Bryn Mawr Bank Corporation
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------
Five-Year
Compound
For the year 1999 1998* Change Growth Rate
- ----------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS
Net interest income ................... $ 22,460 $ 20,106 12% 8%
Other income .......................... 18,610 15,076 23 17
Other expenses ........................ 28,980 24,695 17 11
Net income ............................ 7,961 6,857 16 14
At year end
- ----------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS
Total assets .......................... $436,820 $391,840 11% 6%
Total net loans ....................... 334,539 277,085 21 8
Total deposits ........................ 371,068 342,357 8 4
Shareholders' equity .................. 46,719 42,221 11 11
Per common share
- ----------------------------------------------------------------------------------------------
Earnings per common share ............. $ 1.83 $ 1.58 16% 15%
Earnings per common
share-assuming dilution ............ $ 1.75 $ 1.51 16 14
Dividends declared .................... 0.60 0.465 29 30
Book value ............................ 10.74 9.81 9 12
Closing price ......................... 23.88 27.25 (12) 25
Selected ratios
- ----------------------------------------------------------------------------------------------
Return on average assets .............. 1.99% 1.91% -- --
Return on average
shareholders' equity ............... 17.97% 17.06% -- --
*Reclassified for comparitive purposes.
1999 Annual Report 1
Dear Shareholders:
The Corporation's financial performance this year was solid; net income
increased 16%. Our results show very well, especially against traditional banks.
What we have accomplished in the way of expanding our revenue streams separates
us from all but a few banking institutions. Revenue from non-interest related
banking services, a key indicator of our Bank's development as a diverse
financial service operation, amounted to $18.6 million this past year. Net
interest income, traditional banking profit, was $22.5 million. So, 45% of our
revenue is now fee-based. We've grown revenues from these fees at a 15% average
annual rate over the last ten years.
And, though we've grown, we continue to possess a unique combination of three
elements which separate us from every other banking institution I know of: our
people, our size, and the breadth of our services lines.
From left:
Robert L. Stevens
Diane C. McDonald
Samuel C. Wasson, Jr.
[PHOTO]
We've a wide range of financial services in place: financial planning,
investment management, personal financial accounting, insurance, tax advice, and
foundation management, all in addition to traditional banking. Assembling the
services has not been difficult; meshing them into cohesive offerings,
understandable to our customers, has proved more challenging than I imagined.
We've still much to do to bring the service offerings we have to our clients in
a seamless, thoughtful way.
The year's activities were dominated by two controlling factors. First, was the
addition of two new subsidiaries: Joseph W. Roskos & Co., a personal financial
accounting and tax firm which is the area's premier Family Office service
provider; and CDC Capital Management, Inc., a registered investment advisory
firm. The second factor was the departure of several in our Investment
Management and Trust Division.
The departure of these employees, and the loss of business that resulted,
coincided with the shift in culture which I initiated in the fall of 1998, and
the commitment I've asked from everyone. I intend to create an organization
fully aligned with client-oriented service and professional excellence, one
which encourages open, candid communication, and trustworthy relationships, both
within the Corporation and with clients.
2 Bryn Mawr Bank Corporation
To accomplish our organizational development, I have engaged a professional
consulting firm, which we have been working with for over a year, to create a
"Learning Organization." Happily, I can see results, both within me, and in
those around me, but a bumpy road it is!
Joseph W. Roskos, who joined the Corporation in January as CEO of Joseph W.
Roskos & Co., our Family Office, has responsibility for our Trust Division and
has added five seasoned professionals to our Trust Administration staff, the
backbone of the division. Three investment professionals have been hired in
1999. And to strengthen the Investment Management services we offer--through
Investment Counsellors of Bryn Mawr, the Trust Division, CDC Capital Management,
Inc., and Bryn Mawr Brokerage Company, Inc.--at year end, I appointed Thomas M.
Petro to lead that effort. Tom came to the Bank ten years ago and has proven to
be an excellent manager.
The quality of our investment management services has remained consistent. We
have been a large-cap growth style manager since 1988, and have continued to
provide a fine investment performance, as measured by our flagship fund offering
which advanced 25% this year, exceeding the Standard & Poor 500 average. We
have, over many years, delivered consistently fine investment performance.
So, we had an excellent year, and, more importantly, we're making headway
despite our growing pains. I'll keep on pressing to have us develop, learn, and
grow. I've been CEO for twenty years, and an employee for forty. My goal is to
see that Bryn Mawr Bank Corporation becomes one of the country's premier
providers of personal financial service to wealthy families. Members of the
Board and I are working on my succession to insure a smooth transition when the
time is right.
Finally, let me attempt, now, to put what we do for clients in understandable
order for you. We help create, manage, protect, and transfer wealth for our
clients.
Creation
- - investment advice
- - savings
- - loans (business/personal)
- - 401(k) management
Management
- - investment management
- - family office (bill paying/tax returns)
- - cash management (personal/business)
- - Member Banking (highly personalized routine banking service)
- - business banking
Protection
- - tax advice/preparation
- - insurance (property/casualty and life)
- - annuities
- - custody services
Transfer
- - planning
- - estate administration
- - trust administration
- - foundation management
There's much in the financial section to show the year's results, so please read
on to know more about our financial performance.
I welcome your inquiry, am happy to respond to any question you have, and will
do my very best to continue to keep Bryn Mawr Bank Corporation worthy of your
support.
Sincerely,
/s/Robert L. Stevens
Robert L. Stevens
Chairman
February 25, 2000
1999 ANNUAL REPORT 3
The Year in Review
As we begin the new millennium, The Bryn Mawr Trust Company is a very different
institution from the neighborhood bank that was established over a century ago.
Now, the principal subsidiary of Bryn Mawr Bank Corporation, it has evolved from
a traditional bank into a diversified financial service provider. While
continuing to maintain the high quality of our traditional competencies, we
recognize that to compete successfully, we must respond fully to the more
sophisticated and complex financial needs of our constituency.
[PHOTO]
From left:
Radclyffe F. Thompson
Joseph H. Bachtiger
Randy G. Thomas
Lisa M. Brinton
Joseph W. Roskos
4 Bryn Mawr Bank Corporation
Beginning in 1996, the Corporation began to expand upon its traditional banking
and trust business by offering diverse financial services including: individual
investment management, investment advisory services, brokerage, tax counseling,
insurance, financial planning, and expanded family office, or personal
accounting services.
A number of factors accelerated the shift in direction from remaining a
community bank to becoming a full financial service provider. The major
motivating factor was, however, the inherently slow growth of traditional
banking business, which demanded that we expand revenue streams to include more
fee-based products and services.
OUR FRANCHISE
- --------------------------------------------------------------------------------
We are fortunate to be located in the heart of the fifth largest wealth market
in the nation. We have an established franchise concentrated in the affluent
Philadelphia suburban area known as the "Main Line." We are in a prime market to
take advantage of the opportunity that is being created by dramatic demographic
changes, such as the aging of the baby boomers, the new wealth created by a
strong stock market, and the transfer of wealth from generation to generation.
[GRAPH]
1999 1998 1997 1996 1995
BASIC E P S $1.83 $1.58 $1.40 $1.38 $1.06
- -----------
TRUST ASSETS
- ------------
Discretionary 1,128,000 1,270,000 949,753 719,384 573,990
Non-Discretionary 759,000 831,000 716,719 510,542 465,804
--------- --------- --------- --------- ---------
Total 1,887,000 2,101,000 1,666,472 1,229,926 1,039,794
TOTAL REVENUE STREAMS
- ---------------------
Trust Fees 9,784 9,272 7,698 5,936 5,496
Net Interest Income 22,460 20,106 18,031 17,847 16,371
Other Non-Interest Income 8,826 5,804 4,388 4,487 3,701
--------- --------- --------- --------- ---------
Total 41,070 35,182 30,117 28,270 25,568
LOANS SERVICED FOR OTHERS 306,147 290,675 255,571 224,366 255,571
- -------------------------
TOTAL ASSETS MANAGED
- --------------------
Corporation' Balance Sheet 436,820 391,840 374,210 345,747 354,956
Loans Sold, Serviced for Others 306,147 290,675 255,571 244,366 224,430
Fidelity Funds 100,372 43,007 23,826 13,217 3,933
Trust Assets 1,887,000 2,101,000 1,666,472 1,229,926 1,039,794
C D C Assets 295,466 0 0 0 0
--------- --------- --------- --------- ---------
Total 3,025,805 2,826,522 2,320,079 1,813,256 1,623,113
COMMON STOCK
- ------------
Market Value $23.88 $27.25 $25.50 $13.63 $13.00
Book Value $10.74 $ 9.81 $ 9.00 $ 8.14 $ 7.29
SELECTED AVERAGE BALANCES
- -------------------------
Total Corporation Assets 399,061 359,860 351,437 336,719 334,391
Total Average Deposits 341,603 314,061 308,620 295,541 298,726
Transaction Accounts 185,867 168,090 150,034 143,583 134,653
1999 ANNUAL REPORT 5
We find that "bigger is better" is no longer the popular perception when it
comes to the financial service industry. There is a place for a small financial
institution that can provide first quality financial products and services in a
warm personal way. Our ability to connect clients to related services, and our
"client first" approach has been well received. And while we continue to focus
on personal attention, we have added convenient services that enable our clients
to do business with us on their own terms--in person, by phone, or on-line.
WEALTH MANAGEMENT
- --------------------------------------------------------------------------------
Through the acquisition of the Joseph W. Roskos Co., we now have the pre-eminent
family business office in the Mid-Atlantic region. Our Family Office defines our
approach to delivering high quality, personalized financial services to wealthy
individuals and their families. We simplify the complexities associated with
wealth by serving as an outsourced accounting department for a family - doing
for them the work that would typically be performed by the accounting department
of a small business. This includes functions like collecting income from various
sources, paying bills, keeping payroll records, preparing monthly income and
expense summaries, tax planning and return preparation, insurance reviews, will
and estate reviews and other functions.
[PHOTO]
From left:
Norman S. MacQueen,III
Nancy L. Gross
J. Michael Devine
Jere E. Estes
William A McNeal
Thomas M. Petro
F. Cristopher Campbell, III
William A. Keefe
John M. Grib
Andrea Pilch
Eric D. Thorne
Peter T. Maher, Jr.
6 Bryn Mawr Bank Corporation
Family Office services can stand alone, or can be used by clients in concert
with our well-established trust and investment services. In 1999, we acquired
CDC Capital Management to expand our investment capabilities. Through CDC our
clients have access to investment talent from a global network of institutional
money managers representing a broad range of investment styles. This complements
our large cap growth style of investing client assets that has returned strong,
consistent, reliable investment performance. Our Qualified Equity Fund (QEF)
outperformed the S&P 500 again in 1999 with a total return of 24.93%. We use the
same large cap investment discipline in selecting equities for individual client
portfolios as we do for our QEF.
We have expanded our services for individuals to include securities brokerage,
tax planning, estate planning, foundation management and insurance. Insurance is
a key product offering in helping clients transfer wealth and protect their
assets.
Business Advisory
[PHOTO]
1999 ANNUAL REPORT 7
FOCUS ON BUSINESS
- --------------------------------------------------------------------------------
In the past decade, we increased the depth of our commercial banking activities
by adding strong cash management capabilities and employee benefits services,
such as 401k plan administration and pension plan management. We have built upon
this core group of commercial services to include new services: employee group
health and welfare plan administration, executive compensation and benefit plan
design consulting services, tax planning services and specialty insurance
services like key-man insurance, error and omission and director and officer
liability insurance. Our approach is to help business clients measure and manage
insurable risks.
Despite the industry-wide slow growth rate experienced in the commercial line of
business, our business banking continues to grow. Our commercial loan portfolio
grew 34% in 1999. As we look ahead, we expect to see more capital markets
activity by helping business clients use such well established risk management
techniques as interest rate swaps and other hedging products.
- --------------------------------------------------------------------------------
[GRAPH]
Total Assets
IN MILLIONS OF DOLLARS 1999 [PLOT POINTS TO COME] Corporation's
1998 Balance Sheet
1997 Loans Sold
1996 Fidelity Funds
1995 Trust Assets
CDC Assets
Trust Assets
IN MILLIONS OF DOLLARS 1999 [PLOT POINTS TO COME]
1998
1997
1996 Discretionary
1995 Non-Discretionary
8 Bryn Mawr Bank Corporation
CONSUMER BANKING
- --------------------------------------------------------------------------------
Our banking business continues to grow. During 1999, we experienced strong
growth in demand and NOW accounts. We maintain six full-service branches. At the
start of the year 2000, we opened our sixth limited service office in affluent
retirement communities. This one is at White Horse Village in Newtown Square.
The retirement community offices continue to be a good source for banking,
trust, and investment management business.
UPGRADING FACILITIES
- --------------------------------------------------------------------------------
Our goal is to create facilities dedicated solely to our work and interaction
with our clients. We want to simplify the interaction of clients with our
experts, providing them easy access to all of our products, services and
professional staff. Major renovations are planned for the main building, which
currently houses a mix of client contact, and staff support personnel. Our staff
support personnel will be relocated to Buildings Two and Six South Bryn Mawr
Avenue, just across the street from our main office in Bryn Mawr. The
renovations to create a center for our customer-focused activities are expected
to take two years and begin in June of 2000.
Community Banking
[PHOTO] From left:
Susan J. Healy
Susan B. George
Richard J. Fuchs
Thomas J. Giamoni
Joseph M. Tyson, Jr.
Sandra H. Evans
1999 ANNUAL REPORT 9
FINANCIAL REFORM BILL
- --------------------------------------------------------------------------------
In November the Gramm-Leach-Bliley Act was officially signed. Breaking down the
Depression-era legal barriers, banks, investment firms and insurance companies
can now merge, creating greater choice and convenience for the consumer.
Customer confidentiality in this new de-regulated era raises privacy issues.
Under the new law, financial companies must disclose to their clients, their
procedures for protecting client privacy. We have drafted privacy policies for
all of our entities, with a special policy drafted to specifically address the
insurance business. We remain committed to the highest standards of protecting
client confidentiality.
COMMUNITY INVOLVEMENT
- --------------------------------------------------------------------------------
Ever since its establishment in 1889, Bryn Mawr Trust has played a leading role
in support of community activities including: education, health, senior citizen
concerns, cultural events, civic duties, business organizations, and the general
well being of the individuals and businesses within those areas where it
transacts business. The Bank intends to continue its commitment to the community
both financially, and by providing leadership to maximize the effectiveness of
these efforts.
- --------------------------------------------------------------------------------
[GRAPH]
Total Revenue Streams
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TO COME]
1996 Trust Fees
1995 Net Interest Income
Other Non-Interest
Income
Total Corporation
Average Assets
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TO COME]
1996
1995
10 Bryn Mawr Bank Corporation
What's Ahead?
In the ever-changing financial landscape, a myriad of financial service
providers stand ready to satisfy almost any financial need a client could face.
Yet, we firmly believe that there is a significant place for Bryn Mawr Bank
Corporation in the crowded financial service marketplace. We believe that
personal care, delivered warmly by competent and trustworthy experts will be in
demand well into this new century. So, based on that premise, we continue to
strive to be the place for personal financial service attention and trusted
advice.
[GRAPH]
Total Average Deposits
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TOCOME]
1996
1995
Transaction Accounts
Average Balances
IN MILLIONS OF DOLLARS 1999
1998
1997 [PLOT POINTS TOCOME]
1996
1995
1999 ANNUAL REPORT 11
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
610-525-1700
Senior Management
Robert L. Stevens*
Chairman, Chief Executive Officer, and President
Samuel C. Wasson, Jr.*
Vice Chairman and Secretary
Joseph H. Bachtiger
Executive Vice President, Trust Administration
Robert J. Ricciardi*
Executive Vice President and Chief Credit Policy Officer
Joseph W. Roskos*
Executive Vice President, Trust
Lisa M. Brinton
Senior Vice President, Estate Planning
June M. Falcone
Senior Vice President, Banking Operations
Lester E. Gallagher, III
Senior Vice President, Trust
Alison E. Gers
Senior Vice President, Marketing
Joseph G. Keefer
Senior Vice President and Chief Lending Officer
Paul M. Kistler, Jr.
Senior Vice President, Facilities, Human Resources,
Security and Compliance
Donald B. Krieble
Senior Vice President, Consumer Credit Services
William F. Mannion, Jr.
Senior Vice President, Corporate Sales
William R. Mixon
Senior Vice President, Information Systems,
and Chief Technology Officer
Thomas M. Petro
Senior Vice President, Investment Management
Joseph W. Rebl*
Senior Vice President, Treasurer, and
Chief Financial Officer
Walter Smedley, III
Senior Vice President, Corporate Sales
Leo M. Stenson
Senior Vice President and Auditor
Stephen J. Collar
Group Vice President, Consumer Credit Services
Carmen L. Fiorentino
Group Vice President, Commercial &
Real Estate Lending Services
Richard J. Fuchs
Group Vice President, Community Banking
Geoffrey L. Halberstadt
Group Vice President, Commercial & Real Estate Lending
Services, and Risk Management Officer
Joseph S. Saraceno
Group Vice President, Loan Accounting
Mame O. Skelly
Group Vice President and Comptroller
*Also officer of the Corporation
Tax, Family Office, Insurance
[PHOTO]
From left:
William H. Giese
Robert M. Fedoris
John G. Daniel
12 Bryn Mawr Bank Corporation
Other Financial Services:
BMT Mortgage Company
A division of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Patrick J. Keenan, Managing Director
Bryn Mawr Brokerage Company, Inc.
A subsidiary of Bryn Mawr Bank Corporation
Bryn Mawr, Pennsylvania
Thomas M. Petro, President and Chief Executive Officer
CDC Capital Management, Inc.
A subsidiary of Bryn Mawr Bank Corporation
2 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
J. Michael Devine, President and Chief Executive Officer
Insurance Counsellors of Bryn Mawr, Inc.
A subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
John G. Daniel, President and Chief Executive Officer
Investment Counsellors of Bryn Mawr
A department of the Investment Management Division
Four Tower Bridge
200 Barr Harbor Drive, Suite 225
West Conshohocken, Pennsylvania 19428
Jere E. Estes, Senior Vice President
Joseph W. Roskos & Co.
A subsidiary of Bryn Mawr Bank Corporation
2011 Renaissance Boulevard, Suite 200
King of Prussia, Pennsylvania 19406
Joseph W. Roskos, Chairman
Robert M. Fedoris, President and
Chief Executive Officer
Tax Counsellors of
Bryn Mawr, Inc.
A subsidiary of Bryn Mawr Bank Corporation
Bryn Mawr, Pennsylvania
William H. Giese, President and
Chief Executive Officer
Directors:
Richard B. Cuff
Chairman, Cuffco, Inc.
Warren W. Deakins
Self-employed, Insurance Sales
John D. Firestone
Partner, Secor Group
William Harral, III
Chairman, C&D Technologies, Inc.
Wendell F. Holland, Esq.
Counsel to Obermayer, Rebmann, Maxwell & Hippel, LLP
Phyllis M. Shea
Attorney-at-Law, Shea and Shea, LLP
Robert L. Stevens
Chairman, Chief Executive Officer, and President of
Bryn Mawr Bank Corporation and The Bryn Mawr Trust Company
B. Loyall Taylor, Jr.
President, Taylor Gifts, Inc.
Nancy J. Vickers
President, Bryn Mawr College
Samuel C. Wasson, Jr.
Secretary of Bryn Mawr Bank Corporation and Vice
Chairman and Secretary of The Bryn Mawr Trust Company
Thomas A. Williams
Vice President, Secretary/Treasurer Houghton International, Inc.
Annual Meeting:
The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held in
Wyndham Alumnae House, Bryn Mawr College, Bryn Mawr, Pennsylvania, on Tuesday,
April 18, 2000, at 2:00 p.m.
Market Makers:
F. J. Morrissey & Co., Inc.
Philadelphia, Pennsylvania
McConnell Budd & Downes
Morristown, New Jersey
Ryan Beck and Company, Inc.
West Orange, New Jersey
Janney Montgomery L.L.C.
Philadelphia, Pennsylvania
Spear, Leeds & Kellogg
New York, New York
Knight Securities, L.P.
New York, New York
Herzog, Heine, Geduld, Inc.
New York, New York
Corporate Headquarters
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
610-526-2302
Auditors
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103-2962
Legal Counsel
Monteverde, McAlee, FitzPatrick, Tanker & Hurd, P.C.
One Penn Center at Suburban Station
1617 John F. Kennedy Boulevard
Suite 1500
Philadelphia, Pennsylvania 19103-1815
Stock Listing
Bryn Mawr Bank Corporation common stock is traded over-the-counter and is listed
on the NASDAQ National Market System under the symbol BMTC.
Registrar & Transfer Agent
ChaseMellon Shareholder Services, L.L.C.
P.O. Box 3315,
South Hackensack, NJ 07606-1915
www.chasemellon.com
Form 10-K
A copy of the Corporation's Form 10-K, including financial statement schedules
as filed with the Securities and Exchange Commission, is available without
charge to shareholders upon written request to Samuel C. Wasson, Jr., Secretary,
Bryn Mawr Bank Corporation, 801 Lancaster Avenue, Bryn Mawr, Pennsylvania
19010-3396, or via e-mail to swasson@bmtc.com.
Equal Employment Opportunity
The Corporation continues its commitment to equal opportunity employment and
does not discriminate against minorities or women with respect to recruitment,
hiring, training, or promotion. It is the policy of the Corporation to comply
voluntarily with the practices of Affirmative Action.
Selected Financial Data
(in thousands, except for share and per share data)
For the years ended December 31, 1999 1998* 1997* 1996* 1995*
---------------------------------------------------------------------------
Interest income .................................... $ 28,317 $ 26,082 $ 24,960 $ 24,337 $ 23,617
Interest expense ................................... 5,857 5,976 6,929 6,490 7,246
---------------------------------------------------------------------------
Net interest income ................................ 22,460 20,106 18,031 17,847 16,371
Loan loss provision ................................ 250 150 200 350 500
---------------------------------------------------------------------------
Net interest income after loan loss provision ...... 22,210 19,956 17,831 17,497 15,871
Other income ....................................... 18,610 15,076 12,086 10,423 9,197
Other expenses ..................................... 28,980 24,695 20,837 18,978 18,325
---------------------------------------------------------------------------
Income before income taxes ......................... 11,840 10,337 9,080 8,942 6,743
Applicable income taxes ............................ 3,879 3,480 2,950 2,900 2,100
---------------------------------------------------------------------------
Net income ......................................... $ 7,961 $ 6,857 $ 6,130 $ 6,042 $ 4,643
---------------------------------------------------------------------------
Per share data:
Earnings per common share:
Basic .......................................... $ 1.83 $ 1.58 $ 1.40 $ 1.38 $ 1.06
Diluted ........................................ $ 1.75 $ 1.51 $ 1.33 $ 1.33 $ 1.04
Dividends declared ............................... $ 0.60 $ 0.465 $ 0.36 $ 0.46 $ 0.25
Weighted-average shares outstanding .............. 4,349,403 4,327,297 4,392,162 4,385,094 4,377,056
Dilutive potential common shares ................. 193,915 225,708 203,660 151,698 90,740
---------------------------------------------------------------------------
Adjusted weighted-average shares ................. 4,543,318 4,553,005 4,595,822 4,536,792 4,467,796
(in thousands)
At December 31, 1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Total assets ....................................... $ 436,820 $ 391,840 $ 374,210 $ 345,747 $ 354,956
Earning assets ..................................... 395,952 357,683 327,942 305,911 314,089
Deposits ........................................... 371,068 342,357 328,806 303,183 317,601
Shareholders' equity ............................... 46,719 42,221 39,349 35,808 31,903
For the years ended December 31, ................... 1999 1998 1997 1996 1995
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Selected financial ratios:
Net interest margin ................................ 6.12% 5.99% 5.59% 5.67% 5.21%
Net income to:
Average total assets ............................. 1.99% 1.91% 1.74% 1.79% 1.39%
Average shareholders' equity ..................... 17.97% 17.06% 16.45% 18.16% 15.79%
Average shareholders' equity to average total
assets ........................................... 11.10% 11.17% 10.60% 9.88% 8.79%
Dividends declared per share to net income per
basic common share ............................... 32.79% 29.43% 25.71% 33.33% 23.58%
*Reclassified for comparative purposes.
1
Management's Discussion and Analysis
The following is a discussion of the consolidated results of operations of Bryn
Mawr Bank Corporation and its subsidiaries (the "Corporation") for each of the
three years in the period ended December 31, 1999, as well as the financial
condition of the Corporation as of December 31, 1999 and 1998. The Bryn Mawr
Trust Company (the "Bank"), Tax Counsellors of Bryn Mawr, Inc. ("TCBM"), Bryn
Mawr Brokerage Company, Inc. ("BM Brokerage"), CDC Capital Management, Inc.
("CDC") and Joseph W. Roskos & Co. ("JWR&Co") are wholly-owned subsidiaries of
the Corporation. Insurance Counsellors of Bryn Mawr, Inc. ("ICBM") is a wholly-
owned subsidiary of the Bank. This discussion should be read in conjunction with
the Corporation's consolidated financial statements beginning on page 18.
From time to time, the Corporation has and will continue to make statements that
may include forward-looking information. Any forward-looking statements
contained herein are subject to certain risks and uncertainties, many of which
are out of management's direct control, that could cause actual results to
differ materially from those projected in the forward-looking statements.
Examples include, but are not limited to, the effect of prevailing economic
conditions and the current interest rate environment, as well as the overall
direction of government policies and the actions and policy directives of the
Federal Reserve Board, competitive factors in the Corporation's market area and
risks associated with the management of the credit function and fiduciary
activities.
SIGNIFICANT ITEMS FOR 1999
- --------------------------------------------------------------------------------
Growth of Non-interest Revenue Streams Through New Corporation Acquisitions
A strategic goal of the Corporation continues to be providing its customer base
with financial services and products that are designed to meet the ever-evolving
needs of customers. The addition of new financial services and products creates
new sources of non-interest revenue. In January 1999, the Corporation acquired
CDC in order to offer investment advisory services to its customer base, thereby
providing a means of increasing its non-interest revenue streams. Also
established in January 1999 was BM Brokerage, to enable the Corporation's
customer base to have access to brokerage services through the Corporation. In
April 1999, the Bank acquired JWR&Co. to provide family business office services
and products to its customers. This transaction was effective as of January 1,
1999. Both acquisitions reported profits for the year, while BM Brokerage
reported a nominal loss. The three companies were primarily responsible for a
23% increase in total other income for 1999, compared to the same period in
1998.
The Corporation's other non-interest related lines of business, ICBM and TCBM,
also produced profits for the year, while increasing their non-interest revenue
streams over 1998 levels.
The Bank's business lines which provide non-interest revenue streams, the
Investment Management and Trust Division, and BMT Mortgage Company, divisions of
the Bank, were profitable in 1999. The segment profit of the Investment
Management and Trust Division grew by 13%, from $4,154,000 for 1998 to
$4,713,000 for 1999. Due primarily to an increase in interest rates on
residential mortgage loans in 1999, making financing less attractive for
borrowers, BMT Mortgage Company, dedicated to the origination and sale of
residential mortgage loans to the secondary mortgage market, showed a 39%
decline in its segment profit from $1,329,000 in 1998 to $805,000 in 1999. The
effect of changing interest rates on BMT Mortgage Company's profitability runs
counter cyclical to the Bank's Banking segment. As interest rates moved upward
during 1999 and BMT Mortgage Company's loan origination and sale activity
declined, the Bank's net interest margin and related net interest income
generally increased. While net interest income increased by $2,354,000 or 12%,
$393,000 or 17% of the increase was attributable to rate changes in 1999.
Exclusive of gains on the sale of other real estate owned ("OREO"), reported in
both periods, the growth in non-interest revenues resulted in an increase in the
percentage of non-interest revenues earned in 1999, compared to total revenues,
to 40% from 36% for 1998.
Dividend Increase
Based on a continued growth in record earnings, the Corporation increased its
quarterly dividend payment for 1999 by 25%, from $0.12 per share in 1998 to
$0.15 per share in 1999. The Corporation's dividend payout ratio was 32.79% of
basic earnings per share for 1999, compared to 29.43% for 1998.
Stock Repurchase Program
During 1997, the Corporation established a stock repurchase program, authorizing
management to repurchase up to 5% of the then outstanding common shares of the
Corporation. This program was renewed again in 1999, authorizing management to
repurchase up to 5% of the outstanding shares as of March 1999, while not
spending more than $6,500,000 (the "Stock Repurchase Program"). During 1999, the
Corporation repurchased 96,500 shares of the Corporation's common stock, at a
cost of $2,530,000.
2
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Overview
The Corporation reported a 16% increase in net income of $7,961,000 for the year
ended December 31, 1999, another record year for Corporation earnings. Net
income for 1998 amounted to $6,857,000.
Earnings per common share amounted to $1.83 in 1999, a 16% increase over $1.58
for 1998. Earnings per common share-assuming dilution were $1.75 and $1.51 for
1999 and 1998, respectively. The dilutive potential common shares added to the
weighted-average shares outstanding were 193,915 and 225,708 for 1999 and 1998,
respectively.
These record earnings results for 1999 were due to a number of factors. Net
interest income, spurred on by a 13% increase in average outstanding loans,
increased by $2,354,000 or 12%. Non-interest revenue streams grew by $3,534,000
or 23%. This growth is due primarily to the addition of new revenue streams from
CDC and JWR&Co., acquired in early 1999 ("the New Acquisitions"). Fees from
Investment Management and Trust revenues increased by $512,000 or 6% over
similar revenues for 1998. During 1999, five Trust officers resigned from the
Bank (the "Resignations"), taking some trust accounts with them. The
Resignations and related loss of these accounts caused a $298,000 decrease in
related trust fees in 1999. However, after accounting for the related decrease
in salary and fringe benefit expenses, combined with the timing of the transfer
of the trust accounts attributable to the Resignations, pre-tax income increased
by $116,000.
Exclusive of OREO related revenues, total other income increased by $3,713,000
or 25% over similar revenues for 1998. Other expenses increased $4,285,000 or
17% in 1999, compared to 1998. This increase in other expense is partially due
to the New Acquisitions.
Return on average assets for the year increased to 1.99% from 1.91% in 1998,
while return on average equity for 1999 was 17.97% compared to 17.06% in 1998.
EARNINGS PERFORMANCE
- --------------------------------------------------------------------------------
Lines of Business
The Corporation continues to have four significant business lines from which it
derives its earnings. Its core business line is the Banking line of business.
Additional earnings streams are obtained from its Investment Management and
Trust line of business and its Mortgage Banking line of business--the
origination, servicing and sale of mortgage loans to the secondary mortgage
market. The fourth segment, included in "All Other" in the following
segmentation analysis, has net revenues from financial services and products,
offered through its subsidiaries, as well as the Bank's subsidiary, ICBM.
Following is a segmentation analysis of the results of operations for those
lines of business for 1999 and 1998:
TABLE 1 - Line of Business Analysis
1999
------------------------------------------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Other Consolidated
------------------------------------------------------------------------------
Net interest income .......................... $22,310 $ -- $ 145 $ 5 $22,460
Less loan loss provision ..................... 250 -- -- -- 250
------------------------------------------------------------------------------
Net interest income after
loan loss provision ........................ 22,060 -- 145 5 22,210
Other income:
Fees for investment
management and trust
services ................................ -- 9,784 -- -- 9,784
Service charges on deposit
accounts ................................ 1,156 -- -- -- 1,156
Other fees and service
charges ................................. 571 -- 762 -- 1,333
Net gain on sale of
loans ................................... 44 -- 984 -- 1,028
Gain on sale of other real
estate owned ............................ 45 -- -- -- 45
Other operating income ..................... 1,115 -- -- 4,568 5,683
------------------------------------------------------------------------------
Total other income ........................... 2,931 9,784 1,746 4,568 19,029
Other expenses:
Salaries-regular ........................... 7,251 2,852 469 1,874 12,446
Salaries-other ............................. 1,754 230 78 184 2,246
Fringe benefits ............................ 1,474 565 80 215 2,334
Occupancy .................................. 3,090 476 149 456 4,171
Other operating expenses ................... 5,218 948 310 1,726 8,202
------------------------------------------------------------------------------
Total other expenses ......................... 18,787 5,071 1,086 4,455 29,399
------------------------------------------------------------------------------
Segment profit ............................... $ 6,204 $ 4,713 $ 805 $ 118 $11,840
------------------------------------------------------------------------------
% of segment profit .......................... 52% 40% 7% 1% 100%
1998*
------------------------------------------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Other Consolidated
------------------------------------------------------------------------------
Net interest income .......................... $20,052 $ -- $ 51 $ 3 $20,106
Less loan loss provision ..................... 150 -- -- -- 150
------------------------------------------------------------------------------
Net interest income after
loan loss provision ........................ 19,902 -- 51 3 19,956
Other income:
Fees for investment
management and trust
services ................................ -- 9,272 -- -- 9,272
Service charges on deposit
accounts ................................ 1,169 -- -- -- 1,169
Other fees and service
charges ................................. 571 -- 701 -- 1,272
Net gain on sale of
loans ................................... 35 -- 1,647 -- 1,682
Gain on sale of other real
estate owned ............................ 224 -- -- -- 224
Other operating income ..................... 631 -- -- 1,079 1,710
------------------------------------------------------------------------------
Total other income ........................... 2,630 9,272 2,348 1,079 15,329
Other expenses:
Salaries-regular ........................... 6,489 2,863 417 520 10,289
Salaries-other ............................. 1,692 386 117 180 2,375
Fringe benefits ............................ 1,232 549 74 53 1,908
Occupancy .................................. 2,793 422 62 180 3,457
Other operating expenses ................... 5,003 898 400 618 6,919
------------------------------------------------------------------------------
Total other expenses ......................... 17,209 5,118 1,070 1,551 24,948
------------------------------------------------------------------------------
Segment profit (loss) ........................ $ 5,323 $ 4,154 $ 1,329 $ (469) $10,337
------------------------------------------------------------------------------
% of segment profit
(loss) ..................................... 51% 40% 13% -4% 100%
Bryn Mawr Bank Corporation, Tax Counsellors of Bryn Mawr, Inc., Insurance
Counsellors of Bryn Mawr, Inc., Bryn Mawr Brokerage Company, Inc., CDC Capital
Management, Inc. and Joseph W. Roskos & Company have all been aggregated in All
Other.
* Reclassified for comparative purposes.
The table reflects operating profits (losses) of each line of business before
income taxes.
There was an increase in Investment Management and Trust operating profits, up
13%, while the Mortgage
3
Banking segment's operating profits decreased 39% in 1999, compared to 1998. The
Banking segment's operating profits grew by 17% from 1998 levels. The Banking
segment's percentage of operating profits stood at 52% for 1999, compared to 51%
for 1998. Investment Management and Trust's percentage of operating profit was
40% for both years. The Mortgage Banking segment's share of operating profits
decreased from 13% in 1998 to 7% in 1999, while the "All Other" segment,
including the New Acquisitions, increased from (4%) in 1998 to 1% in 1999.
Banking Line of Business
The Bank's average outstanding earning assets of $359,261,000 increased 9% from
$328,605,000 for 1998. Average outstanding loans grew by 13% in 1999. The
largest dollar increase in average outstanding loans occurred in commercial and
industrial loans, up $17,601,000 or 21% over 1998 average balances. Commercial
mortgage loans grew by $9,995,000 or 23% over 1998 average balances, and average
outstanding construction loans rose by $1,833,000 or 14% over similar average
outstanding balances for 1998. Average outstanding residential mortgage loans
grew by $6,695,000 or 51% in 1999, compared to similar average outstanding
balances in 1998. BMT Mortgage Company chose to hold some of the originated
residential mortgage loans in its loan portfolio. Offsetting these increases,
were decreases in the average outstanding balances of the Bank's consumer loan
portfolio, down $4,491,000 or 4% from 1998's average outstanding balances. Lower
consumer loan demand, caused by increased competition from automobile
manufacturers for new automobile loans, was primarily responsible for the
reduction in the percentage of loan growth in the average outstanding consumer
loan portfolio in 1999. The average outstanding balances of federal funds sold
decreased by 22% in 1999 compared to 1998 levels, partially funding the growth
in the loan portfolio. Average outstanding investments decreased by 6% for 1999,
compared to 1998.
Average outstanding total deposits increased 9% in 1999, compared to 1998. The
largest dollar increase occurred in the Bank's non-interest bearing demand
deposits and low costing NOW account balances, up $9,325,000 or 11% and
$8,452,000 or 10%, respectively. Average money market account balances increased
by $5,546,000 or 13%. Average outstanding balances of higher costing
certificates of deposit ("CDs") grew by $3,497,000 or 6%. Average outstanding
savings deposits increased 2% or $722,000. The change in the mix of average
outstanding deposits, increasing non-interest bearing and lower costing NOW and
money market account balances, at a greater percentage of increase than higher
costing CDs, led to a $119,000 or 2% decrease in interest expense and an
increase in the net interest margin to 6.12% in 1999 from 5.99% for 1998. An
expanded discussion of net interest income follows under the section entitled
"Net Interest Income".
Exclusive of OREO gains in each period, other income from the banking segment
increased by 20% in 1999 compared to 1998. This was due primarily to a 77%
increase in other operating income. During the first quarter of 1999, the Bank
leased two buildings in Bryn Mawr (the "Buildings"). The Buildings are located
directly across Lancaster Avenue from the Bank's main office and are to be used
for future expansion. Existing tenants generated $250,000 in rental income,
included in other operating income, accounting for more than one-half of the
increase in other operating income, over 1998 levels.
Total other expenses of the Banking line of business increased 9% in 1999
compared to 1998 levels. Overall, the operating profits of the Banking line of
business increased 17% in 1999 compared to 1998.
Investment Management and Trust Line of Business
The Bank's Investment Management and Trust Division reported a 13% increase in
operating profit for 1999 compared to 1998 levels. As previously stated, the
Resignations were directly responsible for a $298,000 decrease in fees from
Investment Management and Trust services. Total Investment Management and Trust
fee income rose 6% in 1999. The market value of assets under administration
decreased from $2,101,215,000 at December 31, 1998, to $1,887,295,000 as of
December 31, 1999. Trust assets under management, included in above, decreased
from $1,270,323,000 at December 31, 1998 to $1,127,715,000 as of December 31,
1999. The movement of accounts, caused by the Resignations is primarily
responsible for this decrease. CDC had assets under advisement of $295,466,000
as of December 31, 1999, bringing total investment assets under administration
or advisement at December 31, 1999 to $2,182,761,000.
Reflecting the effect of the Resignations, other expenses of the Investment
Management and Trust line of business decreased 1% in 1999 over 1998 levels.
Salary expense was down compared to 1998 levels.
Mortgage Banking Line of Business
The operating profit of the Bank's Mortgage Banking line of business decreased
39% in 1999 compared to 1998. During 1999, mortgage interest rates rose enough
to make refinancing less attractive to borrowers. In 1999, the Mortgage Banking
line of business had a 45% decrease in the volume of loans sold in the secondary
mortgage market, partially offset by an 11 basis point increase in the yield on
sales, compared to 1998 levels. Following is a table showing the volume of
residential mortgage loans originated and sold in the secondary
4
mortgage market, the total net gains realized, and the yield on these loan
sales:
TABLE 2 - Summary of Loan Sale Activity
(dollars in thousands) 1999 1998*
------------------------
Volume of loans sold ............................ $ 73,921 $134,676
Loan fees and net gains on
sales ....................................... 984 1,647
Yield on sales .................................. 1.33% 1.22%
* Restated for comparative purposes.
As of December 31, 1999, the Bank serviced $283,124,000 in residential mortgage
loans for others, compared to $271,836,000 in loans serviced for others at
year-end 1998.
Bryn Mawr Bank Corporation
The Corporation is a one-bank holding company, generating intercompany revenues
from the rental of Corporation owned properties to the Bank. Expenses are
primarily of an administrative nature.
Tax Counsellors of Bryn Mawr, Inc.
In July 1997, the Corporation established a new wholly-owned subsidiary, TCBM,
in order to add professional tax planning to its array of financial products and
services offered to its customers. TCBM employs CPAs and an attorney (the "Tax
Professionals"), having significant tax planning, preparation and financial
planning capabilities. As a part of the formation of TCBM, a profit sharing
agreement was developed that allows the Tax Professionals to retain the net
revenues generated by existing clients brought to TCBM. For the second full year
of operation, TCBM exceeded the revenue goals established in the profit sharing
agreement, adding $5,000 to the Corporation's net income for 1999, compared to
$10,000 for 1998.
Insurance Counsellors of Bryn Mawr, Inc.
In January 1998, the Bank established a new wholly-owned subsidiary, ICBM (a
full-service insurance agency), to enable the Bank to offer insurance related
products and services to its customer base. ICBM offers a full line of life,
property and casualty and commercial lines to its customer base. For 1999, ICBM
reported net income of $65,000 compared to a loss of $26,000 for 1998.
Bryn Mawr Brokerage Company, Inc.
The Corporation established BM Brokerage in January 1999, in order to make
brokerage services available to its client base through an affiliation with an
independent broker-dealer. During its first year of operation, BM Brokerage
reported a net loss of $6,000.
CDC Capital Management, Inc.
In January 1999, the Corporation acquired CDC for $281,000 in Corporation stock,
a portion of which was issued at the time of the acquisition. The balance of the
shares will be issued at the first and second anniversary of the acquisition.
Goodwill, in the amount of $177,000, was recorded on the Corporation's books, to
be amortized over a 10-year life. CDC was acquired to enable the Corporation to
enhance its array of financial services and products by offering investment
advisory services to its clients. CDC reported a net profit of $6,000 for 1999.
Joseph W. Roskos & Co.
On April 1, 1999, the Corporation acquired JWR&Co., effective January 1, 1999,
for $4,195,000, through a combination of Corporation stock and cash. Goodwill in
the amount of $3,300,000 was recorded on the Corporation's books, to be
amortized over a 20-year life. JWR&Co. was acquired to expand the products and
services being offered by the Corporation. JWR&Co. provides family business
office services to high-net-worth individuals, including accounting and tax
preparation services, consulting and fiduciary support services. JWR&Co.
reported a net profit of $344,000 in 1999, before the amortization of $164,000
of goodwill.
Net Interest Income
A 9% or $2,235,000 increase in interest income, combined with a 2% or $119,000
decrease in interest expense, from year to year, resulted in an overall increase
in net interest income of 12% or $2,354,000. Average earning assets grew 9% in
1999, compared to 1998 levels. Higher yielding average outstanding loan balances
grew by 13%. The average outstanding balances of investments and federal funds
sold decreased by 6% and 22%, respectively. Total average deposits increased 9%.
The largest increase occurred in the Bank's lower costing average outstanding
money market checking accounts, up by 13%, followed by non-interest bearing
demand deposits, up by 11%, while NOW account balances grew by 10%. Average
outstanding savings deposits increased by 2%. Average outstanding CDs increased
by 6% over 1998 levels. This growth in average low cost and non-interest bearing
deposits, compared to a lower growth rate of higher costing CDs, is primarily
responsible for a 22 basis point decrease in the average cost of funds for 1999,
compared to 1998. This decrease in the cost of funds was directly responsible
for the Bank's net interest margin, defined as net interest income, exclusive of
loan fees, as a percentage of average earning assets, increasing from 5.99% for
1998 to 6.12% for 1999.
5
The following table shows an analysis of the composition of net interest income
for each of the last three years. Interest income on loans includes fees on
loans of $465,000, $413,000 and $405,000 in 1999, 1998 and 1997 respectively.
The average loan balances include nonaccrual loans. All average balances are
calculated on a daily basis. Yields on investment securities are not calculated
on a tax-equivalent basis.
TABLE 3 - ANALYSES OF INTEREST RATES AND INTEREST DIFFERENTIAL
1999 1998** 1997**
------------------------------------------------------------------------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
(dollars in thousands) Balance Expense Paid Balance Expense Paid Balance Expense Paid
------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks .......... $ 22,060 $ -- --% $ 19,065 $ -- --% $ 23,329 $ -- --%
Interest-bearing deposits with
other banks* ................... 2,173 103 4.7 1,345 68 5.1 176 8 4.5
Federal funds sold* .............. 12,272 609 5.0 15,665 824 5.3 16,964 935 5.5
Investment securities
available for sale:
Taxable* ....................... 30,440 1,698 5.6 31,760 1,880 5.9 32,693 1,988 6.1
Tax-exempt* .................... 4,162 183 4.4 4,953 224 4.5 5,868 283 4.8
------------------------------------------------------------------------------------------------
Total investment securities .... 34,602 1,881 5.4 36,713 2,104 5.7 38,561 2,271 5.9
------------------------------------------------------------------------------------------------
Loans* ........................... 310,214 25,724 8.3 274,882 23,085 8.4 259,847 21,746 8.4
Less allowance for loan
losses ......................... (4,257) -- -- (4,088) -- -- (4,247) -- --
------------------------------------------------------------------------------------------------
Net loans ...................... 305,957 25,724 8.4 270,794 23,085 8.5 255,600 21,746 8.5
Other assets ..................... 21,997 -- -- 16,278 -- -- 16,807 -- --
------------------------------------------------------------------------------------------------
Total assets ................... $399,061 $ 28,317 -- $359,860 $ 26,081 -- $351,437 $ 24,960 --
------------------------------------------------------------------------------------------------
Liabilities:
Demand deposits, noninterest-
bearing ........................ $ 92,098 $ -- --% $ 82,773 $ -- --% $ 76,076 $ -- --%
Savings deposits ................. 184,505 2,533 1.4 169,785 2,923 1.7 158,752 3,058 1.9
Time deposits .................... 65,000 3,008 4.6 61,503 3,052 5.0 73,792 3,871 5.2
Short term borrowings ............ 4,658 266 5.7 0 0 0.0 0 0 0.0
Federal funds purchased .......... 954 50 5.2 18 1 5.6 5 0 6.0
Other liabilities ................ 7,554 -- -- 5,595 -- -- 5,550 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities .............. 354,769 5,857 -- 319,674 5,976 -- 314,175 6,929 --
Shareholders' equity ............. 44,292 -- -- 40,186 -- -- 37,262 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity ........ $399,061 $ 5,857 -- $359,860 $ 5,976 -- $351,437 $ 6,929 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets* .......... $359,261 -- -- $328,605 -- -- $315,548 -- --
Interest income to earning
assets ......................... -- -- 7.9 -- -- 7.9 -- -- 7.9
Interest expense to earning
assets ......................... -- -- 1.6 -- -- 1.8 -- -- 2.2
Net yield on
interest-earning assets ..... -- -- 6.3 -- -- 6.1 -- -- 5.7
Average effective rate paid on
interest-bearing liabilities ... -- -- 2.3 -- -- 2.6 -- -- 3.0
Net interest margin .............. -- -- 6.12 -- -- 5.99 -- -- 5.59
* Indicates earning assets.
** Reclassified for comparative purposes.
6
The following table shows the effect of changes in volumes and rates on interest
income and interest expense. Variances which were not specifically attributable
to volume or rate were allocated proportionately between volume and rate.
Interest income on loans included increases (decreases) in fees on loans of
$52,000 in 1999, $8,000 in 1998, and ($47,000) in 1997.
TABLE 4 - Rate/volume Analyses
(in thousands) 1999 vs. 1998 1998 vs. 1997
------------------------------ ------------------------------
Increase/(decrease) Volume Rate Total Volume Rate Total
------------------------------ ------------------------------
Interest Income:
Interest-bearing
deposits with other
banks ............................. $ 41 ($ 6) $ 35 $ 59 $ 1 $ 60
Federal funds sold ................... (170) (45) (215) (75) (36) (111)
Investment securities
available for sale:
Taxable ........................... (82) (100) (182) (50) (58) (108)
Tax-exempt ........................ (36) (5) (41) (42) (17) (59)
Loans .................................. 2,918 (279)* 2,639 1,339 0* 1,339
----------------------------------------------------------------
Total interest income .................. 2,671 (435) 2,236 1,231 (110) 1,121
----------------------------------------------------------------
Interest expense:
Savings deposits ..................... 208 (596) (390) 198 (333) (135)
Time deposits ........................ 186 (230) (44) (665) (154) (819)
Short term
borrowings ........................ 266 0 266 0 0 0
Fed funds purchased .................. 49 0 49 1 0 1
----------------------------------------------------------------
Total interest expense ............... 709 (826) (119) (466) (487) (953)
----------------------------------------------------------------
Interest differential .................. $1,962 $ 393 $2,355 $1,697 $ 377 $2,074
================================================================
* Included in the loan rate variance was an increase (decrease) in interest
income related to non-performing loans of $327,000 and ($230,000) in 1999
and 1998, respectively. The variances due to rate include the effect of
nonaccrual loans because no interest is earned on such loans.
The 9% growth in interest income for 1999 was attributable to a 9% increase in
average earning assets from $328,605,000 for 1998 to $359,261,000 for 1999. The
yield on average outstanding earning assets remained level for 1999, compared to
1998, at 7.9% for both periods. The average yield on loans decreased 10 basis
points, from 8.4% in 1998 to 8.3% in 1999. The average yield on federal funds
sold decreased 30 basis points, to 5.0% for 1999, compared to 5.3% for 1998. The
yield on the investment portfolio decreased by 30 basis points from 5.7% in 1998
to 5.4% in 1999. This was due to the maturity of older, higher yielding
investments in the portfolio.
The growth in interest income attributable to volume was the result of a 13%
increase in average outstanding loans. Partially offsetting this increase in the
volume variance was a reduction in interest income related to the rate variance,
due primarily to the 10 basis point decrease on the average yield on the loan
portfolio.
As of December 31, 1999, outstanding loans increased 21% over December 31, 1998
loan balances. The most significant loan growth came in commercial and
industrial loans, which grew by 34% year end to year end. Permanent mortgage
loans, including both commercial mortgage loans and residential mortgage loans
increased by 22%. Commercial mortgage loans grew by 8%, while residential
mortgage loan balances increased by 66%. Construction loan outstanding balances
increased 9%. A 3% increase in outstanding consumer loans is due primarily to a
3% increase in short-term indirect automobile loan balances at year-end 1999
compared to year-end 1998.
Average deposits increased $27,542,000 or 9% during 1999. This was due to a
continued reaction to banking consolidations in the Bank's market area and the
acquisition of new commercial and trust accounts. The Bank's average money
market rate accounts grew by 13%, while NOW accounts grew by 10% and non-
interest bearing demand deposits and average outstanding savings deposits
increased by 11% and 2%, respectively. CD balances increased by 6%. Increasing
lower and no cost balances were primarily responsible for the 2% decrease in
interest expense for 1999. The cost of funds for the Bank averaged 1.7% for 1999
compared to 1.9% for 1998.
Loan Loss Provision
The Bank provided a loan loss provision of $250,000 for 1999, compared to
$150,000 for 1998. The allowance for possible loan losses was $4,400,000 and
$4,100,000 as of December 31, 1999 and 1998, respectively. Delinquencies, as a
percentage of outstanding loans, amounted to 57 basis points and 46 basis points
as of December 31, 1999 and 1998, respectively. The ratio of the loan loss
reserve to non-performing loans was 556% and 832% as of December 31, 1999 and
1998, respectively. Non-performing loans amounted to $792,000 at December 31,
1999, a 61% increase from $493,000 at December 31, 1998. The primary cause of
this increase was the reinstatement of a loan to non-performing status that had
been included in the Bank's OREO at December 31, 1998. Total non-performing
assets, including OREO, increased by 4% from $764,000 at December 31, 1998, to
$792,000 at December 31, 1999. The allowance for possible loan losses, as a
percentage of outstanding loans, was 1.30% as of December 31, 1999, compared to
1.46% as of December 31, 1998. Bank management has determined that the 1999 loan
loss provision was sufficient to maintain an adequate level of the allowance for
possible loan losses during 1999.
7
A summary of the changes in the allowance for possible loan losses and a
breakdown of loan loss experience by major loan category for each of the past
five years follows:
TABLE 5 - Allowance for Possible Loan Losses
December 31,
---------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
---------------------------------------------------------
Allowance for possible loan losses:
Balance, January 1 ............................ $ 4,100 $ 4,074 $ 4,182 $ 3,652 $ 3,618
---------------------------------------------------------
Charge-offs:
Commercial and industrial ................... (10) (42) (196) (84) (527)
Real estate--construction ................... -- -- -- -- --
Real estate--mortgage ....................... 22 (22) -- (4) (8)
Consumer .................................... (209) (179) (237) (180) (234)
---------------------------------------------------------
Total charge-offs ........................... (197) (243) (433) (268) (769)
---------------------------------------------------------
Recoveries:
Commercial and industrial ................... 87 100 102 404 236
Real estate--construction ................... 116 -- -- -- --
Real estate--mortgage ....................... -- -- -- 8 13
Consumer .................................... 44 19 23 36 54
---------------------------------------------------------
Total recoveries ......................... 247 119 125 448 303
---------------------------------------------------------
Net recoveries/
(charge-offs) ......................... 50 (124) (308) 180 (466)
Provision for loan losses ..................... 250 150 200 350 500
---------------------------------------------------------
Balance, December 31 .......................... $ 4,400 $ 4,100 $ 4,074 $ 4,182 $ 3,652
---------------------------------------------------------
Net recoveries/(charge-offs)
to average loans ............................ 0.02% (0.05%) (0.12%) 0.07% (0.21%)
The negative charge-off of $22,000 in real estate - mortgage loans reflects the
adding back to the loan loss reserve of an amount previously charged off, in
conjunction with the acquisition of other real estate owned.
TABLE 6 - Allocation of Allowance For Possible Loan Losses
The table below allocates the balance of the allowance for possible loan losses
by loan category and the corresponding percentage of loans to total loans for
each loan category for the last five years:
December 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------
% % % % %
Loans Loans Loans Loans Loans
To To To To To
Total Total Total Total Total
(dollars in thousands) Loans Loans Loans Loans Loans
---------------------------------------------------------------------------------------
Balance at end of period applicable to: ..
Commercial and industrial ................ $ 151 39.7% $ 427 31.8% $ 316 28.1% $ 483 28.8% $1,295 28.7%
Real estate--construction ................ 33 4.2 81 4.7 1,111 5.1 751 2.9 648 3.8
Real estate--mortgage .................... 228 35.4 161 39.3 184 38.2 289 36.9 259 36.4
Consumer ................................. 279 20.7 301 24.2 465 28.6 609 31.4 619 31.1
---------------------------------------------------------------------------------------
Unallocated .............................. 3,709 -- 3,130 -- 1,998 -- 2,050 -- 831 --
---------------------------------------------------------------------------------------
Total .................................. $4,400 100.0% $4,100 100.0% $4,074 100.0% $4,182 100.0% $3,652 100.0%
---------------------------------------------------------------------------------------
The loan loss reserve allocation reflects a reserve based on specific loan loss
reserve allocations on loans reviewed individually as well as an average
historical loan write-off percentage for loans in each specific loan category
not individually reviewed and is also increased by an additional percentage to
reflect current market conditions. As a part of the internal loan review
process, loans considered impaired under SFAS NO. 114 are individually reviewed
and, when deemed appropriate, a specific portion of the loan loss reserve is
allocated to the respective impaired loans. Refer to page 14 for further
discussion of the Corporation's loan review process.
8
Other Income
The following table details other income for the years ended December 31, 1999
and 1998, and the percent change from year to year:
TABLE 7 - Other Income
1999 1998 % Change
----------------------------------
Fees for trust services .................. $ 9,784 $ 9,272 6%
Service charges on deposit
accounts ............................. 1,156 1,169 (1%)
Other fees and service
charges .............................. 1,333 1,272 5%
Net gain on sale of loans ................ 1,028 1,682 (39%)
Gain on sale of other real
estate owned ......................... 45 224 (80%)
Fees earned from family
business office services ............. 1,947 -- --
Investment advisory and
brokerage fees ....................... 1,218 -- --
Tax consulting fees ...................... 702 655 7%
Insurance commission income .............. 326 188 73%
Other operating income ................... 1,071 614 74%
----------------------------------
$18,610 $15,076 23%
----------------------------------
In addition to net interest income, the Bank's three operating segments, as well
as TCBM, ICBM, BM Brokerage, CDC and JWR&Co. generate various streams of
fee-based income, including Investment Management and Trust income, service
charges on deposit accounts, loan servicing income, consulting fees and
gains/losses on loan sales.
As discussed in the "Lines of Business" section on pages 3, 4 and 5, the
increase in other income in 1999 from 1998 levels was primarily a result of
revenues from newly established or acquired lines of business in 1999, an
increase in Investment Management and Trust fees and rental income received from
the tenants in the Buildings. These increases were partially offset by decreases
in gains on the sale of residential mortgage loans and a decrease in OREO gains,
compared to 1998.
Fees from the family office business and investment advisory and brokerage fees
amounted to $3,165,000. No such fees were earned in 1998.
Trust income grew $512,000 or 6% from year to year. Refer to the discussion
under the heading "Investment Management and Trust Line of Business on page 4 of
this report.
As discussed in the "Mortgage Banking Line of Business" section, the $654,000 or
39% decrease in gains on the sale of loans was directly attributable to an 45%
decrease in the volume of loans sold in 1999 compared to 1998, partially offset
by an 11 basis point increase in the yield realized on the sale of loans in 1999
compared to 1998.
Gains on the sale of OREO decreased by $179,000 or 80%. This is a direct result
of the Bank disposing of the majority of its OREO prior to 1999.
Tax consulting and insurance commission income increased $47,000 or 7% and
$138,000 or 73%, respectively.
Other operating income increased $457,000 or 74% in 1999 from 1998 levels,
primarily due to new sources of rental income from the Buildings, adding
$250,000 in new other operating income, not present in 1998. Fees from merchant
credit card processing increased by $92,000 over 1998 levels and cash management
related fee income grew by $65,000. This growth is directly attributable to
growth in the banks off-balance sheet mutual fund balances, which increased from
$43,007,000 at December 31, 1998 to $100,372,000 at December 31, 1999. Exclusive
of these increased revenue streams, other operating income increased by $50,000
for 1999, compared to 1998.
Other Expenses
The following table details other expenses for the years ended December 31, 1999
and 1998, and the percent change from year to year:
TABLE 8 - Other Expenses
1999 1998 % Change
-------------------------------------
Salaries-regular ...................... $12,446 $10,289 21%
Salaries-other ........................ 2,226 2,375 (6%)
Employee benefits ..................... 2,334 1,908 22%
Occupancy expense ..................... 1,928 1,392 39%
Furniture, fixtures, and
equipment ......................... 1,968 1,817 8%
Advertising ........................... 1,290 1,283 1%
Professional fees ..................... 1,148 811 42%
Computer processing ................... 560 569 (2%)
Merchant credit card
processing ........................ 524 466 12%
Stationery and supplies ............... 408 354 15%
Insurance ............................. 373 213 75%
Amortization of goodwill .............. 183 -- --
Net cost of operation of other
real estate owned ................. 8 7 14%
Other operating expenses .............. 3,584 3,211 12%
-------------------------------------
Total other expenses .................. $28,980 $24,695 17%
-------------------------------------
Other expenses increased for the year ended December 31, 1999, by 17% compared
to 1998. Regular salaries, consisting of regular, part time and overtime salary
expense and the largest component of other expenses, rose 21%, due primarily to
the New Acquisitions in 1999. Exclusive of regular salary expense from
Brokerage, CDC and JWR&Co., which produced no expense in 1998, total regular
salaries increased by 10%. Merit increases and staffing additions, during 1999,
are primarily responsible for this increase. As of December 31, 1999, the
Corporation's consolidated full-
9
time equivalent staffing level was 266.5 compared to 239.5 as of December 31,
1998.
Other salaries, which primarily consist of incentive compensation, decreased 6%
from 1998 to 1999. The $149,000 decrease was primarily related to Investment
Management and Trust incentive-based compensation.
Employee benefit costs increased $426,000 or 22% in 1999 over 1998 levels. Of
this increase, $119,000 relates to the newly acquired or started companies in
1999. A $158,000 increase in the cost of the Corporation's pension expense,
along with $76,000 and $45,000 respective increases in the cost of the Bank's
social security taxes and medical insurance premiums account for $398,000 of the
$426,000 increase. Additional participants in the pension plan, as well as an
increased staff are the primary reasons for these increased expense categories.
Occupancy expenses increased $536,000 or 39% from 1998 to 1999. The largest
increase relates to occupancy costs associated with the Buildings, which
amounted to $294,000 for 1999. No such expenses were incurred during 1998. The
cost to the Bank for use of the Buildings in 1999, net of the respective rental
income was $61,000. Increased office rent expense for Investment Counsellors of
Bryn Mawr, a division of the Investment Management and Trust Division, amounted
to $38,000, compared to similar rent expense for 1998, and occupancy expense
associated with the New Acquisitions amounted to $182,000, accounting for
$514,000 of the $536,000 increase.
Furniture, fixtures and equipment expense increased by $151,000 or 8% in 1999,
compared to 1998. The rental of office equipment increased $46,000, as some Bank
departments were relocated, in anticipation of renovations within the main Bank
building.
Depreciation expense for the Bank was also up by $51,000, reflecting the effect
of capital improvements made during 1999. Expenses associated with the New
Acquisitions in 1999 amounted to $69,000.
Advertising remained relatively level for 1999, compared to 1998, at $1,290,000
and $1,283,000 for the respective periods.
The cost of merchant credit card processing increased $68,000 or 15% as the
volume of merchant processing increased. These fees were more that offset by
related revenues, included in other operating income.
The cost of professional fees increased by $337,000 or 42%. The primary reason
for this increase was solicitation fees paid for business referrals to CDC in
the routine operation of CDC's investment advisory business. CDC incurred
$565,000 in solicitation fees in 1999. No such fees were incurred during 1998.
Exclusive of these solicitation fees, professional fees decreased by $228,000 or
28% for the twelve months ended December 31, 1999, compared to the same period
in 1998. A recovery of legal fees in 1999, related to a previously charged-off
loan, was primarily responsible for this decrease in professional fees.
Stationery and supplies expense increased $54,000 or 15% in 1999, compared to
1998, due primarily to additional costs in 1999, associated with the production
of new product brochures as well as letterhead for the new subsidiary companies,
acquired or established during 1999.
Insurance expense increased by $160,000 or 75%. Insurance expense is composed of
the premiums paid to The Federal Deposit Insurance Corporation (the "FDIC") for
deposit insurance, as well as the cost of the Corporation's business insurance
coverage. FDIC insurance premiums remained level from 1998 to 1999, while the
Corporation's business insurance premiums accounted for the $160,000 increase
during 1999, compared to similar premiums in 1998. Expanded policy limits and
the addition of the New Acquisitions were responsible for this increase.
Goodwill amounting to $3,477,000 was recorded on the Corporation's books as a
result of the acquisition of CDC and JWR&Co. Their respective amortization
periods are 10 and 20 years. The goodwill is being amortized on a straight-line
method at a cost of $183,000 for 1999. No such cost was incurred for 1998.
Other operating expenses increased $373,000 or 12% from 1998 to 1999. Included
in 1999's expense were expenses of the New Acquisitions of $238,000. Exclusive
of these expenses, other operating expenses increased by 4% over 1998 levels.
Income Taxes
Federal income taxes for 1999 were $3,879,000, compared to $3,480,000 for 1998.
This represents an effective tax rate of 32.8% and 33.7% for 1999 and 1998,
respectively. Income taxes for financial reporting purposes differ from the
amount computed by applying the statutory rate to income before taxes, due
primarily to tax-exempt income from certain loans and investment securities. See
Note 10 to the consolidated financial statements.
10
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Investment Securities
Management has elected to classify 100% of the investment portfolio as available
for sale. Therefore, the investment portfolio was carried at its estimated
market value of $29,611,000 and $50,960,000 as of December 31, 1999 and 1998,
respectively. The amortized cost of the portfolio as of December 31, 1999 was
$30,201,000, resulting in net unrealized losses of $590,000. The amortized cost
of the portfolio at December 31, 1998 was $50,808,000, resulting in net
unrealized gains of $152,000.
The maturity distribution and weighted average yields on a fully tax-equivalent
basis of investment securities at December 31, 1999, are as follows:
TABLE 9 - Investment Portfolio
Maturing Maturing
Maturing From 2001 From 2005
During Through Through Maturing
(dollars in thousands) 2000 2004 2009 After 2009 Total
---------------------------------------------------------------------
Obligations of the
U.S. Government and
agencies:
Book value ..................... $ 1,993 $ 22,432 $ -- $ -- $ 24,425
Weighted average
yield ....................... 6.0% 5.5% -- -- 5.6%
State and political
subdivisions:
Book value ..................... 1,478 1,740 -- -- 3,218
Weighted average
yield ....................... 7.0% 6.3% -- -- 6.6%
Other investment
securities:
Book value ..................... -- -- -- 1,968 1,968
Weighted average
yield ....................... -- -- -- 6.2% 6.2%
---------------------------------------------------------------------
Total book value ................. $ 3,471 $ 24,172 $ -- $ 1,968 $ 29,611
Weighted average
yield .......................... 6.3% 5.6% -- 6.2% 5.8%
In addition to $57,180,000 in maturities, during 1999, $6,000,000 in municipal
bonds were called. These increases in available funds, combined with an increase
in total deposits for 1999 of $28,711,000, partially offset by net originations
of the loan portfolio of $21,728,000 prompted Bank management to purchase
$42,553,000 in U.S. Government or U.S. Government Agency securities. Those
transactions were primarily responsible for the $21,262,000 or 42% decrease in
the investment portfolio from December 31, 1998, to December 31, 1999. At
December 31, 1999, approximately 82% of the investment portfolio consisted of
fixed rate U.S. Government and U.S. Government Agency securities. The
Corporation does not own any derivative instruments and does not plan to
purchase any of those instruments in the foreseeable future.
Loans
For financial reporting purposes, both fixed and floating rate home equity
loans, collateralized by mortgages, are included in other permanent mortgage
loans. Floating rate personal lines of credit loans (the Bank's "CreditLine"
product) are included in consumer loans.
A breakdown of the loan portfolio by major categories at December 31 for each of
the last five years is as follows:
TABLE 10 - Loan Portfolio
December 31
-------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
-------------------------------------------------
Real estate loans:
Permanent mortgage
loans ................ $134,495 $110,535 $102,474 $ 95,588 $ 85,752
Construction loans ...... 14,398 13,204 13,647 7,639 8,905
Commercial and
industrial loans ........ 119,835 89,368 75,474 74,688 67,507
Consumer loans ............ 70,211 68,078 76,963 81,512 73,189
-------------------------------------------------
Total ................... $338,939 $281,185 $268,558 $259,427 $235,353
-------------------------------------------------
The maturity distribution of the loan portfolio, excluding loans secured by
one-family residential property and consumer loans, at December 31, 1999, is
shown below.
Maturing
Maturing From 2001
During Through Maturing
(in thousands) 2000 2004 After 2004 Total
------------------------------------------------
Commercial, financial,
and agricultural ........ $ 65,367 $ 27,308 $ 27,160 $119,835
Real estate--construction . 7,858 6,538 2 14,398
Real estate--other ........ 1,817 12,135 40,176 54,128
------------------------------------------------
Total ................ $ 75,042 $ 45,981 $ 67,338 $188,361
------------------------------------------------
Interest sensitivity on the
above loans:
Loans with
predetermined rates .. $ 8,817 $ 28,765 $ 20,767 $ 58,349
Loans with adjustable or
floating rates ....... 66,225 17,216 46,571 130,012
------------------------------------------------
Total ................ $ 75,042 $ 45,981 $ 67,338 $188,361
------------------------------------------------
There are no scheduled prepayments on the loans included in the maturity
distributions.
11
TABLE 11 - LOAN PORTFOLIO AND NON-PERFORMING ASSET ANALYSIS
---------------------------------------------------------------------------------------------
Loan Loss
Loan Portfolio Nonperforming Assets Reserve
---------------------------------------------------------------------------------------------
Past Due Past Due Non- Other Total Non- Reserve for
30 to 89 90 Days Total Performing Real Estate Performing Loan Loss
(in thousands) Current Days or More Loans Loans* Owned Assets Allocation
---------------------------------------------------------------------------------------------
Real estate loans:
Permanent mortgage loans:
Residential ............ $ 26,035 $ 258 $ 41 $ 26,334 $ 41 $ -- $ 41 $ --
Commercial ............. 53,402 47 679 54,128 679 -- 679 --
Home equity ............ 53,797 217 19 54,033 19 -- 19 --
---------------------------------------------------------------------------------------------
Total permanent mortgage
loans ................ 133,234 522 739 134,495 739 -- 739 228
Construction mortgage
loans:
Residential ............ 14,396 -- -- 14,396 -- -- -- --
Commercial ............. 2 -- -- 2 -- -- -- --
---------------------------------------------------------------------------------------------
Total construction
mortgage loans .... 14,398 -- -- 14,398 -- -- -- 33
---------------------------------------------------------------------------------------------
Total real estate
loans ............. 147,632 522 739 148,893 739 -- 739 261
Commercial and Industrial
loans .................... 119,523 312 -- 119,835 -- -- -- --
---------------------------------------------------------------------------------------------
Total commercial and
industrial loans .. 119,523 312 -- 119,835 -- -- -- 151
---------------------------------------------------------------------------------------------
Consumer loans:
Direct ................... 9,162 17 4 9,183 4 -- 4 --
Indirect ................. 58,438 272 49 58,759 49 -- 49 --
CreditLine ............... 2,253 16 -- 2,269 -- -- -- --
---------------------------------------------------------------------------------------------
Total consumer loans . 69,853 305 53 70,211 53 -- 53 279
Unallocated reserve for loan
loss ..................... -- -- -- -- -- -- -- 3,709
---------------------------------------------------------------------------------------------
Total ................ $337,008 $ 1,139 $ 792 $338,939 $ 792 $ -- $ 792 $4,400
---------------------------------------------------------------------------------------------
* Nonperforming loans are loans on which scheduled principal and/or interest
is past due 90 days or more and loans less than 90 days past due which are
deemed to be problem loans by management. Total nonperforming loans of
$792,000 includes the $792,000 in loans past due 90 days or more, on which
certain borrowers have paid interest regularly. There are no loans less
than 90 days delinquent included in nonperforming loans.
12
The Bank's lending function is its principal income generating activity, and it
is the Bank's policy to continue to serve the credit needs of its market area.
Total loans at December 31, 1999 increased 21% to $338,939,000 from $281,185,000
as of December 31, 1998.
The Bank's commercial and industrial lending had the largest growth in
outstanding loan balances from year to year. Commercial and industrial loan
balances grew $30,467,000 or 34% from $89,368,000 at December 31, 1998 to
$119,835,000 at December 31, 1999. Increased business development in the Bank's
commercial lending market area, the addition of experienced commercial lenders,
and the emergence of new commercial lending relationships, partially the result
of recent banking mergers in the Bank's market area, are the reasons for this
strong growth.
Permanent mortgage loans, which consist of commercial and residential mortgages
as well as home equity loans, increased by 22% or $23,960,000 during 1999, from
$110,535,000 at December 31, 1998, to $134,495,000 at December 31, 1999. This
growth was due primarily to a $10,427,000 or 66% increase in residential
mortgage loans, as the Bank decided to increase its outstanding balances of
residential mortgage loans. Home equity loans increased by $9,561,000 or 21%,
commercial mortgage loans increased by $3,972,000 or 8%.
Consumer loans, consisting of loans to individuals for household, automobile,
family, and other consumer needs, as well as purchased indirect automobile paper
from automobile dealers in the Bank's market area, increased $2,133,000 or 3%,
from $68,078,000 at December 31, 1998, to $70,211,000 at December 31, 1999.
While average outstanding consumer loan balances decreased by 4% during 1999,
during the later half of 1999, outstanding indirect automobile paper accounted
for the largest increase, growing $1,726,000 or 3% to $58,758,000 for December
31, 1999 compared to $57,032,000 at December 31, 1998. Competition from
automobile manufacturers' credit facilities and lower costing financing from
home equity loans continues to be a source of major competition for this
product.
As of December 31, 1999, the construction loan portfolio increased by $1,194,000
or 9%, from $13,204,000 at December 31, 1998, to $14,398,000 at December 31,
1999. As of December 31, 1998 and 1999, the construction lending portfolio had
neither non-performing loans nor any loans delinquent 30 days or more.
Deposits
The Bank attracts deposits from within its market area by offering various
deposit instruments, including savings accounts, NOW accounts, money market
accounts, and certificates of deposit.
Total deposits increased 8% to $371,068,000 at December 31, 1999, from
$342,357,000 at year-end 1998. A more meaningful measure of deposit change is
average daily balances. As illustrated in Table 12, average daily deposit
balances increased 9%. It is believed that bank consolidation within the Bank's
market area, as well as the acquisition of new deposit accounts through the
growth of new lending and Investment Management and Trust relationships, are
primarily responsible for this growth in deposits. As previously discussed, this
change in the mix of deposits, growing lower costing and non-interest bearing
deposits is primarily responsible for a 22 basis point decrease in the Bank's
overall cost of funds and a 13 basis point increase in the Bank's net interest
margin for 1999, compared to 1998.
The following table presents the average balances of deposits and the percentage
change for the years indicated:
TABLE 12 - Average Daily Balances of Deposits
% Change % Change
(dollars in thousands) 1999 1998 1999 vs. 1998 1997 1998 vs. 1997
----------------------------------------------------------------------
Demand deposits, non-
interest-bearing ........... $ 92,098 $ 82,773 11.3% $ 76,076 8.8%
----------------------------------------------------------------------
Market rate accounts ......... 49,871 44,325 12.5 45,903 (3.4)
NOW accounts ................. 93,769 85,317 9.9 73,958 15.4
Regular savings .............. 40,865 40,143 1.8 38,891 3.2
----------------------------------------------------------------------
184,505 169,785 8.7 158,752 6.9
----------------------------------------------------------------------
Time deposits ................ 65,000 61,503 5.7 73,792 (16.7)
----------------------------------------------------------------------
Total ...................... $341,603 $314,061 8.8 $308,620 1.8
----------------------------------------------------------------------
The following table shows the maturity of certificates of deposit of $100,000 or
greater as of December 31, 1999:
Table 13 - Maturity of Certificates of Deposits of $100,000 or Greater
(in thousands)
Three months or less................................................. $15,751
Three to six months.................................................. 2,689
Six to twelve months................................................. 3,833
Greater than twelve months........................................... --
-------
Total............................................................ $22,273
-------
Capital Adequacy
At December 31, 1999, total shareholders' equity of the Corporation was
$46,719,000, a $4,498,000 or 11% increase over $42,221,000 at December 31, 1998.
Decreasing the addition to capital from earnings, less dividends for the year,
was the impact of SFAS No. 115. As of December 31, 1999, shareholders' equity
included unrealized losses on investment securities, net of deferred taxes, of
$389,000 compared to unrealized gains on investment securities, net of taxes, of
$100,000 at December 31, 1998. This change caused a $489,000 decrease to
shareholders' equity from December 31, 1998 to December 31, 1999.
The Corporation and the Bank are required to meet certain regulatory capital
adequacy guidelines. Under these guidelines, risk-based capital ratios measure
capital as a percentage of risk-adjusted assets. Risk-adjusted assets are
determined by assigning various weights to all assets and off-balance sheet
arrangements, such as letters
13
of credit and loan commitments, based on the associated risk.
The Bank's risk-based capital ratios at December 31, 1999 and 1998 are listed
below. These ratios are all in excess of the minimum required capital ratios,
also listed below.
TABLE 14 - Risk-based Capital Ratios
1999 1998
Minimum Minimum
ACTUAL Required Actual Required
------ -------- ------ --------
Tier I capital
ratio....................... 10.34% 4.00% 12.42% 4.00%
Total capital ratio............. 11.54 8.00 13.67 8.00
An increase in risk weighted assets at December 31, 1999, compared to last
year-end, combined with the effect of dividends paid to the Corporation during
1999 to fund both the Corporation's Stock Repurchase Program and the purchase of
JWR&Co. are the primary reasons for the decreases in both the Bank's Tier I and
Total Capital ratios from December 31, 1998 to December 31, 1999.
The FDIC has created a statutory framework for capital requirements that
established five categories of capital strength, ranging from a high of
"well-capitalized" to a low of "critically under capitalized." As of December
31, 1999 and 1998, the Bank exceeded the levels required to meet the definition
of a "well-capitalized" bank. Management anticipates that the Corporation and
the Bank will continue to be in compliance with all capital requirements and
continue to be classified as "well-capitalized."
The Corporation's ability to declare dividends in the future is dependent on
future earnings.
Risk Elements
Risk elements, as defined by the Securities and Exchange Commission in its
Industry Guide 3, are composed of four specific categories: (1) nonaccrual, past
due, and restructured loans, (2) potential problem loans, loans not included in
the first category, but where information known by Bank management indicates
that the borrower may not be able to comply with present payment terms, (3)
foreign loans outstanding, and (4) loan concentrations. Table 11 presents a
summary, by loan type, of the Bank's nonaccrual and past due loans as of
December 31, 1999. It is the Bank's policy to promptly place non-performing
loans on non-accrual status. Bank management knows of no outstanding loans that
presently would meet the criteria for inclusion in the potential problem loan
category, as indicated under specific category (2) referred to above. The Bank
has no foreign loans, and loan concentrations are presented in Table 6. Table 6
presents the percentage of outstanding loans, by loan type, compared to total
loans outstanding as of December 31, 1999.
Asset Quality
The Bank is committed to maintaining and developing quality assets. Loan growth
is generated primarily within the Bank's market area, which includes Montgomery,
Delaware, and Chester Counties, as well as portions of Bucks and Philadelphia
Counties. The development of quality loan growth is controlled through a uniform
lending policy that defines the lending functions and goals, loan approval
process, lending limits, and loan review.
Non-performing assets amounted to $792,000 at December 31, 1999, a 4% increase
from $764,000 at December 31, 1998. Non-performing loans were $792,000 at
December 31, 1999, a 61% increase from $493,000 at December 31, 1998. The
primary cause of this increase was the reinstatement of a loan to non-
performing status that had been included in the Bank's OREO at December 31,
1998. There were no OREO properties on the Bank's books as of December 31, 1999,
causing a $271,000 decrease in OREO balances from December 31, 1998.
Total nonperforming assets, which include non-accruing and past due loans and
other real estate owned, are presented in the table below for each of the five
years in the period ended December 31, 1999.
TABLE 15 - Nonperforming Assets
December 31
-------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------
(in thousands)
Loans past due 90 days
or more not on
nonaccrual status:
Real estate--mortgage ...... $ 19 $ 84 $ 72 $ 68 $ --
Consumer ................... 53 56 27 51 155
Loans on which the
accrual of interest
has been discontinued:
Commercial and
industrial .............. -- -- 347 76 339
Real estate--mortgage ...... 720 353 723 712 117
Real estate--
construction ............ -- -- -- -- --
-------------------------------------------
Total nonperforming
loans ................ 792 493 1,169 907 611
Other real estate owned
and in-substance
foreclosed
properties* ................ -- 271 25 1,523 3,794
-------------------------------------------
Total nonperforming
assets ............... $ 792 $ 764 $1,194 $2,430 $4,405
===========================================
All loans past due 90 days or more, except consumer loans and home equity
mortgage loans, are placed on nonaccrual status. Such factors as the type and
size of the loan, the quality of the collateral, and historical creditworthiness
of the borrower and/or guarantors are considered by management in assessing the
collectibility of such loans. Interest foregone on nonaccrual status loans was
$121,000 for the year ended December 31,
14
1999. Interest earned and included in interest income on these loans prior to
their nonperforming status amounted to $448,000 in 1999.
* Refer to Note 2 to the consolidated financial statements.
The Bank maintains a Loan Review Committee (the "Committee") that periodically
reviews the status of all non-accrual and impaired loans, loans criticized by
both the Bank's regulators and an independent consultant retained to review both
the loan portfolio as well as the overall adequacy of the loan loss reserve. The
methodology used to arrive at an appropriate allowance for loan loss involves a
high degree of management judgement and results in a range of estimated losses.
It is the goal of this loan loss reserve adequacy process to provide a loan loss
reserve sufficient to address the Bank's potential risk of loan losses, in the
existing loan portfolio, during various economic cycles. During the review of
the loan loss reserve, the Committee considers allocations of the loan loss
reserve on specific loans on a loan-by-loan basis, as well as considering
inherent loan losses in specific pools of similar loans, based on prior
historical write-off activity, geographic concentrations, industry
concentrations and economic factors. The sum of all analyzed loan components is
compared to the loan loss reserve balance, and any adjustments deemed necessary
to the loan loss reserve balance are made on a timely basis.
The Corporation is regulated and periodically inspected by The Federal Reserve
Board. In 1996, the Bank became a state member bank of the Federal Reserve
System. The Bank is regulated and periodically examined by the Federal Reserve
Board and the Pennsylvania Department of Banking. There are no recommendations
by the regulators, which would have a material effect on the Corporation's
liquidity, capital resources, or results of operations.
Asset and Liability Management
Through its Asset/Liability Committee ("ALCO") and the application of Risk
Management Policies and Procedures, the Bank seeks to minimize its exposure to
interest rate risk as well as to maintain sufficient liquidity and capital
compliance.
Interest Rate Sensitivity
The difference between interest sensitive assets and interest sensitive
deposits, stated in dollars, is referred to as the interest rate sensitivity
gap. A positive gap is created when interest rate sensitive assets exceed
interest rate sensitive deposits. A positive interest rate sensitive gap 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 a negative gap. In practice, however, there may be a lag in
repricing some products in comparison to others. A positive gap in the
short-term, 30 days or less, in a rising interest rate environment should
produce an increase in net interest income. The converse is true of a negative
gap in a rising interest rate environment.
As shown in the following table, the Bank is presently asset interest rate
sensitive in the short-term, 30 days or less category.
TABLE 16 - Interest Rate Sensitivity Analysis as of December 31, 1999
REPRICING PERIODS
-----------------------------------------------------------------------------------------
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 ............................. $ 13,643 $ 47 $ -- $ -- $ -- $ -- $ 13,690
Federal funds sold .................. 17,609 -- -- -- -- -- 17,609
Investment securities ............... -- 500 -- 2,971 24,172 1,968 29,611
Loans ............................... 109,206 13,365 18,723 33,826 163,819 (4,400) 334,539
Cash and due from banks ............. -- -- -- -- -- 17,914 17,914
Other assets ........................ -- -- -- -- -- 14,771 14,771
-----------------------------------------------------------------------------------------
Total assets ...................... $ 140,458 $ 13,912 $ 18,723 $ 36,797 $ 187,991 $ 30,253 $ 428,134
-----------------------------------------------------------------------------------------
Liabilities and shareholders' equity:
Demand, noninterest-bearing ......... $ -- $ -- $ -- $ -- $ -- $ 100,485 $ 100,485
Savings deposits .................... 72,772 -- -- -- 121,286 -- 194,058
Time deposits ....................... 17,443 9,222 12,065 23,303 16,187 -- 78,220
Other liabilities ................... 10,000 -- -- -- -- 7,884 17,884
Shareholders' equity ................ -- -- -- -- -- 37,487 37,487
-----------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity .......................... $ 100,215 $ 9,222 $ 12,065 $ 23,303 $ 137,473 $ 145,856 $ 428,134
-----------------------------------------------------------------------------------------
Gap .................................... $ 40,243 $ 4,690 $ 6,658 $ 13,494 $ 50,518 ($115,603) --
Cumulative gap ......................... $ 40,243 $ 44,933 $ 51,591 $ 65,085 $ 115,603 -- --
Cumulative earning assets as a ratio of
interest bearing liabilities ........ 140% 141% 142% 145% 141% -- --
15
The Bank uses income simulation models to measure its interest rate risk and to
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 year-end 1999, based on an analysis of the results
from the simulation models, the Bank's interest rate risk was within the
acceptable range as established by the Bank's Risk Management Policies and
Procedures.
While future interest rate movements and their effect on Bank revenue cannot be
predicted, there are no trends, events, or uncertainties of which the
Corporation's management is currently aware 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.
Liquidity
The Bank's liquidity is maintained by managing its core deposits, purchasing
federal funds, selling loans in the secondary market, and borrowing from the
Federal Home Loan Bank of Pittsburgh (the "FHLB").
The Bank's liquid assets include cash and cash equivalents as well as certain
unpledged investment securities. Bank management has developed a liquidity
measure, incorporating its ability to borrow from the FHLB to meet liquidity
needs and goals. Periodically, ALCO reviews the Bank's liquidity needs,
incorporating the ability to borrow from the FHLB and reports these findings to
the Risk Management Committee of the Bank's Board of Directors.
During 1999, cash provided by operations amounted to $8,157,000 and was
primarily derived from net income of $7,961,000 for 1999. Cash used for
investing activities amounted to $38,127,000. Investment activity provided
$20,627,000 in cash, as the balance in the investment portfolio decreased by 42%
at December 31, 1999, compared to December 31, 1998. Loan activity, including
the purchase of $33,951,000 in indirect automobile paper, used $55,679,000 in
funds during 1999. The cash portion of the cost of acquiring the New
Acquisitions amounted to $1,975,000. The cost of premises' improvements and the
purchase of equipment used $1,104,000.
Offsetting the decrease in funds from investing activities was an increase in
funds from the Bank's financing activities, which provided $33,851,000 in net
cash, primarily the result of a $14,216,000 net increase in outstanding
non-interest-bearing demand and savings related deposits, along with a
$14,465,000 increase in time deposits. The Bank also borrowed $10,000,000,
primarily for liquidity purposes, from the FHLB.
The Corporation used $30,000 in repayment of its mortgage debt. The Corporation
received $303,000 in proceeds from the issuance of common stock, related to
stock option exercises and used $2,530,000 to repurchase, pursuant to the Stock
Repurchase Program, common stock and $2,603,000 to pay the dividend in 1999. The
Corporation's cash and cash equivalents increased from December 31, 1998, to
December 31, 1999, by $3,881,000, from $45,332,000 at December 31, 1998 to
$49,213,000 at December 31, 1999.
OTHER
- --------------------------------------------------------------------------------
Year 2000
During the past two years, the Corporation organized a Year 2000 ("Y2K") team
(the "Team") to implement a plan assuring that all internal systems, borrowers
and vendors were Y2K compliant. The Team successfully met its goals. The
conversion from 1999 to the year 2000 was an uneventful one for the Corporation,
its subsidiaries, as well as its borrowers and vendors. With minor exceptions,
all systems were properly working at the commencement of business on January 3,
2000.
The cost of Y2K compliance for the Corporation amounted to $585,000.
16
1998 vs. 1997 Results of Operations
Net Income
Net income for the year ended December 31, 1998, was $6,857,000, a 12% increase
over net income of $6,130,000 for the year ended December 31, 1997. Basic
earnings per share rose from $1.38 in 1997 to $1.58 in 1998. Earnings per
share-assuming dilution was $1.33 for 1997 compared to $1.51 in 1998. In 1997,
the Corporation paid dividends of $0.36 per share. In 1998, the Corporation paid
dividends of $0.465 per share.
Return on average assets was 1.74% for 1997 compared to 1.91% in 1998. Return on
average equity was 16.45% in 1997 versus 17.06% in 1998.
Net Interest Income
A 4% increase in average earning assets, from 1997 to 1998, was primarily
responsible of a $1,122,000 or a 4% rise in interest income.
Interest expense decreased 14% or $953,000 from 1997 to 1998. The primary reason
for this decrease was a 17% decrease in average outstanding higher costing CDs.
Net interest income increased 12%, while the net interest margin increased from
5.59% for 1997 to 5.99% for 1998.
Loan Loss Provision
The provision for loan losses amounted to $200,000 for 1997 and was decreased to
$150,000 for 1998. The allowance for possible loan losses as a percentage of
non-performing loans amounted to 349% and 832% as of December 31, 1997 and 1998,
respectively. The ratio of the allowance for possible loan losses to total
outstanding loans was 1.52% and 1.46% at December 31, 1997 and 1998,
respectively.
Other Income
Other income increased 25% in 1998 from 1997 levels. Fees for Investment
Management and Trust services increased $1,574,000 or 20%. Net gains on the sale
of mortgage loans increased $548,000 or 48%, due primarily to an increase in the
sale of residential mortgage loans to the secondary mortgage market, from
$75,874,000 in 1997 compared to $134,676,000 in 1998.
Other Expenses
Other expenses increased by $3,858,000 or 19% in 1998 over 1997. Regular
salaries increased $1,685,000 or 20%, due primarily to merit increases and
staffing additions, including the establishment of TCBM in July 1997 and ICBM in
January 1998. Salaries-other, primarily incentive based, increased $720,000 or
44%. Increases in incentive based compensation, tied to overall profitability of
the Bank's lines of business accounted for this increase.
Employee benefit costs increased by $117,000 or 7%. Decreases in the cost of
post-retirement benefits of $242,000 and $170,000 in pension costs were offset
by increases of $398,000, $111,000 and $66,000 in social security tax expense,
medical and life insurance premiums and the Corporation's supplemental employee
retirement plan, respectively.
The $252,000 or 16% increase in furniture, fixtures and equipment expense was
primarily due to the additional depreciation on fixed assets.
Advertising increased $214,000 or 20%, reflecting the establishment of new
marketing initiatives.
The cost of merchant credit card processing increased $76,000 or 19%, as the
volume of merchant processing increased.
Insurance, including the Corporation's business coverage premiums and FDIC
deposit insurance premiums, increased by $25,000 or 13% in 1998 compared to 1997
levels. FDIC insurance premiums remained level from 1997 levels. The cost of the
Corporation's insurance coverage increased, partially reflecting the addition of
TCBM and ICBM in 1998 for a full year.
Other operating expenses increased $738,000 or 30% from 1997 to 1998. Appraisal
fees, directly related to the growth in mortgage banking activity, increased by
$130,000 over 1997 levels. The cost of Y2K compliance increased by $79,000 over
1997 and travel and entertainment expense grew by $70,000.
Income Taxes
The income tax provision for 1998 was $3,480,000, or a 33.7% effective rate,
compared to $2,950,000, or a 32.5% effective rate, for 1997.
17
Consolidated Balance Sheets
(in thousands)
As of December 31, 1999 1998*
--------------------------
Assets
- ------
Cash and due from banks ........................................................ $ 17,914 $ 19,810
Interest-bearing deposits with other banks ..................................... 13,793 5,166
Federal funds sold ............................................................. 17,609 20,372
Investment securities available for sale, at market value
(amortized cost of $30,201,000 and $50,808,000 at December 31, 1999 and 1998,
respectively) ................................................................ 29,611 50,960
Loans .......................................................................... 338,939 281,185
Less: Allowance for possible loan losses ................................... (4,400) (4,100)
--------------------------
Net loans ............................................................... 334,539 277,085
--------------------------
Premises and equipment, net .................................................... 11,880 12,209
Accrued interest receivable .................................................... 2,411 2,069
Goodwill ....................................................................... 3,294 --
Deferred federal income taxes .................................................. 1,440 1,086
Other real estate owned ........................................................ -- 271
Other assets ................................................................... 4,329 2,812
--------------------------
Total assets ............................................................... $436,820 $391,840
--------------------------
Liabilities
- -----------
Deposits:
Demand, noninterest-bearing .................................................. $ 98,790 $ 88,937
Savings ...................................................................... 194,057 189,695
Time ......................................................................... 78,221 63,725
--------------------------
Total deposits .......................................................... 371,068 342,357
Short term borrowings .......................................................... 10,000 --
Other liabilities .............................................................. 9,033 7,262
--------------------------
Total liabilities .......................................................... 390,101 349,619
--------------------------
Commitments and contingencies (Note 14)
Shareholders' Equity
- --------------------
Common stock, par value $1,
authorized, 25,000,000 shares, issued 5,179,608 shares and 5,067,078 shares as
of December 31, 1999 and 1998, respectively, and outstanding 4,323,250 shares
and 4,303,818 shares as of December 31, 1999
and 1998, respectively ....................................................... 5,180 5,067
Paid-in capital in excess of par value ......................................... 4,467 2,478
Unrealized investment (depreciation) appreciation, net of deferred income taxes (389) 100
Retained earnings .............................................................. 45,149 39,791
--------------------------
54,407 47,436
Less: Common stock in treasury, at cost -- 856,358 and 763,260
shares at December 31, 1999 and 1998, respectively ........................... (7,688) (5,215)
--------------------------
Total shareholders' equity .............................................. 46,719 42,221
--------------------------
Total liabilities and shareholders' equity .............................. $436,820 $391,840
--------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
18
Consolidated Statements of Income
(in thousands, except for share and per share data)
For the years ended December 31, 1999 1998* 1997*
----------------------------------------------
Net interest income:
Interest income:
Interest and fees on loans ...................... $ 25,724 $ 23,085 $ 21,746
Interest on federal funds sold .................. 609 824 935
Interest and dividends on investment securities:
Taxable interest income ....................... 1,702 1,864 1,916
Tax-exempt interest income .................... 183 224 283
Dividend income ............................... 99 85 80
----------------------------------------------
Total interest income ...................... 28,317 26,082 24,960
Interest expense .................................. 5,857 5,976 6,929
----------------------------------------------
Net interest income ............................... 22,460 20,106 18,031
Loan loss provision ............................... 250 150 200
----------------------------------------------
Net interest income after loan loss provision ..... 22,210 19,956 17,831
----------------------------------------------
Other income:
Fees for investment management and trust services 9,784 9,272 7,698
Service charges on deposit accounts ............. 1,156 1,169 1,124
Other fees and service charges .................. 1,333 1,272 1,090
Net gain on sale of loans ....................... 1,028 1,682 1,134
Gain on sale of other real estate owned ......... 45 224 379
Fees earned from family business office services 1,947 -- --
Investment advisory and brokerage fees .......... 1,218 -- --
Tax consulting fees ............................. 702 655 134
Insurance commission income ..................... 326 188 --
Other operating income .......................... 1,071 614 527
----------------------------------------------
Total other income ............................ 18,610 15,076 12,086
----------------------------------------------
Other expenses:
Salaries-regular ................................ 12,446 10,289 8,604
Salaries-other .................................. 2,226 2,375 1,655
Employee benefits ............................... 2,334 1,908 1,791
Occupancy expense ............................... 1,928 1,392 1,365
Furniture, fixtures, and equipment .............. 1,968 1,817 1,565
Advertising ..................................... 1,290 1,283 1,069
Professional fees ............................... 1,148 811 822
Computer processing ............................. 560 569 584
Merchant credit card processing ................. 524 466 390
Stationery and supplies ......................... 408 354 322
Insurance ....................................... 373 213 188
Goodwill amortization ........................... 183 -- --
Net cost of operation of other real estate owned 8 7 9
Other operating expenses ........................ 3,584 3,211 2,473
----------------------------------------------
Total other expenses .......................... 28,980 24,695 20,837
----------------------------------------------
Income before income taxes ........................ 11,840 10,337 9,080
Applicable income taxes ........................... 3,879 3,480 2,950
----------------------------------------------
Net income ........................................ $ 7,961 $ 6,857 $ 6,130
----------------------------------------------
Earnings per common share ......................... $ 1.83 $ 1.58 $ 1.40
Earnings per common share-assuming dilution ....... $ 1.75 $ 1.51 $ 1.33
Weighted-average shares outstanding ............... 4,349,403 4,327,297 4,392,162
Dilutive potential common shares .................. 193,915 225,708 203,660
----------------------------------------------
Adjusted weighted-average shares .................. 4,543,318 4,553,005 4,595,822
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
19
Consolidated Statements of Cash Flows
(in thousands)
For the years ended DECEMBER 31, 1999 1998* 1997*
-------------------------------------
Operating activities:
- ---------------------
Net income ...................................................................... $ 7,961 $ 6,857 $ 6,130
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ..................................................... 250 150 200
Provision for depreciation and amortization ................................... 1,319 1,333 1,091
Loans originated for resale ................................................... (75,502) (132,175) (78,407)
Proceeds from sale of loans ................................................... 74,505 135,494 75,874
Net gain on sale of loans ..................................................... (1,028) (1,682) (509)
Net gain on disposal of other real estate owned ............................... (45) (224) (379)
Provision for deferred income taxes ........................................... (197) (20) 194
Change in income taxes payable/refundable ..................................... 1,624 (405) --
Change in accrued interest receivable ......................................... (342) (30) 125
Change in accrued interest payable ............................................ 179 207 (345)
Other ......................................................................... (567) 496 1,485
-------------------------------------
Net cash provided by operating activities ..................................... 8,157 10,001 5,459
-------------------------------------
Investing activities:
- ---------------------
Purchases of investment securities .............................................. (42,553) (36,683) (30,013)
Proceeds from maturities of investment securities ............................... 57,180 11,415 15,200
Proceeds from sales of investment securities available for sale ................. -- -- 27
Proceeds from calls of investment securities .................................... 6,000 15,002 8,955
Proceeds on disposition of other real estate owned .............................. 45 249 1,879
Purchase of other real estate owned ............................................. -- (271) --
Capitalization of costs of other real estate owned .............................. (41) -- (2)
Net loan (originations) repayments .............................................. (21,728) 10,954 26,462
Purchase of automobile retail installment contracts ............................. (33,951) (26,206) (32,859)
Cost of acquiring new subsidiaries .............................................. (1,975) -- --
Purchases of premises and equipment ............................................. (1,104) (1,737) (1,542)
-------------------------------------
Net cash used in investing activities ......................................... (38,127) (27,277) (11,893)
-------------------------------------
Financing activities:
- ---------------------
Change in demand and savings deposits ........................................... 14,216 11,705 22,622
Change in time deposits ......................................................... 14,495 1,846 3,001
Dividends paid .................................................................. (2,603) (2,012) (1,583)
Repayment of mortgage debt ...................................................... (30) (26) (1,809)
Proceeds from issuance of common stock .......................................... 303 432 260
Proceeds from borrowed funds .................................................... 10,000 -- --
Purchase of treasury stock ...................................................... (2,530) (2,519) (1,329)
-------------------------------------
Net cash provided by financing activities ..................................... 33,851 9,426 21,162
-------------------------------------
Change in cash and cash equivalents ............................................. 3,881 (7,850) 14,728
Cash and cash equivalents at beginning of year .................................. 45,332 53,182 38,454
-------------------------------------
Cash and cash equivalents at end of year ........................................ $ 49,213 $ 45,332 $ 53,182
-------------------------------------
Supplemental cash flow information:
- -----------------------------------
Cash paid during the year for:
Income taxes .................................................................. $ 2,300 $ 3,861 $ 2,153
Interest ...................................................................... 5,734 5,827 6,955
Non-cash investing activities:
- ------------------------------
Common stock issued for business acquisition:
Joseph W. Roskos & Company .................................................... $ 2,000 -- --
CDC Capital Management, Inc. .................................................. 281 -- --
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
20
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except for shares of common stock)
Shares of Unrealized
Common Common Paid-in Retained Gains Treasury
For the years ended December 31, 1999, 1998 and 1997 Stock issued Stock Capital Earnings (Losses) Stock
---------------------------------------------------------------------------
Balance, December 31, 1996 ............................... 2,503,885 $2,504 $4,445 $30,399 ($ 1) ($ 1,539)
Net income ............................................... -- -- -- 6,130 -- --
Dividends declared, $0.72 per share ...................... -- -- -- (1,583) -- --
Change in unrealized gains (losses), net of income taxes
of $32,000 ............................................. -- -- -- -- 63 --
Purchase of treasury stock ............................... -- -- -- -- -- (1,329)
Retirement of treasury stock ............................. (2,006) (2) (99) -- -- 101
Common stock issued ...................................... 17,500 17 243 -- -- --
-------------------------------------------------------------------------
Balance, December 31, 1997 ............................... 2,519,379 2,519 4,589 34,946 62 (2,767)
Net income ............................................... -- -- -- 6,857 -- --
Dividends declared, $0.465 per share ..................... -- -- -- (2,012) -- --
Change in unrealized gains (losses), net of income taxes
of $52,000 ............................................. -- -- -- -- 38 --
2-for-1 stock split ...................................... 2,525,339 2,525 2,525) -- -- --
Tax benefit from gains on stock option exercise .......... -- -- 173 -- -- --
Purchase of treasury stock ............................... -- -- -- -- -- (2,519)
Retirement of treasury stock ............................. (5,740) (5) (163) -- -- 71
Common stock issued ...................................... 28,100 28 404 -- -- --
-------------------------------------------------------------------------
Balance, December 31, 1998 ............................... 5,067,078 5,067 2,478 39,791 100 (5,215)
Net income ............................................... -- -- -- 7,961 -- --
Dividends declared, $0.60 per share ...................... -- -- -- (2,603) -- --
Change in unrealized gains (losses), net of income taxes
of ($252,000) .......................................... -- -- -- -- (489) --
Tax benefit from gains on stock option exercise .......... -- -- 213 -- -- --
Purchase of treasury stock ............................... -- -- -- -- -- (2,530)
Retirement of treasury stock ............................. (11,059) (11) (241) -- -- 57
Common stock issued ...................................... 123,589 124 2,017 -- -- --
-------------------------------------------------------------------------
Balance, December 31, 1999 ............................... 5,179,608 $5,180 $4,467 $45,149 ($ 389) ($ 7,688)
-------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
21
Consolidated Statements of Comprehensive Income
(in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
-------------------------------
Net income ................................................................. $ 7,961 $ 6,857 $ 6,130
Other comprehensive income:
Unrealized holding (losses) gains arising during the period .............. (741) 59 94
Deferred income tax benefit (expense) on unrealized holding gains (losses)
arising during the period ............................................. 252 (21) (31)
-------------------------------
COMPREHENSIVE NET INCOME ................................................... $ 7,472 $ 6,895 $ 6,193
-------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
22
Notes to Consolidated Financial Statements
1. Basis of Presentation:
- -------------------------
The consolidated financial statements include the accounts of Bryn Mawr Bank
Corporation (the "Corporation"), The Bryn Mawr Trust Company (the "Bank"), Tax
Counselors of Bryn Mawr Inc. ("TCBM"), Insurance Counselors of Bryn Mawr, Inc.
("ICBM"), Bryn Mawr Brokerage Company, Inc. ("BM Brokerage"), CDC Capital
Management, Inc. ("CDC") and Joseph W. Roskos & Co. ("JWR&Co."). For all years
presented, all adjusting entries required for the fair presentation of the
financial statements were made. All such adjustments were of a normal recurring
nature. All significant intercompany transactions and accounts have been
eliminated upon consolidation.
2. Summary of Significant Accounting Policies:
- ----------------------------------------------
The accounting policies of the Corporation conform to GAAP and to general
practices of the banking industry. The significant accounting policies are as
follows:
Cash and cash equivalents:
Cash and cash equivalents include cash and due from banks, federal funds sold,
and interest-bearing deposits with other banks with original maturities of three
months or less. Cash balances reserved to meet regulatory requirements of the
Federal Reserve Board amounted to $3,106,000 and $4,909,000 at December 31, 1999
and 1998, respectively.
Investment securities:
Management categorized all of its investment securities as available for sale as
part of its asset/liability management strategy since they may be sold in
response to changes in interest rates, prepayments, and similar factors.
Investments in this classification are reported at the current market value with
net unrealized gains or losses, net of the applicable deferred tax effect, being
added to or deducted from the Corporation's total shareholders' equity on the
balance sheet. As of December 31, 1999, shareholders' equity was decreased by
$389,000 due to unrealized losses (net of $201,000 in deferred income tax
benefits) of $590,000 in the investment securities portfolio. As of December 31,
1998, shareholders' equity was increased by $100,000 due to unrealized gains
(net of $52,000 in deferred income taxes) of $152,000 in the investment
securities portfolio.
Loans:
Interest income on loans performing satisfactorily is recognized on the accrual
method of accounting. Non-performing 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 non-performing
loans, except consumer loans, are placed on non-accrual status, and any
outstanding interest receivable at the time the loan is deemed non-performing is
deducted from interest income. Consumer loan principal and interest balances
deemed uncollectable are charged off on a timely basis against the loan loss
reserve. The charge-off policy for all loans, including non-performing 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.
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 current 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 risk or 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 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 non-performing and impaired loan. All of the Corporation's
impaired loans, which amounted to $720,000 and $1,718,000 at December 31, 1999
and 1998, respectively, were put on a non-accrual basis and any outstanding
accrued interest receivable on such loans, at the time they were put on a
non-accrual 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
December 31, 1999 and 1998, no impaired loans were measured using the present
value of expected future cash flows or at the
23
loan's market price. Impaired loans measured by the fair value of the loan's
collateral amounted to $720,000 and $1,718,000, respectively. If the loan
valuation is less than the recorded value of the loan, an impairment reserve is
established for the difference. As of December 31, 1999 and 1998, there were
$679,000 and $935,000, respectively, of impaired loans for which there is a
related allowance for loan losses. The total related allowance for loan loss on
impaired loans at December 31, 1999 and 1998 was $110,000 and $300,000,
respectively. Impaired loans for which no loan loss allowance was allocated
amounted to $41,000 and $783,000 at December 31, 1999 and 1998. Average impaired
loans during both 1999 and 1998 amounted to $1,088,000 and $2,820,000,
respectively.
When a loan is classified as impaired, it is put on non-accrual 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 in either 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, $1,283,000 in
loan balances were removed from impaired status and returned to accrual status
during 1999, while no loans considered impaired were removed from impaired
status during 1998.
Smaller balance, homogeneous loans, exclusively consumer loans, when included in
non-performing loans, for practical consideration, are not put on a non-accrual
status nor is the current accrued interest receivable reversed from income. Once
deemed uncollectable, these outstanding loan and accumulated interest balances
are charged off through the loan loss reserve, on a timely basis.
Loan loss provision:
The loan loss provision charged to operating expenses is based on those factors
which, in management's judgement, deserve current recognition in estimating
possible loan losses including the continuing evaluation of the loan portfolio
and the Bank's past loan loss experience. The allowance for possible loan losses
is an amount that management believes will be adequate to absorb losses inherent
in existing loans.
Other real estate owned:
Other real estate owned ("OREO") consists of properties acquired by foreclosure.
These assets are carried at the lower of cost or estimated fair value at the
time the loan is foreclosed less estimated cost to sell. The amounts recoverable
from OREO could differ materially from the amounts used in arriving at the net
carrying value of the assets because of future market factors beyond the control
of the Bank. Costs to improve the property are capitalized, whereas costs of
holding the property are charged to expense.
Deferred loan fees:
The Bank defers all loan fees and related direct loan origination costs.
Deferred loan fees and costs are generally capitalized and amortized as yield
adjustment over the life of the loan using the interest method.
Premises and equipment:
Premises and equipment are stated at cost, less accumulated depreciation. The
provision for depreciation is computed on a straight-line basis over the
estimated useful lives, as follows: premises--10 to 50 years, and equipment--3
to 20 years. Leasehold improvements are amortized over the shorter of the
estimated useful life or the term of the lease. Maintenance and repairs are
charged to expense; major renewals and betterments are capitalized. Gains and
losses on dispositions are reflected in current operations.
Income taxes:
The Corporation files a consolidated Federal income tax return with its
subsidiaries. Certain items of income and expense (primarily loan origination
fees, provision for loan loss and other real estate owned losses) are reported
in different periods for tax purposes. Deferred taxes are provided on such
temporary differences existing between financial and income tax reporting,
subject to the deferred tax asset realization criteria required under Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109").
Trust income:
Trust Division income is recognized on the cash basis of accounting. Reporting
such income on a cash basis does not materially affect net income.
Goodwill:
The excess of cost over fair market value of net assets acquired through the
purchase method of accounting (Goodwill) is being amortized on a straight-line
basis
24
over the period of the expected benefit, which ranges from 10 to 20 years. It is
Corporation policy that, if any expected benefit from an acquisition becomes
impaired, the respective goodwill amount will be charged-off in the period of
impairment.
Recently issued accounting standards:
In June 1998, Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133) was issued and
subsequently amended by Statement of Financial Accounting Standard No. 137
"Accounting of Derivative Instruments and Hedging Activities--Deferral of the
effective date of FASB statement No. 133" ("SFAS No. 137").
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 as amended by SEAS No. 137
is effective for all fiscal quarters beginning after June 15, 2000. The
Corporation does not own any derivative instruments and does not engage in
hedging activities. These statements will not have a material impact on the
financial condition or results of operations of the Corporation.
3. Investment Securities:
- -------------------------
The amortized cost and estimated market value of investments, all of which were
classified as available for sale, are as follows:
As of December 31, 1999:
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
---------------------------------------------
Obligations of the U.S.
Government and
agencies ................. $25,017 $ -- $ 593 $24,424
State and political
subdivisions ............. 3,230 4 15 3,219
Other securities ............. 1,954 14 -- 1,968
---------------------------------------------
Total .................... $30,201 $ 18 $ 608 $29,611
=============================================
As of December 31, 1998:
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
---------------------------------------------
Obligations of the U.S.
Government and
agencies ................. $44,838 $ 99 $ 26 $44,911
State and political
subdivisions ............. 4,612 62 -- 4,674
Other securities ............. 1,358 17 -- 1,375
---------------------------------------------
Total .................... $50,808 $ 178 $ 26 $50,960
=============================================
At December 31, 1999, securities having a book value of $10,525,000 were pledged
as collateral for public funds, trust deposits, and other purposes.
The amortized cost and estimated market value of investment securities at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
1999
--------------------------
Estimated
Amortized Market
(in thousands) Cost Value
--------------------------
Due in one year or less .......................... $ 3,475 $ 3,471
Due after one year through five years ............ 24,772 24,172
Due after five years through ten years ........... -- --
Due after ten years .............................. -- --
Other securities ................................. 1,954 1,968
--------------------------
Total ........................................ $ 30,201 $ 29,611
==========================
There were no sales of debt securities during 1999, 1998 or 1997.
4. Loans:
- ---------
Loans outstanding at December 31 are detailed by category as follows:
(in thousands) 1999 1998
--------------------------
Real estate loans:
Permanent mortgage loans ..................... $ 134,960 $ 110,963
Construction loans ........................... 14,496 13,295
Commercial and industrial loans .................. 119,835 89,368
Loans to individuals for household,
family, and other consumer
expenditures ................................. 70,211 68,078
--------------------------
Subtotal ......................................... 339,502 281,704
Less: Allowance for loan losses .................. (4,400) (4,100)
Net deferred loan fees ..................... (563) (519)
--------------------------
Loans, net ................................... $ 334,539 $ 277,085
--------------------------
Unadvanced loan funds ............................ $ 113,682 $ 85,775
Loans with predetermined rates ................... 187,413 165,468
Loans with adjustable or floating
rates ........................................ 151,526 115,717
--------------------------
Total ........................................ $ 338,939 $ 281,185
==========================
All loans past due 90 days or more, except consumer loans, are placed on
nonaccrual status. Nonperforming loans amounted to $792,000 and $493,000 at
December 31, 1999 and 1998, respectively. Forgone interest on nonaccrual loans
was $121,000, $230,000, and $298,000 in 1999, 1998, and 1997, respectively.
During 1999, four loans, previously classified as impaired, were returned to
performing status, adding $448,000 in interest income in 1999.
25
5. Allowance For Possible Loan Losses:
- --------------------------------------
The summary of the changes in the allowance for possible loan losses is as
follows:
(in thousands) 1999 1998 1997
-------------------------------
Balance, January 1 ......................... $ 4,100 $ 4,074 $ 4,182
Charge-offs ................................ (197) (243) (433)
Recoveries ................................. 247 119 125
-------------------------------
Net recoveries / (charge-offs) ......... 50 (124) (308)
Loan loss provision ........................ 250 150 200
-------------------------------
Balance, December 31 ....................... $ 4,400 $ 4,100 $ 4,074
===============================
6. Premises and Equipment:
- --------------------------
A summary of premises and equipment at December 31, is as follows:
(in thousands) 1999 1998*
--------------------
Land ................................................. $ 2,973 $ 2,973
Buildings ............................................ 11,439 11,407
Furniture and equipment .............................. 11,484 10,362
Leasehold improvements ............................... 494 389
--------------------
26,390 25,131
Less accumulated depreciation ........................ 14,510 12,922
--------------------
Total ............................................ $11,880 $12,209
====================
*Reclassified for comparative purposes.
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
amounted to $1,285,000, $1,221,000 and $988,000, respectively. Future minimum
rent commitments (in thousands) under the operating lease is as follows:
2000........................................... $223,200
2001........................................... 223,200
2002........................................... 223,200
2003........................................... 223,200
2004........................................... 247,872
Thereafter..................................... 6,215,693
The lease contains options to extend for one 10 year period. The cost of such
rentals is not included in the above. Total rent expense for the year ended
December 31, 1999, amounted to $186,000. There was no such rental expense in
1998 and 1997.
As of December 31, 1999, the Corporation has borrowings outstanding of $638,000.
The borrowings are collateralized by a property with a book value of $1,651,000.
The weighted average interest rate on the borrowings was 8.50% and 8.50% in 1999
and 1998, respectively.
7. Deposits:
- ------------
Following is a summary of deposits as of December 31:
1999 1998
---------------------
Regular savings ...................................... $ 43,186 $ 40,307
NOW accounts ......................................... 98,834 101,226
Money market accounts ................................ 52,037 48,162
Time deposits (less than $100,000) ................... 55,947 47,201
Time deposits, $100,000 or more ...................... 22,274 16,524
---------------------
Total interest-bearing deposits .................. 272,278 253,420
Non-interest-bearing deposits ........................ 98,790 88,937
---------------------
Total deposits ................................... $371,068 $342,357
=====================
The aggregate amount of deposit overdrafts included as loans as of December 31,
1999 and 1998 were $37,000 and $161,000, respectively.
Maturity of certificates of deposit:
$100,000 Less than
Maturing during: or more $100,000
----------------------
2000 ............................................. $20,560 $41,473
2001 ............................................. 1,714 12,842
2002 ............................................. -- 1,058
2003 ............................................. -- 334
2004 and thereafter .............................. -- 240
---------------------
Total ........................................ $22,274 $55,947
=====================
8. Short Term Borrowings:
- -------------------------
The Bank had outstanding short term borrowings from the Federal Home Loan Bank
of Pittsburgh of $10,000,000 as of December 31, 1999 with an interest rate of
5.86%, maturing in January, 2000. No such borrowings were outstanding as of
December 31, 1998.
9. Disclosure About Fair Value of Financial Instruments:
- --------------------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of the
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate such value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other market value techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair
26
value amounts presented do not represent the underlying value of the
Corporation.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents:
The carrying amounts reported in the balance sheet for cash and cash equivalents
approximate their fair values.
Investment securities:
Estimated fair values for investment securities are based on quoted market
prices, where available.
Loans:
For variable rate loans that reprice frequently and which have no significant
change in credit risk, estimated fair values are based on carrying values. Fair
values of certain mortgage loans and consumer loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The estimated
fair value of nonperforming loans is based on discounted estimated cash flows as
determined by the internal loan review of the Bank or the appraised market value
of the underlying collateral, as determined by independent third party
appraisers.
Deposits:
The estimated fair values disclosed for noninterest-bearing demand deposits, NOW
accounts, and Market Rate and Market Rate Checking accounts are, by definition,
equal to the amounts payable on demand at the reporting date (i.e., their
carrying amounts). Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of expected monthly maturities on the
certificate of deposit. SFAS No. 107 defines the fair value of demand deposits
as the amount payable on demand and prohibits adjusting estimated fair value
from any value derived from retaining those deposits for an expected future
period of time.
Short Term Borrowings:
Due to the short term nature of the maturities the carrying amount of the
borrowings approximates the fair value.
Other liabilities:
Estimated fair values of long term mortgages, collateralized by one property
included in premises and equipment, are based on discounted cash flow analyses,
using interest rates currently being offered for similar types of loans and
amortizing the loan under existing amortization tables for each loan.
Off-balance sheet instruments:
Estimated fair values of the Corporation's off-balance sheet instruments
(standby letters of credit and loan commitments) are based on fees currently
charged to enter into similar loan agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing. Since fees and
rates charged for off-balance sheet items are at market levels when set, there
is no material difference between the stated amount and estimated fair values of
off-balance sheet instruments.
The carrying amount and estimated fair value of the Corporation's financial
instruments at December 31 are as follows:
1999 1998
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
----------------------------------------------
Financial assets:
Cash and due from
banks ................ $ 17,914 $ 17,914 $ 19,810 $ 19,810
Interest-bearing
deposits with
other banks .......... 13,690 13,690 5,151 5,151
Federal funds
sold ................. 17,609 17,609 20,372 20,372
Investment
securities ........... 29,714 29,714 50,976 50,976
Net loans ............... 334,539 337,071 277,085 283,265
----------------------------------------------
Total financial
assets ............ $413,466 $415,998 $373,394 $379,574
----------------------------------------------
Financial liabilities:
Deposits ................ $371,068 $370,704 $342,357 $342,465
Short term
borrowings ........... 10,000 10,000 -- --
Other
liabilities .......... 638 638 668 708
----------------------------------------------
Total financial
liabilities ....... $381,706 $381,342 $343,025 $343,173
==============================================
Off-balance sheet
instruments ............. $121,564 $121,564 $ 92,920 $ 92,920
==============================================
27
10. Applicable Federal Income Taxes:
- ------------------------------------
The components of the net deferred tax asset as of December 31 are as follows:
(in thousands) 1999 1998
-------------------
Deferred tax assets:
Loan loss reserve ................................ $ 790 $ 722
Pension and other postretirement
benefits ...................................... 307 281
Deferred compensation ............................ 257 273
Other reserves ................................... 138 251
Unrealized depreciation on investment
securities .................................... 201 --
-------------------
1,693 1,527
Deferred tax liabilities:
Depreciation ..................................... (253) (389)
Unrealized appreciation on investment
securities .................................... -- (52)
-------------------
Total net deferred tax assets ........................ $ 1,440 $ 1,086
===================
No valuation allowance was recorded as of December 31, 1999 and 1998.
The provisions for federal income taxes consist of the following:
(in thousands) 1999 1998 1997
---------------------------------
Currently payable ...................... $ 4,076 $ 3,286 $ 2,756
Deferred ............................... (197) 194 194
---------------------------------
Total .............................. $ 3,879 $ 3,480 $ 2,950
---------------------------------
Applicable federal income taxes differed from the amount derived by applying
the statutory federal tax rate to income as follows:
(in thousands) 1999 1998 1997
---------------------------------
Tax expense at statutory rate .......... $ 4,026 $ 3,515 $ 3,087
Benefit reductions in taxes
resulting from tax-exempt
income ............................. (164) (334) (113)
Other, net ............................. 17 299 (24)
---------------------------------
Actual tax expense ..................... $ 3,879 $ 3,480 $ 2,950
---------------------------------
28
11. Pension And Other Postretirement Benefits
- ---------------------------------------------
The Corporation sponsors two pension plans and a postretirement benefit plan for
certain of its employees.
The following tables provide a reconciliation of the changes in the plans'
benefits obligation and fair value of assets over the two-year period ending
December 31, 1999, and a statement of funded status as of December 31 of both
years:
Postretirement
Pension Benefits Benefits
--------------------------------------------------
(Dollars in thousands) 1999 1998 1999 1998
--------------------------------------------------
Reconciliation of Benefit Obligation and Plan Assets
- ----------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 .............................. $ 14,746 $ 12,623 $ 1,327 $ 2,366
Service cost ................................................. 927 701 7 9
Interest cost ................................................ 1,078 900 83 141
Amendments ................................................... 232 50 0 (1,390)
Actuarial (gain) loss ........................................ (924) 881 (180) 390
Benefits paid ................................................ (468) (409) (105) (189)
--------------------------------------------------
Benefit obligation at December 31 ............................ $ 15,591 $ 14,746 $ 1,132 $ 1,327
--------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 ....................... $ 20,698 $ 17,527 $ 0 $ 0
Actual return on plan assets ................................. 3,146 3,580 0 0
Employer contribution ........................................ 0 0 105 189
Benefits paid ................................................ (468) (409) (105) (189)
--------------------------------------------------
Fair value of plan assets at December 31 ..................... $ 23,376 $ 20,698 $ 0 $ 0
--------------------------------------------------
Funded Status Reconciliation and Key Assumptions
- ------------------------------------------------
Postretirement
Pension Benefits Benefits
--------------------------------------------------
(Dollars in thousands) 1999 1998 1999 1998
--------------------------------------------------
Reconciliation of funded status
Funded Status ................................................ $ 7,785 $ 5,952 $ (1,132) $ (1,327)
Unrecognized net actuarial (gain) loss ....................... (9,117) (6,476) 247 452
Unrecognized prior service cost .............................. 1,127 324 0 0
Unrecognized transition obligation (asset) ................... 0 0 337 363
--------------------------------------------------
Prepaid (accrued) benefit cost ............................... $ (205) $ (200) $ (548) $ (512)
--------------------------------------------------
Amounts recognized in financial statements consists of:
Prepaid benefit cost/(Accrued benefit liability) ............. $ (205) $ (200) $ (548) $ (512)
Intangible asset ............................................. 9 0 0 0
--------------------------------------------------
Net amount recognized ........................................ $ (214) $ (200) $ (548) $ (512)
--------------------------------------------------
The Bank's Supplemental Employee Retirement Plan (the "SERP") was the only
pension plan with an accumulated benefit obligation in excess of plan assets.
The SERP's accumulated benefit obligation was $1,383,952 as of December 31, 1999
and $897,197 as of December 31, 1998. There are no plan assets in the SERP due
to the nature of the SERP. The Corporation's plan for postretirement benefits
other than pensions also has no plan assets. The aggregate benefit obligation
for that plan was $1,132,282 as of December 31, 1999 and $1,326,728 as of
December 31, 1998.
The assumptions used in the measurement of the Corporation's benefit obligation
are shown on the following table:
Weighted-average assumptions as of end of year
Discount rate ...................... 8.00% 6.75% 8.00% 6.75%
Expected return on plan assets ..... 8.50% 8.25% N/A N/A
Rate of compensation increase ...... 5.00% 5.00% N/A N/A
The assumed health care cost trend rate for 1999 and thereafter is 6%.
29
The following table provides the components of net periodic cost (income) for
the plans for years ended December 31, 1999, 1998 and 1997:
Pension Benefits Postretirement Benefits
------------------------------------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------------------------------
Service cost .................................... $ 927 $ 701 $ 555 $ 7 $ 9 $ 11
Interest cost ................................... 1,078 900 790 83 141 165
Expected return on plan assets .................. (1,739) (1,428) (1,144) 0 0 0
Amortization of prior service cost .............. 158 52 38 0 0 0
Amortization of transition obligation (asset) ... 0 0 0 25 78 122
Amortization of net actuarial (gain) loss ....... (418) (375) (266) 25 17 0
------------------------------------------------------------
Net periodic benefit cost ....................... $ 6 $ (150) (27) $ 140 $ 245 $ 298
============================================================
Sensitivity Analysis, Postretirement Benefits
- ---------------------------------------------
1-percentage 1-percentage
Point Increase Point Decrease
--------------------------------
Effect on total of service and interest cost components....... $5,902 $(5,403)
Effect on accumulated postretirement benefit obligation....... 73,598 (67,937)
12. Stock Option Plan:
- ----------------------
The Corporation maintains a stock option and stock appreciation rights plan (the
"Stock Option Plan"), which is described below. The Corporation applies APB
Opinion 25 and related interpretations in accounting for the Stock Option Plan.
Accordingly, no compensation cost has been recognized for the Stock Option Plan.
Had compensation for the Corporation's Stock Option Plan been determined based
on the fair value at the grant date for awards in 1999, 1998 and 1997,
consistent with the optional provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation", the Corporation's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1999 1998 1997
---------------------------------
Net income - as reported .................. $7,961 $6,857 $6,130
Net Income pro forma ...................... 7,636 6,373 6,003
Basic earnings per share - as
reported .............................. $ 1.83 $ 1.58 $ 1.40
Basic earnings per share - pro
forma ................................. $ 1.76 $ 1.47 $ 1.37
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1998 and 1999: dividend yield of 2.50
percent, expected volatility of 21.7 percent, expected life of seven years and
risk-free interest rates of 7.1, 6.5 and 6.7 percent, respectively.
The Plan had, prior to 1994, up to 216,000 authorized and unissued or treasury
shares of the Corporation's common stock reserved for issuance under the Plan.
During 1994, the shareholders' approved an additional 217,720 shares for
issuance under the Plan. The option to purchase shares of the Corporation's
common stock was issued to key officers. During 1995, the shareholders approved
the issuance of 80,000 shares, 20,000 to be granted to outside directors, for 4
years after each Annual Meeting. The option price was set at the last sale price
for the stock on the third business day following the Corporation's Annual
Meeting. Options totaling 76,000 shares of Corporation stock were issued under
the outside directors' plan. During 1998, the shareholders approved the issuance
of up to 217,606 shares available for issuance to both employees and directors.
The price will be determined by the Corporation's Compensation Committee of the
Board of Directors at the time the option is granted.
Options granted may either be "incentive stock options" within the meaning of
the Internal Revenue Service code, or non-qualified options. The stock options
are exercisable over a period determined by the Board of Directors; however, the
option period will not commence earlier than one year or be longer than ten
years from the date of the grant. The Plan provides that the option price at the
date of grant will not be less than the fair market value of the Corporation's
common stock. The following is a summary of transactions under the Plan:
30
Shares Available Price Weighted
Under for per Average
Option Option Share Exercise Price
---------------------------------------------------------
Balance at December 31, 1996 ..... 357,600 44,520 $4.50 - $12.50 $ 7.83
Options granted ............... 18,000 (18,000) $ 16.60 $ 16.60
Options exercised ............. (35,000) -- $7.00 - $12.50 $ 7.43
---------------------------------------------------------
Balance at December 31, 1997 ..... 340,600 26,520 $4.50 - $16.94 $ 8.26
Options authorized ............ -- 217,606 -- --
Options granted ............... 97,400 (97,400) $ 24.50 $ 24.50
Options exercised ............. (31,920) -- $6.75 - $24.50 $ 10.28
---------------------------------------------------------
Balance at December 31, 1998 ..... 406,080 146,726 $4.50 - $24.50 $ 12.06
Options granted ............... 73,400 (73,400) $ 26.44 $ 26.44
Options exercised ............. (40,200) -- -- --
Options cancelled ............. (10,000) 10,000 -- --
---------------------------------------------------------
Balance at December 31, 1999 ..... 429,280 83,326 $4.50 - $26.44 $ 14.08
---------------------------------------------------------
Information pertaining to options outstanding at December 31, 1999 is as
follows:
Price range of shares under option at December 31, 1999:
Shares Price Weighted Average Weighted Average Weighted Average
Under per Remaining Exercise Number Exercise
Option Share Contractual Life Price Exercisable Price
--------------------------------------------------------------------------------------------------
147,640 $ 4.50 - $7.94 2.38 $ 7.17 147,640 $ 7.17
114,440 $ 8.00 - $12.50 3.35 $ 8.83 114,440 $ 8.83
100,200 $16.91 - $24.50 8.17 $23.29 100,200 $23.29
67,000 $ 26.44 9.33 $24.50 -- --
--------------------------------------------------------------------------------------------------
Balance at December 31,
1999................... 429,280 $ 4.50 - $26.44 5.08 $14.08
The weighted-average fair value of options granted during 1997, 1998 and 1999
were $13.99, $7.39 and $6.71, respectively.
The number of exercisable shares at December 31, 1997, 1998 and 1999 were
279,960, 388,480 and, 362,280, respectively, with respective weighted average
exercise prices of $8.39, $12.25 and $12.15.
Stock appreciation rights may be granted in tandem with non-qualified stock
options. No stock appreciation rights have been granted under the Plan. The
options had a $.07 per share, $.11 per share and $.03 per share dilutive effect
on earnings per share for the years ended December 31, 1999, 1998 and 1997,
respectively.
13. Related Party Transactions:
- -------------------------------
The Corporation had loans outstanding directly to executive officers, directors
and certain other related parties of $3,937,000 and $3,836,000 at December 31,
1999 and 1998, respectively.
Following is a summary of these transactions:
(in thousands) 1999 1998
-----------------
Balance, beginning of year.............................. $3,836 $3,506
Additions............................................... 627 1,173
Amounts collected....................................... (526) (843)
-----------------
Balance, end of year.................................... $3,937 $3,836
-----------------
Related party deposits amounted to $765,000 and $823,000 at December 31, 1999
and 1998, respectively.
31
14. Financial Instruments with Off-balance Sheet Risk and Concentration of
- --------------------------------------------------------------------------
Credit Risk:
------------
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated statements of
financial condition. The contractual amounts of those instruments reflect the
extent of involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument of commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet financial
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Some of the commitments are expected to expire without
being drawn upon, and the total commitment amounts do not necessarily represent
future cash requirements. Total commitments to extend credit at December 31,
1999 are $113,682,000. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral varies but may
include accounts receivable, marketable securities, inventory, property, plant
and equipment, residential real estate, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Bank to a
customer for a third party. Such standby letters of credit are issued to support
private borrowing arrangements. The credit risk involved in issuing standby
letters of credit is similar to that involved in extending loan facilities to
customers. The collateral varies, but may include accounts receivable,
marketable securities, inventory, property, plant and equipment, and residential
real estate for those commitments for which collateral is deemed necessary. The
Corporation's obligation under standby letters of credit as of December 31, 1999
amounted to $7,882,000. There were no outstanding bankers acceptances as of
December 31, 1999.
As of December 31, 1999, the Corporation had no loans sold with recourse
outstanding.
The Corporation grants construction, commercial, residential mortgage, and
consumer loans to customers primarily in Southeastern Pennsylvania. Although the
Corporation has a diversified loan portfolio, its debtors' ability to honor
their contracts is substantially dependent upon the general economic conditions
of the region.
15. Risks and Uncertainties:
- ----------------------------
The earnings of the Corporation depend on the earnings of the Bank. The Bank's
earnings are dependent upon both the level of net interest income and
non-interest revenue streams, primarily fees for trust services, that are earned
annually. Accordingly, the earnings of the Corporation are subject to risks and
uncertainties surrounding both its exposure to changes in the interest rate
environment and movements in financial markets.
Most of the Bank's lending activity is with customers located in southeastern
Pennsylvania. Lending is spread between commercial, consumer and real estate
related loans, including construction lending. While these loan concentrations
represent a potential concentration of credit risk, the Bank's credit loss
experience compares favorably to the Bank's peer group credit loss experience.
The financial statements of the Corporation are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Significant estimates are made by management in determining the allowance for
possible loan losses and the carrying value of other real estate owned.
Consideration is given to a variety of factors in establishing these estimates,
including current economic conditions, the results of the internal loan review
process, delinquency statistics, borrowers perceived financial and managerial
strengths, and the adequacy of supporting collateral, if collateral dependent,
or the present value of future cash flows. Since the allowance for possible loan
losses and the carrying value of other real estate owned are dependent, to a
great extent, on general and other economic conditions beyond the Bank's
control, it is at least reasonably possible that the estimates of the allowance
for possible loan losses and the carrying value of other real estate owned could
differ materially from currently reported values in the near term.
32
16. Acquisitions:
- -----------------
The following acquisitions were accounted for under the purchase method of
accounting during 1999. Goodwill arising from these transactions has been
recorded on the balance sheet and is being amortized on a straight line basis
over a 10 to 20 year life. These acquisitions resulted in both the issuance of
common stock (non-cash investing) as well as the payment of cash. Following is a
description of each transaction.
Number
Total Shares of of Shares
Method of Date of Purchase Common Issued or
Name of Company Acquired: Accounting Acquisition Price Cash Stock Issuable Goodwill
------------------------------------------------------------------------------------------
CDC Capital Management, Purchase 1/06/99 $ 281,000 $ -- 281,000 10,375 $ 177,000
(Shares to be issued in
payment for the acquisition
are to be issued over a two
year time period.)
Joseph W. Roskos & Co. Purchase 1/01/99 $4,195,000 $2,195,000 2,000,000 74,697 $3,300,000
Amortization Amortized
Name Of Company Acquired: Period In 1999
------------------------
CDC Capital Management, 10 Years $18,000
(Shares to be issued in
payment for the acquisition
are to be issued over a two
year time period.)
Joseph W. Roskos & Co. 20 Years $165,000
Both companies were acquired to enhance the number of financial products and
services already offered by the Corporation. CDC Capital Management is an
investment advisory management firm, allowing the Corporation to better
diversify its clients' investments. Joseph W. Roskos & Co. is a firm with family
business office services, including accounting, consulting, tax services and
fiduciary support to high-net-worth individuals and families.
17. Minimum Regulatory Capital Requirements:
- --------------------------------------------
Both the Corporation and the Bank are subject to various regulatory capital
requirements, administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if taken, could have a
direct material effect on the Corporations and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
As set forth in the following table, quantitative measures have been established
to ensure capital adequacy ratios required of both the Corporation and Bank,
specifically to define the minimum respective capital ratios as follows: total
capital to total assets (the leverage ratio) of 4%; Tier I capital to risk
weighted assets of 4% and Tier II capital to risk weighted assets of 8%. Both
the Corporation's and the Bank's Tier II capital ratios are calculated by adding
back a portion of the loan loss reserve to the Tier I capital. Management
believes, as of December 31, 1999 and 1998 that the Corporation and the Bank
have met all capital adequacy requirements to which they are subject. Federal
banking regulators have defined specific capital categories, based on an
institution's capital ratios. The categories range for a best of "well
capitalized" to a worst of "critically under capitalized." To be considered
"well capitalized", an institution must have a total (Tier II) capital ratio of
10% or better. Both the Corporation and the Bank have been classified as "well
capitalized" for both periods ending December 31, 1999 and 1998.
The Corporation's and the Bank's actual capital amounts and ratios as of
December 31, 1999 and 1998 are presented in the following table:
33
Minimum Capital Minimum to
Actual Requirement be Well
------------------ ------------------ Capitalized
Amount Ratio Amount Ratio Amount
------ ----- ------ ----- ------
DECEMBER 31, 1999
Total (Tier II) Capital to Risk
Weighted Assets:
Consolidated ................................................. $48,214 12.19% 8.0% N/A
The Bank ..................................................... 42,277 11.54% $ 29,298 8.0% $36,623
Tier I Capital to Risk
Weighted Assets:
Consolidated ................................................. 43,814 11.08% 4.0% N/A
The Bank ..................................................... 37,877 10.34% 14,649 4.0% 21,974
Total Capital to Total
Assets (Leverage Ratio):
Consolidated ................................................. 46,719 10.70% 4.0% N/A
The Bank ..................................................... 37,487 8.76% 17,126 4.0% 21,408
DECEMBER 31, 1998
Total (Tier II) Capital to Risk
Weighted Assets:
Consolidated ................................................. 46,010 14.80% 8.0% N/A
The Bank ..................................................... 41,929 13.68% 24,877 8.0% 30,661
Tier I Capital to Risk
Weighted Assets:
Consolidated ................................................. 42,121 13.55% 4.0% N/A
The Bank ..................................................... 38,093 13.68% 12,439 4.0% 18,396
Total Capital to Total
Assets (Leverage Ratio):
Consolidated ................................................. 42,221 9.86% 4.0% N/A
The Bank ..................................................... 38,193 10.78% 15,502 4.0% 15,202
18. Selected Quarterly Financial Data (Unaudited):
- --------------------------------------------------
Quarters ending 1999
-------------------------------------------------
(in thousands, except per share data) 3/31 6/30 9/30 12/31
-------------------------------------------------
Interest income .................................................. $6,632 $7,197 $7,046 $7,442
Interest expense ................................................. 1,344 1,336 1,467 1,710
Net interest income .............................................. 5,288 5,861 5,579 5,732
Provision for loan losses ........................................ 63 62 62 63
Income before income taxes ....................................... 2,842 2,892 2,952 3,154
Net income ....................................................... 1,842 2,002 2,026 2,091
Earnings per common share ........................................ $ 0.42 $ 0.46 $ 0.47 $ 0.48
Earnings per common share - assuming dilution .................... $ 0.40 $ 0.44 $ 0.45 $ 0.46
Quarters ending 1998*
-------------------------------------------------
(In thousands, except per share data) 3/31 6/30 9/30 12/31
-------------------------------------------------
Interest income .................................................. $6,400 $6,494 $6,569 $6,619
Interest expense ................................................. 1,528 1,514 1,507 1,427
Net interest income .............................................. 4,872 4,980 5,062 5,192
Provision for loan losses ........................................ 25 25 37 63
Income before income taxes ....................................... 2,616 2,498 2,657 2,566
Net income ....................................................... 1,746 1,628 1,732 1,751
Earnings per common share ........................................ 0.40 0.38 0.40 0.41
Earnings per common share - assuming dilution .................... 0.38 0.36 0.38 0.39
*Reclassified for comparative purposes.
34
19. Condensed Financial Statements:
- -----------------------------------
The condensed financial statements of the Corporation (parent company only) as
of December 31, 1999 and 1998, and for each of the three years in the period
ended December 31, 1999, are as follows:
Condensed Balance Sheets
(in thousands) 1999 1998
---------------------
Assets:
Cash ............................................................................................. $ 701 $ 221
Investments in subsidiaries, at equity in net assets ............................................. 39,381 38,710
Premises and equipment, net ...................................................................... 3,958 4,056
Goodwill ......................................................................................... 3,294 --
Other assets ..................................................................................... 65 72
-- --
---------------------
Total assets .................................................................................. $47,399 $43,059
---------------------
Liabilities and shareholders' equity:
Mortgages payable ................................................................................ $ 638 $ 668
Other liabilities ................................................................................ 42 170
-- ---
---------------------
Total liabilities ............................................................................. 680 838
Common stock, par value $1, authorized 25,000,000 shares as of December 31, 1999 and 1998,
respectively, issued 5,179,608 shares and 5,067,078 shares as of December 31, 1999 and 1998,
respectively, and outstanding 4,323,250 shares and 4,303,818 shares as of December 31, 1999 and
1998, respectively ............................................................................... 5,180 5,067
Paid-in capital in excess of par value ............................................................... 4,467 2,478
Unrealized investment (depreciation), appreciation net of deferred income taxes ...................... (389) 100
Retained earnings .................................................................................... 45,149 39,791
Less common stock in treasury, at cost - 856,358 shares and 763,260 shares as of
December 31, 1999 and 1998 ....................................................................... (7,688) (5,215)
---------------------
Total shareholders' equity .................................................................... 46,719 42,221
---------------------
Total liabilities and shareholders' equity .................................................... $47,399 $43,059
---------------------
Condensed Statements of Income
(in thousands) 1999 1998 1997
------------------------------------
Dividends from the Bryn Mawr Trust
Company ............................................................................ $8,052 $4,012 $5,359
Interest and other income .............................................................. 241 236 237
------------------------------------
Total operating income ............................................................. 8,293 4,248 5,596
Expenses ............................................................................... 730 677 360
------------------------------------
Income before equity in undistributed income of subsidiaries ........................... 7,563 3,571 5,236
Equity in undistributed income of subsidiaries ......................................... 294 3,136 852
------------------------------------
Income before income taxes ............................................................. 7,857 6,707 6,088
Federal income tax benefit ............................................................. 104 150 42
------------------------------------
Net income ............................................................................. $7,961 $6,857 $6,130
------------------------------------
Condensed Statements of Cash Flows
(in thousands) 1999 1998 1997
------------------------------------
Operating activities:
Net income ........................................................................ $7,961 $6,857 $6,130
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed losses of subsidiaries .................................... (294) (3,134) (852)
Depreciation expense .............................................................. 98 99 98
Amortization of goodwill .......................................................... 183 -- --
Other ............................................................................. 629 (3) (1)
------------------------------------
Net cash provided by operating activities ...................................... 8,577 3,819 5,375
Investing Activities:
Cost of acquiring subsidiaries .................................................... (2,195) -- --
Investment in Subsidiaries ........................................................ (1,041) (440) (75)
------------------------------------
Net cash used by investing activities .......................................... (3,236) (440) (75)
Financing activities:
Dividends paid .................................................................... (2,603) (2,012) (1,583)
Repayment of mortgage debt ........................................................ (30) (26) (1,809)
Repurchase of treasury stock ...................................................... (2,531) (2,519) (1,329)
Proceeds from issuance of stock ................................................... 303 432 260
------------------------------------
Net cash used by financing activities .......................................... (4,861) (4,125) (4,461)
------------------------------------
Change in cash and cash equivalents ................................................... 480 (746) 839
Cash and cash equivalents at beginning of year ........................................ 221 967 128
------------------------------------
Cash and cash equivalents at end of year .............................................. $ 701 $ 221 $ 967
------------------------------------
These statements should be read in conjunction with the other notes related to
the consolidated financial statements.
As a bank and trust company subject to the Pennsylvania Banking Code ("the
Banking Code") of 1965 as amended, the Bank is subject to legal limitations as
to the amount of dividends that can be paid to its shareholder, the Corporation.
The Banking Code restricts the payment of dividends by the Bank to the amount of
its retained earnings. As of December 31, 1999, the Bank's retained earnings
amounted to $31,286,000. Therefore, as of December 31, 1999, dividends available
for payment to the Corporation are limited to $31,286,000. Since the primary
source of dividend funding for the Corporation's dividend payments to its
shareholders is the Bank's dividends, the Corporation is effectively limited as
to the amount of dividends that it may pay to an amount to the limits placed on
the Bank, as discussed above.
35
20. Segment Information:
- ------------------------
The Corporation's principal operating segments are structured around the
financial 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.
Segment information for the years ended December 31, 1999, 1998, and 1997 is as
follows:
1999 1998*
------------------------------------------------------------------------------------------------------------
Mortgage All Mortgage All
(in thousands) Banking Trust Banking Other Consolidated Banking Trust Banking Other Consolidated
------------------------------------------------------------------------------------------------------------
Net interest
income ............ $ 22,310 $ -- $ 145 $ 5 $ 22,460 $ 20,052 $ -- $ 51 $ 3 $ 20,106
Less loan loss
provision ......... 250 -- -- -- 250 150 -- -- -- 150
------------------------------------------------------------------------------------------------------------
Net interest
income
after loan loss
provision ......... 22,060 -- 145 5 22,210 19,902 -- 51 3 19,956
Other income:
Fees for
investment
management and
trust
services ........ -- 9,784 -- -- 9,784 -- 9,272 -- -- 9,272
Service charges
on deposit
accounts ........ 1,156 -- -- -- 1,156 1,169 -- -- -- 1,169
Other fees and
service
charges ......... 571 -- 762 -- 1,333 571 -- 701 -- 1,272
Net gain on sale
of loans ........ 44 -- 984 -- 1,028 35 -- 1,647 -- 1,682
Gain on sale of
other real
estate owned .... 45 -- -- -- 45 224 -- -- -- 224
Other operating
income .......... 1,115 -- -- 4,568 5,683 631 -- -- 1079 1,710
------------------------------------------------------------------------------------------------------------
Total other
income ............ 2,931 9,784 1,746 4,568 19,029 2,630 9,272 2,348 1,079 15,329
Other expenses:
Salaries-regular .. 7,251 2,852 469 1,874 12,446 6,489 2,863 417 520 10,289
Salaries-other .... 1,754 230 78 184 2,246 1,692 386 117 180 2,375
Fringe
benefits ........ 1,474 565 80 215 2,334 1,232 549 74 53 1,908
Occupancy ......... 3,090 476 149 456 4,171 2,793 422 62 180 3,457
Other operating
expenses ........ 5,218 948 310 1,726 8,202 5,003 898 400 618 6,919
------------------------------------------------------------------------------------------------------------
Total other
expenses .......... 18,787 5,071 1,086 4,455 29,399 17,209 5,118 1,070 1,551 24,948
------------------------------------------------------------------------------------------------------------
Segment profit
(loss) ............ 6,204 4,713 805 118 11,840 5,323 4,154 1,329 (469) 10,337
Intersegment
(revenues)
expenses .......... 176 181 -- (357) -- 38 181 -- (219) --
------------------------------------------------------------------------------------------------------------
Segment profit
after
eliminations ...... $ 6,380 $4,894 $ 805 ($ 239) $ 11,840 $ 5,361 $4,335 $ 1,329 ($ 688) $ 10,337
------------------------------------------------------------------------------------------------------------
% of segment
profit
(loss) .......... 52% 40% 7% 1% 100% 51% 40% 13% (4%) 100%
Total assets at
December 31 ....... $398,546 $ 413 $27,337 $10,524 $436,820 $369,556 $ 455 $16,532 $ 5,297 $391,840
Capital
expenditures ...... $ 759 $ 95 $ 14 $ 236 $ 1,104 $ 2,108 $ 370 $ 93 $ 30 $ 2,601
Depreciation and
amortization ...... $ 693 $ 162 $ 29 $ 435 $ 1,319 $ 1,146 $ 139 $ 16 $ 106 $ 1,407
1997*
----------------------------------------------------
Mortgage All
(in thousands) Banking Trust Banking Other Consolidated
----------------------------------------------------
Net interest
income ............ $ 18,368 $ -- $ -- $ -- $ 18,368
Less loan loss
provision ......... 200 -- -- -- 200
----------------------------------------------------
Net interest
income
after loan loss
provision ......... 18,168 -- -- -- 18,168
Other income:
Fees for
investment
management and
trust
services ........ -- 7,698 -- -- 7,698
Service charges
on deposit
accounts ........ 1,124 -- -- -- 1,124
Other fees and
service
charges ......... 791 -- 587 -- 1,378
Net gain on sale
of loans ........ (582) -- 1,091 -- 509
Gain on sale of
other real
estate owned .... 379 -- -- -- 379
Other operating
income .......... 528 -- 4 370 902
----------------------------------------------------
Total other
income ............ 2,240 7,698 1,682 370 11,990
Other expenses:
Salaries-regular 5,858 2,415 235 96 8,604
Salaries-other .... 1,347 215 93 -- 1,655
Fringe
benefits ........ 1,237 501 45 8 1,791
Occupancy ......... 2,543 361 39 223 3,166
Other operating
expenses ........ 4,730 733 233 166 5,862
----------------------------------------------------
Total other
expenses .......... 15,715 4,225 645 493 21,078
----------------------------------------------------
Segment profit
(loss) ............ 4,693 3,473 1,037 (123) 9,080
Intersegment
(revenues)
expenses .......... 50 181 -- (231) --
----------------------------------------------------
Segment profit
after
eliminations ...... $ 4,743 $3,654 $ 1,037 ($ 354) $ 9,080
----------------------------------------------------
% of segment
profit
(loss) .......... 52% 38% 11% (1%) 100%
Total assets at
December 31 ....... $368,839 $ 158 $ -- $ 5,213 $374,210
Capital
expenditures ...... $ 1,462 $ 80 $ -- $ -- $ 1,542
Depreciation and
amortization ...... $ 885 $ 105 $ 3 $ 98 $ 1,091
Bryn Mawr Bank Corporation, Tax Counselors of Bryn Mawr, Inc., Insurance
Counselors of Bryn Mawr, Inc., Bryn Mawr Brokerage Company, Inc., CDC Capital
Management, Inc. and Joseph W. Roskos & Company have all been aggregated in All
Others.
*-Reclassified for comparative purposes.
36
Report of Independent Accountants
To the Board of Directors and Shareholders of Bryn Mawr Bank Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, changes in
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of Bryn Mawr Bank Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 20, 2000
37