREO")		-		(76	)
Net gain on sale of investment securities available for sale							7		1
Net gain on sale of other real estate owned ("OREO")							176		-
Dividends on FHLB and FRB stock		214		214			431		214
Other operating income		1,167		1,023			4,338		1,167
Total non-interest income		13,227		13,153
Non-interest expenses:
Total noninterest income							19,536		13,227
Noninterest expenses:
Salaries and wages		12,450		11,738			15,982		12,450
Employee benefits		2,559		2,485			3,708		2,489
Occupancy and bank premises		2,526		2,488			3,050		2,526
Furniture, fixtures, and equipment		1,974		1,919			1,898		1,974
Advertising		386		284			461		386
Amortization of intangible assets		693		891			879		693
Due diligence, merger-related and merger integration expenses		511		-			4,319		511
Professional fees		711		813			748		711
Pennsylvania bank shares tax		664		638			473		664
Information technology		874		1,048			1,195		874
Other operating expenses		3,312		2,692			3,317		3,382
Total non-interest expenses		26,660		24,996

Total noninterest expenses							36,030		26,660
Income before income taxes		13,679		12,649			19,915		13,679
Income tax expense		4,635		4,328			4,630		4,635
Net income	$	9,044	$	8,321		$	15,285	$	9,044
Add: Net loss attributable to noncontrolling interest							1		-
Net income attributable to Bryn Mawr Bank Corporation						$	15,286	$	9,044

Basic earnings per common share	$	0.53	$	0.49		$	0.76	$	0.53
Diluted earnings per common share	$	0.53	$	0.49		$	0.75	$	0.53
Dividends declared per share	$	0.21	$	0.20		$	0.22	$	0.21

Weighted-average basic shares outstanding		16,954,132		16,848,202			20,202,969		16,954,132
Dilutive shares		228,557		34,991			247,525		228,557
Adjusted weighted-average diluted shares		17,182,689		16,883,193			20,450,494		17,182,689

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

Unaudited Consolidated Financial Statements.

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

(dollars in thousands)

Three Months Ended March 31,

2017

2016

Net income
$ 9,044 $ 8,321

Other comprehensive income (loss):

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

Net unrealized gains arising during the period, net of tax expense of $208 and $1,040, respectively
388 1,912
Less: reclassification adjustment for net losses (gains) on sales realized in net income, net of tax (benefit) expense of $0 and $(6), respectively
(1 ) 9
Unrealized investment gains, net of tax expense of $208 and $1,046, respectively
387 1,921
Net change in unfunded pension liability:

Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation,net of tax expense (benefit) of $17 and $(4), respectively
32 (7 )
Total other comprehensive income
419 1,914

Total comprehensive income
$ 9,463 $ 10,235

(dollars in thousands)	Three Months Ended March 31,
	2018			2017

Net income attributable to Bryn Mawr Bank Corporation	$	15,286		$	9,044

Other comprehensive (loss) income:
Net change in unrealized (losses) gains on investment securities available for sale:
Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(1,319) and $208, respectively		(4,961	)		388
Reclassification adjustment for net (gain) on sale realized in net income, net of tax (expense) benefit of $(1) and $0, respectively		(6	)		(1	)
Reclassification adjustment for net (gain) realized on transfer of investment securities available for sale to trading, net of tax (expense) benefit of $(88) and $0, respectively		(329	)		-
Unrealized investment (losses) gains, net of tax (benefit) expense of $(1,408) and $208, respectively		(5,296	)		387
Net change in unfunded pension liability:
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense of $12 and $17, respectively		46			32

Total other comprehensive (loss) income		(5,250	)		419

Total comprehensive income	$	10,036		$	9,463

The accompanying notes are an integral part of the ~~unaudited consolidated financial statements.~~Unaudited Consolidated Financial Statements.

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited

(dollars in thousands)	Three Months Ended March 31,						Three Months Ended March 31,
	2017			2016			2018			2017
Operating activities:
Net Income	$	9,044		$	8,321
Net income attributable to Bryn Mawr Bank Corporation							$	15,286		$	9,044
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		291			1,410			1,030			291
Depreciation of fixed assets		1,392			1,422			1,493			1,392
Net amortization of investment premiums and discounts		673			779			761			673
Net (gain) loss on sale of investment securities available for sale		(1	)		15
Net gain on sale of investment securities available for sale								(7	)		(1	)
Net gain on sale of loans		(629	)		(760	)		(518	)		(629	)
Stock based compensation cost		484			403
Stock based compensation								620			484
Amortization and net impairment of mortgage servicing rights		172			219			171			172
Net accretion of fair value adjustments		(795	)		(1,124	)		(3,004	)		(795	)
Amortization of intangible assets		693			891			879			693
Net loss on sale of OREO		-			76
Net gain on sale of OREO								(176	)		-
Net increase in cash surrender value of bank owned life insurance ("BOLI")		(200	)		(245	)		(279	)		(200	)
Other, net		(6,380	)		(5,340	)		(17,436	)		(6,380	)
Loans originated for resale		(26,064	)		(27,183	)		(19,534	)		(26,064	)
Proceeds from loans sold		33,023			28,864			18,265			33,023
Provision for deferred income taxes		167			(60	)		656			167
Change in income taxes payable/receivable		4,324			2,738			3,819			4,324
Change in accrued interest receivable		141			(336	)		1,725			141
Change in accrued interest payable		(12	)		(557	)		1,287			(12	)
Net cash provided by operating activities		16,323			9,533			5,038			16,323

Investing activities:
Purchases of investment securities available for sale		(42,842	)		(45,507	)		(74,029	)		(42,842	)
Purchases of investment securities held to maturity		(2,335	)		-			-			(2,335	)
Proceeds from maturity and paydowns of investment securities available for sale		217,539			13,955			218,393			217,539
Proceeds from maturity and paydowns of investment securities held to maturity		15			-			39			15
Proceeds from sale of investment securities available for sale		65			65			7			65
Net change in FHLB stock		8,800			800			4,584			8,800
Proceeds from calls of investment securities		1,134			16,795			65			1,134
Proceeds from sales of other investments		-			-
Net change in other investments		(89	)		973			500			(89	)
Purchase of domain name		(152	)					-			(152	)
Net portfolio loan and lease originations		(20,108	)		(109,322	)		(21,230	)		(20,108	)
Purchases of premises and equipment		(162	)		(828	)		(2,063	)		(162	)
Proceeds from sale of OREO		39			1,806			217			39
Net cash provided by (used in) investing activities		161,904			(121,263	)
Net cash provided by investing activities								126,483			161,904

Financing activities:
Change in deposits		56,909			91,427			(57,879	)		56,909
Change in short-term borrowings		(180,538	)		(57,146	)		(64,161	)		(180,538	)
Dividends paid		(3,559	)		(3,357	)		(4,523	)		(3,559	)
Change in long-term FHLB advances and other borrowings		(15,000	)		(5,000	)
Change in long-term FHLB advances								(31,371	)		(15,000	)
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation		(19	)		(25	)		(626	)		(19	)
Net purchase of treasury stock through publicly announced plans		-			(7,971	)
Net sale of treasury stock for deferred compensation plans								171			-
Repurchase of warrants from U.S. Treasury								(1,755	)		-
Proceeds from exercise of stock options		650			283			992			650
Net cash (used in) provided by financing activities		(141,557	)		18,211
Net cash used in financing activities								(159,152	)		(141,557	)

Change in cash and cash equivalents		36,670			(93,519	)		(27,631	)		36,670
Cash and cash equivalents at beginning of period		50,765			143,067			60,024			50,765
Cash and cash equivalents at end of period	$	87,435		$	49,548		$	32,393		$	87,435

Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	117		$	1,651		$	146		$	117
Interest	$	2,935		$	2,924		$	4,808		$	2,935

Non-cash information:
Change in other comprehensive loss	$	419		$	1,914		$	(5,250	)	$	419
Change in deferred tax due to change in other comprehensive loss	$	225		$	1,042
Change in deferred tax due to change in comprehensive income							$	(1,396	)	$	225
Transfer of loans to other real estate owned and repossessed assets							$	37		$	-

The accompanying notes are an integral part of the ~~unaudited consolidated financial statements.~~ Unaudited Consolidated Financial Statements.

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited

(dollars in thousands, except per share data)

(dollars in thousands, except per share information)

For the Three Months Ended March 31, 2017

Shares of Common Stock Issued

Common
Stock

Paid-in
Capital

Treasury Stock

Accumulated Other Comprehensive Loss

Retained Earnings

Total Shareholders' Equity

Balance December 31, 2016
21,110,968 $ 21,111 $ 232,806 $ (66,950 ) $ (2,409 ) $ 196,569 $ 381,127
Net income
- - - - 9,044 9,044
Dividends declared, $0.21 per share
- - - - (3,610 ) (3,610 )
Other comprehensive income, net of tax expense of $225
- - - 419 - 419
Stock based compensation
- 484 - - - 484
Net purchase of treasury stock from stock awards for statutory tax withholdings
- - (19 ) - - (19 )
Common stock issued through share-based awards and options exercises
30,178 30 620 - - - 650
Balance March 31, 2017
21,141,146 $ 21,141 $ 233,910 $ (66,969 ) $ (1,990 ) $ 202,003 $ 388,095

	For the Three Months Ended March 31, 2018
	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, 2017		24,360,049	$	24,360	$	371,486		$	(68,179	)	$	(4,414	)	$	205,549		$	(683	)	$	528,119
Net income attributable to Bryn Mawr Bank Corporation		-		-		-			-			-			15,286			-			15,286
Net loss attributable to noncontrolling interest		-		-		-			-			-			-			(1	)		(1	)
Dividends declared, $0.22 per share		-		-		-			-			-			(4,495	)		-			(4,495	)
Other comprehensive loss, net of tax expense of $1,396		-		-		-			-			(5,250	)		-			-			(5,250	)
Stock based compensation		-		-		620			-			-			-			-			620
Net purchase of treasury stock from stock awards for statutory tax withholdings		-		-		-			(626	)		-			-			-			(626	)
Net sale of treasury stock for deferred compensation trusts		-		-		153			18			-			-			-			171
Repurchase of warrants from U.S. Treasury		-		-		(1,853	)		-			-			98			-			(1,755	)
Common stock issued:
Common stock issued through share-based awards and options exercises		78,709		79		913			-			-			-			-			992

Balance March 31, 2018		24,438,758	$	24,439	$	371,319		$	(68,787	)	$	(9,664	)	$	216,438		$	(684	)	$	533,061

The accompanying notes are an integral part of the ~~unaudited consolidated financial statements.~~ Unaudited Consolidated Financial Statements.

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes toConsolidatedFinancial Statements

(Unaudited)

Note 1 - Basis of Presentation

The ~~unaudited consolidated financial statements~~Unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These ~~unaudited consolidated financial statements~~Unaudited Consolidated Financial Statements should be read in conjunction with the audited ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto in the Corporation’s Annual Report on Form ~~10-K~~10-K for the twelve months ended December 31, ~~2016 (the “2016~~2017 (the “2017 Annual Report”).

The results of operations for the three months ended March 31, ~~2017~~ 2018 are not necessarily indicative of the results to be expected for the full year.

~~Note 2~~ ~~- Earnings per Common Share~~Principles of Consolidation

~~Basic earnings~~The Unaudited 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 (defined in Note 3 – Business Combinations below), the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II. These two entities are notconsolidated per ~~common share excludes dilution~~requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and ~~is computed by dividing income available~~transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to ~~common shareholders~~conform to the current-year presentation.

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 ~~weighted-average common shares outstanding~~Corporation since January 1, 2018, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of March 31, 2018.

Adopted Pronouncements:

FASB ASU 2014-09 (Topic 606), “Revenue from Contracts with Customers”

The Corporation adopted ASU 2014-09Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as other real estate owned (“OREO”). The majority of the Corporation’s revenues come from interest income and other sources, including loans, leases, investment securities and derivatives, that are outside the scope of ASC 606. The Corporation’s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, interchange income, wealth management fees, investment brokerage fees, and the net gain on sale of OREO. Refer to Note 17Revenue from Contracts with Customers for further discussion on the Corporation’s accounting policies for revenue sources within the scope of ASC 606. The adoption of this ASU did not have an impact to our Consolidated Financial Statements.

FASB ASU 2017-01 (Topic 805), “Business Combinations”

The Corporation adopted ASU 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”

The Corporation adopted ASU 2016-15, which provides guidance on eight specific cash flow issues and their disclosure in 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 application of the predominance principle. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

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FASB ASU 2016-01 (Subtopic 825-10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”

The Corporation adopted ASU 2016-01 which requires that equity investments be measured at fair value with changes in fair value recognized in net income. The Corporation’s equity investments with a readily determinable fair value are currently included within trading securities and are measured at fair value with changes in fair value recognized in net income. In connection with the adoption of this ASU, the Corporation elected the practicability exception to fair value measurement for investments in equity securities without a readily determinable fair value (other than our FHLB, FRB, and Atlantic Central Bankers Bank stock, which are outside of the scope of this ASU). Under the practicability exception, the investments are measured at cost, less impairment, plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements.

FASB ASU 2017-07 – Compensation – Retirement Benefits (Topic 715): “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”

On January 1, 2018, the Corporation adopted ASU 2017-07 and all subsequent amendments to the ASU, which 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. ~~Diluted earnings per common share takes into account~~The other components of net benefit cost are required to be presented in the ~~potential dilution computed pursuant~~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).

Upon adoption, the components of net periodic benefit cost other than the service cost component were reclassified retrospectively 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”, there was no impact to total “Non-interest expenses” or “Net income.” The components of net periodic benefit cost are currently disclosed in Note 17 – “Pension and Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements found in our 2017 Annual Report. Additionally, the Corporation does not currently capitalize any components of its net periodic benefit costs. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

Pronouncements Not Yet Effective:

FASB ASU 2017-04 (Topic 350), “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 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. 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 of Credit Losses on Financial Instruments”

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss (“CECL”) model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard. The ASU also makes targeted amendments to the ~~treasury stock method~~current impairment model for available-for-sale debt securities. ASU 2016-13 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 ~~could occur if stock options were exercised~~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 ~~converted into common stock,~~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 ~~effect~~macroeconomic conditions and forecasts at the adoption date. The Corporation has engaged the services of ~~restricted~~a third-party consultant as well as invested in software designed to assist management in the development and ~~performance shares becoming unrestricted common stock.~~implementation of the new CECL model. Management is currently in the process of validating historical data uploaded within the third-party software to replicate the current ALLL model. The ~~effects~~adoption of ~~stock options are excluded from~~this ASU will also require the ~~computation~~addition of ~~diluted earnings per share~~an allowance for held-to-maturity debt securities. The Corporation currently does not intend to early adopt this new guidance.

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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 ~~in which~~beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the ~~effect would be anti-dilutive. All weighted average shares, actual shares and per share information~~modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial ~~statements have been adjusted retroactively~~statements. Management has begun to inventory the Corporation’s various leases and is currently computing the lease liability and a right-of-use asset for all leases. Management is aware that the adoption of this ASU will impact the Corporation’s balance sheet for the ~~effect~~recording of ~~stock dividends~~assets and ~~splits.~~ 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.

Three Months Ended

March 31,

(dollars in thousands except per share data)

2017

2016

Numerator:

Net income available to common shareholders
$ 9,044 $ 8,321
Denominator for basic earnings per share –weighted average shares outstanding
16,954,132 16,848,202
Effect of dilutive common shares
228,557 34,991
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
17,182,689 16,883,193
Basic earnings per share
$ 0.53 $ 0.49
Diluted earnings per share
$ 0.53 $ 0.49
Anti-dilutive shares excluded from computation of average dilutive earnings per share
— —

~~Page 8~~

~~Table of Contents~~

Note 3 - Business Combinations

~~Pending Business Combination –~~ Royal Bancshares of Pennsylvania, Inc.

On ~~January 30,~~December 15, 2017, the ~~Corporation entered into a definitive Agreement and Plan~~previously announced merger of ~~Merger to acquire~~ Royal Bancshares of Pennsylvania, Inc. (“RBPI”)~~, parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge~~ with and into the Corporation (the “RBPI Merger”), and ~~RBA will merge~~the merger of Royal Bank America with and into the ~~Bank.~~Bank, as contemplated by the Agreement and Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”) were completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,098,754 shares of the Corporation’s common stock. Shareholders of RBPI received 0.1025 shares of Corporation common stock for each share of RBPI Class A common stock and 0.1179 shares of Corporation common stock for each share of RBPI Class B common stock owned as of the effective 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 Corporation 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. The ~~Acquisition,~~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.

In connection with the RBPI Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of the date of the RBPI Merger, which include the effects of any 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
Cash in lieu of fractional shares		7
Cash-out of certain options		112
Fair value of warrants assumed		1,853
Value of consideration	$	138,627

Assets acquired:
Cash and due from banks	$	17,092
Investment securities available for sale		121,587
Loans		567,308
Premises and equipment		8,264
Deferred income taxes		34,380
Bank-owned life insurance		16,550
Core deposit intangible		4,670
Favorable lease asset		566
Other assets		13,996
Total assets	$	784,413

Liabilities assumed:
Deposits	$	593,172
FHLB and other long-term borrowings		59,568
Short-term borrowings		15,000
Junior subordinated debentures		21,416
Unfavorable lease liability		322
Other liabilities		31,381
Total liabilities	$	720,859

Net assets acquired	$	63,554

Goodwill resulting from acquisition of RBPI	$	75,073

Page 10

Table of Contents

Provisional Estimates of Fair Value of Certain Assets Acquired in the RBPI Merger

As of March 31, 2018, 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. These adjustments will result in corresponding adjustments to goodwill and net deferred tax asset. In accordance with ASC 805-10, the adjustments will be recorded in the period in which the new information about facts and circumstances that existed as of the acquisition date is obtained and reviewed.

During the three months ended March 31, 2018, the Corporation adjusted certain provisional fair value estimates related to the RBPI Merger. The following table details the changes in fair value of the net assets acquired and liabilities assumed as of December 15, 2017 from the amounts originally reported in the Corporation’s Form 10-K for the year ended December 31, 2017:

(dollars in thousands)
Goodwill resulting from the acquisition of RBPI reported as of December 31, 2017	$	72,762

Fair Value Adjustments:
Loans		3,065
Other assets		491
Deferred income taxes		(1,245	)
Total Fair Value Adjustments		2,311

Goodwill from the acquisition of RBPI as of March 31, 2018	$	75,073

Methods Used to Fair Value Assets and Liabilities

For information regarding the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed, refer to Note 2 in the Notes to Consolidated Financial Statements in our 2017 Annual Report.

Loans held for investment

During the three months ended March 31, 2018, new information became available related to certain loans acquired from RBPI. This new information resulted in an adjustment to the fair value mark applied to the acquired loan portfolio. Adjustments were made to the fair value of loans acquired with evidence of credit quality deterioration. 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 ~~add approximately $602~~yield. As a result of the adjustments, the Corporation recorded a $3.0 million increase in nonaccretable difference. The adjustment to the aggregate expected cash flows less the acquisition date fair value resulted in an increase in accretable yield of $207 thousand.

The following table provides an updated summary of the acquired impaired loans and ~~$630 million~~leases as of December 15, 2017, which include the effects of any measurement period adjustments in ~~deposits (based on December 31, 2016 financial information)~~accordance with ASC 805-10, resulting from the RBPI Merger:

(dollars in thousands)
Contractually required principal and interest payments	$	38,404
Contractual cash flows not expected to be collected (nonaccretable difference)		(16,025	)
Cash flows expected to be collected		22,379
Interest component of expected cash flows (accretable yield)		(2,526	)
Fair value of loans acquired with deterioration of credit quality	$	19,853

Page 11

Table of Contents

Harry R. Hirshorn & Company, Inc., strengthens the Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ranks it as the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and an expanded physical presence in Philadelphia County, Pennsylvania, is expected to close during the third quarter of 2017.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 (“PCPB”). The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, with three contingent cash payments, not to exceed $575 thousand each, to be payable on each of May 24, 2018, May 24, 2019, and May 24, 2020, subject to the attainment of certain targets during the related periods. 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

As of December 31, 2017, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Hirshorn acquisition were final.

Pro Forma Income Statements (unaudited)

The following table presents the pro forma income statement of the combined institution (RBPI and the Corporation) for the three months ended March 31,2017 as if the RBPI Merger had occurred on January 1,2017. The pro forma income statement adjustments are limited to the effects of purchase accounting fair value mark amortization and accretion and intangible asset amortization. No cost savings or additional merger expenses have been included in the pro forma income statement. Due to the immaterial contribution to net income of the Hirshorn acquisition, which occurred during the year shown in the table, the pro forma effects of the Hirshorn acquisition have been excluded.

Page 12

Table of Contents

(dollars in thousands)	Three Months Ended March 31, 2017
Total interest income	$	41,227
Total interest expense		4,562
Net interest income		36,665
Provision for loan and lease losses		588
Net interest income after provision for loan and lease losses		36,077
Total non-interest income		13,738
Total non-interest expenses*		32,295
Income before income taxes		17,520
Income tax expense		5,936
Net income	$	11,584
Per share data**:
Weighted-average basic shares outstanding		20,052,886
Dilutive shares		256,176
Adjusted weighted-average diluted shares		20,309,062
Basic earnings per common share	$	0.58
Diluted earnings per common share	$	0.57

* Total non-interest expense includes RBPI Net Income Attributable to Noncontrolling Interest and Preferred Stock Series A Accumulated Dividend and Accretion for pro forma presentation.

** Assumes that the shares of RBPI common stock outstanding as of December 31, 2017 were outstanding for the full three month period ended March 31, 2017.

Due Diligence, Merger-Related and Merger IntegrationExpenses

Due diligence, merger-related and merger integration expenses ~~may~~ include consultant costs, investment banker fees, contract breakage fees, retention bonuses for severed employees, ~~and~~ salary and wages for redundant staffing involved in the integration of the ~~institutions.~~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:

	Three Months EndedMarch 31,				Three Months Ended March 31,
(dollars in thousands)	2017		2016		2018		2017⁽¹⁾
Advertising					$	59	$	—
Employee Benefits						203		—
Occupancy and bank premises						1,856		—
Furniture, fixtures, and equipment						179		—
Information technology						112		—
Professional fees	$	396	$	—		747		396
Salaries and wages		80		—		346		80
Other		35		—		817		35
Total due diligence and merger-related expenses	$	511	$	—
Total due diligence, merger-related and merger integration expenses					$	4,319	$	511

(1) Total due diligence, merger-related and merger integration expenses for the three months ended March 31, 2017 were primarily related to the acquisition of Hirshorn.

Page 13

Table of Contents

Note 4 - Investment Securities

The amortized cost and fair value of investment securitiesavailable for sale as of March 31, 2018 and December 31, 2017 are as follows:

~~As of~~~~March 31, 2017~~

(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

U.S. Treasury securities
$ 101 $ — $ — $ 101
Obligations of the U.S. government and agencies
101,279 161 (964
)
100,476
Obligations of state and political subdivisions
30,949 56 (65
)
30,940
Mortgage-backed securities
197,224 1,281 (1,085
)
197,420
Collateralized mortgage obligations
46,253 87 (864
)
45,476
Other investments
16,520 177 (82
)
16,615

Total
$ 392,326 $ 1,762 $ (3,060
)
$ 391,028

As of ~~December~~March 31, 2018~~2016~~

(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

U.S. Treasury securities
$ 200,094 $ 3 $ — $ 200,097
Obligations of the U.S. government and agencies
83,111 167 (1,080
)
82,198
Obligations of state and political subdivisions
33,625 26 (121
)
33,530
Mortgage-backed securities
185,997 1,260 (1,306
)
185,951
Collateralized mortgage obligations
49,488 108 (902
)
48,694
Other investments
16,575 105 (154
)
16,526

Total
$ 568,890 $ 1,669 $ (3,563
)
$ 566,996

~~Page 9~~

~~Table of Contents~~

(dollars in thousands)

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

U.S. Treasury securities

100

—

100

Obligations of the U.S. government and agencies

178,863

(3,790

)

175,107

Obligations of state and political subdivisions

19,992

(83

)

19,917

Mortgage-backed securities

309,071

511

(5,680

)

303,902

Collateralized mortgage obligations

35,302

(1,324

)

33,980

Other investment securities

1,100

—

)

1,097

Total

544,428

555

(10,880

)

534,103

As of December 31, 2017

(dollars in thousands)

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

U.S. Treasury securities

200,077

—

200,088

Obligations of the U.S. government and agencies

153,028

(2,059

)

151,044

Obligations of state and political subdivisions

21,352

(53

)

21,310

Mortgage-backed securities

275,958

887

(1,855

)

274,990

Collateralized mortgage obligations

37,596

(948

)

36,662

Other investment securities

4,813

318

(23

)

5,108

Total

692,824

1,316

(4,938

)

689,202

The following tables ~~detail~~present the aggregate amount of ~~investment securities~~gross unrealized losses as of March 31, 2018 and December 31, 2017 on available for sale ~~that were~~investment securities classified according to the amount of time those securities have been in ana continuous unrealized loss ~~position as of the dates indicated:~~

~~As of~~~~March 31, 2017~~position:

Less than 12
Months

12 Months
or Longer

Total

(dollars in thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

U.S. Treasury securities
$ 101 $ — $ — $ — $ 101 $ —
Obligations of the U.S. government and agencies
75,404 (964
)
— — 75,404 (964
)
Obligations of state and political subdivisions
13,847 (65
)
— — 13,847 (65
)
Mortgage-backed securities
103,807 (1,085
)
— — 103,807 (1,085
)
Collateralized mortgage obligations
34,441 (864
)
— — 34,441 (864
)
Other investments
2,331 (46
)
11,920 (36
)
14,251 (82
)
Total
$ 229,931 $ (3,024
)
$ 11,920 $ (36
)
$ 241,851 $ (3,060
)

As of March 31, 2018

	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	$	128,699	$	(2,688	)	$	26,389	$	(1,102	)	$	155,088	$	(3,790	)
Obligations of state and political subdivisions		9,758		(26	)		2,122		(57	)		11,880		(83	)
Mortgage-backed securities		236,886		(4,620	)		29,840		(1,060	)		266,726		(5,680	)
Collateralized mortgage obligations		7,726		(112	)		25,143		(1,212	)		32,869		(1,324	)
Other investment securities		797		(3	)		—		—			797		(3	)
Total	$	383,866	$	(7,449	)	$	83,494	$	(3,431	)	$	467,360	$	(10,880	)

As of December 31,201~~2016~~7

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

)

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
$ 62,211 $ (1,080
)
$ — $ — $ 62,211 $ (1,080
)
Obligations of state and political subdivisions
24,482 (121
)
— — 24,482 (121
)
Mortgage-backed securities
101,433 (1,306
)
— — 101,433 (1,306
)
Collateralized mortgage obligations
35,959 (902
)
— — 35,959 (902
)
Other investments
2,203 (93
)
11,895 (61
)
14,098 (154
)
Total
$ 226,288 $ (3,502
)
$ 11,895 $ (61
)
$ 238,183 $ (3,563
)

Page 14

Table of Contents

Management evaluates the Corporation’s investment securities ~~available for sale~~ that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. The ~~available for sale~~ 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 ~~available for sale~~ investment portfolio are rated as ~~investment grade.~~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. The Corporation~~issuers or collateral. Management does not believe that these unrealized losses are other-than-temporary. ~~The Corporation~~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 of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, securities having a fair ~~values~~value of ~~$103.4~~$121.6 million and ~~$119.4~~$126.2 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the ~~Federal Reserve Bank of Philadelphia~~FRB discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”) borrowings 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.

~~Page 10~~

~~Table of Contents~~

The amortized cost and fair value of available for saleinvestment and mortgage-related securitiesavailable for sale as of March 31, ~~2017~~ 2018 and December 31, ~~2016,~~ 2017, by contractual maturity, are ~~detailed below:~~

March 31, 2017

December 31,2016

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Investment securities¹:

Due in one year or less
$ 12,019 $ 12,026 $ 213,876 $ 213,885
Due after one year through five years
65,360 65,221 40,335 40,270
Due after five years through ten years
39,023 38,328 45,840 44,914
Due after ten years
17,226 17,240 18,079 18,055
Subtotal
133,628 132,815 318,130 317,124
Mortgage-related securities¹
243,477 242,896 235,485 234,644
Mutual funds with no stated maturity
15,221 15,317 15,275 15,228
Total
$ 392,326 $ 391,028 $ 568,890 $ 566,996

¹shown below. Expected 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.

March 31, 2018

December 31, 2017

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Investment securities:

Due in one year or less
$ 11,932 $ 11,922 $ 211,019 $ 211,019
Due after one year through five years
149,967 146,773 126,452 124,797
Due after five years through ten years
23,413 22,910 23,147 22,804
Due after ten years
14,743 14,616 15,439 15,421
Subtotal
200,055 196,221 376,057 374,041
Mortgage-related securities⁽¹⁾
344,373 337,882 313,554 311,652
Mutual funds with no stated maturity
— — 3,213 3,509
Total
$ 544,428 $ 534,103 $ 692,824 $ 689,202

⁽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 amortized cost and fair value of investment securitiesheld to maturity as of March 31, ~~2017~~ 2018 and December 31, ~~2016~~ 2017 are ~~detailed below:~~as follows:

~~As of~~~~March~~ 31~~, 201~~7

(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Mortgage-backed securities
$ 5,194 $ — $ (78
)
$ 5,116
Total
$ 5,194 $ — $ (78
)
$ 5,116
As of~~Dec~~March 31, 2018~~ember 3~~1~~, 2016~~
(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 $ 7,885 $ — $ (256
)
$ 7,629
Total
$ 2,879 $ — $ (61
)
$ 2,818

T~~he following tables detail the amount~~As of~~held to maturitysecurities that were in an unrealized loss position as of March 31, 2017 and~~ December 31, ~~2016~~:2017
~~As of March 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

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Mortgage-backed securities
$ 5,116 $ (78
)
$ — $ — $ 5,116 $ (78
)
$ 7,932 $ 5 $ (86
)
$ 7,851
Total
$ 5,116 $ (78
)
$ — $ — $ 5,116 $ (78
)

Page 1115
Table of Contents

AsThe following tables present the aggregate amount of~~Dec~~~~ember 3~~1~~, 2016~~ gross unrealized losses as of March 31, 2018 and December 31, 2017 on held to maturity securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

Less than 12
Months

12 Months
or Longer

Total

(dollars in thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Mortgage-backed securities
$ 2,818 $ (61
)
$ — $ — $ 2,818 $ (61
)
Total
$ 2,818 $ (61
)
$ — $ — $ 2,818 $ (61
)
As of March 31, 2018

Less than 12
Months

12 Months
or Longer

Total

(dollars in thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
Fair
Value
Unrealized
Losses

Mortgage-backed securities
$ 4,953 $ (143
)
$ 2,676 $ (113
)
$ 7,629 $ (256
)

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

Mortgage-backed securities
$ 2,756 $ (25
)
$ 3,866 $ (61
)
$ 6,622 $ (86
)
The amortized cost and fair value of ~~investment securities~~held to maturity investment securities as of March 31, ~~2017~~ 2018 and December 31, ~~2016,~~ 2017, by contractual maturity, are ~~detailed below~~:shown below:

March 31, 2017

December 31,2016

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Mortgage-related securities¹
$ 5,194 $ 5,116 $ 2,879 $ 2,818
Total
$ 5,194 $ 5,116 $ 2,879 $ 2,818

March 31, 2018

December 31, 2017

(dollars in thousands)

Amortized
Cost

Fair Value

Amortized
Cost

Fair Value

Mortgage-backed securities⁽¹⁾
$ 7,885 $ 7,629 $ 7,932 $ 7,851

⁽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.

As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, the Corporation’s investment securities held intrading accounts totaled ~~$4.1~~$8.2 million and ~~$3.9~~$4.6 million, respectively, and consisted ~~solely~~ of deferred compensation trust accounts which ~~were~~are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan ~~participants.~~participants and, as of March 31, 2018, 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.

Page 16
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 ~~acquisition of CBH,~~Continental Bank Holdings, Inc. Merger, the November 2012 transaction with First Bank of Delaware, ~~(“FBD”)~~ and the July 2010 acquisition of First Keystone Financial, Inc. ~~(“FKF”). Many of the~~Certain tables in this footnote are presented ~~for all loans as well as supplemental tables for~~with a breakdown between originatedandacquired ~~loans.~~loans and leases.

~~Page 12~~
~~Table of Contents~~
A. The table below details~~all~~~~portfolio~~~~loans and leases as of the dates indicated:~~

March 31,
2017

December 31,
2016

Loans held for sale
$ 3,015 $ 9,621
Real estate loans:

Commercial mortgage
$ 1,137,870 $ 1,110,898
Home equity lines and loans
203,962 207,999
Residential mortgage
418,264 413,540
Construction
145,699 141,964
Total real estate loans
1,905,795 1,874,401
Commercial and industrial
567,917 579,791
Consumer
23,932 25,341
Leases
57,945 55,892
Total portfolio loans and leases
2,555,589 2,535,425
Total loans and leases
$ 2,558,604 $ 2,545,046
Loans with fixed rates
$ 1,124,066 $ 1,130,172
Loans with adjustable or floating rates
1,434,538 1,414,874
Total loans and leases
$ 2,558,604 $ 2,545,046
Net deferred loan origination fees included in the above loan table
$ (864
)
$ (735
)
~~The table below details the Corporation’s~~~~originated~~portfolio loans and leases as of the dates indicated:

March 31,
2017

December 31,
2016

Loans held for sale
$ 3,015 $ 9,621
Real estate loans:

Commercial mortgage
$ 990,579 $ 946,879
Home equity lines and loans
176,555 178,450
Residential mortgage
351,349 342,268
Construction
145,699 141,964
Total real estate loans
1,664,182 1,609,561
Commercial and industrial
540,896 550,334
Consumer
23,791 25,200
Leases
57,945 55,892
Total portfolio loans and leases
2,286,814 2,240,987
Total loans and leases
$ 2,289,829 $ 2,250,608
Loans with fixed rates
$ 995,798 $ 992,917
Loans with adjustable or floating rates
1,294,031 1,257,691
Total originated loans and leases
$ 2,289,829 $ 2,250,608
Net deferred loan origination fees included in the above loan table
$ (864
)
$ (735
)

~~Page 13~~
~~Table of Contents~~

March 31, 2018

December 31, 2017

(dollars in thousands)

Originated

Acquired

Total Loans and
Leases

Originated

Acquired

Total Loans and
Leases

Loans held for sale
$ 5,522 $ — $ 5,522 $ 3,794 $ — $ 3,794
Real Estate Loans:

Commercial mortgage
$ 1,151,578 $ 389,879 $ 1,541,457 $ 1,122,327 $ 401,050 $ 1,523,377
Home equity lines and loans
178,624 32,845 211,469 183,283 34,992 218,275
Residential mortgage
360,242 93,413 453,655 360,935 97,951 458,886
Construction
135,480 66,688 202,168 128,266 84,188 212,454
Total real estate loans
$ 1,825,924 $ 582,825 $ 2,408,749 $ 1,794,811 $ 618,181 $ 2,412,992
Commercial and industrial
613,315 113,916 727,231 589,304 130,008 719,312
Consumer
45,731 2,692 48,423 35,146 3,007 38,153
Leases
79,857 41,535 121,392 68,035 47,366 115,401
Total portfolio loans and leases
$ 2,564,827 $ 740,968 $ 3,305,795 $ 2,487,296 $ 798,562 $ 3,285,858
Total loans and leases
$ 2,570,349 $ 740,968 $ 3,311,317 $ 2,491,090 $ 798,562 $ 3,289,652
Loans with fixed rates
$ 1,081,414 $ 473,855 $ 1,555,269 $ 1,034,542 $ 538,510 $ 1,573,052
Loans with adjustable or floating rates
1,488,935 267,113 1,756,048 1,456,548 260,052 1,716,600
Total loans and leases
$ 2,570,349 $ 740,968 $ 3,311,317 $ 2,491,090 $ 798,562 $ 3,289,652
Net deferred loan origination fees included in the above loan table
$ 1,226 $ — $ 1,226 $ 887 $ — $ 887

~~The table below details the Corporation’s~~~~acquired~~ ~~portfolio loans as of the dates indicated:~~

March 31,
2017

December 31,
2016

Real estate loans:

Commercial mortgage
$ 147,291 $ 164,019
Home equity lines and loans
27,407 29,549
Residential mortgage
66,915 71,272
Construction
— —
Total real estate loans
241,613 264,840
Commercial and industrial
27,021 29,457
Consumer
141 141
Total portfolio loans and leases
268,775 294,438
Total loans and leases
$ 268,775 $ 294,438
Loans with fixed rates
$ 128,268 $ 137,255
Loans with adjustable or floating rates
140,507 157,183
Total acquired loans and leases
$ 268,775 $ 294,438
B. Components of the net investment in leases are detailed as follows:

March 31, 2018

December 31, 2017

(dollars in thousands)

March 31,
2017

December 31,
2016

Originated

Acquired

Total Leases

Originated

Acquired

Total Leases

Minimum lease payments receivable
$ 64,502 $ 62,379 $ 88,752 $ 47,549 $ 136,301 $ 75,592 $ 55,219 $ 130,811
Unearned lease income
(8,648
)
(8,608
)
(12,523
)
(7,336
)
(19,859
)
(10,338
)
(9,523
)
(19,861
)
Initial direct costs and deferred fees
2,091 2,121 3,628 1,322 4,950 2,781 1,670 4,451
Total
$ 57,945 $ 55,892
Total Leases
$ 79,857 $ 41,535 $ 121,392 $ 68,035 $ 47,366 $ 115,401

C. Non-Performing Loans and Leases⁽¹⁾⁽¹⁾

March 31, 2018

December 31, 2017

(dollars in thousands)

Originated

Acquired

Total Loans and Leases

Originated

Acquired

Total Loans and Leases

Commercial mortgage
$ 89 $ 49 $ 138 $ 90 $ 782 $ 872
Home equity lines and loans
1,693 256 1,949 1,221 260 1,481
Residential mortgage
1,491 1,113 2,604 1,505 2,912 4,417
Commercial and industrial
1,926 573 2,499 826 880 1,706
Leases
189 154 343 103 — 103
Total non-performing loans and leases
$ 5,388 2,145 $ 7,533 $ 3,745 $ 4,834 $ 8,579
~~The following~~
⁽¹⁾Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, ~~details~~with the~~all~~ ~~non-performing portfolio~~exception of $107thousand and $167 thousand of purchased credit-impaired loans ~~and leases~~ as of ~~the dates indicated:~~
(dollars in thousands)

March 31,
2017

December 31,
2016

Non-accrual loans and leases:

Commercial mortgage
$ 315 $ 320
Home equity lines and loans
1,828 2,289
Residential mortgage
2,640 2,658
Commercial and industrial
2,471 2,957
Consumer
— 2
Leases
75 137
Total
$ 7,329 $ 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~~$~~343~~ ~~thousand~~ ~~and $~~~~344 tho~~~~usand of purchased credit-impaired loans as of~~March 31, 2018and 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)

March 31,
2017

December 31,
2016

Non-accrual originated loans and leases:

Commercial mortgage
$ 263 $ 265
Home equity lines and loans
1,674 2,169
Residential mortgage
1,624 1,654
Commercial and industrial
908 941
Consumer
— 2
Leases
75 137
Total
$ 4,544 $ 5,168

Page 1417
Table of Contents

~~The following table details non-performing~~~~acquired~~ ~~portfolio loans~~⁽¹⁾ ~~as of the dates indicated:~~
(dollars in thousands)

March 31,
2017

December 31,
2016

Non-accrual acquired loans and leases:

Commercial mortgage
$ 52 $ 55
Home equity lines and loans
154 120
Residential mortgage
1,016 1,004
Commercial and industrial
1,563 2,016
Total
$ 2,785 $ 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~~$~~343~~~~thousand~~ ~~and $~~~~344~~ ~~thousand of purchased credit-impaired loans as of~~~~March 31, 2017~~ ~~and December 31,~~~~2016~~~~, respectively, which became non-performing subsequent to acquisition.~~
D.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)

March 31,
2017

December 31,
2016

Outstanding principal balance
$ 17,264 $ 18,091
Carrying amount⁽¹⁾
$ 11,862 $ 12,432

(dollars in thousands)

March 31, 2018

December 31, 2017

Outstanding principal balance
$ 48,720 $ 46,543
Carrying amount⁽¹⁾
$ 33,228 $ 30,849
⁽¹⁾
⁽¹⁾Includes $109 thousand and $173 thousand of purchased credit-impaired loans as of March 31, 2018 and December 31, 2017, 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 $107 thousand and $167 thousand of purchased credit-impaired loans as of March 31, 2018 and December 31, 2017, respectively, which became non-performing subsequent to acquisition, which are disclosed in Note 5C, above, and which also have no accretable yield.
~~Includes $~~~~360 thousand~~ ~~and $~~~~368~~ ~~thousand~~of~~purchased credit-impaired loans as of~~~~March 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 $~~343~~ ~~thousand and $~~~~344~~ ~~thousand of purchased credit-impaired loans as of~~~~March 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.~~

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 three months ended March 31, ~~2017:~~2018:

(dollars in thousands)

Accretable
Discount

Accretable
Discount

Balance, December 31, 2016
$ 3,233
Balance, December 31, 2017
$ 4,083
Accretion
(485
)
(685
)
Reclassifications from nonaccretable difference
— 5
Additions/adjustments
— 212
Disposals
— —
Balance, March 31, 2017
$ 2,748
Balance, March 31, 2018
$ 3,615

E.E. Age Analysis of Past Due Loans and Leases

The following tables present an aging ofall portfolio loans and leases as of the dates indicated:

Accruing Loans and Leases

Accruing Loans and Leases

(dollars in thousands)

As of March 31, 2017

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
As of March 31, 2018
(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
$ 1,926 $ — $ — $ 1,926 $ 1,135,629 $ 1,137,555 $ 315 $ 1,137,870 $ 533 $ 391 $ — $ 924 $ 1,540,395 $ 1,541,319 $ 138 $ 1,541,457
Home equity lines and loans
24 200 — 224 201,910 202,134 1,828 203,962 150 — — 150 209,370 209,520 1,949 211,469
Residential mortgage
1,967 233 — 2,200 413,424 415,624 2,640 418,264 1,119 — — 1,119 449,932 451,051 2,604 453,655
Construction
— — — — 145,699 145,699 — 145,699 333 — — 333 201,835 202,168 — 202,168
Commercial and industrial
519 719 — 1,238 564,208 565,446 2,471 567,917 499 — — 499 724,233 724,732 2,499 727,231
Consumer
10 10 — 20 23,912 23,932 — 23,932 — — — — 48,423 48,423 — 48,423
Leases
159 310 — 469 57,401 57,870 75 57,945 2,640 881 — 3,521 117,528 121,049 343 121,392
$ 4,605 $ 1,472 $ — $ 6,077 $ 2,542,183 $ 2,548,260 $ 7,329 $ 2,555,589
Total portfolio loans and leases
$ 5,274 $ 1,272 $ — $ 6,546 $ 3,291,716 $ 3,298,262 $ 7,533 $ 3,305,795

~~Page 15~~
~~Table of Contents~~

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 portfolio loans and leases
$ 4,979 $ 2,980 $ — $ 7,959 $ 3,269,320 $ 3,277,279 $ 8,579 $ 3,285,858
(dollars in thousands)
Accruing Loans and Leases

As of December 31, 2016

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
$ 1,723 $ 1,303 $ — $ 3,026 $ 2,524,036 $ 2,527,062 $ 8,363 $ 2,535,425
*~~included~~Included as “current” are $~~2.0~~$1.8 million and $1~~5.3~~$4.1 million of loans and leases as ofMarch 31, ~~201~~72018 andDecember 31, ~~2016~~,2017, respectively, which are classified as ~~Administratively Delinquent.~~administratively delinquent. An ~~Administratively Delinquent~~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.

Page 18
Table of Contents
The following tables present an aging oforiginated portfolio loans and leases as of the dates indicated:

Accruing Loans and Leases

Accruing Loans and Leases

(dollars in thousands)

As of March 31, 2017

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
As of March 31, 2018
(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
$ 714 $ — $ — $ 714 $ 989,602 $ 990,316 $ 263 $ 990,579 $ 425 $ 391 $ — $ 816 $ 1,150,673 $ 1,151,489 $ 89 $ 1,151,578
Home equity lines and loans
24 — — 24 174,857 174,881 1,674 176,555 150 — — 150 176,781 176,931 1,693 178,624
Residential mortgage
1,732 — — 1,732 347,993 349,725 1,624 351,349 647 — — 647 358,104 358,751 1,491 360,242
Construction
— — — — 145,699 145,699 — 145,699 — — — — 135,480 135,480 — 135,480
Commercial and industrial
364 — — 364 539,624 539,988 908 540,896 99 — — 99 611,290 611,389 1,926 613,315
Consumer
10 10 — 20 23,771 23,791 — 23,791 — — — — 45,731 45,731 — 45,731
Leases
159 310 — 469 57,401 57,870 75 57,945 788 503 — 1,291 78,377 79,668 189 79,857
$ 3,003 $ 320 $ — $ 3,323 $ 2,278,947 $ 2,282,270 $ 4,544 $ 2,286,814
Total originated portfolio loans and leases
$ 2,109 $ 894 $ — $ 3,003 $ 2,556,436 $ 2,559,439 $ 5,388 $ 2,564,827

Accruing Loans and Leases

Accruing Loans and Leases

(dollars in thousands)

As of December 31, 2016

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
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
$ — $ 722 $ — $ 722 $ 945,892 $ 946,614 $ 265 $ 946,879 $ 1,255 $ 81 $ — $ 1,336 $ 1,120,901 $ 1,122,237 $ 90 $ 1,122,327
Home equity lines and loans
11 — — 11 176,270 176,281 2,169 178,450 26 — — 26 182,036 182,062 1,221 183,283
Residential mortgage
773 64 — 837 339,778 340,615 1,653 342,268 721 — — 721 358,709 359,430 1,505 360,935
Construction
— — — — 141,964 141,964 — 141,964 — — — — 128,266 128,266 — 128,266
Commercial and industrial
— — — — 549,393 549,393 941 550,334 439 236 — 675 587,803 588,478 826 589,304
Consumer
10 5 — 15 25,183 25,198 2 25,200 21 — — 21 35,125 35,146 — 35,146
Leases
177 86 — 263 55,492 55,755 137 55,892 125 177 — 302 67,630 67,932 103 68,035
$ 971 $ 877 $ — $ 1,848 $ 2,233,972 $ 2,235,820 $ 5,167 $ 2,240,987
Total originated portfolio loans and leases
$ 2,587 $ 494 $ — $ 3,081 $ 2,480,470 $ 2,483,551 $ 3,745 $ 2,487,296
*~~included~~Included as “current” are $~~2.0~~$1.8 million and $~~13.5~~$4.0 million of loans and leases as ofMarch 31, ~~201~~72018 andDecember 31, ~~2016~~,2017, respectively, which are classified as ~~Administratively Delinquent.~~administratively delinquent. An ~~Administratively Delinquent~~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~~acquire~~dacquired portfolio loans and leases as of the dates indicated:

Accruing Loans and Leases

(dollars in thousands)

As of March 31, 2017

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
$ 1,212 $ — $ — $ 1,212 $ 146,027 $ 147,239 $ 52 $ 147,291
Home equity lines and loans
— 200 — 200 27,053 27,253 154 27,407
Residential mortgage
235 233 — 468 65,431 65,899 1,016 66,915
Commercial and industrial
155 719 — 874 24,584 25,458 1,563 27,021
Consumer
— — — — 141 141 — 141
$ 1,602 $ 1,152 $ — $ 2,754 $ 263,236 $ 265,990 $ 2,785 $ 268,775

~~Page 16~~
~~Table of Contents~~

Accruing Loans and Leases

As of March 31, 2018
(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
$ 108 $ — $ — $ 108 $ 389,722 $ 389,830 $ 49 $ 389,879
Home equity lines and loans
— — — — 32,589 32,589 256 32,845
Residential mortgage
472 — — 472 91,828 92,300 1,113 93,413
Construction
333 — — 333 66,355 66,688 — 66,688
Commercial and industrial
400 — — 400 112,943 113,343 573 113,916
Consumer
— — — — 2,692 2,692 — 2,692
Leases
1,852 378 — 2,230 39,151 41,381 154 41,535
Total acquired portfolio loans and leases
$ 3,165 $ 378 $ — $ 3,543 $ 735,280 $ 738,823 $ 2,145 $ 740,968

Accruing Loans and Leases

Accruing Loans and Leases

(dollars in thousands)

As of December 31, 2016

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
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
$ 666 $ — $ — $ 666 $ 163,298 $ 163,964 $ 55 $ 164,019 $ 111 $ 2,347 $ — $ 2,458 $ 397,810 $ 400,268 $ 782 $ 401,050
Home equity lines and loans
— — — — 29,429 29,429 120 29,549 312 10 — 322 34,410 34,732 260 34,992
Residential mortgage
50 426 — 476 69,791 70,267 1,005 71,272 665 79 — 744 94,295 95,039 2,912 97,951
Construction
— — — — 84,188 84,188 — 84,188
Commercial and industrial
36 — — 36 27,405 27,441 2,016 29,457 219 50 — 269 128,859 129,128 880 130,008
Consumer
— — — — 141 141 — 141 1,085 — — 1,085 1,922 3,007 — 3,007
$ 752 $ 426 $ — $ 1,178 $ 290,064 $ 291,242 $ 3,196 $ 294,438
Leases
— — — — 47,366 47,366 — 47,366
Total acquired portfolio loans and leases
$ 2,392 $ 2,486 $ — $ 4,878 $ 788,850 $ 793,728 $ 4,834 $ 798,562
*~~included~~Included as “current” are $0$0 and $~~1.8~~ ~~million~~$102 thousand of loans and leases as ofMarch 31, ~~201~~72018 andDecember 31, ~~2016~~,2017, respectively, which are classified as ~~Administratively Delinquent.~~administratively delinquent. An ~~Administratively Delinquent~~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.

Page 19
Table of Contents
F.
F. Allowance for Loan and Lease Losses (the “Allowance”)

The following tables detail the roll-forward of the Allowance for the three months ended March 31, 2018 and 2017:

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2017
$ 7,550 $ 1,086 $ 1,926 $ 937 $ 5,038 $ 246 $ 742 $ — $ 17,525
Charge-offs
— (25
)
— — (283
)
(49
)
(596
)
— (953
)
Recoveries
3 — — 1 — 1 55 — 60
Provision for loan and lease losses
(379
)
(16
)
(28
)
(94
)
606 93 848 — 1,030
Balance, March 31, 2018
$ 7,174 $ 1,045 $ 1,898 $ 844 $ 5,361 $ 291 $ 1,049 $ — $ 17,662
(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2016
$ 6,227 $ 1,255 $ 1,917 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,486
Charge-offs
— (438
)
(27
)
— (59
)
(41
)
(206
)
— (771
)
Recoveries
3 — — 1 — 2 95 — 101
Provision for loan and lease losses
180 426 (92
)
(39
)
(336
)
21 131 — 291
Balance, March 31, 2017
$ 6,410 $ 1,243 $ 1,798 $ 2,195 $ 4,747 $ 135 $ 579 $ — $ 17,107

The following ~~table details the roll-forward of the Allowance for the three months ended March 31, 2016:~~
(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2015
$ 5,199 $ 1,307 $ 1,740 $ 1,324 $ 5,609 $ 142 $ 518 $ 18 $ 15,857
Charge-offs
(110
)
(75
)
(4
)
— (28
)
(34
)
(300
)
— (551
)
Recoveries
3 4 39 — 3 14 66 — 129
Provision for loan and lease losses
764 (110
)
93 578 (139
)
(2
)
244 (18
)
1,410
Balance, March 31, 2016
$ 5,856 $ 1,126 $ 1,868 $ 1,902 $ 5,445 $ 120 $ 528 $ — $ 16,845
~~The following table details~~tables detail the allocation of the Allowance forall portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)

As of March 31, 2017

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
$ — $ $ 73 $ — $ 11 $ 5 $ — $ — $ 89
Collectively evaluated for impairment
6,410 1,243 1,725 2,195 4,736 130 579 — 17,018
Purchased credit-impaired⁽¹⁾
— — — — — — — — —
Total
$ 6,410 $ 1,243 $ 1,798 $ 2,195 $ 4,747 $ 135 $ 579 $ — $ 17,107
As of December 31,2016

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 73 $ — $ 5 $ 8 $ — $ — $ 86
Collectively evaluated for impairment
6,227 1,255 1,844 2,233 5,137 145 559 — 17,400
Purchased credit-impaired⁽¹⁾
— — — — — — — — —
Total
$ 6,227 $ 1,255 $ 1,917 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,486
⁽¹⁾
~~Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~
As of March 31, 2018
(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 $ 224 $ — $ 41 $ 4 $ — $ — $ 288
Collectively evaluated for impairment
7,174 1,026 1,674 844 5,320 287 1,049 — 17,374
Purchased credit-impaired⁽¹⁾
— — — — — — — — —
Total
$ 7,174 $ 1,045 $ 1,898 $ 844 $ 5,361 $ 291 $ 1,049 $ — $ 17,662

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
~~Page 17~~
~~Table of Contents~~
⁽¹⁾Purchased credit-impaired loans are evaluated for impairment on an individual basis.

The following ~~table details~~tables detail the carrying value forall portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)

As of March 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Total

As of March 31, 2018
(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
$ 1,570 $ 1,945 $ 7,256 $ — $ 2,444 $ 29 $ — $ 13,244 $ 1,394 $ 2,626 $ 5,350 $ — $ 2,754 $ 27 $ — $ 12,151
Collectively evaluated for impairment
1,126,325 201,917 411,008 145,699 563,686 23,903 57,945 2,530,483 1,525,887 208,333 448,305 186,559 721,545 48,396 121,392 3,260,417
Purchased credit-impaired⁽¹⁾
9,975 100 — — 1,787 — — 11,862 14,176 510 — 15,609 2,932 — — 33,227
Total
$ 1,137,870 $ 203,962 $ 418,264 $ 145,699 $ 567,917 $ 23,932 $ 57,945 $ 2,555,589 $ 1,541,457 $ 211,469 $ 453,655 $ 202,168 $ 727,231 $ 48,423 $ 121,392 $ 3,305,795
As of December 31,2016

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,576 $ 2,354 $ 7,266 $ — $ 2,946 $ 31 $ — $ 14,173
Collectively evaluated for impairment
1,098,788 205,540 406,271 141,964 575,055 25,310 55,892 2,508,820
Purchased credit-impaired⁽¹⁾
10,534 105 3 — 1,790 — — 12,432
Total
$ 1,110,898 $ 207,999 $ 413,540 $ 141,964 $ 579,791 $ 25,341 $ 55,892 $ 2,535,425
⁽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.~~
Page 20
Table of Contents
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
$ 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

⁽¹⁾Purchased credit-impaired loans are evaluated for impairment on an individual basis.
The following ~~table details~~tables detail the allocation of the Allowance fororiginated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)

As ofMarch 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

As of March 31, 2018
(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
$ — $ — $ 45 $ — $ 1 $ 5 $ — $ — $ 51 $ — $ 19 $ 168 $ — $ 5 $ 4 $ — $ 196
Collectively evaluated for impairment
6,410 1,243 1,725 2,195 4,736 130 579 — 17,018 7,174 1,026 1,674 844 5,320 287 1,049 17,374
Total
$ 6,410 $ 1,243 $ 1,770 $ 2,195 $ 4,737 $ 135 $ 579 $ — $ 17,069 $ 7,174 $ 1,045 $ 1,842 $ 844 $ 5,325 $ 291 $ 1,049 $ 17,570
As of December 31,2016

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

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
$ — $ 19 $ 180 $ — $ 5 $ 4 $ — $ 208
Collectively evaluated for impairment
7,550 1,067 1,696 937 5,033 242 742 17,267
Total
$ 7,550 $ 1,086 $ 1,876 $ 937 $ 5,038 $ 246 $ 742 $ 17,475

The following ~~table details~~tables detail the carrying value fororiginated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~
(dollars in thousands)

As of March 31, 2017

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
$ 1,518 $ 1,873 $ 4,070 $ — $ 1,141 $ 29 $ — $ 8,631
Collectively evaluated for impairment
989,061 174,682 347,279 145,699 539,755 23,762 57,945 2,278,183
Total
$ 990,579 $ 176,555 $ 351,349 $ 145,699 $ 540,896 $ 23,791 $ 57,945 $ 2,286,814
As of December 31,2016

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
2017:

As of March 31, 2018
(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 $ 2,370 $ 3,637 $ — $ 2,288 $ 27 $ — $ 9,667
Collectively evaluated for impairment
1,150,233 176,254 356,605 135,480 611,027 45,704 79,857 2,555,160
Total
$ 1,151,578 $ 178,624 $ 360,242 $ 135,480 $ 613,315 $ 45,731 $ 79,857 $ 2,564,827
As of December 31, 2017

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
$ 1,345 $ 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
Page 1821
Table of Contents

The following ~~table details~~tables detail the allocation of the Allowance foracquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)

As of March 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

As of March 31, 2018
(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 $ — $ 10 $ — $ — $ — $ 38 $ — $ — $ 56 $ — $ 36 $ — $ — $ 92
Collectively evaluated for impairment
— — — — — — — — — — — — — — — — —
Purchased credit-impaired⁽¹⁾
— — — — — — — — — — — — — — — — —
Total
$ — $ — $ 28 $ — $ 10 $ — $ — $ — $ 38 $ — $ — $ 56 $ — $ 36 $ — $ — $ 92
As of December 31,2016

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 28 $ — $ — $ — $ — $ — $ 28
Collectively evaluated for impairment
— — — — — — — — —
Purchased credit-impaired⁽¹⁾
— — — — — — — — —
Total
$ — $ — $ 28 $ — $ — $ — $ — $ — $ 28

⁽¹⁾
⁽¹⁾Purchased credit-impaired loans are evaluated for impairment on an individual basis.
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 ~~on an individual basis.~~
$ — $ — $ 50 $ — $ — $ — $ — $ 50
Collectively evaluated for impairment
— — — — — — — —
Purchased credit-impaired⁽¹⁾
— — — — — — — —
Total
$ — $ — $ 50 $ — $ — $ — $ — $ 50

⁽¹⁾Purchased credit-impaired loans are evaluated for impairment on an individual basis.
The following ~~table details~~tables detail the carrying value foracquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)

As of March 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Total

As of March 31, 2018
(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
$ 52 $ 72 $ 3,186 $ — $ 1,303 $ — $ — $ 4,613 $ 49 $ 256 $ 1,713 $ — $ 466 $ — $ — $ 2,484
Collectively evaluated for impairment
137,264 27,235 63,729 — 23,931 141 — 252,300 375,654 32,079 91,700 51,079 110,518 2,692 41,535 705,257
Purchased credit-impaired⁽¹⁾
9,975 100 — — 1,787 — — 11,862 14,176 510 — 15,609 2,932 — — 33,227
Total
$ 147,291 $ 27,407 $ 66,915 $ — $ 27,021 $ 141 $ — $ 268,775 $ 389,879 $ 32,845 $ 93,413 $ 66,688 $ 113,916 $ 2,692 $ 41,535 $ 740,968
As of December 31,2016

Carrying value of loans and leases:

Individually evaluated for impairment
$ 55 $ 35 $ 3,155 $ — $ 1,756 $ — — $ 5,001
Collectively evaluated for impairment
153,430 29,409 68,114 — 25,911 141 — 277,005
Purchased credit-impaired⁽¹⁾
10,534 105 3 — 1,790 — — 12,432
Total
$ 164,019 $ 29,549 $ 71,272 $ — $ 29,457 $ 141 — $ 294,438
⁽¹⁾
(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
As of December 31, 2017

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
$ 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.
Page 22
Table of Contents

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, periodic 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.~~
•
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.
•
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.
•
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.

~~Page 19~~
~~Table of Contents~~
The following tables detail the carrying value ofall portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

Pass
$ 1,126,655 $ 1,099,557 $ 143,732 $ 140,370 $ 559,773 $ 570,342 $ 1,830,160 $ 1,810,269
Special Mention
1,886 1,892 — — 674 2,315 2,560 4,207
Substandard
9,329 9,449 1,967 1,594 7,123 5,512 18,419 16,555
Doubtful
— — — — 347 1,622 347 1,622
Total
$ 1,137,870 $ 1,110,898 $ 145,699 $ 141,964 $ 567,917 $ 579,791 $ 1,851,486 $ 1,832,653
Credit Risk Profile by Internally Assigned Grade

Credit Risk Profile by Payment Activity

Commercial Mortgage

Construction

Commercial and Industrial

Total

(dollars in thousands)

Residential Mortgage

Home Equity
Lines and Loans

Consumer

Leases

Total

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

Performing
$ 415,624 $ 410,882 $ 202,134 $ 205,710 $ 23,932 $ 25,339 $ 57,870 $ 55,755 $ 699,560 $ 697,686
Non-performing
2,640 2,658 1,828 2,289 — 2 75 137 4,543 5,086
Pass
$ 1,502,268 $ 1,490,862 $ 179,047 $ 193,227 $ 717,447 $ 711,145 $ 2,398,762 $ 2,395,234
Special Mention
11,403 13,448 2,528 3,902 1,705 889 15,636 18,239
Substandard
27,221 18,194 20,593 15,325 7,015 6,013 54,829 39,532
Doubtful
565 873 — — 1,063 1,265 1,628 2,138
Total
$ 418,264 $ 413,540 $ 203,962 $ 207,999 $ 23,932 $ 25,341 $ 57,945 $ 55,892 $ 704,103 $ 702,772 $ 1,541,457 $ 1,523,377 $ 202,168 $ 212,454 $ 727,230 $ 719,312 $ 2,470,855 $ 2,455,143

Credit Risk Profile by Payment Activity

Residential Mortgage

Home Equity Lines
and Loans

Consumer

Leases

Total

(dollars in thousands)

March
31, 2018

December 31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

Performing
$ 451,051 $ 454,469 $ 209,520 $ 216,794 $ 48,423 $ 38,153 $ 121,049 $ 115,298 $ 830,043 $ 824,714
Non-performing
2,604 4,417 1,949 1,481 — — 343 103 4,896 6,001
Total
$ 453,655 $ 458,886 $ 211,469 $ 218,275 $ 48,423 $ 38,153 $ 121,392 $ 115,401 $ 834,939 $ 830,715
The following tables detail the carrying value oforiginatedportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

Pass
$ 980,545 $ 936,737 $ 143,732 $ 140,370 $ 536,621 $ 544,876 $ 1,660,898 $ 1,621,983
Special Mention
1,886 1,892 — — 642 2,279 2,528 4,171
Substandard
8,148 8,250 1,967 1,594 3,508 3,054 13,623 12,898
Doubtful
— — — — 125 125 125 125
Total
$ 990,579 $ 946,879 $ 145,699 $ 141,964 $ 540,896 $ 550,334 $ 1,677,174 $ 1,639,177
Credit Risk Profile by Internally Assigned Grade

Credit Risk Profile by Payment Activity

Commercial Mortgage

Construction

Commercial and Industrial

Total

(dollars in thousands)

Residential Mortgage

Home Equity
Lines and Loans

Consumer

Leases

Total

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

Performing
$ 349,725 $ 340,615 $ 174,882 $ 176,281 $ 23,791 $ 25,198 $ 57,870 $ 55,755 $ 606,268 $ 597,849
Non-performing
1,624 1,653 1,673 2,169 — 2 75 137 3,372 3,961
Pass
$ 1,140,584 $ 1,114,171 $ 131,797 $ 126,260 $ 607,758 $ 586,896 $ 1,880,139 $ 1,827,327
Special Mention
994 — 1,253 — 1,254 664 3,501 664
Substandard
10,000 8,156 2,430 2,006 4,033 1,389 16,463 11,551
Doubtful
— — — — 270 355 270 355
Total
$ 351,349 $ 342,268 $ 176,555 $ 178,450 $ 23,791 $ 25,200 $ 57,945 $ 55,892 $ 609,640 $ 601,810 $ 1,151,578 $ 1,122,327 $ 135,480 $ 128,266 $ 613,315 $ 589,304 $ 1,900,373 $ 1,839,897
Page 23
Table of Contents

Credit Risk Profile by Payment Activity

Residential Mortgage

Home Equity Lines
and Loans

Consumer

Leases

Total

(dollars in thousands)

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

Performing
$ 358,751 $ 359,430 $ 176,931 $ 182,062 $ 45,731 $ 35,146 $ 79,668 $ 67,932 $ 661,081 $ 644,570
Non-performing
1,491 1,505 1,693 1,221 — — 189 103 3,373 2,829
Total
$ 360,242 $ 360,935 $ 178,624 $ 183,283 $ 45,731 $ 35,146 $ 79,857 $ 68,035 $ 664,454 $ 647,399
The following tables detail the carrying value ofacquiredportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31, ~~2017~~ 2018 and December 31, ~~2016:~~2017:

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

Pass
$ 146,110 $ 162,820 $ — $ — $ 23,152 $ 25,466 $ 169,262 $ 188,286
Special Mention
— — — — 32 36 32 36
Substandard
1,181 1,199 — — 3,615 2,458 4,796 3,657
Doubtful
— — — — 222 1,497 222 1,497
Total
$ 147,291 $ 164,019 $ — $ — $ 27,021 $ 29,457 $ 174,312 $ 193,476
Credit Risk Profile by Internally Assigned Grade

~~Page 20~~
~~Table of Contents~~

Commercial Mortgage

Construction

Commercial and Industrial

Total

(dollars in thousands)

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

March 31,
2018

December 31,
2017

Pass
$ 361,684 $ 376,691 $ 47,250 $ 66,967 $ 109,690 $ 124,249 $ 518,624 $ 567,907
Special Mention
10,409 13,448 1,275 3,902 451 225 12,135 17,575
Substandard
17,221 10,038 18,163 13,319 2,982 4,624 38,366 27,981
Doubtful
565 873 — — 793 910 1,358 1,783
Total
$ 389,879 $ 401,050 $ 66,688 $ 84,188 $ 113,916 $ 130,008 $ 570,483 $ 615,246

Credit Risk Profile by Payment Activity

(dollars in thousands)

Residential Mortgage

Home Equity Lines and Loans

Consumer

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

Performing
$ 65,899 $ 70,267 $ 27,252 $ 29,429 $ 141 $ 141 $ 93,292 $ 99,837
Non-performing
1,016 1,005 155 120 — — 1,171 1,125
Total
$ 66,915 $ 71,272 $ 27,407 $ 29,549 $ 141 $ 141 $ 94,463 $ 100,962
Credit Risk Profile by Payment Activity

Residential Mortgage

Home Equity Lines
and Loans

Consumer

Leases

Total

(dollars in thousands)

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

March
31, 2018

December
31, 2017

Performing
$ 92,300 $ 95,039 $ 32,589 $ 34,732 $ 2,692 $ 3,007 $ 41,381 $ 47,366 $ 168,962 $ 180,144
Non-performing
1,113 2,912 256 260 — — 154 — 1,523 3,172
Total
$ 93,413 $ 97,951 $ 32,845 $ 34,992 $ 2,692 $ 3,007 $ 41,535 $ 47,366 $ 170,485 $ 183,316

G. Troubled 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)

March 31,
2017

December 31,
2016

March 31, 2018

December 31, 2017

TDRs included in nonperforming loans and leases
$ 2,681 $ 2,632 $ 1,125 $ 3,289
TDRs in compliance with modified terms
6,492 6,395 5,235 5,800
Total TDRs
$ 9,173 $ 9,027 $ 6,360 $ 9,089
Page 24
Table of Contents

The following table presents information regarding loan and lease modifications categorized as TDRs for the three months ended March 31, ~~2017:~~2018:

For the Three Months Ended March 31, 2017

(dollars in thousands)

Number of Contracts

Pre-Modification
Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Home equity loans and lines
1 $ 8 $ 8
Residential mortgage
1 194 202
Leases
3 62 62
Total
5 $ 264 $ 272

For the Three Months Ended March 31, 2018

(dollars in thousands)

Number of Contracts

Pre-Modification Outstanding
Recorded Investment

Post-Modification Outstanding
Recorded Investment

Commercial and industrial
1 $ 18 $ 18

The following table presents information regarding the types of loan and lease modifications made for the three months ended March 31, ~~2017:~~2018:

Number of Contracts for the Three Months Ended March 31, 2017

Interest Rate Change

Loan Term Extension

Interest Rate Change and Term Extension

Interest Rate Change and/or Interest-Only Period

Contractual Payment Reduction (Leases only)

Forgiveness of Interest

Forgiveness of Principal

Home equity loans and lines
— 1 — — — — —
Residential mortgage
— — 1 — — — —
Leases
— — — — 3 — —
Total
— 1 1 — 3 — —
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 and industrial
— 1 — — —

During the three months ended March 31, ~~2017, there were no defaults~~2018, one home equity line of ~~loans or leases that~~credit with a principal balance of $25 thousand which had been previously modified to a troubled debt ~~restructurings.~~restructuring defaulted and was charged off.

~~Page 21~~
~~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~~allowance for loan and lease losses and interest income recognized ~~as of the dates or~~ for the ~~periods indicated:~~three months ended March 31, 2018 and 2017 (purchased credit-impaired loans are not included in the tables):

(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of or for the three months ended March 31, 2017

Impaired loans with related Allowance:

Residential mortgage
$ 620 $ 619 $ 73 $ 621 $ 7 $ —
Commercial and industrial
88 121 11 110 1 —
Consumer
29 29 5 29 — —
Total
$ 737 $ 769 $ 89 $ 760 $ 8 $ —

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 1,570 $ 1,570 $ — $ 1,573 $ 15 $ —
Home equity lines and loans
1,945 2,806 — 2,358 2 —
Residential mortgage
6,637 6,623 — 6,755 53 —
Commercial and industrial
2,357 3,156 — 2,456 2 —
Total
$ 12,509 $ 14,155 $ — $ 13,142 $ 72 $ —

Grand total
$ 13,246 $ 14,924 $ 89 $ 13,902 $ 80 $ —
As of or for the Three Months Ended
March 31, 2018
(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
$ 574 $ 574 $ 19 $ 575 $ 6 $ —
Residential mortgage
1,796 1,796 224 1,801 21 —
Commercial and industrial
54 110 40 97 — —
Consumer
27 27 4 27 — —
Total
$ 2,451 $ 2,507 $ 287 $ 2,500 $ 27 $ —

Impaired loans without related allowance*:

Commercial mortgage
$ 1,394 $ 1,483 $ — $ 1,394 $ 23 $ —
Home equity lines and loans
2,052 2,114 — 2,094 2 —
Residential mortgage
3,554 3,758 — 154 — —
Commercial and industrial
2,700 3,498 — 2,872 5 —
Total
$ 9,700 $ 10,853 $ — $ 6,514 $ 30 $ —
Grand total
$ 12,151 $ 13,360 $ 287 $ 9,014 $ 57 $ —
*The table above does not include the recorded investment of $510 thousand of impaired leases without a related allowance for loan and lease losses.
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.
Page 25
Table of Contents
As of or for the Three Months Ended
March 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:

Residential mortgage
$ 620 $ 619 $ 73 $ 621 $ 7 $ —
Commercial and industrial
88 121 11 110 1 —
Consumer
29 29 5 29 — —
Total
$ 737 $ 769 $ 89 $ 760 $ 8 $ —

Impaired loans without related allowance*:

Commercial mortgage
$ 1,570 $ 1,570 $ — $ 1,573 $ 15 $ —
Home equity lines and loans
1,945 2,806 — 2,358 2 —
Residential mortgage
6,637 6,623 — 6,755 53 —
Commercial and industrial
2,357 3,156 — 2,456 2 —
Total
$ 12,509 $ 14,155 $ — $ 13,142 $ 72 $ —
Grand total
$ 13,246 $ 14,924 $ 89 $ 13,902 $ 80 $ —
*The table above does not include the recorded investment of $232 thousand of impaired leases without a related allowance for loan and lease losses.
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.
(dollars in thousands)
As of December 31, 2017

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Impaired loans with related allowance:

Home equity lines and loans
$ 577 577 19
Residential mortgage
2,436 $ 2,435 $ 230
Commercial and industrial
18 19 5
Consumer
27 27 4
Total
$ 3,058 $ 3,058 $ 258

Impaired loans without related allowance⁽¹⁾:

Home equity lines and loans
$ 1,585 $ 1,645 $ —
Residential mortgage
5,290 5,529 —
Commercial and industrial
1,879 3,613 —
Commercial mortgage
2,128 2,218 —
Total
$ 10,882 $ 13,005 $ —
Grand total
$ 13,940 $ 16,063 $ 258

⁽¹⁾⁽¹⁾
The table above does not include the recorded investment of $~~232~~$272 thousand of impaired leases without a related Allowance.A~~llowance.~~
⁽²⁾⁽²⁾
Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.
⁽³⁾
~~This table excludes all purchased credit-impaired loans, which are discussed in Note~~5D~~, above.~~

(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of or for the three months endedMarch 31, 2016

Impaired loans with related Allowance:

Residential mortgage
$ 628 $ 642 $ 74 $ 642 $ 7 $ —
Commercial and industrial
1,947 1,966 519 1,990 1 —
Consumer
30 30 5 30 — —
Total
$ 2,605 $ 2,638 $ 598 $ 2,662 $ 8 $ —

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 405 $ 527 $ — $ 528 $ — $ —
Home equity lines and loans
1,906 2,393 — 2,538 1 —
Residential mortgage
6,861 7,707 — 8,134 52 —
Construction
12 974 — 994 — —
Commercial and industrial
2,009 2,826 — 4,759 1 —
Total
$ 11,193 $ 14,427 $ — $ 16,953 $ 54 $ —

Grand total
$ 13,798 $ 17,065 $ 598 $ 19,615 $ 62 $ —
⁽¹⁾
~~The table above does not include the recorded investment of~~$~~122~~ ~~thousand~~ ~~of impaired leases without a related Allowance.~~
⁽²⁾
~~Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~
⁽³⁾
~~This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.~~
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(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

As of December 31,2016

Impaired loans with related allowance:

Residential mortgage
$ 622 $ 622 $ 73
Commercial and industrial
84 84 5
Consumer
31 31 8
Total
$ 737 $ 737 $ 86

Impaired loans⁽¹⁾⁽³⁾ without related allowance:

Commercial mortgage
$ 1,577 $ 1,577 $ —
Home equity lines and loans
2,354 2,778 —
Residential mortgage
6,644 6,970 —
Commercial and industrial
2,862 3,692 —
Total
$ 13,437 $ 15,017 $ —

Grand total
$ 14,174 $ 15,754 $ 86
⁽¹⁾
~~The table above does not include the recorded investment of~~$~~240~~~~thousand~~ ~~of impaired leases without a related Allowance.~~
⁽²⁾
~~Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~
⁽³⁾
~~This table excludes all purchased credit-impaired loans, which are discussed in Note~~5~~D, above.~~
I.I. Loan Mark

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, ~~whose~~for which the Loan Mark is accounted ~~for~~ 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, foracquired loans, the outstanding principal, remaining loan mark, and recorded investment, by portfolio segment, as of the dates indicated:

(dollars in thousands)

As of March 31, 2017

Outstanding
Principal

Remaining
Loan Mark

Recorded
Investment

Commercial mortgage
$ 151,454 $ (4,163
)
$ 147,291
Home equity lines and loans
29,047 (1,640
)
27,407
Residential mortgage
69,338 (2,423
)
66,915
Commercial and industrial
30,317 (3,296
)
27,021
Consumer
162 (21
)
141
Total
$ 280,318 $ (11,543
)
$ 268,775

As of March 31, 2018

(dollars in thousands)

As of December 31, 2016

Outstanding
Principal

Remaining
Loan Mark

Recorded
Investment

Outstanding
Principal

Remaining
Loan Mark

Recorded
Investment

Commercial mortgage
$ 168,612 $ (4,593
)
$ 164,019 $ 403,196 $ (13,317 ) $ 389,879
Home equity lines and loans
31,236 (1,687
)
29,549 35,697 (2,852 ) 32,845
Residential mortgage
73,902 (2,630
)
71,272 96,609 (3,196 ) 93,413
Construction
67,926 (1,238 ) 66,688
Commercial and industrial
32,812 (3,355
)
29,457 123,250 (9,334 ) 113,916
Consumer
163 (22
)
141 2,729 (37 ) 2,692
Leases
43,820 (2,285 ) 41,535
Total
$ 306,725 $ (12,287
)
$ 294,438 $ 773,227 $ (32,259 ) $ 740,968

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

Note 6 - Mortgage Servicing Rights
The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three months ended March 31, 2018 and 2017:

Three Months Ended March 31,

(dollars in thousands)

2018

2017

Balance, beginning of period
$ 5,861 $ 5,582
Additions
16 276
Amortization
(221
)
(169
)
Recovery / (Impairment)
50 (3
)
Balance, end of period
$ 5,706 $ 5,686
Fair value
$ 6,791 $ 6,394
Residential mortgage loans serviced for others
634,970 638,553
As of March 31, 2018, and December 31, 2017, 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)

March 31, 2018

December 31, 2017

Fair value amount of MSRs
$ 6,791 $ 6,397
Weighted average life (in years)
6.5 6.1
Prepayment speeds (constant prepayment rate)*
9.2
%
10.3
%
Impact on fair value:

10% adverse change
$ (135
)
$ (194
)
20% adverse change
$ (288
)
$ (394
)
Discount rate
9.55
%
9.55
%
Impact on fair value:

10% adverse change
$ (249
)
$ (225
)
20% adverse change
$ (480
)
$ (434
)
* Represents the weighted average prepayment rate for the life of the MSR asset.
Page 2327
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At March 31, 2018 and December 31, 2017 the fair value of the MSRs was $6.8 million and $6.4 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-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.
Note 7 - Goodwill and Other Intangibles
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 three months ended March 31, 2018:
(dollars in thousands)

Balance
December 31,
2017

Adjustments

Amortization

Balance
March 31,
2018

Amortization
Period
Goodwill – Wealth
$ 20,412 $ — $ — $ 20,412
Indefinite

Goodwill – Banking
153,545 2,311 — 155,856
Indefinite

Goodwill – Insurance
5,932 — — 5,932
Indefinite

Total Goodwill
$ 179,889 $ 2,311 $ — $ 182,200
Core deposit intangible
$ 7,380 $ — $ (377
)
$ 7,003
10 Years

Customer relationships
14,173 — (404
)
13,769 10
to
20 Years
Non-compete agreements
1,319 — (61
)
1,258 5
to
10 Years
Trade name
2,322 — (16
)
2,306 3 Years
to
Indefinite
Domain name
151 — — 151
Indefinite

Favorable lease assets
621 — (21
)
600 1
to
16 Years
Total Intangible Assets
$ 25,966 $ — $ (879
)
$ 25,087
Grand Total
$ 205,855 $ 2,311 $ (879
)
$ 207,287
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 five months ended March 31, 2018, management determined there were no events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.
Note 68 - Deposits

The following table details the components of deposits:

March 31,
2018

December 31,
2017

(dollars in thousands)

March 31,
2017

December 31,
2016

Interest-bearing checking accounts
$ 395,131 $ 379,424
Money market accounts
757,071 761,657
Savings accounts
255,791 232,193
Interest-bearing demand
$ 529,478 $ 481,336
Money market
856,072 862,639
Savings
308,925 338,572
Retail time deposits
523,138 532,202
Wholesale non-maturity deposits
69,471 74,272 63,449 62,276
Wholesale time deposits
68,164 73,037 171,359 171,929
Time deposits
319,381 322,912
Total interest-bearing deposits
1,865,009 1,843,495 2,452,421 2,448,954
Non-interest-bearing deposits
771,556 736,180 863,118 924,844
Total deposits
$ 2,636,565 $ 2,579,675 $ 3,315,539 $ 3,373,798

Page 28
Table of Contents
Note 79 - ~~Borrowings~~ Short-Term Borrowings and Long-Term FHLB Advances

A. Short-term borrowings

The Corporation’s short-term borrowings (original maturity of one year or less), which consist of ~~a revolving line of credit with a correspondent bank,~~ funds obtained from overnight repurchase agreements with commercial customers, FHLB advances with original maturities of one year or less and overnight fed funds, are detailed below.

A summary of short-term borrowings is as follows:

(dollars in thousands)

March 31,
2017

December 31,
2016

March 31,
2018

December 31,
2017

Repurchase agreements* – commercial customers
$ 23,613 $ 39,151 $ 13,804 $ 25,865
Short-term FHLB advances
— 165,000 159,900 212,000
Overnight federal funds
— —
Total short-term borrowings
$ 23,613 $ 204,151 $ 173,704 $ 237,865
* ~~overnight~~Overnight repurchase agreements with no expiration date

The following table sets forth information concerning short-term borrowings:

Three Months Ended March 31,

(dollars in thousands)

Three Months EndedMarch 31,

2018

2017

2017

2016

Balance at period-end
$ 23,613 $ 37,010 $ 173,704 $ 23,613
Maximum amount outstanding at any month-end
39,378 38,972
Maximum amount outstanding at any month end
$ 173,704 $ 39,378
Average balance outstanding during the period
47,603 34,158 $ 172,532 $ 47,603
Weighted-average interest rate:

As of period-end
0.10
%
0.27
%
As of the period-end
1.76
%
0.10
%
Paid during the period
0.23
%
0.20
%
1.48
%
0.23
%

~~B. Long-term FHLB Advances~~Average balances outstanding during the year represent daily average balances and ~~Other Borrowings~~average interest rates represent interest expense divided by the related average balance.

~~The Corporation’s~~B. Long-term FHLB Advances
As of March 31, 2018 and December 31, 2017, the Corporation had $107.8 million and $139.1 million, respectively, of long-term FHLB advances ~~and other borrowings consist of advances from the FHLB with original~~(original maturities ~~of greater than~~ exceeding one ~~year and an adjustable-rate commercial loan from a correspondent bank.~~ year).

The following table presents the remaining periods until maturity of ~~the~~ long-term FHLB ~~advances and other borrowings:~~
(dollars in thousands)

March 31,
2017

December 31,
2016

Within one year
$ 91,471 $ 75,000
Over one year through five years
83,240 114,742
Total
$ 174,711 $ 189,742
advances:

~~Page 24~~
~~Table of Contents~~
(dollars in thousands)

March 31,
2018

December 31,
2017

Within one year
$ 52,377 $ 83,766
Over one year through five years
55,407 55,374
Total
$ 107,784 $ 139,140

The following table presents rate and maturity information on ~~long-term~~ FHLB advances and other borrowings:

(dollars in thousands)

Maturity Range⁽¹⁾

Weighted

Coupon Rate⁽¹⁾

Balance

Maturity Range⁽¹⁾

Weighted

Coupon Rate⁽¹⁾

Balance at

Description

From
To
Average
Rate⁽¹⁾

From
To
March 31,
2017

December 31,
2016

From
To
Average
Rate⁽¹⁾

From
To
March
31, 2018

December
31, 2017

Bullet maturity – fixed rate

05/24/2017

12/19/2020
1.48
%
0.95
%
2.13
%
$ 138,612 $ 153,612
4/30/2018

8/24/2021
1.79
%
1.18
%
2.13
%
97,784 118,131
Bullet maturity – variable rate

11/28/2017

11/28/2017
1.20
%
1.20
%
1.20
%
15,000 15,000
Convertible-fixed⁽²⁾

01/03/2018

08/20/2018
2.94
%
2.58
%
3.50
%
21,099 21,130
8/20/2018

8/20/2018
2.58
%
2.58
%
2.58
%
10,000 21,009
Total
$ 174,711 $ 189,742 $ 107,784 $ 139,140

⁽¹⁾⁽¹⁾Maturity range,, weighted average rate and coupon rate range refers toMarch 31, ~~2017~~2018 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 ofMarch 31, ~~2017~~,2018, substantially all FHLB advances with this convertible feature are subject to conversion in fiscal ~~201~~7.2018. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to conversion.

Page 29
Table of Contents
C. Other Borrowings Information

As of March 31, 2017 the Corporation had a maximum borrowing capacity with the FHLB of $1.23 billion, of which the unused capacity was $1.04 billion. In addition, there were unused capacities of $79.0 million in overnight federal funds lines, $108.0 million of Federal Reserve Discount Window borrowings and $5.0 million in a revolving line of credit from a correspondent bank as of March 31, 2017. In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of ~~FHLB~~ capital stock held was ~~$8.5~~$15.5 million ~~and $17.3 million as of~~ at March 31, ~~2017~~ 2018, and $20.1 million at December 31, ~~2016, respectively.~~ 2017. The carrying amount of the FHLB ~~capital~~ stock approximates its redemption value.

~~Note 8 – Stock-Based Compensation~~
~~A. General Information~~
~~Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants~~The level of stock options. On April 25, 2007, the shareholders of the Corporation approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders of the Corporation approved the Corporation’s “2010 Long Term Incentive Plan” (the “2010 LTIP”) under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants. On April 30, 2015, the shareholders of the Corporation approved the Amended and Restated Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan (the “Amended 2010 LTIP”), under which the total number of shares of Corporation Common Stock made available for award grants was increased by 500,000 shares to 945,002 shares.
~~In addition to the shareholder-approved plans mentioned~~required investment in the preceding paragraph, the Corporation 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.
~~Equity awards are authorized to be in the form of, among others, options to purchase the Corporation’s common~~FHLB stock ~~restricted stock awards or units (“RSAs” or “RSUs”) and performance stock awards or units (“PSAs” or “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~~balance of outstanding borrowings the ~~date of~~Corporation has from the ~~grant.~~
~~PSAs and PSUs~~FHLB. Although FHLB stock is a financial instrument that represents an equity interest in the FHLB, it does not have a ~~restriction~~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 passage of time and also have a restriction based on a performance criteria. The performance criteria may be a market-based criteria measured by the Corporation’s total shareholder return (“TSR”) relative to the performanceultimate recoverability of the ~~community bank index or a bank peer group for the respective period. The fair~~par value of the PSAs and PSUs based on the Corporation’s TSR relative to the performance of the 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. The grant date fair value of these PSUs and PSAs is based on the closing price of the Corporation’s stock on the date of the grant. PSU and PSA grants may have a vesting percent ranging from 0% to 150%.
~~B. Stock Options~~
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. The fair value of stock option grants is determined using the Black-Scholes pricing model. The assumptions necessary for the calculation of the fair value are expected life of options, annual volatility of stock price, risk-free interest rate and annual dividend yield.
~~Page 25~~
~~Table of Contents~~
~~The following table provides information about options outstanding for the three months ended March 31, 2017:~~

Shares

Weighted
Average
Exercise Price

Weighted
Average Grant
Date Fair
Value

Options outstanding, December 31, 2016
185,023 $ 21.04 $ 4.88
Forfeited
— $ — $ —
Expired
— $ — $ —
Exercised
(29,178
)
$ 22.29 $ 4.98
Options outstanding, March 31, 2017
155,845 $ 20.80 $ 4.86
~~As of March 31, 2017, there were no unvested stock options.~~
~~For the three months ended March 31, 2017, the Corporation did not recognize any expense related to stock options. As of March 31, 2017, there was no unrecognized expense related to stock options.~~
~~Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three months ended March 31, 2017 and 2016 are detailed below:~~
(dollars in thousands)

Three Months Ended March 31,

2017

2016

Proceeds from exercise of stock options
$ 650 $ 283
Related tax benefit recognized
141 47
Net proceeds of options exercised
$ 791 $ 330
Intrinsic value of options exercised
$ 548 $ 131
~~The following table provides information about options outstanding and exercisable at March 31, 2017:~~
(dollars in thousands, except exercise price)

Outstanding

Exercisable

Number of shares
155,845 155,845
Weighted average exercise price
$ 20.80 $ 20.80
Aggregate intrinsic value
$ 2,914 $ 2,914
Weighted average contractual term in years
1.8 1.8
~~C. Restricted Stock Awards and Performance Stock Awards~~rather than by recognizing temporary declines in value.

The Corporation ~~has granted RSAs, RSUs, PSAs and PSUs under~~had a maximum borrowing capacity with the ~~2007 LTIP, 2010 LTIP and Amended 2010 LTIP.~~
~~RSAs and RSUs~~
~~The compensation expense for the RSAs and RSUs is measured based on the market price~~FHLB 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 three months ended~~ $1.67 billion as of March 31, ~~2017,~~2018 of which the ~~Corporation recognized $180 thousand of expense related to~~unused capacity was $1.40 billion. In addition, there were $79.0 million in the ~~Corporation’s RSAs~~overnight federal funds line available and ~~RSUs. As of March 31, 2017, there was $1.1~~$138.2 million of ~~unrecognized compensation cost related to RSAs and RSUs. This cost will be recognized over a weighted average period of 2.0 years.~~
~~The following table details the unvested RSAs and RSUs for the three months ended March 31, 2017:~~

Three Months EndedMarch 31, 2016

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Beginning balance
58,862 $ 29.57
Granted
2,000 $ 38.51
Vested
(1,000
)
$ 30.04
Forfeited
— $ —
Ending balance
59,862 $ 29.86
~~For the three months ended March 31, 2017, the Corporation recorded a $4 thousand excess tax benefit related to the vesting of RSAs and RSUs.~~Federal Reserve Discount Window capacity.

~~Page 26~~
~~Table of Contents~~
~~PSAs and PSUs~~
~~The compensation expense for PSAs and PSUs is measured based on the grant date fair value as calculated using the Monte Carlo Simulation method.~~
For the three months ended March 31, 2017, the Corporation recognized $304 thousand of expense related to the PSAs and PSUs. As of March 31, 2017, there was $1.7 million of unrecognized compensation cost related to PSAs and PSUs. This cost will be recognized over a weighted average period of 1.9 years.
~~For the three months ended March 31, 2017, the Corporation recorded $0 of tax benefit related to the vesting of PSAs and PSUs.~~
~~The following table details the unvested PSAs and PSUs for the three months ended March 31, 2017:~~

Three Months EndedMarch 31, 2017

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Beginning balance
192,844 $ 18.77
Granted
— —
Vested
— —
Forfeited
— —
Ending balance
192,844 $ 18.77
Note ~~9 - Pension and Other Post-Retirement Benefit Plans~~10 – Subordinated Notes
~~The Corporation has two defined benefit pension plans (“SERP I” and “SERP II”), both of which are non-qualified plans which are restricted to certain senior officers of the Corporation.~~
SERP I provides each participant with the equivalent pension benefit provided by a previously settled qualified defined benefit plan on any compensation and bonus deferrals that exceed the IRS limit applicable to such plan.

On ~~February 12, 2008,~~ December 13, 2017, the Corporation ~~amended SERP I to freeze further increases~~completed the issuance of $70.0 million in ~~the defined-benefit amounts to all participants, effective March 31, 2008.~~
aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the "2027 Notes") in an underwritten public offering. On ~~April 1, 2008,~~ August 6, 2015, the Corporation ~~added SERP~~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 both offerings increased Tier II ~~a non-qualified defined-benefit plan which was restricted to certain senior officers of the Corporation. Effective January 1, 2013,~~regulatory capital at 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 medicalbenefit plan (“PRBP”) that covers or will cover a portion of health insurance costs ofcertain retired employees and a group of current employees. 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.
~~The following tables provide details of the components of the net periodic benefits cost (benefit) for the three months ended March 31, 2017 and 2016:~~

Three Months EndedMarch 31,

SERP I and SERP II

PRBP

(dollars in thousands)

2017

2016

2017

2016

Service cost
$ — $ — $ — $ —
Interest cost
44 46 3 4
Expected return on plan assets
— — — —
Amortization of prior service costs
— — — —
Amortization of net loss
14 14 9 10
Net periodic benefit cost
$ 58 $ 60 $ 12 $ 14
~~SERP I and SERP II:~~The Corporation contributed $65 thousand during the three months ended March 31, 2017, and is expected to contribute an additional $195 thousand to the SERP I and SERP II plans for the remaining nine months of 2017.
~~PRBP:~~~~In 2005, the Corporation capped the maximum annual payment under the PRBP at 120% of the 2005 benefit. This maximum was reached in 2008 and the cap is not expected to be increased above this~~ level.
~~Page 27~~
~~Table of Contents~~
~~Note 10 - 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’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 leasing) 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 of 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.
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 and 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. Powers Craft Parker and Beard (“PCPB”), which was merged with the Corporation’s existing insurance subsidiary, Insurance Counsellors of Bryn Mawr (“ICBM”), and RJM, which was acquired on April 1, 2015, now operate under the Powers Craft Parker and Beard, Inc. name. The Wealth Management Division has assumed oversight responsibility for all insurance services of the Corporation. Prior to the PCPB and RJM acquisitions, ICBM was reported through the Banking segment. Any adjustments to prior year figures are immaterial and are not reflected in the tables below.

The following tables detail ~~segment information~~the subordinated notes, including debt issuance costs, as of March 31, 2018 and December 31, 2017:

March 31, 2018

December 31, 2017

(dollars in thousands)

Balance

Rate⁽¹⁾⁽²⁾

Balance

Rate⁽¹⁾⁽²⁾

Subordinated Notes – due 2027
$ 68,848 4.25
%
$ 68,829 4.25
%
Subordinated Notes – due 2025
29,600 4.75
%
29,587 4.75
%
Total Subordinated Notes
$ 98,448 $ 98,416
(1) The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until December 14, 2022, and will thereafter 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.
(2) The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until August 14, 2020, and will thereafter 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.
Note 11 – 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 ~~three months ended March~~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 and 2016:~~

Three Months EndedMarch 31, 2017

Three Months EndedMarch 31,2016

(dollars in thousands)

Banking

Wealth
Management

Consolidated

Banking

Wealth
Management

Consolidated

Net interest income
$ 27,402 $ 1 $ 27,403 $ 25,901 $ 1 $ 25,902
Less: loan loss provision
291 — 291 1,410 — 1,410
Net interest income after loan loss provision
27,111 1 27,112 24,491 1 24,492
Other income:

Fees for wealth management services
— 9,303 9,303 — 8,832 8,832
Service charges on deposit accounts
647 — 647 702 — 702
Loan servicing and other fees
503 — 503 492 — 492
Net gain on sale of loans
629 — 629 705 — 705
Net gain (loss) on sale of available for sale securities
1 — 1 (15
)
— (15
)
Net (loss) gain on sale of other real estate owned
— — — (76
)
— (76
)
Insurance commissions
— 763 763 — 1,276 1,276
Other operating income
1,333 48 1,381 1,201 36 1,237
Total other income
3,113 10,114 13,227 3,009 10,144 13,153

Other expenses:

Salaries & wages
8,630 3,820 12,450 7,897 3,841 11,738
Employee benefits
1,627 932 2,559 1,645 840 2,485
Occupancy & equipment
2,127 399 2,526 2,082 406 2,488
Amortization of intangible assets
353 340 693 220 671 891
Professional fees
681 30 711 799 14 813
Due diligence, merger-related and merger integration costs
511 — 511 — — —
Other operating expenses
6,184 1,026 7,210 5,717 864 6,581
Total other expenses
20,113 6,547 26,660 18,360 6,636 24,996
Segment profit
10,111 3,568 13,679 9,140 3,509 12,649
Intersegment (revenues) expenses*
(112
)
112 — (99
)
99 —
Pre-tax segment profit after eliminations
$ 9,999 $ 3,680 $ 13,679 $ 9,041 $ 3,608 $ 12,649
% of segment pre-tax profit after eliminations
73.1
%
26.9
%
100.0
%
71.5
%
28.5
%
100.0
%
Segment assets(dollars in millions)
$ 3,247 $ 46 $ 3,293 $ 3,010 $ 48 $ 3,058
*
~~Inter-segment revenues consist of rental payments, interest on deposits and management fees.~~
~~Other segment information is as follows:~~2017. The rate resets quarterly based on 3-month LIBOR plus 2.15%.

~~Wealth Management Segment Information~~Each of Trust I and Trust II 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 all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

(dollars in millions)

March 31, 2017

December 31,2016

Assets under management, administration, supervision and brokerage:
$ 11,725.5 $ 11,328.5
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 and records dividend income upon declaration by Trust I and Trust II.

Page 2830
Table of Contents

Note ~~11 - Mortgage Servicing Rights~~12 – Derivative Instruments and Hedging Activities
Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. The Corporation manages these risks as part of its asset and liability management process and through credit policies and procedures. The Corporation 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.
Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps that allow commercial loan customers 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 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. As of March 31, 2018, 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”. 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”.

The following ~~table summarizes~~tables detail the ~~Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three months ended~~ derivative instruments as of March 31, ~~2017~~ 2018 and ~~2016:~~December 31, 2017:

Three Months EndedMarch 31,

(dollars in thousands)

2017

2016

Balance, beginning of period
$ 5,582 $ 5,142
Additions
276 259
Amortization
(169
)
(136
)
Recovery
2 —
Impairment
(5
)
(83
)
Balance, end of period
$ 5,686 $ 5,182
Fair value
$ 6,394 $ 5,182

Asset Derivatives

Liability Derivatives

(dollars in thousands)

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

Derivatives not designated as hedging instruments

As of March 31, 2018:

Customer derivatives – interest rate swaps
$ 158,973 $ 2,847 $ 158,973 $ 2,846
Risk participation agreements sold
— — 892 2
Risk participation agreements purchased
14,672 13 — —
Total derivatives
$ 173,645 $ 2,860 $ 159,865 $ 2,848

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

AsThe 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 at March 31, ~~2017~~ 2018 and December 31, ~~2016, key economic assumptions~~2017 was $0 and $1.3 million, respectively. The amount of collateral posted with the ~~sensitivity~~third party 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 ~~current~~specified credit measures. The aggregate fair value of ~~MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:~~
(dollars in thousands)

March 31,
2017

December 31,
2016

Fair value amount of MSRs
$ 6,394 $ 6,154
Weighted average life (in years)
6.3 6.3
Prepayment speeds (constant prepayment rate)*
10.0
%
10.2
%
Impact on fair value:

10% adverse change
$ (115
)
$ (115
)
20% adverse change
$ (238
)
$ (238
)
Discount rate
9.55
%
9.55
%
Impact on fair value:

10% adverse change
$ (236
)
$ (225
)
20% adverse change
$ (455
)
$ (434
)
*     Represents the weighted average prepayment rate for the life of the MSR asset.
These assumptions and sensitivities are hypothetical and should be used with caution. 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 variationall derivative financial instruments in a ~~particular assumption on~~liability position with credit measure contingencies and entered into with the ~~fair value~~third party was $1.1 million and $1.6 million as 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.~~
March 31, 2018 and December 31, 2017, respectively.

Page 2931
Table of Contents

Note 1213 - ~~Goodwill~~Accounting for Uncertainty in Income Taxes
The Corporation recognizes the financial statement benefit of a tax position only after determining that the Corporation would be more likely than not to 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% likelihood of being realized upon settlement with the relevant tax authority.
The Corporation is subject to income taxes in the United States federal jurisdiction and ~~Other Intangibles~~multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by taxing authorities for years before 2014.

The Corporation’s ~~goodwill~~policy is to record interest and ~~intangible assets related to~~penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued for the acquisitions of Lau Associates, LLC (“Lau”) in July 2008, FKF in July 2010, the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May 2011, Davidson Trust Company (“DTC”) in May 2012, the loan and deposit accounts and a branch location of FBD in November 2012, PCPB in October 2014, CBH in January 2015 and RJM in April 2015 are detailed below:three months ended March 31, 2018 or 2017.

(dollars in thousands)

Balance
December 31,
2016

Additions/
Adjustments

Amortization

Balance
March 31,
2017

Amortization
Period

Goodwill – Wealth
$ 20,412 $ — $ — $ 20,412 Indefinite
Goodwill – Banking
80,783 — — 80,783 Indefinite
Goodwill – Insurance
3,570 — — 3,570 Indefinite
Total
$ 104,765 $ — $ — $ 104,765
Core deposit intangible (years)
$ 3,447 $ — $ (184
)
$ 3,263 10
Customer relationships (years)
13,056 — (368
)
12,688 10 to 20
Non-compete agreements (years)
1,634 — (129
)
1,505 5 to 10
Trade name
2,165 — — 2,165 Indefinite
Domain name
— 152 — 152 Indefinite
Favorable lease (months)
103 — (12
)
91 17 to 75
Total
$ 20,405 $ 152 $ (693
)
$ 19,864
Grand total
$ 125,170 $ 152 $ (693
)
$ 124,629
The Corporation performed its annual review of goodwill and identifiable intangible assets as of October 31, 2016 in accordance with ASC 350, “Intangibles Goodwill and Other.” For the five months ended March 31, 2017, the Corporation determined there were no events that would necessitate impairment testing of goodwill and other intangible assets.Note 14 - Shareholders’ Equity

~~Page 30~~
~~Table of Contents~~
~~Note 13 – Accumulated Other Comprehensive~~~~Income (~~~~Loss~~)

~~The following table details the components of accumulated other comprehensive income (loss) for the three month periods ended March 31, 2017 and 2016:~~
(dollars in thousands)

Net Change in Unrealized Gains on Available-for-Sale Investment Securities

Net Change in Unfunded Pension Liability

Accumulated Other ComprehensiveIncome (Loss)

Balance, December 31, 2016
$ (1,231
)
(1,178
)
(2,409
)
Net change
387 32 419
Balance, March 31, 2017
$ (844
)
(1,146
)
(1,990
)

Balance, December 31, 2015
$ 774 (1,186
)
(412
)
Net change
1,921 (7 ) 1,914
Balance, March 31, 2016
$ 2,695 (1,193
)
1,502
The following table details the amounts reclassified from each component of accumulated other comprehensive loss to each component’s applicable income statement line, for the three month periods ended March 31, 2017 and 2016:
Description of Accumulated Other

Amount Reclassified from Accumulated
Other Comprehensive Loss

Comprehensive Loss Component
For The Three Months Ended March 31,
Affected Income Statement Category

2017

2016

Net unrealized gain on investment securities available for sale:

Realization of loss (gain) on sale of investment securities available for sale
$ (1
)
$ 15
Net (loss) gain on sale of available for sale investment securities
Less: income tax benefit (expense)
— 6
Less: income tax benefit (expense)
Net of income tax
$ (1
)
$ 9
Net of income tax

Unfunded pension liability:

Amortization of net loss included in net periodic pension costs*
$ 23 $ 24
Employee benefits
Amortization of prior service cost included in net periodic pension costs*
— —
Employee benefits
Total expense before income tax benefit
23 24
Total expense before income tax benefit
Less: income tax benefit
8 8
Less: income tax benefit
Net of income tax
$ 15 $ 16
Net of income tax
*Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note9 ~~- Pension and Other Post-Retirement Benefit Plans~~
~~Page 31~~
~~Table of Contents~~
~~Note 14 - Shareholders’ Equity~~
Dividend

On April ~~20, 2017,~~ 19, 2018, the Corporation’s Board of Directors declared a regular quarterly dividend of ~~$0.21~~$0.22 per share payable June 1, ~~2017~~ 2018 to shareholders of record as of May ~~2, 2017.~~ 1, 2018. During the first quarter of ~~2017,~~2018, the Corporation paid or accrued, as applicable, a regular quarterly dividend of ~~$0.21~~$0.22 per share. This dividend totaled ~~$3.6~~$4.5 million, based on outstanding shares and restricted stock units as of February ~~2, 2017~~ 9, 2018 of ~~17,190,700~~20,414,046 shares.

~~S-3~~S-3 Shelf Registration Statement and Offerings Thereunder

In March 2015, the Corporation filed a shelf registration statement on Form S-3, SEC File No. 333-202805 (the “Shelf Registration Statement”) ~~to replace its 2012 Shelf Registration Statement, which was set to expire in April 2015.~~. The Shelf Registration Statement ~~allows~~expired in April 2018 and is expected to be replaced by a new shelf registration soon. As of March 31, 2018, the Shelf Registration Statement allowed the Corporation to raise additional capital through offers and sales of registered securities consisting of common stock, debt securities, warrants to purchase common stock, stock purchase contracts and units or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation ~~may~~could sell, from time to time, in one or more offerings, such securities in a dollar amount up to $200 million, in the aggregate.

In addition, the Corporation 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’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’s common stock and general economic and market conditions.

For the three months ended March 31, 2018, the Corporation did not issue any shares through the Plan. No RFWs were approved during the three months ended March 31, 2018. No other sales of equity securities were executed under the Shelf Registration Statement during the three months ended March 31, 2018.
O~~ptions~~ption Exercises and Restricted Stock Awards

In addition to shares that may be issued through the Plan, the Corporation also issues shares through the exercise of stock ~~options.~~options and the vesting of RSUs and PSUs. During the three months ended March 31, ~~2017, 29,178~~2018, 43,925 shares were issued pursuant to the exercise of stock options, increasing shareholders’ equity by ~~$650~~$992 thousand. The increase in shareholders’ equity related to the vesting of the RSUs and PSUs, which is recognized over the vesting period through stock based compensation expense, was $620 thousand.

Stock Repurchases

On August 6, 2015, the Corporation announced a stock repurchase program (the ~~“2015~~“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~~$40 million. During the three months ended March 31, ~~2017,~~ 2018, no shares were repurchased under the 2015 Program. As of March 31, ~~2017,~~ 2018, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300. In addition to the 2015 Program, it is the Corporation’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 vestings.

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Note 15 ~~- Accounting~~ – Accumulated Other Comprehensive Income (Loss)

The following table details the components of accumulated other comprehensive (loss) income for ~~Uncertainty in Income Taxes~~the three month period March 31, 2018 and 2017:
(dollars in thousands)

Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities

Net Change in
Unfunded
Pension Liability

Accumulated
Other
Comprehensive
Loss

Balance, December 31, 2017
$ (2,861
)
$ (1,553
)
$ (4,414
)
Other comprehensive (loss) income
(5,296
)
46 (5,250
)
Balance, March 31, 2018
$ (8,157
)
$ (1,507
)
$ (9,664
)

Balance, December 31, 2016
$ (1,231
)
$ (1,178
)
$ (2,409
)
Other comprehensive income
387 32 419
Balance, March 31, 2017
$ (844
)
$ (1,193
)
$ (1,990
)

The ~~Corporation recognizes~~following table details the ~~financial~~amounts reclassified from each component of accumulated other comprehensive loss to each component’s applicable income statement ~~benefit~~line, for the three months ended March 31, 2018 and 2017:
Description of Accumulated Other

Amount Reclassified from Accumulated
Other Comprehensive Loss

Comprehensive Loss Component
Three Months Ended March 31,
Affected Income Statement Category

2018

2017

Net unrealized gain on investment securities available for sale:

Realization of gain on sale of investment securities available for sale
$ (7 ) $ (1
)
Net gain on sale of available for sale investment securities
Realization of gain on transfer of investment securities available for sale to trading
(417
)
—
Other operating income
Total
$ (424
)
$ (1
)

Income tax effect
89 —
Income tax expense
Net of income tax
$ (335
)
$ (1
)
Net income

Unfunded pension liability:

Amortization of net loss included in net periodic pension costs*
$ 25 $ 23
Other operating expenses
Income tax effect
(5
)
(8
)
Income tax expense
Net of income tax
$ 20 $ 15
Net income
*Accumulated other comprehensive loss components are included in the computation of ~~a tax position only after determining~~net periodic pension cost.
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Note 16 - Earnings per 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 common shares and restricted stock awards and performance-based stock awards were vested. Proceeds assumed to have been received on option exercises are assumed to be used to purchase shares of the ~~Corporation~~Corporation’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 ~~more likely than not to sustain~~antidilutive.

Three Months Ended
March 31,

(dollars in thousands except per share data)

2018

2017

Numerator:

Net income available to common shareholders
$ 15,286 $ 9,044
Denominator for basic earnings per share – weighted average shares outstanding
20,202,969 16,954,132
Effect of dilutive common shares
247,525 228,557
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
20,450,494 17,182,689
Basic earnings per share
$ 0.76 $ 0.53
Diluted earnings per share
$ 0.75 $ 0.53
Antidilutive shares excluded from computation of average dilutive earnings per share
870 —
Note 17 - Revenue from Contracts with Customers
All of the ~~position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized~~Corporation’s revenue from contracts with customers in the ~~financial statements~~scope of ASC 606 is recognized within noninterest income. The following table presents the ~~largest benefit that has a greater than 50% likelihood of being realized upon settlement with the relevant tax authority.~~
~~The Corporation is subject to~~Corporation’s noninterest income ~~taxes in the United States federal jurisdiction~~by revenue stream and ~~multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by taxing authorities for years before 2013.~~
~~The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued~~reportable segment for the three months ended March 31, 2018 and 2017. Items outside the scope of ASC 606 are noted as such.

Three Months Ended March 31, 2018

Three Months Ended March 31, 2017

(dollars in thousands)

Banking

Wealth
Management

Consolidated

Banking

Wealth
Management

Consolidated

Fees for wealth management services
$ — $ 10,308 $ 10,308 $ — $ 9,303 $ 9,303
Insurance commissions⁽¹⁾
— 1,693 1,693 — 763 763
Capital markets revenue⁽¹⁾
666 — 666 — — —
Service charges on deposit accounts
713 — 713 647 — 647
Loan servicing and other fees⁽¹⁾
686 — 686 503 — 503
Net gain on sale of loans⁽¹⁾
518 — 518 629 — 629
Net gain on sale of investment securities available for sale⁽¹⁾
7 — 7 1 — 1
Net gain on sale of other real estate owned
176 — 176 — — —
Dividends on FHLB and FRB stock⁽¹⁾
431 — 431 214 — 214
Other operating income⁽²⁾
4,294 44 4,338 1,119 48 1,167
Total noninterest income
$ 7,491 $ 12,045 $ 19,536 $ 3,113 $ 10,114 $ 13,227
(1) Not within the scope of ASC 606.
(2) Other operating income includes merchant interchange fees, safe deposit box rentals, and rent income totaling $521 thousand and $479 thousand for the three-months ended March 31, 2018 and 2017, ~~or 2016.~~respectively, which are within the scope of ASC 606.

A description of the Corporation’s 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.
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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.
Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.
Interchange Income: The Corporation earns interchange income fees from debit cardholder transactions conducted through the Visa payment network. Interchange 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 ~~16 - Fair Value Measurement~~18 – Stock-Based Compensation
A. General Information
The Corporation 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 authorized for grant as stock-based compensation were limited to grants of stock options. On April 25,2007, the shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’s “2010 Long Term Incentive Plan” under which a total of 445,002 shares of the Corporation’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 the shareholder-approved plans mentioned in the preceding paragraph, the Corporation 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’s common stock, restricted stock units (“RSUs”) and performance stock units (“PSUs”).
RSUs have a restriction based on the passage of time. The grant date fair value of the RSUs is based on the closing price on the date of the grant.
PSUs have a restriction based on a performance criteria and may also havea restriction based on the passage of time. The performance criteria may be a market-based criteria measured by the Corporation’s total shareholder return (“TSR”) relative to the performance of the community bank index for the respective period. The fair value of the PSUs based on the Corporation’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 is based on the closing price of the Corporation’s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to 150%.
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B. Other Stock Option Information

The following ~~disclosures are made~~table provides information about options outstanding for the three months ended March 31, 2018:

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair Value

Options outstanding, December 31, 2017
115,246 $ 20.73 $ 4.86
Forfeited
— $ — $ —
Expired
— $ — $ —
Exercised
(43,925
)
$ 22.57 $ 5.03
Options outstanding, March 31, 2018
71,321 $ 19.59 $ 4.75
As of March 31, 2018 there were no unvested options.
Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:

Three Months Ended March 31,

(dollars in thousands)
2018

2017

Proceeds from exercise of stock options
$ 992 $ 650
Related tax benefit recognized
210 141
Net proceeds of options exercised
$ 1,202 $ 791
Intrinsic value of options exercised
$ 999 $ 548
The following table provides information about options outstanding and exercisable at March 31, 2018:
(dollars in thousands, except exercise price)

Outstanding

Exercisable

Number of shares
71,321 71,321
Weighted average exercise price
$ 19.59 $ 19.59
Aggregate intrinsic value
$ 1,737,209 $ 1,737,209
Weighted average contractual term in years
1.2 1.2
C. Restricted Stock and Performance Stock and Units
The Corporation has granted RSUs and PSUs under the 2007 LTIP and 2010 LTIP and in ~~conjunction~~accordance with Rule 5635(c)(4) of the ~~application~~Nasdaq listing standards.
RSUs
The compensation expense for the RSUs is measured based on the market price of ~~fair value measurements.~~the stock on the day prior to the grant date and is recognized on a straight-line basis over the vesting period.
For the three months ended March 31, 2018, the Corporation recognized $288 thousand of expense related to the Corporation’s RSUs. As of March 31, 2018, there was $1.8 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 2.1 years.
The following table details the RSUs for the three months ended March 31, 2018:

Three Months Ended March 31, 2018

Number of Shares

Weighted
Average
Grant Date
Fair Value

Beginning balance
75,707 $ 35.80
Granted
2,400 $ 43.95
Vested
(1,000
)
$ 30.04
Forfeited
— $ —
Ending balance
77,107 $ 36.13
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PSUs
The Corporation recognized $332 thousand of expense related to the PSUs for the three months ended March 31, 2018. As of March 31, 2018, there was $2.1 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 1.5 years.
The following table details the PSUs for the three months ended March 31, 2018:

Three Months Ended March 31, 2018

Number of Shares

Weighted
Average
Grant Date
Fair Value

Beginning balance
168,453 $ 24.76
Granted
— $ —
Vested
— $ —
Forfeited
— $ —
Ending balance
168,453 $ 24.76
Note 19 - Fair Value Measurement

FASB ASC 820, “Fair Value ~~Measurement”~~Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC 820 also establishes a fair value hierarchy ~~based on~~that prioritizes the ~~nature of data~~ inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets 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 usedidentical assets or liabilities (Level 1 measurements) and the ~~effect of the measurement on earnings or the net change in assets for the period.~~ lowest priority to unobservable inputs (Level 3 measurements).
~~Page 32~~
~~Table of Contents~~

The three levels of the fair value hierarchy under FASB ASC Topic 820 are:
Level 1 –Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
A. Assets and liabilities measured on a recurring basis
A description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Investment Securities
The value of the Corporation’s ~~investment securities~~ available for sale investment securities, which ~~generally~~ 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 ~~municipal securities, U.S. government agency securities~~political subdivisions, corporate bonds and ~~mortgage-related~~other debt securities are ~~reported at fair value. These securities are valued~~determined by the Corporation, taking into account the input of an independent third ~~party.~~party valuation service provider. The third party’s evaluations are based on market ~~data. They utilize evaluated~~data, utilizing 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 ~~applications~~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, bids, 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. 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.

U.S. Government ~~agency securities~~agencies are evaluated and priced using multi-dimensional relational models and ~~option-adjusted~~option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. ~~Mortgage-related~~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~~available-for-sale investments are evaluated using a broker-quote based application, including quotes from issuers.
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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 ~~sufficient understanding~~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 ~~third party service’s valuation models, assumptions and inputs used in determining the~~base fair value of ~~available~~the instrument for ~~sale investments to enable management to maintain an appropriate system of internal control.~~
~~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 March 31, 2017 and December 31, 2016 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input. potential counterparty credit risk.

The following ~~table sets forth~~tables present the ~~fair value of~~Corporation’s assets measured ~~on a recurring and non-recurring basis as of March 31, 2017:~~
(dollars in millions)

Total

Level 1

Level 2

Level 3

Assets Measured at Fair Value on a Recurring Basis:

Investment securities (available for sale and trading):

U.S. Treasury securities
$ 0.1 $ 0.1 $ — $ —
Obligations of the U.S. government agency securities
100.5 — 100.5 —
Obligations of state & political subdivisions
30.9 — 30.9 —
Mortgage-backed securities
202.5 — 202.5 —
Collateralized mortgage obligations
45.5 — 45.5 —
Mutual funds 19.5 19.5 — —
Other debt securities
1.3 — 1.3 —
Total assets measured on a recurring basis at fair value
$ 400.3 $ 19.6 $ 380.7 $ —

Assets Measured at Fair Value on a Non-Recurring Basis

Mortgage servicing rights
$ 6.4 $ — $ — $ 6.4
Impaired loans and leases
13.4 — — 13.4
Other real estate owned (“OREO”)
1.0 — — 1.0
Total assets measured on a non-recurring basis at fair value
$ 20.8 $ — $ — $ 20.8
~~The following table sets forth the~~at fair value ~~of assets measured on a recurring and non-recurring basis as of December 31, 2016:~~
(dollars in millions)

Total

Level 1

Level 2

Level 3

Assets Measured at Fair Value on a Recurring Basis:

Investment securities (available for sale and trading):

U.S. Treasury securities
$ 200.1 $ 200.1 $ — $ —
Obligations of the U.S. government agency securities
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 $ —

Assets Measured at Fair Value on a Non-Recurring Basis

Mortgage servicing rights
$ 6.2 $ — $ — $ 6.2
Impaired loans and leases
14.3 — — 14.3
OREO
1.0 — — 1.0
Total assets measured on a non-recurring basis at fair value
$ 21.5 $ — $ — $ 21.5
~~Page 33~~
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During the three months ended March 31, 2017, an increase of $3 thousand was recorded in the Allowance 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~~as of March 31, 2018 and December 31, 2017:
As of March 31, 2018

(dollars in millions)

Total

Level 1

Level 2

Level 3

Investment securities available for sale:

U.S. Treasury securities
$ 0.1 $ 0.1 $ — $ —
Obligations of U.S. government & agencies
175.1 — 175.1 —
Obligations of state & political subdivisions

19.9 — 19.9 —
Mortgage-backed securities
303.9 — 303.9 —
Collateralized mortgage obligations
34.0 — 34.0 —
Other debt securities
1.1 — 1.1 —
Total investment securities available for sale
$ 534.1 $ 0.1 $ 534.0 $ —

Investment securities trading:

Mutual funds
8.2 8.2 — —

Derivatives:

Interest rate swaps
2.8 — 2.8 —
Total recurring fair value measurements
$ 545.1 $ 8.3 $ 536.8 $ —
As of December 31, 2017

(dollars in millions)

Total

Level 1

Level 2

Level 3

Investment securities available for sale:

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
3.5 3.5 — —
Other debt securities
1.6 — 1.6 —
Total investment securities available for sale
$ 689.2 $ 203.6 $ 485.6 $ —

Investment securities trading:

Mutual funds
4.6 4.6 — —

Derivatives:

Interest rate swaps
1.9 — 1.9 —
Total recurring fair value measurements
$ 695.7 $ 208.2 $ 487.5 $ —
There have been no transfers between levels during the three months ended March 31, ~~2017.~~2018.

B. Assets and liabilities measured on a non-recurring basis
Fair value is used on a nonrecurring basis to evaluate certain financial assets and financial liabilities in specific circumstances.  Similarly, fair value is used on a nonrecurring basis for nonfinancial assets and nonfinancial liabilities such as foreclosed assets, other real estate owned, intangible assets, nonfinancial assets and liabilities evaluated in a goodwill impairment analysis and other nonfinancial assets measured at fair value for purposes of assessing impairment.  A description of the valuation methodologies used for financial and nonfinancial assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy, is set forth below.
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Impaired Loans

The Corporation 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.

The Corporation has an appraisal policy in which an appraisal is obtained for a commercial loan at the point at which the loan either becomes nonperforming or is downgraded to a substandard or worse classification. For consumer loans, the Corporation obtains updated appraisals when a loan becomes 90 days past due or when it receives other information that may indicate possible impairment. Based on the appraisals obtained by the Corporation, ~~an appropriate Allowance is allocated to the particular loan.~~  a partial or full charge-off may be necessary.

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

MSRs do not trade in an active, open market with readily observable prices. Accordingly, the Corporation obtains the fair value of the MSRs using a ~~third-party~~third-party pricing provider. The provider determines the fair value by discounting projected net servicing cash flows of the remaining servicing portfolio. The valuation model used by the provider considers market loan prepayment predictions and other economic factors which the Corporation considers to be significant unobservable inputs. The fair value of MSRs is mostly affected by changes in mortgage interest rates since rate changes cause the loan prepayment acceleration factors to increase or decrease. All assumptions are market driven. The Corporation has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of MSRs to enable management to maintain an appropriate system of internal control. Mortgage servicing rights are classified within Level 3 of the fair value hierarchy as the valuation is model driven and primarily based on unobservable inputs.

The following tables present the Corporation’s assets measured at fair value on a non-recurring basis as of March 31, 2018 and December 31, 2017:
As of March 31, 2018

(dollars in millions)

Total

Level 1

Level 2

Level 3

Mortgage servicing rights
$ 6.8 $ — $ — $ 6.8
Impaired loans and leases
11.9 — — 11.9
OREO
0.3 — — 0.3
Total non-recurring fair value measurements
$ 19.0 $ — $ — $ 19.0
Fair value of assets measured on a non-recurring basis as of December 31, 2017:
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 non-recurring fair value measurements
$ 20.7 $ — $ — $ 20.7
During the three months ended March 31, 2018, an increase of $29 thousand was recorded in the Allowance as a result of adjusting the carrying value and estimated fair value of the impaired loans in the above tables.

Note 1720 - 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 the Corporation using available market information and appropriate valuation methodologies and are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and applied to this disclosure on a prospective basis. Estimated fair value of assets and liabilities carried at cost at December 31, 2017 were based on an entry price notion. In cases where quoted market prices are not available, fair values are based on estimates using present value or other ~~fair~~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 balance sheet for cash and cash equivalents approximate their fair values.~~
~~Investment Securities~~
Estimated fair values for investment securities are generally valued by 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 experts. 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. See Note 4 of the Notes to Consolidated Financial Statements for more information.

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~~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 re-price frequently and which have no significant change in credit risk, estimated fair values are based on carrying values. Fair values of certain 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 Corporation or the appraised fair value of the underlying collateral, as determined by independent third party appraisers. This technique does not reflect an exit price.
~~Impaired Loans~~
The Corporation 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.
~~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, the Corporation classifies the value of MSRs as using Level 3 inputs.
~~Other Assets~~

The carrying amount ~~of accrued interest receivable, income taxes receivable~~ and ~~other investments approximates fair value.~~
~~Deposits~~
The estimated fair values disclosed for noninterest-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 certificate 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~~
~~The carrying amount of short-term borrowings, which include overnight repurchase agreements, fed funds and FHLB advances with original maturity of one year or less, approximates their fair value.~~
~~Long-term FHLB Advances and Other Borrowings~~
The fair value of long-term FHLB advances and other borrowings (with original maturities of greater than one year) is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.
~~Subordinated~~N~~otes~~
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.
~~Other Liabilities~~
~~The carrying amounts of accrued interest payable and other accrued payables approximate fair value.~~
~~Off-Balance Sheet Instruments~~
Estimated 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.
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~~Table of Contents~~
~~As of the dates indicated, the carrying amount and estimated~~ fair value of the Corporation’s financial instruments are as follows:

As ofMarch 31, As of December 31,
Fair Value 2017   2016
As of March 31, 2018

As of December 31, 2017

(dollars in thousands)
Hierarchy
Level*

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Fair Value
Hierarchy
Level*

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

Financial assets:
Cash and cash equivalents

Level 1
$ 87,435 $ 87,435 $ 50,765 $ 50,765
Level 1
$ 32,393 $ 32,393 $ 60,024 $ 60,024
Investment securities, available for sale

See Note 16
391,028 392,239 566,996 566,996
Investment securities, trading

See Note 16
4,138 4,138 3,888 3,888
Investments, held to maturity

Level 2
5,194 5,116 2,879 2,818
Investment securities - available for sale

See Note 19
534,103 534,103 689,202 689,202
Investment securities - trading

See Note 19
8,211 8,211 4,610 4,610
Investment securities – held to maturity

Level 2
7,885 7,629 7,932 7,851
Loans held for sale

Level 2
3,015 3,015 9,621 9,621
Level 2
5,522 5,522 3,794 3,794
Net portfolio loans and leases

Level 3
2,538,482 2,564,015 2,517,939 2,505,546
Level 3
3,288,133 3,249,948 3,268,333 3,293,802
Mortgage servicing rights

Level 3
5,686 6,394 5,582 6,154
Level 3
5,706 6,791 5,861 6,397
Interest rate swaps

Level 2
2,847 2,847 1,895 1,895
Risk participation agreements purchased

Level 2
13 13 21 21
Other assets

Level 3
25,613 25,613 34,465 34,465
Level 3
39,740 39,740 46,799 46,799
Total financial assets
Total financial assets
$ 3,060,591 $ 3,087,965 $ 3,192,135 $ 3,180,253 $ 3,924,553 $ 3,887,197 $ 4,088,471 $ 4,114,395
Financial liabilities:

Deposits

Level 2
$ 2,636,565 $ 2,635,731 $ 2,579,675 $ 2,579,011
Level 2
$ 3,315,539 $ 3,309,113 $ 3,373,798 $ 3,368,276
Short-term borrowings

Level 2
23,613 23,612 204,151 204,151
Level 2
173,704 173,704 237,865 237,865
Long-term FHLB advances and other borrowings

Level 2
174,711 174,967 189,742 186,863
Long-term FHLB advances

Level 2
107,784 106,857 139,140 138,685
Subordinated notes

Level 2
29,546 29,624 29,532 29,228
Level 2
98,448 97,074 98,416 95,044
Junior subordinated debentures

Level 2
21,456 22,901 21,416 19,366
Interest rate swaps

Level 2
2,846 2,846 1,895 1,895
Risk participation agreements sold

Level 2
2 2 3 3
Other liabilities

Level 2
40,087 40,087 37,303 37,303
Level 3
47,535 47,535 49,071 49,071
Total financial liabilities
Total financial liabilities
$ 2,904,522 $ 2,904,021 $ 3,040,403 $ 3,036,556 $ 3,767,314 $ 3,760,032 $ 3,921,604 $ 3,910,205

*See Note 1619 in the Notes to Unaudited Consolidated Financial Statements for a description of ~~fair value~~ hierarchy levels.
Note 21 - Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk

~~Note 18 - Recent Accounting Pronouncements~~Off-Balance Sheet Risk

~~FASB ASU No. 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. The Corporation is ~~currently~~a party to financial instruments with off-balance sheet risk in the ~~process~~normal course of ~~evaluating all revenue streams, accounting policies, practices~~business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and ~~reporting~~standby letters of credit. Those instruments involve, to ~~identify and understand any impact on~~varying degrees, elements of credit risk in excess of the Corporation’s Consolidated Financial Statements. Our preliminary evaluation suggests that adoption of this guidance is not expected to have a material effect on our Consolidated Financial Statements.
~~FASB ASU 2017-04 (Topic 350), “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 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017-04 will have on its consolidated financial statements and related disclosures.
~~FASB ASU 2017-01 (Topic 805), “Business Combinations”~~
Issued in January 2017, ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017-01 will have on its consolidated financial statements and related disclosures.
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~~FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”~~
~~Issued in August 2016, ASU 2016-15 provides guidance on eight specific cash flow issues and their disclosure~~recognized in the consolidated statements of ~~cash flows.~~financial condition. The ~~issues addressed~~contractual amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.
The Corporation’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 ~~debt prepayment, settlement~~unused lines of ~~zero-coupon debt, contingent consideration~~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 ~~business combinations, proceeds from settlement~~the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment 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 applicationa fee. Some of the ~~Predominance principle. 2016-15 is effective for~~commitments are expected to expire without being drawn upon, and the ~~annual~~ total commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at March 31, 2018 and ~~interim periods in fiscal years beginning after~~ December ~~15,~~31, 2017 ~~with early adoption permitted.~~were $766.4 million and $748.3 million, respectively. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation ~~is currently evaluating the impact of this guidance and does not anticipate a material impact on its consolidated financial statements.~~
~~FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”~~
Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss model will require companies to immediately recognize an estimateupon extension of credit, ~~losses expected to occur over the remaining life~~is based on a credit evaluation of the financial assets that are in the scope of the standard. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the annualcounterparty. Collateral varies but may include accounts receivable, marketable securities, inventory, property, plant and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statementsequipment, residential real estate, and ~~related disclosures.~~
~~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. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
~~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. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
~~FASB ASU 2017-08 (Subtopic 310-20), “~~~~Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~”
Issued in March 2017, ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendments does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,2018. Early adoption is permitted, including adoption in an interim period. The Corporation has evaluated ASU 2017-08 and determined that it currently follows the guidance related to premium amortization on callable debt securities.
~~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 require 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 is evaluating the effect that ASU 2017-07 will have on its consolidated financial statements and related disclosures, but does not expect that it will materially affect the Corporation’s financial statements.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 credit 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 March 31, 2018 and December 31, 2017 were $15.5 million and $17.0 million, respectively. There were no outstanding bankers’ acceptances as of March 31, 2018 and December 31, 2017.
Contingencies
Legal Matters
In the ordinary course of its operations, the Corporation and its subsidiaries are parties to various claims, litigation, investigations, and legal and administrative cases and proceedings. Such 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 Corporation and its shareholders.
On a regular basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest 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.
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. As of March 31, 2018, there are no pending make-whole requests. As of March 31, 2018, the Corporation had no loans sold with recourse outstanding.
Concentrations of Credit Risk
The Corporation has a material portion of its loans in real estate-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” for additional information.
Note 22 - 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’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.
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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 and 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 Delaware statutory trust, is also reported under the Wealth Management segment. In addition, the Wealth Management Division oversees all insurance services of the Corporation, which are conducted through the Bank’s insurance subsidiary, BMT Insurance Advisors, Inc., and are reported in the Wealth Management segment.
The accounting policies of the Corporation are applied by segment in the following tables. The segments are presented on a pre-tax basis.
The following table details the Corporation’s segments for the three months ended March 31, 2018 and 2017:

Three Months Ended March 31, 2018

Three Months Ended March 31, 2017

(dollars in thousands)

Banking

Wealth
Management

Consolidated

Banking

Wealth
Management

Consolidated

Net interest income
$ 37,438 $ 1 $ 37,439 $ 27,402 $ 1 $ 27,403
Less: loan loss provision
1,030 — 1,030 291 — 291
Net interest income after loan loss provision
36,408 1 36,409 27,111 1 27,112
Other income:

Fees for wealth management services
— 10,308 10,308 — 9,303 9,303
Insurance commissions
— 1,693 1,693 — 763 763
Capital markets revenue
666 — 666 — — —
Service charges on deposit accounts
713 — 713 647 — 647
Loan servicing and other fees
686 — 686 503 — 503
Net gain on sale of loans
518 — 518 629 — 629
Net gain (loss) on sale of investment securities available for sale
7 — 7 1 — 1
Net (loss) gain on sale of OREO
176 — 176 — — —
Other operating income
4,725 44 4,769 1,333 48 1,381
Total noninterest income
7,491 12,045 19,536 3,113 10,114 13,227

Noninterest expenses:

Salaries & wages
11,156 4,826 15,982 8,630 3,820 12,450
Employee benefits
2,676 1,032 3,708 1,557 932 2,489
Occupancy and bank premise
2,576 474 3,050 2,127 399 2,526
Amortization of intangible assets
398 481 879 353 340 693
Professional fees
729 19 748 681 30 711
Other operating expenses
10,431 1,232 11,663 6,765 1,026 7,791
Total noninterest expenses
27,966 8,064 36,030 20,113 6,547 26,660
Segment profit
15,933 3,982 19,915 10,111 3,568 13,679
Intersegment (revenues) expenses*
(149
)
149 — (112
)
112 —
Pre-tax segment profit after eliminations
$ 15,784 $ 4,131 $ 19,915 $ 9,999 $ 3,680 $ 13,679
% of segment pre-tax profit after eliminations
79.3
%
20.7
%
100.0
%
73.1
%
26.9
%
100.0
%
Segment assets (dollars in millions)
$ 4,248.4 $ 52.0 $ 4,300.4 $ 3,247 $ 46 $ 3,293
*Inter-segment revenues consist of rental payments, interest on deposits and management fees.
Wealth Management Segment Information
(dollars in millions)

March 31,
2018

December 31,
2017

Assets under management, administration, supervision and brokerage
$ 13,146.9 $ 12,968.7
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ITEM 2 Management’s Discussionand Analysisof Results of Operation and Financial Condition

The following is the Corporation’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.~~Consolidated Financial Statements. Current performance does not guarantee, and may not be indicative of, similar performance in the future.

Brief History of the Corporation

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”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries 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 2537 full-service branches, eight limited-hour retirement community offices, ~~one~~two limited-service ~~branch, five~~branches, six wealth management offices and a full-service insurance agency located throughout Montgomery, Delaware, Chester, ~~Dauphin~~Philadelphia, Berks, and ~~Philadelphia~~Dauphin counties in Pennsylvania, Mercer and Camden counties of New Jersey, and New Castle county in Delaware. The common stock of the Corporation 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 Corporation and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Pennsylvania Department of Banking and Securities. The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform with U.S. generally accepted accounting principles (“GAAP”). All inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous year’s financial statements to the current year’s presentation. In preparing the ~~consolidated financial statements,~~Consolidated Financial Statements, the Corporation 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. However, there are uncertainties inherent in making these estimates and actual results could differ from these estimates. The Corporation has identified certain areas that require estimates and assumptions, which include the allowance for loan and lease losses (the “Allowance”), the valuation of goodwill and intangible assets, the fair value of investment securities, the fair value of derivative financial instruments, and the valuation of mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation. The Corporation’s derivative financial instruments are not exchange-traded and therefore are valued utilizing models that use as their basis readily observable market parameters, specifically the London Interbank Offered Rate (“LIBOR”) swap curve, and are classified within Level 2 of the valuation hierarchy. In addition, certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

These critical accounting policies, along with other significant accounting policies, are presented in Footnote 1 – Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in the Corporation’s ~~2016~~2017 Annual ~~Report on Form 10-K (the “2016 Annual Report”).~~Report.

~~Pending Business Combination – Royal Bancshares~~In addition to the critical accounting policies described and referenced above, as it relates to derivative financial instruments, the Corporation recognizes all derivative instruments at fair value as either assets or liabilities in other assets or other liabilities on the balance sheet. The accounting for changes in the fair value of ~~Pennsylvania, Inc.~~a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. As of March 31, 2018, the Corporation’s derivative financial instruments are not designated as hedges and gains or losses are recognized in current earnings.
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Recent Acquisitions and Expansions

On ~~January 30,~~December 15, 2017, the ~~Corporation entered into a definitive Agreement and Plan~~merger of ~~Merger to acquire~~ Royal Bancshares of Pennsylvania, Inc. (“RBPI”)~~, parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value of $127.7 million (the “Acquisition”). In connection with the Acquisition, RBPI will merge~~ with and into the Corporation (the “RBPI Merger”), and ~~RBA will merge~~the merger of Royal Bank America with and into the ~~Bank. The Acquisition, which is expected to add approximately $602~~Bank, were completed. Consideration totaled $138.6 million, ~~in loans and $630 million in deposits (based on December 31, 2016 financial information), strengthens~~comprised of 3,098,754 shares of the Corporation’s ~~position as~~common stock, the ~~largest community bank~~assumption of 140,224 warrants to purchase Corporation common stock, valued at $1.9 million, $112 thousand for the cash-out of certain options and $7 thousand cash in ~~Philadelphia’s western suburbs~~lieu of fractional shares. The RBPI Merger initially added $567.3 million of loans, $121.6 million of investments, $593.2 million of deposits, twelve new branches and ~~based on deposits, ranks it as~~a loan production office. The acquisition of RBPI expanded the ~~eighth largest community bank headquartered~~Corporation’s footprint within Montgomery, Chester, Berks and Philadelphia Counties in ~~Pennsylvania. The Acquisition, which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County,~~ Pennsylvania ~~and an expanded physical presence in Philadelphia County, Pennsylvania, is expected to close during the third quarter of 2017 and is subject to shareholder approval~~ as well as ~~applicable regulatory approvals~~Camden and ~~closing conditions.~~
~~Other Pending Acquisitions and Expansion Plans~~Mercer Counties in New Jersey.

In addition to the RBPI ~~Acquisition,~~Merger, the Bank has continued to execute on its strategies of diversification and acquiring and/or establishing specialty offices in strategically targeted areas where management believes there to be a high demand for the Bank’s products and services. On ~~April 19,~~May 24, 2017, the Bank ~~announced that it had entered into a definitive agreement to acquire~~completed its acquisition of Hirshorn Boothby, a full-service insurance agency established in 1931 and headquartered in the Chestnut Hill section of Philadelphia. ~~Following receipt of applicable regulatory approvals and satisfaction of certain closing conditions,~~ Hirshorn Boothby ~~will be integrated~~was immediately merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc., ~~which will expand~~expanding the footprint of this growing segment.

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~~Table of Contents~~
On ~~April 4,~~May 12, 2017, the Corporation ~~announced the anticipated opening, subject to regulatory approval, of~~established a wealth management-focused office in Princeton, New Jersey which ~~is expected to complement~~complements the already-established presence in central New Jersey that ~~is to be~~was acquired in the ~~anticipated merger with RBPI.~~RBPI Merger.

~~In addition to these expansions of the Corporation’s physical presence, beginning~~Beginning in the second quarter of 2017, the Bank’s newly established Capital Markets department ~~will begin~~commenced operations ~~that will focus~~focusing on providing risk management services to address the needs of its commercial customer base. These capital markets capabilities ~~will~~ enable the Bank to offer hedging tools for qualified commercial customers through the use of interest rate swaps and options designed to mitigate the interest rate risk on variable rate loans. This interest rate hedging offering ~~will allow~~allows the Bank to participate on and lead in larger and ~~longer dated~~longer-dated credits without incurring additional interest rate ~~risk itself.~~risk. Additional services will ~~similarly~~ focus on ~~helping~~assisting qualified customers ~~to hedge~~in hedging their foreign exchange risk and ~~meet~~meeting their trade finance needs through enhanced international services capabilities.

On May 1, 2018, BMT Insurance Advisors, Inc. acquired Domenick & Associates, a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia. Domenick & Associates has a specialty niche with nonprofit and social service organizations which aligns well with our banking and wealth management solutions in these specialty service areas. This acquisition furthers our objective of pursuing strategic growth opportunities to enhance, broaden, and diversify our revenue streams.
Executive Overview

The following items highlight the Corporation’s results of operations for the three months ended March 31, ~~2017,~~2018, as compared to the same period in ~~2016,~~2017, and the changes in its financial condition as of March 31, ~~2017~~2018 as compared to December 31, ~~2016.~~2017. More detailed information related to these highlights can be found in the sections that follow.

Three Month Results of Operations

●
Net income attributable to Bryn Mawr Bank Corporation for the three months ended March 31, ~~2017~~2018 was ~~$9.0~~$15.3 million, an increase of ~~$723 thousand~~$6.3 million as compared to net income of ~~$8.3~~$9.0 million for the same period in ~~2016.~~2017. Diluted earnings per share was ~~$0.53~~$0.75 for the three months ended March 31, ~~2017~~2018 as compared to ~~$0.49~~$0.53 for the same period in ~~2016.~~2017.

●
Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended March 31, ~~2017~~2018 were ~~9.60%~~11.78% and ~~1.13%~~1.46%, respectively, as compared to ROE and ROA of ~~9.27%~~9.60% and 1.13%, respectively, for the same period in ~~2016.~~2017.

●
Tax-equivalent net interest income increased ~~$1.6~~$9.9 million, or ~~6.0%~~36.0%, to ~~$27.6~~$37.5 million for the three months ended March 31, ~~2017,~~2018, as compared to ~~$26.0~~$27.6 million for the same period in ~~2016.~~2017.

●
Provision for loan and lease losses (the “Provision”), of ~~$291 thousand~~$1.0 million for the three months ended March 31, ~~2017~~2018 was ~~a decrease~~an increase of ~~$1.1 million~~$739 thousand from the ~~$1.4 million~~$291 thousand Provision recorded for the same period in ~~2016.~~2017.

●
~~Non-interest~~Noninterest income of ~~$13.2~~$19.5 million for the three months ended March 31, ~~2017 was relatively unchanged, increasing $74 thousand~~2018 increased $6.3 million as compared to $13.2 million for the same period in ~~2016.~~2017.

●
Fees for wealth management services and insurance revenue of ~~$9.3~~$10.3 million and ~~$763 thousand,~~$1.7 million, respectively, for the three months ended March 31, ~~2017~~2018 were ~~an increase~~increases of ~~$471 thousand~~$1.0 million and ~~a decrease of $513~~$930 thousand, respectively, from the same period in ~~2016.~~2017.
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●
~~Non-interest~~Noninterest expense of ~~$26.7~~$36.0 million for the three months ended March 31, ~~2017~~2018 increased ~~$1.7~~$9.3 million, from ~~$25.0~~$26.7 million for the same period in ~~2016.~~2017.

Changes in Financial Condition

●
Total assets of ~~$3.29~~$4.30 billion as of March 31, ~~2017~~2018 decreased ~~$128.9~~$149.3 million from $4.45 billion as of December 31, ~~2016.~~2017.

●
Shareholders’ equity of ~~$388.1~~$533.1 million as of March 31, ~~2017~~2018 increased ~~$7.0~~$5.0 million from ~~$381.1~~$528.1 million as of December 31, ~~2016.~~2017.
~~Page 39~~
~~Table of Contents~~

●
Total portfolio loans and leases as of March 31, ~~2017~~2018 were ~~$2.56~~$3.31 billion, an increase of ~~$20.2~~$19.9 million from ~~the~~$3.29 billion as of December 31, ~~2016 balance.~~2017.

●
Total non-performing loans and leases of ~~$7.3~~$7.5 million represented ~~0.29%~~0.23% of portfolio loans and leases as of March 31, ~~2017~~2018 as compared to ~~$8.4~~$7.3 million, or ~~0.33%~~0.29% of portfolio loans and leases as of December 31, ~~2016.~~2017.

●
The ~~$17.1~~$17.7 million Allowance, as of March 31, ~~2017,~~2018, represented ~~0.67%~~0.53% of portfolio loans and leases, as compared to $17.5 million, or ~~0.69%~~0.53% of portfolio loans and leases as of December 31, ~~2016.~~2017.

●
Total deposits of ~~$2.64~~$3.32 billion as of March 31, ~~2017 increased $56.9~~2018 decreased $58.3 million from ~~$2.58~~$3.37 billion as of December 31, ~~2016.~~2017.

●
Wealth ~~Management~~ assets under management, administration, supervision and brokerage as of March 31, ~~2017~~2018 were ~~$11.73~~$13.15 billion, an increase of ~~$397.0~~$178.2 million from $12.97 billion December 31, ~~2016.~~
2017.

Key Performance Ratios

Key financial performance ratios for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 are shown in the table below:

Three Months Ended March 31,

Three Months Ended
March 31,

2017

2016

2018

2017

Annualized return on average equity
9.60
%
9.27
%
Annualized return on average assets
1.13
%
1.13
%
Return on average equity
11.78
%
9.60
%
Return on average assets
1.46
%
1.13
%
Tax-equivalent net interest margin
3.74
%
3.87
%
3.94
%
3.74
%
Basic earnings per share
$ 0.53 $ 0.49 $ 0.76 $ 0.53
Diluted earnings per share
$ 0.53 $ 0.49 $ 0.75 $ 0.53
Dividend per share
$ 0.21 $ 0.20 $ 0.22 $ 0.21
Dividend declared per share to net income per basic common share
39.4
%
40.5
%
28.9
%
39.4
%

The following table presents certain key period-end balances and ratios as of March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:

(dollars in millions, except per share amounts)

March 31, 2017

December 31, 2016

March 31, 2018

December 31, 2017

Book value per share
$ 22.87 $ 22.50 $ 26.35 $ 26.19
Tangible book value per share
$ 15.53 $ 15.11 $ 16.10 $ 15.98
Allowance as a percentage of loans and leases
0.67
%
0.69
%
Allowance as a percentage of portfolio loans and leases
0.53
%
0.53
%
Tier I capital to risk weighted assets
10.50
%
10.51
%
10.46
%
10.36
%
Tangible common equity ratio
8.32
%
7.76
%
9.19
%
8.67
%
Loan to deposit ratio
97.0
%
98.7
%
99.7
%
97.4
%
Wealth assets under management, administration, supervision and brokerage
$ 11,725.5 $ 11,328.5 $ 13,146.9 $ 12,968.7
Portfolio loans and leases
$ 2,555.6 $ 2,535.4 $ 3,305.8 $ 3,285.9
Total assets
$ 3,292.6 $ 3,421.5 $ 4,300.4 $ 4,449.7
Shareholders’ equity
$ 388.1 $ 381.1 $ 533.1 $ 528.1
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The following sections discuss, in detail, the Corporation’s results of operations for the three months ended March 31, ~~2017,~~2018, as compared to the same periods in ~~2016,~~2017, and the changes in its financial condition as of March 31, ~~2017~~2018 as compared to December 31, ~~2016.~~2017.

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

●
Non-Interest 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 ~~Taxes~~Tax Expense, , which include state and federal jurisdictions.

TAX-EQUIVALENT NET INTEREST INCOME

Net interest income is the primary source of the Corporation’s revenue. The below tables present a summary, for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the ~~tax-equivalent~~ rates paid on its interest-bearing liabilities. The tax-equivalent net interest margin is the tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread is the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of noninterest-bearing liabilities represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

Tax-equivalent net interest income increased ~~$1.6~~$9.9 million, or ~~6.0%~~36.0%, to ~~$27.6~~$37.5 million for the three months ended March 31, ~~2017,~~2018, as compared to ~~$26.0~~$27.6 million for the same period in ~~2016.~~2017. The increase in tax-equivalent net interest income between the periods was largely related to the increase in ~~average~~tax-equivalent interest and fees on loans and leases, which increased $12.1 million for the three months ended March 31, ~~2017~~2018 as compared to the same period in ~~2016.~~2017. The increase in tax-equivalent interest and fees on loans and leases was primarily related to the $735.5 million increase in average loans to $3.29 billion as of March 31, 2018 from $2.56 billion as of March 31, 2017. The increase in average loans was largely related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $567.3 million, as well as organic loan growth. In addition to the increase in tax-equivalent interest income on loans and leases, interest on available for sale investment securities increased by $958 thousand for the three months ended March 31, 2018 as compared to the same period in 2017. Average ~~loans~~available for sale investment securities increased by $133.5 million for the first quarter of ~~2017 increased by $247.1 million from~~2018 as compared to the ~~same period in 2016, while~~first quarter of 2017.
Partially offsetting the effect on tax-equivalent ~~yield earned on loans decreased by 13 basis points. In addition, average long-term FHLB advances decreased $67.5 million~~interest income associated with ~~a 9 basis point increase in rate paid between periods. The~~the increase in average ~~loan balances~~loans and ~~decrease in average long-term FHLB advances~~leases and available for sale investment securities were ~~offset by a $218.5~~increases of $1.6 million, ~~increase in average~~$603 thousand, $288 thousand and $773 thousand of interest expense on interest-bearing deposits, ~~whose tax-equivalent rate paid increased by 14 basis points between~~short-term borrowings, junior subordinated debtentures and subordinated notes, respectively. The increases in interest expense were primarily related to increases in the ~~periods.~~average balances of interest-bearing deposits and junior subordinated debentures as a result of the RBPI Merger, and the December 13, 2017 issuance of $70 million, ten-year, 4.25% fixed-to-floating subordinated notes.

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Analyses of Interest Rates and Interest Differential

The ~~table~~tables below ~~presents~~present the major asset and liability categories on an average daily balance basis for the periods presented, along with interest income, interest expense and key rates and yields.

For theThree Months EndedMarch 31,

For the Three Months Ended March 31,

2017

2016

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

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Assets:

Interest-bearing deposits with banks
$ 39,669 $ 66 0.67
%
$ 39,050 $ 46 0.47
%
$ 38,044 $ 53 0.56
%
$ 39,669 $ 66 0.67
%
Investment securities - available for sale:

Taxable
354,229 1,653 1.89
%
316,353 1,397 1.78
%
498,718 2,675 2.18
%
354,229 1,653 1.89
%
Non-taxable⁽³⁾
31,485 164 2.11
%
40,658 191 1.89
%
Total investment securities - available for sale
385,714 1,817 1.91
%
357,011 1,588 1.79
%
Tax-exempt⁽⁴⁾
25,501 100 1.98
%
31,485 164 2.11
%
Total investment securities – available for sale
519,219 2,775 2.17
%
385,714 1,817 1.91
%
Investment securities – held to maturity
3,702 7 0.77
%
— — — 7,913 12 0.62
%
3,708 7 0.77
%
Investment securities – trading
3,890 8 0.83
%
3,946 2 0.20
%
8,339 21 1.02
%
3,890 8 0.83
%
Loans and leases⁽¹⁾⁽²⁾⁽³⁾
2,555,677 28,622 4.54
%
2,308,584 26,778 4.67
%
Loans and leases^(1)(2)(3)(4)
3,291,212 40,754 5.02
%
2,555,677 28,622 4.54
%
Total interest-earning assets
2,988,652 30,520 4.14
%
2,708,591 28,414 4.22
%
3,864,727 43,615 4.58
%
2,988,652 30,520 4.14
%
Cash and due from banks
14,942 16,501 10,698 14,942
Allowance for loan and lease losses
(17,580
)
(16,239
)
(17,628
)
(17,580
)

Other assets
258,046 264,295 388,383 258,046
Total assets
$ 3,244,060 $ 2,973,148 $ 4,246,180 $ 3,244,060
Liabilities:

Savings, NOW, and market rate accounts
$ 1,388,561 756 0.22
%
$ 1,279,630 569 0.18
%
$ 1,676,733 $ 1,479 0.36
%
$ 1,388,561 $ 756 0.22
%
Wholesale deposits
143,461 317 0.90
%
137,201 233 0.68
%
231,289 733 1.29
%
143,461 317 0.90
%
Time deposits
320,172 755 0.96
%
216,820 274 0.51
%
Retail time deposits
527,469 1,260 0.97
%
320,172 755 0.96
%
Total interest-bearing deposits
1,852,194 1,828 0.40
%
1,633,651 1,076 0.26
%
2,435,491 3,472 0.58
%
1,852,194 1,828 0.40
%
Short-term borrowings
47,603 27 0.23
%
34,158 17 0.20
%
172,534 630 1.48
%
47,603 27 0.23
%
Long-term FHLB advances and other borrowings
182,507 698 1.55
%
250,015 908 1.46
%
Long-term FHLB advances
123,920 562 1.84
%
182,507 698 1.55
%
Subordinated notes
29,537 370 5.08
%
29,482 366 4.99
%
98,430 1,143 4.71
%
29,537 370 5.08
%
Total borrowings
259,647 1,095 1.71
%
313,655 1,291 1.66
%
Junior subordinated debt
21,430 288 5.45
%
— — —
Total interest-bearing liabilities
2,111,841 2,923 0.56
%
1,947,306 2,367 0.49
%
2,851,805 6,095 0.87
%
2,111,841 2,923 0.56
%
Non-interest-bearing deposits
711,794 631,047 835,476 711,794
Other liabilities
38,211 33,923 32,465 38,211
Total non-interest-bearing liabilities
750,005 664,970 867,941 750,005
Total liabilities
2,861,846 2,612,276 3,719,746 2,861,846
Shareholders’ equity
382,214 360,872 526,434 382,214
Total liabilities and shareholders’ equity
$ 3,244,060 $ 2,973,148 $ 4,246,180 $ 3,244,060
Net interest spread
3.58
%
3.73
%
3.71
%
3.58
%
Effect of non-interest-bearing liabilities
0.16
%
0.14
%
Tax-equivalent net interest income and margin on earning assets⁽³⁾
$ 27,597 3.74
%
$ 26,047 3.87
%
Effect of non-interest-bearing sources
0.23
%
0.16
%
Net interest income/margin on earning assets⁽⁴⁾
$ 37,520 3.94
%
$ 27,597 3.74
%
Tax-equivalent adjustment⁽³⁾⁽⁴⁾
$ 194 0.02
%
$ 145 0.02
%
$ 81 0.01
%
$ 194 0.02
%
⁽¹⁾
~~Nonaccrual~~Non-accrual loans have been included in average loan balances, but interest on ~~nonaccrual~~non-accrual loans has not been ~~excluded~~included for purposes of determining interest income.
⁽²⁾
I~~Loans include~~ncludes portfolio loans and leases and loans held for sale.
⁽³⁾
(3)
Interest on loans and leases includes deferred feesof $278 and $238 for the three months ended March 31, 2018 and 2017, respectively.
(4)
Tax rate used for tax-equivalent calculations is 21% for 2018 and 35%. for 2017

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Rate/Volume Analysis (tax-equivalent basis)*
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 balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three months ended March 31, ~~2017~~2018 as compared to the same period in ~~2016,~~2017, allocated by rate and volume. The change in interest income and/or expense due to both volume and rate has been allocated to changes in volume.

2017 Compared to 2016

Three Months Ended March 31,

Three Months Ended March 31,

(dollars in thousands)

Volume

Rate

Total

2018 Compared to 2017

Interest income

Interest-bearing deposits with other banks
$ 1 $ 19 $ 20
Investment securities
51 191 242
increase/(decrease)

Volume

Rate

Total

Interest Income:

Interest-bearing deposits with banks
$ (3
)
$ (10
)
$ (13
)
Investment securities - taxable
698 342 1,040
Investment securities -nontaxable
(57
)
(7
)
(64
)
Loans and leases
6,591 (4,747
)
1,844 8,236 3,896 12,132
Total interest income
$ 6,643 $ (4,537
)
$ 2,106 8,874 4,221 13,095
Interest expense:

Savings, NOW and market rate accounts
$ 49 $ 138 $ 187 154 569 723
Wholesale deposits
10 74 84 194 222 416
Retail time deposits
129 352 481 492 13 505
Borrowed funds**
(455
)
255 (200
)
Borrowed funds – short-term
71 532 603
Borrowed funds – long-term
(612
)
476 (136
)
Subordinated notes
— 4 4 1,360 (587
)
773
Junior subordinated debentures
288 — 288
Total interest expense
(267
)
823 556 1,947 1,225 3,172
Interest differential
$ 6,910 $ (5,360
)
$ 1,550 $ 6,927 $ 2,996 $ 9,923

*The tax rate used in the calculation of thetax-equivalent income is 3521% for 2018 and %.35%
**Borrowed funds include short-term borrowings and Federal Home Loan Bank advances and other borrowings.for 2017

Tax-Equivalent Net Interest Margin

The tax-equivalent net interest margin of ~~3.74%~~3.94% for the three months ended March 31, ~~2017~~2018 was a 1320 basis point ~~decrease~~increase from ~~3.87%~~3.74% for the same period in ~~2016. The decrease was largely~~2017. Adjusting for the ~~result~~impact of the 13 basis point decrease in tax-equivalent yield earned on loans and leases and the 14 basis point increase in rate paid on interest-bearing deposits. The $280.1 million volume increase in average interest-earning assets versus the $164.5 million increase in average interest-bearing liabilities partially offset the effectaccretion of ~~the yield decrease and rate increase between the periods. The contribution of~~purchase accounting fair value ~~mark accretion to~~marks, the ~~tax equivalent~~adjusted tax-equivalent net interest margin ~~accounted~~remained relatively unchanged at 3.62% and 3.63% for three months ended March 31, 2018 and 2017, respectively. The contribution to the tax-equivalent net interest margin from the accretion of purchase accounting adjustments was 32 basis points in 2018 as compared to 11 basis points ~~of the margin for the first quarter of 2017 as compared to 16 basis points for the first quarter of 2016.~~
in 2017.

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

Quarter

Interest-
Earning Asset
Yield

Interest-Bearing
Liability Cost

Net Interest
Spread

Effect of Non-
Interest Bearing
Sources

Net Interest
Margin

1^st Quarter 2017
4.14
%
0.56
%
3.58
%
0.16
%
3.74
%
4^th Quarter 2016
4.05
%
0.56
%
3.49
%
0.16
%
3.65
%
3^rd Quarter 2016
4.09
%
0.55
%
3.54
%
0.17
%
3.71
%
2^nd Quarter 2016
4.18
%
0.53
%
3.65
%
0.16
%
3.81
%
1^st Quarter 2016
4.22
%
0.49
%
3.73
%
0.14
%
3.87
%
~~Page 43~~
~~Table of Contents~~
Quarter

Interest-
Earning
Asset Yield

Interest-
Bearing
Liability Cost

Net Interest
Spread

Effect of
Non-Interest
Bearing
Sources

Net Interest
Margin

1^st Quarter 2018
4.58 %

0.87 %

3.71 %

0.23 %

3.94 %

4^th Quarter 2017
4.15 %

0.74 %

3.41 %

0.21 %

3.62 %

3^rd Quarter 2017
4.18 %

0.67 %

3.51 %

0.20 %

3.71 %

2^nd Quarter 2017
4.11 %

0.61 %

3.50 %

0.18 %

3.68 %

1^st Quarter 2017
4.14 %

0.56 %

3.58 %

0.16 %

3.74 %

Interest Rate Sensitivity

~~The Corporation~~Management actively manages ~~its~~the Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks 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,~~liabilities. This is accomplished through the management of ~~its~~the investment portfolio, ~~its~~the pricings of loans and deposit offerings ~~of loan and selected deposit terms~~ and through wholesale funding. Wholesale funding ~~consists of~~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, ~~including the~~ Certificate of Deposit Account Registry Service (“CDARS”), ~~the~~ Insured Network Deposit (“IND”) Program, ~~the~~ Charity Deposits Corporation (“CDC”) (formerly known as Institutional Deposit Corporation (“IDC”)), ~~the~~ Insured Cash Sweep (“ICS”) and ~~the~~ Pennsylvania Local Government Investment Trust (“PLGIT”).

Page 48
Table of Contents
~~The Corporation uses~~
Management utilizes several tools to measure ~~its~~the effect of interest rate risk ~~including~~on net interest ~~rate sensitivity analysis, or~~income. These methods include gap analysis, market value of portfolio equity analysis, and net interest ~~rate~~income simulations under various ~~rate scenarios and tax-equivalent net interest margin trend reports.~~scenarios. The results of these ~~reports~~analyses are compared to limits established by the Corporation’s ALCO policies and ~~appropriate~~make adjustments ~~are made~~as appropriate if the results are outside the established limits.

The following 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 ~~the Corporation’s~~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 12twelve months. By definition, the simulation 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.

Summary of Interest Rate Simulation

Change in Net Interest Income
Over the Twelve Months
Beginning After
March 31, 2016

Change in Net Interest Income
Over the Twelve Months
Beginning After
December 31, 2015

Change in Net Interest
Income Over the Twelve
Months Beginning After
March 31, 2018

Change in Net Interest
Income Over the Twelve
Months Beginning After
December 31, 2017

Amount

Percentage

Amount

Percentage

Amount

Percentage

Amount

Percentage

+300 basis points
$ 10,798 9.40
%
$ 10,207 9.01
%
$ 7,448 4.86
%
$ 15,953 10.66
%
+200 basis points
$ 7,226 6.29
%
$ 6,653 5.87
%
$ 5,001 3.26
%
$ 10,644 7.11
%
+100 basis points
$ 3,560 3.10
%
$ 3,048 2.69
%
$ 2,523 1.65
%
$ 5,316 3.55
%
-100 basis points
$ (4,362
)
(3.80
)%
$ (4,397
)
(3.88
)%
$ (4,722
)
(3.08
) %
$ (6,913
)
(4.62
)

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of March 31, ~~2017~~2018 in the +100 basis point scenario, ~~which is similar to the December 31, 2016 simulation. The asset sensitivity table indicates~~demonstrating that a 100 ~~200 or 300~~ basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is ~~slightly more~~less asset sensitive in ~~comparison to~~a rising-rate environment as of March 31, 2018 than it was as of December 31, ~~2016.~~2017. This decrease in sensitivity is related to an increase in non-maturity market priced deposit balances, a decrease in cash balances and an increase in short term borrowings. The magnitude of the change in net interest income resulting from a 100 basis point decrease in rates as compared to the magnitude of the increase in net income accompanying a 100 basis point increase in rates is the result of ~~rise~~asset yields repricing more quickly in ~~interest~~response to market changes compared to deposit rates ~~that is impacting interest income on interest bearing assets while the cost of interest bearing liabilities remained stable.~~
in a down 100 basis point rate shift.

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 current extended period of very low interest rates, the reliability of ~~the Corporation’s~~management’s assumptions in the interest rate simulation model is more uncertain than in ~~other~~prior periods. 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.~~income than that derived from the analysis referenced above.

Gap Analysis

The interest sensitivity, or gap analysis, ~~shows~~identifies interest rate risk by ~~identifying re-pricing~~showing repricing gaps in the Corporation’s balance sheet. All assets and liabilities are ~~categorized in the following table according to their~~reflected based on behavioral sensitivity, which is usually the earliest ~~of either: re-pricing,~~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 ~~the Corporation.~~management. Non-rate-sensitive assets and liabilities are ~~placed in a separate period. Capital is~~ spread over time periods to reflect ~~the Corporation’s~~management’s view of the maturity of these funds.

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Table of Contents

Non-maturity deposits (demand deposits in particular) are recognized by the Bank’s regulatory agencies 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 have 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. The following table presents the Corporation’s ~~interest rate sensitivity position or~~ gap analysis as of March 31, ~~2017:~~
2018:

(dollars in millions)

0 to 90
Days

91 to 365
Days

1 - 5
Years

Over
5 Years

Non-Rate
Sensitive

Total

0 to 90
Days

91 to 365
Days

1 - 5
Years

Over
5 Years

Non-Rate
Sensitive

Total

Assets:

Interest-bearing deposits with banks
$ 70.0 $ — $ — $ — $ — $ 70.0 $ 24.6 $ — $ — $ — $ — $ 24.6
Investment securities – available for sale
31.3 76.1 191.4 92.3 — 391.1
Investment securities – held to maturity
— — — 5.2 — 5.2
Investment securities – trading
4.1 — — — — 4.1
Loans and leases⁽¹⁾
942.3 288.1 965.5 362.7 — 2,558.6
Allowance for loan and lease losses
— — — — (17.1
)
(17.1
)
Investment securities⁽¹⁾
28.1 58.5 321.7 141.9 — 550.2
Loans and leases⁽²⁾
1,281.7 397.2 1,220.9 411.5 — 3,311.3
Allowance
— — — — (17.7 ) (17.7 )
Cash and due from banks
— — — — 17.5 17.5 — — — — 7.8 7.8
Other assets
— — — — 263.2 263.2 — — — — 424.1 424.1
Total assets
$ 1,047.7 $ 364.2 $ 1,156.9 $ 460.2 $ 263.6 $ 3,292.6 $ 1,334.4 $ 455.7 $ 1,542.6 $ 553.4 $ 414.2 $ 4,300.3
Liabilities and shareholders’ equity:

Demand, non-interest-bearing
$ 47.9 $ 143.7 $ 202.2 $ 377.8 $ — $ 771.5 $ 53.5 $ 160.4 $ 225.7 $ 423.5 $ — $ 863.1
Savings, NOW and market rate
96.8 290.3 693.6 327.3 — 1,408.0 114.8 344.5 818.7 416.4 — 1,694.4
Time deposits
104.6 176.4 38.3 0.1 — 319.4 102.6 309.1 110.6 3.1 — 525.4
Wholesale non-maturity deposits
69.5 — — — — 69.5 63.4 — — — — 63.4
Wholesale time deposits
17.9 14.4 35.9 — — 68.2 138.3 30.8 — — — 169.1
Short-term borrowings
23.6 — — — — 23.6 173.7 — — — — 173.7
Long-term FHLB advances
25.0 66.4 83.3 — — 174.7
20.0
32.5 55.3 — — 107.8
Subordinated notes
— — 29.5 — — 29.5 — — 98.4 — — 98.4
Junior subordinated debentures
21.5 — — — — 21.5
Other liabilities
— — — — 40.1 40.1 — — — — 50.4 50.4
Shareholders’ equity
13.9 41.6 221.8 110.8 — 388.1
19.0
57.1 304.6 152.4 — 533.1
Total liabilities and shareholders’ equity
$ 399.2 $ 732.8 $ 1,304.6 $ 816.0 $ 40.1 $ 3,292.6 $ 706.8 $ 934.4 $ 1,613.3 $ 995.4 $ 50.4 $ 4,300.3
Interest-earning assets
$ 1,047.7 $ 364.2 $ 1,156.9 $ 460.2 $ — $ 3,029.0 $ 1,334.4 $ 455.7 $ 1,542.6 $ 553.4 $ — $ 3,886.1
Interest-bearing liabilities
337.4 547.5 880.6 327.4 — 2,092.9 634.3 716.9 1,083.0 419.5 — 2,853.7
Difference between interest-earning assets and interest-bearing liabilities
$ 710.3 $ (183.3
)
$ 276.3 $ 132.8 $ — $ 936.1 $ 700.1 $ (261.2 ) $ 459.6 $ 133.9 $ — $ 1,032.4
Cumulative difference between interest earning assets and interest-bearing liabilities
$ 710.3 527.0 803.3 936.1 — 936.1 $ 700.1 $ 438.9 $ 898.5 $ 1,032.4 $ — $ 1,032.4
Cumulative earning assets as a % of cumulative interest bearing liabilities
311
%
160
%
145
%
145
%
— 145
%
Cumulative earning assets as a % of cumulative interest-bearing liabilities
210
%
132
%
137
%
136
%

¹
⁽¹⁾Investment securities include available for sale, held to maturity and trading.
⁽²⁾Loans include portfolio loans and leases and loans held for ~~sale~~sale.

The table above indicates that the Corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is only one tool used to measure interest rate sensitivity and 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, ~~2016.~~2017.

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~~Table of Contents~~
PROVISION FOR LOAN AND LEASE LOSSES

For the three months ended March 31, ~~2017,~~2018, the Corporation recorded a Provision of ~~$291~~$1.0 million which was a ~~$1.1 million decrease~~$739 thousand increase from the same period in ~~2016.~~2017. Net charge-offs for the first quarter of ~~2017~~2018 were ~~$670~~$893 thousand as compared to ~~$422~~$670 thousand for the same period in ~~2016.~~2017. The ~~decrease in Provision is indicative of~~loan and lease portfolio experienced improvements in certain ~~qualitative factors~~historic charge-off rates during the lookback period and in certain credit quality and economic indicators used ~~to determine the Allowance. For a general discussion of~~in the Allowance calculation. The increase in the Provision between the periods reflects the increase in net charge-offs, partially offset by the improvement of certain historic charge-off rates and ~~our policies related thereto, refer to page 34 of the Corporation’s 2016 Annual Report.~~credit quality indicators.

Asset Quality and Analysis of Credit Risk

As of March 31, ~~2017,~~2018, total nonperforming loans and leases decreased by $1.0 million to ~~$7.3~~$7.5 million, representing ~~0.29%~~0.23% of portfolio loans and leases, as compared to ~~$8.4~~$8.6 million, or ~~0.33%~~0.26% of portfolio loans and leases as of December 31, ~~2016.~~2017. The decrease in nonperforming loans and leases ~~resulted from~~was comprised of pay-offs orand pay-downs of ~~$563~~$2.2 million, charge-offs of $317 thousand, and upgrades to performing status of $942 thousand of loans and ~~the charge-off of $641 thousand of loans~~leases classified as nonperforming as of December 31, ~~2016. Partially offsetting the~~2017. These decreases ~~in nonperforming loans from December 31, 2016 was~~were partially offset by the addition ~~during the first quarter~~ of ~~2017 of $170 thousand~~$2.9 million of new nonperforming loans and ~~leases.~~leases as of March 31, 2018.

As of March 31, ~~2017,~~2018, the Allowance of ~~$17.1~~$17.7 million represented ~~0.67%~~0.53% of portfolio loans and leases, ~~a two basis point decrease~~relatively unchanged from ~~0.69% as of~~ December 31, ~~2016.~~2017. The Allowance on originated portfolio loans, as a percentage of originated portfolio loans, was ~~0.75%~~0.69% as of March 31, ~~2017~~2018 as compared to ~~0.78%~~0.70% as of December 31, ~~2016.~~2017. Loans acquired in mergers are recorded at fair value as of the date of acquisition. This fair value estimate takes into account an estimate of the expected lifetime losses of the acquired loans. As such, an acquired loan will not generally become subject to additional Allowance unless it becomes impaired.

As
Page 50
Table of March 31, 2017, the Corporation had OREO valued at $978 thousand, as compared to $1.0 million as of December 31, 2016. During the three months ended March 31, 2017, a $39 thousand OREO property acquired in the CBH merger was sold, resulting in no gain or loss on sale. The balance of OREO as of March 31, 2017 was comprised of six residential properties, four of which are manufactured housing properties acquired in the Continental Merger. All properties are recorded at the lower of cost or fair value less cost to sell.
Contents

As of March 31, ~~2017,~~2018, the Corporation had ~~$9.2~~$6.4 million of troubled debt restructurings (“TDRs”), of which ~~$6.5~~$5.2 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, ~~2016,~~2017, the Corporation had ~~$9.0~~$9.1 million of TDRs, of which ~~$6.4~~$5.8 million were in compliance with the modified terms, and were excluded from non-performing loans and leases.

As of March 31, ~~2017,~~2018, the Corporation had a recorded investment of ~~$13.5~~$12.2 million of impaired loans and leases which included ~~$9.2~~$6.4 million of TDRs. 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 in accordance with the original terms of the loans and leases. Impaired loans and leases as of December 31, ~~2016~~2017 totaled ~~$14.4~~$13.9 million, which included ~~$9.0~~$9.1 million of TDRs. Refer to Note 5H in the Notes to ~~unaudited consolidated~~Unaudited Consolidated Financial Statements for more information regarding the Corporation’s impaired loans and leases.

The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.

~~Page 46~~
~~Table of Contents~~
Nonperforming Assets and Related Ratios

(dollars in thousands)

March 31, 2017

December 31, 2016

Nonperforming Assets:

Nonperforming loans and leases
$ 7,329 $ 8,363
Other real estate owned
978 1,017
Total nonperforming assets
$ 8,307 $ 9,380
Troubled Debt Restructures:

TDRs included in non-performing loans
$ 2,681 $ 2,632
TDRs in compliance with modified terms
6,492 6,395
Total TDRs
$ 9,173 $ 9,027
Loan and Lease quality indicators:

Allowance for loan and lease losses to nonperforming loans and leases
233.4
%
209.1
%
Nonperforming loans and leases to total portfolio loans and leases
0.29
%
0.33
%
Allowance for loan and lease losses to total portfolio loans and leases
0.67
%
0.69
%
Nonperforming assets to total loans and leases and OREO
0.32
%
0.37
%
Total portfolio loans and leases
$ 2,555,589 $ 2,535,425
Allowance for loan and lease losses
$ 17,107 $ 17,486
~~NON-INTEREST INCOME~~
(dollars in thousands)

March 31,
2018

December 31,
2017

Nonperforming Assets:

Nonperforming loans and leases
$ 7,533 $ 8,579
Other real estate owned
300 304
Total nonperforming assets
$ 7,833 $ 8,883

Troubled Debt Restructurings:

TDRs included in non-performing loans
$ 1,125 $ 3,289
TDRs in compliance with modified terms
5,235 5,800
Total TDRs
$ 6,360 $ 9,089

Loan and Lease quality indicators:

Allowance for loan and lease losses to nonperforming loans and leases
234.5
%
204.3
%
Nonperforming loans and leases to total portfolio loans and leases
0.23
%
0.26
%
Allowance for loan and lease losses to total portfolio loans and leases
0.53
%
0.53
%
Nonperforming assets to total loans and leases and OREO
0.24
%
0.27
%
Nonperforming assets to total assets
0.18
%
0.21
%
Total portfolio loans and leases
$ 3,305,795 $ 3,285,858
Allowance for loan and lease losses
$ 17,662 $ 17,525

NONINTEREST INCOME
Three Months Ended March 31, ~~2017~~2018 Compared to the Same Period in ~~2016~~2017

Non-interest income of $19.5 million for the three months ended March 31, ~~2017~~2018 increased ~~by $74 thousand from~~$6.3 million as compared to $13.2 million for the same period in ~~2016. A $144~~2017. Increases of $1.0 million, $930 thousand, ~~increase~~$666 thousand, and $3.2 million in fees for wealth management services, insurance commissions, capital markets revenues and other operating income, ~~and a $471 thousand~~respectively, were recorded. The increase in fees for wealth management services as wealth assets have increased 26.3% from the March 31, 2016 level, were partially offset by a decrease of $76 thousand in gain on sale of residential mortgage loans, as market interest rate increases reduced origination activity, and a $513 thousand decrease in insurance revenueswas related to the ~~recognition~~$1.42 billion increase in wealth assets under management, administration, supervision and brokerage between March 31, 2017 and March 31, 2018. The increase in insurance commissions was primarily related to the May 2017 acquisition of ~~contingent commissions from providers during~~Hirshorn Boothby which expanded our insurance division into the ~~first~~city of Philadelphia. The increase in capital markets revenues was related to the formation of our Capital Markets group, which began operations in the second quarter of ~~2016, which are being ratably recognized~~2017. The $3.2 million increase in ~~2017.~~ other operating income was primarily related to a $2.3 million recovery of a purchase accounting fair value mark resulting from the pay off, in full, of a purchased credit impaired loan acquired in the RBPI Merger.

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Table of Contents

The following table provides supplemental information regarding mortgage loan originations and sales:

As of or for the
Three Months Ended March 31,

(dollars in millions)

2017

2016

Residential mortgage loans held in portfolio
$ 418.3 $ 412.0
Mortgage originations
$ 48.6 $ 51.5
Total mortgage loans sold
$ 32.7 $ 28.4
Percent of originated mortgage loans sold
67.3
%
55.0
%
Percent of sold with servicing-retained
84.8
%
91.6
%
Percent of sold with servicing-released
15.2
%
8.4
%
Mortgage servicing rights at period end (“MSRs”)
$ 5.7 $ 5.2
Net gain on sale of residential mortgage loans
$ 0.6 $ 0.7
Residential mortgage loans serviced for others
$ 638.6 $ 605.4
~~Page 47~~
~~Table of Contents~~

For the Three Months Ended or as of
March 31,

(dollars in thousands)

2018

2017

Mortgage originations
$ 26,055 $ 48,550
Mortgage loans sold:

Servicing retained
$ 1,850 $ 27,705
Servicing released
15,956 4,966
Total mortgage loans sold
$ 17,806 $ 32,671
Percentage of originated mortgage loans sold
68.3
%
67.3
%
Servicing retained %
10.4
%
84.8
%
Servicing released %
89.6
%
15.2
%
Residential mortgage loans serviced for others
$ 634,970 $ 638,553
Mortgage servicing rights
$ 5,706 $ 5,686
Gain on sale of mortgage loans
$ 345 $ 578
Loan servicing and other fees
$ 686 $ 503
Amortization of MSRs
$ 221 $ 169
(Recovery) / Impairment of MSRs
$ (50
)
$ 3

The following table provides details ofother operating income for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:

Three Months Ended
March 31,

(dollars in thousands)

Three Months EndedMarch 31,

2018

2017

2017

2016

Merchant interchange fees
$ 341 $ 408 $ 387 $ 341
Bank-owned life insurance (“BOLI”) income
278 201
Commissions and fees
131 205 255 131
Bank-owned life insurance (“BOLI”) income
201 245
Safe deposit box rentals
90 94 91 90
Other investment income
— 2 22 —
Rental income
48 42
Rent income
43 48
Gain on trading investments
335 210
Recovery of purchase accounting fair value loan mark
2,294 18
Miscellaneous other income
356 27 633 128
Other operating income
$ 1,167 $ 1,023 $ 4,338 $ 1,167

Wealth Assets Under M~~anagement,~~A~~dministration,~~S~~upervision~~Management, Administration, Supervision andB~~rokerage~~ 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:

Wealth Assets as of:

Fee Basis

March 31,
2017

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

March 31,
2018

December 31,
2017

September 30, 2017

June 30,
2017

March 31,
2017

Market value
$ 5,483,237 $ 5,302,463 $ 5,276,756 $ 5,078,386 $ 5,032,841 $ 5,693,146 $ 5,884,692 $ 5,759,375 $ 5,593,936 $ 5,483,237
Fixed
6,242,223 6,025,994 4,692,989 4,554,135 4,248,902
$ 11,725,460 $ 11,328,457 $ 9,969,745 $ 9,632,521 $ 9,281,743
Fixed fee
7,453,780 7,084,046 6,671,995 6,456,619 6,242,223
Total
$ 13,146,926 $ 12,968,738 $ 12,431,370 $ 12,050,555 $ 11,725,460

Percentage of Wealth Assets

March 31,
2017

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

Market value
46.8 % 46.8 % 52.9 % 52.7 % 54.2 %
Fixed
53.2 % 53.2 % 47.1 % 47.3 % 45.8 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
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Table of Contents

Percentage of Wealth Assets as of:

Fee Basis

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

March 31,
2017

Market value
43.3 % 45.4 % 46.3 % 46.4 % 46.8 %
Fixed fee
56.7 % 54.6 % 53.7 % 53.6 % 53.2 %
Total
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

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

(dollars in thousands)

For the Three Months Ended:

Fee Basis

March 31,
2017

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

Market value
$ 7,230 7,212 $ 7,196 $ 7,187 $ 6,823
Fixed
2,073 2,115 1,904 2,244 2,009
$ 9,303 9,327 $ 9,100 $ 9,431 $ 8,832

Percentage ofFees for Wealth Management

March 31,
2017

December 31,
2016

September 30,
2016

June 30, 2016

March 31,
2016

Market value
77.7 % 77.3 % 79.1 % 76.2 % 77.3 %
Fixed
22.3 % 22.7 % 20.9 % 23.8 % 22.7 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
~~Page 48~~
~~Table of Contents~~
(dollars in thousands)

For the Three Months Ended:

Fee Basis
March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

March 31,
2017

Market value
$ 7,880 $ 7,618 $ 7,522 $ 7,382 $ 7,230
Fixed fee
2,428 2,356 2,129 2,425 2,073
Total
$ 10,308 $ 9,974 $ 9,651 $ 9,807 $ 9,303

~~NON-INTEREST EXPENSE~~

Percentage of Fees for Wealth Management for the Three Months Ended:

Fee Basis

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

March 31,
2017

Market value
76.4 % 76.4 % 77.9 % 75.3 % 77.7 %
Fixed fee
23.6 % 23.6 % 22.1 % 24.7 % 22.3 %
Total
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Customer Derivatives
To accommodate the risk management needs of qualified commercial customers, the Bank enters into financial derivative transactions consisting of interest rate swaps, options, risk participation agreements and foreign exchange contracts. Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Market risk exposure from customer derivative positions is managed by simultaneously entering into matching transactions with institutional dealer counterparties that offset customer contracts in notional amount and term. Derivative contracts create counterparty credit risk with both the Bank’s customers and with institutional dealer counterparties. The Corporation manages customer counterparty credit risk through its credit policy, approval processes, monitoring procedures and by obtaining adequate collateral, when appropriate. The Bank seeks to minimize dealer counterparty credit risk by establishing credit limits and collateral agreements through industry standard agreements published by the International Swaps and Derivatives Association (ISDA) and associated credit support annex (CSA) agreements. None of the Bank’s outstanding derivative contracts associated with the customer derivative program is designated as a hedge and none is entered into for speculative purposes. Derivative instruments are recorded at fair value, with changes in fair values recognized in earnings as components of noninterest income and noninterest expense on the consolidated statements of income.
NONINTEREST EXPENSE
Three Months Ended March 31, ~~2017~~2018 Compared to the Same Period in ~~2016~~2017

~~Non-interest~~Noninterest expense for the three months ended March 31, ~~2017~~2018 increased ~~$1.7~~$9.4 million, to $36.0 million, from the same period in ~~2016,~~2017. A majority of the increase was related to the additional expenses associated with the staff and facilities assumed in the RBPI Merger. In addition, the May 2017 acquisition of Hirshorn Boothby and the formation of our Capital Markets group in the second quarter of 2017 contributed to the increase in noninterest expense. Due diligence, merger-related and merger integration expenses increased $3.8 million between the quarters, primarily related to salary and wage increases of $712 thousand due to staffing increases, annual salary and wage increases and increases in incentive compensation, a $511 thousand increase in merger expenses in connection with the ~~merger with~~ RBPI ~~and a $700 thousand increase in other operating expenses, largely related to deferred compensation expense associated with the valuation of Corporation stock held in the deferred compensation trusts.~~Merger.

Page 53
Table of Contents
The following table provides details ofother operating expenses for the three months ended March 31, ~~2017~~2018 and ~~2016:~~2017:

Three Months Ended
March 31,

(dollars in thousands)
2018

2017

Contributions
$ 188 $ 121
Deferred compensation trust expense
81 125
Director fees
161 157
Dues and subscriptions
257 154
FDIC insurance
200 374
Insurance
227 207
Loan processing
270 523
Miscellaneous other expenses
563 105
MSR amortization and impairment / (recovery)
171 172
Other taxes
13 9
Outsourced services
66 99
Portfolio maintenance
123 99
Postage
163 148
Stationary and supplies
152 117
Telephone and data lines
405 400
Temporary help and recruiting
99 397
Travel and entertainment
178 175
Other operating expenses
$ 3,317 $ 3,382
INCOME TAXES

(dollars in thousands)

Three Months EndedMarch 31,

2017

2016

Deferred compensation trust expense
$ 125 $ (213
)
Director fees
157 185
Dues and subscriptions
154 101
FDIC insurance
374 434
Impairment of mortgage servicing rights
3 83
Insurance
207 219
Loan processing
523 268
Miscellaneous
156 160
Mortgage servicing rights (“MSR”) amortization
169 136
Other taxes
9 9
Outsourced services
99 103
Portfolio maintenance
99 51
Postage
148 141
Stationary and supplies
117 153
Telephone
400 399
Temporary help and recruiting
397 265
Travel and entertainment
175 198
Other operating expense
$ 3,012 $ 2,692
~~INCOME TAXES~~
~~Income tax expense~~Although income before income taxes increased $6.2 million for the three months ended March 31, ~~2017 was $4.6 million,~~2018 as compared ~~to $4.3 million~~ for the same period in ~~2016.~~2017, income tax expense remained relatively unchanged at $4.6 million for the three months ended March 31, 2018 and 2017 primarily due to the reduction in the federal corporate income tax rate as a result of the Tax Cuts and Jobs Act (“Tax Reform”). Included in the income tax expense for the first quarter of 2018 was a $590 thousand discrete tax charge related to the re-measurement of deferred tax assets and a $361 thousand excess tax benefit related to the vesting of stock based awards and exercise of stock options. The excess tax benefit for the first quarter of 2017 was $145 thousand. The tax expense ~~recorded~~for the first quarter of 2018 reflects a decrease in the effective tax rate ~~from 34.6%~~to 23.25% for the first quarter of ~~2016 to 33.9%~~2018 from 33.88% for the first quarter of 2017. The decrease in effective tax rate for the three months ended March 31, 2017 as compared to the same period in 2016 was related to recognition during the three months ended March 31, 2017 of excess tax benefits of $145 thousand related to the stock based compensation vesting and option exercises, partially offset by the non-deductible merger costs related to the anticipated RBPI merger incurred in the first quarter of 2017.

In connection with the December 15, 2017 RBPI Merger, measurement period adjustments to the fair value of assets acquired gave rise to $1.2 million in additional deferred tax assets. These deferred tax assets were determined using the enacted tax rate in effect at the date of acquisition and subsequently re-measured at the new, lower corporate income tax rate due to Tax Reform.
BALANCE SHEET ANALYSIS

Total assets of $4.30 billion as of March 31, ~~2017 of $3.29 billion~~2018 decreased ~~$128.9~~$149.3 million from ~~$3.42~~$4.45 billion as of December 31, ~~2016.~~2017. The following ~~tables~~sections detail the changes:

Loans and Leases

The table below compares the portfolio loans and leases outstanding at March 31, ~~2017~~2018 to December 31, ~~2016:~~
2017:

March 31, 2017

December 31, 2016

Change

March 31, 2018

December 31, 2017

Change

(dollars in thousands)

Balance

Percent of
Portfolio

Balance

Percent of
Portfolio

Amount

Percent

Balance

Percent of
Portfolio

Balance

Percent of
Portfolio

Amount

Percent

Commercial mortgage
$ 1,137,870 44.5
%
$ 1,110,898 43.8
%
$ 26,972 2.4
%
$ 1,541,457 46.6
%
$ 1,523,377 46.4
%
$ 18,080 1.2
%
Home equity lines & loans
203,962 8.0
%
207,999 8.2
%
(4,037
)
(1.9
) %
211,469 6.4
%
218,275 6.6
%
(6,806
)
(3.1
) %
Residential mortgage
418,264 16.4
%
413,540 16.3
%
4,724 1.1
%
453,655 13.7
%
458,886 14.0
%
(5,231
)
(1.1
) %
Construction
145,699 5.7
%
141,964 5.6
%
3,735 2.6
%
202,168 6.1
%
212,454 6.5
%
(10,286
)
(4.8
) %
Commercial and industrial
567,917 22.2
%
579,791 22.9
%
(11,874
)
(2.0
) %
727,231 22.0
%
719,312 21.9
%
7,919 1.1
%
Consumer
23,932 0.9
%
25,341 1.0
%
(1,409
)
(5.6
) %
48,423 1.5
%
38,153 1.2
%
10,270 26.9
%
Leases
57,945 2.3
%
55,892 2.2
%
2,053 3.7
%
121,392 3.7
%
115,401 3.5
%
5,991 5.2
%
Total portfolio loans and leases
2,555,589 100.0
%
2,535,425 100.0
%
20,164 0.8
%
3,305,795 100.0
%
3,285,858 100.0
%
19,937 0.6
%
Loans held for sale
3,015 9,621 (6,606
)
(68.7
) %
5,522 3,794 1,728 45.5
%
Total loans and leases
$ 2,558,604 $ 2,545,046 $ 13,558 0.5
%
$ 3,311,317 $ 3,289,652 $ 21,665 0.7
%

Page 4954
Table of Contents

Cash and Investment Securities

As of March 31, ~~2017,~~2018, liquidity remained strong as the Corporation had ~~$69.4~~$23.4 million of cash balances at the Federal Reserve and ~~$590 thousand~~$1.2 million in other interest-bearing accounts, along with significant borrowing capacity as discussed in the “Liquidity” section below.

Investment securities available for sale as of March 31, ~~2017~~2018 totaled ~~$391.0~~$534.1 million, as compared to ~~$567.0~~$689.2 million as of December 31, ~~2016.~~2017. The decrease was primarily related to the maturing, ~~at the beginning of~~in January ~~2017,~~2018, of $200.0 million of short-term U.S. Treasury ~~bills.~~
~~Deposits, Borrowings and Subordinated Debt~~securities.

Deposits ~~and borrowings~~
Deposits as of March 31, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:

March 31, 2017

December 31, 2016

Change

March 31, 2018

December 31, 2017

Change

(dollars in thousands)

Balance

Percent of
Deposits

Balance

Percent of
Deposits

Amount

Percent

Balance

Percent of
Deposits

Balance

Percent of
Deposits

Amount

Percent

Interest-bearing checking
$ 395,131 15.0
%
$ 379,424 14.7
%
$ 15,707 4.1
%
Interest-bearing demand
$ 529,478 16.0
%
$ 481,336 14.3
%
$ 48,142 10.0
%
Money market
757,071 28.7
%
761,657 29.6
%
(4,586
)
(0.6
)%
856,072 25.8
%
862,639 25.6
%
(6,567
)
(0.8
) %
Savings
255,791 9.7
%
232,193 9.0
%
23,598 10.2
%
308,925 9.3
%
338,572 10.0
%
(29,647
)
(8.8
) %
Retail time deposits
523,138 15.8
%
532,202 15.8
%
(9,064
)
(1.7
) %
Wholesale non-maturity deposits
69,471 2.6
%
74,272 2.9
%
(4,801
)
(6.5
)%
63,449 1.9
%
62,276 1.8
%
1,173 1.9
%
Wholesale time deposits
68,164 2.6
%
73,037 2.8
%
(4,873
)
(6.7
)%
171,359 5.2
%
171,929 5.1
%
(570
)
(0.3
) %
Retail time deposits
319,381 12.1
%
322,912 12.5
%
(3,531
)
(1.1
)%
Interest-bearing deposits
1,865,009 70.7
%
1,843,495 71.5
%
21,514 1.2
%
2,452,421 74.0
%
2,448,954 72.6
%
3,467 0.1
%
Non-interest-bearing deposits
771,556 29.3
%
736,180 28.5
%
35,376 4.8
%
863,118 26.0
%
924,844 27.4
%
(61,726
)
(6.7
) %
Total deposits
$ 2,636,565 100.0
%
$ 2,579,675 100.0
%
$ 56,890 2.2
%
$ 3,315,539 100.0
%
$ 3,373,798 100.0
%
$ (58,259
)
(1.7
) %

Borrowings

March 31, 2017

December 31, 2016

Change

(dollars in thousands)

Balance

Percent of Borrowings

Balance

Percent of Borrowings

Amount

Percent

Short-term borrowings
$ 23,613 10.4
%
$ 204,151 48.2
%
$ (180,538
)
(88.4
)%
Long-term FHLB advances
174,711 76.7
%
189,742 44.8
%
(15,031
)
(7.9
)%
Subordinated notes
29,546 12.9
%
29,532 7.0
%
14 <0.1
%
Borrowed funds
$ 227,870 100.0
%
$ 423,425 100.0
%
$ (195,555
)
(46.2
)%
Borrowings as of March 31, 2018 and December 31, 2017 were as follows:

March 31, 2018

December 31, 2017

Change

(dollars in thousands)

Balance

Percent of
Borrowings

Balance

Percent of
Borrowings

Amount

Percent

Short-term borrowings
$ 173,704 43.3
%
$ 237,865 47.9
%
$ (64,161
)
(27.0
) %
Long-term FHLB advances
107,784 26.9
%
139,140 28.0
%
(31,356
)
(22.5
) %
Subordinated notes
98,448 24.5
%
98,416 19.8
%
32 0.0
%
Junior subordinated debentures
21,456 5.3
%
21,416 4.3
%
40 0.2
%
Total borrowed funds
$ 401,392 100.0
%
$ 496,837 100.0
%
$ (95,445
)
(19.2
) %

Page 5055
Table of Contents

Capital

Consolidated shareholder’s equity of the Corporation was ~~$388.1~~$533.1 million, or ~~11.8%~~12.4% of total assets as of March 31, ~~2017,~~2018, as compared to ~~$381.1~~$528.1 million, or ~~11.1%~~11.9% of total assets as of December 31, ~~2016.~~2017. The following table presents the Corporation’s and Bank’s regulatory capital ratios and the minimum capital requirements to be considered “Well Capitalized” by regulators as of March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:

Actual

Minimum to be Well-Capitalized
Under Prompt Corrective Action
Provisions

(dollars in thousands)
Amount

Ratio

Amount

Ratio

March 31, 2017:

Total (Tier II) capital to risk weighted assets

Corporation
$ 321,604 12.30
%
$ 261,501 10.00
%
Bank
293,689 11.25
%
261,091 10.00
%
Tier I capital to risk weighted assets

Corporation
274,570 10.50
%
209,201 8.00
%
Bank
276,201 10.58
%
208,873 8.00
%
Common equity Tier I capital to risk weighted assets

Corporation
274,570 10.50
%
169,976 6.50
%
Bank
276,201 10.58
%
169,709 6.50
%
Tier I Leverage ratio (Tier I capital to total quarterly average assets)

Corporation
274,570 8.77
%
156,506 5.00
%
Bank
276,201 8.83
%
156,319 5.00
%
Tangible common equity to tangible assets⁽¹⁾

Corporation
263,467 8.32
%
— —
Bank
267,704 8.46
%
— —

December 31,2016:

Total (Tier II) 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 capital 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
%
Tangible common equity to tangible assets⁽¹⁾

Corporation
255,959 7.76
%
— —
Bank
258,352 7.85
%
— —

Actual

Minimum
to be Well
Capitalized

(dollars in thousands)

Amount

Ratio

Amount

Ratio

March 31, 2018

Total capital to risk weighted assets:

Corporation
$ 468,142 13.93 % $ 336,154 10.00 %
Bank
$ 397,077 11.82 % $ 335,856 10.00 %
Tier I capital to risk weighted assets:

Corporation
$ 351,781 10.46 % $ 268,923 8.00 %
Bank
$ 379,164 11.29 % $ 268,685 8.00 %
Common equity Tier I risk weighted assets:

Corporation
$ 331,009 9.85 % $ 218,500 6.50 %
Bank
$ 379,164 11.29 % $ 218,307 6.50 %
Tier I leverage ratio (Tier I capital to total quarterly average assets):

Corporation
$ 351,781 8.71 % $ 202,050 5.00 %
Bank
$ 379,164 9.39 % $ 201,868 5.00 %
Tangible common equity to tangible assets⁽¹⁾

Corporation
$ 326,458 7.98 % — —
Bank
$ 376,038 9.19 % — —

December 31, 2017

Total capital to risk weighted assets:

Corporation
$ 463,637 13.92 % $ 333,068 10.00 %
Bank
$ 387,067 11.65 % $ 332,388 10.00 %
Tier I capital to risk weighted assets:

Corporation
$ 347,187 10.42 % $ 266,454 8.00 %
Bank
$ 369,033 11.10 % $ 265,910 8.00 %
Common equity Tier I risk weighted assets:

Corporation
$ 328,676 9.87 % $ 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
$ 347,187 10.10 % $ 171,915 5.00 %
Bank
$ 369,033 10.76 % $ 171,609 5.00 %
Tangible common equity to tangible assets⁽¹⁾

Corporation
$ 322,964 7.61 % — —
Bank
$ 367,457 8.67 % — —
⁽¹⁾ There is no official regulatory guideline for the tangible common equity to tangible asset ratio.
~~Page 51~~
~~Table of Contents~~

The capital ratios for the Bank and the Corporation, as of March 31, ~~2017,~~2018, as shown in the above ~~table,~~tables, indicate levels ~~well~~ above the regulatory minimum to be considered “well ~~capitalized” under~~capitalized.” Excluding the ~~prompt corrective actions provisions. At the Bank level,~~Bank’s and Corporation’s Tier I leverage ratio, all regulatory capital ratios ~~have~~ increased ~~slightly~~ from their December 31, ~~2016~~2017 levels ~~due to~~primarily as a result of the ~~effect of an~~ increase in retained ~~earnings and a decrease in other comprehensive loss partially offset by an increase in risk-weighted assets. At~~earnings. The Tier I leverage ratio, which is the ~~Corporation level,~~ratio of Tier ~~1 and Total (Tier 1 & 2)~~I capital to ~~risk weighted~~average quarterly assets, declined by 1 and 5 basis points, respectively, related to an increase in risk-weighted assets and the decrease in retained earnings associated with the dividend payment during the first quarter of 2017 which totaled $3.6 million. Neither the Corporation norfor both the Bank ~~is under any agreement with regulatory authorities which would have~~and Corporation decreased from December 31, 2017, as the average assets acquired in the December 15, 2017 RBPI Merger were present for a ~~material effect on liquidity, capital resources or operations of the Corporation or the Bank.~~full quarter.

Page 56
Table of Contents
Liquidity

The Corporation’s liquidity position is managed on a daily basis as part of the daily settlement function and continuously as part of the formal asset liability management process. The Bank’s liquidity is maintained by managing its core deposits as the primary source, purchasing federal funds, selling loans in the secondary market, borrowing from the FHLB and the Federal Reserve Bank, and purchasing and issuing wholesale certificates of deposit as its secondary sources.

Unused availability is detailed on the following table:

(dollars in millions)

Available
Funds as
of March 31,
2017

Percent of Total
Borrowing
Capacity

Available
Funds as
of December 31,
2016

Percent of Total
Borrowing
Capacity

Dollar Change

Percent Change

Available
Funds as of
March 31,
2018

Percent of
Total
Borrowing
Capacity

Available
Funds as of
December 31,
2017

Percent of Total
Borrowing
Capacity

Dollar
Change

Percent
Change

Federal Home Loan Bank of Pittsburgh
$ 1,036.8 84.5
%
$ 886.0 72.9
%
$ 150.8 17.0
%
$ 1,404.7 84.0
%
$ 1,020.0 74.4
%
$ 384.7 37.7
%
Federal Reserve Bank of Philadelphia
108.0 100.0
%
117.3 100.0
%
(9.3
)
(7.9
)%
138.2 100.0
%
121.3 100.0
%
16.9 13.9
%
Fed Funds Lines (six banks)
79.0 100.0
%
79.0 100.0
%
— —
%
Revolving line of credit with correspondent bank
5.0 100.0
%
5.0 100.0
%
— —
%
$ 1,228.8 86.6
%
$ 1,087.3 76.7
%
$ 141.5 13.0
%
Fed Funds Lines (seven banks)
79.0 100.0
%
79.0 100.0
%
— —
%
Total
$ 1,621.9 85.8
%
$ 1,220.3 77.6
%
$ 401.6 32.9
%

Quarterly, the ALCO reviews the Corporation’s liquidity needs and reports its findings to the Corporation’s Board of Directors.

The Corporation has an agreement with IND to provide up to $40 million, excluding accrued 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 ~~$42.8~~$31.7 million in balances as of March 31, ~~2017~~2018 under this program.

The Corporation continually evaluates the cost and mix of its retail and wholesale funding sources relative to earning assets and expected future earning-asset growth. The Corporation believes that with its current branch network, along with the available borrowing capacity at FHLB and other sources, it has sufficient capacity available to fund expected earning-asset growth.

Discussion of Segments

The Corporation has two principal segments as defined by FASB ASC 280, “Segment Reporting.”The segments are Banking and Wealth Management (see Note 1022 in the accompanying Notes to Unaudited Consolidated Financial Statements).

The Wealth Management Segment ~~as discussed in the Non-Interest Income section above,~~ recorded a pre-tax segment profit (“PTSP”) of ~~$3.7~~$4.1 million for the three months ended March 31, ~~2017,~~2018, as compared to PTSP of ~~$3.6~~$3.7 million for the same period in ~~2016.~~2017. The Wealth Management Segment provided ~~26.9%~~20.7% of the Corporation’s pre-tax profit for the three ~~months~~month period ended March 31, ~~2017~~2018, as compared to ~~28.5%~~26.9% for the same period in ~~2016. While insurance revenues decreased by $513 thousand for~~2017. For the ~~first quarter of 2017 as compared to the same~~three month period ~~in 2016,~~ended March 31, 2018, both fees for wealth management services and insurance commissions increased ~~by $471 thousand for~~from the same ~~periods.~~period in 2017.

The Banking Segment recorded a PTSP of ~~$10.0~~$15.8 million for the three months ended March 31, ~~2017~~2018, as compared to PTSP of ~~$9.0~~$10.0 million for the same period in ~~2016.~~2017. The Banking Segment provided ~~73.1%~~79.3% of the Corporation’s pre-tax profit for the three ~~months~~month period ended March 31, ~~2017~~2018, as compared to ~~71.5%~~73.1% for the same period in ~~2016.~~2017.

~~Page 52~~
~~Table of Contents~~
Off Balance Sheet Risk

The Corporation is a party to financial instruments with off-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.

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. Total commitments to extend credit at March 31, ~~2017~~2018 were ~~$682.7~~$766.4 million, as compared to ~~$675.4~~$748.3 million at December 31, ~~2016.~~2017.

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 Bank’s obligation under standby letters of credit at March 31, ~~2017~~2018 amounted to ~~$12.3~~$15.5 million, as compared to ~~$12.7~~$17.0 million at December 31, ~~2016.~~2017.

Estimated fair values of the Corporation’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. 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.

Page 57
Table of Contents

Contractual Cash Obligations of the Corporation as ofMarch 31, ~~2017~~:2018:

(dollars in millions)

Total

Within 1 Year

2 – 3 Years

4 – 5 Years

After 5 Years

Total

Within
1 Year

2 - 3
Years

4 - 5
Years

After
5 Years

Deposits without a stated maturity
$ 2,249.1 $ 2,249.1 $ — $ — $ — $ 2,621.0 $ 2,621.0 $ — $ — $ —
Wholesale and retail time deposits
387.6 312.4 69.4 5.8 —
Wholesale and retail time deposit
694.5 581.4 87.0 25.1 0.9
Short-term borrowings
23.6 23.6 — — — 173.7 173.7 — — —
Long-term FHLB advances
174.7 91.5 75.7 7.5 —
Long-term FHLB Advances
107.8 52.5 40.4 14.9 —
Subordinated Notes
100.0 — — — 100.0
Junior subordinated debentures
25.8 — — — 25.8
Operating leases
30.4 4.2 7.9 5.8 12.5 30.5 5.6 8.4 6.1 10.4
Purchase obligations
8.1 2.3 2.9 2.9 — 5.1 3.4 1.7 — —
Total
$ 2,873.5 $ 2,683.1 $ 155.9 $ 22.0 12.5 $ 3,758.4 $ 3,437.6 $ 137.5 $ 46.1 $ 137.1

Other Information

Effects of Inflation

Inflation has some impact on the Corporation’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.

Effects 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’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.

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,~~amended. As such, they are only predictions and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (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 ~~The words “may”, “would”, “could”, “will”, “likely”,~~“may,” “would,” “could,” “will,” “likely,” “expect,” “anticipate,” ~~“intend”, “estimate”, “plan”, “forecast”, “project” and “believe”~~“intend,” “estimate,” “plan,” “forecast,” “project,” “believe,” and similar expressions are intended to identify such forward-looking statements. The Corporation’s actual results may differ materially from the results anticipated by the forward-looking statements due to a ~~variety~~variety of factors, including without limitation:
~~Page 53~~
~~Table of Contents~~

•
local, regional, national and international economic conditions, ~~and the~~their impact ~~they may have~~ on us and our customers, and our ~~assessment~~ability to assess those impacts;
•
sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;
•
changes in policy, laws or existing statutes, regulatory guidance, legislation or judicial decisions that ~~impact;~~affect our the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;

~~our need for capital;~~
~~lower demand for our products and services and lower revenues and earnings could result from an economic recession;~~
~~lower earnings could result from 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;~~
~~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, us or our subsidiaries individually or collectively, including changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;
results of examinations by the Federal Reserve Board, including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets;
~~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;~~
~~revenues following the completion of a merger or acquisition may be lower 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, 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;~~
~~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;~~
the effects of competition from 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;
Page 5458
Table of Contents

~~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;~~
•
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;

~~containing costs and expenses;~~
•
effectiveness of our capital management strategies and activities;

~~protection and validity of intellectual property rights;~~
•
changes in accounting requirements or interpretations;

~~reliance on large customers;~~
•
the accuracy of assumptions underlying the provisions for loan and lease losses and estimates in the value of collateral, and various financial assets and liabilities;

~~technological, implementation and cost/financial risks in contracts;~~
•
estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

~~the outcome of pending and future litigation and governmental proceedings;~~
•
changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;

~~any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);~~
•
changes in relationships with employees, customers, and/or suppliers;

~~ability to retain key employees and members of senior management;~~
•
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;

~~the ability of key third-party providers to perform their obligations to us and our subsidiaries; and~~
•
changes in consumer and business spending, borrowing and savings habits, and demand for financial services in the relevant market areas;

~~Our success in managing the risks involved in the foregoing;~~
•
rapid technological developments and changes;

~~as it relates to our pending merger with RBPI, that required regulatory, shareholder or other approvals are not obtained or other closing conditions are not satisfied in a timely manner or at all;~~
•
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;

that prior to the completion of the transaction or thereafter, the Corporation’s and RBPI’s respective businesses may not perform as expected due to transaction-related uncertainty or other factors;
•
risks related to our mergers and acquisitions, including, but not limited to: reputational risks, client and customer retention risks; diversion of management time on integration-related issues; risk that integration may take longer than anticipated or cost more than expected; risk that the 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 fail to be achieved;

~~that the parties are unable to successfully implement integration strategies;~~
•
our ability to contain costs and expenses;

~~the inability of RBPI to cash out outstanding warrants to purchase RBPI Class A Common Stock;~~
•
protection and validity of intellectual property rights;

~~reputational risks and the reaction of the companies’ customers to the transaction;~~
•
reliance on large customers;

diversion of management time on merger-related issues; the integration of acquired business with the Corporation may take longer than anticipated or be more costly to complete and that the anticipated benefits, including any anticipated cost savings or strategic gains may be significantly harder to achieve or take longer than anticipated or may not be achieved; the need for capital, ability to control operating costs and expenses, and to manage loan and lease delinquency rates;
•
the outcome of pending and future litigation and governmental proceedings;

~~the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;~~
•
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 inability of key third-party providers to perform their obligations to us.~~
•
the ability of key third-party providers to perform their obligations to us and our subsidiaries;
•
other material adverse changes in operations or earnings; and
•
our success in managing the risks involved in the foregoing.

All written or oral forward-looking ~~statements~~statements attributed to the Corporation are expressly qualified in their entirety by ~~use of~~the factors, risks, and uncertainties set forth in the foregoing cautionary ~~statements.~~statements, along with those set forth under the caption titled “Risk Factors” beginning on page 11 of this 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.~~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, ~~the forward-looking statements discussed in this Report or incorporated documents might not occur and~~ you should not put undue reliance on any forward-looking ~~statements.~~statements discussed in this Report or incorporated documents.

~~Additional Information About the Merger with RBPI and Where to Find It~~
In connection with the proposed merger transaction between the Corporation and RBPI, on April 20, 2017, the Corporation filed with the Securities and Exchange Commission a Registration Statement on Form S-4/A which included a Proxy Statement of RBPI, and a Prospectus of the Corporation, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger with RBPI and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information.
~~A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about the Corporation and RBPI, may be obtained at the SEC’s Internet site (http://www.sec.gov).~~
The Corporation and RBPI and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of RBPI in connection with the proposed merger. Information about the directors and executive officers of the Corporation is set forth in the proxy statement for the Corporation’s 2017 annual meeting of shareholders, filed with the SEC on a Schedule 14A on March 10, 2017. Information about the directors and executive officers of RBPI is set forth in the Form 10-K for RBPI, as filed with the SEC on March 22, 2017. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger. Free copies of this document may be obtained as described in the preceding paragraph.
~~Page 55~~
~~Table of Contents~~
ITEM 3.Quantitative and Qualitative Disclosures About Market Risks

See the discussion of quantitative and qualitative disclosures about market risks in the Corporation’s ~~2016~~2017 Annual Report, as updated by the disclosure in “Management’s Discussion and Analysis of Results of Operations – Interest Rate ~~Summary,~~Sensitivity,” “– Summary of Interest Rate Simulation,” “Customer Derivatives” and “– Gap Analysis” in this quarterly report on Form 10-Q.

Page 59
Table of Contents
ITEM 4. Controls and Procedures

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer, Francis J. Leto, and Chief Financial Officer, Michael W. Harrington, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, ~~2017.~~2018.

There were no changes in the Corporation’s internal controls over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Page 60
Table of Contents

PART II OTHER ~~INFO~~RM~~ATION.~~INFORMATION.

ITEM 1. Legal P~~roceedings.~~Proceedings.

~~In a Complaint filed on April 11, 2017~~The information required by this Item is set forth in the ~~U.S. District Court for the Eastern District of Pennsylvania, the Corporation was named as a defendant~~“Legal Matters” discussion in a lawsuit entitled Parshall v. Royal Bancshares of Pennsylvania, Inc., et al. In relevant part, Mr. Parshall, a purported shareholder of RBPI, alleges that the Corporation, as a “control person” of RBPI, should be liable for what Mr. Parshall claims to be inadequate disclosuresNote 21 “Contingencies” in the ~~proxy statement/prospectus RBPI sent~~Notes to ~~its shareholders~~Unaudited Consolidated Financial Statements in ~~connection with soliciting approval~~Part I Item I of ~~the Corporation’s acquisition of RBPI. Mr. Parshall purports~~this Form 10-Q, which is incorporated herein by reference in response to ~~bring~~ this claim on behalf of a class of similarly-situated RBPI shareholders, although no class has yet been certified by the court. Mr. Parshall does not articulate any monetary damages in his complaint, but seeks 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.Item.

ITEM 1A. R~~isk~~Risk Factors
None.

ITEM 2. UnregisteredSalesof Equity Securities and Use of Proceeds

Share Repurchase

The following table presents the shares repurchased by the Corporation during the first quarter of ~~2017~~⁽¹⁾:2018:

Period

Total Number of
Shares Purchased⁽²⁾

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

January 1, 2017 – January 31, 2017
— $ — — 189,300
February 1, 2017 – February 28, 2017
— $ — — 189,300
March 1, 2017 – March 31, 2017
442 $ 42.00 — 189,300

Total
442 $ 42.00 — 189,300
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

January 1, 2018 – January 31, 2018
— $ — — 189,300
February 1, 2018 – February 28, 2018
16,635 $ 44.26 — 189,300
March 1, 2018 – March 31, 2018
712 $ 44.36 — 189,300
Total
17,347 $ 44.27 — 189,300

⁽¹⁾
On March 30, 2018, 437 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.
⁽²⁾
Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation or Bank as follows: 13,835 shares on February 9, 2018; and 275 shares on March 2, 2018.
⁽³⁾
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 20152015 Program and the Corporation has no plans for an early termination of the 20152015 Program. All sharere~~purchase~~s repurchases underthe 2015 Programwere accomplished in open market transactions.As ofMarch 31, ~~2017~~,2018, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.~~189,300~~.
⁽²⁾
On~~March 2~~~~, 201~~7,~~442 shares were purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation and Bank~~.

ITEM 3. De~~faults~~Defaults Upon Senior Securities
None.

ITEM 4. MineSafetyDisclosures.
         Not applicable.

ITEM 5. Other~~Information~~ Information
~~None~~.None.

Page 5661
Table of Contents

ITEM 6.Exhibits

Exhibit No.

Description and References

~~2.1~~
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’s Form 8-K filed with the SEC on January 31, 2017
3.1

Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’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’s Form 8-K filed with the SEC on November 21, 2007
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
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

Page 5762
Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Bryn Mawr Bank Corporation

Date: May ~~5, 2017~~4, 2018

By:
/s/ Francis J. Leto

Francis J. Leto

President & Chief Executive Officer

(Principal Executive Officer)

Date: May ~~5, 2017~~4, 2018

By:
/s/ Michael W. Harrington

Michael W. Harrington

Chief Financial Officer

(Principal Financial ~~and Accounting~~ Officer)
~~Page 58~~
~~Table of Contents~~
~~Form 10-Q~~
~~Index to Exhibits~~
~~Exhibit No.~~
~~Description and References~~
~~2.1~~
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’s Form 8-K filed with the SEC on January 31, 2017
~~3.1~~
~~Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’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’s Form 8-K filed with the SEC on November 21, 2007~~
~~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~~
~~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~~

Page 5963

Pennsylvania	23-2434506
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer identification No.)

801 Lancaster Avenue, Bryn Mawr, Pennsylvania	19010
(Address of principal executive offices)	(Zip Code)

Classes		Outstanding atMay 21, 20178
Common Stock, par value $1		~~16,987,574~~20,232,714


PART I -	FINANCIAL INFORMATION	~~Page 3~~

ITEM 1.	Financial Statements (unaudited)	~~Page 3~~

	Consolidated Financial Statements (unaudited)	Page 3

	Notes to Consolidated Financial Statements (unaudited)	Page 8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 3843

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 5660

ITEM 4.	Controls and Procedures	Page 5660

PART II -	OTHER INFORMATION	Page 5661

ITEM 1.	Legal Proceedings	Page 5661

ITEM 1A.	Risk Factors	Page 5661

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 5661

ITEM 3.	Defaults Upon Senior Securities	Page 5661

ITEM 4.	Mine Safety Disclosures	Page 5661

ITEM 5.	Other Information	Page 5661

ITEM 6.	Exhibits	Page 5762

	(unaudited)
	March 31,			December 31,			March 31,			December 31,
(dollars in thousands)	2017			2016			2018			2017
Assets
Cash and due from banks	$	17,457		$	16,559		$	7,804		$	11,657
Interest bearing deposits with banks		69,978			34,206			24,589			48,367
Cash and cash equivalents		87,435			50,765			32,393			60,024
Investment securities available for sale, at fair value (amortized cost of $392,326 and $568,890as of March 31, 2017 and December 31, 2016 respectively)		391,028			566,996
Investment securities held to maturity, at amortized cost (fair value of $5,116 and $2,818as of March 31, 2017 and December 31, 2016, respectively)		5,194			2,879
Investment securities available for sale, at fair value (amortized cost of $544,428 and $692,824 as of March 31, 2018 and December 31, 2017 respectively)								534,103			689,202
Investment securities held to maturity, at amortized cost (fair value of $7,629 and $7,851 as of March 31, 2018 and December 31, 2017, respectively)								7,885			7,932
Investment securities, trading		4,138			3,888			8,211			4,610
Loans held for sale		3,015			9,621			5,522			3,794
Portfolio loans and leases, originated		2,286,814			2,240,987			2,564,827			2,487,296
Portfolio loans and leases, acquired		268,775			294,438			740,968			798,562
Total portfolio loans and leases		2,555,589			2,535,425			3,305,795			3,285,858
Less: Allowance for originated loan and lease losses		(17,069	)		(17,458	)		(17,570	)		(17,475	)
Less: Allowance for acquired loan and lease losses		(38	)		(28	)		(92	)		(50	)
Total allowance for loans and lease losses		(17,107	)		(17,486	)		(17,662	)		(17,525	)
Net portfolio loans and leases		2,538,482			2,517,939			3,288,133			3,268,333
Premises and equipment, net		40,515			41,778			54,986			54,458
Accrued interest receivable		8,392			8,533			12,521			14,246
Mortgage servicing rights		5,686			5,582			5,706			5,861
Bank owned life insurance		39,479			39,279			56,946			56,667
Federal Home Loan Bank stock		8,505			17,305			15,499			20,083
Goodwill		104,765			104,765			182,200			179,889
Intangible assets		19,864			20,405			25,087			25,966
Other investments		8,716			8,627			11,720			12,470
Other assets		27,403			23,168			59,464			46,185
Total assets	$	3,292,617		$	3,421,530		$	4,300,376		$	4,449,720
Liabilities
Deposits:
Non-interest-bearing	$	771,556		$	736,180		$	863,118		$	924,844
Interest-bearing		1,865,009			1,843,495			2,452,421			2,448,954
Total deposits		2,636,565			2,579,675			3,315,539			3,373,798

Short-term borrowings		23,613			204,151			173,704			237,865
Long-term FHLB advances		174,711			189,742			107,784			139,140
Subordinated notes		29,546			29,532			98,448			98,416
Junior subordinated debentures								21,456			21,416
Accrued interest payable		2,722			2,734			4,814			3,527
Other liabilities		37,365			34,569			45,570			47,439
Total liabilities		2,904,522			3,040,403			3,767,315			3,921,601
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares;issued 21,141,146 and 21,110,968 shares as of March 31, 2017 and December 31, 2016, respectively,and outstanding of 16,969,451 and 16,939,715 as of March 31, 2017 and December 31, 2016, respectively		21,141			21,111
Common stock, par value $1; authorized 100,000,000 shares; issued 24,438,758 and 24,360,049 shares as of March 31, 2018 and December 31, 2017, respectively, and outstanding of 20,229,896 and 20,161,395 as of March 31, 2018 and December 31, 2017, respectively								24,439			24,360
Paid-in capital in excess of par value		233,910			232,806			371,319			371,486
Less: Common stock in treasury at cost - 4,171,695 and 4,171,253 shares as of March 31, 2017and December 31, 2016, respectively		(66,969	)		(66,950	)
Less: Common stock in treasury at cost - 4,208,862 and 4,198,654 shares as of March 31, 2018 and December 31, 2017, respectively								(68,787	)		(68,179	)
Accumulated other comprehensive loss, net of tax		(1,990	)		(2,409	)		(9,664	)		(4,414	)
Retained earnings		202,003			196,569			216,438			205,549
Total Bryn Mawr Bank Corporation shareholders' equity								533,745			528,802
Noncontrolling interest								(684	)		(683	)
Total shareholders' equity		388,095			381,127			533,061			528,119
Total liabilities and shareholders' equity	$	3,292,617		$	3,421,530		$	4,300,376		$	4,449,720

(dollars in thousands, except per share information)
	For the Three Months Ended March 31, 2017
	Shares of Common Stock Issued		Common Stock		Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders' Equity

Balance December 31, 2016		21,110,968	$	21,111	$	232,806	$	(66,950	)	$	(2,409	)	$	196,569		$	381,127
Net income				-		-		-			-			9,044			9,044
Dividends declared, $0.21 per share				-		-		-			-			(3,610	)		(3,610	)
Other comprehensive income, net of tax expense of $225				-		-		-			419			-			419
Stock based compensation				-		484		-			-			-			484
Net purchase of treasury stock from stock awards for statutory tax withholdings				-		-		(19	)		-			-			(19	)
Common stock issued through share-based awards and options exercises		30,178		30		620		-			-			-			650
Balance March 31, 2017		21,141,146	$	21,141	$	233,910	$	(66,969	)	$	(1,990	)	$	202,003		$	388,095

	Three Months Ended
	March 31,
(dollars in thousands except per share data)	2017		2016
Numerator:
Net income available to common shareholders	$	9,044	$	8,321
Denominator for basic earnings per share –weighted average shares outstanding		16,954,132		16,848,202
Effect of dilutive common shares		228,557		34,991
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		17,182,689		16,883,193
Basic earnings per share	$	0.53	$	0.49
Diluted earnings per share	$	0.53	$	0.49
Anti-dilutive shares excluded from computation of average dilutive earnings per share		—		—

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	101	$	—	$	—		$	101
Obligations of the U.S. government and agencies		101,279		161		(964	)		100,476
Obligations of state and political subdivisions		30,949		56		(65	)		30,940
Mortgage-backed securities		197,224		1,281		(1,085	)		197,420
Collateralized mortgage obligations		46,253		87		(864	)		45,476
Other investments		16,520		177		(82	)		16,615

Total	$	392,326	$	1,762	$	(3,060	)	$	391,028

	March 31, 2017				December 31,2016
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities¹:
Due in one year or less	$	12,019	$	12,026	$	213,876	$	213,885
Due after one year through five years		65,360		65,221		40,335		40,270
Due after five years through ten years		39,023		38,328		45,840		44,914
Due after ten years		17,226		17,240		18,079		18,055
Subtotal		133,628		132,815		318,130		317,124
Mortgage-related securities¹		243,477		242,896		235,485		234,644
Mutual funds with no stated maturity		15,221		15,317		15,275		15,228
Total	$	392,326	$	391,028	$	568,890	$	566,996

	March 31, 2017			December 31, 2016
Loans held for sale	$	3,015		$	9,621
Real estate loans:
Commercial mortgage	$	1,137,870		$	1,110,898
Home equity lines and loans		203,962			207,999
Residential mortgage		418,264			413,540
Construction		145,699			141,964
Total real estate loans		1,905,795			1,874,401
Commercial and industrial		567,917			579,791
Consumer		23,932			25,341
Leases		57,945			55,892
Total portfolio loans and leases		2,555,589			2,535,425
Total loans and leases	$	2,558,604		$	2,545,046
Loans with fixed rates	$	1,124,066		$	1,130,172
Loans with adjustable or floating rates		1,434,538			1,414,874
Total loans and leases	$	2,558,604		$	2,545,046
Net deferred loan origination fees included in the above loan table	$	(864	)	$	(735	)

							March 31, 2018									December 31, 2017
(dollars in thousands)	March 31, 2017				December 31, 2016		Originated			Acquired			Total Leases			Originated			Acquired			Total Leases
Minimum lease payments receivable	$	64,502		$	62,379		$	88,752		$	47,549		$	136,301		$	75,592		$	55,219		$	130,811
Unearned lease income		(8,648	)		(8,608	)		(12,523	)		(7,336	)		(19,859	)		(10,338	)		(9,523	)		(19,861	)
Initial direct costs and deferred fees		2,091			2,121			3,628			1,322			4,950			2,781			1,670			4,451
Total	$	57,945		$	55,892
Total Leases							$	79,857		$	41,535		$	121,392		$	68,035		$	47,366		$	115,401

(dollars in thousands)	March 31, 2017		December 31, 2016
Non-accrual loans and leases:
Commercial mortgage	$	315	$	320
Home equity lines and loans		1,828		2,289
Residential mortgage		2,640		2,658
Commercial and industrial		2,471		2,957
Consumer		—		2
Leases		75		137
Total	$	7,329	$	8,363

(dollars in thousands)	March 31, 2017		December 31, 2016
Non-accrual originated loans and leases:
Commercial mortgage	$	263	$	265
Home equity lines and loans		1,674		2,169
Residential mortgage		1,624		1,654
Commercial and industrial		908		941
Consumer		—		2
Leases		75		137
Total	$	4,544	$	5,168

(dollars in thousands)	March 31, 2018		December 31, 2017
Outstanding principal balance	$	48,720	$	46,543
Carrying amount⁽¹⁾	$	33,228	$	30,849

(dollars in thousands)	Accretable Discount			Accretable Discount
Balance, December 31, 2016	$	3,233
Balance, December 31, 2017				$	4,083
Accretion		(485	)		(685	)
Reclassifications from nonaccretable difference		—			5
Additions/adjustments		—			212
Disposals		—			—
Balance, March 31, 2017	$	2,748
Balance, March 31, 2018				$	3,615

	Accruing Loans and Leases																Accruing Loans and Leases
(dollars in thousands) As of March 31, 2017	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
As of March 31, 2018 (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	$	1,926	$	—	$	—	$	1,926	$	1,135,629	$	1,137,555	$	315	$	1,137,870	$	533	$	391	$	—	$	924	$	1,540,395	$	1,541,319	$	138	$	1,541,457
Home equity lines and loans		24		200		—		224		201,910		202,134		1,828		203,962		150		—		—		150		209,370		209,520		1,949		211,469
Residential mortgage		1,967		233		—		2,200		413,424		415,624		2,640		418,264		1,119		—		—		1,119		449,932		451,051		2,604		453,655
Construction		—		—		—		—		145,699		145,699		—		145,699		333		—		—		333		201,835		202,168		—		202,168
Commercial and industrial		519		719		—		1,238		564,208		565,446		2,471		567,917		499		—		—		499		724,233		724,732		2,499		727,231
Consumer		10		10		—		20		23,912		23,932		—		23,932		—		—		—		—		48,423		48,423		—		48,423
Leases		159		310		—		469		57,401		57,870		75		57,945		2,640		881		—		3,521		117,528		121,049		343		121,392
	$	4,605	$	1,472	$	—	$	6,077	$	2,542,183	$	2,548,260	$	7,329	$	2,555,589
Total portfolio loans and leases																	$	5,274	$	1,272	$	—	$	6,546	$	3,291,716	$	3,298,262	$	7,533	$	3,305,795

(dollars in thousands)	Accruing Loans and Leases
As of December 31, 2016	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
	$	1,723	$	1,303	$	—	$	3,026	$	2,524,036	$	2,527,062	$	8,363	$	2,535,425

	Accruing Loans and Leases																Accruing Loans and Leases
(dollars in thousands) As of December 31, 2016	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
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	$	—	$	722	$	—	$	722	$	945,892	$	946,614	$	265	$	946,879	$	1,255	$	81	$	—	$	1,336	$	1,120,901	$	1,122,237	$	90	$	1,122,327
Home equity lines and loans		11		—		—		11		176,270		176,281		2,169		178,450		26		—		—		26		182,036		182,062		1,221		183,283
Residential mortgage		773		64		—		837		339,778		340,615		1,653		342,268		721		—		—		721		358,709		359,430		1,505		360,935
Construction		—		—		—		—		141,964		141,964		—		141,964		—		—		—		—		128,266		128,266		—		128,266
Commercial and industrial		—		—		—		—		549,393		549,393		941		550,334		439		236		—		675		587,803		588,478		826		589,304
Consumer		10		5		—		15		25,183		25,198		2		25,200		21		—		—		21		35,125		35,146		—		35,146
Leases		177		86		—		263		55,492		55,755		137		55,892		125		177		—		302		67,630		67,932		103		68,035
	$	971	$	877	$	—	$	1,848	$	2,233,972	$	2,235,820	$	5,167	$	2,240,987
Total originated portfolio loans and leases																	$	2,587	$	494	$	—	$	3,081	$	2,480,470	$	2,483,551	$	3,745	$	2,487,296

	Accruing Loans and Leases																Accruing Loans and Leases
(dollars in thousands) As of December 31, 2016	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
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	$	666	$	—	$	—	$	666	$	163,298	$	163,964	$	55	$	164,019	$	111	$	2,347	$	—	$	2,458	$	397,810	$	400,268	$	782	$	401,050
Home equity lines and loans		—		—		—		—		29,429		29,429		120		29,549		312		10		—		322		34,410		34,732		260		34,992
Residential mortgage		50		426		—		476		69,791		70,267		1,005		71,272		665		79		—		744		94,295		95,039		2,912		97,951
Construction																		—		—		—		—		84,188		84,188		—		84,188
Commercial and industrial		36		—		—		36		27,405		27,441		2,016		29,457		219		50		—		269		128,859		129,128		880		130,008
Consumer		—		—		—		—		141		141		—		141		1,085		—		—		1,085		1,922		3,007		—		3,007
	$	752	$	426	$	—	$	1,178	$	290,064	$	291,242	$	3,196	$	294,438
Leases																		—		—		—		—		47,366		47,366		—		47,366
Total acquired portfolio loans and leases																	$	2,392	$	2,486	$	—	$	4,878	$	788,850	$	793,728	$	4,834	$	798,562

(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total
Balance, December 31, 2017	$	7,550		$	1,086		$	1,926		$	937		$	5,038		$	246		$	742		$	—	$	17,525
Charge-offs		—			(25	)		—			—			(283	)		(49	)		(596	)		—		(953	)
Recoveries		3			—			—			1			—			1			55			—		60
Provision for loan and lease losses		(379	)		(16	)		(28	)		(94	)		606			93			848			—		1,030
Balance, March 31, 2018	$	7,174		$	1,045		$	1,898		$	844		$	5,361		$	291		$	1,049		$	—	$	17,662

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

(dollars in thousands) As ofMarch 31, 2017	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Unallocated		Total
As of March 31, 2018 (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	$	—	$	—	$	45	$	—	$	1	$	5	$	—	$	—	$	51	$	—	$	19	$	168	$	—	$	5	$	4	$	—	$	196
Collectively evaluated for impairment		6,410		1,243		1,725		2,195		4,736		130		579		—		17,018		7,174		1,026		1,674		844		5,320		287		1,049		17,374
Total	$	6,410	$	1,243	$	1,770	$	2,195	$	4,737	$	135	$	579	$	—	$	17,069	$	7,174	$	1,045	$	1,842	$	844	$	5,325	$	291	$	1,049	$	17,570
As of December 31,2016
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