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 March 31, 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 April 19,2002
- -------------------------- 4,367,241
Common Stock, par value $1
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED March 31, 2002
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the three
months ended March 31, 2002 and 2001...................................Page 1
Consolidated Balance Sheets as of March 31 2002,
December 31, 2001 and March 31, 2001 ..................................Page 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 ..................................Page 3
Consolidated Statements of Comprehensive Income for
the three months ended March 31, 2002 and 2001.........................Page 4
Notes to Consolidated Financial Statements................................Page 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................Page 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS.....................................................Page 19
PART II - OTHER INFORMATION..............................................Page 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
Three Months Ended
March 31
2002 2001
---------- ----------
Interest income:
Interest and fees on loans ............................. 6,813 $ 7,126
Interest on federal funds sold ......................... 39 152
Interest on interest bearing deposits with banks ....... 9 10
Interest and dividends on investment securities:
U.S. Treasury securities ............................ -- 56
U.S. Government Agency securities ................... 286 238
Obligations of states and political subdivisions..... 15 21
Dividend income ..................................... 17 32
---------- ----------
Total interest and dividend income ........................ 7,179 7,635
Interest expense on deposits .............................. 1,154 1,614
---------- ----------
Net interest income ....................................... 6,025 6,021
Loan loss provision ....................................... 250 500
---------- ----------
Net interest income after loan loss provision ............. 5,775 5,521
---------- ----------
Other income:
Fees for Trust services ................................ 2,103 2,292
Service charges on deposits ............................ 462 316
Other service charges, commissions and fees ............ 266 259
Net gain on sale of loans .............................. 1,481 858
Other operating income ................................. 1,027 1,030
---------- ----------
Total other income ........................................ 5,339 4,755
---------- ----------
Other expenses:
Salaries and wages ..................................... 3,971 3,866
Employee benefits ...................................... 1,054 808
Occupancy and bank premises ............................ 482 572
Furniture, fixtures, and equipment ..................... 462 519
Other operating expenses ............................... 1,476 1,273
---------- ----------
Total other expenses ...................................... 7,445 7,038
---------- ----------
Income before income taxes ................................ 3,669 3,238
Applicable income taxes ................................... 1,260 1,050
---------- ----------
$et Income ................................................ 2,409 $ 2,188
========== ==========
Earnings per common share ................................. $ 0.56 $ 0.51
Diluted earnings per common share ......................... $ 0.54 $ 0.49
Cash dividends declared per share ......................... $ 0.19 $ 0.18
Weighted-average shares outstanding ....................... 4,310,348 4,279,131
Dilutive potential common shares .......................... 142,577 155,039
---------- ----------
Adjusted weighted-average shares .......................... 4,452,925 4,434,170
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
Form 10-Q
Page 1
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
March 31, December Marchr31,
2002 2001* 2001
(Unaudited) (Unaudited)
------------------------------------
Assets
Cash and due from banks .................................................. $ 27,598 $ 28,157 $ 25,265
Interest bearing deposits with banks ..................................... 10,777 516 354
Federal funds sold ....................................................... 12,000 -- 9,206
Investment securities available for sale, at market (amortized
cost of $21,706, $25,807 and $25,022 as of March 31, 2002,
December 31, 2001 and March 31, 2001, respectively) ................... 21,853 26,222 25,204
Loans:
Consumer .............................................................. 29,040 35,521 46,365
Commercial ............................................................ 141,335 167,452 143,379
Real estate ........................................................... 232,198 197,876 152,980
-------- -------- --------
Total loans ........................................................ 402,573 400,849 342,724
Less: Allowance for possible loan losses .............................. (5,167) (4,928) (4,367)
-------- -------- --------
Net loans .......................................................... 397,406 395,921 338,357
-------- -------- --------
Premises and equipment, net .............................................. 12,222 12,478 12,451
Accrued interest receivable .............................................. 2,106 2,222 2,394
Goodwill (net) ........................................................... 2,805 2,805 2,929
Mortgage servicing rights ................................................ 2,799 2,206 664
Other assets ............................................................. 8,918 6,296 6,565
-------- -------- --------
Total assets ....................................................... $498,484 $476,823 $423,389
======== ======== ========
Liabilities
Deposits:
Demand, noninterest-bearing ........................................... $132,692 $110,564 $104,276
Savings ............................................................... 209,029 204,852 192,168
Time .................................................................. 70,769 75,643 68,892
-------- -------- --------
Total deposits ..................................................... 412,490 391,059 365,336
-------- -------- --------
Borrowed funds ........................................................... 20,000 20,000 --
Other liabilities ........................................................ 8,266 8,457 5,287
-------- -------- --------
Total liabilities .................................................. 440,756 419,516 370,623
-------- -------- --------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000 shares; issued 5,350,975,
5,329,675 and 5,227,275 shares as of March 31, 2002, December 31, 2001
and March 31, 2001, respectively and outstanding of 4,293,421,
4,322,121 and 4,288,602 shares as of March 31, 2002, December 31, 2001
and March 31, 2001, respectively ...................................... 5,351 5330 5,227
Paid-in capital in excess of par value ................................... 7,184 6,676 4,942
Accumulated other comprehensive income
net of taxes .......................................................... 97 274 120
Retained earnings ........................................................ 58,083 56,499 51,908
-------- -------- --------
70,715 68,779 62,197
Less: Common stock in treasury at cost -- 1,057,554, 1,007,554 and
938,673 shares as of March 31, 2002, December 31, 2001
and March 31, 2001, respectively ...................................... (12,987) (11,472) (9,431)
-------- -------- --------
Total shareholders' equity ............................................ 57,728 57,307 52,766
-------- -------- --------
Total liabilities and shareholders' equity ............................ $498,484 $476,823 $423,389
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
*-Reclassified for comparative purposes.
Form 10-Q
Page 2
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
Three Months Ended
March 31
--------------------
2002 2001*
-------- --------
Operating activities:
Net Income ....................................................... $ 2,409 $ 2,188
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for loan losses ..................................... 250 500
Provision for depreciation and amortization ................... 363 497
Loans originated for resale ................................... (97,789) (51,878)
Proceeds from loans sold ...................................... 96,963 55,371
Gain on sale of loans ......................................... 1,481 858
Provision for deferred income taxes (benefit) ................. (71) (44)
Change in accrued interest receivable ......................... 116 586
Change in accrued interest payable ............................ (308) (239)
Mortgage servicing rights ..................................... (592) (377)
Other ......................................................... (2,705) 120
-------- --------
Net cash provided by operating activities .................. 117 7,582
-------- --------
Investing activities:
Purchases of investment securities ............................... (1,587) (5,002)
Proceeds from maturity and calls of fixed income securities ...... 5,836 7,001
Loan (originations) repayments, net .............................. (2,082) 7,977
Loans purchased (dealer loans) ................................... (92) (752)
Purchases of premises and equipment .............................. (100) (473)
-------- --------
Net cash provided by investing activities .................. 1,975 8,751
-------- --------
Financing activities:
Net increase (decrease) in demand and savings deposits ........... 26,304 (20,620)
Net decrease in time deposits .................................... (4,874) (1,010)
Dividends paid ................................................... (824) (769)
Repayment of mortgage debt ....................................... (11) (10)
Purchases of treasury stock ...................................... (1,515) (147)
Proceeds from issuance of common stock ........................... 529 361
-------- --------
Net cash provided (used) by financing activities ........... 19,609 (22,195)
-------- --------
Decrease in cash and cash equivalents ............................ 21,701 (5,862)
Cash and cash equivalents at beginning of period ................. 28,673 40,687
-------- --------
Cash and cash equivalents at end of period ....................... $ 50,374 $ 34,825
======== ========
Supplemental cash flow information:
Income taxes paid ............................................. $ 66 $ 1,061
Interest paid ................................................. $ 1,462 $ 1,856
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 COMPREHENSIVE INCOME
(In Thousands)
Unaudited
Three Months Ended
March 31
2002 2001
------------------
Net Income ..................................... $2,409 $2,188 $
Other comprehensive income:
Unrealized holding (losses) gains on
available-for-sale securities ............ (268) 246
Deferred income tax (benefit) expense on
unrealized holding (losses) gains on
available for sale securities ............ 91 (84)
------ ------
Comprehensive net income ....................... $2,232 $2,350 $
====== ======
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
MARCH 31, 2001 AND 2000
(Unaudited)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of March 31, 2002 and 2001, the related consolidated
statements of cash flows for the three month periods ended March 31, 2002 and
2001, the related consolidated statements of income for the three month periods
ended March 31, 2002 and 2001 and the related consolidated statements of
comprehensive income for the three month periods ended March 31, 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 three month periods
ended March 31, 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 5
4. Adoption of Financial Accounting Standards:
Recently issued accounting standards 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). No new financial accounting
standards were issued during the first quarter 2002.
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 and other intangible assets have indefinable lives and
will not be amortized. These assets will be tested at least annually for
impairment. An impairment analysis will be completed during 2002. Should the
annual testing indicate any impairment in goodwill, said impairment will be
written-off against current earnings.
5. Loans:
Interest income on loans performing satisfactorily is recognized on 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 non-performing 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 $21,000, $21,000 and $698,000 at
March 31, 2002, December 31, 2001 and March 31, 2001, respectively. These loans
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.
Form 10-Q
Page 6
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 March 31, 2002, December 31, 2001 and March 31,
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 $21,000, $21,000, and $698,000, 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 March 31, 2002, December 31, 2001 and March 31,
2001, there were $0, $0 and $698,000, respectively of impaired loans for which
there is a related allowance for loan losses. The total related allowance for
loan loss at March 31, 2002, December 31, 2001 and March 31, 2001 was $0, $0,
and $350,000 respectively. Impaired loans for which no loan loss allowance was
allocated amounted to $21,000, at March 31, 2002 and $21,000 at December 31,
2001 and $0 at March 31, 2001. Average impaired loans for the quarter ended
March 31, 2002, December 31, 2001 and March 31, 2001 amounted to $21,000,
$499,000 and $262,000, 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 quarter ended March 31, 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 quarter 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 7
6. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
three months ended year ended
March 31, December 31,
2002 2001 2001
------ --------- ------------
Balance, beginning of period $4,928 $4,320 $ 4,320
Charge-offs:
Consumer (30) (65) (178)
Commercial and industrial 0 (870) (940)
Real estate 0 0 (51)
------ ------ -------
Total charge-offs (30) (935) (1,169)
------ ------ -------
Recoveries:
Consumer 19 4 38
Commercial and industrial 0 2 63
Real estate 0 476 476
------ ------ -------
Total recoveries 19 482 577
------ ------ -------
Net (charge-offs) / recoveries (11) (453) (592)
Provision for loan losses 250 500 1,200
Balance, End of period $5,167 $4,367 $ 4,928
====== ====== =======
Form 10-Q
Page 8
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 three months ended March 31, 2002 and 2001 is as
follows:
(Dollars in thousands)
--------------------------------------------------
2002
Mortgage All
Banking Wealth Banking Other Consolidated
--------------------------------------------------
Net interest income 6,018 -- -- 7 6,025
Less Loan loss provision 250 -- -- -- 250
--------------------------------------------------
Net interest income after
loan loss provision 5,768 -- -- 7 5,775
Intersegment interest (revenues) -- -- --
--------------------------------------------------
expenses *
Net interest income after
loan loss provision and 5,768 -- -- 7 5,775
eliminations
Other income:
Fees for investment
management and trust
services -- 2,103 -- -- 2,103
Other income 883 -- 1,608 745 3,236
--------------------------------------------------
Total other income 883 2,103 1,608 745 5,339
Other expenses:
Salaries and benefits 3,175 1,035 317 498 5,025
Occupancy 741 148 42 13 944
Other operating expense 902 215 212 147 1,476
--------------------------------------------------
Total other expense 4,818 1,398 571 658 7,445
--------------------------------------------------
Segment profit (loss) 1,833 705 1,037 94 3,669
Intersegment (revenues)
expenses * 13 45 -- (58) --
--------------------------------------------------
Segment profit after
eliminations 1,846 750 1,037 36 3,669
==================================================
% of segment profit (loss) 50% 21% 28% 1% 100%
--------------------------------------------------
(Dollars in thousands)
--------------------------------------------------
2001
Mortgage All
Banking Wealth Banking Other Consolidated
--------------------------------------------------
Net interest income 5,905 -- -- 116 6,021
Less Loan loss provision 500 -- -- -- 500
--------------------------------------------------
Net interest income after
loan loss provision 5,405 -- -- 116 5,521
Intersegment interest (revenues) 103 (103) --
--------------------------------------------------
expenses *
Net interest income after
loan loss provision and 5,508 -- -- 13 5,521
eliminations
Other income:
Fees for investment
management and trust
services -- 2,292 -- -- 2,292
Other income 674 -- 960 830 2,464
--------------------------------------------------
Total other income 674 2,292 960 830 4,756
Other expenses:
Salaries and benefits 2,952 929 217 576 4,674
Occupancy 765 198 71 57 1,091
Other operating expense 700 251 105 217 1,273
--------------------------------------------------
Total other expense 4,417 1,378 393 850 7,038
--------------------------------------------------
Segment profit (loss) 1,765 914 567 (7) 3,239
Intersegment (revenues)
expenses * 13 41 -- (54) --
--------------------------------------------------
Segment profit after
eliminations 1,778 955 567 (61) 3,239
==================================================
% of segment profit (loss) 55% 29% 18% (2)% 100%
--------------------------------------------------
*- Intersegment revenues consist of rental payments to Bryn Mawr Bank
Corporation from its subsidiaries. Intersegment expenses consist of a
$1,000 management fee, paid by Bryn Mawr Bank Corporation to the Bank.
Form 10-Q
Page 9
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
three months ended March 31, 2002 and 2001, as well as the financial condition
of the Corporation as of March 31, 2002, December 31, 2001 and March 31, 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 a 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
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 10
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.
RESULTS OF OPERATIONS
- ---------------------
The Corporation reported net income of $2,409,000 for the three months
ended March 31, 2002, a 10% increase over $2,188,000 reported for the same
period in 2001. Earnings per common share amounted to $0.56, a 10% increase over
$0.51 reported for the first quarter of 2001. Earnings per common share,
assuming dilution were $0.54 and $0.49, respectively.
The increase in earnings, for the first three months of 2002 over the same
period in 2001 is primarily attributable to an increase in other income, up
$584,000 or 12% over the first three months of 2001. This increase in other
income is due to a $623,000 increase in the net gain on the sale of loans for
the first three 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. Total net
interest income for the first three months of 2002 is level with the first three
months of 2001. While loan balances increased $59,849,000 or 17% from the same
period in 2001, the lower interest rate environment that existed during the
first three 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 will reverse, as
interest rates increase because these income generators are counter cyclical.
During the first quarter 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
$500,000. The economic indicators are still pointing to a slow economy and the
growth in the loan portfolio have prompted Corporation management to add
$250,000 to the provision for loan loss for the first three months of 2002, this
compared to $500,000 for the for the same period in 2001. This will assure that
the level of loan loss reserve will remain within the guidelines, set be the
Corporation's management, and reviewed in the quarterly adequacy test. During
the first quarter 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 .7% for the first three months of 2002,
compared to the same period of 2001.
Average outstanding loan balances for the first three months of 2002 grew
16% from average outstanding loan balances for the first three months of 2001.
Funding this growth in average outstanding loans was a 1% decrease in average
outstanding investment security balances and an increase in average outstanding
balances of non-interest bearing demand deposit accounts of 14%, NOW accounts of
18% and market rate accounts of 12%. The average outstanding balances of
certificates of deposit ("CDs") were virtually unchanged.
Form 10-Q
Page 11
The prime rate decreased by 325 basis points from 8.00% at March 31, 2001
to 4.75% at March 31, 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 150 basis points, from 8.0% at March 31, 2001 to 6.5% for
the same period in 2002 due to the decline in the rates during this period.
Compared to the first quarter of 2001, the average cost of funds for the
respective periods decreased 68 basis points, from 1.78% in 2001 to 1.10% in
2002. The overall result was a decline in the Bank's annualized net interest
margin, to 5.43% for the first three months of 2002 compared to 6.29% 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 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 three months ended March 31, 2002, net interest income of
$6,025,000 was practically level with the same period in 2001. Total interest
and dividend income declined 6% for the first three months of 2002, to
$7,179,000 from $7,635,000 for the first three months of 2001. Interest expense
decreased 29% for the three months ended March 31, 2002, to $1,154,000 compared
to $1,614,000 for the first three months of 2001. The yield on earning assets
for the first three months of 2002 was 6.5% compared to 8.0% for the first three
months of 2001 while the effective rate paid on interest bearing deposits for
the first three months of 2002 and 2001 was 1.5% and 2.5%, respectively.
Interest and fees on loans decreased 4% from $7,126,000 for the first three
months of 2001 to $6,813,000 for the first three months of 2002. A 16% increase
in average outstanding loan balances for the first three months of 2002, to
$396,496,000, compared to $341,995,000 for the same period in 2001, was offset
by a 150 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 $29,000 or 8%, from
$347,000 for the first three months of 2001 to $318,000 for the first three
months of 2002. Interest from U.S. Government Agency securities increased 20%
from $238,000 for the first three months of 2001 to $286,000 for the first three
months of 2002. The primary reason for this increase was a $4,674,000 or 28%
increase in the average balance of U.S. Government Agency securities, from
$16,909,000 during the first three months of 2001 to $21,583,000 for the
comparable period in 2002. The increase in U.S.
Form 10-Q
Page 12
Government Agency securities was 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
29% from $21,000 for the three months ended March 31, 2001 to $15,000 for the
same period in 2002. Average outstanding balances of obligations of state and
political subdivisions decreased by 20%, from $1,765,000 in 2001 to $1,409,000
in 2002. The overall yield on investment securities decreased from 5.7% for the
first three months of 2001 to 5.2% for the first three 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 29% or $460,000, to $1,154,000 for
the three months ended March 31, 2002 compared to $1,614,000 for the same period
in 2001. The average cost of interest bearing deposits decreased 100 basis
points, from 2.5% at March 31, 2001 to 1.5% for the three months ended March 31,
2002. The average interest bearing deposit balances increased 15% to
$304,586,000 at March 31, 2002 compared to $264,245,000 for the same period in
2001. Average non-transaction savings accounts decreased .1% for the first three
months of 2002, compared to the same period in 2001, while average Market Rate
Accounts and CDs increased by 11.4% and 2.8%, respectively. The Bank's average
transaction based NOW account balances increased 13.8% and non-interest bearing
demand deposit account balances increased 12.8%. The annualized cost of CDs
decreased 160 basis points, from 5.3% for the first three months of 2001 to 3.7%
for the same period in 2002. The average cost of Market Rate Accounts decreased
from 2.3% to 1.5% or .8%, savings accounts decreased from 1.3% to .8% or .5% and
NOW accounts decreased from .9% to .3% or .6% for the first three months of
2002, compared to the same period in 2002. The average cost of deposits,
including non-interest bearing demand deposits decreased from 1.78% for the
first quarter of 2001, to 1.10% for the first quarter of 2002.
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 86 basis point for the
first three 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 three months of 2002, the net interest margin decreased to 5.43% from
6.29% for same period in 2001. The net interest margin is computed exclusive of
related loan fee income.
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
that may occur. 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.
Form 10-Q
Page 13
LOAN LOSS PROVISION
- -------------------
As previously indicated, the current state of the economy and growth in the
loan portfolio are the primary factors which 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 $250,000 into the provision
for loan loss was needed based on the Bank's analysis. This is a decrease of
$250,000 from the same period in 2001. During the first quarter of 2001, the
identification and writedown of a loan put on nonaccrual status prompted
Corporation management to increase the provision for loan loss to $500,000 for
the first quarter of 2001. The loan loss reserve amounted to 1.28% of
outstanding loans at March 31, 2002. Delinquencies, as a percentage of
outstanding loans, were 17 basis points as of March 31, 2002, compared to 33
basis points for the same period in 2001. Nonperforming loans decreased 51% to
$22,000 as of March 31, 2002, compared to $43,000 as of December 31, 2001 and
decreased 97% from $698,000 in nonperforming loans as of March 31, 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 March 31, 2002.
OTHER INCOME
- ------------
Total other income of $5,339,000 for the three months ended March 31, 2002
increased 12% from $4,755,000 reported for the same period in 2001.
Fees for trust services decreased $189,000 or 8% from $2,292,000 for the
first three months of 2001 to $2,103,000 for the same period in 2002. This
decrease in trust fees was concentrated in personal trust and the employee
benefits business lines. Excluding non-recurring fees that were received in the
first quarter of 2001 fees for trust services decreased 5%. The market value of
Trust assets under management increased by 6%, to $1,743,000,000 at March 31,
2002 from $1,638,000,000 as of March 31, 2001. This is primarily a result of an
increase in the equity market values during the first quarter of 2002 and an
increase in new accounts.
The low level of interest rates continues to enhance the volume of mortgage
banking activity. For the three month period ended March 31, 2002, the Bank
originated and sold $96,431,000 of residential mortgage loans to the secondary
mortgage market, a 75% increase from $55,073,000 of residential mortgage loans
originated and sold during the first three 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 $1,481,000 or a 154
basis point gain on loans sold for the first quarter of 2002 compared to
$858,000 or 156 basis points for the same period in 2001.
Service charges on deposits amounted to $462,000 for the first quarter of
2002, a 46% increase from $316,000 reported in the first quarter of
Form 10-Q
Page 14
2001. The $146,000 increase is a result of increases to both account analysis
fees and overdraft fees.
Income from other service charges, commissions and fees amounted to
$266,000 for the first quarter of 2002, a 3% increase from $259,000 reported for
the first quarter 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.
Other operating income remained level with the first three months of 2001,
with operating income of $1,027,000 for the first three months of 2002, compared
with the $1,030,000 for the same period in 2001. This is a result of increases
and decreases in the revenues provided by the Corporation's subsidiaries. The
revenues from JWR&Co were lower in the first three months of 2002 by $137,000,
compared to the same period in 2001. This decrease is being offset by higher
revenues from BMSS, BMAM, BM Brokerage and ICBM of $70,000, $5,000 $3,000 and
$2,000, respectively and additionally, higher revenues from credit card merchant
processing of $47,000.
OTHER EXPENSES
- --------------
Total other expense increased 6% for the first three months of 2002 to
$7,445,000 from $7,038,000 for the first three months of 2001.
Salaries and wages grew $105,000 or 3%, from $3,866,000 for the three
months ended March 31, 2001 to $3,971,000 for the same period in 2002. Regular
salary expense, including regular, part time and overtime salaries, decreased
$70,000 or 2% during the first quarter of 2002, compared to the same period in
2001. The elimination of BMAM's salaries and some other positions within the
Bank, totaling $132,000 in the first three months of 2002 were partially offset
with annual salary increases in the Bank and other subsidiaries. Incentive
salaries, tied to overall corporate profitability goals, increased $175,000 or
44%, from $397,000 for the three months ended March 31, 2001 to $572,000 for the
same period in 2002. This is due to a strong earnings performance in the first
three months of 2002. Employee benefits expenses increased $246,000 or 30% from
$808,000 for the first three months of 2001 to $1,054,000 for the same period in
2002,a result of the increase in the Bank's pension expense due to changes in
the economy.
Occupancy expense decreased $90,000 or 16%, from $572,000 for the first
three months of 2001 to $482,000 for the first three months of 2002. This
decrease is the result of the relocation of several employees at the end of the
first quarter of 2001, in an effort to streamline operations and reduce
expenses.
Furniture, fixtures and equipment expense decreased $57,000 or 11% from
$519,000 for the first quarter of 2001 to $462,000 for the same period in 2002.
This decrease is related to the Bank's processing system being
Form 10-Q
Page 15
fully depreciated in February 2001.
Other operating expenses increased $203,000 or 16%, from $1,273,000 for the
first three months of 2001 to $1,476,000 for the first three months of 2002. In
the first quarter 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 $152,000 or 9% below the same period
in 2001. This is primarily due to advertising expense. Advertising expense is
below the first three months of 2001 by $139,000 as a result of timing.
APPLICABLE INCOME TAXES
- -----------------------
Federal income taxes for the first three months of 2002 were $1,260,000
compared to $1,050,000 for the first three months of 2001. This represents an
effective tax rate for each three month period ended March 31, 2002 and 2001 of
34.3% and 32.4%, respectively.
FINANCIAL CONDITION
- -------------------
Total assets increased 5% from $476,827,000 at December 31, 2001 to
$498,485,000 as of March 31, 2002. Total assets grew 18% or $75,096,000 from
$423,389,000 as of March 31, 2001 to $498,485,000 as of March 31 2002.
Outstanding earning assets increased 5% to $447,204,000 as of March 31,
2002 from $427,805,000 as of December 31, 2001. The Bank's loan portfolio
increased .4%, to $402,573,000 at March 31, 2002 from $400,849,000 as of
December 31, 2001. Outstanding loans increased by 17%, from $342,724,000 as of
March 31, 2001. Outstanding consumer loans of $29,040,000 at March 31, 2002 were
18% lower than the consumer loan balances of $35,521,000 as of December 31, 2001
and 37% below the outstanding balance of $46,365,000 as of March 31, 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 March 31, 2001. Outstanding commercial loans at
March 31, 2002 were $141,335,000, a 16% decrease in commercial loan balances of
$167,452,000 at December 31, 2001 and 1% below $143,379,000 at March 31, 2001.
The decrease in commercial loan balances from December 31, 2001 were primarily
due to anticipated commercial loan repayments. Outstanding real estate loans
were $232,198,000 at March 31, 2002, a 17% increase from $197,876,000 in
outstanding real estate loans at December 31, 2001 and a 52% increase over
$152,980,000 in outstanding real estate loans as of March 31, 2001.
The Bank's investment portfolio, having a market value of $21,853,000 at
March 31, 2002, decreased 17% from a market value of $26,222,000 at December 31,
2001 and decreased 13% from $25,204,000 as of March 31, 2001.
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
Form 10-Q
Page 16
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 March 31, 2002, the
investment portfolio had an unrealized gain of $147,000, compared to an
unrealized gain of $415,000 as of December 31, 2001. The unrealized investment
depreciation, net of deferred income tax benefit, decreased the Corporation's
shareholders' equity on the balance sheet by $97,000 as of March 31, 2002.
Federal funds sold amounted to $12,000,000 as of March 31, 2002, a 30%
increase from $9,206,000 as of March 31, 2001. There were no federal funds sold
as of December 31, 2001. An increase in deposits in the first quarter of 2002
provided for the increase in federal funds sold. 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 $22,000 at
March 31, 2002, a 50% decrease from $43,000 at December 31, 2001 and a 97%
decrease from the nonperforming assets and loans of $698,000 at March 31, 2001.
There were no OREO balances on the Bank's books at either December 31, 2001 or
March 31, 2002.
As of March 31, 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 5% to $412,490,000 as of March 31, 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 $398,750,000 at March 31, 2002 increased 9% from
the average deposits of $364,467,000 for the same period in 2001. Average
savings balances declined .1% at $41,650,000 for the first three months of 2002,
compared to $41,710,000 for the same period in 2001. Market Rate Account
balances increased 11% or $5,638,000 from $49,518,000 in average daily
outstanding balances for the three months ended March 31, 2001 to $55,156,000
for the same period in 2002. Average outstanding NOW account balances increased
14% or $13,824,000, from $99,824,000 for the first three months of 2001 to
$113,708,000 for the same period in 2002. Non-interest bearing demand deposit
average outstanding balances grew 13% or $12,813,000 from $100,479,000 for the
three months ended March 31, 2001 to $113,292,000 for the same period in 2002.
Average outstanding CD balances increased 3% or $2,062,000 from $72,778,000 in
average outstanding balances for the first three months of 2001 to $74,840,000
for the same period in 2002.
Form 10-Q
Page 17
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.
INTEREST RATE SENSITIVITY ANALYSIS
as of March 31, 2002
------------------------------------------------------------------------------
0 to 30 31 to 90 91 to 180 181 to 365 Over Non-Rate
(dollars in thousands) Days Days Days Days 1 Year Sensitive Total
------------------------------------------------------------------------------
Assets:
Interest-bearing deposits with other banks $ 10,777 $ -- $ -- $ -- $ -- $ -- $ 10,777
Federal funds sold 12,000 -- -- -- -- -- 12,000
Investment securities 25 1,550 7,023 2,150 10,725 145 21,618
Loans 166,119 15,416 20,788 21,346 178,688 (5,167) 397,190
Cash and due from banks -- -- -- -- -- 27,086 27,086
Other assets -- -- -- -- -- 20,712 20,712
------------------------------------------------------------------------------
Total assets $188,921 $ 16,966 $27,811 $ 23,496 $189,413 $42,776 $489,383
==============================================================================
Liabilities and shareholders' equity:
Demand, noninterest-bearing $ 7,226 $ 14,452 $ 4,786 $ 9,572 $ 76,576 $27,085 $139,697
Savings deposits 10,851 21,704 8,871 17,742 149,861 -- 209,029
Time deposits 16,108 13,312 21,010 11,726 8,613 -- 70,769
Other liabilities -- 20,000 -- -- -- 6,652 26,652
Shareholders' equity 285 570 855 1,710 30,497 9,319 43,236
------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 34,470 $ 70,038 $35,522 $ 40,750 $265,547 $43,056 $489,383
==============================================================================
Gap $154,451 ($53,072) ($7,711) ($17,254) ($76,134) ($280) --
Cumulative gap $154,451 $101,379 $93,668 $ 76,414 $ 280 -- --
Cumulative earning assets as a ratio
of interest bearing liabilities 548% 197% 167% 142% 100% -- --
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
Form 10-Q
Page 18
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 March
31, 2002, 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 $57,728,000,
or 11.6% of total assets, as of March 31, 2002, compared to total shareholders
equity of $57,307,000, or 12.0% of total assets, as of December 31, 2001. As of
March 31, 2001, shareholders' equity was $52,766,000, or 12.5% of total assets.
The Corporation's risk weighted Tier I capital ratio was 12.41% as of March 31,
2002 compared to 12.86% and 13.23% at December 31, 2001 and March 31, 2001,
respectively. The respective Tier II ratios were 13.58%, 14.03% and 14.39%.
During the first quarter of 2002, the Corporation declared its regular dividend
of $0.19 per share, a 6% increase over $0.18 per share declared during the first
quarter of 2001.
In October 2001, the Corporation elected to continue a stock repurchase
program, originally established in March 1997. During the five year period since
the establishment of the stock repurchase program, the Corporation repurchased
451,914 shares of its stock at a cost of $11,488,000, for an average cost of
$25.33 per share.
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 19
PART II. OTHER INFORMATION
- --------------------------
March 31, 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
- ------
Robert L. Stevens Consulting Contract
Form 10-Q
Page 20
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: May 14, 2002 By: /s/ Frederick C. Peters II
-------------------- --------------------------
Fredrick C. Peters II
President & Chief
Executive Officer
Date: May 14, 2002 By: /s/ Joseph W. Rebl
----------------- -------------------
Joseph W. Rebl
Treasurer and
Assistant Secretary
Form 10-Q
Page 21