SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934.
For Quarter ended September 30, 1996 Commission File Number
------------------ 0-15261
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Bryn Mawr Bank Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
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(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
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Former name, former address and fiscal year, if changed since last report.
Indicate by check 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 X No
----- -----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at October 29, 1996
- ----------------------- 2,201,065
Common Stock, par value $1
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED September 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for Nine
Months Ended September 30, 1996 and 1995..........................Page 1
Consolidated Statements of Income for Three
Months Ended September 30, 1996 and 1995..........................Page 2
Consolidated Balance Sheets as of September 30, 1996,
December 31, 1995 and September 30, 1995..........................Page 3
Consolidated Statements of Cash Flows For the Nine
Months Ended September 30, 1996 and 1995..........................Page 4
Notes to Consolidated Financial Statements...........................Page 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................Page 8
PART II - OTHER INFORMATION..............................................Page 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Unaudited
Nine Months Ended
September 30
1996 1995
---------- ----------
Interest income:
Interest and fees on loans...................................................... $ 16,009 $ 14,533
Interest on federal funds sold.................................................. 190 573
Interest on interest bearing deposits with banks................................ 2 6
Interest and dividends on investment securities:
U.S. Treasury securities....................................................... 1,142 1,709
U.S. Government Agency securities.............................................. 501 111
Obligations of states and political subdivisions............................... 315 466
Dividend income................................................................ 56 56
---------- ----------
Total interest income............................................................. 18,215 17,454
Interest expense on deposits...................................................... 4,895 5,330
---------- ----------
Net interest income............................................................... 13,320 12,124
Loan loss provision............................................................... 275 375
---------- ----------
Net interest income after loan loss provision..................................... 13,045 11,749
---------- ----------
Other income:
Fees for Trust services......................................................... 4,416 4,027
Service charges on deposits..................................................... 814 776
Other service charges, commissions and fees..................................... 755 700
Net gain on sale of loans....................................................... 245 302
Net gain on sale of other real estate owned..................................... 1,077 134
Other operating income.......................................................... 722 771
---------- ----------
Total other income................................................................ 8,029 6,710
---------- ----------
Other expenses:
Salaries and wages.............................................................. 6,412 5,753
Employee benefits............................................................... 1,412 1,322
Occupancy and bank premises..................................................... 1,165 1,070
Furniture, fixtures, and equipment.............................................. 893 653
Other operating expenses........................................................ 4,435 4,629
Total other expenses.............................................................. 14,317 13,427
---------- ----------
Income before income taxes........................................................ 6,757 5,032
Applicable income taxes........................................................... 2,226 1,499
---------- ----------
Net Income........................................................................ $ 4,531 $ 3,533
========== ==========
Earnings per average common share:
Net income.................................................................... $2.00 $1.61
Cash dividends declared....................................................... $0.77 0.375
Average number of shares outstanding including common stock equivalents *......... 2,266,863 2,187,904
The accompanying notes are an integral part of the consolidated financial
statements.
*- 1995 per share data has been restated to reflect the 2-for-1 stock split,
effective December 29, 1995.
Form 10-Q
Page 1
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Unaudited
Three Months Ended
September 30
1996 1995
---------- ----------
Interest income:
Interest and fees on loans........................................................... $ 5,595 $ 5,024
Interest on federal funds sold....................................................... 6 207
Interest on interest bearing deposits with banks..................................... 0 1
Interest and dividends on investment securities:
U.S. Treasury securities............................................................ 324 563
U.S. Government Agency Securities................................................... 167 111
Obligations of states and political subdivisions.................................... 95 148
Dividend income..................................................................... 16 17
---------- ----------
Total interest income.................................................................. 6,203 6,071
Interest expense on deposits........................................................... 1,624 1,910
---------- ----------
Net interest income.................................................................... 4,579 4,161
Loan loss provision.................................................................... 75 125
---------- ----------
Net interest income after loan loss provision.......................................... 4,504 4,036
---------- ----------
Other income:
Fees for Trust services.............................................................. 1,441 1,357
Service charges on deposits.......................................................... 258 262
Other service charges, commissions and fees.......................................... 239 250
Net gain on sale of loans............................................................ 82 158
Net gain on sale of other real estate owned.......................................... 2 2
Other operating income............................................................... 246 262
---------- ----------
Total other income..................................................................... 2,268 2,291
---------- ----------
Other expenses:
Salaries and wages................................................................... 2,143 2,004
Employee benefits.................................................................... 352 437
Occupancy and bank premises.......................................................... 378 374
Furniture, fixtures, and equipment................................................... 356 217
Other operating expenses............................................................. 1,298 1,437
---------- ----------
Total other expenses................................................................... 4,527 4,469
---------- ----------
Income before income taxes............................................................. 2,245 1,858
Applicable income taxes................................................................ 746 559
---------- ----------
Net Income............................................................................. $ 1,499 $ 1,299
========== ==========
Earnings per average common share:
Net income......................................................................... $0.66 $0.59
Cash dividends declared............................................................ $0.15 $0.125
Average number of shares outstanding including common stock equivalents *.............. 2,265,824 2,188,934
The accompanying notes are an integral part of the consolidated financial
statements.
*- 1995 per share data has been restated to reflect the 2-for-1 stock split,
effective December 29, 1995.
Form 10-Q
Page 2
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
September30, December 31, September 30,
1996 1995 1995
(Unaudited) (Unaudited)
---------------------------------------------
Assets
Cash and due from banks......................................... $ 24,289 $ 25,128 $ 19,767
Interest bearing deposits with banks............................ 103 115 137
Federal funds sold.............................................. 1,700 19,410 10,412
Investment securities available for sale, at market (amortized
cost of $38,372, $58,890 and $61,959 as of June 30, 1996,
December 31, 1995 and September 30, 1995, respectively)....... 38,372 59,211 61,992
Loans:
Consumer...................................................... 79,659 73,189 73,814
Commercial.................................................... 72,617 67,507 56,647
Real Estate................................................... 107,692 94,657 98,488
---------- ---------- ----------
Total loans................................................. 259,968 235,353 228,949
Less: Allowance for possible loan losses...................... (4,190) (3,652) (4,038)
---------- ---------- ----------
Net loans................................................... 255,778 231,701 224,911
---------- ---------- ----------
Premises and equipment, net..................................... 11,540 11,820 11,740
Accrued interest receivable..................................... 2,260 2,463 2,318
Other real estate owned......................................... 1,386 3,794 3,390
Other assets.................................................... 2,296 1,314 3,962
---------- ---------- ----------
Total assets................................................ $ 337,724 $ 354,956 $ 338,629
========== ========== ==========
Liabilities
Deposits:
Demand, noninterest-bearing................................... $ 77,757 $ 81,128 $ 70,551
Savings....................................................... 156,031 161,340 157,135
Time.......................................................... 58,967 75,133 72,711
---------- ---------- ----------
Total deposits.............................................. 292,755 317,601 300,397
---------- ---------- ----------
Borrowed funds.................................................. 4,000 0 0
Other liabilities............................................... 6,419 5,452 7,354
---------- ---------- ----------
Total liabilities........................................... 303,174 323,053 307,751
---------- ---------- ----------
Shareholders' equity
Common stock, par value $1; authorized 5,000,000
shares; issued 2,494,100 shares as of September 30, 1996,
2,493,200 shares as of December 31, 1995 and 1,245,100
shares as of June 30, 1995; shares outstanding of 2,191,280 as of
September 30, 1996, 2,190,380 as of December 31, 1995 and
1,093,690 as of September 30, 1995............................ 2,494 2,493 1,247
Paid-in capital in excess of par value.......................... 4,376 4,363 5,610
Unrealized investment appreciation
(depreciation) net of deferred income taxes................... 0 212 22
Retained earnings............................................... 29,219 26,374 25,538
---------- ---------- ----------
36,089 33,442 32,417
Less: Common stock in treasury at cost -- 151,410 shares........ (1,539) (1,539) (1,539)
---------- ---------- ----------
Total shareholders' equity.................................... 34,550 31,903 30,878
---------- ---------- ----------
Total liabilities and shareholders' equity.................... $ 337,724 $ 354,956 $ 338,629
========== ========== ==========
The accompanying notes are an integral part of consolidated financial statements.
Form 10-Q
Page 3
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
Nine Months Ended
September 30
-------------------------
1996 1995
--------- ---------
Operating activities:
Net Income........................................................ $ 4,531 $ 3,533
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses...................................... 275 375
Provision for depreciation and amortization.................... 924 738
Gain on sale of other real estate owned........................ (1,077) (134)
Loans originated for resale.................................... (37,128) (40,615)
Proceeds from loans sold....................................... 36,459 41,742
Gain on sale of loans.......................................... (245) (302)
Reduction in deferred income taxes............................. (149) (296)
Decrease in taxes receivable................................... 0 1,245
Increase (decrease) in interest receivable..................... 203 (319)
Increase in interest payable................................... 1,219 1,707
Other.......................................................... (965) (2,212)
--------- ---------
Net cash provided by operating activities................... 4,047 5,462
--------- ---------
Investing activities:
Purchases of investment securities................................ (4,066) (16,289)
Proceeds from maturity of investment securities................... 14,965 14,240
Proceeds from sales of investment securities available for sale... 9,500 0
Loan repayments, net of loan originations......................... 7,377 18,300
Loans purchased (dealer loans).................................... (30,815) (19,291)
Purchases of premises and equipment............................... (491) (1,010)
Proceeds from disposition of other real estate owned.............. 3,485 404
Capitalization of costs of other real estate owned................ 0 (193)
--------- ---------
Net cash used by investing activities....................... (45) (3,839)
--------- ---------
Financing activities:
Net decrease in demand and savings deposits....................... (8,680) (31,831)
Net (decrease) increase in time deposits.......................... (16,166) 30,891
Net increase in borrowed funds.................................... 4,000 0
Dividends paid.................................................... (1,686) (821)
Repayment of mortgage debt........................................ (45) (36)
Proceeds from issuance of common stock............................ 14 53
--------- ---------
Net cash (used) by financing activities..................... (22,563) (1,744)
--------- ---------
Decrease in cash and cash equivalents............................ (18,561) (121)
Cash and cash equivalents at beginning of period.................. 44,653 30,437
--------- ---------
Cash and cash equivalents at end of period........................ $ 26,092 $ 30,316
========= =========
Supplemental cash flow information:
Income taxes paid.............................................. $ 2,540 $ 551
Interest paid.................................................. $ 3,676 $ 3,623
The accompanying notes are an integral part of the consolidated financial statements.
Form 10-Q
Page 4
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of September 30, 1996 and 1995, the consolidated statements of
cash flows for the nine month periods ended September 30, 1996 and 1995 and the
related consolidated statements of income for the nine month and three month
periods ended September 30, 1996 and 1995 are unaudited. Management believes
that all adjustments, accruals and elimination entries necessary for the fair
presentation of the consolidated financial position and results of operations
for the interim periods presented have been made. The year-end balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in the Corporation's 1995 Annual Report
incorporated in the 1995 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the Notes
to Consolidated Financial Statements in the Corporation's 1995 Annual Report
incorporated in the 1995 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the nine month and three
month periods ended September 30, 1996 and did not have a material dilutive
impact on net income for the nine month and three month periods ended September
30, 1995.
3. Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with banks and federal funds sold.
4. Adoption of Financial Accounting Standards:
During the first quarter of 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS No. 114"), as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". SFAS No. 114 requires measurement of impaired
loans based on the present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable market price or, as
a practical expedient, the fair value of the collateral, if the loan is
collateral dependent. SFAS No. 114 does not apply to large groups of smaller-
balance homogeneous loans that are collectively evaluated for impairment. The
adoption of SFAS No. 114 did not have a material impact on the financial
position or results of operations of the Corporation.
During the first quarter of 1996, the Corporation adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS No. 122".) SFAS No. 122 requires the recognition of separate
assets relating to the rights to service mortgage loans for others based on
Form 10-Q
Page 5
their fair value, if it is practicable to estimate the value. The adoption of
SFAS No. 122 did not have a material impact on the financial position or results
of operations of the Corporation.
Also, during the first quarter of 1996, the Corporation adopted Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). SFAS No. 123 provides an alternative method of
accounting for stock based compensation arrangements, based on fair value of the
stock based compensation determined by an option pricing model utilizing various
assumptions regarding the underlying attributes of the options and the
Corporation's stock, rather than the existing method of accounting for stock
based compensation which is provided in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). The Financial
Accounting Standards Board encourages entities to adopt the fair value based
method, but does not require the adoption of this method at this time. For
those entities that continue to apply APB No. 25, proforma disclosure of the
effect of SFAS No. 123 on net income and earnings per share is required in the
1996 financial statements. The Corporation will make such year end disclosures
at December 31, 1996. Since the Corporation has determined to continue to
apply APB 25, there will be no material impact on the financial position and
results of operations.
5. Loans:
As of September 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled $971,000.
All impaired loans had a related allowance for loan losses. The total related
allowance for loan losses is $140,000.
Interest on loans, including impaired loans, is accrued only if deemed
collectible. Unpaid interest income is reversed when a loan becomes over 90
days delinquent and on any loans, prior to 90 days delinquency, if management
determines it is warranted. Any principal or interest received on impaired
loans is recorded as a direct reduction of the unpaid principal balance of the
loan. When the unpaid principal balance of the loan has been fully collected,
any additional amounts collected are recognized as interest income.
Form 10-Q
Page 6
6. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
Nine months ended Year ended
September 30, December 31,
1996 1995 1995
----------------- ------------
Balance, Beginning of period $3,652 $3,618 $3,618
Charge-offs:
Consumer (133) (164) (234)
Commercial and industrial (41) (67) (527)
Real estate 0 (8) (8)
------ ------ ------
Total charge-offs (174) (239) (769)
------ ------ ------
Recoveries:
Consumer 29 42 54
Commercial and industrial 400 229 236
Real estate 8 13 13
------ ------ ------
Total recoveries 437 284 303
------ ------ ------
Net (charge-offs) / recoveries 263 45 (466)
Provision for loan losses 275 375 500
------ ------ ------
Balance, End of period $4,190 $4,038 $3,652
====== ====== ======
Form 10-Q
Page 7
Item 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Bryn Mawr Bank Corporation (the "Corporation"), the parent company of The
Bryn Mawr Trust Company (the "Bank"), reported net income of $4,531,000 for the
first nine months of 1996, a 28% increase over $3,533,000 of net income reported
for the first nine months of 1995. The realization of a $1,073,000 pre-tax gain
from the sale of a commercial property in the Bank's other real estate owned
("OREO") during the first quarter of 1996 was primarily responsible for the
large increase in net income for the first nine months of 1996 compared to the
same period in 1995. Exclusive of this pre-tax gain and certain non-recurring
expense items, net income for the first nine months of 1996 was 13% ahead of net
income for the first nine months of 1995. For the first nine months of 1996,
earnings per common share, including the dilutive effect of common stock
equivalents, amounted to $2.00, a 24% increase over earnings per common share of
$1.61 reported for the first nine months of 1995. Per share computations were
based on 2,266,863 average shares outstanding, including common stock
equivalents for the first nine months of 1996 and 2,187,904 average shares
outstanding for the first nine months of 1995. Per share amounts and average
outstanding shares for 1995 have been restated to reflect the 2-for-1 stock
split, effective December 29, 1995.
For the third quarter of 1996, the Corporation reported net income of
$1,499,000 a 15% increase over net income of $1,299,000 reported for the third
quarter of 1995. For the three months ended September 30, 1996, earnings per
common share, including the dilutive effect of common stock equivalents,
amounted to $.66, a 12% increase over earnings per common share of $.59,
reported for the three months ended September 30, 1995. Average shares
outstanding, including the dilutive effect of common stock equivalents were
2,265,824 for the three months ended September 30, 1996 compared to average
shares outstanding of $2,188,934 for the same period in 1995.
The increase in earnings for the first nine months of 1996 over the same
period in 1995 may be attributed to a number of factors, including an increase
in net interest income, up 10% over the first nine months of 1995, as well as
increases in total other income, which, exclusive of the increases from the
gains on the sale of OREO, were up 6% over the same period in 1995.
The prime rate decreased by 75 basis points from September 1995 to
September 1996. Since, in the short term, 30 days or less, the Bank is asset
rate sensitive, a declining prime rate usually will cause a related decrease in
interest income. However, a change in the mix of earning assets, increasing
higher yielding average outstanding loan balances while decreasing lower
yielding average outstanding investment balances, caused an increase in the
annualized yield on earning assets for the first nine months of 1996 to 7.8%
compared to 7.6% for the same period in 1995. In an effort to further mitigate
the effect of a declining prime rate, Bank management was able to lower the
average annualized cost of funds to 2.2% for the first nine months of 1996
compared to 2.4% for the same period in 1995. The result was an
Form 10-Q
Page 8
increase in the Bank's annualized net interest margin, to 5.66% for the first
nine months of 1996 compared to 5.19% for the same period in 1995. While
interest rate movements and their effect on future revenue streams cannot be
predicted, management believes that there are presently no known trends, events
or uncertainties that will have or are reasonably likely to have a material
effect on the Corporation's liquidity, capital resources or results of
operations in the future.
NET INTEREST INCOME
- -------------------
For the nine months ended September 30, 1996, net interest income rose 10%
to $13,320,000 from $12,124,000 in 1995. Total interest income grew 4% for the
first nine months of 1996 to $18,215,000 from $17,454,000 for the first nine
months of 1995. Interest expense decreased 8% over the same periods. Interest
expense for the nine months ended September 30, 1996 and 1995 was $4,895,000 and
$5,330,000, respectively. The yield on earning assets for the first nine months
of 1996 was 7.8% compared to 7.6% for the first nine months of 1995 while the
effective rate paid on interest bearing deposits for the first nine of 1996 was
2.9% compared to 3.1% for the same period in 1995.
Interest and fees on loans increased 10% from $14,533,000 for the first
nine months of 1995 to $16,009,000 for the first nine months of 1996. A
combination of steady loan portfolio yields, at 8.3% and 8.2% for the first nine
months of 1995 and 1996, respectively and an 11% increase in daily average
outstanding loan balances from $223,868,000 for the first nine months of 1995 to
$249,178,000 for the same period in 1996, are the primary reasons for this
increase in loan related interest and fee income.
Interest income on investments decreased $328,000 or 14%, from $2,342,000
for the first nine months of 1995 to $2,014,000 for the first nine months of
1996. Interest from U.S. Treasury obligations decreased 33% from $1,709,000 for
the first nine months of 1995 to $1,142,000 for the first nine months of 1996.
The primary reason for this decrease was a $18,307,000 or 41% decrease in the
daily average balance of U.S. Treasury securities, from $44,961,000 during the
first nine months of 1995 to $26,640,000 for the comparable period in 1996. The
decrease in U.S. Treasury obligations, which was primarily a result of
investment maturities as opposed to sales, was necessary to fund loan growth.
This decrease in interest income from U.S. Treasury obligations is the primary
reason for the 14% decrease in interest income on investments. During the third
quarter of 1995, the Bank acquired U.S. Government Agency securities. Interest
income on U.S. Government Agency securities amounted to $501,000 for the nine
months ended September 30, 1996, compared to $111,000 for the same period in
1995. Interest income on obligations of states and political subdivisions
decreased by 32%, from $466,000 for the nine months ended September 30, 1995 to
$315,000 for the same period in 1996. A decrease of $3,730,000 or 31% in daily
average outstanding balances of obligations of state and political subdivisions,
from $12,124,000 in daily average outstanding balances for the first nine months
of 1995 down to $8,394,000 for the same period in 1996 is the primary reason for
this decrease. The overall yield on investment securities increased from 5.2%
for the first nine months of 1995 to 5.7% for the first nine months of 1996, due
primarily to the maturity of lower yielding investments in the Bank's investment
portfolio.
Form 10-Q
Page 9
Interest expense on deposits decreased 8%, to $4,895,000 for the nine
months ended September 30, 1996 compared to $5,330,000 for the same period in
1995. The average cost of interest bearing deposits decreased from 3.1% for the
first nine months of 1995 to 2.9% for the same period in 1996. Daily average
interest bearing deposit balances decreased 2% to $223,189,000 at September 30,
1996 compared to $228,689,000 for the same period in 1995. However, the average
deposit mix has changed for the first nine months of 1996 compared to the same
period in 1995. A significant change in daily average interest bearing deposit
balances, for the first nine months of 1996 compared to the same period in 1995,
came in Savings and Now Accounts. While average Savings account balances
decreased $3,950,000 or 9%, from $46,147,000 for the first nine months of 1995
to $42,197,000 for the same period in 1996, daily average Now account balances
increased $4,819,000 or 7%, from $65,472,000 at September 30, 1995 to
$70,291,000 at September 30, 1996. Declining rates of interest on all
categories of interest bearing deposits for 1996 compared to 1995 rates, are
primarily responsible for a decrease in the average cost of interest bearing
deposits, to 2.9% for the first nine months of 1996 compared to 3.1% for the
first half of 1995.
For the first nine months of 1996, the net interest margin increased to
5.66% from 5.19% for same period in 1995. The net interest margin is computed
exclusive of related loan fee income.
For the third quarter of 1996, net interest income increased $418,000 or
10% to $4,579,000 in 1996 from $4,161,000 for the same period in 1995. Total
interest income grew $132,000 or 2%, from $6,071,000 for the third quarter of
1995 to $6,203,000 for the same period in 1996. Interest and fees on loans grew
$571,000 or 11% for the third quarter of 1996 over the same period in 1995.
Growth in daily average outstanding loans in the third quarter of 1996, compared
to the same quarter in 1995, is primarily responsible for this growth. Interest
on federal funds sold decreased $201,000 or 97% as available funds were used to
fund new loan growth. Interest income on U.S. Treasury securities and
Obligations of states and political subdivisions decreased $239,000 or 42% and
$53,000 or 36%, respectively during the third quarter of 1996 compared to the
third quarter of 1995, while interest income on U.S. Government Agency
securities increased by $56,000 or 50% over the third quarter of 1995. The
primary reason for this increase was that the Bank acquired these U.S.
Government agency securities during the third quarter of 1995, hence there was
not a full quarter's interest income from this category reported for the third
quarter of 1995. Interest on deposits decreased $286,000 or 15% from $1,910,000
for the third quarter of 1995 to $1,624,000 for the same period in 1996. A
decline in interest rates paid on most categories of interest bearing deposits
for the third quarter of 1996 compared to the same quarter in 1995 is
responsible for this decrease in interest expense.
LOAN LOSS PROVISION
- -------------------
The loan loss provision represents management's determination of the amount
necessary to be charged against the current year's income in order to maintain
an adequate loan loss reserve. The Bank maintains an Officer Loan Review
Committee (the "Committee") and retains the services of an independent loan
review consultant (the "Consultant"). The Consultant performs an independent
review of the Bank's loan portfolio and the loan loss reserve.
Form 10-Q
Page 10
The Committee meets monthly to review the adequacy of the loan loss reserve as
well as all nonaccrual loans, any potential problem loans and loans criticized
by either the Bank's regulators or the Consultant.
Based on ratings assigned by the Committee on the quality of the loans
which are reviewed, a specific reserve may be computed for each loan. In
addition to the specific reserve amounts, the balance of loans not reviewed by
the Committee has a reserve computed based on the average of the prior five
years write-offs plus the annualized write-offs for the current year. Including
annualized write-offs for the current year takes into consideration current
trends in both volumes and write-offs, to be included in the computation.
Finally, an amount equal to .5% of all outstanding loans is included in the loan
loss reserve calculation to address possible unforeseen loan loss reserve
requirements. The sum of the specific reserves, the reserve calculated based on
average write-offs and the reserve calculated based on the entire portfolio for
possible unforeseen loan losses is compared to the Bank's current loan loss
reserve balance. Any additions deemed necessary to the loan loss reserve are
then made on a timely basis.
The loan loss reserve amounted to 1.6% of outstanding loans at September
30, 1996 and 1.8% as of September 30, 1995. Nonperforming loans decreased 53%
to $303,000 as of September 30, 1996, down from $646,000 as of September 30,
1995. The loan loss reserve amounted to 1,383% of nonperforming loans as of
September 30, 1996 compared to 625% as of September 30, 1995. Based on the
results of both the internal and external loan review processes and the current
level of nonperforming loans, management believes the loan loss reserve to be
adequate as of September 30, 1996. Also, as a result of the aforementioned
reviews, the level of nonperforming loans and the level of the loan loss reserve
when compared to nonperforming loans, it was determined that the provision for
loan losses be reduced during the second quarter of 1996. The provision for
loan losses was $275,000 for the nine months ended September 30, 1996, a 27%
reduction from a provision of $375,000 for the first nine months of 1995.
As noted above, during the first quarter of 1995, the Corporation adopted
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS No. 114"), as amended by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosures". SFAS No. 114 requires measurement of
impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or, as a practical expedient, the fair value of the collateral, if
the loan is collateral dependent. SFAS No. 114 does not apply to large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment. The adoption of SFAS No. 114 did not have a material impact on the
financial position or results of operations of the Corporation.
OTHER INCOME
- ------------
Other income increased 20% from $6,710,000 for the nine months ended
September 30, 1995 to $8,029,000 for the same period in 1996. During the first
quarter of 1996, the Bank sold a commercial real estate property, included in
OREO, and realized a pre-tax gain of $1,073,000 on the sale.
Form 10-Q
Page 11
Exclusive of the net gains on the sale of OREO, reported in each year, other
income increased 6% for the first nine months of 1996, compared to the same
period in 1995.
Fees for trust services rose 10% from $4,027,000 for the first nine months
of 1995 to $4,416,000 for the same period in 1996. The development of new
business lines, including Investment Counsellors of Bryn Mawr ("ICBM"),
established in January of 1996 to provide investment management services to high
net worth individuals and employee benefit plans, along with increased asset
values of assets managed by the Trust division are the primary reasons for the
increase in fees for trust services.
For the nine month period ended September 30, 1996, the Bank originated
and sold $36,549,000 of mortgage loans in the secondary mortgage market, a 13%
decrease from $42,223,000 of mortgage loans originated and sold during the first
nine months of 1995. Net gains on the sale of residential mortgage loans in the
secondary mortgage market amounted to $245,000 for the first nine months of
1996, a 19% decrease over $302,000 in gains on loan sales, reported for the
first nine months of 1995.
For the nine month period ended September 30, 1996, the decrease in
interest rates was also primarily responsible for a $38,000, or 5%, increase in
service charges on deposit accounts, from $776,000 for the nine months ended
September 30, 1995 to $814,000 for the same period in 1996, due primarily to
decreases in the earnings credit rate used to offset these service charges.
Other service charges, commissions and fee income rose $55,000 or 8% from
$700,000 for the nine months ended September 30, 1995 to $755,000 for the same
period in 1996. The primary reason for this increase was an increase in loan
servicing and late fees of $37,000, due to an increase in the volume of mortgage
loans serviced by the Bank for others.
Other operating income decreased $49,000 or 6%, from $771,000 for the first
nine months of 1995 to $722,000 for the same period in 1996. During the first
quarter of 1996, the Bank sold a parcel of OREO which had produced a revenue
stream for the Bank. Subsequent to the disposition of this OREO parcel, the
related revenue stream was eliminated. The revenues from this OREO property
prior to the sale were $74,000 for the first nine months of 1996, a $166,000
reduction from $240,000 for the same period in 1995. This reduction on OREO
balances is the primary reason for the 6% decrease in other operating income for
the first nine months of 1996, compared to the same period in 1995. Partially
offsetting this decrease was an increase in merchant credit card processing fees
of $31,000 over the same period in 1995 and $78,000 in miscellaneous income,
$55,000 of which is related to a fee received by the Bank for brokering a loan
sale not related to the Bank's loan portfolio.
Total other income decreased $23,000 or 1% from $2,291,000 for the third
quarter of 1995 to $2,268,000 for the same quarter in 1996. Trust fees grew
$84,000 or 6% from $1,357,000 for the third quarter of 1995 to $1,441,000 for
the third quarter or 1996. An increase in interest rates offered on residential
mortgage loans during 1996 was primarily responsible for both a decline in the
volume of mortgages originated and sold in the secondary market during the third
quarter of 1996 compared to the same quarter in 1995 as well
Form 10-Q
Page 12
as the overall net gains on the sale of these loans. The net gain on loan sales
for the third quarter of 1996, compared to the same quarter in 1995, decreased
$76,000 or 48%, from $158,000 for the third quarter of 1995 to $82,000 for the
third quarter of 1996. Net gains on the sale of OREO amounted to $2,000 for
both the third quarter of 1996 and 1995. Other operating income decreased
$16,000 or 6%, from $262,000 for the third quarter of 1995 to $246,000 for the
same quarter in 1996. The primary reason for this decline was the elimination
of OREO related revenues in 1996, associated with a parcel of OREO sold during
the first quarter of 1996. OREO revenues decreased $86,000 for the third
quarter of 1996 compared to the same quarter in 1995. Partially offsetting this
decrease was a $55,000 fee, earned in the third quarter of 1996, for brokering
the sale of loans for others.
OTHER EXPENSE
- -------------
Total other expense increased $890,000 or 7% for the first nine months of
1996 to $14,317,000 from $13,427,000 for the first nine months of 1995.
Salaries and wages grew $659,000 or 11%, from $5,753,000 for the nine months
ended September 30, 1995 to $6,412,000 for the same period in 1996. Of this
increase, $537,000 relates to regular salary expense and, in addition to planned
salary increases, reflects both the addition of new staff associated with the
family office operation, established in May 1995 as well as the staffing
additions associated with the establishment of ICBM in January 1996. Incentive
salaries were up $128,000 or 21%, from $598,000 for the nine months ended
September 30, 1995 to $726,000 for the same period in 1996.
Employee benefits expenses grew $90,000 or 7% compared to the first nine
months of 1995, primarily a result of a $106,000 increase in the projected
pension expense for the first nine months of 1996 compared to the same period in
1995 and a $44,000 increase in Social Security taxes, associated with the
addition of new staff, primarily associated with the establishment of the family
office and ICBM. Offsetting these increases was a decrease in the cost of
medical and life insurance of $33,000 for the first nine months of 1996,
primarily due to a $60,000 refund of medical premiums from the insurance
carrier, earlier in 1996.
Occupancy expense grew $95,000 or 9%, from $1,070,000 for the first nine
months of 1995 to $1,165,000 for the first nine months of 1996. The largest
additional cost contributing to this expense was $30,000 for the removal of snow
in 1996, as well as unplanned repairs during the first nine months of 1996.
Furniture and equipment expenses grew $240,000 or 37% over the first nine months
of 1995, from $653,000 to $893,000 for the same period in 1996. The planned
addition of fixed assets, primarily computer equipment and software related to
the conversion of the Bank's data processing facilities to an in-house system,
is primarily responsible for an increase in the related depreciation expense for
the first nine months of 1996 compared to the same period in 1995.
Other operating expenses decreased $194,000 or 4% from $4,629,000 for the
first nine months of 1995 to $4,435,000 for the first nine months of 1996.
Included in other operating expenses for the first nine months of 1995 was a
$307,000 expense for the cost of Federal Deposit Insurance Corporation (the
"FDIC") deposit insurance premiums. Presently, the Bank, which is classified
Form 10-Q
Page 13
as "Well Capitalized" by the FDIC, is benefitting from the elimination of FDIC
insurance premiums for banks included in this classification. The related
expense for the first half of 1996 amounted to $2,000 compared to $307,000 for
the same period in 1995. Exclusive of this $305,000 net decrease in FDIC
deposit insurance premium expense, other operating expenses increased by
$111,000 or 3% over the first nine months of 1995. There are a number of
factors primarily responsible for this increase. Computer processing fees
decreased by $141,000 for the first nine months of 1996 compared to the same
period in 1995. This was due to the conversion of the Bank's EDP system to an
in-house system. The cost of OREO maintenance increased by $49,000 over similar
costs for 1995. Additional increases in other operating expenses also included
a $70,000 expense to settle a regulatory dispute, which was less than a non-
recurring cost of $135,000, incurred during the second quarter of 1995, to
settle two outstanding disputes involving the Bank. There was also an increase
of $76,000 in additional expenses primarily associated with the EDP conversion
accomplished during the first quarter of 1996, comprised of stationery and
supplies, up $52,000 and telephone expense, up $24,000. Advertising expense
increased $104,000, reflecting the Bank's continued commitment to broadening its
base of customers. The cost of servicing the merchant credit card program
increased $49,000 for the first nine months of 1996 compared to the same period
in 1995. The balance of the $111,000 increase in other operating expenses for
the first nine months of 1996 amounted to a 2% increase over similar expenses
for the first nine months of 1995.
For the quarter, total other expenses increased 1% to $4,527,000 for the
quarter ended September 30, 1996 compared to $4,469,000 in 1995. Salaries and
wages increased $139,000 or 7% from $2,004,000 for the quarter ended September
30, 1995 to $2,143,000 for the same period in 1996. The majority of this
increase occurred in regular salary expense, up $117,000 or 7%, reflecting both
recurring salary increases and the addition of ICBM in January of 1996. Other
salaries, primarily incentive related expenses, rose $29,000 or 13% for the
third quarter of 1996 compared to the same period in 1995. Employee benefits
expenses decreased $85,000 or 19% for the third quarter of 1996, compared to the
third quarter of 1995. An decrease in the actual pension expense for 1996
compared to 1995 is the primary reason for this quarterly decrease. A $139,000
or 64% increase in furniture, fixtures and equipment expense is due primarily to
a planned increase in depreciation expense, related to fixed assets put into
service during the second quarter of 1996, a result of the EDP conversion that
occurred earlier in 1996. Other operating expenses decreased $139,000 or 10%
for the third quarter of 1996, compared to the same quarter in 1995. This
decrease was primarily related to a $113,000 reduction in computer processing
fees for the third quarter of 1996, compared to the same period in 1995, also
related to the conversion to an in-house EDP system.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate for the first nine months of 1996 was
33% compared to 30% for 1995. The increase is due to a decrease in the tax-
exempt income from obligations of states and political subdivisions. The
decrease in tax-favored income is related to the decrease in the investment
portfolio necessary to fund the loan growth.
Form 10-Q
Page 14
FINANCIAL CONDITION
- -------------------
Total assets decreased 5% from $354,956,000 at December 31, 1995 to
$337,724,000 as of September 30, 1996. Total assets decreased less than 1% from
$338,629,000 as of September 30, 1995.
Outstanding earning assets decreased 4% to $300,143,000 as of September 30,
1996 from $314,089,000 as of December 31, 1995. The Bank's loan portfolio
increased 10%, to $259,968,000 at September 30, 1996 from $235,353,000 as of
December 31, 1995. Outstanding loans increased by 14%, from $228,949,000 as of
September 30, 1995. Outstanding consumer loans of $79,659,000 at September 30,
1996 increased by 9% over consumer loan outstanding balances of $73,189,000 as
of December 31, 1995 and 8% over $73,814,000 as of September 30, 1995.
Outstanding commercial loans at September 30, 1996 were $72,617,000, an 8%
increase over outstanding commercial loan balances of $67,507,000 at December
31, 1995 and 28% ahead of $56,647,000 at September 30, 1995. This portfolio's
growth is a result of the Bank expanding its commercial lending staff, including
the establishment of the Member Banking Credit Department in July 1995, adding
two experienced lenders to the Bank's lending staff, to provide loans to high
net worth individuals and, also, by aggressively seeking new commercial loan
relationships within its market area. Outstanding real estate loans were
$107,692,000 at September 30, 1996, a 14% increase over $94,657,000 in
outstanding real estate loans at December 31, 1995 and 9% over $98,488,000 in
outstanding real estate loans as of September 30, 1995.
The Bank's investment portfolio, having a market value of $38,372,000 at
September 30, 1996, decreased 35% from a market value of $59,211,000 at December
31, 1995 and 38% from $61,992,000 as of September 30, 1995. The funds obtained
from these decreases in the investment portfolio were primarily used to help
fund the increase in the Bank's loan portfolio over the same period. The
Corporation has chosen to include all of its investment securities in the
available for sale category. Investments in this category are reported at the
current market value with net unrealized gains or losses, net of the deferred
tax effect, being added to or deducted from the Corporation's total equity on
the balance sheet. There was no unrealized investment appreciation or
depreciation as of September 30, 1996 compared to an unrealized net appreciation
of $321,000 at December 31, 1995 and an unrealized net depreciation of $33,000
as of September 30, 1995.
Federal funds sold balances amounted to $1,700,000 at September 30, 1996,
compared to federal funds sold balances of $19,410,000 at December 31, 1995 and
$10,412,000 at September 30, 1995. The reduction of federal funds available for
sale at September 30, 1996, compared to December 31, 1995, is primarily a result
of a recurring cyclical increase in year-end deposit balances, the maturity of
the one year Premier CDs, during the first quarter of 1996 and the continued
growth in the loan portfolio. Bank management believed that, in order to
maintain a strong net interest margin, it was prudent to not renew the higher
costing Premier CDs as they matured during the first quarter of 1996.
Management continues to monitor the liquidity requirements of the Bank and
believes that it has the ability to increase its liquidity position through
growth of new CDs, borrowing from the Federal Home Loan Bank of Pittsburgh (the
"FHLB") and the sale of investments, classified as available for sale.
Form 10-Q
Page 15
Nonperforming assets amounted to $1,689,000 at September 30, 1996, a 62%
decrease from $4,405,000 at December 31, 1995 and a 58% decrease from
nonperforming assets of $4,036,000 at September 30, 1995. Nonperforming loans
decreased 50% to $303,000 at September 30, 1996 compared to nonperforming loans
of $611,000 at December 31, 1995 and decreased 53% from $646,000 as of September
30, 1995. The OREO balances decreased 63% from $3,794,000 as of December 31,
1995 to $1,386,000 at September 30, 1996, which was a 59% decrease from an OREO
balance of $3,390,000 at September 30, 1995. As of September 30, 1996, one
property remained as OREO on the Bank's books.
As of September 30, 1996 and 1995, there were no significant loans
classified for regulatory purposes as loss, doubtful, substandard or special
mention that either (i) represent or result from trends or uncertainties which
management reasonably expects will impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information, causing management to have serious doubts as to the
borrower's ability to comply with the loan repayment terms.
Total deposits decreased 8% to $292,755,000 as of September 30, 1996 from
$317,601,000 as of December 31, 1995. A more meaningful measurement of deposit
change is the change in daily average outstanding deposit balances. Total daily
average outstanding deposit balances decreased 1% to $295,640,000 for the nine
month period ended September 30, 1996 from $297,316,000 for the same period in
1995. Offsetting this decrease in daily average outstanding deposits was an
increase in funding available from the FHLB. Daily average outstanding balances
increased from $119,000 for the first nine months of 1995 to $2,417,000 for the
same period in 1996. Including this available funding source, total daily
average outstanding deposits and borrowed funds remained relatively steady at
$298,057,000 for the nine months ended September 30, 1996, compared to
$297,435,000 for the same period in 1995. Although the amount of daily average
total deposits and borrowed funds remained relatively stable, the mix of
deposits shifted. The Bank raised approximately $15,000,000 in new funds from a
Premier CD promotion during the first quarter of 1995, approximately one-half of
these balances matured during the first quarter of 1996. The net result was a
decrease in the daily average outstanding CD balances, by $5,423,000 or 8%, from
$66,767,000 in daily average outstanding balances for the first nine months of
1995 to $61,344,000 for the same period in 1996. As a reaction to a
consistently low interest rate environment for interest bearing deposits, daily
average outstanding Savings and Market Rate Account balances decreased by 9% and
2%, respectively, from the first nine months of 1995 to the first nine months of
1996. Daily average savings balances decreased $3,950,000 from $46,147,000 for
the first nine months of 1995 to $42,197,000 for the same period in 1996 and
Market Rate Account balances decreased $946,000 from $50,303,000 in daily
average outstanding balances for the nine months ended September 30, 1995 to
$49,357,000 for the same period in 1996. Daily average outstanding NOW account
balances grew 7% or $4,819,000, from $65,472,000 for the first nine months of
1995 to $70,291,000 for the same period in 1996. Noninterest bearing demand
deposit daily average outstanding balances grew 6% or $3,824,000 from
$68,627,000 for the nine months ended September 30, 1995 to $72,451,000 for the
same period in 1996. As of September 30, 1996, the Bank had borrowed funds of
$4,000,000. There were no such borrowing as of December 31, 1995 or September
30, 1995. Borrowed funds assist Bank management in managing the daily liquidity
requirements of the Bank. A combination of
Form 10-Q
Page 16
increased loan demand and a runoff of higher costing matured Premier CDs has
caused the Bank to use its borrowing capabilities, as a lower costing source of
funds than alternative sources of funds, namely the CD market.
LIQUIDITY, INTEREST RATE SENSITIVITY
- ------------------------------------
The Bank's liquidity is maintained by managing its core deposits, selling
loans in the secondary market, borrowing from the FHLB and managing its position
in the federal funds market. The Bank, through its internal Asset/Liability
Committee ("ALCO"), has adopted Risk Management Policies and Procedures (the
"Policy") for monitoring the attaining of goals for both liquidity and interest
rate sensitivity. Periodically, ALCO reviews the Bank's liquidity ratio,
comparing liquid assets, cash, unpledged investments and federal funds sold
against deposits, net of certificates of deposit in excess of $100,000. It is
presently the goal of ALCO to maintain a liquidity ratio of not less than 20%.
Due primarily to the increase in loan balances and the maturity of Premier CDs,
during the first quarter of 1996, this ratio was 18% at September 30, 1996,
compared to 28% at December 31, 1995 and 26% at September 30, 1995. ALCO is
presently revising its liquidity policies and procedures to incorporate its
alternative funding sources as a part of the goal for measuring its liquidity
ratio.
In the short term, 30 days or less, the Bank is asset rate sensitive after
adjusting the interest rate sensitivity of savings deposits based on
management's experience and assumptions regarding the impact of product pricing,
interest rate spread relationships and customer behavior. Asset rate
sensitivity will result in a greater portion of assets compared to deposits
repricing with changes in interest rates within specified time periods. The
opposite effect results from being liability rate sensitive. Asset rate
sensitivity in the short term, in an increasing rate environment, should produce
an increase in net interest income. The Bank uses simulation models to help
measure its interest rate risk and to help manage its interest rate sensitivity.
The simulation models consider not only the impact of changes in interest rates
on forecasted net interest income, but also such factors as yield curve
relationships, possible loan prepayments, and deposit withdrawals. As of
September 30, 1996, based on the results from the simulation models, the amount
of the Bank's interest rate risk was within the acceptable range as established
by the Policy.
CAPITAL RESOURCES
- -----------------
Total consolidated shareholders equity of the Corporation was $34,550,000,
or 10.2% of total assets, as of September 30, 1996, compared to total
shareholders equity of $31,903,000, or 9.0% of total assets, as of December 31,
1995. As of September 30, 1995, shareholders' equity was $30,878,000, or 9.1%
of total assets. The Corporation's risk weighted Tier I capital ratio was
12.39% as of September 30, 1996 compared to 11.96% and 12.07% at December 31,
1995 and September 30, 1995, respectively. The respective Tier II ratios were
13.65%, 13.21% and 13.32%. In March 1996, the Corporation declared a one-time
special dividend of $.32 per share, to distribute to shareholders the after-tax
proceeds of the gain on the disposition of a commercial property, held in the
Bank's OREO category. In
Form 10-Q
Page 17
January and again in April and August 1996 the Corporation declared its regular
dividend of $.15 per share, a 20% increase over $.125 per share declared in
January, April and August 1995. The 1995 dividend per share has been restated
to reflect the 2-for-1 stock split, effective on December 29, 1995. The
cumulative dividends declared for 1996, including the one-time special dividend,
amounted to $.77 per share compared to $.375 per share for the same period in
1995.
PART II. OTHER INFORMATION
--------------------------
Form 10-Q
Page 18
September 30, 1996
Item 1. Legal Proceedings
--------
None
Item 2. Changes in Securities
--------
None
Item 3. Defaults Upon Senior Securities
--------
None
Item 4. Submission of Matters to Vote of Security
-------- Holders
None
Item 5. Other Information
--------
None
Item 6. Exhibits and Reports on Form 8-K
--------
None
Form 10-Q
Page 19
SIGNATURES
Pursuant to the requirements of the Securities and 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: November 7, 1996 By:/s/ Robert L. Stevens
---------------------- ------------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: November 7, 1996 By:/s/ Joseph W. Rebl
---------------------- ------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
Form 10-Q
Page 20