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, 1999 Commission File
Number -------------- 0-15261
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Bryn Mawr Bank Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
--------------
Not Applicable
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Former name, former address and fiscal year, if changed since last report.
Indicate by check whether the registrant (1) has filed all reports to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at April 29, 1999
- -------------------------- 4,364,805
Common Stock, par value $1
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED March 31, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the three
months ended March 31, 1999 and 1998..................Page 1
Consolidated Balance Sheets as of March 31, 1999,
December 31, 1998 and March 31, 1998..................Page 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998..................Page 3
Consolidated Statements of Comprehensive Income for
the three months ended March 31, 1999 and 1998........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
PART II - OTHER INFORMATION............................................Page 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
Unaudited
Three Months Ended
March 31
1999 1998*
---------- ----------
Interest income:
Interest and fees on loans ............................ $ 5,727 $ 5,552
Interest on federal funds sold ........................ 233 220
Interest on interest bearing deposits with banks ...... 44 30
Interest and dividends on investment securities:
U.S. Treasury securities ............................ 102 189
U. S. Government Agency securities .................. 455 339
Obligations of states and political subdivisions .... 51 51
Dividend income ..................................... 20 19
---------- ----------
Total interest and dividend income ........................ 6,632 6,400
Interest expense on deposits .............................. 1,344 1,528
---------- ----------
Net interest income ....................................... 5,288 4,872
Loan loss provision ....................................... 63 25
---------- ----------
Net interest income after loan loss provision ............. 5,225 4,847
---------- ----------
Other income:
Fees for Trust services ............................... 2,418 2,178
Service charges on deposits ........................... 276 267
Other service charges, commissions and fees ........... 313 290
Net gain on sale of loans ............................. 350 365
Net gain on sale of other real estate owned ........... 0 86
Other operating income ................................ 1,303 239
---------- ----------
Total other income ........................................ 4,660 3,425
---------- ----------
Other expenses:
Salaries and wages .................................... 3,412 2,896
Employee benefits ..................................... 662 550
Occupancy and bank premises ........................... 407 321
Furniture, fixtures, and equipment .................... 510 400
Other operating expenses .............................. 2,052 1,489
---------- ----------
Total other expenses ...................................... 7,043 5,656
---------- ----------
Income before income taxes ................................ 2,842 2,616
Applicable income taxes ................................... 1,000 870
---------- ----------
Net Income ................................................ $ 1,842 $ 1,746
---------- ----------
Earnings per common share ................................. $ 0.42 $ 0.40
Earnings per common share- assuming dilution .............. $ 0.40 $ 0.38
Cash dividends declared ................................... $ 0.15 $ 0.115
Weighted-average shares outstanding ....................... 4,381,205 4,355,158
Dilutive potential common shares .......................... 225,855 221,876
---------- ----------
Adjusted weighted-average shares .......................... 4,607,060 4,577,034
The accompanying notes are an integral part of the consolidated financial
statements.
* Reclassified for comparative purposes.
Form 10-Q
Page 1
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31, March 31,
1999 1998 1998
(Unaudited) (Unaudited)
--------------------------------------
Assets
Cash and due from banks ........................................................... $ 20,651 $ 19,810 $ 18,843
Interest bearing deposits with banks .............................................. 143 5,150 171
Federal funds sold ................................................................ 15,223 20,372 10,600
Investment securities available for sale, at market (amortized cost of $40,044,
$50,824 and $41,300 as of March 31, 1999,
December 31, 1998 and March 31, 1998, respectively) .......................... 40,042 50,976 41,376
Loans:
Consumer ..................................................................... 69,293 68,078 75,042
Commercial ................................................................... 92,941 89,368 83,867
Real Estate .................................................................. 131,403 123,739 113,470
--------- --------- ---------
Total loans .............................................................. 293,637 281,185 272,379
Less: Allowance for loan losses .............................................. (4,124) (4,100) (4,054)
--------- --------- ---------
Net loans ................................................................ 289,513 277,085 268,325
--------- --------- ---------
Premises and equipment, net ....................................................... 12,406 12,209 11,695
Accrued interest receivable ....................................................... 2,108 2,069 2,134
Goodwill .......................................................................... 3,432 0 0
Other real estate owned ........................................................... 312 271 25
Other assets ...................................................................... 5,577 3,898 2,165
--------- --------- ---------
Total assets ............................................................. $ 389,407 $ 391,840 $ 355,334
========= ========== =========
Liabilities
Deposits:
Demand, noninterest-bearing .................................................. $ 89,496 $ 88,937 $ 82,252
Savings ...................................................................... 185,563 189,695 167,807
Time ......................................................................... 60,318 63,725 60,430
--------- --------- ---------
Total deposits ........................................................... 335,377 342,357 310,489
Other liabilities ................................................................. 9,449 7,262 5,296
--------- --------- ---------
Total liabilities ........................................................ 344,826 349,619 315,785
--------- --------- ---------
Shareholders' equity
Common stock, par value $1; authorized 25,000,000 shares at March 31, 1999 and
December 31, 1998 and 5,000,000 shares at March 31, 1998; issued 5,147,065,
5,067,078 and 2,522,139 shares as of March 31, 1999, December 31, 1998 and
March 31, 1998, respectively and outstanding 4,369,805, 4,303,818 and
2,166,369 shares as of March 31, 1999, December 31, 1998
and March 31, 1998, respectively ............................................. 5,147 5,067 2,522
Paid-in capital in excess of par value ............................................ 4,042 2,478 4,636
Unrealized investment appreciation
(depreciation) net of deferred income taxes .................................. (1) 100 50
Retained earnings ................................................................. 40,986 39,791 36,191
--------- --------- ---------
50,174 47,436 43,399
Less: Common stock in treasury at cost -- 777,260, 763,260 and
355,770 shares as of March 31, 1999, December 31, 1998
and March 31, 1998, respectively ............................................. (5,593) (5,215) (3,850)
--------- --------- ---------
Total shareholders' equity ................................................... 44,581 42,221 39,549
--------- --------- ---------
Total liabilities and shareholders' equity ................................... $ 389,407 $ 391,840 $ 355,334
========= ========= =========
The accompanying notes are an integral part of consolidated financial
statements.
Form 10-Q
Page 2
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
Three Months Ended
March 31
---------------------
1999 1998*
-------- --------
Operating activities:
Net Income .................................................... $ 1,842 $ 1,746
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses .................................. 63 25
Provision for depreciation and amortization ................ 305 358
Gain on sale of other real estate owned .................... 0 (86)
Loans originated for resale ................................ (29,477) (36,303)
Proceeds from loans sold ................................... 26,911 35,558
Gain on sale of loans ...................................... (351) (365)
Provision for deferred income taxes (benefit) ............. (24) 49
Increase in interest receivable ............................ (39) (95)
(Decrease) increase in interest payable .................... (53) 181
Other ...................................................... 963 (839)
-------- --------
Net cash provided by operating activities .............. 140 229
-------- --------
Investing activities:
Purchases of investment securities ............................ (35,875) (4,743)
Proceeds from maturities of investment securities ............. 44,800 0
Proceeds from calls of fixed income securities ................ 2,000 4,000
Loan (originations) repayments, net ........................... (1,714) 4,077
Loans purchased (dealer loans) ................................ (7,860) (7,071)
Capitalized cost of OREO ...................................... (41) 0
Purchases of premises and equipment ........................... (558) (203)
-------- --------
Net cash provided (used) by investing activities ........ 752 (3,940)
-------- --------
Financing activities:
Net decrease in demand and savings deposits ................... (3,573) (16,868)
Net decrease in time deposits ................................. (3,407) (1,449)
Dividends paid ................................................ (647) (501)
Proceeds from issuance of common stock ........................ 0 50
Purchase of treasury stock .................................... (378) (1,083)
Cost of acquiring new subsidiaries ............................ (2,195) 0
Repayment of mortgage debt .................................... (7) (6)
-------- --------
Net cash used by financing activities ................... (10,207) (19,857)
-------- --------
Decrease in cash and cash equivalents ........................ (9,315) (23,568)
Cash and cash equivalents at beginning of period .............. 45,332 53,182
-------- --------
Cash and cash equivalents at end of period .................... $ 36,017 $ 29,614
-------- --------
Supplemental cash flow information:
Income taxes paid .......................................... $ 0 $ 548
Interest paid .............................................. $ 1,397 $ 1,347
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
1999 1998
------- -------
Net Income ....................................... $ 1,842 $ 1,746
Other comprehensive income:
Unrealized holding gains (losses) on
available-for-sale securities .......... (153) (17)
Deferred income tax (benefit) expense on
unrealized holding gains (losses) on
available for sale securities .......... 52 5
------- -------
Comprehensive net income ......................... $ 1,741 $ 1,734
======= =======
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, 1999 AND 1998
(Unaudited)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of March 31, 1999 and 1998, the consolidated statements of
cash flows for the three month periods ended March 31, 1999 and 1998, the
related consolidated statements of income for the three month periods ended
March 31, 1999 and 1998 and the related consolidated statements of comprehensive
income for the three month periods ended March 31, 1999 and 1998 are unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 1998 Annual Report
incorporated in the 1998 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the
Notes to Consolidated Financial Statements in the Corporation's 1998 Annual
Report incorporated in the 1998 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, 1999 and 1998.
3. Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with banks and federal funds sold.
4. Adoption of Financial Accounting Standards:
In June 1997, Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") was issued. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income includes net income and
several other items that current accounting standards require to be recognized
outside of net income, such as unrealized holding gains and losses on
available-for-sale investment securities in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Corporation adopted SFAS No. 130 on
Form 10-Q
Page 5
January 1, 1998. When first applying SFAS No. 130, financial statements for
earlier periods that are provided for comparative purposes are required to be
reclassified to reflect application of the provisions of SFAS No. 130. SFAS No.
130 must be adopted at the beginning of an enterprises fiscal year.
In June 1997, Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") was issued. SFAS 131 replaces Statement of Financial Accounting Standard
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 requires public business enterprises to report certain information about
their operating segments in a complete set of financial statements to
shareholders. Such financial information is required to be reported on the basis
that it is used internally by the enterprise's chief operating decision maker in
making decisions related to resource allocation and segment performance. SFAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Corporation adopted SFAS No. 131 on January 1, 1998.
Comparative year information is required to be restated in accordance with SFAS
No. 131, if practicable.
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, 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 making a loan an impaired loan, considers a number of factors, such
as a borrower's financial strength, the value of related collateral and the
ability to continue to meet the original contractual terms of a loan. Major risk
classifications, used to aggregate loans include both credit and the risk of
failure to repay a loan and concentration risk. 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 impaired loan. All of the
Corporation's impaired loans, which amounted to $1,752,000, $1,718,000 and
$3,361,000 at March 31, 1999, December 31, 1998 and March 31, 1998,
respectively, were put on a nonaccrual status and any outstanding accrued
interest receivable on such loans at the time they were put 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 March 31, 1999, December 31, 1998
Form 10-Q
Page 6
and March 31, 1998, 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 $1,752,000, $1,718,000, and
$3,361,000, respectively.
If the loan valuation is less than the recorded value of the loan, an
impairment reserve must be established for the difference. The impairment
reserve is established by either an allocation of the reserve for loan losses or
by a provision for loan losses, depending on the adequacy of the reserve for
loan losses. All impairment reserves established in either 1999 or 1998 were
allocated from the existing reserve for loan losses. As of March 31, 1999,
December 31, 1998 and March 31, 1998, there were $1,013,000, $935,000 and
$2,203,000, respectively of impaired loans for which there is a related
allowance for loan losses. The total related allowance for loan loss at March
31, 1999, December 31, 1998 and March 31, 1998 was $278,000, $300,000 and
$300,000, respectively. Impaired loans for which no loan loss allowance was
allocated amounted to $739,000, $783,000 and $1,158,000 at March 31, 1999,
December 31, 1998 and March 31, 1998, respectively. Average impaired loans as of
March 31, 1999, December 31, 1998 and March 31, 1998 amounted to $1,797,000,
2,820,000 and $3,218,000, 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, 1999 or 1998. 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 1999 or 1998.
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,
1999 1998 1998
------- ------- -------
Balance, Beginning of period $ 4,100 $ 4,074 $ 4,074
------- ------- -------
Charge-offs:
Consumer (46) (27) (179)
Commercial and industrial 0 0 (64)
Real estate 0 (26) (0)
------- ------- -------
Total charge-offs (46) (53) (243)
------- ------- -------
Recoveries:
Consumer 7 3 19
Commercial and industrial 0 0 100
Real estate 0 5 0
------- ------- -------
Total recoveries 7 8 119
------- ------- -------
Net (charge-offs)/recoveries (39) (45) (124)
Provision for loan losses 63 25 150
------- ------- -------
Balance, End of period $ 4,124 $ 4,054 $ 4,100
======= ======= =======
8. Acquisition of New Subsidiaries:
During the first quarter of 1999, the Corporation acquired CDC Capital
Management, Inc. ("CDC") and Joseph W. Roskos & Co. ("JWR & Co."). CDC is an
investment advisory firm, providing services to its client base regarding
alternative investment managers. JWR & Co. is a firm that provides family office
business services, including accounting, consulting, tax services and fiduciary
support for high-net-worth individuals. CDC was acquired for $281,000 in
Corporation stock, to be paid out over a two year period. The purchase method of
accounting was used for this acquisition and the transaction added $177,000 of
goodwill to the Corporations books. JWR & Co. was acquired for $4,195,000, of
which $2,000,000 was paid in Corporation stock and $2,195,000 was paid in cash.
The purchase method of accounting was used for this acquisition and the
transaction added $3,300,000 in goodwill to the Corporation's books. As a result
of these acquisitions, goodwill of $3,477,000 was added to the Corporations
books. The amortization period for goodwill ranges from 10 years to a maximum of
20 years. Goodwill expense for the first quarter of 1999 amounted to $46,000.
Form 10-Q
Page 8
7. Segment Information:
The Corporation's principal operating segments are structured around the
finanical services provided its customers. The banking segment gathers deposits
and makes funds available for loans to its customers. The Bank's Investment
Management and Trust 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, 1999 and 1998 is as
follows:
-------------------------------------------------------------
1999
Mortgage All
Banking Trust Banking Other Consolidated
-------------------------------------------------------------
Net interest income 5,288 -- -- -- 5,288
Less Loan loss provision 63 -- -- -- 63
-------------------------------------------------------------
Net interest inocme after
loan loss provision 5,225 -- -- -- 5,225
Other income:
Fees for investment
management and trust
services -- 2,418 -- -- 2,418
Other income 627 530 1,085 2,242
-------------------------------------------------------------
Total other income 627 2,418 530 1,085 4,660
Other expenses:
Salaries and benefits 2,368 949 169 588 4,074
Occupancy 704 128 39 46 917
Other operating expense 1,301 237 78 436 2,052
-------------------------------------------------------------
Total other expense 4,373 1,314 286 1,070 7,043
-------------------------------------------------------------
Segment profit (loss) 1,479 1,104 244 15 2,842
Intersegment (revenues)
expenses* (1) 59 (58) 0
-------------------------------------------------------------
Segment profit after
eliminations 1,478 1,163 244 (43) 2,842
-------------------------------------------------------------
% of segment profit (loss) 52% 41% 9% -2% 100%
-------------------------------------------------------------
-------------------------------------------------------------
1998
Mortgage All
Banking Trust Banking Other Consolidated
-------------------------------------------------------------
Net interest income 4,872 -- -- -- 4,872
Less Loan loss provision 25 -- -- -- 25
-------------------------------------------------------------
Net interest inocme after
loan loss provision 4,847 -- -- -- 4,847
Other income:
Fees for investment
management and trust
services -- 2,178 -- -- 2,178
Other income 632 525 90 1,247
-------------------------------------------------------------
Total other income 632 2,178 525 90 3,425
Other expenses:
Salaries and benefits 2,313 850 149 134 3,446
Occupancy 632 90 10 (11) 721
Other operating expense 1,109 216 88 76 1,489
-------------------------------------------------------------
Total other expense 4,054 1,156 247 199 5,656
-------------------------------------------------------------
Segment profit (loss) 1,425 1,022 278 (109) 2,616
Intersegment (revenues)
expenses* (1) 59 (58) 0
-------------------------------------------------------------
Segment profit after
eliminations 1,424 1,081 278 (167) 2,616
-------------------------------------------------------------
% of segment profit (loss) 54% 41% 11% -6% 100%
-------------------------------------------------------------
* Intersegment revenues consist of rental payemnts 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, 1999 and 1998, as well as the financial condition
of the Corporation as of March 31, 1999, December 31, 1998 and March 31, 1998.
The Bryn Mawr Trust Company (the "Bank") The Bryn Mawr Trust Company (Jersey),
Ltd. ("Jersey")and Tax Counsellors of Bryn Mawr, Inc. ("TCBM") are wholly-owned
subsidiaries of the Corporation, Insurance Counsellors of Bryn Mawr, Inc.
("ICBM") is a wholly-owned subsidiary of the Bank. In December of 1998, the
Corporation formed a wholly-owned subsidiary, Bryn Mawr Brokerage Company, Inc.
("BM Brokerage") to offer securities products to its customers through the
Bank's branch system. The Corporation acquired two new subsidiaries during the
first quarter of 1999, CDC Capital Management, Inc. ("CDC") and Joseph W. Roskos
& Co. ("JWR & Co."). CDC is an investment advisory firm, providing services to
its client base regarding alternative investment managers. JWR & Co. is a firm
that provides family office business services, including accounting, consulting,
tax services and fiduciary support for high-net-worth individuals.
RESULTS OF OPERATIONS
The Corporation reported net income of $1,842,000 for the three months
ended March 31, 1999, a 5% increase over $1,746,000 reported for the same period
in 1998. During 1998, the Bank reported net gains on the sale of other real
estate owned ("OREO") of $86,000 and a recovery of $144,000 in disputed legal
fees from a prior loan settlement (the "Non-recurring Items"). Exclusive of
these Non-recurring Items, which added $152,000 to net income on an after tax
basis in 1998, the Corporation's earnings grew by 16% over 1998 earnings.
Earnings per common share amounted to $0.42, a 5% increase over $0.40 reported
for the first quarter of 1998. Earnings per common share, assuming dilution were
$0.40 and $0.38, respectively.
Exclusive of the after tax effect of the Non-recurring Items, the increase
in earnings, for the first three months of 1999 over the same period in 1998 may
be attributed to a number of factors, including an increase in net interest
income, up 8% over the first three months of 1998 and an increase of 40% in
other income, primarily due to growth in new revenue streams provided by the
acquisition or start-up of the new subsidiaries referred to previously. Other
expenses, exclusive of the Nonrecurring Items, rose 22% for the first three
months of 1999 compared to the same period in 1998.
Average outstanding loan balances for the first three months of 1999 grew
6% from average daily outstanding loan balances for the first three months of
1998. Average outstanding investment security balances grew by 16%. The
increases in both average loan balances and average investment balances were
partially funded by a 9% increase in average daily outstanding deposit balances.
The majority of the growth in average daily outstanding deposits occurred in
transaction based accounts. Average daily outstanding balances of non-interest
bearing demand deposit accounts and NOW accounts were up 9% and
Form 10-Q
Page 10
20%, respectively.
The prime rate decreased by 75 basis points from 8.5% at March 31, 1998 to
7.75% at March 31, 1999. 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 50 basis points, from 7.9% at March 31,
1998 to 7.4% for the same period in 1999.
The decrease in the prime rate over the prior twelve month period was
directly attributable to a decrease in the yield on variable rate loans, tied to
the prime rate. This decrease in the overall yield on loans was primarily
responsible for the 50 basis point decrease in the yield on earning assets. In
an effort to mitigate the effect of the decline in the yield on earning assets,
Bank management lowered interest rates paid on deposits during the first quarter
of 1999. Compared to the same quarter of 1998, the average cost of funds for the
respective periods decreased 38 basis points, from 1.98% in 1998 to 1.60% in
1999. The result was an decrease in the Bank's annualized net interest margin,
to 5.88% for the first three months of 1999 compared to 5.97% for the same
period in 1998. 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, 1999, net interest income rose 9% to
$5,288,000 from $4,872,000 in 1998. Total interest income grew 4% for the first
three months of 1999, to $6,632,000 from $6,400,000 for the first three months
of 1998. Interest expense decreased 12% for the three months ended March 31,
1999, to $1,344,000 compared to $1,528,000 for the first three months of 1998.
The yield on earning assets for the first three months of 1999 was 7.4% compared
to 7.9% for the first three months of 1998 while the effective rate paid on
interest bearing deposits for the first three months of 1999 and 1998 was 2.2%
and 2.7%, respectively.
Interest and fees on loans increased 3% from $5,552,000 for the first
three months of 1998 to $5,727,000 for the first three months of 1999. A 9%
increase in average outstanding earning assets for the first three months of
1999, to $353,820,000, compared to $324,833,000 for the same period in 1998,
offset by a 50 basis point decrease in the annualized average yield on earning
assets are the primary reasons for this increase in loan related interest and
fee income.
Interest income on investments increased $30,000 or 5%, from $598,000 for
the first three months of 1998 to $628,000 for the first three months of 1999.
Interest from U.S. Treasury obligations decreased 46% from $189,000 for the
first three months of 1998 to $102,000 for the first three months of 1999. The
primary reason for this decrease was a $5,817,000 or 44% decrease in the average
balance of U.S. Treasury securities, from $13,138,000 during the first three
months of 1998 to $7,321,000 for the comparable period in 1999. The decrease in
U.S. Treasury obligations was a result of maturities, not sales of U.S. Treasury
obligations. Interest income on U.S. Government Agency
Form 10-Q
Page 11
securities increased 34% from $339,000 for the three months ended March 31, 1998
to $455,000 at March 31, 1999. A 55% increase in the average balance of U.S.
Government Agency securities, from $22,083,000 for the three months ended March
31, 1998 to $34,180,000 for the same period in 1999, is primarily responsible
for the related 34% increase in interest income. Interest income on obligations
of states and political subdivisions remained level at $51,000 for the three
months ended March 31, 1999 and 1998. While average outstanding balances of
obligations of state and political subdivision increased by 6%, from $4,415,000
in 1998 to $4,676,000 in 1999, a decrease in the respective yields on these
securities was responsible for the level income, reported for both periods. The
overall yield on investment securities decreased from 5.9% for the first three
months of 1998 to 5.4% for the first three months of 1999, a result of lower
rates of interest being paid on investments purchased during the twelve month
period.
Interest expense on deposits decreased 12% or $184,000, to $1,344,000 for
the three months ended March 31, 1999 compared to $1,528,000 for the same period
in 1998. The average cost of interest bearing deposits decreased 50 basis
points, from 2.7% at March 31, 1998 to 2.2% for the three months ended March 31,
1999. The average interest bearing deposit balances increased 9% to $249,568,000
at March 31, 1999 compared to $228,842,000 for the same period in 1998. Average
non-transaction savings accounts remained level for the first three months of
1999, compared to the same period in 1998, while average Market Rate Accounts
and CDs increased by 9% and 1%, respectively. The Bank's average transaction
based NOW account and non-interest bearing demand deposit account balances
increased 20% and 9% respectively. Primarily in response to a decline in the
prime rate over the previous twelve months, the average cost of funds for all
Bank deposit products were down. The annualized cost of CDs decreased 40 basis
points, from 5.0% for the first three months of 1998 to 4.6% for the same period
in 1999. The average cost of Market Rate Accounts and savings accounts both
decreased by 50 basis points, while the cost of NOW accounts decreased by 40
basis points. The average cost of deposits, including non-interest bearing
demand deposits decreased from 1.98% for 1998, to 1.60% for the first quarter of
1999.
The Bank's asset / liability structure is asset rate sensitive, which
should cause a decline in the net interest margin, should rates decline.
Therefore, the 75 basis point decline in the prime rate over the past twelve
months is primarily responsible for a 9 basis point decline in the annualized
net interest margin for the first three months of 1999, when compared to the
same period in 1998. For the first three months of 1999, the net interest margin
decreased to 5.88% from 5.97% for same period in 1998. The net interest margin
is computed exclusive of related loan fee income.
LOAN LOSS PROVISION
The loan loss provision represents management's determination of the
amount necessary to be charged against the current year's income in order to
maintain an adequate loan loss reserve. The Bank maintains an Officer Loan
Review Committee (the "Committee") and retains the services of an independent
loan review consultant (the "Consultant"). The Consultant performs an
independent review of the Bank's loan portfolio and the loan loss reserve. The
Committee meets monthly to review the adequacy of the loan loss reserve as well
as all nonaccrual loans, any potential problem loans and loans criticized
Form 10-Q
Page 12
by either the Bank's regulators or the Consultant.
Based on ratings assigned by the Committee on the quality of the loans
which are reviewed, a specific reserve may be computed for each loan. In
addition to the specific reserve amounts, the balance of loans not reviewed by
the Committee has a reserve computed based on the average of the prior five
years write-offs plus the annualized write-offs for the current year. Including
annualized write-offs for the current year takes into consideration current
trends in both volumes and write-offs, to be included in the computation.
Finally, an amount equal to .5% of all outstanding loans is included in the loan
loss reserve calculation to address possible unforeseen loan loss reserve
requirements. The sum of the specific reserves, the reserve calculated based on
average write-offs and the reserve calculated based on the entire portfolio for
possible unforeseen loan losses is compared to the Bank's current loan loss
reserve balance. Any additions deemed necessary to the loan loss reserve are
then made on a timely basis.
Based on the results of the aforementioned reviews and to keep pace with
an expanding loan portfolio, the loan loss provision was increased to $63,000
for the three months ended March 31, 1999, compared to $25,000 for the same
period in 1998. The loan loss reserve amounted to 1.40% of outstanding loans at
March 31, 1999. Delinquencies, as a percentage of outstanding loans, were 64
basis points as of March 31, 1999. Nonperforming loans decreased 20% to $612,000
as of March 31, 1999, down from $764,000 as of December 31, 1998 and decreased
42% from $1,047,000 in nonperforming loans as of March 31, 1998. The loan loss
reserve amounted to 674% of nonperforming loans as of March 31, 1999 compared to
387% as of March 31, 1998. Based on the results of both the internal and
external loan review processes and the current level of nonperforming loans,
management believes the loan loss reserve to be adequate as of March 31, 1999.
OTHER INCOME
Total other income of $4,660,000 for the three months ended March 31, 1999
increased 36% over $3,425,000 reported for the same period in 1998. Included in
these amounts was an $86,000 increase in net gains on the sale of OREO.
Exclusive of these gains, total other income increased by 40% over 1998 levels.
Fees for trust services rose 11% from $2,178,000 for the first three
months of 1998 to $2,418,000 for the same period in 1999, due primarily to both
the acquisition of new Trust accounts and an increase in the market value of
Trust assets under management, up by 19%, to $2,158,615,000 at March 31, 1999
from $1,812,937,000 as of March 31, 1998.
For the three month period ended March 31, 1999, the Bank originated and
sold $26,736,000 of residential mortgage loans in the secondary mortgage market,
a 25% decrease from $35,431,000 of residential mortgage loans originated and
sold during the first three months of 1998. A combination of deferred loan fees
earned as income resulting from the sale of residential mortgage loans in the
secondary mortgage market and related gains on the same respective sales of
residential mortgage loans in the secondary mortgage market amounted to $226,000
or 85 basis points for the first quarter of 1999 compared to $280,000 or 79
basis points for the same period in 1998.
Form 10-Q
Page 13
Income from other service charges, commissions and fees amounted to
$313,000 for the first quarter of 1999, an 8% increase from $290,000 reported
for the first quarter of 1998. There were no OREO sales reported for the first
quarter of 1999. Therefore, there were no gains compared to gains of $86,000 for
the first quarter of 1998.
Other operating income increased by $1,064,000 or 36% to $1,303,000 for
the first three months of 1999, compared to $239,000 for the same period in
1998. Of this $1,064,000 increase, fee income of $996,000 was earned by
subsidiaries of the Corporation, other than the Bank, three of which, CDC, JWR &
Co. and BM Brokerage, were not in operation during 1998. Non-banking
subsidiaries earned $90,000 in other income for the first three months of 1998,
compared to $1,086,000 for the same period in 1999.
OTHER EXPENSES
Total other expense increased 25% for the first three months of 1999 to
$7,043,000 from $5,656,000 for the first three months of 1998. Exclusive of a
non-recurring recovery of a legal fee, recovered during the first quarter of
1998, total other expense increased $1,253,000 or 22%. Of this increase $875,000
related to expenses incurred by the non-banking subsidiaries and the
Corporation, while $378,000 related to a 7% increase in the Bank's total other
expense. Each other expense category, discussed below, reflects the effect of
increased expenses related to these non-banking subsidiaries.
Salaries and wages grew $516,000 or 18%, from $2,896,000 for the three
months ended March 31, 1998 to $3,412,000 for the same period in 1999. Of this
increase, $704,000 relates to regular salary expense, representing a 30%
increase in regular, part time and overtime salaries during the first quarter of
1999, compared to 1998. Included in 1999's regular salary expense increase were
increased salaries for the non-banking subsidiaries of $330,000 over 1998's
regular salary expense. The Bank's regular salary expense increased 17% in the
first quarter of 1999, compared to the same quarter in 1998. Staffing additions,
occurring during the previous twelve month period were primarily responsible for
this increase. Incentive salaries, tied to overall corporate profitability,
decreased $188,000 or 35%, from $539,000 for the three months ended March 31,
1998 to $351,000 for the same period in 1999.
Employee benefits expenses increased $102,000 or 19% from $550,000 for the
first three months of 1998 to $652,000 for the same period in 1999. The Bank's
employee benefits expense increased $59,000 or 11%. The remainder of the
increase was due to fringe benefits expenses associated with the non-banking
subsidiaries.
Occupancy expense increased $86,000 or 27%, from $321,000 for the first
three months of 1998 to $407,000 for the first three months of 1999. Expenses
directly related to the non-banking subsidiaries accounted for $41,000 or 47% of
the increase, while the Bank's occupancy expense increased by 7%.
Furniture, fixtures and equipment expense increased $110,000 or 28% from
$400,000 for the first quarter of 1998 to $510,000 for the same period in 1999.
The Bank's furniture, fixtures and equipment expense increased by $93,000 or
23%. The largest increases occurred in depreciation, up $52,000, small equipment
and software expense, up $19,000 and the cost of maintenance
Form 10-Q
Page 14
agreements, which increased by $14,000.
Other operating expenses increased $563,000 or 38%, from $1,489,000 for
the first three months of 1998 to $2,052,000 for the first three months of 1999.
Included in other operating expense for 1998 was a non-recurring recovery,
related to a prior disputed loan. Exclusive of this non-recurring recovery,
other operating expense increased by $429,000. Of this $429,000 increase,
$259,000 related to the non-banking subsidiaries and the Corporation, while the
Bank's expense increased by $70,000 or 5%.
APPLICABLE INCOME TAXES
The Corporation's effective tax rate, defined as income tax expense
divided by pre-tax income, for the first three months of 1999 and 1998 was 35%
and 33%, respectively. The effective tax rate increased in 1999 due to the
amortization of goodwill, which is non-deductible for federal income tax
purposes.
FINANCIAL CONDITION
Total assets decreased 1% from $391,840,000 at December 31, 1998 to
$389,407,000 as of March 31, 1999. Total assets grew 10% from $355,334,000 as of
March 31, 1998.
Outstanding earning assets decreased 2% to $349,045,000 as of March 31,
1999 from $357,683,000 as of December 31, 1998. The Bank's loan portfolio
increased 4%, to $293,637,000 at March 31, 1999 from $281,185,000 as of December
31, 1998. Outstanding loans increased by 8%, from $272,379,000 as of March 31,
1998. Outstanding consumer loans of $69,293,000 at March 31, 1999 increased 2%
from consumer loan outstanding balances of $68,078,000 as of December 31, 1998
and decreased 8% from $75,042,000 as of March 31, 1998. Competition from
automobile manufacturers for automobile loans and borrowers' ability to
refinance existing fixed rate home equity loans with lower rate residential
mortgage loans were the primary reasons for the decrease in consumer loan
balances from March 31, 1998. However, an increase in home equity loan activity
during the first quarter of 1999 is the primary reason for the increase in
consumer loan balances during the first quarter of 1999. Outstanding commercial
loans at March 31, 1999 were $92,941,000, a 4% increase from outstanding
commercial loan balances of $89,368,000 at December 31, 1998 and 11% ahead of
$83,867,000 at March 31, 1998. Outstanding real estate loans were $131,403,000
at March 31, 1999, a 6% increase from $123,739,000 in outstanding real estate
loans at December 31, 1998 and a 16% increase over $113,470,000 in outstanding
real estate loans as of March 31, 1998. The primary reason for the increase in
outstanding real estate loans from December 31, 1998 to March 31, 1999 was an
increase in commercial mortgage lending activity.
The Bank's investment portfolio, having a market value of $40,042,000 at
March 31, 1999, decreased 21% from a market value of $50,976,000 at December 31,
1998 and decreased 3% from $41,376,000 as of March 31, 1998.
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 or deducted from the Corporation's total
Form 10-Q
Page 15
equity on the balance sheet. As of March 31, 1999, the investment portfolio had
an unrealized loss of $2,000, compared to an unrealized gain of $152,000 as of
December 31, 1998. The unrealized investment depreciation, net of deferred
income tax benefit, decreased the Corporation's shareholders' equity on the
balance sheet by $1,000 as of March 31, 1999.
Federal funds sold amounted to $15,223,000 as of March 31, 1999, a 25%
decrease from $20,372,000 as of December 31, 1998 and a 44% increase over
$10,600,000 as of March 31, 1998. A large increase in deposits at year-end 1998
provided for a similar increase in federal funds sold. In an effort to mitigate
potential concentration risk in the sale of federal funds sold, the Bank
invested excess funds into its interest bearing account at the Federal Home Loan
Bank of Pittsburgh (the "FHLB"). As deposits decreased during the first quarter
of 1999, the balance of the FHLB account was also decreased. This is the reason
for a $5,007,000 decrease in interest bearing deposits with banks from December
31, 1998 to March 31, 1999. The decrease in outstanding federal funds sold from
December 31, 1998 was primarily due to both an increase in outstanding loans and
a decrease in deposits during the first quarter of 1999. Management continues to
monitor the liquidity requirements of the Bank and believes that it has the
ability to increase its liquidity position through growth of new CDs, borrowing
from the FHLB and the sale of investments, classified as available for sale.
Nonperforming assets amounted to $923,000 at March 31, 1999, a 21%
increase from $764,000 at December 31, 1998 and a 14% decrease from
nonperforming assets of $1,072,000 at March 31, 1998. Nonperforming loans
increased 24% to $612,000 at March 31, 1999 compared to nonperforming loans of
$493,000 at December 31, 1998 and decreased 42% from $1,047,000 as of March 31,
1998. OREO balances amounted to $311,000 As of March 31, 1999, a 15% increase
over $271,000 as of December 31, 1998 and increased $286,000 from $25,000 as of
March 31, 1998. Three OREO properties, all related to a single borrower, remain
on the Bank's books as of March 31, 1999.
As of March 31, 1999 and 1998, there were no significant loans classified
for regulatory purposes as loss, doubtful, substandard or special mention that
either (i) represent or result from trends or uncertainties which management
reasonably expects will impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is aware of
any information, causing management to have serious doubts as to the borrower's
ability to comply with the loan repayment terms.
Total deposits decreased 2% to $335,377,000 as of March 31, 1999 from
$342,357,000 as of December 31, 1998. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances increased 9% to $339,419,000 for the three month
period ended March 31, 1999 from $311,273,000 for the same period in 1998.
Average savings balances remained relatively level at $40,455,000 for the first
three months of 1999, compared to $40,530,000 for the same period in 1998. All
other deposit categories had growth in average outstanding balances. Market Rate
Account balances increased 11% or $4,787,000 from $44,111,000 in average daily
outstanding balances for the three months ended March 31, 1998 to $48,895,000
for the same period in 1999. Average outstanding NOW account balances grew 19%
or $15,275,000, from $82,397,000 for the first three months of 1998 to
$97,672,000 for the same period in 1999. Non-interest bearing demand deposit
average outstanding
Form 10-Q
Page 16
balances grew 9% or $7,420,000 from $82,431,000 for the three months ended March
31, 1998 to $89,851,000 for the same period in 1999. Average outstanding CD
balances increased 1% or $743,000 from $61,803,000 in average outstanding
balances for the first three months of 1998 to $62,546,000 for the same period
in 1999. Acquisition of new deposits from recent banking mergers and
consolidations and new lending relationships, bringing new deposit relationships
are the primary reasons for the growth in average deposits from the first
quarter of 1998 to the first quarter of 1999.
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 has developed a
revised 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.
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 March 31, 1999, 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 $44,581,000,
or 11.4% of total assets, as of March 31, 1999, compared to total shareholders
equity of $42,221,000, or 10.8% of total assets, as of December 31, 1998. As of
March 31, 1998, shareholders' equity was $39,549,000, or 11.1% of total assets.
The Corporation's risk weighted Tier I capital ratio was 12.55% as of March 31,
1999 compared to 13.55% and 13.69% at December 31, 1998 and March 31, 1998,
respectively. The respective Tier II ratios were 13.80%, 14.65% and 14.94%,
respectively. During the first quarter of 1999, the Corporation declared its
regular dividend of $0.15 per share, a 30% increase over $0.115 per share
declared during the first quarter of 1998.
In March 1999, the Corporation elected to continue a stock repurchase
program, originally established in March of 1997, with a goal of repurchasing up
to 5% of the outstanding stock of the Corporation, as of March 1, 1999. As of
March 31, 1999, the Corporation repurchased 175,800 shares of its stock at
Form 10-Q
Page 17
a cost of $4,125,000.
YEAR 2000
The Corporation began its process of assuring that all its software and
computer systems or any equipment with computer chips (collectively the
"Systems") and applications are Year 2000 ("Y2K") compliant in November 1996. In
1997, a comprehensive project plan (the "Plan") to address the Y2K problems and
issues, related to the Bank's and its affiliated operations, was developed and
implemented. The Bank, as the primary operating subsidiary of the Corporation is
addressing the Y2K problem and related issues for the Corporation and all of its
subsidiaries. The Plan includes five phases. They are as follows: Awareness,
Assessment, Renovation, Validation and Implementation, as defined by the Federal
Financial Institutions Examination Council and the banking regulatory agencies
which regulate the Corporation and it affiliates.
A project team, consisting of key members of the Bank's technology staff,
representatives of functional business units and senior management (the "Team")
was created. Additionally, the duties of the Senior Vice President and Chief
Technology Officer were realigned to serve primarily as the Y2K project manager.
The assessment of the impact of the Y2K issues on the Bank's Systems has been
completed. Based on the assessment, the Bank has identified and prioritized
those Systems deemed to be mission critical or those that have significant
impact on normal operations.
The Bank relies on third party vendors and service providers (the
"Groups") for its data processing capabilities and to maintain its computer
systems. Formal communications with those Groups were initiated in 1997 and
continued through 1998 and into 1999. Thus far responses indicate that most of
the significant providers in the Group currently have compliant versions
available or are well into the renovations and testing phases. Based on current
information related to the Group, management has determined that the Y2K issues
will not pose significant operational problems for the systems. However, the
Bank can give no guarantee that the systems of the Group on which the Bank's
systems rely will be timely renovated and Y2K compliant.
Additionally, the Bank has designed and completed implementation of a plan
to identify the potential risks posed by the impact of Y2K issues on both its
significant deposit customers and borrowing customers. Formal communications
have been initiated and findings are presented to the Board of Directors at each
quarterly Board of Directors' meeting. On those months that the Board of
Directors does not meet, an update of the Y2K initiative is presented to the
Board's Risk Management Committee.
In the fourth quarter of 1998, the Bank formed a Y2K Communications
Committee, consisting of Bank marketing officers and members of the Y2K Team.
This Committee is charged with educating and informing the Corporation's
employees, customers and community about the Y2K readiness of the Bank. Bankwide
employee training took place in the first quarter of 1999, as well as several
customer awareness initiatives were presented.
The Team estimates that the Bank's Y2K readiness is 98% complete and that
the activities involved in assessing external risks and operational issues are
100% complete.
Form 10-Q
Page 18
The Bank has used and expects to continue to use internal resources to
implement its readiness plan and to upgrade or replace the Systems effected by
the Y2K issue. The total cost to the Bank of the Y2K compliance activities has
not and is not anticipated to be material to the financial position or results
of operations in any given year. The Bank anticipates funding the cost of
becoming Y2K compliant out if its current earnings streams.
The Bank is evaluating the adequacy of its loan loss reserve, as it
relates to potential risk posed by the lack of Y2K readiness of its significant
borrowing customers. Bank management currently believes that the loan loss
reserve is sufficient to cover the potential needs of both Y2K and non-Y2K loan
loss activity. Bank management is monitoring the loan loss reserve, as it
relates to Y2K matters on an ongoing basis.
A detailed cost analysis of the costs incurred to date in conjunction with
Y2K is being maintained in the Bank's information services area. Based on a
review of this analysis, it was determined that the following are the most
significant Y2K cumulative expenditures to date, along with a projection of
potential expenditures, necessary to complete the Y2K compliance requirements.
New Hardware / Software replacement $270,000
AS/400 for Y2K testing 33,000
Modifications to existing systems 29,000
Other Y2K costs to date 222,000
-------
Total expended to date 554,000
Anticipated additional costs 34,000
-------
total projected Y2K costs 588,000
The costs and the timetable in which the Bank plans to complete the Y2K
readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Bank can make no guarantee that these estimates will be achieved,
and actual results could differ from such plans.
Bank management believes, based on information and testing results
obtained from both mission critical vendors, that both are and it is anticipated
will remain Y2K compliant. The Bank will continue to monitor the Y2K compliance
of these two mission critical vendors.
The potential reasonable worst case scenario, relating to Y2K compliance,
would be if either the Bank's or the separate Investment Management and Trust
Division's mission critical vendors supporting both data processing systems were
to fail due to a Y2K problem.
Realizing that some disruption may occur despite our best efforts, because
of the Y2K issue, the Bank has substantially updated its contingency plans for
each critical system, in the event one of those systems fails. The Bank's
mission critical vendors have developed contingency plans to provide resources
during the weekend of December 31, 1999 and for a period of time afterward to
help their clients overcome any unforeseen problems, associated with the
millennium change. The Bank's mission critical vendors anticipate the ability to
resolve any potential Y2K related problem in a timely manner. The status of the
contingency planning process has been, and continues to be,
Form 10-Q
Page 19
presented, to the Bank's Board of Directors on an ongoing bases and the
contingency plan will substantially complete by June 15, 1999.
Form 10-Q
Page 20
PART II. OTHER INFORMATION
March 31, 1999
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
The Corporation filed a report on Form 8-K on March 3, 1999, reporting the
continuation of its stock repurchase program for another year, through
march 31, 2000. The program authorized Corporation management to spend up
to $6,500,000 to repurchase up to 5$ of the outstanding shares of the
Corporation as of March 1, 1999.
The Corporation filed a report on Form 8-K on March 8, 1999, reporting the
resignation of Peter H. Havens as Executive Vice President of the Bank and
his resignation as director of both the Bank and Corporation. Mr. Havens'
resignation was for personal reasons.
Form 10-Q
Page 21
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 11, 1999 By: /s/ Robert L. Stevens
------------------- ----------------------------
Robert L. Stevens
Chairman, President &
Chief Executive Officer
Date: May 11, 1999 By: /s/ Joseph W. Rebl
------------------- ----------------------------
Joseph W. Rebl
Treasurer and Assistant
Secretary
Form 10-Q
Page 22