SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934.
For Quarter ended June 30, 1997 Commission File Number
------------- 0-15261
-------
Bryn Mawr Bank Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2434506
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
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(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code (610) 525-1700
---------------
Not Applicable
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Former name, former address and fiscal year, if changed since last report.
Indicate by check whether the registrant (1) has filed all reports to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No _____
-----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at August 4, 1997
- -----------------------
Common Stock, par value $1 2,201,265
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED June 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the Six
Months Ended June 30, 1997 and 1996................Page 1
Consolidated Statements of Income for the Three
Months Ended June 30, 1997 and 1996................Page 2
Consolidated Balance Sheets as of June 30, 1997,
December 31, 1996 and June 30, 1996................Page 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996................Page 4
Notes to Consolidated Financial Statements..............Page 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....Page 10
PART II - OTHER INFORMATION..................................Page 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
Six Months Ended
June 30
1997 1996
-------- --------
INTEREST INCOME:
Interest and fees on loans................................................................ $ 10,838 $ 10,413
Interest on federal funds sold............................................................ 482 184
Interest on interest bearing deposits with banks.......................................... 6 2
Interest and dividends on investment securities:
U.S. Treasury securities................................................................ 396 818
U.S. Government Agency securities....................................................... 456 335
Obligations of states and political subdivisions........................................ 161 220
Dividend income......................................................................... 41 40
------- --------
Total interest and dividend income. ......................................................... 12,380 12,012
Interest expense on deposits................................................................. 3,458 3,271
------- --------
Net interest income.......................................................................... 8,922 8,741
Loan loss provision.......................................................................... 100 200
------- --------
Net interest income after loan loss provision................................................ 8,822 8,541
------- --------
OTHER INCOME:
Fees for Trust services................................................................... 3,762 2,975
Service charges on deposits............................................................... 557 556
Other service charges, commissions and fees............................................... 509 516
Net gain on sale of loans................................................................. 171 163
Net gain on sale of other real estate owned............................................... 94 1,075
Other operating income.................................................................... 400 476
------- --------
Total other income........................................................................... 5,493 5,761
------- --------
OTHER EXPENSES:
Salaries and wages........................................................................ 4,866 4,269
Employee benefits......................................................................... 907 1,060
Occupancy and bank premises............................................................... 686 787
Furniture, fixtures, and equipment........................................................ 770 537
Other operating expenses.................................................................. 2,833 3,137
------- --------
Total other expenses......................................................................... 10,062 9,790
------- --------
Income before income taxes................................................................... 4,253 4,512
Applicable income taxes...................................................................... 1,405 1,480
------- --------
Net Income................................................................................... $ 2,848 $ 3,032
======= ========
Earnings per average common share:
Net income................................................................................. $1.24 $1.34
Cash dividends declared.................................................................... $0.36 $0.62
Average number of shares outstanding including common stock equivalents ..................... 2,295,595 2,263,532
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
Form 10-Q
Page 1
FINANCIAL STATEMENTS
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands*)
Unaudited
Three Months Ended
June 30
1997 1996
------- --------
INTEREST INCOME:
Interest and fees on loans.................................................................. $ 5,471 $ 5,364
Interest on federal funds sold.............................................................. 251 24
Interest on interest bearing deposits with banks............................................ 4 1
Interest and dividends on investment securities:
U.S. Treasury securities.................................................................. 177 376
U.S. Government Agency Securities......................................................... 252 167
Obligations of states and political subdivisions.......................................... 78 98
Dividend income........................................................................... 22 23
------- --------
Total interest income.......................................................................... 6,255 6,053
Interest expense on deposits................................................................... 1,776 1,592
------- --------
Net interest income........................................................................... 4,479 4,461
Loan loss provision........................................................................... 50 75
------- --------
Net interest income after loan loss provision.................................................. 4,429 4,386
------- --------
OTHER INCOME:
Fees for Trust services..................................................................... 1,849 1,530
Service charges on deposits................................................................. 287 267
Other service charges, commissions and fees................................................. 263 187
Net gain on sale of loans................................................................... 104 62
Net gain on sale of other real estate owned................................................. 93 1
Other operating income...................................................................... 206 275
------- --------
Total other income............................................................................. 2,802 2,322
------- --------
OTHER EXPENSES:
Salaries and wages.......................................................................... 2,441 2,147
Employee benefits........................................................................... 429 548
Occupancy and bank premises................................................................. 338 372
Furniture, fixtures, and equipment.......................................................... 395 315
Other operating expenses.................................................................... 1,553 1,411
------- --------
Total other expenses........................................................................... 5,156 4,793
------- --------
Income before income taxes..................................................................... 2,075 1,915
Applicable income taxes........................................................................ 685 640
------- --------
Net Income..................................................................................... $ 1,390 $ 1,275
======= ========
Earnings per average common share:
Net income.................................................................................. $0.60 $0.56
Cash dividends declared..................................................................... $0.18 $0.15
Average number of shares outstanding including common stock equivalents........................ 2,297,574 2,264,341
The accompanying notes are an integral part of the consolidated financial
statements.
* Except for share and per share data.
Form 10-Q
Page 2
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
June 30, December 31, June 30,
1997 1996 1996
(Unaudited) (Unaudited)
----------------------------------------------------
ASSETS
Cash and due from banks................................................. $ 23,906 $ 26,717 $ 21,528
Interest bearing deposits with banks.................................... 84 121 97
Federal funds sold...................................................... 12,300 11,616 0
Investment securities available for sale, at
market (amortized cost of $37,729, $34,748 and $44,396 as of
June 30, 1997, December 31, 1996 and June 30, 1996,
respectively)........................................................ 37,703 34,747 44,334
Loans:
Consumer............................................................. 80,830 81,512 75,711
Commercial........................................................... 72,023 74,688 69,213
Real Estate.......................................................... 107,631 103,227 113,956
-------- -------- -------
Total loans...................................................... 260,484 259,427 258,880
Less: Allowance for possible loan losses............................. (4,272) (4,182) (4,159)
-------- -------- -------
Net loans........................................................ 256,212 255,245 254,721
-------- -------- -------
Premises and equipment, net............................................. 11,277 11,334 11,549
Accrued interest receivable............................................. 1,979 2,164 2,500
Other real estate owned................................................. 1,411 1,523 1,386
Other assets............................................................ 2,163 2,280 2,367
-------- -------- -------
Total assets..................................................... $ 347,035 $ 345,747 $ 338,482
======== ======== =======
LIABILITIES
Deposits:
Demand, noninterest-bearing.......................................... $ 74,100 $ 81,865 $ 72,226
Savings.............................................................. 152,347 162,440 160,363
Time................................................................. 78,176 58,878 58,159
-------- -------- -------
Total deposits................................................... 304,623 303,183 290,748
-------- -------- -------
Borrowed funds.......................................................... 0 0 8,700
Other liabilities....................................................... 4,675 6,756 5,710
-------- -------- -------
Total liabilities................................................ 309,298 309,939 305,158
-------- -------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $1; authorized 5,000,000
shares; issued 2,510,085, 2,503,885 and 2,493,200 shares
as of June 30, 1997, December 31, 1996 and June 30, 1996,
respectively and outstanding of 2,201,265, 2,201,065 and
2,190,380 shares as of June 30, 1997, December 31, 1996
and June 30, 1996, respectively...................................... 2,510 2,504 2,493
Paid-in capital in excess of par value.................................. 4,533 4,445 4,363
Unrealized investment appreciation
(depreciation) net of deferred income taxes.......................... (17) (1) (41)
Retained earnings....................................................... 32,454 30,399 28,048
-------- -------- -------
39,480 37,347 34,863
Less: Common stock in treasury at cost -- 308,820 shares as of
June 30, 1997 and 302,820 shares as of December 31, 1996
and June 30, 1996.................................................... (1,743) (1,539) (1,539)
-------- -------- -------
Total shareholders' equity........................................... 37,737 35,808 33,324
-------- -------- -------
Total liabilities and shareholders' equity........................... $ 347,035 $345,747 $ 338,482
======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
Form 10-Q
Page 3
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Unaudited
Six Months Ended
June 30
------------------------------------
1997 1996
-------------- -----------------
OPERATING ACTIVITIES:
Net Income..................................................................... $ 2,848 $ 3,032
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for loan losses.................................................... 100 200
Provision for depreciation and amortization.................................. 548 538
Gain on sale of other real estate owned...................................... (94) (1,075)
Loans originated for resale.................................................. (21,610) (35,184)
Proceeds from loans sold..................................................... 23,001 21,996
Gain on sale of loans........................................................ (171) (163)
Increase (reduction) in deferred income taxes................................ 37 (40)
Decrease (increase) in interest receivable................................... 185 (37)
Increase in interest payable................................................. 73 831
Other........................................................................ (268) (1,382)
---------- ----------
Net cash (used) provided by operating activities........................... 4,649 (11,284)
---------- ----------
INVESTING ACTIVITIES:
Purchases of investment securities............................................. (18,007) (4,066)
Proceeds from maturity of fixed income securities.............................. 15,027 12,965
Loan repayments, net of loan originations...................................... 15,514 8,609
Loans purchased (dealer loans)................................................. (17,801) (18,478)
Purchases of premises and equipment............................................ (493) (213)
Proceeds from disposition of other real estate owned........................... 203 3,482
Capitalization of costs of other real estate owned............................. 3 0
---------- ----------
Net cash (used) provided by investing activities............................ (5,554) 2,299
---------- ----------
FINANCING ACTIVITIES:
Net decrease in demand and savings deposits.................................... (17,858) (9,879)
Net increase (decrease) in time deposits....................................... 19,298 (16,974)
Net increase in borrowed funds................................................. 0 8,700
Dividends paid................................................................. (793) (1,358)
Repayment of mortgage debt..................................................... (1,796) (31)
Purchases of treasury stock.................................................... (204) 0
Proceeds from issuance of common stock......................................... 94 0
---------- ----------
Net cash used by financing activities....................................... (1,259) (19,542)
---------- ----------
Decrease in cash and cash equivalents.......................................... (2,164) (28,527)
Cash and cash equivalents at beginning of period............................... 38,454 44,653
---------- ----------
Cash and cash equivalents at end of period..................................... $ 36,290 $ 16,126
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid........................................................... $ 1,303 $ 1,740
Interest paid............................................................... $ 3,385 $ 2,440
The accompanying notes are an integral part of the consolidated financial
statements.
Form 10-Q
Page 4
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
1. Unaudited Interim Results:
The consolidated balance sheets of Bryn Mawr Bank Corporation (the
"Corporation") as of June 30, 1997 and 1996, the consolidated statements of cash
flows for the six month periods ended June 30, 1997 and 1996 and the related
consolidated statements of income for the six and three month periods ended June
30, 1997 and 1996 are unaudited.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of related revenue and expense during the
reporting period. Actual results could differ from those estimates. Management
believes that all adjustments, accruals and elimination entries necessary for
the fair presentation of the consolidated financial position and results of
operations for the interim periods presented have been made. All such
adjustments were of a normal recurring nature. The year-end balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in the Corporation's 1996 Annual Report
incorporated in the 1996 Form 10-K (Exhibit #13).
2. Earnings Per Common Share:
Reference is made to Note #10, Stock Option Plan (the "Plan"), in the Notes
to Consolidated Financial Statements in the Corporation's 1996 Annual Report
incorporated in the 1996 Form 10-K (Exhibit #13). Shares under option under the
Plan had a dilutive impact on net income per share for the six and three month
periods ended June 30, 1997 and 1996.
3. Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest bearing deposits with banks and federal funds sold.
4. Adoption of Financial Accounting Standards:
During the first quarter of 1996, the Corporation adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS No. 122".) SFAS No. 122 requires the recognition of separate
assets relating to the rights to service mortgage loans for others based on
their fair value, if it is practicable to estimate the value. The adoption of
SFAS No. 122 did not have a material impact on the financial position or results
of operations of the Corporation.
Also, during the first quarter of 1996, the Corporation adopted Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). SFAS No. 123 provides an alternative method of
accounting for stock based compensation arrangements, based on fair value
Form 10-Q
Page 5
of the stock based compensation determined by an option pricing model utilizing
various assumptions regarding the underlying attributes of the options and the
Corporation's stock, rather than the existing method of accounting for stock
based compensation which is provided in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). The Financial
Accounting Standards Board encourages entities to adopt the fair value based
method, but does not require the adoption of this method at this time. For
those entities that continue to apply APB No. 25, proforma disclosure of the
effect of SFAS No. 123, if adopted, on net income and earnings per share was
required in the 1996 financial statements. Reference is made to Note 10, Stock
Option Plan, in the notes to the consolidated Financial Statements in the
Corporation's Annual Report for the disclosure of the effect of SFAS No. 123 on
the Corporation's earnings per share. The Corporation has determined to
continue to apply APB 25 and, therefore, there will be no material impact on the
financial position and results of operations.
In January 1997, the Corporation adopted Statement of Financial Accounting
Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities", ("SFAS No. 125"). SFAS No. 125, which was
adopted prospectively, provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
the concept of control. The adoption of SFAS No. 125 did not have a material
impact on the financial position or results of operation of the Corporation.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earning per Share", ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. SFAS No. 128 requires the presentation of both basic earnings per
share and, when not antidilutive, diluted earnings per share. Basic earnings
per share is computed by dividing net income by the weighted-average number of
common shares outstanding during the period. Dilutive earnings per share is
computed in a manner similar to basic earnings per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive common shares had been issued.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15-Earnings
per share and is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Early application is not permitted.
Had SFAS No. 128 been in effect at June 30, 1997, the earnings per share
computation would have been as follows:
six months ended three months ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ---------- ------
Earnings per common share $1.29 $1.38 $ .63 $ .58
Earnings per common share-
assuming dilution $1.24 $1.34 $ .60 $ .56
5. Loans:
Interest income on loans performing satisfactorily is recognized on the
accrual method of accounting. Nonperforming loans are loans on which scheduled
principal and/or interest is past due 90 days or more or loans less
Form 10-Q
Page 6
than 90 days past due which are deemed to be problem loans by management. All
nonperforming loans, except consumer loans, are placed on nonaccrual status, and
any outstanding interest receivable at the time the loan is deemed nonperforming
is deducted from interest income. The charge-off policy for all loans,
including nonperforming and impaired loans, consider such factors as the type
and size of the loan, the quality of the collateral, and historical
creditworthiness of the borrower in management's assessment of the
collectibility of such loans.
In May 1993, Statement of Financial Accounting Standards NO. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114"), was issued. Under the
requirements of SFAS No. 114, a loan is considered to be impaired when it is
probable that all amounts will not be collected in accordance with the terms of
the loan agreement. SFAS No. 114 was subsequently amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan- Income Recognition and Disclosure" ("SFAS No. 118"), to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan. The adoption of SFAS No. 114 and No. 118 was required in the first
quarter of 1995.
As a part of its internal loan review process, management, when considering
making a loan an impaired loan, considers a number of factors, such as a
borrower's financial strength, the value of related collateral and the ability
to continue to meet the original contractual terms of a loan. Major risk
classifications, used to aggregate loans for application of SFAS No. 114 include
both credit and the risk of failure to repay a loan and concentration risk. A
loan is not considered impaired if there is merely an insignificant delay or
shortfall in the amounts of payments. An insignificant delay or shortfall is a
temporary delay in the payment process of a loan. However, under these
circumstances, the Bank expects to collect all amounts due, including interest
accrued at the contractual interest rate for the period of the delay.
When a borrower is deemed to be unable to meet the original terms of a loan, the
loan is considered impaired. While all impaired loans are not necessarily
considered non-performing loans, if a loan is delinquent for 90 days or more, it
is considered both a nonperforming and impaired loan. All of the Corporation's
impaired loans, which amounted to $4,055,000, $2,069,000 and $1,172,000 at June
30, 1997, December 31, 1996 and June 30, 1996, respectively, were put on a
nonaccrual status and any outstanding accrued interest receivable on such loans
at the time they were put on nonaccrual status, was reversed from income.
Under SFAS No. 114, impaired loans subject to the statement are required to be
measured based upon the present value of expected future cash flows, discounted
at the loan's initial effective interest rate or at the loan's market price
or fair value of the collateral, if the loan is collateral dependent. As of
June 30, 1997, December 31, 1996 and June 30, 1996, impaired loans measured
using the present value of future cash flows amounted to $153,000, $162,000, and
$252,000, respectively. Impaired loans measured by the value of the loan's
collateral amounted to $3,902,000, $1,904,000, and $920,000, respectively.
If the loan valuation is less than the recorded value of the loan, an impairment
reserve must be established for the difference. The impairment reserve is
established by either an allocation of the reserve for loan losses or by a
provision for loan losses, depending on the adequacy of the reserve for loan
losses. All impairment reserves established in either 1997 or 1996 were
allocated from the existing reserve for loan losses. As of June 30, 1997,
December 31, 1996 and June 30, 1996, there were $1,002,000, $1,381,000
Form 10-Q
Page 7
and $252,000, respectively of impaired loans for which there is a related
allowance for loan losses. The total related allowance for loan loss at June
30, 1997, December 31, 1996 and June 30, 1996 was $197,000, $191,000 and
$184,000, respectively. Impaired loans for which no loan loss allowance was
allocated amounted to $3,053,000, $688,000 and $920,000 at June 30, 1997,
December 31, 1996 and June 30, 1996, respectively. Average impaired loans
during the first six months of 1997 and 1996, respectively, amounted to
$2,081,000 and $1,150,000, compared to $2,237,000 for the twelve months ended
December 31, 1996.
While SFAS No. 118 permits existing income recognition practices to continue,
when a loan is classified as impaired, it is put on a nonaccrual status and any
income subsequently collected is credited to the outstanding principal balance.
Therefore, no interest income was reported on outstanding loans while considered
impaired during either six month period ended June 30, 1997 or 1996. No loans
considered impaired since the adoption of SFAS No. 114 and SFAS No. 118 have
been removed from the impaired loan status. 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.
Smaller balance, homogeneous loans, exclusively consumer loans, when included in
nonperforming loans, for practical consideration, are not put on a nonaccrual
status nor is the current accrued interest receivable reversed from income. The
adoption of SFAS No. 114 and SFAS No. 118 did not have a material impact on the
financial position or results of operations of the Corporation nor do they
materially impact the comparability of the credit risk tables under Industry
Guide 3.
Form 10-Q
Page 8
6. Allowance for Possible Loan Losses:
The summary of changes in the allowance is as follows:
Six Months ended Year ended
June 30, December 31,
1997 1996 1996
----------------- --------
Balance, Beginning of period $4,182 $3,652 $3,652
------- ------- --------
Charge-offs:
Consumer (71) (102) (180)
Commercial and industrial 0 0 (84)
Real estate (5) 0 (4)
------- ------- --------
Total charge-offs (76) (102) (268)
------- ------- --------
Recoveries:
Consumer 14 27 36
Commercial and industrial 46 374 404
Real estate 6 8 8
------- ------- --------
Total recoveries 66 409 448
------- ------- --------
Net (charge-offs) / recoveries (10) 307 180
Provision for loan losses 100 200 350
------- ------- --------
Balance, End of period $4,272 $4,159 $4,182
======= ======= ========
Form 10-Q
Page 9
ITEM 2.
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The realization of a $1,073,000 pre-tax gain from the sale of a commercial
property (the "Nonrecurring Gain") in The Bryn Mawr Trust Company's (the
"Bank's") other real estate owned ("OREO"), was primarily responsible for the
large increase in net income in the first six months of 1996 compared to the
first six months of 1997. Exclusive of this pre-tax Nonrecurring Gain and
certain non-recurring expense items (the "Nonrecurring Expenses"), adding
$545,000 to net income for the first six months of 1996, net income for the six
months ended June 30, 1997 was 15% ahead of net income for the six months ended
June 30, 1996.
Including the after tax effect of the Nonrecurring Gain and Nonrecurring
Expenses in net income for the first six months of 1996, Bryn Mawr Bank
Corporation (the "Corporation"), the parent company of The Bryn Mawr Trust
Company (the "Bank"), reported net income of $2,848,000 for the first six months
of 1997, a 6% decrease over $3,032,000 of net income reported for the first six
months of 1996. For the first six months of 1997, earnings per common share
amounted to $1.24, a 7% decrease from earnings per common share of $1.34
reported for the first six months of 1996. Exclusive of the $.24 earnings per
share, the result of the Nonrecurring Gain and Nonrecurring Expenses, earnings
per share increased 13% for the first six months of 1997, from $1.10 per share
for the six months ended June 30, 1996 to $1.24 per share for the same period in
1997. Per share computations were based on 2,295,595 average shares outstanding
for the first six months of 1997 and 2,263,532 average shares outstanding for
the first six months of 1996, including common stock equivalents for both
periods.
For the second quarter of 1997, the Corporation reported net income of
$1,390,000 a 9% increase over net income of $1,275,000 reported for the second
quarter of 1996. For the three months ended June 30, 1997, earnings per common
share, including the dilutive effect of common stock equivalents, amounted to
$.60, a 7% increase over earnings per common share of $.56, reported for the
three months ended June 30, 1996. Average shares outstanding, including the
dilutive effect of common stock equivalents were 2,297,574 for the three months
ended June 30, 1997 compared to average shares outstanding of 2,264,341 for the
same period in 1996.
Exclusive of the after tax effect of the Nonrecurring Gain and
Nonrecurring Expenses during 1996, the increase in earnings, for the first six
months of 1997 over the same period in 1996 may be attributed to a number of
factors, including an increase in net interest income, up 2% over the first six
months of 1996, a decrease in the provision for loan losses, down 50% and an
increase of 17% in other income, primarily due to a 26% increase in fees for
trust services. Other expenses, exclusive of the Nonrecurring Expenses, rose 5%
for the first six months of 1997 compared to the same period in 1996.
Form 10-Q
Page 10
Higher yielding average outstanding loan balances for the first six months
of 1997 grew 6% from average daily outstanding loan balances for the first six
months of 1996. The increase in average loan balances was partially funded by
proceeds from the maturity of certain securities in the Bank's investment
portfolio, resulting in a 28% decrease in lower yielding average outstanding
investment balances. The average cost of funds for the six months ended June
30, 1997 and June 30, 1996 remained relatively level at 2.3% and 2.2%
respectively. The Bank's annualized net interest margin was 5.57% for the first
six months of 1997 compared to 5.62% for the same period in 1996.
The prime rate increased by 25 basis points from June 1996 to June 1997.
Since, in the short term, 30 days or less, the Bank is asset rate sensitive, a
rising prime rate usually will cause a related increase in interest income.
This increase in the Bank's prime rate along with a change in the mix of earning
assets, increasing higher yielding average outstanding loan balances and
increasing average federal funds sold balances while decreasing lower yielding
average outstanding investment balances, caused the yield on earning assets for
the first six months of 1997 to remain unchanged at 7.8% compared to the same
period in 1996. While interest rate movements and their effect on future
revenue streams cannot be predicted, management believes that there are
presently no known trends, events or uncertainties that will have or are
reasonably likely to have a material effect on the Corporation's liquidity,
capital resources or results of operations in the future.
NET INTEREST INCOME
- -------------------
For the six months ended June 30, 1997, net interest income rose 2% to
$8,922,000 from $8,741,000 in 1996. Total interest income grew 3% for the first
six months of 1997, to $12,380,000 from $12,012,000 for the first six months of
1996. Interest expense rose 6% for the first six months of 1997, to $3,458,000
from $3,271,000 for the first six months of 1996. The yield on earning assets
for the first six months of 1997 remained level at 7.8% compared to the first
six months of 1996 while the effective rate paid on interest bearing deposits
for the first six months of 1997 was 3.0% compared to 2.9% for the same period
in 1996.
Interest and fees on loans increased 4% from $10,413,000 for the first six
months of 1996 to $10,838,000 for the first six months of 1997. A relatively
level loan portfolio yield, 8.2% and 8.3% for the periods ending June 30, 1997
and 1996 respectively, combined with a 6% increase in average outstanding loan
balances from $243,670,000 for the first six months of 1996 to $258,299,000 for
the same period in 1997, are the primary reasons for this increase in loan
related interest and fee income.
Interest income on investments decreased $359,000 or 25%, from $1,413,000
for the first six months of 1996 to $1,054,000 for the first six months of 1997.
Interest from U.S. Treasury obligations decreased $422,000 or 52% from $818,000
for the first six months of 1996 to $396,000 for the first six months of 1997.
The primary reason for this decrease was a $15,918,000 or 54% decrease in the
average balance of U.S. Treasury securities, from $29,383,000 during the first
six months of 1996 to $13,465,000 for the comparable period in 1997. The
decrease in U.S. Treasury obligations were primarily a result of investment
maturities as opposed to sales, for which the proceeds were used to fund loan
growth. Interest income on U.S. Government Agency securities
Form 10-Q
Page 11
increased 36% from $335,000 for the six months ended June 30, 1996 to $456,000
at June 30, 1997. A 36% increase in the average balance of U.S. Government
Agency securities, from $11,008,000 for the six months ended June 30, 1996 to
$14,933,000 for the same period in 1997, is primarily responsible for the
related 36% increase in interest income. Interest income on obligations of
states and political subdivisions decreased by 27%, from $220,000 for the six
months ended June 30, 1996 to $161,000 for the same period in 1997. A decrease
of $2,165,000 or 25% in average outstanding balances of obligations of state and
political subdivisions, from $8,797,000 in average outstanding balances for the
first six months of 1996 down to $6,631,000 for the same period in 1997 is the
primary reason for this decrease. The overall yield on investment securities
increased from 5.6% for the first six months of 1996 to 5.8% for the first six
months of 1997, due primarily to the maturity of lower yielding investments in
the Bank's investment portfolio.
Interest expense on deposits increased $187,000 or 6% to $3,458,000 for the
six months ended June 30, 1997 compared to $3,271,000 for the same period in
1996. The average cost of interest bearing deposits increased to 3.0% for the
six months ended June 30, 1997 compared to 2.9% for the same period in 1996.
The average interest bearing deposit balances increased 3% to $232,463,000 at
June 30, 1997 compared to $224,855,000 for the same period in 1996. However,
the average deposit mix has changed for the first six months of 1997 compared to
the same period in 1996. Average non-transaction savings and Market Rate
Accounts decreased 9% and 8%, respectively, while the Bank's average transaction
based NOW account and non-interest bearing demand deposit account balances
increased 6% and 2% respectively. During the first quarter of 1995, the Bank
offered a new one and two year Premier CD, at highly competitive rates of
interest. The one year Premier CDs matured during the first quarter of 1996 and
were not renewed. The two year Premier CDs matured during the first quarter of
1997 and a CD promotion, offering a 50 basis point premium over the then current
market rate of interest for a nine month CD was offered. As a result of this
promotion, the average daily outstanding balances of time deposits increased 18%
for the first six months of 1997 compared to 1996. The annualized cost of CDs
increased 10 basis points from 5.2% to 5.3%, respectively for each period. The
average cost of each interest bearing deposit product remained level with the
respective cost for the same period in 1996. The result was a 10 basis point
increase in the average cost of interest bearing deposits from 2.9% to 3.0% for
each respective period. The average cost of deposits, including non-interest
bearing demand deposits also increased 10 basis points from 2.2% to 2.3% for
each respective period.
For the first six months of 1997, the net interest margin decreased to
5.57% from 5.62% for same period in 1996. The net interest margin is computed
exclusive of related loan fee income.
For the second quarter of 1997, net interest income of $4,479,000 remained
relatively level with net interest income of $4,461,000 reported for the second
quarter of 1996. Total interest income grew $202,000 or 3% from $6,053,000 for
the second quarter of 1996 to $6,255,000 for the same period in 1997. Interest
and fees on loans grew $107,000 or 2% for the second quarter of 1997 over the
same period in 1996. Interest on federal funds sold increased $227,000 or 946%
due to excess funds from the CD promotion offered early in 1997 and lower than
anticipated average outstanding loan volumes. Interest income on U. S. Treasury
securities, and Obligations of states and political subdivisions decreased
$199,000 or 53% and $20,000 or 20%,
Form 10-Q
Page 12
respectively, during the second quarter of 1997 compared to the second quarter
of 1996. Interest income on U. S. Government agency securities increased
$85,000 or 51% for the second quarter of 1997 compared to the second quarter of
1996. Interest on deposits increased $184,000 or 12% from $1,592,000 for the
second quarter of 1996 to $1,776,000 for the same period in 1997. The increase
in average CD balances outstanding for the second quarter of 1997 compared to
1996 is responsible for this increase in interest expense.
LOAN LOSS PROVISION
- -------------------
The loan loss provision represents management's determination of the amount
necessary to be charged against the current year's income in order to maintain
an adequate loan loss reserve. The Bank maintains an Officer Loan Review
Committee (the "Committee") and retains the services of an independent loan
review consultant (the "Consultant"). The Consultant performs an independent
review of the Bank's loan portfolio and the loan loss reserve. The Committee
meets monthly to review the adequacy of the loan loss reserve as well as all
nonaccrual loans, any potential problem loans and loans criticized by either the
Bank's regulators or the Consultant.
Based on ratings assigned by the Committee on the quality of the loans
which are reviewed, a specific reserve may be computed for each loan. In
addition to the specific reserve amounts, the balance of loans not reviewed by
the Committee has a reserve computed based on the average of the prior five
years write-offs plus the annualized write-offs for the current year. Including
annualized write-offs for the current year takes into consideration current
trends in both volumes and write-offs, to be included in the computation.
Finally, an amount equal to .5% of all outstanding loans is included in the loan
loss reserve calculation to address possible unforeseen loan loss reserve
requirements. The sum of the specific reserves, the reserve calculated based on
average write-offs and the reserve calculated based on the entire portfolio for
possible unforeseen loan losses is compared to the Bank's current loan loss
reserve balance. Any additions deemed necessary to the loan loss reserve are
then made on a timely basis.
Based on the results of the aforementioned reviews, the low level of loan
delinquencies, less than 1% of total loans at June 30, 1997 and the size of the
loan loss reserve, 1.64% of total loans at June 30, 1997, the loan loss
provision was reduced to $100,000 for the six months ended June 30, 1997,
compared to $200,000 for the same period in 1996. The loan loss reserve
amounted to 1.60% of outstanding loans at June 30, 1996. Nonperforming loans
have increased by 4% to $946,000 as of June 30, 1997, up from $907,000 as of
December 31, 1996 and increased 35% from $703,000 in nonperforming loans as of
June 30, 1996. The loan loss reserve amounted to 452% of nonperforming loans as
of June 30, 1997 compared to 592% as of June 30, 1996. Based on the results of
both the internal and external loan review processes and the current level of
nonperforming loans, management believes the loan loss reserve to be adequate as
of June 30, 1997.
During the first quarter of 1996, the Corporation adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS No. 114"), as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". SFAS No. 114 requires measurement
Form 10-Q
Page 13
of impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or, as a practical expedient, the fair value of the collateral, if
the loan is collateral dependent. SFAS No. 114 does not apply to large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment. The adoption of SFAS No. 114 did not have a material impact on the
financial position or results of operations of the Corporation.
OTHER INCOME
- ------------
During the first quarter of 1996, the Bank sold a commercial real estate
property, included in OREO, and realized a pre-tax gain of $1,073,000 on the
sale. This Nonrecurring Gain is the primary reason for a 5% decrease in other
income, to $5,493,000 for the six months ended June 30, 1997 from $5,761,000 for
the same period in 1996. Exclusive of the Nonrecurring Gain on the sale of
OREO, reported in 1996, other income increased 17% for the first six months of
1997, compared to the same period in 1996.
Fees for trust services rose 26% from $2,975,000 for the first six months
of 1996 to $3,762,000 for the same period in 1997. The establishment of
additional lines of business, including Investment Counsellors of Bryn Mawr
("ICBM"), in January of 1996, to provide investment management services to high
net worth individuals and employee benefit plans, increased asset values and an
increase in the schedule of trust fees charged are the primary reasons for the
increase in fees for trust services.
For the six month period ended June 30, 1997, the Bank originated and
sold $22,756,000 of mortgage loans in the secondary mortgage market, a 6%
increase from $21,447,000 of mortgage loans originated and sold during the first
six months of 1996. In a rising interest rate environment, the sale of
residential mortgage loans in the secondary mortgage market becomes less
profitable as investors look for higher yields by paying lower prices for the
loans being sold. This was the case for the loans sold in 1997, compared to
loan sales for the same period in 1996. The Bank offers potential borrowers the
opportunity to obtain a mortgage loan at market rates of interest with points
attached or to have no points with a slightly higher rate of interest. Upon the
sale of the loan, the higher rate of interest allows the Bank to recognize a
larger gain on the sale, as opposed to increased deferred loan fees recognized
as income at the time of sale. Deferred loan fees earned as income resulting
from the sale of residential mortgage loans in the secondary mortgage market
amounted to $115,000 or 51 basis points earned on the sale of $22,756,000 of
residential mortgage loans in the secondary mortgage market, compared to
$97,000 or 45 basis points earned on the sale of $21,447,000 of residential
mortgage loans in the secondary mortgage market during the same period of 1996.
However, gains on the sales of loans in the secondary mortgage market decreased
to $130,000 or 57 basis points for the first six months of 1997 compared to
$152,000 or 71 basis points for the same period in 1996. The result was a
decline in the total basis points earned on the sale of loans in the secondary
mortgage market, from 116 basis points earned on the sale of $21,447,000 in
residential mortgage loans for the first six months of 1996 to 108 basis points
on the sale of $22,756,000 in residential mortgage loans for the first six
months of 1997.
For the six month period ended June 30, 1997, service charges on deposit
accounts of $557,000 remained level with the results for the same period in
Form 10-Q
Page 14
1996 of $556,000. In February of 1997, the Bank began assessing a surcharge of
$1.00 for each cash withdrawal made at its automated teller machines ("ATM") by
non-Bank cardholders. As a result, surcharge income amounted to $36,000 for the
first six months of 1997 compared to no surcharge income for the same period of
1996. All other service charge income decreased $35,000 or 6% as a result of
the increase in interest rates which caused an increase in the earnings credit
rate used to offset these service charges.
Prior to its disposal in March 1996, the commercial property included in
the Bank's OREO, produced a revenue stream included in other operating income.
This revenue stream was eliminated with the sale of the OREO property. Other
operating income decreased by $76,000 or 16%, from $476,000 for the first six
months of 1996 to $400,000 for the same period in 1997. The OREO revenue
stream, included in other operating income for the first six months of 1996
amounted to $74,000. This primarily accounts for the total decrease in other
operating income from period to period.
Total other income increased $480,000 or 21% from $2,322,000 for the second
quarter of 1996 to $2,802,000 for the same quarter in 1997. Trust fees grew
$319,000 or 21% from $1,530,000 for the second quarter of 1996 to $1,849,000 for
the same quarter in 1997. Service charges on deposits grew $20,000 or 7% from
$267,000 for the second quarter of 1996 to $287,000 for the second quarter of
1997. Net gain on sale of loans increased $42,000 or 68% as a result of an
increase in the volume of mortgages originated and sold in the secondary market
during the second quarter of 1997 compared to the same quarter in 1996. Net
gain on sale of OREO increased from $1,000 in the second quarter of 1996 to
$93,000 in the second quarter of 1997. The Bank sold a residential OREO
property in May, 1997 which resulted in a gain of $89,000 which primarily
accounts for the increase from period to period.
OTHER EXPENSE
- -------------
Total other expense increased 3% for the first six months of 1997 to
$10,062,000 from $9,790,000 for the first six months of 1996. Exclusive of the
Nonrecurring Expenses, incurred during the first quarter of 1996, other expenses
rose 5% for the first six months of 1997 compared to the same period in 1996.
Salaries and wages grew $597,000 or 14%, from $4,269,000 for the six months
ended June 30, 1996 to $4,866,000 for the same period in 1997. Of this
increase, $375,000 relates to regular salary expense, representing a 10%
increase in regular, part time and overtime salaries during the first six months
of 1997, compared to 1996. Incentive salaries were up $222,000 or 49%, from
$496,000 for the six months ended June 30, 1996 to $718,000 for the same period
in 1997. Incentive salaries are primarily related to the profitability of both
the Bank and its related business segments. The 49% increase in incentive
salaries is primarily due to the 15% increase in net income, exclusive of the
Nonrecurring Gain and Nonrecurring Expenses. The Bank's full time equivalent
staff increased to 209.5 as of June 30, 1997, compared to 196.5 as of June 30,
1996.
Employee benefits expenses decreased $153,000 or 14% compared to the first
six months of 1996, primarily a result of a $230,000 decrease in the projected
pension expense for the first six months of 1997 compared to the same period in
1996, which was reduced by a $66,000 rebate by the Bank's medical insurance
carrier in 1996. During 1996, the Bank projected a larger
Form 10-Q
Page 15
than incurred pension expense. Due to strong performance of the Bank's pension
plan assets, the actual pension expense for 1996 was lower than planned and was
adjusted in the fourth quarter of 1996. The actuarial projections for 1997
project a negative pension expense. This is the primary reason for the $230,000
reduction in pension expense from the first six months of 1996 compared to the
same period in 1997.
Occupancy expense decreased $101,000 or 13% for the first six months of
1997 from $787,000 for the first six months of 1996 to $686,000 for the first
six months of 1997. The largest additional cost in 1996, primarily responsible
for the decrease in 1997, was $30,000 for the removal of snow during the
"Blizzard of 1996". Furniture and equipment expenses grew $233,000 or 43% over
the first six months of 1996, from $537,000 for the first six months of 1996 to
$770,000 for the same period in 1997. Planned depreciation and amortization
expenses associated with the conversion to an in-house EDP system account for
this increase in 1997.
Other operating expenses decreased $304,000 or 10% over the first six
months of 1996, from $3,137,000 for the first six months of 1996 to $2,833,000
for the first six months of 1997. The largest decrease in other operating
expense occurred in computer processing fees, down by $202,000 for the first six
months of 1997 compared to the same period in 1996. This decrease was primarily
due to the conversion to an in-house EDP system during the first quarter of
1996, eliminating this related expense later in 1996. This cost primarily
offsets the additional related increased cost of depreciation and amortization,
included in furniture and equipment expense. Miscellaneous expense decreased by
$92,000 because the Bank incurred a $70,000 expense in 1996 to settle a
regulatory dispute. The cost of maintenance of OREO decreased by $92,000 for
the first six months of 1997, as the Bank increased its OREO reserve during the
first quarter of 1996 to provide additional reserves for its last large
commercial OREO property. No such increase was deemed necessary during 1997.
Advertising was down by $47,000 in the first six months of 1997, a timing
difference in the Bank's advertising campaign for 1997. These decreases were
offset by increases in the Bank Shares Tax of $32,000, a result of the increase
in the value of shares outstanding. Legal expense increased $21,000 for the
first six months of 1997 compared to the same period in 1996. The cost of
Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums was
eliminated in 1996 for all banks that were classified as "Well Capitalized" by
the FDIC. In 1997 insurance premiums were reinstated by the FDIC. As a result,
this cost increased $17,000 for the first six months of 1997 compared to 1996.
The remaining other operating expenses for the first half of 1997 did not change
significantly.
For the quarter, total other expenses increased 8% or $363,000 to
$5,156,000 for the quarter ended June 30, 1997 compared to $4,793,000 in 1996.
Salaries and wages increased $294,000 or 14% from $2,147,000 for the quarter
ended June 30, 1996 to $2,441,000 for the same period in 1997. The majority of
this increase occurred in regular salary expense, up $229,000 or 12%, reflecting
recurring salary increases and staff additions. Other salaries, primarily
incentive related expenses, rose $65,000 or 24% for the second quarter of 1997
compared to the same period in 1996. Employee benefit expenses decreased by
$119,000 or 22% for the second quarter of 1997 over 1996, primarily the result
of a $114,000 decrease in the projected pension expense for the period. An
$80,000 or 25% increase in furniture, fixtures and equipment expense is due
primarily to a planned increase in depreciation
Form 10-Q
Page 16
expense, related to furniture, fixtures and equipment put into service during
the second quarter of 1996, a result of the EDP conversion that occurred earlier
in 1996. Other operating expenses increased 10% or $142,000 for the second
quarter of 1997, compared to the same quarter in 1996. This increase was
primarily related to legal fees which were up $72,000, relating to real estate
matters. In April of 1997, the Corporation paid off the balance of the mortgage
of $1,776,000 on the building that houses the Trust and Investment Division
located at 10 Bryn Mawr Avenue, Bryn Mawr, PA. As a result, the Corporation
incurred an early payoff fee of $36,000 included in other operating expenses for
the second quarter of 1997. Employee Activity and Tuition increased $33,000 for
the second quarter of 1997 compared to the same period of 1996. Exclusive of
these items, other operating expenses grew less than 1% for the second quarter
of 1997, compared to the same quarter in 1996.
APPLICABLE INCOME TAXES
- -----------------------
The Corporation's effective tax rate for the first six months of 1997
remained level at 33% compared to the same period in 1996.
FINANCIAL CONDITION
- -------------------
Total assets increased .4% from $345,747,000 at December 31, 1996 to
$347,035,000 as of June 30, 1997. Total assets grew 3% from $338,482,000 as of
June 30, 1996.
Outstanding earning assets increased 2% to $310,571,000 as of June 30, 1997
from $305,911,000 as of December 31, 1996. The Bank's loan portfolio increased
.4%, to $260,484,000 at June 30, 1997 from $259,427,000 as of December 31, 1996.
Outstanding loans increased by 1%, from $258,880,000 as of June 30, 1996.
Outstanding consumer loans of $80,830,000 at June 30, 1997 were down by 1% from
$81,512,000 as of December 31, 1996 and were up 7% from $75,711,000 as of June
30, 1996. Growth in both the Bank's indirect automobile paper and fixed rate
home equity loans were primarily responsible for this growth from June 30, 1996.
Outstanding commercial loans at June 30, 1997 were $72,023,000, a 4% decrease
from outstanding commercial loan balances of $74,688,000 at December 31, 1996
and 4% ahead of $69,213,000 at June 30, 1996. Payoffs of larger balance
commercial loans, during the first quarter of 1997, are primarily responsible
for the decrease in balances from December 31, 1996. Outstanding real estate
loans were $107,631,000 at June 30, 1997, a 4% increase over $103,227,000 in
outstanding real estate loans at December 31, 1996 and a 6% decrease from
$113,956,000 in outstanding real estate loans as of June 30, 1996.
The Bank's investment portfolio, having a market value of $37,703,000 at
June 30, 1997, increased 9% from a market value of $34,747,000 at December 31,
1996 and decreased 15% from $44,334,000 as of June 30, 1996. During the first
quarter of 1997, the Bank offered a nine month CD bearing an interest rate of 50
basis points over the then current interest rate for such CDs. Some of the
proceeds from the CDs were used to purchase securities for the Bank's investment
portfolio and the remainder were sold as federal funds. The funds obtained from
the maturity of securities in the investment portfolio from June 30, 1996 to
June 30, 1997 were primarily used to fund the increase in the Bank's loan
portfolio over the same period and the excess available was sold as federal
funds.
Form 10-Q
Page 17
As of January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", ("SFAS No. 115"). SFAS No. 115 requires all entities to
allocate their investments among three categories as applicable: (1) trading,
(2) available for sale and (3) held to maturity. The Corporation has chosen to
include all of its investment securities in the available for sale category.
Investments in this category are reported at the current market value with net
unrealized gains or losses, net of the deferred tax effect, being added or
deducted from the Corporation's total equity on the balance sheet. Due
primarily to rising market interest rates, maturities and the shortening of the
average term of the investment portfolio, the unrealized gain in the investment
portfolio of $1,000 at December 31, 1996 decreased to an unrealized loss of
$26,000 as of June 30, 1997. The unrealized investment depreciation, net of
deferred income taxes, decreased the Corporation's shareholders' equity on the
balance sheet by $17,000 as of June 30, 1997.
Federal funds sold amounted to $12,300,000 as of June 30, 1997, a 6%
increase over $11,616,000 as of December 31, 1996. There were no federal funds
available for sale at June 30, 1996. The increase in federal funds available
for sale at June 30, 1997 is primarily a result of retaining the majority of
maturing two year CDs during the first quarter of 1997. Management continues to
monitor the liquidity requirements of the Bank and believes that it has the
ability to increase its liquidity position through growth of new CDs, borrowing
from the Federal Home Loan Bank of Pittsburgh (the "FHLB") and the sale of
investments, classified as available for sale.
Nonperforming assets amounted to $2,357,000 at June 30, 1997, a 3% decrease
from $2,430,000 at December 31, 1996 and a 13% increase from nonperforming
assets of $2,089,000 at June 30, 1996. Nonperforming loans increased 4% to
$946,000 at June 30, 1997 compared to nonperforming loans of $907,000 at
December 31, 1996 and increased 35% from $703,000 as of June 30, 1996. The OREO
balances decreased 7% from $1,523,000 as of December 31, 1996 to $1,411,000 at
June 30, 1997, which was a 2% increase from an OREO balance of $1,386,000 at
June 30, 1996. As of June 30, 1997, one large commercial property and one
smaller property remained as OREO on the Bank's books.
As of June 30, 1997 and 1996, there were no significant loans classified
for regulatory purposes as loss, doubtful, substandard or special mention that
either (i) represent or result from trends or uncertainties which management
reasonably expects will impact future operating results, liquidity, or capital
resources, or (ii) represent material credits about which management is aware of
any information, causing management to have serious doubts as to the borrower's
ability to comply with the loan repayment terms.
Total deposits increased .5% to $304,623,000 as of June 30, 1997 from
$303,183,000 as of December 31, 1996. A more meaningful measurement of deposit
change is the change in average outstanding deposit balances. Total average
outstanding deposit balances increased 3% to $306,235,000 for the six month
period ended June 30, 1997 from $296,926,000 for the same period in 1996.
Although the amount of average total deposits remained relatively stable, the
mix of deposits shifted. As a reaction to a consistently low interest rate
environment for interest bearing deposits, average outstanding savings and
Market Rate Account balances decreased by 9% and 8%, respectively, from the
first six months of 1996 to the first six months of 1997. Average
Form 10-Q
Page 18
savings balances decreased $3,986,000 from $42,827,000 for the first six months
of 1996 to $38,841,000 for the same period in 1997 and Market Rate Account
balances decreased $3,831,000 from $47,718,000 in average daily outstanding
balances for the six months ended June 30, 1996 to $43,887,000 for the same
period in 1997. Average outstanding NOW account balances grew 6% or $4,212,000,
from $69,734,000 for the first six months of 1996 to $73,946,000 for the same
period in 1997. The two year Premier CDs, offered during the first quarter of
1995 matured during the first quarter of 1997. In an effort to retain some of
these deposits, the Bank offered a nine month CD with a 50 basis point premium
over the then current rate of interest for a nine month CD. The net result was
an increase in the average outstanding CD balances, by $11,412,000 or 18%, from
$62,741,000 in average outstanding balances for the first six months of 1996 to
$74,154,000 for the same period in 1997. Noninterest bearing demand deposit
average outstanding balances grew 2% or $1,702,000 from $72,070,000 for the six
months ended June 30, 1996 to $73,772,000 for the same period in 1997.
LIQUIDITY, INTEREST RATE SENSITIVITY
- ------------------------------------
The Bank's liquidity is maintained by managing its core deposits,
purchasing federal funds, selling loans in the secondary market, and borrowing
from the FHLB. The Bank's liquid assets include cash and cash equivalents as
well as certain unpledged investment securities. Bank management has developed a
revised liquidity measure, incorporating its ability to borrow from the FHLB to
meet liquidity needs and goals. Periodically, the Asset / Liability Committee of
the Bank reviews the Bank's liquidity needs and reports its findings to the Risk
Management Committee of the Bank's Board of Directors.
In the short term, 30 days or less, the Bank is asset rate sensitive after
adjusting the interest rate sensitivity of savings deposits based on
management's experience and assumptions regarding the impact of product pricing,
interest rate spread relationships and customer behavior. Asset rate
sensitivity will result in a greater portion of assets compared to deposits
repricing with changes in interest rates within specified time periods. The
opposite effect results from being liability rate sensitive. Asset rate
sensitivity in the short term, in an increasing rate environment should produce
an increase in net interest income. The Bank uses simulation models to help
measure its interest rate risk and to help manage its interest rate sensitivity.
The simulation models consider not only the impact of changes in interest rates
on forecasted net interest income, but also such factors as yield curve
relationships, possible loan prepayments, and deposit withdrawals. As of June
30, 1997, based on the results from the simulation models, the amount of the
Bank's interest rate risk was within the acceptable range as established by the
Policy.
Form 10-Q
Page 19
CAPITAL RESOURCES
- -----------------
Total consolidated shareholders' equity of the Corporation was $37,737,000,
or 10.9% of total assets, as of June 30, 1997, compared to total shareholders'
equity of $35,808,000, or 10.4% of total assets, as of December 31, 1996. As of
June 30, 1996, shareholders' equity was $33,324,000, or 9.8% of total assets.
The Corporation's risk weighted Tier I capital ratio was 13.77% as of June 30,
1997 compared to 12.75% and 12.06% at December 31, 1996 and June 30, 1996,
respectively. The respective Tier II ratios were 15.03%, 14.01% and 13.31%,
respectively. In March 1996, the Corporation declared a one-time special
dividend of $.32 per share, to distribute to shareholders the after-tax proceeds
of the gain on the disposition of a commercial property, held in the Bank's OREO
category. In January and in April 1997, the Corporation declared its regular
dividend of $.18 per share, a 20% increase over $.15 per share declared in
January and April 1996. As of June 30, 1997, the cumulative dividends declared
amounted to $.36 per share, compared to $.62 per share for the first six months
of 1996, which included the one-time special dividend of $.32 per share.
Under the stock repurchase plan established in March 1997, the Corporation
repurchased 6,000 shares of treasury stock as of June 30, 1997. The shares were
purchased at a cost of $34.00 per share, resulting in an increase of $204,000 in
treasury stock from ($1,539,000) at December 31, 1996 and June 30, 1996,
respectively to ($1,743,000) as of June 30, 1997. The number of treasury shares
held by the Corporation as of June 30, 1997 was 308,820 compared to 302,820 as
of December 31, 1996 and June 30, 1996, respectively.
FORMATION OF NEW SUBSIDIARY
- ---------------------------
On July 1, 1997, the Corporation established a de novo subsidiary, Tax
Counsellors of Bryn Mawr, Inc. ("TCBM".) TCBM is a wholly owned subsidiary of
the Corporation that will provide a broad range of corporate and personal tax
services for entrepreneurs, family-owned businesses, and professionals. The
establishment of TCBM will further the Corporation's strategy to be a
diversified financial services company with greater emphasis on fee income. This
move follows last year's formation of BMT Mortgage Company and Investment
Counsellors of Bryn Mawr. The new subsidiary had no impact on the financial
condition of the Corporation for the period ending June 30, 1997. The
establishment of TCBM as a subsidiary of the Corporation does not involve a
leverage activity. The Corporation has established a capital account of $75,000
for TCBM which will be sufficient to permit TCBM to operate its business for the
foreseeable future.
Form 10-Q
Page 20
PART II. OTHER INFORMATION
--------------------------
JUNE 30, 1997
ITEM 1. LEGAL PROCEEDINGS
- --------
NONE
ITEM 2. CHANGES IN SECURITIES
- --------
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- --------
NONE
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY
- --------
HOLDERS
NONE
ITEM 5. OTHER INFORMATION
- --------
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------
On March 26, 1997, the Corporation filed a Report on Form 8-K
reporting that the Corporation established a stock repurchase program
to repurchase up to 5% of the outstanding shares of the Corporation's
stock, with a limit of no more than $4,000,000 to be paid for the
stock. The stock repurchase program was instituted to help offset the
dilutive effect of the Corporation's employee and outside directors'
stock option plans.
Form 10-Q
Page 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bryn Mawr Bank Corporation
Date: August 8, 1997 By: /s/ Robert L. Stevens
---------------- ------------------------
Robert L. Stevens
Chairman,
President & Chief
Executive Officer
Date: August 8, 1997 By: /s/ Mame O. Skelly
---------------- ------------------------
Mame O. Skelly
Acting Treasurer,
Principal Financial Officer
and Chief Accounting Officer
Form 10-Q
Page 22