BRYN MAWR BANK CORPORATION 2000 ANNUAL REPORT
CONSOLIDATED FINANCIAL HIGHLIGHTS
Five-Year
Compound
2000 1999* Change Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
For the year (dollars in thousands)
Net interest income .................... $ 24,913 $ 22,460 11% 9%
Other income ........................... 17,727 18,086 -2% 14%
Other expenses ......................... 29,696 28,456 4% 10%
Net income ............................. 8,261 7,961 4% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
At year-end (dollars in thousands)
Total assets ........................... $ 444,425 $ 436,820 2% 5%
Total net loans ........................ 350,686 334,539 5% 9%
Total deposits ......................... 386,966 371,068 4% 4%
Shareholders' equity ................... 50,970 46,719 9% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
Per common share
Basic earnings per share ............... $ 1.92 $ 1.83 5% 13%
Diluted earnings per share ............. $ 1.85 $ 1.75 6% 12%
Dividends declared ..................... $ 0.68 $ 0.60 13% 22%
Book value ............................. $ 11.93 $ 10.81 10% 10%
Closing price .......................... $ 21.13 $ 23.88 -11% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
Selected ratios
Return on average assets 1.94% 1.99%
Return on average shareholders' equity 17.20% 17.97%
*Reclassified for comparative purposes.
1
[PHOTO]
A MESSAGE FROM THE CHAIRMAN
Dear Shareholders:
This is my last message to shareholders as CEO. On January 22, Ted Peters
replaced me as CEO of the Corporation and Bank. Ted demonstrates the
qualities I believe our leader must possess to move the Bank along: character,
experience, openness to fresh ideas, integrity, toughness, and a "winning way"
as a person. We're in fine hands!
Ted's willingness to continue to learn and develop is, in my belief, the key to
real success, and I'm confident that Ted will learn and, as he does, build upon
his solid experience. His leadership will take our company to ever greater
heights.
For the last 32 years I have worked from the "corner office" of the Bank
building on Lancaster Avenue in Bryn Mawr; eleven years as Clyde Hart's
associate, and for the last twenty-one years as CEO.
I feel deeply privileged to have served as Bryn Mawr Trust's CEO for these 21
years. What memories! Takeover attempts, real estate lending losses, industry
change, people, and expectations, all in their turn, and often enough, all at
once.
I leave that office with deep feelings for the many men and women I've been
blessed to work with. Sam Wasson, who retired as Vice Chairman in January 2001,
was the best! His contributions to the Bank's and Corporation's well-being were
deep and wide, and his depth of character, integrity, devotion, and loyalty are
second to none--just plain first-class in every measure. Sam was integral to the
success we've enjoyed.
I pay tribute to my predecessor, Clyde Hart, always a thoughtful, gentle man,
who taught me to worry most about our customers. I'm grateful, too, to his
predecessor, DeHaven Develin, who hired me and gave me my chance here at the
Bank.
The Corporation, now, is a far different institution than it was when I was
first employed here--1960. We provide today a wide range of financial services
for our clients: Family Office accounting, insurance, tax advice and
preparation, investment advisory and management services, traditional banking,
full fiduciary services, and foundation management.
So, the key service offerings are in place. But knitting the organization into a
truly client-centered, relationship-oriented group of men and women, is the
challenge. A challenge I believe we can meet through our commitment to work on
organizational development in meaningful ways. We're in the vortex of huge
changes in our business. Developing ourselves holds the key. Learning, not
simply doing as we always have, by really understanding, listening to, and fully
responding to our clients--and to one another inside the organization--will, I
believe, bring us to remarkable heights.
So, if I leave any legacy here, it is, I hope, a continuing commitment to using
the tried, true, and even emerging "business" methods in a culture of
"learning"--ever deepening relationships and self development.
And, finally, I honor and thank the men and women in the Bank--the ones who
labor daily with care, diligence, and skill--who really "get the work done"
around here. Without what they accomplish every day, the Bank would be a hollow
shell. My heartfelt "thank you" to each of you.
Sincerely,
/s/ Robert L. Stevens
Robert L. Stevens
Chairman
February 23, 2001
2
BRYN MAWR BANK CORPORATION 2000 ANNUAL REPORT
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
It is a tremendous honor for me to serve as the eighth president in the 112-year
history of The Bryn Mawr Trust Company and as the second president of its parent
holding company, Bryn Mawr Bank Corporation. I consider my charge to be one of
stewardship and a continuation of the legacy that has made our institution one
of the most esteemed community banking organizations in the country.
[PHOTO]
Bryn Mawr Trust is extremely fortunate to have been led by Bob Stevens for these
past 21 years. Not only has Bob maintained an enviable record of growth and
profitability, but he has also led the aggressive movement of the Corporation
into the wealth management area long before our competitors saw the wisdom in
this strategy.
My vision for the future is very simple--that we will remain an independent,
high-performing financial institution serving the needs of businesses,
individuals, and affluent clients in our community and the region. By doing so,
we will provide a superior return to our shareholders, all of whom are very
important to us.
With my arrival, we have made a number of changes in our management structure.
Bob Ricciardi, Alison Gers, and Joe Rebl have agreed to head up, respectively,
the Traditional Bank, the Support Bank, and the Finance Division. We are
presently engaged in a national search to find the leader for our Wealth Bank.
These individuals and I will comprise the Executive Management Committee and
are charged with developing and executing the strategies, as approved by the
Board of Directors, which will keep the Corporation moving forward.
In my past experiences, I have always welcomed a close relationship with
shareholders. It will be no different here. If you have any thoughts, comments
or suggestions, I would ask that you call me at 610-581-4800, which is my direct
line. If you are in the main branch in Bryn Mawr, my office is just off the
lobby. Please stop by and spend some time.
Sincerely,
/s/ Ted Peters
Ted Peters
President and Chief Executive Officer
February 23, 2001
3
[PHOTO]
From left seated:
Carmen L. Fiorentino and Joseph G. Keefer.
From left standing:
James J. Egan, J. David Peterson, and Martin F. Gallagher, Jr.,
all of Commercial and Real Estate Lending.
THE YEAR IN REVIEW
Financial Milestones
The Corporation registered its sixth consecutive year of record earnings. The
quality of the loan portfolio continues to be enhanced. Non-performing loans
stood at only $81,000 at year-end 2000, and other real estate owned (OREO),
which amounted to $2.4 million at year-end 1996 has been totally eliminated.
Average outstanding commercial and industrial loan balances increased by 23%
over average balances for 1999. This outstanding performance attests to the
success of our relationship approach that provides a value-added service to
commercial clients.
Earnings Per Share
[GRAPH]
1996 1.38
1997 1.4
1998 1.58
1999 1.83
2000 1.92
Common Stock
Dollars Per Share
[GRAPH]
Book Value Market Value
1996 8.14 13.63
1997 9 25.5
1998 9.81 27.25
1999 10.74 23.88
2000 11.87 21.13
4
Technological Advances
Great strides were made in our electronic communication capabilities. We have
greatly improved our communications with our many audiences: professionals,
clients, staff and the public at large.
. In mid-December, we launched our new web site (www.bmtc.com). The site
provides detailed information about our organization and services. It
is a gateway for clients to access their account information; Internet
PC Banking Service and electronic bill payment for both individuals
and businesses; our TrustWeb(TM), a secure Internet client access to
trust, investment management, and custody accounts; and the new
AdvisorWeb(TM). The site also affords visitors the opportunity to
apply for a mortgage online.
. The introduction of the sophisticated new product, AdvisorWeb, proved
to be a great benefit to our Custody Services Department. By taking
advantage of this service, professional investment advisors can use
the Internet for real-time access to portfolio and data activity. This
service virtually eliminates the need for telephone calls, faxes,
manual handling of data, and statement delivery. It provides
significant increases in efficiency and convenience for both the
advisor and custodian.
. A major effort was undertaken by Information Services to upgrade the
internal communication capabilities for all employees. The internal
system was converted from two separate systems to Lotus Notes, which
incorporates both e-mail and scheduling capabilities into one program.
The implementation program started in mid-March and was completed by
the end of August.
Total Assets
In Millions of Dollars
[GRAPH]
Corporation's Loans Sold,
Balance Service for Fidelity Trust CDC
Sheet Others Funds Assets Assets
1996 345.7 224.4 13.2 1229.9
1997 374.2 255.6 23.8 1666.5
1998 391.8 290.7 43 2101
1999 436.8 306.1 100.4 1887 295.5
2000 444.4 325 126.6 1760 101
Trust Assets
In Millions of Dollars
[GRAPH]
Discretionary Non-Discretionary
1996 719.4 510.5
1997 949.8 716.7
1998 1270 831
1999 1128 759
2000 1012 748
5
[PHOTO]
From left:
Joseph W. Rebl, Finance; Robert J. Ricciardi, Banking Services; and
Alison E. Gers, Administration and Operations
Privacy Program Instituted
The Corporation is currently in the process of developing and implementing a
more comprehensive privacy program to comply with privacy provisions of the
Gram-Leach-Bliley Act of 1999 and the Federal Reserve's Regulation P. In
November, Geoffrey L. Halberstadt was appointed the Corporation's Privacy
Officer, with overall responsibility for development, the enhancement, and
maintenance of our privacy program. A Privacy Task Force was formed to direct
the specific activities required to be undertaken by each area of the
Corporation.
Tax Counselors
Becomes a Separate Entity
Effective December 31, 2000, Tax Counselors of Bryn Mawr business was
transferred to its principals so that the Corporation may concentrate its focus
on its core businesses. This subsidiary was established in July 1997 to provide
tax planning preparation and services to high- net-worth individuals and
corporate employee benefit plans. The Corporation is still committed to
supplying to its clients the professional tax services offered by Joseph W.
Roskos & Co. and the Bank's Trust Tax Department. Where appropriate, we will
refer or share clients with Tax Counselors.
Total Revenue Streams
In Millions of Dollars
[GRAPH]
Net Other
Interest Non-Interst Trust
Income Income Fees
1996 17.8 4.1 5.9
1997 18 4 7.7
1998 20.1 5.3 9.3
1999 22.5 8.3 9.8
2000 24.9 8.8 8.8
Total Corporation Average Assets
In Millions of Dollars
[GRAPH]
1996 336.7
1997 351.4
1998 359.9
1999 399.1
2000 425.6
6
Leadership Change
Early in 2001, organizational changes were announced. Frederick C. "Ted"
Peters II was named President and Chief Executive Officer of Bryn Mawr Bank
Corporation and The Bryn Mawr Trust Company. Mr. Peters was founder, President
and Chief Executive Officer of the Main Line Bank, and, before that, the
founding President and Chief Executive Officer of the National Bank of the Main
Line. Mr. Peters has 25 years of banking experience, and is a graduate of The
Haverford School and Amherst College.
Robert L. Stevens, who plans to retire in August 2002, remains as Chairman for
both Bryn Mawr Bank Corporation and The Bryn Mawr Trust Company. A graduate of
Northwestern University, Mr. Stevens started his career at Bryn Mawr Trust in
1960, became resident in 1980, and Chairman in 1995. Throughout the years, Mr.
Stevens has been an influential member of the banking community and deeply
committed to community service. He currently serves on the Board of Overseers of
the School of Social Work at the University of Pennsylvania and is a Board
Member of The Philadelphia Orchestra. During his 21 years at the helm, Bank
assets have risen from $74.7 million at year-end 1979 to $444.4 million as of
December 31, 2000.
From left: Randy G. Thomas, Trust Tax; Michele M. Fritz, Employee Benefits;
Joseph W. Roskos, Family Business Office; and Lisa M. Brinton, Trust
Administration
[PHOTO]
7
Transition
Samuel C. Wasson, Jr., who has been with Bryn Mawr Trust since 1966, and served
as its Vice Chairman and Secretary since 1997, retired effective January 31,
2001. In his capacity as Vice Chairman, Mr. Wasson has overseen the activities
of the Loan Division, Community Banking, Banking Operations, Information
Services, Human Resources, Facilities, and Risk Management. He was a member of
the Bank's Board of Directors, as well as serving as a board member and
Secretary of Bryn Mawr Bank Corporation. He has been a prime force throughout
his years of service in ensuring that the Bank retained its commitment to
integrity and quality service to the community.
Joseph H. Bachtiger, Executive Vice President, head of Trust Administration, and
a 31-year Bryn Mawr Trust veteran also retired on January 31, 2001. Mr.
Bachtiger is well respected as one of the leading experts in the fiduciary
community, having served as the President of the National Association of Estate
Planners and Councils (NAEPC), the Philadelphia Estate Planning Council and the
Corporate Fiduciaries Association of Philadelphia. He now serves the Bank in a
new capacity as a consultant with the responsibility to develop new business as
well as serving the needs of existing clients.
A LOOK AHEAD
We have embarked upon the process of positioning the Corporation for long-term
sustainable growth. Our commitment is to become the preferred provider of
financial services to affluent individuals, wealthy families, foundations, and
businesses. Our goal is to help our clients accumulate, manage, protect, and
transfer wealth. Our belief is that there is a place for a small financial
institution that provides clients a full-range of financial services in a
thoughtful, warm and personal way.
From left: John M. Grib, Andrea Pilch, Thomas M.
Petro, Jere E. Estes, Mark A. Rioboli and William A.
Keefe, all of Investment Management
[PHOTO]
8
Reorganization
Along with the appointment of the new CEO and the retirement of the
Vice-Chairman, it became necessary to create a more integrated organization
structure to allow our leadership to more effectively manage the institution.
There are four major divisions, each reporting to Mr. Peters:
. The Wealth Bank: Robert L. Stevens is acting as the interim head of
this group that includes Investment Management, Trust Administration,
Custody, Trust Tax, Employee Benefits, Insurance, and Family Office.
Much attention will be paid to creating a new framework for our
business development efforts to retain business, to expand
relationships, and to acquire new business among the affluent segment
of our market area.
. The Traditional Bank: Robert J. Ricciardi heads up this unit which
brings together the deposit and loan side of the business for both
individual and business customers. It includes all lending
activities--business loans, personal loans and residential
mortgages--as well as Community Banking, Bryn Mawr Brokerage, Risk
Management and Compliance.
. The Support Bank: Alison E. Gers leads this group that includes Human
Resources, Facilities, Information Systems, Banking Operations, and
Marketing. This alliance includes all support activities relating to
people, plant, technology and communication.
. The Finance Division: This unit is headed-up by Joseph W. Rebl, CPA.
The division is currently installing a structured planning, monitoring
and management process intended to keep the Corporation on track in
reaching its target goals and assisting in our decision making
process.
Total Average Deposits
In Millions of Dollars
[GRAPH]
1996 295.5
1997 308.6
1998 314.1
1999 341.6
2000 359.2
Transaction Accounts Average Balance
In Millions of Dollars
[GRAPH]
1996 143.6
1997 150
1998 168.1
1999 185.9
2000 196.4
9
Investment Management
Early in 2001, all of the Corporation's Investment Management activities were
relocated and consolidated into the newly renovated first floor of 6 South Bryn
Mawr Avenue. The relocation has improved efficiency and facilitates timely
exchange of market news and investment ideas among all of our investment
professionals. Thomas M. Petro heads up our entire investment management group.
Several new professionals were added to the investment team during the year. The
equity research capabilities were enhanced. A key initiative for the year was
expanding the range of investment styles to complement our large-cap equity
style and offer clients greater choice.
CDC Capital Management, Inc., the registered investment advisor subsidiary,
changed its name to Bryn Mawr Asset Management. In addition to the new name,
this unit has greatly expanded its global network of leading institutional money
managers representing a broad range of investment styles and expertise. CDC
became one of about thirty investment advisors in the country to join Callan
Associates Independent Advisor Group. Based in San Francisco, Callan is a leader
in investment manager evaluation and provides independent objective research on
321 organizations representing $1.2 trillion in assets.
Community Service
Bryn Mawr Trust has long played a leading role in the support of community
activities including: health, senior citizens' concerns, cultural events, civic
affairs, business organizations, and the general well being of the people and
institutions where it transacts business. This tradition of community service
will be sustained as we go forward.
PRICE RANGE OF SHARES
=====================================================================================================================
2000 1999
High-Low Quotations High-Low Quotations
- ---------------------------------------------------------------------------------------------------------------------
High Low Dividend High Low Dividend
Bid Bid Declared Bid Bid Declared
- ---------------------------------------------------------------------------------------------------------------------
1st Quarter $23 7/8 $21 1/2 $0.17 $28 $26 3/4 $0.15
- ---------------------------------------------------------------------------------------------------------------------
2nd Quarter $22 1/8 $19 3/4 $0.17 $26 11/16 $25 1/4 $0.15
- ---------------------------------------------------------------------------------------------------------------------
3rd Quarter $21 9/16 $19 1/2 $0.17 $27 3/8 $24 3/4 $0.15
- ---------------------------------------------------------------------------------------------------------------------
4th Quarter $21 1/2 $20 1/2 $0.17 $25 1/2 $23 7/8 $0.15
=====================================================================================================================
The approximate number of holders of record of common stock as of December 31,
2000 was 443.
The shares are traded on the over-the-counter market, and the price information
was obtained from The National Association of Securities Dealers (NASD).
10
The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
610-525-1700
www.bmtc.com
Senior Management
Robert L. Stevens*
Chairman
Frederick C. "Ted" Peters II*
President and Chief Executive Officer
Alison E. Gers
Executive Vice President, Administration and Operations
Joseph G. Keefer
Executive Vice President and Chief Lending Officer
Thomas M. Petro
Executive Vice President, Investment Management
Joseph W. Rebl*
Executive Vice President, Treasurer, and Chief Financial Officer
Robert J. Ricciardi*
Executive Vice President, Chief Credit Policy Officer and Secretary
Lisa M. Brinton
Senior Vice President, Trust Administration
Jere E. Estes
Senior Vice President, Investment Management
June M. Falcone
Senior Vice President, Banking Operations
Carmen L. Fiorentino
Senior Vice President, Commercial & Real Estate Lending Services
Richard J. Fuchs
Senior Vice President, Community Banking
John M. Grib
Senior Vice President, Investment Management
Geoffrey L. Halberstadt*
Senior Vice President and Risk Management Officer
William A. Keefe
Senior Vice President, Investment Management
Paul M. Kistler, Jr.
Senior Vice President, Facilities and Human Resources
Donald B. Krieble
Senior Vice President, Consumer Credit Services
William R. Mixon
Senior Vice President, Information Systems and
Chief Technology Officer
Walter Smedley, III
Senior Vice President, Corporate Sales
Leo M. Stenson
Senior Vice President and Auditor
Paul C. Benedict
Group Vice President, Trust Administration
Stephen J. Collar
Group Vice President, Consumer Credit Services
Martin F. Gallagher, Jr.
Group Vice President, Commercial & Real Estate Lending Services
Joseph S. Saraceno
Group Vice President, Loan Accounting
Mame O. Skelly
Group Vice President and Comptroller
*Also officer of the Corporation
Branch Offices
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
18 West Eagle Road
Havertown, Pennsylvania 19083
39 West Lancaster Avenue
Paoli, Pennsylvania 19301
330 East Lancaster Avenue
Wayne, Pennsylvania 19087
One Tower Bridge
West Conshohocken, Pennsylvania 19428
312 East Lancaster Avenue
Wynnewood, Pennsylvania 19096
Investment Management Division
6 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania
Trust Division
10 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania
Limited Service Offices
Beaumont at Bryn Mawr Retirement Community
Bryn Mawr, Pennsylvania
Bellingham Retirement Living
West Chester, Pennsylvania
Martins Run Life Care Community
Media, Pennsylvania
The Quadrangle
Haverford, Pennsylvania
Waverly Heights
Gladwyne, Pennsylvania
White Horse Village
Newtown Square, Pennsylvania
Other Financial Services
BMT Mortgage Company
A division of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
Patrick J. Keenan, Senior Vice President
William F. Mannion, Jr., Senior Vice President
Bryn Mawr Asset Management, Inc.*
A subsidiary of Bryn Mawr Bank Corporation
Bryn Mawr, Pennsylvania
Mark A. Rioboli, President and Chief Executive Officer
Bryn Mawr Brokerage Company, Inc.
A subsidiary of Bryn Mawr Bank Corporation
Bryn Mawr, Pennsylvania
Richard J. Fuchs, President and Chief Executive Officer
Bryn Mawr Finance, Inc.
A subsidiary of Joseph W. Roskos & Co.
Wilmington, Delaware
Joseph W. Rebl, President
Insurance Counselors of Bryn Mawr, Inc.
A subsidiary of The Bryn Mawr Trust Company
Bryn Mawr, Pennsylvania
John G. Daniel, President and Chief Executive Officer
Joseph W. Roskos & Co.
A subsidiary of Bryn Mawr Bank Corporation
2011 Renaissance Boulevard, Suite 200
King of Russia, Pennsylvania 19406
Joseph W. Roskos, Chairman
Robert M. Fedoris, President and Chief Executive Officer
*Formerly CDC Capital Management, Inc.
CORPORATE INFORMATION
Directors
Richard B. Cuff
Chairman, Cuffco, Inc.
Warren W. Deakins
Self-employed, Insurance Sales
John D. Firestone
Partner, Secor Group
William Harral, III
Interim Dean,
Bennett S. LeBow College of Business,
Drexel University;
Chairman, C&D Technologies, Inc.
Wendell F. Holland, Esq.
Counsel to Obermayer, Rebmann,
Maxwell& Hippel, LLP
Frederick C. "Ted" Peters II
President and Chief Executive Officer of
Bryn Mawr Bank Corporation and
The Bryn Mawr Trust Company
Phyllis M. Shea
Attorney-at-Law, Shea and Shea, LLP
Robert L. Stevens
Chairman 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
Thomas A. Williams
Retired, formerly Vice President,
Secretary/Treasurer,
Houghton International, Inc.
Annual Meeting
The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held
Wyndham Alumnae in House, Bryn Mawr College, Bryn Mawr, Pennsylvania,
on Tuesday, April 17, 2001, at 2:00 p.m.
Market Participants
F.J. Morrissey& Co., Inc.
Philadelphia, Pennsylvania
Spear, Leeds& Kellogg
New York, New York
McConnell Budd & Downes
Morristown, New Jersey
Ryan Beck and Company, Inc.
West Orange, New Jersey
Sandler O'Neill& Partners
New York, New York
Janney Montgomery LLC
Philadelphia, Pennsylvania
Corporate Headquarters
801 Lancaster venue A
Bryn Mawr, Pennsylvania 19010-3396
610-526-2302
Auditors
PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, Pennsylvania 19103-7042
Legal Counsel
Monteverde, McAlee & Purd, P.C.
One Penn Center Suburban at 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
Mellon Investor Services LLC
PO Box 3315
South Hackensack, NJ 07606
www.mellon-investor.com
Form 10-K
A copy of the Corporation's Form 10-K, including financial statement schedules
with the Securities and Exchange Commission, is available without charge to
shareholders upon written request to Robert J. Ricciardi, Secretary, Bryn Mawr
Bank Corporation, 801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010-3396, or
via e-mail to bricciardi@bmtc.com.
Equal Employment Opportunity
The Corporation continues its commitment equal opportunity employment and does
not discriminate against minorities or home respect to recruitment, hiring,
training, or promotion. It is the policy of the Corporation to comply
voluntarily with the practices Affirmative Action.
12
Selected Financial Data
(in thousands, except for share and per share data)
For the years ended
December 31, 2000 1999* 1998* 1997* 1996*
----------------------------------------------------------
Interest income......... $ 31,985 $ 28,317 $ 26,082 $ 24,960 $ 24,337
Interest expense........ 7,072 5,857 5,976 6,929 6,490
----------------------------------------------------------
Net interest income..... 24,913 22,460 20,106 18,031 17,847
Loan loss provision..... 250 250 150 200 350
----------------------------------------------------------
Net interest income
after loan loss
provision.............. 24,663 22,210 19,956 17,831 17,497
Other income............ 17,727 18,086 14,610 12,086 10,423
Other expenses.......... 29,696 28,456 24,229 20,837 18,978
----------------------------------------------------------
Income before income
taxes.................. 12,694 11,840 10,337 9,080 8,942
Applicable income
taxes.................. 4,433 3,879 3,480 2,950 2,900
----------------------------------------------------------
Net income.............. $ 8,261 $ 7,961 $ 6,857 $ 6,130 $ 6,042
----------------------------------------------------------
Per share data:
Earnings per common
share:
Basic................. $ 1.92 $ 1.83 $ 1.58 $ 1.40 $ 1.38
Diluted............... $ 1.85 $ 1.75 $ 1.51 $ 1.33 $ 1.33
Dividends declared..... $ 0.68 $ 0.60 $ 0.465 $ 0.36 $ 0.46
Weighted-average shares
outstanding........... 4,292,838 4,349,403 4,327,297 4,392,162 4,385,094
Dilutive potential
common shares......... 161,408 193,915 225,708 203,660 151,698
----------------------------------------------------------
Adjusted weighted-
average shares........ 4,454,246 4,543,318 4,553,005 4,595,822 4,536,792
(in thousands)
At December 31, 2000 1999 1998 1997 1996
----------------------------------------------------------
Total assets............ $ 444,425 $ 436,820 $ 391,840 $ 374,210 $ 345,747
Earning assets.......... 389,053 395,952 357,683 327,942 305,911
Deposits................ 386,966 371,068 342,357 328,806 303,183
Shareholders' equity.... 50,970 46,719 42,221 39,349 35,808
Ratio of equity to
assets................. 11.47% 10.70% 10.78% 10.52% 10.36%
Loans serviced for
others................. 325,040 306,147 290,675 255,571 224,366
For the years ended
December 31, 2000 1999 1998 1997 1996
----------------------------------------------------------
Selected financial
ratios:
Net interest margin..... 6.33% 6.12% 5.99% 5.59% 5.67%
Net income to:
Average total assets... 1.94% 1.99% 1.91% 1.74% 1.79%
Average shareholders'
equity................ 17.20% 17.97% 17.06% 16.45% 18.16%
Average shareholders'
equity to average total
assets................. 11.28% 11.10% 11.17% 10.60% 9.88%
Dividends declared per
share to net income per
basic common share..... 35.42% 32.79% 29.43% 25.71% 33.33%
*Reclassified for comparative purposes.
13
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, 2000, as well as the
financial condition of the Corporation as of December 31, 2000 and 1999. The
Bryn Mawr Trust Company (the "Bank"), Tax Counsellors of Bryn Mawr, Inc.
("TCBM"), Bryn Mawr Brokerage Company, Inc. ("B M Brokerage"), CDC Capital
Management, Inc. ("CDC") and Joseph W. Roskos & Co. ("JWR&Co") are wholly-
owned subsidiaries of the Corporation. Bryn Mawr Finance, Inc. ("B M Finance")
is a wholly-owned subsidiary of JWR&Co. 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 30.
Significant Items for 2000
- -------------------------------------------------------------------------------
Dividend Increase
Based on a continued growth in record earnings, the Corporation increased its
quarterly dividend payment for 2000 by 13%, from $0.15 per share in 1999 to
$0.17 per share in 2000. The Corporation's dividend payout ratio was 35.42% of
basic earnings per share for 2000, compared to 32.79% for 1999.
Stock Repurchase Program
During 1997, the Corporation established a stock repurchase program (the
"Stock Repurchase Program"), authorizing management to repurchase up to 5% of
the then outstanding common shares of the Corporation. This program was
renewed 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 was continued through 2000. During 2000, the
Corporation repurchased 81,500 shares of the Corporation's common stock, at a
cost of $1,677,000 or an average purchase price of $20.58 per share. The
Corporation's stock repurchasing activity, beginning in 1997 through December
31, 2000, repurchased a total of 337,800 shares of the Corporation's common
stock, at a cost of $7,955,000 for an average purchase price of $23.55 per
share. The use of the Corporation's capital to repurchase stock is a mitigant
to the dilution of earnings per share caused by unexercised stock options, as
well as a catalyst to increasing the Corporation's return on equity.
Strong Asset Quality
The Corporation has consistently enhanced the quality of its loan portfolio.
Since 1996, non-performing assets have decreased from $2,430,000 to $81,000 at
year-end 2000. Other real estate owned ("OREO") balances amounting to
$1,523,000 at year-end 1996 had been totally eliminated by year-end 1999 and
there were no such balances at December 31, 2000. Non-performing loans have
decreased 91% over the prior four years to $81,000 at year-end 2000. Non-
performing loans as a percentage of total loans amounted to 2 basis points at
December 31, 2000 and delinquencies, past due 30 days or more, amounted to 20
basis points of total outstanding loans at December 31, 2000. At December 31,
1999 non-performing loans, as a percentage of total loans amounted to 2 basis
points and delinquencies amounted to 56 basis points.
Results of Operations
- -------------------------------------------------------------------------------
Overview
The Corporation reported a 4% increase in net income of $8,261,000 for the
year ended December 31, 2000, the sixth consecutive year of record earnings
for the Corporation. Net income for 1999 amounted to $7,961,000. There were a
number of nonrecurring items, included in both 1999 and 2000 results. In 1999,
recoveries of both interest income earned on a previously impaired loan and
legal fees recovered on a prior problem loan added to net income. During 2000,
nonrecurring costs associated with the departure of CDC's management,
primarily the write-off of CDC's goodwill, caused a decrease in net income.
Exclusive of these nonrecurring items, in each year, (the "Nonrecurring
Items") net income grew by 10% in 2000 over 1999.
Basic earnings per share amounted to $1.92 in 2000, a 5% increase over $1.83
for 1999. Diluted earnings per share were $1.85 and $1.75 for 2000 and 1999,
respectively. The dilutive potential common shares added to the weighted-
average shares outstanding were 161,408 and 193,915 for 2000 and 1999,
respectively.
These record earnings results for 2000 were due to a number of factors. As
presented on Table 1, profits from the banking segment grew by 37%. Net
interest income increased by $2,457,000 or 11% as a result of a 12% increase
in average outstanding loans. Also contributing to the increase in the banking
segment's profits was a reduction in the expense of the Corporation's
incentive bonus plan, which is based on overall corporate
14
profitability. The mortgage banking segment increased its profit by 32%,
compared to 1999's profit. The mortgage loan sales for 2000 were under 1999's
amount by 3%, but the fees earned grew by $248,000. Offsetting this income was
a 23% decrease in profits for the Trust segment. Fees from Investment
Management and Trust decreased by $811,000 or 8% over similar revenues for
1999. During 1999, five Trust officers resigned from the Bank (the
"Resignations"), taking some trust accounts with them. Both the Resignations
and a decrease in trust asset values in 2000, because of the decline in overall
market values, are primarily responsible for the fee decrease.
Return on average assets for the year was 1.94%, compared to 1.99% in 1999,
while return on average equity for 2000 was 17.20% compared to 17.97% in 1999.
Earnings Performance
- --------------------------------------------------------------------------------
Lines of Business
The Corporation continues to have four significant business segments or 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, derives net revenues from financial services
and products, offered through the Corporations subsidiaries, as well as the
Bank's subsidiary, ICBM and JWR&Co's subsidiary B M Finance.
The Banking segment's percentage of operating profits stood at 67% for 2000,
compared to 52% for 1999. Investment Management and Trust's percentage of
operating profit was 29%, down from 40% for 1999. The Mortgage Banking
segment's share of operating profits increased from 7% in 1999 to 8% in 2000,
while the "All Other" segment, including the Corporation and all non-banking
subsidiaries, went from 1% in 1999 to (4%) in 2000.
Following is a segmentation analysis of the results of operations for those
lines of business for 2000 and 1999:
TABLE 1 - Lines of Business Segment Analysis
2000
------------------------------------------
Mortgage All
(dollars in thousands) Banking Trust Banking Other Consolidated
------------------------------------------
Net interest income.......... $24,684 $ -- $ 216 $ 17 $24,917
Less loan loss provision..... 250 -- -- -- 250
------------------------------------------
Net interest income after
loan loss provision......... 24,434 -- 216 17 24,667
Other income:
Fees for investment
management and trust
services.................... -- 8,973 -- -- 8,973
Service charges on deposit
accounts.................... 1,144 -- -- -- 1,144
Other fees and service
charges..................... 295 -- 729 -- 1,024
Net gain on sale of loans.... 8 -- 1,232 -- 1,240
Gain on sale of other real
estate owned................ 14 -- -- -- 14
Other operating income....... 925 -- -- 4,789 5,714
------------------------------------------
Total other income........... 2,386 8,973 1,961 4,789 18,109
Other expenses:
Salaries-regular............. 7,826 3,175 538 2,320 13,859
Salaries-other............... 750 211 30 52 1,043
Fringe benefits.............. 850 616 70 313 1,849
Occupancy.................... 3,401 472 142 502 4,517
Other operating expenses..... 5,505 880 334 2,095 8,814
------------------------------------------
Total other expenses......... 18,332 5,354 1,114 5,282 30,082
------------------------------------------
Segment profit (loss)........ $ 8,488 $3,619 $1,063 $ (476) $12,694
------------------------------------------
% of segment profit (loss)... 67% 29% 8% (4%) 100%
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..................... 254 -- 762 -- 1,016
Net gain on sale of loans.... 44 -- 984 -- 1,028
Gain on sale of other real
estate owned................ 45 -- -- -- 45
Other operating income....... 908 -- -- 4,568 5,476
------------------------------------------
Total other income........... 2,407 9,784 1,746 4,568 18,505
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..... 4,694 948 310 1,726 7,678
------------------------------------------
Total other expenses......... 18,263 5,071 1,086 4,455 28,875
------------------------------------------
Segment profit............... $ 6,204 $4,713 $ 805 $ 118 $11,840
------------------------------------------
% of segment profit.......... 52% 40% 7% 1% 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 & Co have all been aggregated in All
Other.
* Reclassified for comparative purposes.
The table reflects operating profits or losses of each Corporate line of
business before income taxes.
15
Banking Line of Business
The Bank's average outstanding earning assets of $383,695,000 increased 7% from
$359,261,000 for 1999. Average outstanding loans grew by 12% in 2000. The
largest dollar increase in average outstanding loans occurred in commercial and
industrial loans, up $23,728,000 or 23% over 1999 average balances. Average
residential mortgage loans grew by $8,142,000 or 41% in 2000, compared to
similar average outstanding balances in 1999. BMT Mortgage Company chose to
hold some of the originated residential mortgage loans in its loan portfolio
until the opportunity to sell loans was more favorable. Commercial mortgage
loans decreased by $1,089,000 or 2% from 1999 average balances and average
construction loans decreased by $743,000 or 5% from similar average balances
for 1999. The average outstanding balances of the Bank's consumer loan
portfolio increased by $5,226,000 or 8% from 1999's average outstanding
balances. Strong growth in the Bank's consumer credit line, partially offset by
lower demand for indirect automobile loans due to increased competition from
automobile manufacturers for new automobile loans, was primarily responsible
for the increase in average consumer loan balances in 2000. The average
outstanding balances of federal funds sold decreased by 50% in 2000 compared to
1999 levels. Average outstanding investments decreased by 16% for 2000 compared
to 1999. The decrease in federal funds sold and investments partially funded
the growth in the loan portfolio.
Average outstanding total deposits increased 5% in 2000 compared to 1999. The
largest dollar increase occurred in the Bank's low cost NOW account balances,
up $6,389,000 or 7%. Average outstanding non-interest demand deposit balances
increased by $4,117,000 or 5%, while average market rate account balances
increased by $762,000 or 2%. Average outstanding balances of higher cost
certificates of deposit ("CDs") grew by $5,819,000 or 9%. Average outstanding
savings deposits increased 1% or $485,000. In order to meet loan funding and
liquidity requirements, the Bank increased its reliance on short-term
borrowings, increasing the combined average outstanding borrowings of short-
term borrowings and federal funds purchased by $6,013,000 or 107%. The
increases in the average balances of higher cost CDs and short-term borrowings
are the primary reason for the cost of funds increasing 22 basis points.
However, increases in the prime rate during 2000 and significant increases in
earning assets, specifically in higher yielding loans, are primarily
responsible for an increase in the net interest margin to 6.33% in 2000 from
6.12% for 1999. An expanded discussion of net interest income follows under the
section entitled "Net Interest Income".
Other income from the Banking segment decreased by 1% in 2000 compared to 1999.
Service charges on deposit accounts decreased 1%, due primarily to an increase
in the earnings credit applied to deposit accounts, thereby providing banking
customers additional credit to offset actual charges for deposit services to
their respective accounts.
Total other expenses of the Banking line of business increased by less than 1%
in 2000 compared to 1999 levels. This was due to an increase in regular
salaries, occupancy and other expenses of 8%, 10% and 17%, respectively.
Offsetting these increases was a decrease in the incentive bonus in 2000
compared to 1999's incentive bonus, and an increase in the net revenues earned
by the Bank's pension plan. Overall, the operating profits of the Banking line
of business increased 37% in 2000 compared to 1999.
Investment Management and Trust Line of Business
The Bank's Investment Management and Trust Division reported a 23% decrease in
operating profit for 2000 compared to 1999 levels. An $811,000 or 8% decrease
in total Investment Management and Trust fee income was primarily responsible
for this decline in profitability. The market value of assets managed decreased
from $1,887,000,000 at December 31, 1999, to $1,760,000,000 as of December 31,
2000. The movement of client accounts due to resignations and an overall
decline in asset values related to a decline in the values of the stock market,
were the primary causes for this decrease. CDC had assets under advisement of
$101,000,000 as of December 31, 2000, compared to $295,000,000 at December 31,
1999, bringing total investment assets under management or advisement at
December 31, 2000, to $1,861,000,000, compared to $2,182,000,000 at December
31, 1999.
Other expenses of the Investment Management and Trust line of business
increased by $283,000 or 6% in 2000 over 1999 levels. The primary reason for
this increase was a rebuilding of the Trust and Investment Management staff to
increase the client base.
Mortgage Banking Line of Business
The operating profit of the Bank's Mortgage Banking line of business increased
32% in 2000 compared to 1999. During 2000, mortgage interest rates rose enough
to make refinancing less attractive to borrowers, although mortgage lending for
home sale activity remained strong. In 2000, the Mortgage Banking line of
business had a 3% decrease in the volume of loans sold in the secondary
mortgage market and a 39 basis point increase in the yield on sales, compared
to 1999 levels. The increase in
16
the yield on the sale of loans is the main reason for the increase in the
mortgage banking segment's profitability. Following is a table showing the
volume of residential mortgage loans originated and sold in the secondary
mortgage market, the total net gains realized, and the yield on these loan
sales:
TABLE 2 - Summary of Loan Sale Activity
(dollars in thousands) 2000 1999
---------------
Volume of loans sold........................................... $71,737 $73,921
Loan fees and net gains on sales............................... 1,232 984
Yield on sales................................................. 1.72% 1.33%
As of December 31, 2000, the Bank serviced $291,903,000 in residential mortgage
loans for others, compared to $283,124,000 in loans serviced for others at
year-end 1999.
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. The Corporations
expenses are primarily of an administrative nature. During 2000, the
Corporation wrote-off $155,000 in goodwill due to changes in the management of
CDC. No such write-off was included in 1999 or 1998.
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 employed CPAs and an attorney (the
"Tax Professionals"), having significant tax planning, preparation and
financial planning capabilities. In connection with the formation of TCBM, a
profit sharing agreement (the "Agreement") was developed that allowed the Tax
Professionals to retain the net revenues generated by the clients brought to
TCBM. The Agreement set revenue goals as a threshold to determine
profitability. During 2000, TCBM did not exceed its revenue goals and reported
a net profit of $0, compared to a $5,000 net profit reported of 1999. During
2000, an arrangement was reached between Corporation management and the Tax
Professionals terminating the Agreement. Pursuant to the arrangement, the net
assets of TCBM, (all assets, excluding cash less all liabilities) as of
December 31, 2000, were sold to the Tax Professionals in exchange for a note in
favor of TCBM. The face value of the note is $422,000 with a rate of 9% and a
due date of September 1, 2004.
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 products
and related services to its customer base. ICBM offers a full line of life,
property and casualty and commercial lines to its customer base. During 1999,
ICBM earned commissions from traditional business and the sale of large premium
life insurance policies resulting in a net profit of $65,000. No such large
premium life insurance policies were sold in 2000. Therefore, in 2000, ICBM
reported a net loss of $65,000.
Bryn Mawr Brokerage Company, Inc.
The Corporation established B M Brokerage in January 1999, in order to make
brokerage services available to its client base through an affiliation with an
independent broker-dealer. Commissions earned in each year of operation were
insufficient to cover related costs, therefore, during 2000, B M Brokerage
reported a loss of $40,000, compared to a loss of $6,000 for 1999.
CDC Capital Management, Inc. (now Bryn Mawr Asset Management, Inc.)
On January 6, 1999, the Corporation acquired CDC for $281,000 in Corporation
stock, a portion of which was issued at the time of the acquisition. One-half
of the remaining shares were distributed on the first anniversary of the
acquisition, January 6, 2000, and the remainder will be distributed on the
second anniversary, January 6, 2001. CDC was acquired to enable the Corporation
to enhance its array of financial services and products by offering investment
advisory services to its clients. Goodwill of $177,000 was recorded on the
corporation's books, to be amortized over a 10-year life. During 2000, there
were changes in CDC's management. Based on the foregoing events, in June 2000
the balance of the remaining goodwill of $155,000 was written-off of the
Corporation's books. CDC reported a net loss of $65,000 for 2000, compared to a
net profit of $6,000 for 1999. In November 2000, an amendment was made to the
Articles of Incorporation to change the name of the corporation to Bryn Mawr
Asset Management, Inc. and registered CDC Capital Management, Inc. as a
fictitious name.
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 through its
17
subsidiaries. JWR&Co provides family business office services to high-net-worth
individuals, including accounting and tax preparation services, consulting, and
fiduciary support services. During 2000, JWR&Co reported a net profit of
$292,000, compared to $344,000 in 1999, before the amortization of $164,000 of
goodwill in each period. The primary reason for the 15% decrease in net income
in 2000, compared to 1999, was a non-recurring item of $108,000, which was not
incurred in 1999. Exclusive of this non-recurring item in 2000, net income for
JWR&Co would have increased 16% in 2000 compared to 1999.
Bryn Mawr Finance, Inc.
B M Finance was incorporated on December 20, 2000, as a wholly-owned subsidiary
of JWR&Co. Its primary purpose is to provide financing opportunities to the
Corporation and its subsidiaries.
Net Interest Income
A 13% or $3,668,000 increase in interest income, partially offset by a 21% or
$1,215,000 increase in interest expense for the year ended December 31, 2000,
resulted in an overall increase in net interest income of 11% or $2,453,000
over the year ended December 31, 1999. Average earning assets grew 7% in 2000,
compared to 1999 levels. Higher yielding commercial loan balances grew by 12%.
The average outstanding balances of investments and federal funds sold
decreased by 16% and 50%, respectively. The yield on earning assets increased
by 40 basis points. Total average deposits increased 5%. The largest increase
occurred in the Bank's CDs, which increased 9%. Average outstanding NOW
accounts were up by 7%, followed by non-interest bearing demand deposits, up by
5%. Average outstanding money market and savings deposits increased by 2% and
1%, respectively. In an effort to increase liquidity, average outstanding
short-term borrowings grew by 107% over similar balances for 1999. Average
outstanding CDs increased by 9% over 1999 levels. This growth in average higher
costing short-term borrowings and CDs is primarily responsible for a 22 basis
point increase in the average cost of funds for 2000, compared to 1999. The
increase in the yield on earning assets, partially offset by the increased 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 6.12% for 1999 to 6.33% for 2000.
The 13% growth in interest income for 2000 was partially attributable to a 7%
increase in average earning assets from $359,261,000 for 1999 to $383,695,000
for 2000. Partially due to an increase in the prime rate during 2000, the yield
on average outstanding earning assets grew by 40 basis points to 8.3% for 2000,
compared to 7.9% for 1999. The average yield on loans increased 30 basis points
from 8.3% in 1999 to 8.6% in 2000. The average yield on federal funds sold
increased 100 basis points to 6.0% for 2000, compared to 5.0% for 1999. The
yield on the investment portfolio increased by 30 basis points from 5.4% in
1999 to 5.7% in 2000.
The $2,808,000 growth in interest income attributable to volume was the result
of a 12% increase in average outstanding loans. Partially due to the increase
in the prime rate, interest income related to the rate variance increased by
$860,000.
As of December 31, 2000, outstanding loans balances increased 5% over December
31, 1999. In December 2000, the Bank participated out a combination of
commercial mortgage loans and consumer home equity loans amounting to
$12,153,000 (the "Loan Sale"). Excluding the Loan Sale, loans at year-end 2000
would have increased 8% over 1999 year-end levels. The most significant loan
growth came in commercial and industrial loans, which grew by 23% year-end to
year-end. Permanent mortgage loans, including both commercial mortgage loans
and residential mortgage loans increased by 1%. Commercial mortgage loans
decreased by 14%, primarily due to the Loan Sale, reducing loan balances by
$5,577,000, while residential mortgage loan balances increased by 38%.
Construction loan outstanding balances decreased 26%. A 13% decrease in
outstanding consumer loans is due primarily to the Loan Sale and a continued
run-off of indirect automobile loans, which was planned by the Bank. The yield
on average earning assets grew by 40 basis points from 7.9% in 1999 to 8.3% in
2000.
Average deposits increased $17,572,000 or 5% during 2000. Average outstanding
CD balances increased by 9%. Average outstanding NOW account balances grew by
7% and non-interest bearing demand deposits were up by 5%. Average outstanding
market rate and savings account balances grew by 2% and 1%, respectively.
Average outstanding short-term borrowings increased 107%. The cost of funds for
the Bank averaged 1.91% for 2000 compared to 1.69% for 1999, a 22 basis point
increase.
18
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 $625,000, $465,000 and $413,000 in 2000, 1999 and 1998 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
2000 1999** 1998**
----------------------------------------------------------------------------
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. $ 22,345 $ -- --% $ 22,060 $ -- --% $ 19,065 $ -- --%
Interest-bearing
deposits with other
banks*................. 1,623 90 5.5 2,173 103 4.7 1,345 68 5.1
Federal funds sold*..... 6,174 373 6.0 12,272 609 5.0 15,665 824 5.3
Investment securities
available for sale:
Taxable*............... 26,482 1,558 5.9 30,440 1,698 5.6 31,760 1,880 5.9
Tax-exempt*............ 2,495 108 4.3 4,162 183 4.4 4,953 224 4.5
----------------------------------------------------------------------------
Total investment
securities............ 28,977 1,666 5.7 34,602 1,881 5.4 36,713 2,104 5.7
----------------------------------------------------------------------------
Loans*.................. 346,921 29,856 8.5 310,214 25,724 8.3 274,882 23,085 8.4
Less allowance for loan
losses................. (4,352) -- -- (4,257) -- -- (4,088) -- --
----------------------------------------------------------------------------
Net loans.............. 342,569 29,856 8.7 305,957 25,724 8.4 270,794 23,085 8.5
Other assets............ 23,897 -- -- 21,997 -- -- 16,278 -- --
----------------------------------------------------------------------------
Total assets........... $425,585 $31,985 -- $399,061 $28,317 -- $359,860 $26,081 --
----------------------------------------------------------------------------
Liabilities:
Demand deposits,
noninterest-bearing.... $ 96,215 $ -- --% $ 92,098 $ -- --% $ 82,773 $ -- --%
Savings deposits........ 192,141 2,697 1.4 184,505 2,533 1.4 169,785 2,923 1.7
Time deposits........... 70,819 3,596 5.1 65,000 3,008 4.6 61,503 3,052 5.0
Short term borrowings... 10,342 693 6.7 4,658 266 5.7 -- -- --
Federal funds purchased. 1,283 86 6.7 954 50 5.2 18 1 5.6
Other liabilities....... 6,765 -- -- 7,554 -- -- 5,595 -- --
----------------------------------------------------------------------------
Total liabilities...... 377,565 7,072 -- 354,769 5,857 -- 319,674 5,976 --
Shareholders' equity.... 48,020 -- -- 44,292 -- -- 40,186 -- --
----------------------------------------------------------------------------
Total liabilities and
shareholders' equity.. $425,585 $ 7,072 -- $399,061 $ 5,857 -- $359,860 $ 5,976 --
----------------------------------------------------------------------------
Total earning assets*.. $383,695 -- -- $359,261 -- -- $328,605 -- --
Interest income to
earning assets......... -- -- 8.3% -- -- 7.9% -- -- 7.9%
Interest expense to
earning assets......... -- -- 1.8 -- -- 1.6 -- -- 1.8
Net yield on interest-
earning assets........ -- -- 6.5 -- -- 6.3 -- -- 6.1
Average effective rate
paid on interest-
bearing liabilities.... -- -- 2.6 -- -- 2.3 -- -- 2.6
Average effective cost
on total deposits...... -- -- 1.9 -- -- 1.7 -- -- 1.9
Net interest margin..... -- -- 6.33 -- -- 6.12 -- -- 5.99
Earning assets to
interest-bearing
liabilities............ 1.40 1.41 1.42
* Indicates earning assets.
** Reclassified for comparative purposes.
19
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 $160,000 in 2000, $52,000 in 1999, and $8,000 in 1998.
TABLE 4 - Rate/Volume Analyses
(in thousands) 2000 vs. 1999 1999 vs. 1998
---------------------------------------------
Increase/(decrease) Volume Rate Total Volume Rate Total
---------------------------------------------
Interest income:
Interest-bearing deposits with other banks..................................... $ (29) $ 16 $ (13) $ 41 $ (6) $ 35
Federal funds sold............................................................. (343) 107 (236) (170) (45) (215)
Investment securities available for sale:
Taxable....................................................................... (228) 88 (140) (82) (100) (182)
Tax-exempt.................................................................... (71) (4) (75) (36) (5) (41)
Loans.......................................................................... 3,479 653* 4,132 2,918 (279) 2,639
---------------------------------------------
Total interest income.......................................................... 2,808 860 3,398 2,671 (435) 2,236
---------------------------------------------
Interest expense:
Savings deposits............................................................... 164 -- 164 208 (598) (390)
Time deposits.................................................................. 265 323 588 186 (230) (44)
Short term borrowings.......................................................... 373 54 427 266 -- 266
Fed funds purchased............................................................ 20 16 36 49 -- 49
---------------------------------------------
Total interest expense......................................................... 823 392 1,215 709 (828) (119)
---------------------------------------------
Interest differential.......................................................... $1,985 $468 $2,453 $1,962 $ 393 $2,355
--------------------------------------------------
---------------------------------------------
* Included in the loan rate variance was a (decrease) increase in interest
income related to non-performing loans of ($25,000) and $327,000 in 2000 and
1999, respectively. The variances due to rate include the effect of
nonaccrual loans because no interest is earned on such loans.
Loan Loss Provision
The Bank provided a loan loss provision of $250,000 for both 2000 and 1999. The
allowance for possible loan losses was $4,320,000 and $4,400,000 as of December
31, 2000 and 1999, respectively. Delinquencies, as a percentage of outstanding
loans, amounted to 20 basis points and 54 basis points as of December 31, 2000
and 1999, respectively. The ratios of the loan loss reserve to non-performing
loans were 5333% and 556% as of December 31, 2000 and 1999, respectively. Non-
performing loans amounted to $81,000 at December 31, 2000, a 90% decrease from
$792,000 at December 31, 1999. There was no OREO recorded on the Corporation's
books at either year-end. The allowance for possible loan losses, as a
percentage of outstanding loans, was 1.22% as of December 31, 2000, compared to
1.30% as of December 31, 1999. Bank management has determined that the 2000
loan loss provision was sufficient to maintain an adequate level of the
allowance for possible loan losses during 2000.
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) 2000 1999 1998 1997 1996
--------------------------------------
Allowance for possible loan losses:
Balance, January 1................... $4,400 $4,100 $4,074 $4,182 $3,652
--------------------------------------
Charge-offs:
Commercial and industrial............ (32) (10) (42) (196) (84)
Real estate--construction............ -- -- -- -- --
Real estate--mortgage................ (12) 22* (22) -- (4)
Consumer............................. (355) (209) (179) (237) (180)
--------------------------------------
Total charge-offs.................... (399) (197) (243) (433) (268)
--------------------------------------
Recoveries:
Commercial and industrial............ 3 87 100 102 404
Real estate--construction............ -- 116 -- -- --
Real estate--mortgage................ -- -- -- -- 8
Consumer............................. 66 44 19 23 36
--------------------------------------
Total recoveries..................... 69 247 119 125 448
--------------------------------------
Net recoveries/ (charge-offs)........ (330) 50 (124) (308) 180
Provision for loan losses............ 250 250 150 200 350
--------------------------------------
Balance, December 31................. $4,320 $4,400 $4,100 $4,074 $4,182
--------------------------------------
Net recoveries/(charge-offs) to
average loans....................... 0.02% 0.02% 0.05% 0.12% 0.07%
* 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.
20
TABLE 6 - Allocation of the 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,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------
% % % % %
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............. $1,193 41.5% $ 151 39.7% $ 427 31.8% $ 316 28.1% $ 483 28.8%
Real estate--
construction........... 7 3.0 33 4.2 81 4.7 1,111 5.1 751 2.9
Real estate--mortgage... 56 38.3 228 35.4 161 39.3 184 38.2 289 36.9
Consumer................ 248 17.2 279 20.7 301 24.2 465 28.6 609 31.4
Unallocated............. 2,816 -- 3,709 -- 3,130 -- 1,998 -- 2,050 --
--------------------------------------------------------------------
Total.................. $4,320 100.0% $4,400 100.0% $4,100 100.0% $4,074 100.0% $4,182 100.0%
--------------------------------------------------------------------
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 26 for further discussion of the Corporation's loan review
process.
Other Income
The following table details other income for the years ended December 31, 2000
and 1999, and the percent change from year to year:
TABLE 7 - Other Income
2000 1999* % Change
-------------------
Fees for trust services................................ $ 8,973 $ 9,784 (8%)
Service charges on deposit accounts.................... 1,144 1,156 (1%)
Other fees and service charges......................... 1,024 1,016 1%
Net gain on sale of loans.............................. 1,240 1,028 21%
Gain on the sale of other real estate owned............ 14 45 (69%)
Fees earned from family business office services....... 2,429 1,947 25%
Investment advisory and brokerage fees................. 957 1,218 (21%)
Tax consulting fees.................................... 793 702 13%
Insurance commission income............................ 191 326 (41%)
Other operating income................................. 962 864 11%
-------------------
$17,727 $18,086 (2%)
-------------------
* Reclassified for comparative purposes
In addition to net interest income, the Bank's three operating segments, as
well as TCBM, ICBM, B M 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 15, 16, 17 and 18, the
decrease in other income in 2000 from 1999 levels was primarily a result of a
decrease in revenues from investment management and trust services.
Fees for investment management and trust services declined $811,000 or 8% from
year to year. Refer to the discussion under the heading "Investment Management
and Trust Line of Business" on page 16 of this report.
As discussed in the "Mortgage Banking Line of Business" section, the $212,000
or 21% increase in gains on the sale of loans was directly attributable to a 39
basis point increase in the yield on the sale of residential mortgage loans to
the secondary mortgage market.
Fees from the JWR&Co family office business amounted to $2,429,000 for 2000, a
$482,000 or 25% increase of fees earned in 1999. This increase is directly
attributable to increased client activity during 2000 compared to 1999.
Investment advisory and brokerage fees declined $261,000 or 21% from $1,218,000
for 1999 to $957,000 for 2000. The primary reason for this decline was a
reduction in fees earned by CDC in 2000, directly related to the change in
CDC's management, as previously discussed.
Insurance commission income decreased $135,000 or 41%, from $326,000 for 1999
to $191,000 for 2000. During 1999, ICBM earned commissions on some large life
insurance premiums. No such commissions were earned during 2000. This is the
primary reason for the decrease in insurance commission income.
Other operating income increased $98,000 or 11% in 2000 from 1999 levels,
primarily due to sweep fees paid on the commercial and personal accounts, which
grew by $187,000. This fee growth is directly attributable to growth in the
Bank's off-balance sheet mutual fund balances, which increased from
$100,372,000 at
21
December 31, 1999 to $126,752,000 at December 31, 2000. Partially offsetting
this increase in other operating income was a decrease of $89,000 in rental
income earned by the Bank from the buildings leased at #2 & #6 Bryn Mawr
Avenue. During 2000, the Bank occupied a larger portion of the buildings,
thereby eliminating the rental revenue stream that was generated by outside
tenants in 1999. It is the Corporation's intention to utilize this space for
future expansion.
Other Expenses
The following table details other expenses for the years ended December 31,
2000 and 1999, and the percent change from year to year:
TABLE 8 - Other Expenses
2000 1999* % Change
---------------------
Salaries-regular...................................... $13,859 $12,446 11%
Salaries-other........................................ 1,043 2,226 (53%)
Employee benefits..................................... 1,849 2,334 (21%)
Occupancy expense..................................... 2,100 1,928 9%
Furniture, fixtures and equipment..................... 2,140 1,968 9%
Advertising........................................... 1,235 1,290 (4%)
Professional fees..................................... 1,667 1,148 45%
Computer processing................................... 556 560 (1%)
Stationery and supplies............................... 391 408 (4%)
Insurance............................................. 526 373 41%
Goodwill.............................................. 324 183 77%
Net cost of operation of other real estate owned...... (1) 8 (113%)
Other operating expenses.............................. 4,007 3,584 12%
---------------------
$29,696 $28,456 4%
---------------------
* Reclassified for comparative purposes
Other expenses increased for the year ended December 31, 2000, by $1,240,000 or
4% compared to 1999. Regular salaries, consisting of regular, part time and
overtime salary expense, the largest component of other expenses, rose 11%.
Merit increases and staffing additions, during 2000, are primarily responsible
for this increase. As of December 31, 2000, the Corporation's consolidated
full-time equivalent staffing level was 269.0 compared to 266.5 as of December
31, 1999.
Other salaries decreased 53% from 1999 to 2000. The decrease of $1,183,000 from
$1,609,000 in 1999 to $500,000 in 2000 was the incentive-based compensation.
The incentive-based compensation is directly related to corporate
profitability.
Employee benefit costs decreased $485,000 or 21% in 2000 from 1999 levels. Of
this decrease, $849,000 relates to the Corporation's pension plan, which
produced a net income of $843,000 in 2000 compared to an expense of $6,000 in
1999. The two factors that contributed to the reduction in the cost of the
pension plan were the growth in the value of the pension plan's assets and
strong investment performance by the pension plan assets. Partially offsetting
this income was an increase in the cost of the Bank's medical insurance, which
rose by $173,000.
Occupancy expense and furniture, fixtures and equipment expenses increased by
$172,000 or 9% from 1999 to 2000.
Advertising remained relatively level for 2000, compared to 1999, at $1,235,000
and $1,290,000 for the respective periods.
The cost of professional fees was up by $519,000 or 45%. The primary reason for
this difference was an increase of $493,000 in legal fees. This was the result
of the combined effect of a refund in 1999 of $278,000 in legal fees related to
a prior problem loan and an increase in legal fees in 2000 related to
litigation and other legal matters.
Insurance expense increased by $153,000 or 41%. 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 increased $34,000 or 92% from 1999
to 2000. This increase is due both to increased deposit levels and an increase
in the rate paid to the FDIC for deposit insurance compared to prior years. The
Corporation's business insurance premiums accounted for the remainder of this
increase in 2000 compared to 1999 premium levels.
During 2000, because of the changes in management, the remaining balance of
goodwill related to the acquisition of CDC was written-off of the Corporation's
books. This is the reason for the $141,000 increase in goodwill expense in
2000, compared to 1999. The remaining goodwill relates to the acquisition of
JWR&Co, which has an amortization period of 20 years. The goodwill is being
amortized on a straight-line method.
Other operating expenses increased $423,000 or 12% from 1999 to 2000. The
largest increase was in hiring fees paid for staffing additions. Hiring fees
increased by $198,000 in 2000 compared to 1999. The most significant cost in
this category was $135,000 incurred in the search for the Corporation's new
chief executive officer. Exclusive of these expenses, other operating expenses
increased by 6% over 1999 levels.
Income Taxes
Federal income taxes for 2000 were $4,325,000, compared to $3,879,000 for 1999.
This represents an effective tax rate of 34.0% and 32.8% for 2000 and 1999,
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.
22
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 $26,907,000 and $29,611,000 as of December 31, 2000
and 1999, respectively. The amortized cost of the portfolio as of December 31,
2000 was $26,971,000, resulting in net unrealized losses of $64,000. The
amortized cost of the portfolio at December 31, 1999 was $30,201,000, resulting
in net unrealized losses of $590,000.
The maturity distribution and weighted average yields on a fully tax-equivalent
basis of investment securities at December 31, 2000, are as follows:
TABLE 9 - Investment Portfolio
Maturing Maturing
from from
Maturing 2002 2006 Maturing
during through through after
(dollars in thousands) 2001 2005 2010 2010 Total
-------------------------------------------
Obligations of the U.S. Government
and agencies:
Book value........................ $3,994 $18,918 $-- $ -- $22,912
Weighted average yield............ 5.7% 5.7% -- -- 5.7%
State and political subdivisions:
Book value........................ 365 1,392 -- -- 1,757
Weighted average yield............ 5.9% 6.4% -- -- 6.3%
Other investment securities:
Book value........................ -- 150 -- 2,088 2,238
Weighted average yield............ -- 7.7% -- 6.5% 6.6%
-------------------------------------------
Total book value.................. $4,359 $20,460 $-- $2,088 $26,907
Weighted average yield............ 5.7% 5.8% -- 6.5% 6.2%
In addition to $3,509,000 in maturities during 2000, $252,000 in investments
were sold. During 2000, purchases of investment securities amounted to
$445,000. Those transactions were primarily responsible for the $2,704,000 or
9% decrease in the investment portfolio from December 31, 1999, to December 31,
2000. At December 31, 2000, approximately 85% of the investment portfolio
consisted of fixed rate U.S. Government and U.S. Government Agency securities.
The Corporation does not own any derivative investments and does not plan to
purchase any of those investments 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) 2000 1999 1998 1997 1996
--------------------------------------------
Real estate loans:
Permanent mortgage loans......... $135,777 $134,495 $110,535 $102,474 $ 95,588
Construction loans............... 10,642 14,398 13,204 13,647 7,639
Commercial and industrial loans.. 147,398 119,835 89,368 75,474 74,688
Consumer loans................... 61,189 70,211 68,078 76,963 81,512
--------------------------------------------
Total............................ $355,006 $338,939 $281,185 $268,558 $259,427
--------------------------------------------
The maturity distribution of the loan portfolio, excluding loans secured by
one-family residential property and consumer loans, at December 31, 2000, is
shown below.
Maturing
from
Maturing 2002 Maturing
during through after
(in thousands) 2001 2005 2005 Total
-----------------------------------
Commercial, financial, and agricultural... $78,767 $34,423 $34,208 $147,398
Real estate-construction.................. 8,268 2,374 -- 10,642
Real estate-other......................... 2,667 8,182 35,620 46,469
-----------------------------------
Total..................................... $89,702 $44,979 $69,828 $204,509
-----------------------------------
Interest sensitivity on the above loans:
Loans with predetermined rates............ $ 6,724 $29,916 $27,892 $ 64,532
Loans with adjustable or floating rates... 82,978 15,063 41,936 139,977
-----------------------------------
Total..................................... $89,702 $44,979 $69,828 $204,509
-----------------------------------
There are no scheduled prepayments on the loans included in the maturity
distributions.
23
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............ $ 36,083 $ 177 -- $ 36,260 $ -- $ -- $ -- $ --
Commercial............. 46,453 16 -- 46,469 -- -- -- --
Home equity............ 52,982 48 18 53,048 18 -- 18 --
-------------------------------------------------------------------------------------
Total permanent mortgage
loans.................. 135,518 241 18 135,777 18 -- 18 56
Construction mortgage
loans:
Residential............ 10,635 -- -- 10,635 -- -- -- --
Commercial............. 7 -- -- 7 -- -- -- --
-------------------------------------------------------------------------------------
Total construction
mortgage loans......... 10,642 -- -- 10,642 -- -- -- 7
-------------------------------------------------------------------------------------
Total real estate loans. 146,160 241 18 146,419 18 -- 18 63
Commercial and
industrial loans....... 147,366 32 -- 147,398 -- -- --
-------------------------------------------------------------------------------------
Total commercial and
industrial loans....... 147,366 32 -- 147,398 -- -- -- 1,193
-------------------------------------------------------------------------------------
Consumer loans:
Direct................. 8,377 33 7 8,417 7 -- 7 --
Indirect............... 45,680 302 53 46,035 53 -- 53 --
CreditLine............. 6,724 10 3 6,737 3 -- -- --
-------------------------------------------------------------------------------------
Total consumer loans.... 60,781 345 63 61,189 63 -- 63 248
Unallocated reserve for
loan loss.............. -- -- -- -- -- -- -- 2,816
-------------------------------------------------------------------------------------
Total................... $354,307 $ 618 $ 81 $355,006 $ 81 $ -- $ 81 $ 4,320
-------------------------------------------------------------------------------------
* 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
$81,000 includes the $81,000 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.
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, 2000 increased 5% to $355,006,000 from $338,939,000
as of December 31, 1999. In December 2000, the Bank participated in the Loan
Sale, amounting to $12,153,000. This Loan Sale reduced the outstanding loan
balance at year-end 2000 and is primarily responsible for the lower increase in
loan growth as of December 31, 2000 compared to previous years. Exclusive of
the Loan Sale, outstanding loans grew by 8% year-end to year-end.
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 $27,563,000 or 23% from $119,835,000 at December 31, 1999 to
$147,398,000 at December 31, 2000. Continued increased business development in
the Bank's commercial lending market area is the primary reason for this strong
growth.
Permanent mortgage loans, which consist of commercial and residential
mortgages, as well as home equity loans, increased by 1% or $1,282,000 during
2000, from $134,495,000 at December 31, 1999, to $135,777,000 at December 31,
2000. This growth was due primarily to a $9,925,000 or 38% increase in
residential mortgage loans, as the Bank decided to hold the outstanding
balances of residential mortgage loans until the opportunities to sell the
mortgages were more favorable. Commercial mortgage loans decreased by
$7,659,000, due primarily to a decrease in outstanding balances of $5,577,000
resulting from the Loan Sale. Home equity loans increased by $5,592,000 or 10%.
The Loan Sale also accounted for a $6,576,000 decrease in home equity loan
balances at December 31, 2000, compared to year-end 1999.
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, decreased $9,022,000
or 13%, from $70,211,000 at December 31, 1999, to $61,189,000 at December 31,
2000. A
24
$13,662,000 or 23% decrease in outstanding indirect automobile paper, from
$58,758,000 at December 31, 1999 to $45,096,000 at December 31, 2000, is
primarily responsible for this decrease. 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, 2000, the construction loan portfolio decreased by
$3,756,000 or 26%, from $14,398,000 at December 31, 1999, to $10,642,000 at
December 31, 2000. As of December 31, 1999 and 2000, the construction lending
portfolio had neither any 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 4% to $386,966,000 at December 31, 2000, from
$371,068,000 at year-end 1999. Short-term borrowings decreased by $10,000,000
from December 31, 1999 to December 31, 2000. A more meaningful measure of the
change in deposits and short-term borrowings is average daily balances. As
illustrated in Table 12, average daily deposit balances increased 5%. A change
in the mix of deposits, growing higher cost CD balances by 9% on average and
growth in average outstanding short-term borrowings, is primarily responsible
for a 22 basis point increase in the Bank's overall cost of funds, from 1.69%
for 1999 to 1.91% for 2000. However, strong growth in the Corporation's earning
assets, combined with three increases in the prime rate during 2000, increasing
the prime rate 100 basis points, are primarily responsible for a 21 basis point
increase in the Corporation's net interest margin, from 6.12% for 1999 to 6.33%
for 2000.
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) 2000 1999 2000 vs. 1999 1998 1999 vs. 1998
---------------------------------------------
Demand deposits, non-
interest-bearing....... $ 96,215 $ 92,098 4.5% $ 82,773 11.3%
---------------------------------------------
Market rate accounts.... 50,633 49,871 1.5 44,325 12.5
NOW accounts............ 100,158 93,769 6.8 85,317 9.9
Regular savings......... 41,350 40,865 1.2 40,143 1.8
---------------------------------------------
192,141 184,505 4.1 169,785 8.7
---------------------------------------------
Time deposits........... 70,819 65,000 9.0 61,503 5.7
---------------------------------------------
Total................... $359,175 $341,603 5.1% $314,061 8.8%
---------------------------------------------
The following table shows the maturity of certificates of deposit of $100,000
or greater as of December 31, 2000:
TABLE 13 - Maturity of Certificates of Deposit of $100,000 or Greater
(in thousands)
Three months or less................................................... $12,926
Three to six months.................................................... 1,379
Six to twelve months................................................... 3,319
Greater than twelve months............................................. 2,488
-------
Total.................................................................. $20,112
-------
Capital Adequacy
At December 31, 2000, total shareholders' equity of the Corporation was
$50,970,000, a $4,251,000 or 9% increase over $46,719,000 at December 31, 1999.
Increasing the capital was the addition of earnings, less dividends for the
year, as well as the increase in the market value of the investment securities
year to year. As of December 31, 2000, shareholders' equity included unrealized
losses on investment securities, net of deferred taxes, of $42,000 compared to
unrealized losses on investment securities, net of taxes, of $389,000 at
December 31, 1999. This change caused a $347,000 increase to shareholders'
equity from December 31, 1999 to December 31, 2000.
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 of credit and loan commitments, based on the
associated risk.
The Bank's risk-based capital ratios at December 31, 2000 and 1999 are listed
below. These ratios are all in excess of the minimum required capital ratios,
also listed below.
TABLE 14 - Risk-Based Capital Ratios
2000 1999
Minimum Minimum
Actual Required Actual Required
-----------------------------
Tier I capital ratio............................ 9.77% 4.00% 10.34% 4.00%
Total capital ratio............................. 10.91 8.00 11.54 8.00
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,
2000 and 1999, the Bank exceeded the levels required to meet the definition of
a "well-capitalized" bank. Management anticipates that the Corporation and the
25
Bank will continue to be in compliance with all capital requirements and
continue to be classified as "well-capitalized."
The change in the Bank's risk based capital ratios from December 31, 1999 to
December 31, 2000 is due to dividends from the Bank to the Corporation to fund
additional treasury stock repurchases and other capital needs.
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, 2000. It is the Bank's policy to promptly place non-
performing loans on nonaccrual 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, 2000.
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 loans were $81,000 at December 31, 2000, a 90% decrease from
$792,000 at December 31, 1999. There were no OREO properties on the Bank's
books as of December 31, 2000 or 1999.
Total non-performing 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, 2000.
TABLE 15 - Nonperforming Assets
December 31,
----------------------------
(in thousands) 2000 1999 1998 1997 1996
----------------------------
Loans past due 90 days or more not on nonaccrual
status:
Real estate-mortgage............................. $18 $ 19 $ 84 $ 72 $ 68
Consumer......................................... 63 53 56 27 51
Loans on which the accrual of interest has been
discontinued:
Commercial and industrial........................ -- -- -- 347 76
Real estate-mortgage............................. -- 720 353 723 712
Real estate-construction......................... -- -- -- -- --
----------------------------
Total nonperforming loans......................... 81 792 493 1,169 907
Other real estate owned and in-substance
foreclosed properties *.......................... -- -- 271 25 1,523
----------------------------
Total nonperforming assets........................ $81 $792 $764 $1,194 $2,430
----------------------------
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 $29,000 for the year ended December 31, 2000. Interest earned
and included in interest income on these loans prior to their nonperforming
status amounted to $4,000 in 2000.
* 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, impaired loans, and loans criticized by
the Bank's regulators. An independent consultant is 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. The sum of all analyzed loan components is
compared to the loan loss reserve balance, and any
26
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. The Bank, a state member bank of the Federal Reserve System and the
Pennsylvania Department of Banking, is also regulated and periodically examined
by both these entities. 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, 2000
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................. $ 262 $ -- $ 48 $ -- $ -- $ 12 $ 322
Federal funds sold..... 6,395 -- -- -- -- -- 6,395
Investment securities.. 69 -- 1,000 7,365 16,538 1,935 26,907
Loans.................. 109,597 9,358 15,522 29,508 191,021 (4,320) 350,686
Cash and due from
banks................. -- -- -- -- -- 34,656 34,656
Other assets........... -- -- -- -- -- 25,459 25,459
-----------------------------------------------------------------------
Total assets.......... $116,323 $ 9,358 $ 16,570 $ 36,873 $207,559 $ 57,742 $444,425
-----------------------------------------------------------------------
Liabilities and
shareholders' equity:
Demand, noninterest-
bearing............... $ 32,946 $ -- $ -- $ -- $ -- $ 82,684 $115,630
Savings deposits....... 7,032 14,064 21,096 42,194 117,048 -- 201,434
Time deposits.......... 17,901 10,718 10,076 20,163 11,044 -- 69,902
Other liabilities...... -- -- -- -- -- 6,489 6,489
Shareholders' equity... -- -- -- -- -- 50,970 50,970
-----------------------------------------------------------------------
Total liabilities and
shareholders' equity. $ 57,879 $ 24,782 $ 31,172 $ 62,357 $128,092 $140,143 $444,425
-----------------------------------------------------------------------
Gap..................... $ 58,444 $(15,424) $(14,602) $(25,484) $ 79,467 $(82,401) $ --
Cumulative gap.......... $ 58,444 $ 43,020 $ 28,418 $ 2,934 $ 82,401 $ -- $ --
Cumulative earning
assets as a ratio of
interest bearing
liabilities............ 201% 152% 125% 102% 127% -- --
27
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 2000, 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 Asset/Liability 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 2000, cash used by operations amounted to $2,569,000. This use was
primarily due to the net use of funds related to loan sale activity, which used
$8,884,000 of net funding in 2000, offsetting net income earned of $8,261,000
for 2000. Cash used for investing activities amounted to $6,609,000. Investment
activity provided $3,316,000 in cash, as the balance in the investment
portfolio decreased by 9% at December 31, 2000, compared to December 31, 1999.
The purchase of $15,556,000 in indirect automobile paper, partially offset by
net loan repayments of $7,621,000, of which indirect automobile repayments
exceeded the purchased amount, used $7,935,000 in funds during 2000. The cost
of premises' improvements and the purchase of equipment used $2,004,000.
Offsetting the decrease in funds from investing activities was an increase in
funds from the Bank's financing activities, which provided $1,338,000 in net
cash, primarily the result of a $24,216,000 net increase in outstanding non-
interest-bearing demand and savings related deposits, partially offset by a
$8,318,000 decrease in time deposits. The Bank also repaid $10,000,000, in
short-term borrowings to the FHLB.
The Corporation used $37,000 in repayment of its mortgage debt. The Corporation
received $76,000 in proceeds from the issuance of common stock, related to
stock option exercises and used $1,677,000 to repurchase common stock, pursuant
to the Stock Repurchase Program, and $2,922,000 to pay the dividends in 2000.
The Corporation's cash and cash equivalents decreased from December 31, 1999,
to December 31, 2000, by $7,840,000, from $49,213,000 at December 31, 1999 to
$41,373,000 at December 31, 2000.
1999 vs. 1998 Results of Operations
- --------------------------------------------------------------------------------
Net Income
Net income for the year ended December 31, 1999, was $7,961,000, a 16% increase
over net income of $6,857,000 for the year ended December 31, 1998. Basic
earnings per share rose from $1.58 in 1998 to $1.83 in 1999. Diluted earnings
per share were $1.51 for 1998 compared to $1.75 in 1999. In 1998, the
Corporation paid dividends of $0.465 per share. In 1999, the Corporation paid
dividends of $0.60 per share.
Return on average assets was 1.91% for 1998 compared to 1.99% in 1999. Return
on average equity was 17.06% in 1998 versus 17.97% in 1999.
Net Interest Income
Average earning assets grew 9%, primarily in higher yielding loans, which grew
by 13%. The growth in higher yielding earning assets was primarily responsible
for a $2,235,000 or a 9% rise in interest income.
Average outstanding deposits also increased by 9%, with low cost transaction
deposits and non-interest bearing checking accounts growing by 13% and 11%,
respectively. NOW accounts grew by 10%. This growth in low cost and non-
interest bearing demand deposits is the primary reason for a 2% or $119,000
decrease in interest expense from 1998 to 1999.
Net interest income increased 12% and the net interest margin increased from
5.99% for 1998 to 6.12% for 1999.
Loan Loss Provision
The provision for loan losses amounted to $150,000 for 1998 and was increased
to $250,000 for 1999. The allowance for possible loan losses as a percentage of
non-performing loans amounted to 832% and 556% as of
28
December 31, 1998 and 1999, respectively. The ratio of the allowance for
possible loan losses to total outstanding loans was 1.46% and 1.30% at December
31, 1998 and 1999, respectively.
Other Income
Other income increased $3,476,000 or 24% in 1999 from 1998 levels. The
Corporation acquired JWR&Co and CDC in January 1999 and established B M
Brokerage at year-end 1998 (the "New Companies"). Fees earned by the New
Companies amounted to $3,165,000 for 1999. No such fees were earned in 1998.
Fees for Investment Management and Trust services increased $512,000 or 6%. Net
gains on the sale of mortgage loans decreased $654,000 or 39%, due primarily to
a 45% decrease in the sale of residential mortgage loans to the secondary
mortgage market, from $134,676,000 in 1998 compared to $73,921,000 in 1999.
Other Expenses
Other expenses increased by $4,227,000 or 17% in 1999 over 1998. Regular
salaries increased $2,157,000 or 21%, due primarily to the addition of the New
Companies' staffs. Exclusive of these companies, regular salary expense
increased 10% in 1999, due primarily to merit increases and staffing additions
during 1999. Salaries-other, primarily incentive based, decreased $149,000 or
6%. The decrease was primarily related to Investment Management and Trust
incentive-based compensation.
Employee benefit costs increased by $426,000 or 22%. Of this increase, $119,000
relates to employee benefits costs associated with the New Companies. The cost
of the Corporation's pension plan increased $158,000, while social security and
medical insurance premiums grew by $76,000 and $45,000, respectively.
Occupancy expenses increased $536,000 or 39% in 1999, compared to 1998. The
largest increase relates to occupancy costs associated with two buildings
leased during 1999 by the Bank. These costs amounted to $294,000. The Bank also
received rental income from these buildings during 1999. The net cost of the
buildings for 1999 was $61,000. Occupancy costs associated with the New
Companies amounted to $182,000. No such expenses were incurred in 1998.
The $151,000 or 8% increase in furniture, fixtures and equipment expense was
primarily due to $46,000 in rental expense for office equipment, as some Bank
departments were relocated in anticipation of renovations within the main Bank
building.
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 of solicitation fees in 1999. No such fees were incurred in 1998.
Exclusive of these fees, professional fees decreased by $228,000 due to a
recovery of legal fees in 1999, related to a previously charged-off loan.
Stationery and supplies expense increased $54,000 or 15%, due primarily to
additional costs in 1999 for the production of new product brochures and
letterhead for the New Companies.
Insurance, including the Corporation's business coverage premiums and FDIC
deposit insurance premiums, increased by $160,000 or 75% in 1999 compared to
1998. FDIC insurance premiums remained level to 1998. The cost of the
Corporation's insurance coverage increased, partially reflecting the addition
of the New Companies, as well as expanded policy limits.
In January 1999, goodwill amounting to $3,477,000 was recorded on the
Corporation's books as a result of the acquisition of CDC and JWR&Co.
Amortization of $183,000 of goodwill was incurred during 1999. No such
amortization was incurred during 1998.
Other operating expenses increased $373,000 or 12% from 1998 to 1999. Included
in 1999's expense were expenses of the New Companies of $238,000. Exclusive of
these expenses, other operating expenses increased by 4% over 1998 levels.
Income Taxes
The income tax provision for 1999 was $3,879,000, or a 32.8% effective rate,
compared to $3,480,000, or a 33.7% effective rate, for 1998.
29
Consolidated Balance Sheets
(In thousands)
As of December 31 2000 1999*
------------------
Assets
Cash and due from banks................................... $ 34,656 $ 17,914
Interest-bearing deposits with other banks................ 322 13,793
Federal funds sold........................................ 6,395 17,609
Investment securities available for sale, at market value
(amortized cost of $26,971,000 and $30,201,000 at
December 31, 2000 and 1999, respectively)................ 26,907 29,611
Loans..................................................... 355,006 338,939
Less: Allowance for possible loan losses................. (4,320) (4,400)
------------------
Net loans............................................... 350,686 334,539
------------------
Premises and equipment, net............................... 12,394 11,880
Accrued interest receivable............................... 2,980 2,411
Goodwill.................................................. 2,970 3,294
Deferred federal income taxes............................. 772 1,441
Other assets.............................................. 6,343 4,328
------------------
Total assets............................................ $444,425 $436,820
------------------
Liabilities
Deposits:
Demand, noninterest-bearing.............................. $115,630 $ 98,790
Savings.................................................. 201,434 194,057
Time..................................................... 69,902 78,221
------------------
Total deposits.......................................... 386,966 371,068
------------------
Short term borrowings..................................... -- 10,000
Other liabilities......................................... 6,489 9,033
------------------
Total liabilities....................................... 393,455 390,101
------------------
Commitments and contingencies (Note 14)
Shareholders' equity
Common stock, par value $1, authorized, 25,000,000 shares,
issued 5,203,719 shares and 5,179,608 shares as of
December 31, 2000 and 1999, respectively, and outstanding
4,272,046 shares and 4,323,250 shares as of December 31,
2000 and 1999, respectively.............................. 5,204 5,180
Paid-in capital in excess of par value.................... 4,604 4,467
Accumulated other comprehensive loss net of deferred
income taxes............................................. (42) (389)
Retained earnings......................................... 50,488 45,149
------------------
60,254 54,407
------------------
Less: Common stock in treasury, at cost -- 931,673 and
856,358 shares at December 31, 2000 and 1999,
respectively............................................. (9,284) (7,688)
------------------
Total shareholders' equity.............................. 50,970 46,719
------------------
Total liabilities and shareholders' equity.............. $444,425 $436,820
------------------
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
30
Consolidated Statements Of Income
(in thousands, except for share and per share data)
For the years ended
December 31 2000 1999* 1998*
------------------------------------------------------
Net interest income:
Interest income:
Interest and fees on
loans................. $ 29,856 $ 25,724 $ 23,085
Interest on federal
funds sold............ 373 609 824
Interest and dividends
on investment
securities:
Taxable interest
income................ 1,512 1,702 1,864
Tax-exempt interest
income................ 108 183 224
Dividend income........ 136 99 85
------------------------------------------------------
Total interest income. 31,985 28,317 26,082
Interest expense on
deposits.............. 6,300 5,542 5,975
Interest expense on
federal funds
purchased............. 86 50 1
Interest expense on
other borrowings...... 686 265 --
------------------------------------------------------
Total interest
expense.............. 7,072 5,857 5,976
------------------------------------------------------
Net interest income..... 24,913 22,460 20,106
Loan loss provision..... 250 250 150
------------------------------------------------------
Net interest income
after loan loss
provision.............. 24,663 22,210 19,956
------------------------------------------------------
Other income:
Fees for investment
management and trust
services.............. 8,973 9,784 9,272
Service charges on
deposit accounts...... 1,144 1,156 1,169
Other fees and service
charges............... 1,024 1,016 950
Net gain on sale of
loans................. 1,240 1,028 1,682
Gain on sale of other
real estate owned..... 14 45 224
Fees earned from family
business office
services.............. 2,429 1,947 --
Investment advisory and
brokerage fees........ 957 1,218 --
Tax consulting fees.... 793 702 655
Insurance commission
income................ 191 326 188
Other operating income. 962 864 470
------------------------------------------------------
Total other income.... 17,727 18,086 14,610
------------------------------------------------------
Other expenses:
Salaries-regular....... 13,859 12,446 10,289
Salaries-other......... 1,043 2,226 2,375
Employee benefits...... 1,849 2,334 1,908
Occupancy expense...... 2,100 1,928 1,392
Furniture, fixtures,
and equipment......... 2,140 1,968 1,817
Advertising............ 1,235 1,290 1,283
Professional fees...... 1,667 1,148 811
Computer processing.... 556 560 569
Stationery and
supplies.............. 391 408 354
Insurance.............. 526 373 213
Goodwill amortization.. 324 183 --
Net (profit) cost of
operation of other
real estate owned..... (1) 8 7
Other operating
expenses.............. 4,007 3,584 3,211
------------------------------------------------------
Total other expenses.. 29,696 28,456 24,229
------------------------------------------------------
Income before income
taxes.................. 12,694 11,840 10,337
Applicable income taxes. 4,433 3,879 3,480
------------------------------------------------------
Net income.............. $ 8,261 $ 7,961 $ 6,857
------------------------------------------------------
Basic earnings per
share.................. $ 1.92 $ 1.83 $ 1.58
Diluted earnings per
share.................. $ 1.85 $ 1.75 $ 1.51
Weighted-average shares
outstanding............ 4,292,838 4,349,403 4,327,297
Dilutive potential
common shares.......... 161,408 193,915 225,708
------------------------------------------------------
Adjusted weighted-
average shares......... 4,454,246 4,543,318 4,553,005
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
31
Consolidated Statements Of Cash Flows
For the years ended December 31 2000 1999* 1998*
-----------------------------
Operating activities:
Net income..................................... $ 8,261 $ 7,961 $ 6,857
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses..................... 250 250 150
Provision for depreciation and amortization... 1,624 1,319 1,333
Loans originated for resale................... (80,621) (75,502) (132,175)
Proceeds from sale of loans................... 72,978 74,505 135,494
Net gain on sale of loans..................... (1,241) (1,028) (1,682)
Net gain on disposal of other real estate
owned........................................ (14) (45) (224)
Provision for deferred income taxes........... (490) (197) (20)
Change in income taxes payable/refundable..... (299) -- (405)
Change in accrued interest receivable......... (569) (342) (30)
Change in accrued interest payable............ (43) 179 207
Other......................................... (2,405) 1,057 496
-----------------------------
Net cash (used) provided by operating
activities.................................. (2,569) 8,157 10,001
-----------------------------
Investing activities:
Purchases of investment securities............. (445) (42,553) (36,683)
Proceeds from maturities of investment
securities.................................... 3,509 57,180 11,415
Proceeds from sales of investment securities
available for sale............................ 252 -- --
Proceeds from calls of investment securities... -- 6,000 15,002
Proceeds on disposition of other real estate
owned......................................... 14 45 249
Purchase of other real estate owned............ -- -- (271)
Captialization of costs of other real estate
owned......................................... -- (41) --
Net loan repayments (originations)............. 7,621 (21,728) 10,954
Purchase of automobile retail installment
contracts..................................... (15,556) (33,951) (26,206)
Cost of acquiring new subsidiaries............. -- (1,975) --
Purchases of premises and equipment............ (2,004) (1,104) (1,737)
-----------------------------
Net cash used in investing activities........ (6,609) (38,127) (27,277)
-----------------------------
Financing activities:
Change in demand and savings deposits.......... 24,216 14,216 11,705
Change in time deposits........................ (8,318) 14,495 1,846
Dividends paid................................. (2,922) (2,603) (2,012)
Repayment of mortgage debt..................... (37) (30) (26)
Proceeds from issuance of common stock......... 76 303 432
Proceeds from borrowed funds................... (10,000) 10,000 --
Purchase of treasury stock..................... (1,677) (2,530) (2,519)
-----------------------------
Net cash provided by financing activities.... 1,338 33,851 9,426
-----------------------------
Change in cash and cash equivalents............ (7,840) 3,881 (7,850)
Cash and cash equivalents at beginning of year. 49,213 45,332 53,182
-----------------------------
Cash and cash equivalents at end of year....... $ 41,373 $ 49,213 $ 45,332
-----------------------------
Supplemental cash flow information:
Cash paid during the year for:
Income taxes................................. $ 5,790 $ 2,300 $ 3,861
Interest..................................... 7,115 5,734 5,827
Non-cash investing activities:
Common stock issued for business acquisition:
Joseph W Roskos.............................. -- $ 2,000 --
CDC.......................................... -- 281 --
The accompanying notes are an integral part of the consolidated financial
statements.
*Reclassified for comparative purposes.
32
Consolidated Statements Of Changes In Shareholders' Equity
(in thousands, except for shares of common stock)
For the years ended Shares of Unrealized
December 31, 2000, 1999 Common Common Paid-in Retained Gains Treasury
and 1998 Stock issued Stock Capital Earnings (Losses) Stock
---------------------------------------------------------
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
$21,000................ -- -- -- -- 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)
Net income.............. -- -- -- 8,261 -- --
Dividends declared,
$0.68 per share........ -- -- -- (2,922) -- --
Change in unrealized
gains (losses), net of
income taxes of
$179,000............... -- -- -- -- 347 --
Tax benefit from gains
on stock option
exercise............... -- -- 196 -- -- --
Purchase of treasury
stock.................. -- -- -- -- -- (1,677)
Retirement of treasury
stock.................. (21,083) (21) (415) -- -- --
Common stock issued..... 45,194 45 356 -- -- --
---------------------------------------------------------
Balance, December 31,
2000................... 5,203,719 $5,204 $ 4,604 $50,488 $ (42) (9,284)
---------------------------------------------------------
Consolidated Statements Of Comprehensive Income
For the years ended December 31, 2000 1999 1998
----------------------
Net income............................................. $8,261 $7,961 $6,857
Other comprehensive income:
Unrealized holding gain (losses) arising during the
period............................................... 526 (741) 59
Deferred income tax benefit (expense) on unrealized
holding (losses) gains arising during the period..... (179) 252 (21)
----------------------
Comprehensive net income............................... $8,608 $7,472 $6,895
----------------------
The accompanying notes are an integral part of the consolidated financial
statements.
33
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
Counsellors of Bryn Mawr Inc. ("TCBM"), Insurance Counsellors of Bryn Mawr,
Inc. ("ICBM"), Bryn Mawr Brokerage Company, Inc. ("B M Brokerage"), CDC Capital
Management, Inc. ("CDC") Bryn Mawr Finance, Inc. ("B M Finance") 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 generally accepted
accounting principles 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 $5,460,000 and $3,106,000 at December 31,
2000 and 1999, 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, 2000, shareholders' equity was decreased
by $42,000 due to unrealized losses (net of $22,000 in deferred income tax
benefits) of $64,000 in the investment securities portfolio. As of December 31,
1999, shareholders' equity was decreased by $389,000 due to unrealized gains
(net of $201,000 in deferred income taxes) of $590,000 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 $10,000 and $720,000 at
December 31, 2000 and 1999, 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, 2000 and 1999, no impaired loans
were measured using
34
the present value of expected future cash flows or at the loan's market price.
Impaired loans measured by the fair value of the loan's collateral amounted to
$10,000 and $720,000, respectively.
If the loan valuation is less than the recorded value of the loan, an
impairment reserve is established for the difference. The impairment reserve
is established by either an allocation of the reserve for loan losses or by a
provision for loan losses, depending on the adequacy of the reserve for loan
losses. All impairment reserves established in either 2000 or 1999 were
allocated from the existing reserve for loan losses. As of December 31, 2000
there were no impaired loans for which there is a related allowance for loan
losses. As of December 31, 1999 there were $679,000 of impaired loans for
which there is a related allowance for loan losses. There was no related
allowance for loan loss on impaired as of December 31, 2000. The total related
allowance for loan loss on impaired loans at December 31, 1999 was $110,000.
Impaired loans for which no loan loss allowance was allocated amounted to
$10,000 and $41,000 at December 31, 2000 and 1999. Average impaired loans
during both 2000 and 1999 amounted to $337,000 and $1,088,000, 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 2000 or 1999. 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, $41,000 in loan balances considered impaired was removed from
impaired status during 2000 and $1,283,000 in loan balances were removed from
impaired status and returned to accrual status during 1999.
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, the 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.
Mortgage Servicing Rights:
An asset is recognized for mortgage servicing rights acquired through purchase
or origination. Capitalized amounts are amortized in proportion to and over
the period of estimated net servicing rights. When mortgage loans are sold
with servicing retained, the total cost of the mortgage loan is allocated to
the loans and the servicing rights, based on their fair values. The Bank
performs a periodic review for impairment of the fair value of outstanding
mortgage servicing rights.
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.
35
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 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 over the period of the expected benefit, which is 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 SFAS 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, 2000:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
---------------------------------------
Obligations of the U.S. Government
and agencies........................ $23,000 2 $90 $22,912
State & political subdivisions....... 1,753 5 1 1,757
Other securities..................... 2,218 20 -- 2,238
---------------------------------------
Total................................ $26,971 $27 $91 $26,907
---------------------------------------
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 & political subdivisions....... 3,230 4 15 3,219
Other securities..................... 1,954 14 -- 1,968
---------------------------------------
Total................................ $30,201 $18 $608 $29,611
---------------------------------------
At December 31, 2000, 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, 2000, 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.
2000
-------------------
Estimated
Amortized Market
(in thousands) Cost Value
-------------------
Due in one year or less..................................... $ 8,434 $ 8,430
Due after one year through five years....................... 16,538 16,458
Due after five years through ten years...................... -- --
Due after ten years......................................... -- --
Other securities............................................ 1,999 2,019
-------------------
Total....................................................... $26,971 $26,907
-------------------
There were sales of debt securities during 2000 of $252,478, there were no
sales in 1999 or 1998.
36
4. Loans:
Loans outstanding at December 31 are detailed by category as follows:
(in thousands) 2000 1999
------------------
Real estate loans:
Permanent mortgage loans.................................. $136,113 $134,960
Construction loans........................................ 10,717 14,496
Commercial and industrial loans............................ 147,398 119,835
Loans to individuals for household, family, and other
consumer expenditures..................................... 61,189 70,211
------------------
Subtotal.................................................. 355,417 339,502
------------------
Less: Allowance for loan losses............................ (4,320) (4,400)
Net deferred loan fees................................... (411) (563)
------------------
Loans, net................................................ $350,686 $334,539
==================
Unadvanced loan funds...................................... $126,522 $113,682
Loans with predetermined rates............................. 189,810 187,413
Loans with adjustable or floating rates.................... 165,196 151,526
------------------
Total..................................................... $355,006 $338,939
------------------
All loans past due 90 days or more, except consumer loans, are placed on
nonaccrual status. Nonperforming loans amounted to $81,000 and $792,000 at
December 31, 2000 and 1999, respectively. Forgone interest on nonaccrual loans
was $29,000, $121,000, and $230,000 in 2000, 1999, and 1998, respectively.
There was one impaired loan at December 31, 2000 in the amount of $10,000.
There were three impaired loans at December 31, 1999, amounting to $720,000.
During 2000, one loan amounting to $646,000 was paid off and no interest was
recorded on this loan. A loan amounting to $33,000 was charged off and a loan
amounting to $41,000 was returned to performing status, adding $4,000 to
interest income in 2000.
5. Allowance For Possible Loan Losses:
The summary of the changes in the allowance for possible loan losses is as
follows:
(in thousands) 2000 1999 1998
----------------------
Balance, January 1...................................... $4,400 $4,100 $4,074
Charge-offs............................................. (399) (197) (243)
Recoveries.............................................. 69 247 119
----------------------
Net charge-offs / recoveries............................ (330) 50 (124)
Loan loss provision..................................... 250 250 150
----------------------
Balance, December 31.................................... $4,320 $4,400 $4,100
----------------------
6. Premises and Equipment:
A summary of premises and equipment at December 31 is as follows:
(in thousands) 2000 1999
---------------
Land........................................................... $ 2,973 $ 2,973
Buildings...................................................... 12,703 11,439
Furniture and equipment........................................ 12,117 11,484
Leasehold improvements......................................... 529 494
---------------
28,322 26,390
Less accumulated depreciation.................................. 15,928 14,510
---------------
Total.......................................................... $12,394 $11,880
---------------
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
amounted to $1,489,000, $1,285,000 and $1,221,000, respectively. Future minimum
rent commitments under various operating leases are as follows:
2001................................................................. $ 223,000
2002................................................................. $ 223,000
2003................................................................. $ 223,000
2004................................................................. $ 248,000
2005................................................................. $ 248,000
Thereafter........................................................... $5,968,000
The leases contain options to extend for one 10 year period. The cost of such
rentals is not included in the above. Total rent expense for the years ended
December 31, 2000, 1999 and 1998 amounted to $273,000, $186,000,and $0,
respectively.
As of December 31, 2000, 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% in
2000 and 1999.
7. Deposits:
Following is a summary of deposits as of December 31,
2000 1999
-----------------
Regular savings.............................................. $ 40,171 $ 43,186
NOW accounts................................................. 111,087 98,834
Market rate accounts......................................... 50,176 52,037
Time deposits (less than $100,000)........................... 49,790 55,947
Time deposits, $100,000 or more.............................. 20,112 22,274
-----------------
Total interest bearing deposits.............................. 271,336 272,278
Non-interest bearing deposits................................ 115,630 98,790
-----------------
Total deposits............................................... $386,966 $371,068
-----------------
The aggregate amount of deposit overdrafts included as loans as of December 31,
2000 and 1999 were $3,369,040 and $160,787, respectively.
37
Maturity of certificates of deposit:
Less
$100,000 than
or more $100,000
----------------
Maturing during:
2001.......................................................... $17,624 $41,232
2002.......................................................... 2,488 7,210
2003.......................................................... -- 953
2004.......................................................... -- 242
2005 and thereafter........................................... -- 153
----------------
Total......................................................... $20,112 $49,790
----------------
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%, that matured in January, 2000. No such borrowings were outstanding as of
December 31, 2000. The lines of credit available at December 31, 2000 for the
purchase of Fed Funds totaled $26,500,000.
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 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
price, 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 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.
38
The carrying amount and estimated fair value of the Corporation's financial
instruments at December 31 are as follows:
2000 1999
--------------------------------------
Estimated
Carrying Fair Carrying Estimated
(in thousands) Amount Value Amount Fair Value
--------------------------------------
Financial assets:
Cash and due from banks................ $ 34,656 $ 34,656 $ 17,914 $ 17,914
Interest-bearing deposits with other
banks................................. 322 322 13,690 13,690
Federal funds sold..................... 6,395 6,395 17,609 17,609
Investment securities.................. 26,907 26,907 29,714 29,714
Net loans.............................. 351,108 353,184 334,539 337,071
--------------------------------------
Total financial assets................. $419,388 $ 421,464 $413,466 $ 415,998
--------------------------------------
Financial liabilities:
Deposits............................... $386,966 $ 387,049 $371,068 $ 370,704
Short term borrowings.................. -- -- 10,000 10,000
Other liabilities...................... 601 601 638 638
--------------------------------------
Total financial liabilities............ $387,567 $ 387,650 $381,706 $ 381,342
--------------------------------------
Off-balance sheet instruments........... $137,221 $ 137,221 $121,564 $ 121,564
--------------------------------------
10. Applicable Federal Income Taxes:
The components of the net deferred tax asset as of December 31 are as follows:
(in thousands) 2000 1999
-------------
Deferred tax assets:
Loan loss reserve............................................... $ 892 $ 790
Pension and other postretirement benefits....................... -- 307
Deferred compensation........................................... 22 257
Other reserves.................................................. 108 138
Unrealized depreciation on investment securities................ 22 201
-------------
1,044 1,693
Deferred tax liabilities:
Depreciation.................................................... (260) (252)
Pension and other postretirement benefits....................... (12) --
-------------
Total net deferred tax assets.................................... $ 772 $1,441
-------------
No valuation allowance was recorded as of December 31, 2000 and 1999.
The provisions for federal income taxes consist of the following:
(in thousands) 2000 1999 1998
----------------------
Currently payable........................................ $4,923 $4,076 $3,286
Deferred................................................. (490) (197) 194
----------------------
Total................................................... $4,433 $3,879 $3,480
----------------------
The sources of temporary differences resulting in deferred federal income taxes
and the approximate tax effect of each are as follows:
(in thousands) 2000 1999 1998
------------------
Other real estate owned.................................... $ -- $ -- $ --
Loan loss provision........................................ -- -- (51)
Depreciation............................................... -- -- (12)
Pension expense............................................ -- 11 (38)
Deferred loan fees......................................... -- -- 57
Other...................................................... -- (107) --
Change in deferred balance................................. (669) (354) --
Change in unrealized gain on investment securities......... 179 253 --
------------------
Total..................................................... $(490) $(197) $(20)
------------------
Applicable federal income taxes differed from the amount derived by applying
the statutory federal tax rate to income as follows:
(in thousands) 2000 1999 1998
----------------------
Computed tax expense @ stated rate..................... $4,316 $4,026 $3,515
Benefit reductions in taxes resulting from tax-exempt
income................................................ (121) (164) (334)
Income resulting from non-deductible goodwill.......... 110 62
Other, net............................................. 128 (45) 299
----------------------
Actual tax expense..................................... $4,433 $3,879 $3,480
----------------------
39
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 reconcilation of the changes in the plans'
benefits obligation and fair value of assets over the two-year period ending
December 31, 2000, and a statement of funded status as of December 31 of both
years:
Pension Postretirement
Benefits Benefits
----------------------------------
(in thousands) 2000 1999
----------------------------------
Reconciliation of Benefit Obligation and Plan Assets
- ----------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1............ $15,592 $14,746 $ 1,132 $ 1,327
Service cost............................... 733 927 7 7
Interest cost.............................. 1,123 1,078 108 83
Amendments -- 232 -- --
Actuarial (gain) loss...................... (553) (924) 320 (180)
Benefits paid.............................. (594) (468) (123) (105)
----------------------------------
Benefit obligation at December 31.......... $16,301 $15,591 $ 1,444 $ 1,132
----------------------------------
Change in plan assets
- ---------------------
Fair value of plan assets at January 1..... $23,376 $20,698 $ -- $ --
Actual return on plan assets............... (1,216) 3,146 -- --
Employer contribution...................... -- -- 123 105
Benefits paid.............................. (594) (468) (123) (105)
----------------------------------
Fair value of plan assets at December 31... $21,566 $23,376 $ -- $ --
----------------------------------
Funded Status Reconciliation and Key Assumptions
Pension Postretirement
Benefits Benefits
----------------------------------
2000 1999 2000 1999
----------------------------------
Reconciliation of funded status
Funded Status............................ $ 5,266 $ 7,785 $(1,444) $(1,132)
Unrecognized net actuarial (gain) loss... (5,598) (9,117) 533 247
Unrecognized prior service cost.......... 968 1,127 -- --
Unrecognized transition obligation
(asset)................................. -- -- 311 337
----------------------------------
Prepaid (accrued) benefit cost........... $ 636 $ (205) $ (600) $ (548)
----------------------------------
Amounts recognized in financial statements
consists of:
Prepaid benefit cost/(Accrued benefit
liability).............................. $ 636 $ (205) $ (600) $ (548)
Intangible asset......................... 17 9 -- --
----------------------------------
Net amount recognized.................... $ 619 $ (214) $ (600) $ (548)
----------------------------------
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 $1,028,667 as of December 31,
2000 and $1,383,952 as of December 31, 1999. 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 $1,444,133 as of December 31, 2000 and $1,132,282
as of December 31, 1999.
The assumptions used in the measurement of the Corporation's benefit obligation
are shown on the following table:
Pension Postretirement
Benefits Benefits
----------------------------
2000 1999 2000 1999
----------------------------
Weighted-average assumptions as of end of year
Discount rate................................... 7.65% 8.00% 7.50% 8.00%
Expected return on plan assets.................. 8.50% 8.50% N/A N/A
Rate of compensation increase................... 5.00% 5.00% N/A N/A
Medical trend rate.............................. N/A N/A N/A N/A
The assumed health care cost trend rate for 2000 and thereafter is 6%.
40
The following table provides the components of net periodic cost (income) for
the plans for years ended December 31, 2000, 1999 and 1998:
Postretirement
Pension Benefits Benefits
-----------------------------------------
2000 1999 1998 2000 1999 1998
-----------------------------------------
Service cost......................... $ 733 $ 927 $ 701 $ 7 $ 7 $ 9
Interest cost........................ 1,123 1,078 900 107 83 141
Expected return on plan assets....... (1,962) (1,739) (1,428) 0 0 0
Amortization of prior service cost... 158 158 52 0 0 0
Amortization of transition obligation
(asset)............................. 0 0 0 26 25 78
Amortization of net actuarial (gain)
loss................................ (895) (418) (375) 34 25 17
-----------------------------------------
Net periodic (benefit) cost.......... $ (843) $ 6 $ (150) $174 $140 $245
-----------------------------------------
1-Percentage 1-Percentage
Sensitivity Analysis, Postretirement Benefits Point Increase Point Decrease
-----------------------
Effect on total of service and interest cost
components...................................... $ 7,544 $ (6,906)
Effect on accumulated postretirement benefit
obligation...................................... 93,868 (86,648)
12. Stock Option Plan:
Since December 31, 1988, the Corporation has maintained 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 2000, 1999 and 1998, 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:
2000 1999 1998
--------------------
Net income--as reported................................... $8,261 $7,961 $6,857
Net income pro forma...................................... $8,037 $7,636 $6,373
Basic earnings per share--as reported..................... $ 1.92 $ 1.83 $ 1.58
Basic earnings per share--pro forma....................... $ 1.87 $ 1.76 $ 1.47
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 1998, 1999 and 2000: dividend yield of
3.25 percent, expected volatility of 17.5 percent, expected life of six years
and risk-free interest rates of 6.7, 7.1 and 6.5 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 shareholder's
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 3rd 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.
41
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:
Weighted
Shares Available Average
Under for Price per Exercise
Option Option Share Price
----------------------------------------
Balance at December 31, 1997......... 340,600 26,520 $ 4.50-$16.94 $ 8.26
Options authorized................. 0 217,606 -- --
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) -- $ 4.50-$24.50 $10.14
Options cancelled.................. (10,000) 10,000 $ 24.50-$26.44 --
----------------------------------------
Balance at December 31, 1999......... 429,280 83,326 $ 4.50-$26.44 $14.08
Options granted.................... 83,300 (83,300) $21.00-$ 21.50 $21.05
Options exercised.................. (38,000) -- $ 4.50-$16.91 $ 6.04
Options cancelled.................. (2,100) 2,100 $21.00-$ 21.50 --
----------------------------------------
Balance at December 31, 2000......... 472,480 2,126 $ 4.50-$26.44 $16.22
----------------------------------------
Information pertaining to options outstanding at December 31, 2000 is as
follows:
Weighted
Average Weighted Weighted
Shares Remaining Average Average
Price range of shares under Under Price per Contractual Exercise Number Exercise
option at December 31, 2000: Option Share Life Price Exercisable Price
------------------------------------------------------------
115,640 $ 4.50-$7.94 1.69 $ 7.83 115,640 $ 7.83
110,440 $8.00-$12.50 2.26 $ 8.77 110,440 $ 8.77
179,400 16.91-$24.50 8.17 $22.33 96,100 $22.33
67,000 $ 26.44 8.33 $26.44 67,000 $26.44
------------------------------------------------------------
Balance at December 31, 2000. 472,480 $4.50-$26.44 5.24 $16.22 -- --
The weighted-average fair value of options granted during 1998, 1999 and 2000
were $7.39, $6.31 and $4.51, respectively.
The number of exercisable shares at December 31, 1998, 1999 and 2000 were
388,480, 362,280 and 389,180, respectively, with respective weighted average
exercise prices of $12.25, $12.15 and $15.19.
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 $.05 per share, $.07 per share and $.11 per share dilutive effect
on earnings per share for the years ended December 31, 2000, 1999 and 1998,
respectively.
13. Related Party Transactions:
In the ordinary course of business, the Bank has granted loans to principal
officers, directors and their affiliates. Loan activity during 2000 and 1999
was as follows:
(in thousands) 2000 1999
--------------
Balance, beginning of year...................................... $3,937 $3,836
Additions....................................................... 683 627
Amounts collected............................................... (183) (526)
--------------
Balance, end of year............................................ $4,437 $3,937
--------------
Related party deposits amounted to $319,000 and $765,000 at December 31, 2000
and 1999, respectively.
42
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 recoginzed 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, 2000 are $126,522,000. 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 credits 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 $10,699,000. There were no outstanding
bankers acceptances as of December 31, 2000.
As of December 31, 2000, 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 could differ materially from currently reported values
in the near term.
43
16. Acqusitions:
Joseph W. Roskos & Co was acquired as of January 1, 1999. The transaction was
accomplished on April 1, 1999 under the purchase method of accounting. Goodwill
arising from this transaction was recorded on the balance sheet and is
presently being amortized on a straight line basis over a 20 year life.
Following is a description of the transaction.
Amount Paid
---------------------
Number
Total of Shares
Name of Company Method of Date of Purchase Common Issued or Amortization Amortized Amortized
Acquired: Accounting Acqusition Price Cash Stock Issuable Goodwill Period in 2000 in 1999
-----------------------------------------------------------------------------------------------------------
Joseph W. Roskos
& Co........... Purchase 01/01/99 $4,195,000 $2,195,000 $2,000,000 74,697 $3,300,000 20 Years $165,000 $165,000
CDC Capital Management, Inc. was acquired on January 6, 1999 for $281,000 in
Corporation stock. Goodwill of $177,000 was recorded on the Corporation's books
to be amortized over 10 years. Due to changes in the management of CDC Captial
Management, Inc. and the effect of lowering revenues, the remaining balance of
goodwill was written off in 2000.
Both companies were acquired to enhance the number of financial products and
services already offered by the Corporation. CDC Capital Management, Inc. is an
investment advisory management firm, allowing the Corporation to better
diversify its clients investments. Joseph W. Roskos & Co. is a firm which
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
rerquirements, 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 judgements 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 captial 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
captial 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, 2000 and 1999 that the
Corporation and the Bank have met all captial adequacy requirements to which
they are subject. Federal banking regulators have defined specific capital
categories, based on an insitiution'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)
captial ratio of 10% or better. Both the Corporation and the Bank have been
classified as "well capitalized" for both periods ending December 31, 2000 and
1999.
44
The Corporation's and the Bank's actual capital amounts and ratios as of
December 31, 2000 and 1999 are presented in the following table:
Minimum
Minimum Capital to be Well
Actual Requirement Capitalized
Amount
------------------------------
Amount Ratio Amount Ratio
---------------------------------------
December 31, 2000
Total (Tier II) Capital to
Risk Weighted Assets:
Consolidated................. $52,363 13.61% 8.0% N/A
The Bank..................... 41,240 10.91% $ 30,231 8.0% $37,789
Tier I Captial to Risk
Weighted Assets:
Consolidated................. 48,043 12.49% 4.0% N/A
The Bank..................... 36,920 9.77% 15,116 4.0% 22,674
Total Capital to Total Assets
(Leverage Ratio):
Consolidated................. 48,043 11.29% 4.0% N/A
The Bank..................... 36,920 8.86% 16,675 4.0% 20,844
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 Captial 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
18. Selected Quarterly Financial Data (unaudited):
Quarters ending 2000
---------------------------
(In thousands, except per share data) 3/31 6/30 9/30 12/31
---------------------------
Interest income.................................... $7,619 $7,897 $8,084 $8,385
Interest expense................................... 1,599 1,677 1,835 1,961
Net interest income................................ 6,020 6,220 6,249 6,424
Provision for loan losses.......................... 63 62 63 62
Income before income taxes......................... 2,945 2,851 3,445 3,453
Net income......................................... 1,960 1,707 2,303 2,291
Basic earnings per share........................... 0.45 0.40 0.54 0.54
Diluted earnings per share......................... 0.44 0.38 0.52 0.52
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
Basic earnings per share........................... 0.42 0.46 0.47 0.48
Diluted earnings per share......................... 0.40 0.44 0.45 0.46
*Reclassified for comparative purposes.
45
19. Condensed Financial Statements:
The condensed financial statements of the Corporation (parent company only).
Includes condensed balance sheets as of December 31, 2000 and 1999 and
condensed statements of income for each of the three years in the period ended
December 31, 2000 are as follows:
Condensed Balance Sheets
(in thousands) 2000 1999
----------------
Assets:
Cash........................................................ $ 1,044 $ 701
Investments in subsidiaries, at equity in net assets........ 43,848 39,381
Premises and equipment, net................................. 3,860 3,958
Goodwill.................................................... 2,970 3,294
Other assets................................................ 311 65
----------------
Total assets................................................ $52,033 $47,399
----------------
Liabilities and shareholders' equity:
Mortgages payable........................................... $ 601 $ 638
Other liabilities........................................... 462 42
----------------
Total liabilities........................................... 1,063 680
Common stock, par value $1, authorized 25,000,000 shares as
of December 31, 2000 and 1999, respectively, issued
5,203,719 shares and 5,179,608 shares as of December 31,
2000 and 1999, respectively, and outstandng 4,272,046 shares
and 4,323,250 shares as of December 31, 2000 and 1999,
respectively................................................ 5,204 5,180
Paid-in capital in excess of par value....................... 4,604 4,467
Unrealized investment depreciation, net of deferred income
taxes....................................................... (42) (389)
Retained earnings............................................ 50,488 45,149
Less common stock in treasury, at cost--931,673 shares and
856,358 shares as of December 31, 2000 and 1999............. (9,284) (7,688)
----------------
Total shareholders' equity.................................. 50,970 46,719
----------------
Total liabilities and shareholders' equity.................. $52,033 $47,399
----------------
Condensed Statements of Income
(in thousands) 2000 1999 1998
---------------------
Dividends from The Bryn Mawr Trust Company............... $9,646 $8,052 $4,012
Interest and other income................................ 236 241 236
---------------------
Total operating income.................................. 9,882 8,293 4,248
Expenses................................................. 1,008 730 677
---------------------
Income before equity in undistributed income of
subsidiaries............................................ 8,874 7,563 3,571
Equity in undistributed (losses) income of subsidiaries.. (765) 294 3,136
---------------------
Income before income taxes............................... 8,109 7,857 6,707
Federal income tax benefit............................... 152 104 150
---------------------
Net income............................................... $8,261 $7,961 $6,857
---------------------
Condensed Statements of Cash Flows
(in thousands) 2000 1999 1998
-------------------------
Operating activities:
Net income......................................... $ 8,261 $ 7,961 $ 6,857
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income (losses) of
subsidiaries...................................... 765 (294) (3,134)
Depreciation expense............................... 99 98 99
Amortization of goodwill........................... 324 183 --
Other.............................................. 339 629 (3)
-------------------------
Net cash provided by operating activities.......... 9,788 8,577 3,819
Investing Activities:
Cost of acquiring subsidiaries..................... -- (2,195) --
Investment in Subsidiaries......................... (4,885) (1,041) (440)
-------------------------
Net cash used by investing activities.............. (4,885) (3,236) (440)
Financing activities:
Dividends paid..................................... (2,922) (2,603) (2,012)
Repayment of mortgage debt......................... (37) (30) (26)
Repurchase of treasury stock....................... (1,677) (2,531) (2,519)
Proceeds from issuance of stock.................... 76 303 432
-------------------------
Net cash used by financing activities.............. (4,560) (4,861) (4,125)
-------------------------
Change in cash and cash
equivalents........................................ 343 480 (746)
Cash and cash equivalents at beginning of year...... 701 221 967
-------------------------
Cash and cash equivalents at end of year............ $ 1,044 $ 701 $ 221
-------------------------
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, 2000, the Bank's
retained earnings amounted to $30,331,000. Therefore, as of December 31, 2000,
dividends available for payment to the Corporation are limited to $30,331,000.
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
equal to the limits placed on the Bank, as discussed above.
46
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 Banks 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, 2000, 1999, and 1998 is as
follows:
2000 1999*
Mortgage All Mortgage All
(in thousands) Banking Trust Banking Other Consolidated Banking Trust Banking Other Consolidated Banking
Net interest
income......... $ 24,684 $ -- $ 216 $ 17 $ 24,917 $ 22,310 $ -- $ 145 $ 5 $ 22,460 $ 20,052
Less loan loss
provision...... 250 -- -- -- 250 250 -- -- -- 250 150
Net interest
income after
loan loss
provision...... 24,434 -- 216 17 24,667 22,060 -- 145 5 22,210 19,902
Other income:
Fees for
investment
management and
trust services. -- 8,973 -- -- 8,973
Service charges
on deposit
accounts....... 1,144 -- -- -- 1,144 -- 9,784 -- -- 9,784 --
Other fees and
service
charges........ 295 -- 729 -- 1,024 1,156 -- -- -- 1,156 1,169
Net gain on sale
of loans....... 8 -- 1,232 -- 1,240 254 -- 762 -- 1,016 249
Gain on sale of
other real
estate owned... 14 -- -- -- 14 44 -- 984 -- 1,028 35
Other operating
income......... 925 -- -- 4,789 5,714 908 -- -- 4,568 5,476 487
Total other
income......... 2,386 8,973 1,961 4,789 18,109 2,407 9,784 1,746 4,568 18,505 2,164
Other expenses:
Salaries-
regular........ 7,826 3,175 538 2,320 13,859 7,251 2,852 469 1,874 12,446 6,489
Salaries-other.. 750 211 30 52 1,043 1,754 230 78 184 2,246 1,692
Fringe benefits. 850 616 70 313 1,849 1,474 565 80 215 2,334 1,232
Occupancy....... 3,401 472 142 502 4,517 3,090 476 149 456 4,171 2,785
Other operating
expenses....... 5,505 880 334 2,095 8,814 4,694 948 310 1,726 7,678 4,537
Total other
expenses....... 18,332 5,354 1,114 5,282 30,082 18,263 5,071 1,086 4,455 28,875 16,735
Segment profit
(loss)......... 8,488 3,619 1,063 (476) 12,694 6,204 4,713 805 118 11,840 5,331
Intersegment
(revenues)
expenses....... 176 181 -- (319) -- 176 181 -- (357) -- 38
Segment profit
(loss) after
eliminations... $ 8,626 $3,800 $ 1,063 $ (795) $ 12,694 $ 6,380 $4,894 $ 805 $ (239) $ 11,840 $ 5,369
% of segment
profit (loss).. 68% 30% 8% (6)% 100% 54% 41% 7% (2)% 100% 52%
Total assets at
December 31.... $392,028 $ 457 $38,123 $13,817 $444,425 $398,546 $ 413 $27,337 $10,524 $436,820 $369,556
Capital
expenditures... $ 2,108 $ 47 $ 16 $ 359 $ 2,530 $759 $ 95 $ 14 $ 236 $ 1,104 $ 2,108
Depreciation and
amortization... $ 1,314 $ 153 $ 34 $ 520 $ 2,021 $693 $ 162 $ 29 $ 435 $ 1,319 $ 1,146
1998*
--------------------------------------
Mortgage All
(in thousands) Trust Banking Other Consolidated
--------------------------------------
Net interest
income......... $ -- $ 51 $ 3 $ 20,106
Less loan loss
provision...... -- -- -- 150
--------------------------------------
Net interest
income after
loan loss
provision...... -- 51 3 19,956
Other income:
Fees for
investment
management and
trust services.
Service charges
on deposit
accounts....... 9,272 -- -- 9,272
Other fees and
service
charges........ -- -- -- 1,169
Net gain on sale
of loans....... -- 701 -- 950
Gain on sale of
other real
estate owned... -- 1,647 -- 1,682
Other operating
income......... -- -- 1,079 1,566
--------------------------------------
Total other
income......... 9,272 2,348 1,079 14,863
Other expenses:
Salaries-
regular........ 2,863 417 520 10,289
Salaries-other.. 386 117 180 2,375
Fringe benefits. 549 74 53 1,908
Occupancy....... 422 62 188 3,457
Other operating
expenses....... 898 400 618 6,453
--------------------------------------
Total other
expenses....... 5,118 1,070 1,559 24,482
--------------------------------------
Segment profit
(loss)......... 4,154 1,329 (477) 10,337
Intersegment
(revenues)
expenses....... 181 -- (219) --
--------------------------------------
Segment profit
(loss) after
eliminations... $4,335 $ 1,329 $ (696) $ 10,337
--------------------------------------
% of segment
profit (loss).. 42% 13% (7)% 100%
Total assets at
December 31.... $ 455 $16,532 $5,297 $391,840
Capital
expenditures... $ 370 $ 93 $ 30 $ 2,601
Depreciation and
amortization... $ 139 $ 16 $ 106 $ 1,407
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., Joseph W. Roskos & Company and Bryn Mawr Finance, Inc. have
all been aggregated in All Other.
*Reclassified for comparative purposes.
47
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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. 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 of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 18, 2001
48