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 June 30, 2002 Commission File Number 0-15261
------------- -------
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
------------------------------------------------------------
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
---------------------------------------------
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 July 29,2002
Common Stock, par value $1 4,395,541
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED June 30, 2002
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the six
months ended June 30, 2002 and 2001................................. Page 1
Consolidated Statements of Income for the three
months ended June 30, 2002 and 2001................................. Page 2
Consolidated Balance Sheets as of June 30 2002,
December 31, 2001 and June 30, 2001................................. Page 3
Consolidated Statements of Cash Flows for the six
months ended June 30, 2002 and 2001................................. Page 4
Consolidated Statements of Comprehensive Income
for the six months ended June 30, 2002 and 2001..................... Page 5
Notes to Consolidated Financial Statements............................ Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. Page 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS............................................ Page 25
PART II - OTHER INFORMATION........................................... Page 26
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
Six Months Ended
June 30
2002 2001
---------- ----------
Interest income:
Interest and fees on loans................................................. $ 13,751 $ 14,380
Interest on federal funds sold............................................. 63 212
Interest on interest bearing deposits with banks........................... 19 14
Interest and dividends on investment securities:
U.S. Treasury securities................................................. -- 113
U.S. Government Agency securities........................................ 529 460
Obligations of states and political subdivisions......................... 29 39
Dividend income.......................................................... 35 66
----------- ------------
Total interest and dividend income.............................................. 14,426 15,284
Interest expense on deposits.................................................... 2,167 3,163
----------- ------------
Net interest income............................................................. 12,259 12,121
Loan loss provision............................................................. 500 700
----------- ------------
Net interest income after loan loss provision................................... 11,759 11,421
----------- ------------
Other income:
Fees for Trust services.................................................... 4,234 4,561
Service charges on deposits................................................ 892 679
Other service charges, commissions and fees................................ 377 405
Net gain on sale of loans.................................................. 3,080 1,887
Other operating income..................................................... 2,189 2,297
----------- ------------
Total other income.............................................................. 10,772 9,829
----------- ------------
Other expenses:
Salaries and wages......................................................... 8,095 8,012
Employee benefits.......................................................... 1,792 1,481
Occupancy and bank premises................................................ 961 1,089
Furniture, fixtures, and equipment......................................... 947 997
Other operating expenses................................................... 3,341 3,050
----------- ------------
Total other expenses............................................................ 15,136 14,629
----------- ------------
Income before income taxes...................................................... 7,395 6,621
Applicable income taxes......................................................... 2,530 2,274
----------- ------------
Net Income...................................................................... $ 4,865 $ 4,347
=========== ============
Earnings per common share....................................................... $1.12 $1.01
Diluted earnings per common share............................................... $1.11 $0.98
Cash dividends declared per share .............................................. $0.38 $0.36
Weighted-average shares outstanding.............................................. 4,335,599 4,316,036
Dilutive potential common shares................................................. 61,581 123,901
----------- ------------
Adjusted weighted-average shares................................................ 4,397,180 4,439,937
The accompanying notes are an integral part of the consolidated financial
statements. * Except for share and per share data.
Form 10-Q
Page 1
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
Three Months Ended
June 30
2002 2001
------------ ----------
Interest income:
Interest and fees on loans................................................. $ 6,938 $ 7,254
Interest on federal funds sold............................................. 24 60
Interest on interest bearing deposits with banks........................... 10 4
Interest and dividends on investment securities:
U.S. Treasury securities................................................. -- 57
U.S. Government Agency Securities........................................ 243 222
Obligations of states and political subdivisions......................... 14 18
Dividend income.......................................................... 18 34
------------ ----------
Total interest income........................................................... 7,247 7,649
Interest expense on deposits.................................................... 1,013 1,549
------------ ----------
Net interest income............................................................. 6,234 6,100
Loan loss provision............................................................. 250 200
------------ ----------
Net interest income after loan loss provision................................... 5,984 5,900
------------ ----------
Other income:
Fees for Trust services.................................................... 2,131 2,269
Service charges on deposits................................................ 430 363
Other service charges, commissions and fees................................ 111 146
Net gain on sale of loans.................................................. 1,599 1,029
Other operating income..................................................... 1,162 1,267
------------ ----------
Total other income.............................................................. 5,433 5,074
------------ ----------
Other expenses:
Salaries and wages......................................................... 4,124 4,146
Employee benefits.......................................................... 738 673
Occupancy and bank premises................................................ 479 517
Furniture, fixtures, and equipment......................................... 485 478
Other operating expenses................................................... 1,865 1,777
------------ ----------
Total other expenses............................................................ 7,691 7,591
------------ ----------
Income before income taxes...................................................... 3,726 3,383
Applicable income taxes......................................................... 1,270 1,224
------------ ----------
Net Income...................................................................... $ 2,456 $ 2,159
============ ==========
Earnings per common share....................................................... $0.56 $0.50
Diluted earnings per common share............................................... $0.55 $0.48
Cash dividends declared......................................................... $0.19 $0.18
Weighted-average shares outstanding............................................. 4,360,573 4,352,536
Dilutive potential common shares................................................ 75,693 142,077
------------ -----------
Adjusted weighted-average shares................................................ 4,436,266 4,494,613
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
Form 10-Q
Page 2
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
June 30, December 31, June 30,
2002 2001 2001*
(Unaudited) (Unaudited)
--------------------------------------------------
Assets
Cash and due from banks................................................. $ 33,957 $ 28,157 $ 26,756
Interest bearing deposits with banks.................................... 607 516 850
Federal funds sold...................................................... 0 -- 1,249
Investment securities available for sale, at market (amortized
cost of $23,752, $25,807 and $23,437 as of June 30, 2002,
December 31, 2001 and June 30, 2001, respectively)................. 24,124 26,222 23,601
Loans:
Consumer........................................................... 26,296 35,521 49,484
Commercial......................................................... 144,881 167,452 147,870
Real estate........................................................ 252,412 197,876 179,458
----------- ----------- -----------
Total loans.................................................... 423,589 400,849 376,812
Less: Allowance for loan losses.................................... (5,419) (4,928) (4,450)
----------- ----------- -----------
Net loans...................................................... 418,170 395,921 372,362
----------- ----------- -----------
Premises and equipment, net............................................. 12,108 12,478 12,676
Accrued interest receivable............................................. 2,252 2,222 2,295
Goodwill (net).......................................................... 2,805 2,805 2,888
Mortgage servicing rights............................................... 3,283 2,206 1,032
Other assets............................................................ 8,721 6,296 6,837
----------- ----------- -----------
Total assets................................................... $ 506,027 $ 476,823 $ 450,546
=========== =========== ===========
Liabilities
Deposits:
Demand, noninterest-bearing........................................ $ 122,733 $ 110,564 $ 105,268
Savings............................................................ 224,014 204,852 186,835
Time............................................................... 70,024 75,643 79,981
----------- ----------- -----------
Total deposits................................................. 416,771 391,059 372,084
----------- ----------- -----------
Borrowed funds ......................................................... 21,000 20,000 17,095
Other liabilities....................................................... 7,653 8,457 7,279
----------- ----------- -----------
Total liabilities.............................................. 445,424 419,516 396,458
----------- ----------- -----------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000 shares; issued
5,522,475, 5,329,675 and 5,308,275 shares as of June 30, 2002,
December 31, 2001 and June 30, 2001, respectively and outstanding
of 4,390,441, 4,322,121 and 4,341,711 shares as of June 30, 2002,
December 31, 2001 and June 30, 2001, respectively ................. 5,522 5,330 5,308
Paid-in capital in excess of par value ................................ 10,686 6,676 5,693
Accumulated other comprehensive income
net of taxes....................................................... 246 274 108
Retained earnings....................................................... 59,709 56,499 53,286
----------- ----------- -----------
76,163 68,779 64,395
Less: Common stock in treasury at cost -- 1,132,034, 1,007,554 and
966,564 shares as of June 30, 2002, December 31, 2001
and June 30, 2001, respectively.................................... (15,560) (11,472) (10,307)
----------- ----------- -----------
Total shareholders' equity......................................... 60,603 57,307 54,088
----------- ----------- -----------
Total liabilities and shareholders' equity......................... $ 506,027 $ 476,823 $ 450,546
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
*-Reclassified for comparative purposes.
Form 10-Q
Page 3
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
Six Months Ended
June 30
------------------------------------
2002 2001*
------------- ------------
Operating activities:
Net Income...................................................................... $ 4,865 $ 4,347
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for loan losses.................................................... 500 700
Provision for depreciation and amortization.................................. 723 901
Loans originated for resale.................................................. (195,775) (132,332)
Proceeds from loans sold..................................................... 190,709 125,164
Gain on sale of loans........................................................ (3,080) (1,887)
Provision for deferred income taxes (benefit)................................ 41 (333)
Change in tax receivable..................................................... (1,011) 686
Change in accrued interest receivable........................................ (30) 685
Change in accrued interest payable........................................... (636) 132
Mortgage servicing rights.................................................... (1,077) (659)
Other........................................................................ (1,832) (143)
------------- -------------
Net cash used by operating activities..................................... (6,603) (2,739)
------------- -------------
Investing activities:
Purchases of investment securities.............................................. (5,270) (9,054)
Proceeds from maturity and calls of fixed income securities..................... 7,337 12,587
Loan (originations) repayments, net ............................................ (14,242) (12,007)
Loans purchased (dealer loans).................................................. (142) (1,067)
Purchases of premises and equipment............................................. (338) (1,051)
------------- -------------
Net cash used by investing activities..................................... (12,655) (10,592)
------------- -------------
Financing activities:
Net increase (decrease) in demand and savings deposits.......................... 31,330 (24,961)
Net decrease in time deposits................................................... (5,619) 10,079
Dividends paid.................................................................. (1,654) (1,549)
Repayment of mortgage debt...................................................... (22) (21)
Purchases of treasury stock..................................................... (4,088) (1,023)
Proceeds from borrowed funds.................................................... 1,000 17,095
Proceeds from issuance of common stock.......................................... 4,202 1,193
------------- -------------
Net cash provided by financing activities................................. 25,149 813
------------- -------------
Change in cash and cash equivalents............................................. 5,891 (12,518)
Cash and cash equivalents at beginning of period................................ 28,673 41,373
------------- -------------
Cash and cash equivalents at end of period...................................... $ 34,564 $ 28,855
============= =============
Supplemental cash flow information:
Income taxes paid............................................................ $ -- $ 2,399
Interest paid................................................................ $ 2,802 $ 3,229
The accompanying notes are an integral part of the consolidated financial
statements.
*-Reclassified for comparative purposes.
Form 10-Q
Page 4
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
-------------------------- ----------------------------
Net Income................................................ $ 2,409 $ 2,159 $ 4,865 $ 4,347
Other comprehensive income:
Unrealized holding (losses) gains on
available-for-sale securities......................... 226 (19) (43) 164
Deferred income tax (benefit) expense on
unrealized holding (losses) gains on
available for sale securities......................... (77) 6 15 (56)
----------- ---------- ----------- -----------
Comprehensive net income.................................. $ 2,558 $ 2,146 $ 4,837 $ 4,455
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
Form 10-Q
Page 5
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 AND 2000
(Unaudited)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of June 30, 2002 and 2001, the related consolidated statements
of cash flows for the six month periods ended June 30, 2002 and 2001, the
related consolidated statements of income for the three month and six month
periods ended June 30, 2002 and 2001 and the related consolidated statements of
comprehensive income for the three month and six month periods ended June 30,
2002 and 2001 are all unaudited.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of related revenue and expense
during the reporting period. Actual results could differ from those estimates.
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. All such
adjustments were of a normal recurring nature. 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 2001 Annual Report
incorporated in the 2001 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #12, Stock Option Plan (the "Plan"), in the
Notes to Consolidated Financial Statements in the Corporation's 2001 Annual
Report incorporated in the 2001 Form 10-K (Exhibit #13). Shares under option
under the Plan had a dilutive impact on net income per share for the six-month
periods ended June 30, 2002 and 2001.
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.
Form 10-Q
Page 6
4. Adoption of Financial Accounting Standards:
Accounting standards, recently issued as of December 31, 2001, are
discussed in Note 2 "Summary of Significant Accounting Policies" in the
Corporation's Annual Report, incorporated in the 2001 Form 10-K (Exhibit 13).
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 145, "Recession of Statements of
Financial Accounting Standards No. 4 "Reporting Gains and Losses from
Extinguishment of Debt", No. 44 "Accounting for Intangible Assets of Motor
Carriers" and Statement of Financial Accounting Standard No. 64 "Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements", Amendment to Statement of
Financial Accounting Standard No. 13, "Accounting for Leases" and Technical
Corrections" ("SFAS No. 145"). SFAS No. 145 rescinds SFAS No. 4, which required
all gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of the related income tax on
the income statement. The provisions of SFAS No. 145 related to SFAS No. 14 are
effective for transactions occurring after May 15, 2002, with early application
encouraged. All other provisions of SFAS No. 145 are effective for financial
statements issued on or after May 15, 2002, with early application encouraged.
SFAS No. 145 will not have a material impact on the financial condition or
results of operations of the Corporation.
As a result of the implementation of Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142"), issued
in June 2001, goodwill will not be amortized. This asset will be tested at least
annually for impairment. An impairment analysis will be completed during 2002.
As a part of the acquisition of JWR& Co. in 1999, the Corporation
recorded goodwill of $3,300,000. In compliance with SFAS No. 142, the continued
amortization of the balance of goodwill as of December 31, 2001, of $2,805,000
was discontinued. During 2002, for various reasons, including the need to grow
professional staff to accommodate planned future growth, as well as reduced
revenues, due primarily to a decrease in estate fees because of the settlement
of certain client estates, JWR & Co. reported a net loss of $10,000 for the
first six months of 2002, compared to a net profit of $217,000 for the same
period in 2001. The Corporation's management is in the process of implementing
changes that management believes will again produce a profit for JWR & Co.
Should JWR & Co. prove unable to produce net income sufficient to support the
related goodwill on the Corporation's balance sheet, future annual testing for
impairment of goodwill could determine that a goodwill impairment exists. Should
the annual testing indicate any impairment in goodwill, said impairment will be
written-off against the then current earnings.
5. Loans:
Interest income on loans performing satisfactorily is recognized on
Form 10-Q
Page 7
the accrual method of accounting. Nonperforming loans are loans on which
scheduled principal and/or interest is past due 90 days or more or loans less
than 90 days past due which are deemed to be problem loans by management. All
nonperforming loans, except consumer loans, which are charged-off when greater
than 90 days past due, are placed on nonaccrual status, and any outstanding
interest receivable at the time the loan is deemed nonperforming is deducted
from interest income. The charge-off policy for all loans, including
nonperforming and impaired loans, considers such factors as the type and size of
the loan, the quality of the collateral, and historical creditworthiness of the
borrower in management's assessment of the collectability of such loans.
As a part of its internal loan review process, management, when
considering classifying a loan as an impaired loan, considers the ability of the
borrower to continue to meet the original contractual terms of a loan. A loan is
not considered impaired if there is merely an insignificant delay or shortfall
in the amounts of payments. An insignificant delay or shortfall is a temporary
delay in the payment process of a loan. However, under these circumstances, the
Corporation's subsidiary, The Bryn Mawr Trust Company (the "Bank"), expects to
collect all amounts due, including interest accrued at the contractual interest
rate for the period of the delay.
When a borrower is deemed to be unable to meet the original terms of a
loan, the loan is considered impaired. While all impaired loans are not
necessarily considered nonperforming loans, if a loan is delinquent for 90 days
or more, it is considered both a nonperforming and an impaired loan. All of the
Corporation's impaired loans, which amounted to $39,000, $21,000 and $696,000 at
June 30, 2002, December 31, 2001 and June 30, 2001, respectively, were placed on
nonaccrual status when they were delinquent for greater than 90 days, and any
outstanding accrued interest receivable on such loans at the time they were
placed on nonaccrual status, was reversed from income.
Impaired loans are required to be measured based upon the present value
of expected future cash flows, discounted at the loan's initial effective
interest rate or at the loan's market price or fair value of the collateral, if
the loan is collateral dependent. As of June 30, 2002, December 31, 2001 and
June 30, 2001, no impaired loans were measured using the present value of
expected future cash flows or the loan's market price because all impaired loans
were collateral dependent at these respective dates. Impaired loans measured by
the value of the loan's collateral amounted to $39,000, $21,000, and $696,000,
respectively.
If the loan valuation is less than the recorded value of the loan, an
impairment reserve must be established for the difference. All impairment
reserves established in either 2002 or 2001 were allocated from the existing
reserve for loan losses. As of June 30, 2002, December 31, 2001 and June 30,
2001, there were $0, $0 and $660,000, respectively of impaired loans for which
there is a related allowance for loan losses. The total related allowance for
loan loss at June 30, 2002, December 31, 2001 and
Form 10-Q
Page 8
June 30, 2001 was $0, $0, and $350,000 respectively. Impaired loans for which no
loan loss allowance was allocated amounted to $39,000, at June 30, 2002 and
$21,000 at December 31, 2001 and $36,000 at June 30, 2001. Average impaired
loans for the six-month period ended June 30, 2002, December 31, 2001 and June
30, 2001 amounted to $26,000, $499,000 and $481,000, respectively.
When a loan is classified as impaired, it is put on a nonaccrual status
and any income subsequently collected is credited to the outstanding principal
balance. Therefore, no interest income was reported on outstanding loans while
considered impaired during either period ended June 30, 2002 or 2001. Loans may
be removed from impaired status and returned to accrual status when all
principal and interest amounts contractually due are reasonably assured of
repayment within an acceptable period of time and there is a sustained period of
repayment performance by the borrower, with a minimum repayment of at least six
months, in accordance with the contractual terms of interest and principal.
Subsequent income recognition would be recorded under the existing terms of the
loan. Based on the above criteria, no loans considered impaired were removed
from the impaired loan status, during the first six months of either 2002 or
2001.
Smaller balance, homogeneous loans, exclusively consumer loans, when
included in nonperforming loans, for practical consideration, are not put on a
nonaccrual status nor is the current accrued interest receivable reversed from
income.
Form 10-Q
Page 9
6. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
six months ended year ended
June 30, December 31,
2002 2001 2001
---- ---- ----
Balance, beginning of period $4,928 $4,320 $4,320
Charge-offs:
Consumer (35) (119) (178)
Commercial and industrial 0 (941) (940)
Real estate 0 0 (51)
------ ------ ------
Total charge-offs (35) (1,060) (1,169)
------ ------ ------
Recoveries:
Consumer 19 12 38
Commercial and industrial 7 2 63
Real estate 0 476 476
------ ------ ------
Total recoveries 26 490 577
------ ------ ------
Net (charge-offs) / recoveries (9) (570) (592)
Provision for loan losses 500 700 1,200
Balance, end of period $5,419 $4,450 $4,928
====== ====== ======
Form 10-Q
Page 10
7. Segment Information:
The Corporation's principal operating segments are structured around the
finanical services provided their customers. The banking segment gathers
deposits and makes funds available for loans to its customers. The Bank's
Investment Management and Trust (Wealth) segment provides both corporate and
individual investment management and trust products and services. The Bank's
mortgage banking segment originates and sells residential mortgage loans to the
secondary mortgage market. Bryn Mawr Bank Corporation and all other subsidiaries
are aggregated under the "All Other" heading.
Segment information for the six months ended June 30, 2002 and 2001 is as
follows:
(Dollars in thousands)
-------------------------------------------------------------------------------------
2002
Mortgage All
Banking Wealth Banking Other Consolidated
-------------------------------------------------------------------------------------
Net interest income 12,244 -- -- 15 12,259
Less Loan loss provision 500 -- -- -- 500
-------------------------------------------------------------------------------------
Net interest income after
loan loss provision 11,744 -- -- 15 11,759
Intersegment interest (revenues)
expenses * -- -- --
-------------------------------------------------------------------------------------
Net interest income after
loan loss provision and 11,744 -- -- 15 11,759
eliminations
Other income:
Fees for investment
management and trust
services -- 4,234 -- -- 4,234
Other income 1,729 2 3,329 1,478 6,538
-------------------------------------------------------------------------------------
Total other income 1,729 4,236 3,329 1,478 10,772
Other expenses:
Salaries and benefits 6,033 2,132 679 1,043 9,887
Occupancy 1,512 297 85 14 1,908
Other operating expense 2,038 408 459 436 3,341
-------------------------------------------------------------------------------------
Total other expense 9,583 2,837 1,223 1,493 15,136
-------------------------------------------------------------------------------------
Segment profit (loss) 3,890 1,399 2,106 -- 7,395
Intersegment (revenues)
expenses * 32 91 -- (123) --
-------------------------------------------------------------------------------------
Segment profit after
eliminations 3,922 1,490 2,106 (123) 7,395
=====================================================================================
% of segment profit (loss) 53% 20% 29% (2%) 100%
-------------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------------------------------
2001
Mortgage All
Banking Wealth Banking Other Consolidated
-------------------------------------------------------------------------------------
Net interest income 11,904 -- -- 217 12,121
Less Loan loss provision 700 -- -- -- 700
-------------------------------------------------------------------------------------
Net interest income after
loan loss provision 11,204 -- -- 217 11,421
Intersegment interest (revenues)
expenses * 198 (198) --
-------------------------------------------------------------------------------------
Net interest income after
loan loss provision and 11,402 -- -- 19 11,421
eliminations
Other income:
Fees for investment
management and trust
services -- 4,561 -- -- 4,561
Other income 1,409 8 2,134 1,717 5,268
-------------------------------------------------------------------------------------
Total other income 1,409 4,569 2,134 1,717 9,829
Other expenses:
Salaries and benefits 6,088 1,791 439 1,175 9,493
Occupancy 1,557 335 85 109 2,086
Other operating expense 1,764 541 281 464 3,050
-------------------------------------------------------------------------------------
Total other expense 9,409 2,667 805 1,748 14,629
-------------------------------------------------------------------------------------
Segment profit (loss) 3,402 1,902 1,329 (12) 6,621
Intersegment (revenues)
expenses * 25 83 -- (108) --
-------------------------------------------------------------------------------------
Segment profit after
eliminations 3,427 1,985 1,329 (120) 6,621
=====================================================================================
% of segment profit (loss) 52% 30% 20% (2%) 100%
-------------------------------------------------------------------------------------
*-Intersegment revenues consist of rental payments to Bryn Mawr Bank Corporation
from its subsidiaries.
Intersegment expenses consist of a management fee, paid by Bryn Mawr Bank
Corporation to the Bank.
Form 10-Q
Page 11
Item 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated results of operations
of Bryn Mawr Bank Corporation and its subsidiaries (the "Corporation") for the
six months ended June 30, 2002 and 2001, as well as the financial condition of
the Corporation as of June 30, 2002, December 31, 2001 and June 30, 2001. The
Bryn Mawr Trust Company (the "Bank"), Bryn Mawr Advisors, Inc. ("BMA"), Bryn
Mawr Brokerage Company, Inc. ("BM Brokerage"), Bryn Mawr Asset Management, Inc.
("BMAM"), (formerly "CDC Capital Management, Inc") and Joseph W. Roskos & Co.,
Inc. ("JWR&Co") are wholly-owned subsidiaries of the Corporation, Insurance
Counsellors of Bryn Mawr, Inc. ("ICBM") and Bryn Mawr Settlement Services
("BMSS") are wholly-owned subsidiaries of the Bank and Bryn Mawr Finance ("BMF")
is a wholly-owned subsidiary of Joseph W. Roskos & Co., Inc.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the matters discussed in this document and the documents
incorporated by reference herein, including matters discussed under the captions
"Management Discussion and Analysis of Financial Condition and Results of
Operations" may constitute forward-looking statements for the purposes of the
Securities Exchange act of 1933, as amended and the Securities Exchange Act of
1934, as amended, and may involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Corporation to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. The words
"expect," "anticipate," "intended," "plan," "believe," "seek," "estimate," 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 statement due to a variety of factors,
including without limitations: (a) the effect of future economic conditions on
the Corporation and its customers; (b) governmental monetary and fiscal
policies, as well as legislation and regulatory changes; (c) the risks of
changes in interest rates on the level and composition of deposits, loan demand,
and the value of loan collateral and securities, as well as interest rate risk;
(d) the effects of competition from other commercial banks, thrifts, mortgage
companies, consumer finance companies, credit unions, securities brokerage
firms, insurance companies, money-market and mutual funds and other institutions
operating in the Corporation's trade market area 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; and (e) the failure of assumptions
underlying the establishment of reserves for loan losses and estimates in the
value of collateral, and various financial assets and liabilities and
technological changes being more
Form 10-Q
Page 12
difficult or expensive than anticipated. All written or oral forward-looking
statements attributed to the Corporation are expressly qualified in their
entirety by use of the foregoing cautionary statements.
CRITICAL ACCOUNTING POLICY
The Corporation's most critical accounting policy is the allowance for loan
loss. The allowance for loan loss represents management's estimate on the losses
inherent in the loan portfolio. This is consistently monitored to determine its
adequacy. Ongoing review of credit standards, the level of delinquencies on loan
products and loan segments, and the current state of the economy are included in
this review. Actual losses may differ from management's estimates.
In December 2001, the Corporation adopted Statement of Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"). In
compliance with SFAS No. 142, the Corporation is no longer amortizing goodwill.
Goodwill will be tested for impairment annually, using a valuation method
requiring projected cash flows into future periods. Actual cash flows could
differ from management's estimates; thereby effecting the determined value the
goodwill.
RESULTS OF OPERATIONS
The Corporation reported net income of $4,865,000 for the six months
ended June 30, 2002, a 12% increase over $4,437,000 reported for the same period
in 2001. Earnings per common share amounted to $1.12, an 11% increase over $1.01
reported for the first half of 2001. Diluted earnings per share were $1.11 and
$0.98, respectively.
The increase in earnings, for the first six months of 2002 over the
same period in 2001 is primarily attributable to an increase in other income, up
$943,000 or 10% over the first six months of 2001. This increase in other income
is due to a $1,193,000 increase in the net gain on the sale of loans for the
first six months of 2002, compared to the same period in 2001. This is a result
of increased loan sale activity associated with mortgage loan refinancings that
were stimulated by a decline in interest rates.
The ability to originate and sell residential mortgage loans, including
loans refinancing existing loan balances from higher to lower interest rates
during a decreasing interest rate environment, provides a counter-cyclical
source of additional non-interest revenue, offsetting a declining net interest
margin, the result of the Corporation's balance sheet being asset interest rate
sensitive in a decreasing interest rate environment. In future periods, should
interest rates begin to rise, the Corporation would benefit from its asset
interest rate sensitivity, increasing its net interest margins, while decreasing
its revenues from the residential refinancing environment. Should interest rates
remain at the
Form 10-Q
Page 13
present lower levels, the possibility exists that the number of customers
desiring to refinance residential mortgage loans could decrease. A potential
decrease in residential mortgage loan refinances, prior to market interest rates
moving upward, could have a detrimental impact on the revenues being generated
from this counter-cyclical activity.
Net interest income, after the provision for loan loss, for the first
six months of 2002 is 3% higher than the first six months of 2001. While loan
balances increased $46,777,000 or 12% from the same period in 2001, the lower
interest rate environment that existed during the first six months of 2002,
compared to the same period in 2001, offset the effect of this increase. The
current trends of higher income from the gain on sale of loans and the lower
levels of interest income on loans should reverse, as interest rates increase
because these income generators are counter cyclical. During the first half of
2001, the Corporation's management identified a problem commercial loan, which
was put on nonaccrual status and written down by $870,000, thus necessitating
the increase in the provision for loan loss to $700,000. The economic indicators
are still pointing to a slow economy and the continued growth in the loan
portfolio has prompted Corporation management to provide for loan losses at
$500,000 for the first six months of 2002, this compared to $700,000 for the for
the same period in 2001. During the first half of 2001, there was a
non-recurring recovery of $355,000 in expense related to a prior year problem
loan. Exclusive of this non-recurring recovery other expenses increased 1.0% for
the first six months of 2002, compared to the same period of 2001.
Average outstanding loan balances for the first six months of 2002 grew
14% from average outstanding loan balances for the first six months of 2001.
Funding this growth in average outstanding loans was a 4% decrease in average
outstanding investment security balances and an increase in average outstanding
balances of non-interest bearing demand deposit accounts of 12%, NOW accounts of
15% and market rate accounts of 12%. The average outstanding balances of
certificates of deposit ("CDs") increased 1%.
The prime rate decreased by 200 basis points from 6.75% at June 30,
2001 to 4.75% at June 30, 2002. For the majority of 2001 rates were higher than
the current level. Since, in the short term, 30 days or less, the Bank is asset
rate sensitive, a decreasing prime rate usually will cause a related decrease in
the respective yields on earning assets. The overall annualized yield on earning
assets decreased by 130 basis points, from 7.8% at June 30, 2001 to 6.5% for the
same period in 2002 due to the decline in the interest rates during this period.
Compared to the first half of 2001, the average cost of funds for the
respective periods decreased 69 basis points, from 1.71% in 2001 to 1.02% in
2002. The overall result was a decline in the Bank's annualized net interest
margin, to 5.50% for the first six months of 2002 compared to 6.17% for the same
period in 2001. 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, related
Form 10-Q
Page 14
to potential changes in interest rates 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. However, as discussed in Note 4 "Adoption
of Financial Accounting Standards", in the Notes to Consolidated Financial
Statements, should an impairment of the Corporation's goodwill be determined in
future periods, while not anticipated to have an adverse effect on the
Corporation's liquidity, nor a decrease in capital resources below those deemed
well capitalized by the Corporations' regulators, a material decrease in the
Corporation's results of operations could occur in the year in which the
impairment would be recognized.
NET INTEREST INCOME
For the six months ended June 30, 2002, net interest income of
$12,259,000 was 1% higher than the same period in 2001. Total interest and
dividend income declined 6% for the first six months of 2002, to $14,426,000
from $15,284,000 for the first six months of 2001. Interest expense decreased
31% for the six months ended June 30, 2002, to $2,167,000 compared to $3,163,000
for the first six months of 2001. The yield on earning assets for the first six
months of 2002 was 6.5% compared to 7.8% for the first six months of 2001 while
the effective rate paid on interest bearing deposits for the first six months of
2002 and 2001 was 1.4% and 2.4%, respectively.
Due primarily to a decrease in interest rates during the last twelve
months, interest and fees on loans decreased 4% from $14,380,000 for the first
six months of 2001 to $13,751,000 for the first six months of 2002. A 14%
increase in average outstanding loan balances for the first six months of 2002,
to $401,625,000, compared to $351,752,000 for the same period in 2001, was
offset by a 130 basis point decrease in the annualized average yield on earning
assets. This is the primary reason for the decline in loan related interest and
fee income.
Interest and dividend income on investments decreased $85,000 or 12.5%,
from $678,000 for the first six months of 2001 to $593,000 for the first six
months of 2002. Due to the fact that there were no outstanding balances of U.S.
Treasury securities during the first half of 2002, there was no interest income
from such investments, compared to $113,000 for the same period in 2001.
Interest on U.S. Government Agency securities increased 15% from $460,000 for
the first six months of 2001 to $529,000 for the first six months of 2002. The
primary reason for this increase was a $3,675,000 or 22% increase in the average
balance of U.S. Government Agency securities, from $16,470,000 during the first
six months of 2001 to $20,145,000 for the comparable period in 2002. The
increase in U.S. Government Agency securities was due primarily the replacement
of U.S. Treasury securities that were called due to the decline in interest
rates during 2001. Interest income on obligations of states and political
subdivisions decreased 26% from $39,000 for the six months ended June 30, 2001
to $29,000 for the same period in 2002. Average outstanding balances
Form 10-Q
Page 15
of obligations of state and political subdivisions decreased by 20%, from
$1,769,000 in 2001 to $1,404,000 in 2002. The overall yield on investment
securities decreased from 5.6% for the first six months of 2001 to 5.1% for the
first six months of 2002, a result of lower rates of interest being paid on
investments purchased during the twelve month period.
Interest expense on deposits decreased 31% or $996,000, to $2,167,000
for the six months ended June 30, 2002 compared to $3,163,000 for the same
period in 2001. The average cost of interest bearing deposits decreased 100
basis points, from 2.4% at June 30, 2001 to 1.4% for the six months ended June
30, 2002. The average interest bearing deposit balances increased 9% to
$287,386,000 at June 30, 2002 compared to $264,016,000 for the same period in
2001. Average deposits increased 10% to $402,158,000 for the six months ended
June 20, 2002 compared $366,068,000 for the same period in 2001. All categories
of average deposits grew over the six-month average balances for 2001. Average
non-transaction savings accounts increased 3% for the first six months of 2002,
compared to the same period in 2001, while average Market Rate Accounts and CDs
increased by 12% and 1%, respectively. Average outstanding short-term borrowings
increased $13,065,000 or 287%, from $4,558,000 for the first six months of 2001
to $17,623,000. The Bank's average transaction based NOW account balances
increased 15% and non-interest bearing demand deposit account balances increased
12%. Primarily in response to a declining prime rate during 2001, the average
cost of each deposit category decreased. The annualized cost of CDs decreased
180 basis points, from 5.2% for the first six months of 2001 to 3.4% for the
same period in 2002. The average cost of Market Rate Accounts decreased from
2.1% to 1.5% or 60 basis points, savings accounts decreased from 1.2% to .8% or
40 basis points and NOW accounts decreased from .8% to .3% or 50 basis points
for the first six months of 2002, compared to the same period in 2001. The
average cost of short-term borrowings decreased by 220 basis points, from 4.4%
for the first six months of 2001 to 2.2% for the same period in 2002. The
average cost of deposits and short-term borrowings, including
non-interest-bearing demand deposits decreased 70 basis points, from 1.72% for
the first half of 2001, to 1.02% for the first half of 2002.
For the second quarter of 2002 compared to the second quarter of 2001,
total interest income decreased by $402,000 or 5%. A continued decline in the
prime rate, compressing yields on the Bank's floating rate loans, was partially
offset by continued growth in outstanding loan volumes. Offsetting this decline
in total interest income was a $536,000 or 35% decrease in interest expense, the
result of the Bank's ability to adjust deposit rates downward, in response to
declining yields in earning assets. The result was a $134,000 or 2% increase in
net interest income.
The Bank's asset / liability structure is asset rate sensitive, which
should cause a reduction in the net interest margin, should interest rates
decrease. The annualized net interest margin decreased 67 basis points for the
first six months of 2002, when compared to the same period in 2001. This
decrease is a result of the steep decline in interest rates in 2001. For the
first six months of 2002, the net interest margin decreased to
Form 10-Q
Page 16
5.50% from 6.17% for same period in 2001. The net interest margin is computed
exclusive of related loan fee income.
LOAN LOSS PROVISION
As previously indicated the current state of the economy and continued
growth in the loan portfolio are the primary factors that determine the level of
the provision for loan loss. Due to the continued loan growth and the general
uncertainty of economic conditions, an addition of $500,000 into the provision
for loan loss was needed based on the Bank's analysis. This is a decrease of
$200,000 from the same period in 2001. During the first half of 2001, the
identification and writedown of a loan put on nonaccrual status prompted
Corporation management to increase the provision for loan loss to $700,000 for
the first half of 2001. The loan loss reserve amounted to 1.28% of outstanding
loans at June 30, 2002. Delinquencies, as a percentage of outstanding loans,
were 26 basis points as of June 30, 2002, compared to 29 basis points for the
same period in 2001. Nonperforming loans increased to $123,000 as of June 30,
2002, compared to $43,000 as of December 31, 2001 but decreased from $673,000 in
nonperforming loans as of June 30, 2001. Based on the results of both an
internal and external loan review process and the current level of nonperforming
loans, management believes the loan loss reserve to be adequate as of June 30,
2002.
OTHER INCOME
Total other income of $10,772,000 for the six months ended June 30,
2002 increased 10% from $9,829,000 reported for the same period in 2001.
Fees for trust services decreased $327,000 or 7% from $4,561,000 for
the first six months of 2001 to $4,234,000 for the same period in 2002. The
market value of Trust assets under management decreased by 7%, to $1,599,000,000
at June 30, 2002 from $1,717,000,000 as of June 30, 2001. This is primarily a
result of a decline in the equity market values during the first half of 2002
but being partially offset by an increase in new accounts.
The low level of interest rates continues to enhance the volume of
mortgage banking activity. For the six month period ended June 30, 2002, the
Bank originated and sold $187,629,000 of residential mortgage loans to the
secondary mortgage market, a 50% increase from $124,628,000 of residential
mortgage loans originated and sold during the first six months of 2001. A
combination of deferred loan fees earned as income resulting from the sale of
residential mortgage loans to the secondary mortgage market, related gains on
the same respective sales of residential mortgage loans to the secondary market
and the effect of recording mortgage servicing rights, amounted to $3,080,000 or
a 164 basis point gain on loans
Form 10-Q
Page 17
sold for the first six months of 2002 compared to $1,887,000 or 156 basis points
for the same period in 2001.
Service charges on deposits amounted to $892,000 for the first half of
2002, a 31% increase from $679,000 reported in the first half of 2001. The
$213,000 increase is a result of increases to both account analysis fees and
overdraft fees.
Income from other service charges, commissions and fees amounted to
$377,000 for the first half of 2002, a 7% decrease from $405,000 reported for
the first half of 2001. This flat performance is primarily attributed to the
accelerated amortization of mortgage servicing rights reducing income, as
borrowers continue to refinance mortgage loans during 2002.
Other operating income decreased by $108,000 or 5% for the first six
months of 2002, with operating income of $2,189,000 for the first six months of
2002, compared with the $2,297,000 for the same period in 2001. This is a result
of changes in the revenues provided by some of the Corporation's subsidiaries.
The most significant changes are as follows. Primarily in response to the
significant increase in residential mortgage refinancing activity, BMSS began
operations in 2002 and became a limited partner in a partnership with a title
abstract company. BMSS shares in 70% of the income of the partnership after
related expenses. BMSS earned revenues of $141,000 in 2002. No such revenues
were earned in 2001. Offsetting this increase was a $270,000 decrease in
revenues from JWR&Co. for the first six months of 2002, compared to the same
period in 2001. This decrease is primarily caused by a reduction of fee income
from estates that have been settled prior to 2002. The net of these two changes
amounts to a $126,000 decrease of the overall $108,000 decrease in other
operating income.
For the second quarter of 2002 compared to the same quarter in 2001,
total other income increased by $359,000 or 7%. Fees for trust services
decreased by $138,000 or 6%, due primarily to a decline in the market value of
assets under management for the second quarter of 2002, compared to the same
quarter of 2001. Net gains on the sale of loans grew $570,000 or 55%. Increased
refinancing activity of residential mortgage loans and the subsequent sale of
these loans in the secondary mortgage market is responsible for this increase.
Service charges on deposit accounts grew by $67,000 or 18%, in response to lower
interest rates, providing lower earnings credits to depositors accounts, thereby
allowing the Bank to charge for the deposit services rendered. Other operating
income decreased by $105,000 or 8%, due primarily to a $130,000 decrease in fee
revenues from JWR & Co. in the second quarter 2002, compared to the same quarter
in 2001.
OTHER EXPENSES
Total other expense increased 3% for the first six months of 2002 to
$15,136,000 from $14,629,000 for the first six months of 2001. Exclusive of a
non-recurring recovery in 2001 of $355,000, total other expense
Form 10-Q
Page 18
increased 1% for the first six months of 2002, compared to the same period in
2000.
Salaries and wages grew $83,000 or 1%, from $8,012,000 for the six
months ended June 30, 2001 to $8,095,000 for the same period in 2002. Regular
salary expense, including regular, part time and overtime salaries, increased
$6,000 or less than 1% during the first half of 2002, compared to the same
period in 2001. The elimination of BMAM's salaries, as well as some other
positions within the Bank, offset annual salary increases in the Bank and other
subsidiaries. Incentive salaries, tied to overall corporate profitability goals,
increased $77,000 or 7%, from $1,153,000 for the six months ended June 30, 2001
to $1,230,000 for the same period in 2002. This is due to a strong earnings
performance in the first six months of 2002, increasing both incentive payments
associated with specific business line profitability, as well as the
Corporation's corporate bonus pool, which is related directly to the increases
in corporate profits.
Employee benefits expenses increased $311,000 or 21% from $1,481,000
for the first six months of 2001 to $1,792,000 for the same period in 2002. A
decline both in the market valuation of the pension plan's assets, compared to
previous periods, and a decline in the projected yields on such assets caused a
decrease in the earnings from the pension plan assets and the increase in the
cost of the pension plan. An economic environment at current levels in future
periods, producing lower yields on the pension plan's assets, could result in
additional increases to the pension expense in the future.
Occupancy expense decreased $128,000 or 12%, from $1,089,000 for the
first six months of 2001 to $961,000 for the first six months of 2002, due
primarily to the relocation of several employees at the end of the first half of
2001.
Furniture, fixtures and equipment expense decreased $50,000 or 5% from
$997,000 for the first half of 2001 to $947,000 for the same period in 2002.
This decrease is related to the Bank's processing system being fully depreciated
in February 2001.
Other operating expenses increased $291,000 or 10%, from $3,050,000 for
the first six months of 2001 to $3,341,000 for the first six months of 2002. In
the first half of 2001, a $355,000 non-recurring recovery of operating expense
related to a charged-off loan reduced other operating expense. Exclusive of this
recovery, total other expenses are $64,000 or 2% below the same period in 2001.
This is primarily due to advertising expense being below the first six months of
2001 by $165,000, a result of timing.
For the second quarter of 2002 compared to the same quarter in 2001,
total other expenses increased by $100,000 or 1%. Salaries and wages decreased
$22,000 or 1%, due primarily to the elimination of staff associated with BMAM,
which ceased operations during the 4th quarter of 2001. Employee benefits
expense increased by $65,000 or 10% due to
Form 10-Q
Page 19
increased costs caused by decreased earnings from the pension plan's assets, as
described previously. Occupancy declined by $38,000 or 7% due primarily to
decreases associated with staffing movements and related occupancy costs within
the Corporation. Other operating expenses increased by $88,000 or 5%. The
largest increase occurred in fees for temporary help and hiring fees, incurred
by JWR & Co. Professional fees for JWR & Co. increased by $55,000 in the second
quarter of 2002, compared to the same period in 2001. Appraisal fees, associated
with the increased sale of residential mortgage loans grew by $36,000 or 39%.
These two accounts represent a $91,000 increase in other operating expenses from
quarter to quarter.
APPLICABLE INCOME TAXES
Federal income taxes for the first six months of 2002 were $2,530,000
compared to $2,274,000 for the first six months of 2001. This represents an
effective tax rate for each six-month period ended June 30, 2002 and 2001 of
34.2% and 34.3%, respectively.
FINANCIAL CONDITION
Total assets increased 6% from $476,823,000 at December 31, 2001 to
$506,027,000 as of June 30, 2002. Total assets grew 12% or $55,481,000 from
$450,546,000 as of June 30, 2001.
Outstanding earning assets increased 5% to $448,320,000 as of June 30,
2002 from $427,587,000 as of December 31, 2001. The Bank's loan portfolio
increased 6%, to $423,589,000 at June 30, 2002 from $400,849,000 as of December
31, 2001. Outstanding loans increased by 12%, from $376,812,000 as of June 30,
2001. Outstanding consumer loans of $26,296,000 at June 30, 2002 were 26% lower
than the consumer loan balances of $35,521,000 as of December 31, 2001 and 47%
below the outstanding balance of $49,484,000 as of June 30, 2001. Competition
from automobile manufacturers along with a desire to exit the indirect
automobile product line was the primary reason for the overall decline in
consumer loan balances from June 30, 2001. Outstanding commercial loans at June
30, 2002 were $144,881,000, a 13% decrease in commercial loan balances of
$167,452,000 at December 31, 2001 and 2% below $147,870,000 at June 30, 2001.
The decrease in commercial loan balances from December 31, 2001 and June 30,
2001 were primarily due to anticipated commercial loan repayments and the
transfer of commercial loan balances to commercial mortgage loan balances in the
real estate lending category of $18,000,000. Outstanding real estate loans were
$252,412,000 at June 30, 2002, a 28% increase from $197,876,000 in outstanding
real estate loans at December 31, 2001 and a 41% increase over $179,458,000 in
outstanding real estate loans as of June 30, 2001. Included in this increase
over both periods was the $18,000,000 transfer from the commercial loan
portfolio referred to in the previous paragraph.
The Bank's investment portfolio, having a market value of $24,124,000
at June 30, 2002, decreased 8% from a market value of $26,222,000 at December
31, 2001 and decreased 2% from $23,601,000 as of June 30, 2001.
Form 10-Q
Page 20
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. As of June 30, 2002, the investment portfolio had
an unrealized gain of $372,000, compared to an unrealized gain of $415,000 as of
December 31, 2001. The unrealized investment appreciation, net of deferred
income tax benefit, increased the Corporation's shareholders' equity on the
balance sheet by $346,000 as of June 30, 2002.
There were no federal funds sold outstanding at either June 30, 2002 or
December 31, 2001, compared to $1,249,000 as of June 30, 2001. 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 and
borrowing from the Federal Home Loan Bank of Pittsburgh ("the FHLB").
Both nonperforming assets and nonperforming loans amounted to $123,000
at June 30, 2002, a 186% increase from $43,000 at December 31, 2001 and a 447%
decrease from the nonperforming assets and loans of $673,000 at June 30, 2001.
There were no OREO balances on the Bank's books at either December 31, 2001,
June 30 2002 or June 30, 2001.
As of June 30, 2002 and 2001, 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 increased 7% to $416,771,000 as of June 30, 2002 from
$391,059,000 as of December 31, 2001. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances of $402,158,000 at June 30, 2002 increased 10% from
the average deposits of $366,068,000 for the same period in 2001. Average
deposit balances grew in every deposit category. Average savings balances
increased 3% at $42,073,000 for the first six months of 2002, compared to
$40,666,000 for the same period in 2001. Market Rate Account balances increased
12% or $5,967,000 from $51,221,000 in average daily outstanding balances for the
six months ended June 30, 2001 to $57,188,000 for the same period in 2002.
Average outstanding NOW account balances increased 15% or $14,929,000, from
$99,657,000 for the first six months of 2001 to $114,586,000 for the same period
in 2002. Non-interest bearing demand deposit average outstanding balances grew
12% or $12,534,000 from $102,052,000 for the six months ended June 30, 2001 to
$114,586,000 for the same period in 2002. Average outstanding CD balances
increased 1% or $1,068,000 from $72,471,000 in average outstanding balances for
the
Form 10-Q
Page 21
first six months of 2001 to $73,539,000 for the same period in 2002.
OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT 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 June 30, 2002 are $176,098,000.
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 Corporation's obligation under standby letters of credit at
June 30, 2002 amounted to $13,302,000.
LIQUIDITY, INTEREST RATE SENSITIVITY
The Bank's liquidity is maintained by managing its core deposits,
purchasing federal funds, selling loans in the secondary market, and borrowing
from the FHLB. The Bank's liquid assets include cash and cash equivalents as
well as certain unpledged investment securities. Bank management incorporates a
liquidity measure, incorporating its ability to borrow from the FHLB to meet
liquidity needs and goals. Periodically, the Asset / Liability Committee of the
Bank reviews the Bank's liquidity needs and reports its findings to the Risk
Management Committee of the Bank's Board of Directors.
Form 10-Q
Page 22
INTEREST RATE SENSITIVITY ANALYSIS
as of June 30, 2002
---------------------------------------------------------------------------------
(dollars in thousands) 0 to 30 31 to 90 91 to 180 181 to 365 Over Non-Rate
Days Days Days Days 1 Year Sensitive Total
---------------------------------------------------------------------------------
Assets:
Interest-bearing deposits with other banks $607 $ --- $ --- $ --- $ --- $ --- $607
Federal funds sold --- --- --- --- --- --- ---
Investment securities 2,973 4,056 2,084 5,668 9,099 145 24,025
Loans 183,321 23,356 23,716 21,405 171,596 (5,419) 417,975
Cash and due from banks --- --- --- --- --- 33,412 33,412
Other assets --- --- --- --- --- 20,531 20,531
---------------------------------------------------------------------------------
Total assets $186,901 $27,412 $25,800 $27,073 $180,695 $48,669 $496,550
=================================================================================
Liabilities and shareholders' equity:
Demand, noninterest-bearing $6,451 $12,902 $5,161 $9,031 $70,701 $24,770 $129,016
Savings deposits 11,721 23,442 9,626 19,253 159,972 --- 224,014
Time deposits 17,180 14,203 14,371 15,483 8,787 --- 70,024
Other liabilities 11,000 10,000 --- --- --- 7,412 28,412
Shareholders' equity 297 594 891 1,782 31,827 9,693 45,084
---------------------------------------------------------------------------------
Total liabilities and shareholders' equity $46,649 $61,141 $30,049 $45,549 $271,287 $41,875 $496,550
=================================================================================
Gap $140,252 ($33,729) ($4,249) ($18,476) ($90,592) $6,794 ---
Cumulative gap $140,252 $106,523 $102,274 $83,798 $6,794 --- ---
Cumulative earning assets as a ratio
of interest bearing liabilities 401% 199% 174% 146% 99% --- ---
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 June 30, 2002, based
on the
Form 10-Q
Page 23
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
$60,603,000, or 12.0% of total assets, as of June 30, 2002, compared to total
shareholders equity of $57,307,000, or 12.0% of total assets, as of December 31,
2001. As of June 30, 2001, shareholders' equity was $54,088,000, or 12.0% of
total assets. The Corporation's risk weighted Tier I capital ratio was 12.19% as
of June 30, 2002 compared to 12.86% and 12.76% at December 31, 2001 and June 30,
2001, respectively. The respective Tier II ratios were 13.34%, 14.03% and
13.88%. During the first half of 2002, the Corporation declared its regular
dividend of $0.38 per share, a 6% increase over $0.36 per share declared during
the first half of 2001.
In October 2001, the Corporation elected to continue a stock repurchase
program, originally established in June 1997. During the five-year period since
the establishment of the stock repurchase program, the Corporation repurchased
544,226 shares of its stock at a cost of $14,350,000, for an average cost of
$26.37 per share.
Form 10-Q
Page 24
Item 3.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS
There has been no material change in the Corporation's assessment of
its sensitivity to market risks since its presentation in the 2001 Annual Report
and form 10-K filed with the SEC.
Form 10-Q
Page 25
PART II. OTHER INFORMATION
June 30, 2002
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
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Report on Form 10-K dated April 22, 2002. The Report provided
information under Item 5 regarding the purchase by the Corporation of
its common stock which had been beneficially owned or held in trust or
in custody by or
Form 10-Q
Page 26
for the benefit of Robert L. Stevens, Chairman of the Corporation's
Board of directors or his wife, Sydney D. Stevens. That report did not
contain any financial statements.
Form 10-Q
Page 27
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: August 8, 2002 By: /s/ Fredrick C. Peters II
-------------- -----------------------------
Fredrick C. Peters II
President & Chief
Executive Officer
Date: August 8, 2002 By: /s/ Joseph W. Rebl
-------------- -----------------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
Form 10-Q
Page 28