EXHIBIT 13
49
B R Y N M A W R B A N K C O R P O R A T I O N
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1 9 9 7 A N N U A L R E P O R T
[BRYN MAWR BANK LOGO APPEARS HERE]
CONSOLIDATED FINANCIAL HIGHLIGHTS
Five-Year
Compound
1997 1996 Change Growth Rate
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For the year Net interest income $ 18,368 $ 17,847 3% 6%
(dollars in thousands) Other income 11,749 10,423 13 10
Other expenses 20,837 18,978 10 5
Net income 6,130 6,042 1 14
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At year-end Total assets $ 374,210 $ 345,747 8% 4%
(dollars in thousands) Total net loans 264,484 255,245 4 9
Total deposits 328,806 303,183 8 4
Shareholders' equity 39,349 35,808 10 13
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Per common share Earnings per common share $ 2.79 $ 2.76 1% 14%
Earnings per common share -
assuming dilution 2.67 2.66 - 13
Dividends declared 0.72 0.92 (22) N/A
Book value 18.00 16.27 11 13
Closing price 51.00 27.25 87 35
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Selected ratios Return on average assets 1.74% 1.79%
Return on average
shareholders' equity 16.45% 18.16%
C O N T E N T S 2 CHAIRMAN'S LETTER
4 THE YEAR IN REVIEW
11 BANK INFORMATION
12 CORPORATE INFORMATION
1
1 9 9 7 A N N U A L R E P O R T
DEAR SHAREHOLDER:
As change envelopes the business of banking, we're trying hard to preserve
our core -- the best service you'll ever find in a bank. And with service as our
keystone, we're establishing growing streams of revenue from lines of business
related to the financial needs and wants of our customers.
1997 was a watershed for your Corporation in that regard. We established two
new and powerful business lines -- Insurance Counsellors of Bryn Mawr and Tax
Counsellors of Bryn Mawr -- which, when augmented by the natural expansion of
our investment management and trust services, round out our service menu to be
competitive in most ways with the big banks.
We are equipped to do traditional banking -- checking accounts, CDs,
business loans, home mortgages (anywhere in the continental U.S.) -- in addition
to investment management, wealth transfer counsel, foundation management,
employee benefits, fiduciary, and full family office services. And, all that
with truly fine personal attention and professionalism.
Now, let's look at how we performed in 1997 as we moved along.
Net income per share was $2.79 in 1997 compared to $2.76 in 1996, $2.51 when
adjusted for the 25 cents nonrecurring gain, an 11% increase. 1996 results
included a nonrecurring gain from the sale of real estate acquired by the Bank
some years ago in settlement of a defaulted loan, which was partially offset by
unrelated and also nonrecurring expenses. The after-tax effect of these gains
and expenses increased per share earnings by 25 cents in 1996, so, exclusive of
these nonrecurring amounts, comparable per share net income was up 11% in 1997.
The dividend paid in 1997 was 72 c, a 20% increase from regular
quarterly dividends of 60 c in 1996. In January 1998, the quarterly dividend
was increased 28%, from 18 c to 23 c per share.
The operating gains came from the investment management and trust business
and from the residential mortgage origination, sale, and servicing business, not
from traditional banking. No surprise though, for it's the industry's
traditional banking business that's struggling to become "right sized." The
consolidation in the banking industry comes from the need to reduce the number
of banks, branches, and people offering traditional banking.
2
B R Y N M A W R B A N K C O R P O R A T I O N
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Investment management and trust activity produced 30% of consolidated
operating profit in 1997, up from 23% in 1996. Mortgage banking produced 10%, up
from 9% in the previous year, and our traditional banking business produced 60%
of consolidated operating profit, down from 68% the year before.
We continued to provide programs to assist low and moderate income families in
our community in obtaining their first home and educating their children. We're
mindful of the benefit that diversity provides everyone in our community.
We've stepped up our ongoing effort to assist our employees, in every way
possible, in increasing their technical proficiency and professional skills.
So, what's ahead for Bryn Mawr Bank Corporation? Well, our banking business
feels better to me as we begin 1998. We've realigned the Bank's leadership to
meet the challenges we face, which, indeed, are abundant, and we've expanded our
service lines remarkably. And the concern caused by mergers in our marketplace
produces business here.
Though the future cannot be readily seen, I've never felt more strongly that
our great little institution will successfully meet the needs of its customers
and find ways to do so profitably. I'm enormously grateful that so many
shareholders have chosen to do business with the Bank, and for the wonderful men
and women I'm privileged to work with.
And, finally, if there's ever a question about the Bank, or what it's doing, I
urge you to simply call me (610-526-2300) to find out, if you haven't, just what
I mean by, "Simply the best service you'll ever find in a bank."
Sincerely,
/s/ Robert L. Stevens
Robert L. Stevens
Chairman
February 24, 1998
3
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1 9 9 7 A N N U A L R E P O R T
THE YEAR IN REVIEW
In 1997, Bryn Mawr Bank Corporation made great strides in strengthening its
position to meet the challenges resulting from the dramatic changes taking place
in the financial services industry. New services were added. Technological
capabilities continued to be upgraded. Programs were instituted to increase the
proficiency and knowledge of all employees. Outstanding professionals were added
to the staff. Even the physical facilities were enhanced.
TAX ADVISORY UNIT ESTABLISHED
In July, Bryn Mawr Bank Corporation announced the formation of a wholly-owned
subsidiary, Tax Counsellors of Bryn Mawr, to provide a broad range of tax
services for corporations, family-owned businesses, entrepreneurs,
professionals, and wealthy individuals. Tax Counsellors offers tax planning and
consulting to clients in a variety of situations, such as selling a business,
advising on IRA assets, investing in closely held companies, administering
family limited partnerships, counseling on real estate decisions, and helping
executives with stock option issues.
Principals of the new subsidiary are President and Chief Executive Officer
William H. Giese, CPA, a former "big six" tax partner with 29 years of tax
consulting experience; and Vice President R. Ross Collins, Jr., CPA, who has
over 23 years of accounting, tax, and business experience.
[PHOTO OF JOHN G. "JACK" DANIEL, LORRAINE T. "JANE" GARDNER, AND THOMAS M. PETRO
APPEARS HERE]
JOHN G. "JACK" DANIEL (SEATED) AND
LORRAINE T. "JANE" GARDNER,
INSURANCE COUNSELLORS OF BRYN
MAWR, WITH THOMAS M. PETRO,
COMMUNITY BANKING DIVISION.
4
B R Y N M A W R B A N K C O R P O R A T I O N
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[PHOTO OF WILLIAM H. GIESE AND R. ROSS COLLINS, JR. APPEARS HERE]
WILLIAM H. GIESE AND R. ROSS COLLINS, JR.,
TAX COUNSELLORS OF BRYN MAWR.
INSURANCE PRODUCTS OFFERED
Taking advantage of new state legislation which allows banks to sell insurance,
the Bank formed Insurance Counsellors of Bryn Mawr with John G. Daniel as
president and chief executive officer, and Lorraine T. "Jane" Gardner as vice
president. Jack has more than 30 years of experience in the insurance industry.
Jane, a chartered financial planner, has over 20 years of experience in both the
banking and insurance industries. To assist in this new venture, the Bank has
established a business relationship with The Simkiss Agency, Inc., a full
service brokerage firm that has been doing business for over 36 years and is
ranked among the top 100 insurance brokers in the country.
Insurance Counsellors provides a complete array of personal insurance
programs, including: insurance for both primary and secondary homes, automobile,
watercraft and aircraft insurance, personal excess and umbrella liability
insurance, as well as insurance for valuable personal property such as fine art,
furs and jewelry. Through its association with Simkiss, Insurance Counsellors
has the ability to design, implement, and maintain commercial insurance
programs, such as: workers compensation, property insurance, professional
liability, directors and officers liability, environmental practices, and
employment practice liability.
[LINE GRAPH APPEARS HERE]
FOUNDATION EXPERT HEADS UP FAMILY OFFICE
Early in 1997, Herbert T. McDevitt, who has over 30 years of foundation, legal,
and federal government experience, joined the Bank as senior vice president to
head The Family Office, which provides an intergenerational approach to wealth
management for families, individuals, and foundations. Services include
investment management, estate and trust planning, special loans, tax planning,
real estate management, and other general administrative services.
SUPERIOR INVESTMENT PERFORMANCE
The performance record of our investment managers continued to be impressive.
This was demonstrated by the results achieved by The Bryn Mawr Trust Qualified
Equity Fund, which, as of December 31, 1997, showed an average annual total
return of 30.1% for
5
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1 9 9 7 A N N U A L R E P O R T
1997; 32.2% for the three-year period ending December 31, 1997; and 21.8% for
the five-year period ending December 31, 1997.
The expertise of our investment professionals has become even more apparent to
the investment community, as such respected publications as The Wall Street
Journal, The New York Times, and The Philadelphia Inquirer have quoted
Investment Counsellors' Managing Directors Richard I. Sichel and Betty K.
Taylor.
EMPLOYEE BENEFIT PLANS ENHANCED
In 1997, Bryn Mawr Trust increased the flexibility of its Group 401(k) program
with the introduction of its three level plan. The Platinum 401(k), "Manager of
Managers," is designed for plans with 100 to 25,000 participants with $2 million
and above in plan assets. The Gold 401(k), "Multiple Fund Families," is designed
for plans with 100 to 5,000 participants with $1 million and above in plan
assets. The Silver 401(k), "Multiple Funds," is designed for plans of 25 to 250
participants and $250,000 and above in plan assets.
TECHNOLOGY UPGRADES
In July, the Bank launched a new windows-based version of its PC Banker product
for business, which improves management of business cashflows. The Bank also
enhanced its Cash Management Sweep Account, which now automatically links a
business checking account with a Fidelity Investments' money market mutual fund.
In late November, after many months of intensive training, the Investment
Management & Trust Division converted its accounting system to a new
user-friendly, state-of-the-art product called "TrustDesk," provided by Marshall
& Isley of Brown Deer, Wisconsin. The new system allows clients to access their
accounts via Internet and will allow for the increasing automation of more
functions.
The Bank entered an agreement with Centrax Services, Inc., of Dallas, Texas,
for a marketing central information file system called "Marquis." This software
will enable the Bank to determine the most profitable customers, capitalize on
cross-selling opportunities, understand marketing potential through
demographics, and generate targeted mailings or calling campaigns.
In April, Bryn Mawr Trust officially became part of the "net" with each
employee obtaining an Internet e-mail address.
The Bank's first ATM machine, installed at the Bryn Mawr office in 1981, has
been replaced by a state-of-the-art machine, capable of cashing checks,
including coin, and dispensing coupons and postage stamps. These exciting new
features are planned to be made available in 1998. New machines will be
installed in Paoli and Wynnewood, and the ATM at Havertown has been upgraded to
dispense stamps. The additional expenses generated by these upgrades have been
partially offset by fee income resulting from the institution, in February, of a
surcharge of $1.00 for each cash withdrawal made by non-Bryn Mawr Trust ATM
cardholders.
[LINE GRAPH APPEARS HERE]
[LINE GRAPH APPEARS HERE]
6
B R Y N M A W R B A N K C O R P O R A T I O N
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[PHOTO OF RICHARD I. SICHEL, MICHELE M. FRITZ, PETER H. HAVENS, AND HERBERT
T. MCDEVITT APPEARS HERE]
RICHARD I. SICHEL, MICHELE M. FRITZ,
PETER H. HAVENS, AND HERBERT T. MCDEVITT,
INVESTMENT MANAGEMENT & TRUST DIVISION.
Telephone Banker, the Bank's electronic voice response system, has been
modified to allow both personal and business customers to transfer money from a
Bryn Mawr Trust checking or savings account to make a regular payment on a Bryn
Mawr Trust loan.
COMMERCIAL LOAN AREA RENOVATED
After almost three months of major construction, the completely renovated
commercial loan area was ready for occupancy in late August. The handsomely
appointed area features 19 open, interconnected work modules, and two conference
rooms. Barbara Gisel Design, of Haverford, was responsible for the interior
design, and Wm. Powell Dilworth & Sons, of Bryn Mawr, served as general
contractor. The open design allows for greater interaction among staff members,
while providing areas of complete privacy for conferences with clients.
PROFESSIONAL DEVELOPMENT
Some 50 staff members are participating in a special program preparing them for
attainment of the professional designation of Certified Financial Planner (CFP).
This unique program, conducted through The American College, is part of an
ongoing effort to set Bryn Mawr Trust apart from its competition by sharpening
the skills of our staff in providing advice to clients and prospects. The
successful completion of five courses is required before candidates may sit for
the CFP examination. The first course, Fundamentals of Estate Planning, ended in
May, while the second course, Planning for Retirement Needs, concluded in
December. The three remaining courses are: Insurance and Financial Planning,
Income Taxation, and Investments.
[LINE GRAPH APPEARS HERE]
7
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1 9 9 7 A N N U A L R E P O R T
[PHOTO OF WILLIAM B. SHIRDAN, DONALD B. KRIEBLE, AND STEPHEN J. COLLAR
APPEARS HERE]
WILLIAM B. SHIRDAN, DONALD B. KRIEBLE,
AND STEPHEN J. COLLAR, CONSUMER CREDIT
SERVICES.
BANK-SPONSORED SEMINARS
In conjunction with the Physicians Initiative Program instituted in 1996, the
Bank sponsored a seminar at The American College for lawyers and accountants
providing services for medical professionals. The topic was "Valuation and
Planning for Physician Practices," conducted by Kirk A. Rebane, ASA, CFA, of
Haverford Capital Advisors, Inc., Thomas P. Langdon, JD, LLM, ChFC, CFA, CFP,
and Richard I. Sichel, managing director of Investment Counsellors of Bryn Mawr
and chief investment officer of The Bryn Mawr Trust Company.
Attorneys and accountants were invited to a seminar entitled "Qualified
Retirement Plans," with speakers: John M. Bernard, Esq., partner at Ballard,
Spahr, Andrews & Ingersoll; David A. Littel, JD, associate professor of taxation
at The American College; Henry J. Donner, Esq., senior member and partner of
Jacoby Donner, PC, and Vice President Michele M. Fritz, Employee Benefits, The
Bryn Mawr Trust Company.
Richard W. Lang, PhD, senior vice president and director of economic research
at the Federal Reserve Bank of Philadelphia, gave a presentation entitled
"Economic Update & 1998 Forecast" in the Bank's Centennial Wing to invited
business professionals.
The Financial Life Cycle Planning Series was initiated with a
well-attended program entitled "How to Preserve Your Estate and
Protect Your Wealth." Keynote speaker was Frank B. Weisz, JD,
LLM, president of Frank B. Weisz and Associates. Also participat-
ing in the panel discussion were William H. Giese, CPA, and
8
B R Y N M A W R B A N K C O R P O R A T I O N
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[LINE GRAPH APPEARS HERE]
R. Ross Collins, Jr., CPA, both of Tax Counsellors of Bryn Mawr, as well as Vice
President Randy G. Thomas, CPA, of Bryn Mawr Trust's Tax Department.
The Bank sponsored, along with The Boettner Center of Financial Gerontology,
Main Life Health/Jefferson Health System, and The American College, the
1997-1998 Seminar Series: "Charting the Course," a support program guiding
professionals, caregivers, and families through the challenges of Alzheimer's
disease.
PROVIDING LEADERSHIP AND SUPPORT IN THE COMMUNITY
In the rapidly changing healthcare environment, Bryn Mawr Trust recognized the
importance of providing its resources, financial expertise, and experienced
personnel to help ensure the proper balance of power among physicians,
hospitals, and insurers. The Bank has supported the Millennium Physicians
Organization and the Chester County Physicians Organization. Through the efforts
of Group Vice President William J. Fink, CPA, who has acted as a financial
consultant, the two organizations are pooling their resources to form a greater
regional umbrella group known as the
[PHOTO OF JUNE M. FALCONE, WALTER SMEDLEY, III, ROBERT J. RICCIARDI, AND JOSEPH
G. KEEFER APPEARS HERE]
JUNE M. FALCONE, BANKING OPERATIONS,
WITH WALTER SMEDLEY, III,
ROBERT J. RICCIARDI, AND JOSEPH G. KEEFER,
COMMERCIAL & REAL ESTATE LENDING
SERVICES.
9
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1 9 9 7 A N N U A L R E P O R T
Renaissance Medical Alliance. Senior Vice President Thomas M.
Petro is co-chair of the Renaissance Infrastructure Committee.
It was announced in November that Chairman Robert L. Stevens had been
appointed chairman of The Main Line Chamber of Commerce for 1998. He also serves
as chairman of the Bryn Mawr Hospital Foundation, is a trustee of the Boettner
Institute of The University of Pennsylvania, sits on the Community Advisory
Council of Eldernet, and is a board member of The Devon Horse Show and Community
Fair which supports The Bryn Mawr Hospital.
As an outgrowth of the development of the Bryn Mawr "Stake Holders" initiative
spearheaded by Senior Vice President Paul J. Kistler, Bryn Mawr has become part
of a Lower Merion Township-funded market study and consulting firm analysis to
resolve issues pertaining to the Bryn Mawr commercial district revitalization
plan and other community concerns. This has involved focus groups, phone
surveys, and a "Community Vision Session," an open forum attended by about 80
concerned community members.
PROFESSIONAL LEADERSHIP
Senior Vice President & Auditor, Leo M. Stenson, CIA, CPA, served as general
chairman of The Institute of Internal Auditors' 56th International Conference
held from July 6 through July 9 at The Philadelphia Marriott Hotel. The purpose
of the program was to provide a forum for the exchange of ideas and the sharing
of initiatives. The conference attracted 1,500 internal auditors and executives
from around the world.
POSITIONING FOR THE FUTURE
In November, several internal management changes were made to enable the Bank to
reposition itself for future growth as we approach the dawn of the new
millennium. Robert L. Stevens remains chairman, president, and chief executive
officer of the Bank and Corporation, but will devote more of his time to
developing new revenue streams for the Corporation. Samuel C. Wasson, Jr., has
assumed the role of vice chairman of the Bank and is responsible for most of the
day-to-day business. He remains secretary of the Corporation.
Executive Vice President Robert J. Ricciardi now heads the Loan
Committee and is chief credit policy officer responsible for the
Bank's lending policy. Senior Vice President Joseph G. Keefer has
been designated chief lending officer.
Senior Vice President Thomas M. Petro has taken over Community Banking and
oversees the complete branch office network. Executive Vice President Peter H.
Havens continues to lead the initiative to increase net revenues from the
investment management, fiduciary, wealth transfer, foundation, family office,
and employee benefits business.
[LINE GRAPH APPEARS HERE]
[LINE GRAPH APPEARS HERE]
10
B R Y N M A W R B A N K C O R P O R A T I O N
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THE BRYN MAWR TRUST COMPANY
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
610.525.1700
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Senior Management:
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Robert L. Stevens*
Chairman, Chief Executive Officer,
and President
Samuel C. Wasson, Jr.*
Vice Chairman and Secretary
Peter H. Havens
Executive Vice President,
Investment Management & Trust
Robert J. Ricciardi*
Executive Vice President and
Chief Credit Policy Officer
Joseph H. Bachtiger
Senior Vice President, Trust Administration
June M. Falcone
Senior Vice President, Banking Operations
Joseph G. Keefer
Senior Vice President and
Chief Lending Officer
Paul M. Kistler, Jr.
Senior Vice President,
Banking Operations, Facilities, Human
Resources, and Information Systems
Donald M. Krieble
Senior Vice President,
Consumer Credit Services
Herbert T. McDevitt
Senior Vice President, Family Office
William R. Mixon
Senior Vice President,
Information Systems
Thomas M. Petro
Senior Vice President, Community Banking
Joseph W. Rebl*
Senior Vice President, Finance, and Treasurer
Walter Smedley, III
Senior Vice President, Commercial & Real
Estate Lending Services
Leo M. Stenson
Senior Vice President and Auditor,
Audit and Security
William J. Fink
Group Vice President, Commercial & Real
Estate Lending Services
Carmen L. Fiorentino
Group Vice President, Commercial & Real
Estate Lending Services
Richard M. Fuchs
Group Vice President, Branch Operations
Geoffrey L. Halberstadt
Group Vice President, Commercial & Real
Estate Lending Services
*Also officer of the Corporation.
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Branch Offices:
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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
312 East Lancaster Avenue
Wynnewood, Pennsylvania 19096
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Investment Management & Trust Division:
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No. 10 South Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
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Limited Service Offices:
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Beaumont at Bryn Mawr Retirement
Community
Bryn Mawr, Pennsylvania
Bellingham Retirement Living
West Chester, Pennsylvania
Martins Run Life Care Community
Media, Pennsylvania
One Tower Bridge
West Conshohocken, Pennsylvania
The Quadrangle
Haverford, Pennsylvania
Radnor Corporate Center
Radnor, Pennsylvania
Waverly Heights
Gladwyne, Pennsylvania
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Other Financial Services:
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BMT Mortgage Company
a division of The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
William F. Mannion, Jr., Managing Director
Patrick J. Keenan, Managing Director
Insurance Counsellors of Bryn Mawr, Inc.
a subsidiary of The Bryn Mawr Trust Company
801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
John G. Daniel, President and Chief Executive Officer
Investment Counsellors of Bryn Mawr
a department of the Investment Management & Trust Division
Two Tower Bridge
One Fayette Street, Suite 150
Conshohocken, Pennsylvania 19428
Richard I. Sichel, Managing Director and Chief Investment Officer
Tax Counsellors of Bryn Mawr, Inc.
a subsidiary of Bryn Mawr Bank Corporation
90 Cricket Avenue
Ardmore, Pennsylvania 19003
William H. Giese, President and Chief Executive Officer
11
B R Y N M A W R B A N K C O R P O R A T I O N
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1 9 9 7 A N N U A L R E P O R T
CORPORATE INFORMATION
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Directors:
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Darrell J. Bell
Retired Senior Vice President,
Main Line Health, Inc.
Richard B. Cuff
Chairman, Cuffco, Inc.
Warren W. Deakins
Self-Employed, Insurance Sales
William Harral, III
Senior Counselor, The Tierney Group
Peter H. Havens
Executive Vice President,
The Bryn Mawr Trust Company
Wendell F. Holland, Esq.
Vice President, American Water Works
Service Company, Inc.
Sherman R. Reed, 3rd
Builder and Developer
Phyllis M. Shea
Attorney-at-Law, Shea and Shea
Robert L. Stevens
Chairman, Chief Executive Officer, and
President of Bryn Mawr Bank Corporation
and The Bryn Mawr Trust Company
B. Loyall Taylor, Jr.
President, Taylor Gifts, Inc.
Samuel C. Wasson, Jr.
Secretary of Bryn Mawr Bank Corporation
and Vice Chairman and Secretary of
The Bryn Mawr Trust Company
Thomas A. Williams
Vice President, Secretary/Treasurer,
Houghton International, Inc.
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Annual Meeting
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The Annual Meeting of Shareholders of Bryn Mawr Bank Corporation will be held in
The Centennial Wing of The Bryn Mawr Trust Company, located at the corner of
Lancaster Avenue and Morton Road in Bryn Mawr, Pennsylvania, on Tuesday, April
21, 1998, at 2:00 p.m.
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Market Makers:
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Janney Montgomery Scott, Inc.
Philadelphia, Pennsylvania
F.J. Morrissey & Co., Inc.
Philadelphia, Pennsylvania
McConnell Budd & Downes
Morristown, New Jersey
Herzog, Heine, Geduld, Inc.
New York, New York
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Corporate Headquarters
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801 Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3396
(610)526-2302
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Auditors
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Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103-2962
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Legal Counsel
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Monteverde, McAlee, FitzPatrick,
Tanker & Hurd, P.C.
One Penn Center at Suburban Station
1617 John F. Kennedy Boulevard
Suite 1500
Philadelphia, Pennsylvania 19103-1815
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Stock Listing
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Bryn Mawr Bank Corporation common stock is traded over-the-counter and is listed
on the NASDAQ National Market System under the symbol BMTC.
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Registrar & Transfer Agent
- --------------------------------------------------------------------------------
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
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Form 10-K
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A copy of the Corporation's Form 10-K, including financial statement schedules
as filed with the Securities and Exchange Commission, is available without
charge to shareholders upon written request to Samuel C. Wasson, Jr., Secretary,
Bryn Mawr Bank Corporation, 801 Lancaster Avenue, Bryn Mawr, Pennsylvania
19010-3396, or via e-mail to swasson@bmtc.com.
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Equal Employment Opportunity
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The Corporation continues its commitment to equal opportunity employment and
does not discriminate against minorities or women with respect to recruitment,
hiring, training, or promotion. It is the policy of the Corporation to comply
voluntarily with the practices of affirmative action.
12
BRYN MAWR BANK CORPORATION
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1997 ANNUAL REPORT
FINANCIAL SECTION
[LOGO OF BRYN MAWR TRUST COMPANY APPEARS HERE]
CONTENTS
1 Selected Financial Data
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
17 Consolidated Balance Sheets
18 Consolidated Statements of Income
19 Consolidated Statements of Cash Flows
20 Consolidated Statements of Changes in
Shareholders' Equity
21 Notes to Consolidated Financial Statements
31 Report of Independent Accountants
Selected Financial Data
(in thousands, except for share and per share data)
For the years ended December 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------
Interest income........................................... $ 25,297 $ 24,337 $ 23,617 $ 20,378 $ 19,495
Interest expense.......................................... 6,929 6,490 7,246 5,077 5,823
---------------------------------------------------------------------
Net interest income....................................... 18,368 17,847 16,371 15,301 13,672
Loan loss provision....................................... 200 350 500 500 500
---------------------------------------------------------------------
Net interest income after loan loss provision............. 18,168 17,497 15,871 14,801 13,172
Other income.............................................. 11,749 10,423 9,197 8,383 9,786
Other expenses............................................ 20,837 18,978 18,325 17,535 17,670
---------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting change....................................... 9,080 8,942 6,743 5,649 5,288
Applicable income taxes................................... 2,950 2,900 2,100 1,600 1,401
---------------------------------------------------------------------
Income before cumulative effect of accounting change...... 6,130 6,042 4,643 4,049 3,887
Cumulative effect of accounting change.................... -- -- -- -- (175)
---------------------------------------------------------------------
Net income................................................ $ 6,130 $ 6,042 $ 4,643 $ 4,049 $ 3,712
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Per share data*:
Earnings per common share:
Basic................................................. $ 2.79 $ 2.76 $ 2.12 $ 1.85 $ 1.71
Diluted............................................... $ 2.67 $ 2.66 $ 2.08 $ 1.84 $ 1.68
Dividends declared...................................... $ 0.72 $ 0.92 $ 0.50 $ 0.325 $ 0.20
Weighted average shares outstanding..................... 2,196,081 2,192,547 2,188,528 2,183,900 2,176,446
Dilutive potential common shares........................ 101,830 75,849 45,370 13,176 29,234
---------------------------------------------------------------------
Adjusted weighted average shares........................ 2,297,911 2,268,396 2,233,898 2,197,076 2,205,680
(in thousands)
At December 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------
Total assets.............................................. $ 374,210 $ 345,747 $ 354,956 $ 333,180 $ 320,942
Earning assets............................................ 327,942 305,911 314,089 298,385 287,945
Deposits.................................................. 328,806 303,183 317,601 301,337 291,074
Shareholders' equity...................................... 39,349 35,808 31,903 27,146 24,627
For the years ended December 31 1997 1996 1995 1994 1993
---------------------------------------------------------------------
Selected financial ratios:
Net income to:
Average total assets.................................... 1.74% 1.79% 1.39% 1.26% 1.23%
Average shareholders' equity............................ 16.45 18.16 15.79 15.70 16.37
Average shareholders' equity to average total assets...... 10.60 9.88 8.79 8.06 7.51
Dividends declared per share to net income per basic
common share*........................................... 25.81 33.33 23.58 17.57 11.70
* Share and per share data have been adjusted to reflect the adoption of
Statement of Financial Accounting Standard No. 128, "Earnings per Share".
1
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion of the consolidated results of operations of Bryn
Mawr Bank Corporation and its subsidiaries (the "Corporation") for each of the
three years in the period ended December 31, 1997, as well as the financial
condition of the Corporation as of December 31, 1997 and 1996. The Bryn Mawr
Trust Company (the "Bank") and Tax Counsellors of Bryn Mawr, Inc. ("TCBM") are
wholly-owned subsidiaries of the Corporation. This discussion should be read in
conjunction with the Corporation's consolidated financial statements beginning
on page 17.
SIGNIFICANT ITEMS FOR 1997
- --------------------------
GROWTH OF NON-INTEREST REVENUE STREAMS
A strategic goal of the Corporation is to seek new sources of non-interest
revenue. In July 1997, the Corporation established TCBM to provide tax planning
services to its customer base, thereby increasing its non-interest revenue
streams. The Bank's Trust line of business also expanded it's business base,
growing assets under management by 35%, from $1,229,926,000 at December 31, 1996
to $1,666,472,000 at December 31, 1997.
The Corporation's other non-interest related line of business, BMT Mortgage
Company, a division of the Bank, dedicated to the origination and sale of
residential mortgage loans to the secondary mortgage market, also showed
significant growth in revenue streams for 1997, compared to 1996. BMT Mortgage
Company sold $75,874,000 in residential mortgage loans in 1977, a 37% increase
over $55,276,000 sold in 1996. This increase in loan sale activity, increased
the related net gains and fees earned on these sales by $143,000 or 23% over
similar revenues for 1996.
Exclusive of other real estate owned ("OREO") gains and revenues, the growth in
non-interest revenues resulted in an increase in the percentage of non-interest
revenues earned in 1997, compared to total revenues, to 38% in 1997 from 35% for
1996.
REDUCTION IN NONPERFORMING ASSETS
During the fourth quarter of 1997, the Bank sold its final large commercial
property, held in its OREO portfolio. This transaction was primarily responsible
for reducing the Bank's OREO balance by $1,498,000 or 98% from $1,523,000 at
December 31, 1996 to $25,000 at December 31, 1997. Nonperforming loans increased
29% from $907,000 at December 31, 1996 to $1,169,000 at December 31, 1997. Total
nonperforming assets decreased $1,236,000 or 51%, from $2,430,000 at December
31, 1996 to $1,194,000 at December 31, 1997.
DIVIDEND INCREASE
Based on consecutive years of record earnings, the Corporation increased its
quarterly dividend payment for 1997 by 20%, from $0.15 per share to $0.18 per
share. During the first quarter of 1996, the Corporation's Board of Directors
approved a special onetime dividend of $0.32 per share to return to shareholders
the after-tax gain on the sale of a commercial property which was included in
the Bank's OREO portfolio. The addition of the onetime dividend caused the
Corporation's dividend payout ratio to be 33.33% of basic earnings per share for
1996, compared to 25.81% for 1997. Exclusive of the onetime dividend, the 1996
payout ratio was 21.74%.
RESULTS OF OPERATIONS
- ---------------------
OVERVIEW
The Corporation reported net income of $6,130,000 for the year ended December
31, 1997, a record year for Corporation earnings. During the first quarter of
1996, the Bank sold a commercial property it had acquired in connection with its
workout of a defaulted loan. The Bank recognized a nonrecurring gain on the sale
of this OREO property of $1,073,000 which was in part offset by increases in its
OREO and contingency reserves, totaling $155,000 and the payment of a onetime
bonus of $92,000 to certain Bank officers and employees. Exclusive of the net
gain on the sale of the OREO property, the nonrecurring expenses referred to
above and the income tax effect on the transaction, which produced a net gain of
$545,000 in 1996, adding $0.25 to basic earnings per common share, net income
would have been $5,497,000. Net income for 1997 was 12% ahead of that amount.
Net income for 1996, including the above referenced $545,000, amounted to
$6,042,000.
During 1997, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standard No. 128 -- "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 requires the computation of both basic earnings per share
and diluted earnings per share. Basic earnings per share is computed by dividing
the Corporation's net income (numerator) by the weighted-average number of
common shares outstanding for the period (denominator). Dilutive earnings per
share adds to the weighted-average outstanding number of shares the number of
additional common shares that would have been outstanding if the dilutive common
shares had been issued. The dilutive potential common shares added to the
weighted-average shares outstanding were 101,830 and 75,849 for 1997 and 1996,
respectively. Earnings per common share amounted to $2.79 in 1997, a 1% increase
over $2.76 for 1996. Exclusive of the $0.25 per basic common share, related to
the nonrecurring transactions in the previous paragraph, earnings per common
share increased 11% in 1997
2
compared to 1996. Earnings per common share, assuming dilution were $2.67 and
$2.66 for 1997 and 1996, respectively.
These record earnings results for 1997 were due primarily to a 30% increase in
Trust revenues over 1996 Trust revenues, a 5% increase in average outstanding
earning assets, increasing net interest income and, with the exception of OREO
related revenues, all non-interest revenue streams increased over their
respective levels for 1996. Net interest income grew $521,000 or 3% over 1996
levels. Exclusive of OREO related revenues, total other income increased by
$2,102,000 or 23% over similar revenues for 1996. Other expenses increased
$1,859,000 or 10% in 1997, compared to 1996.
Due to the large gain on the disposition of OREO in 1996, the return on average
assets and return on average equity decreased in 1997, over those reported for
1996. Return on average assets for the year decreased to 1.74% from 1.79% in
1996, while return on average equity for 1997 was 16.45% compared to 18.16% in
1996. Exclusive of the nonrecurring items referred to above, which increased net
income by $545,000, the return on average assets and the return on average
equity for 1996 would have been 1.63% and 16.52%, respectively.
EARNINGS PERFORMANCE
- --------------------
LINES OF BUSINESS
The Corporation continues to have three significant business lines from which it
derives its earnings. Its core business line is the Banking line of business.
Additional earnings streams are received from its Trust line of business and its
Mortgage Banking line of business -- the origination, servicing and sale of
mortgage loans to the secondary mortgage market.
Following is a segmentation analysis of the results of operations for those
lines of business for 1997 and 1996:
TABLE 1 - LINE OF BUSINESS ANALYSIS
1997
------------------------------------------
MORTGAGE
(DOLLARS IN THOUSANDS) BANKING TRUST BANKING CONSOLIDATED
------------------------------------------
NET INTEREST INCOME AFTER LOAN
LOSS PROVISION............... $17,831 $ -- $ 337 $18,168
OTHER INCOME.................. 2,706 7,698 1,345 11,749
OTHER EXPENSES................ 15,048 4,888 761 20,697
------------------------------------------
OPERATING PROFIT.............. $ 5,489 $2,810 $ 921 $ 9,220
--------------------------
GENERAL CORPORATE EXPENSES.... -- -- -- 140
----------
INCOME BEFORE INCOME TAXES.... -- -- -- $ 9,080
----------
% OF CONSOLIDATED OPERATING
PROFIT....................... 60% 30% 10% 100%
1996
------------------------------------------
Mortgage
(dollars in thousands) Banking Trust Banking Consolidated
------------------------------------------
Net interest income after loan
loss provision............... $17,241 $ -- $ 256 $17,497
Other income.................. 3,249 5,936 1,238 10,423
Other expenses................ 14,346 3,817 715 18,878
------------------------------------------
Operating profit.............. $ 6,144 $2,119 $ 779 $ 9,042
--------------------------
General corporate expenses.... -- -- -- 100
Income before income taxes.... -- -- -- $ 8,942
----------
% of consolidated operating
profit....................... 68% 23% 9% 100%
The tables reflect operating profits of each line of business before income
taxes.
A strong increase in Trust operating profit in 1997, compared to 1996, offset by
a reduction in the banking segment's operating profit, due primarily to the
onetime gain on the sale of OREO in 1996, net of non-recurring expenses, were
primarily responsible for the decrease in the percentage of consolidated profits
for the banking segment in 1997, to 60% from 68% in 1996 and the corresponding
increase in the percentage of the Trust segment's operating profit, from 23% in
1996 to 30% in 1997. The Mortgage Banking segment reported an 18% increase in
operating profit, increasing its share of operating profit from 9% in 1996 to
10% in 1997.
Banking Line of Business
The Bank's prime rate increased once, by 25 basis points during the first
quarter of 1997 and ended the year at 8.5%. The Bank's average outstanding
earning assets of $315,548,000 increased 5% from $301,255,000 for 1996. Average
outstanding loans grew by 3% in 1997. Lower loan demand, caused by a combination
of increased competition for new commercial loan business, unplanned prepayments
of some loans and increased competition from automobile makers for new
automobile loans were primarily responsible for the reduction in the percentage
of loan growth in 1997, compared to the growth in 1996 over 1995 average
outstanding loans. Excess available funding was invested in short term, liquid
federal funds sold. The average outstanding balances of federal funds sold
increased by 264% in 1997 compared to 1996 levels. Average outstanding
investments decreased by 14% for 1997, compared to 1996. Average outstanding
deposits increased 4% in 1997 compared to 1996. The largest increase occurred in
the Bank's higher costing CDs, which grew 21%. The other increase in deposits
occurred in noninterest-bearing demand deposits, which increased 4%. Average
outstanding savings deposits, in a reaction to lower market rates of interest,
decreased 2%. The larger increase in average outstanding higher costing time
deposits led to an increase in interest expense and a decrease in the net
interest margin to 5.59% in 1997 from 5.67% for 1996. However, the 5% growth in
average outstanding earning assets was primarily responsible for a 3% increase
in net interest income in 1997, compared to 1996. An expanded discussion of net
interest income follows under the section entitled "Net Interest Income."
3
Other income decreased by 17% in 1997 compared to 1996. This was due primarily
to a decrease in gains on the sale of OREO in 1997 compared to 1996, the result
of the disposition of OREO referred to above. Exclusive of OREO gains and OREO
revenues in each period, other income in the Banking line of business increased
11%.
Total other expenses of the Banking line of business increased 5% in 1997
compared to 1996 levels. Overall, the operating profits of the Banking line of
business decreased 11% in 1997 compared to 1996. Exclusive of OREO related gains
and revenues in both periods and the non-recurring expenses incurred in 1996,
operating profits of the banking line of business would have decreased by 2% in
1997, compared to 1996.
Trust Line of Business
The Bank's Trust Division reported a 33% increase in operating profit for 1997
compared to 1996 levels. Total Trust fee income rose 30% in 1997. This was
primarily due to a 35% increase in the market value of assets managed, from
$1,229,926,000 at December 31, 1996, to $1,666,472,000 as of December 31, 1997
and an increase in fees charged for Trust services, implemented during the first
quarter of 1997.
Other expenses of the Trust line of business increased 28% in 1997 over 1996
levels. The primary reasons for this increase in expenses were required staffing
additions during 1997 and an increase in the Trust Division's incentive
compensation, directly related to the Division's overall profitability. The
Trust incentive compensation amounted to $663,000 for 1997, compared to $94,000
for 1996. Exclusive of the cost of the Trust incentive in each period, Trust
Division expenses increased 13% in 1997, compared to 1996.
Mortgage Banking Line of Business
The operating profit of the Bank's Mortgage Banking line of business increased
18% in 1997 compared to 1996. During 1997, mortgage interest rates decreased
enough to make refinancing attractive to borrowers. In 1997, the Mortgage
Banking line of business had a 37% increase in the volume of loans sold in the
secondary mortgage market, partially offset by an 11 basis point decrease in the
yield on sales, compared to 1996 levels and yields. The result was a 23%
increase in loan fees and net gains on sales. This is the reason for the 32%
increase in net interest income for the Mortgage Banking line of business. As of
December 31, 1997, the Bank serviced $234,061,000 in residential mortgage loans
for others, compared to $205,137,000 in loans serviced for others at year-end
1996. Following is a table showing the volume of residential mortgage loans
originated and sold in the secondary mortgage market, the total loan fees and
net gains realized, and the yield on these loan sales:
TABLE 2 - SUMMARY OF LOAN SALE ACTIVITY
(DOLLARS IN THOUSANDS) 1997 1996
--------------------
Volume of loans sold........................... $75,874 $55,276
Loan fees and net gains on sales............... $ 758 $ 615
Yield on sales................................. 1.00% 1.11%
Tax Counsellors of Bryn Mawr, Inc.
In July 1997, the Corporation established a new wholly-owned subsidiary, TCBM,
in order to add professional tax planning to its array of financial products and
services offered to its customers. TCBM employs two CPAs (the "Tax
Professionals"), having significant tax planning and preparation background and
formerly employed by a "Big Six" accounting firm. As a part of the formation of
TCBM, a profit sharing agreement was developed that allows the Tax Professionals
to retain the net revenues generated by existing clients brought to TCBM. For
the 1/2 year of its operation, TCBM did not exceed the revenue goals established
in the profit sharing agreement. Therefore, TCBM neither had a net profit nor a
net loss for the period.
NET INTEREST INCOME
A 4% or $960,000 increase in interest income, partially offset by a 7% or
$439,000 increase in interest expense from year to year resulted in an overall
increase in net interest income of 3% or $521,000. Average earning assets grew
5% in 1997, compared to 1996 levels. Higher yielding average outstanding loan
balances grew by 3%, being partially funded by a 14% decrease in average
outstanding balances of investments. Average outstanding federal funds sold,
absorbed the balance of growth in deposits and increased 264%. Total average
deposits increased 4%. The largest increase occurred in the Bank's higher
costing average outstanding CD balances, up by 21%. This growth in average
outstanding CD balances is the primary reason for the 7% increase in interest
expense for 1997, compared to 1996 levels. Average outstanding
noninterest-bearing demand deposits also increased by 4%. Primarily a result of
continued lower market rates of interest, average outstanding savings deposits
decreased by 2% in 1997, compared to 1996 levels. Due primarily to a 10 basis
point increase in the average effective rate paid on interest bearing
liabilities, from 2.9% to 3.0%, the Bank's net interest margin, defined as net
interest income exclusive of loan fees as a percentage of average earning
assets, decreased from 5.67% for 1996 to 5.59% for 1997.
4
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 $742,000, $789,000 and $798,000 in 1997, 1996 and 1995 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
1997 1996 1995
----------------------------------------------------------------------------------------------
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........ $ 23,329 $ -- --% $ 21,942 $ -- --% $ 19,275 $ -- --%
Interest-bearing deposits with
other banks*................. 176 8 4.5 94 4 4.3 108 8 7.4
Federal funds sold*............ 16,964 935 5.5 4,660 257 5.5 13,658 813 6.0
Investment securities available
for sale:
Taxable*..................... 32,693 1,988 6.1 36,680 2,157 5.9 48,502 2,562 5.3
Tax-exempt*.................. 5,868 283 4.8 8,142 406 5.0 11,905 607 5.1
------------------- ----------------- -----------------
Total investment
securities................. 38,561 2,271 5.9 44,822 2,563 5.7 60,407 3,169 5.2
------------------- ----------------- -----------------
Loans*......................... 259,847 22,083 8.5 251,679 21,513 8.5 225,656 19,627 8.7
Less allowance for loan
losses....................... (4,247) -- -- (4,017) -- -- (3,897) -- --
------------------- ----------------- -----------------
Net loans.................... 255,600 22,083 8.6 247,662 21,513 8.7 221,759 19,627 8.9
Other assets................... 16,807 -- -- 17,539 -- -- 19,184 -- --
------------------- ----------------- -----------------
Total assets................. $ 351,437 $25,297 -- $336,719 $24,337 -- $334,391 $23,617 --
------------------- ----------------- -----------------
LIABILITIES:
Demand deposits,
noninterest-bearing.......... $ 76,076 $ -- --% $ 73,034 $ -- --% $ 68,654 $ -- --%
Savings deposits............... 158,752 3,058 1.9 161,577 3,187 2.0 161,744 3,487 2.2
Time deposits.................. 73,792 3,871 5.2 60,930 3,203 5.3 68,328 3,754 5.5
Federal funds purchased........ 5 -- -- 1,824 100 5.5 89 5 5.6
Other liabilities.............. 5,550 -- -- 6,085 -- -- 6,175 -- --
------------------- ----------------- -----------------
Total liabilities............ 314,175 6,929 -- 303,450 6,490 -- 304,990 7,246 --
Shareholders' equity........... 37,262 -- -- 33,269 -- -- 29,401 -- --
------------------- ----------------- -----------------
Total liabilities and
shareholders' equity....... $ 351,437 $ 6,929 -- $336,719 $6,490 -- $334,391 $7,246 --
------------------- ----------------- -----------------
Total earning assets*.......... $ 315,548 -- -- $301,255 -- -- $299,829 -- --
Interest income to earning
assets....................... -- -- 8.0 -- -- 8.1 -- -- 7.9
Interest expense to earning
assets....................... -- -- 2.2 -- -- 2.2 -- -- 2.4
--- --- ---
Net yield on interest-earning
assets....................... -- -- 5.8 -- -- 5.9 -- -- 5.5
Average effective rate paid on
interest-bearing
liabilities.................. -- -- 3.0 -- -- 2.9 -- -- 3.1
*Indicates earning assets.
5
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 (decreases) increases in fees on loans of
($47,000) in 1997, ($9,000) in 1996, and $234,000 in 1995.
TABLE 4 - RATE/VOLUME ANALYSES
(IN THOUSANDS) 1997 VS. 1996 1996 VS. 1995
----------------------------------------------------
INCREASE/(DECREASE) VOLUME RATE TOTAL VOLUME RATE TOTAL
----------------------------------------------------
Interest Income:
Interest-bearing
deposits with other
banks................. $ 4 $ -- $ 4 $ (1) $ (3) $ (4)
Federal funds sold...... 678 -- 678 (494) (62) (556)
Investment securities
available for sale:
Taxable................ (241) 72 (169) (674) 269 (405)
Tax-exempt............. (108) (15) (123) (189) (12) (201)
Loans................... 830 (260)* 570 2,325 (439)* 1,886
----------------------------------------------------
Total interest income... 1,163 (203) 960 967 (247) 720
----------------------------------------------------
Interest expense:
Savings deposits....... (33) (96) (129) (3) (297) (300)
Time deposits.......... 725 (57) 668 (412) (139) (551)
Federal funds
purchased . ......... (100) -- (100) 95 -- 95
----------------------------------------------------
Total interest
expense.............. 592 (153) 439 (320) (436) (756)
----------------------------------------------------
Interest
differential......... $ 571 $ (50) $ 521 $1,287 $ 189 $1,476
----------------------------------------------------
* Included in the loan rate variance was a decrease in interest income related
to nonperforming loans of $85,000 in 1996 and an increase of $69,000 in 1995.
The variances due to rate include the effect of nonaccrual loans because no
interest is earned on such loans.
The 4% growth in interest income for 1997 was attributable to a 5% increase in
average earning assets from $301,255,000 for 1996 to $315,548,000 for 1997. The
yield on average outstanding earning assets decreased 10 basis points for 1997,
to 8.0% from 8.1% for 1996. The average yield on loans and federal funds sold
remained level in 1997, when compared to 1996, at 8.5% and 5.5%, respectively.
The yield on the investment portfolio increased by 20 basis points from 5.7% in
1996 to 5.9% in 1997. This is due to the maturity of older, lower yielding
investments in the portfolio. The growth in interest income attributable to
volume was the result of a 3% increase in average outstanding loans and
significant growth in average outstanding federal funds sold, offset in part by
lower volumes of average outstanding investments. Partially offsetting this
increase in the volume variance was a reduction in interest income related to
the rate variance. The mixture of both variances is attributable to the 4%
increase in interest income in 1997 over 1996 levels.
As of December 31, 1997, outstanding loans increased 4%. The most significant
loan growth came in permanent mortgage loans, which includes residential
mortgage loans, commercial mortgage loans and home equity loans. Commercial
mortgage loans grew by 25%, fixed rate home equity loans by 1%, while
residential mortgage loan balances decreased by 5%, primarily due to increased
loan sale activity in the Bank's Mortgage Banking line of business. Construction
lending outstanding balances increased 79%, as an additional $6,008,000 in
outstanding balances were added to this portfolio. Commercial and industrial
loans were up only 1% over December 31, 1996 levels, reflecting increased
competition for new commercial business in the Bank's market area. A 6% decrease
in outstanding consumer loans is due primarily to a 3% decrease in short-term
indirect automobile loan balances at year-end 1997 compared to 1996. Increased
competition from automobile manufacturers' financing facilities and incentives
was the primary reason for this decrease.
Average deposits increased $13,079,000 or 4% during 1997. During the first
quarter of 1997, the remainder of the Premier CDs, first issued during the first
quarter of 1995 at highly competitive rates of interest, matured. In an effort
to retain some of these CD balances, during the first quarter of 1997, the Bank
offered a nine month CD at a premium rate of interest. This CD promotion was
primarily responsible for the Bank's average CD balances increasing by
$12,862,000 or 21% compared to similar balances for 1996. As interest rates paid
on the Bank's savings deposits, including market rate, NOW and savings accounts,
remained relatively unchanged during 1997, some depositors sought alternative
investment opportunities. Average savings deposits, including market rate, NOW
and savings accounts, decreased by $2,825,000 or 2% in 1997, compared to similar
1996 average balances. Average outstanding noninterest-bearing demand deposits
grew by $3,042,000 or 4%. The growth of average outstanding deposits, primarily
higher costing CDs, was primarily responsible for the 7% increase in interest
expense for 1997. The cost of funds for the Bank averaged 2.2% for both 1997 and
1996.
LOAN LOSS PROVISION
The Bank provided a loan loss provision of $200,000 for 1997, compared to
$350,000 for 1996. The allowance for possible loan losses was $4,074,000 and
$4,182,000 as of December 31, 1997 and 1996, respectively. Due to the low level
of delinquencies during 1997, amounting to 0.65% of outstanding loans as of
December 31, 1997, and the level of the loan loss reserve, management deemed it
appropriate to lower the provision for loan losses during 1997. The ratio of the
loan loss reserve to nonperforming loans was 349% and 461% as of December 31,
1997 and 1996, respectively. Nonperforming loans amounted to $1,169,000 at
December 31, 1997, a 29% increase from $907,000 at December 31, 1996. The
allowance for possible loan losses, as a percentage of outstanding loans, was
1.52% as of December 31, 1997, compared to 1.61% as of December 31,
6
1996. Bank management determined that the 1997 loan loss provision was
sufficient to maintain an adequate level of the allowance for possible loan
losses during 1997.
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) 1997 1996 1995 1994 1993
-------------------------------------------
Allowance for possible
loan losses:
Balance, January 1...... $4,182 $3,652 $3,618 $3,601 $3,848
Charge-offs:
Commercial and
industrial........... (196) (84) (527) -- (462)
Real estate--
construction......... -- -- -- (229) (37)
Real estate--
mortgage............. -- (4) (8) (69) (11)
Consumer............... (237) (180) (234) (365) (388)
-------------------------------------------
Total charge-offs...... (433) (268) (769) (663) (898)
-------------------------------------------
Recoveries:
Commercial and
industrial........... 102 404 236 115 94
Real estate--
construction......... -- -- -- -- --
Real estate--
mortgage............. -- 8 13 20 --
Consumer............... 23 36 54 45 57
-------------------------------------------
Total recoveries....... 125 448 303 180 151
-------------------------------------------
Net (charge-offs)/
recoveries........... (308) 180 (466) (483) (747)
Provision for loan
losses................ 200 350 500 500 500
-------------------------------------------
Balance, December 31.... $4,074 $4,182 $3,652 $3,618 $3,601
-------------------------------------------
Net (charge-offs)/
recoveries to average
loans................. (0.1)% 0.1% (0.2)% (0.2)% (0.4)%
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:
TABLE 6 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
December 31 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------
% LOANS % LOANS % LOANS % LOANS % LOANS
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
(DOLLARS IN THOUSANDS) LOANS LOANS LOANS LOANS LOANS
-----------------------------------------------------------------------------------------
Balance at end of period applicable to:
Commercial and industrial............... $ 316 28.1% $ 483 28.8% $1,295 28.7% $1,289 23.9% $1,144 26.0%
Real estate--construction............... 1,111 5.1 751 2.9 648 3.8 273 2.1 411 4.9
Real estate--mortgage................... 184 38.2 289 36.9 259 36.4 332 40.4 297 41.0
Consumer................................ 465 28.6 609 31.4 619 31.1 680 33.6 552 28.1
Unallocated............................. 1,998 -- 2,050 -- 831 -- 1,044 -- 1,197 --
-----------------------------------------------------------------------------------------
Total................................. $4,074 100.0% $4,182 100.0% $3,652 100.0% $3,618 100.0% $3,601 100.0%
-----------------------------------------------------------------------------------------
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 13 for further discussion of the Corporation's loan review
process.
OTHER INCOME
The following table details other income for the years ended December 31, 1997
and 1996, and the percent change from year to year:
TABLE 7 - OTHER INCOME
(DOLLARS IN THOUSANDS) 1997 1996 % Change
----------------------------
Fees for Trust services............. $ 7,698 $ 5,936 30%
Service charges on deposit
accounts.......................... 1,124 1,081 4
Other fees and service charges...... 1,378 1,280 8
Net gain on sale of loans........... 509 398 28
Gain on sale of other real estate
owned............................. 379 1,081 (65)
OREO revenues....................... -- 74 N/A
Other operating income.............. 661 573 15
----------------------------
Total other income.................. $11,749 $10,423 13%
----------------------------
In addition to net interest income, the Bank's three operating segments and TCBM
generate various fee-based income, including Trust income, service charges on
deposit accounts, as well as loan servicing income and gains/losses on loan
sales.
As discussed in the "Lines of Business" section on pages 3 and 4, the increase
in other income in 1997 from 1996 levels was primarily a result of an increase
in fees for Trust services, partially offset by lower gains on the sale of OREO.
Trust income grew 30% from year to year, due primarily to a first quarter 1997
increase in the fee schedule of Trust services provided to Trust clients, the
acquisition of new Trust accounts during 1997 and an increase in the market
value of Trust assets under management, by 35%, to $1,666,472,000 at year-end
1997, up from $1,229,926,000 as of December 31, 1996.
7
As discussed in the "Mortgage Banking Line of Business" section, the 28%
increase in gains on the sale of loans was directly attributable to an 37%
increase in the volume of loans sold in 1997 compared to 1996, partially offset
by an 11 basis point decrease in the yield realized on the sale of loans in 1997
compared to 1996.
During the first quarter of 1996, the Bank sold a commercial OREO property,
generating a gain of $1,073,000 on the transaction. This is the primary reason
for the 65% decrease in the gain on sale of OREO, from $1,081,000 in 1996 to
$379,000 in 1997.
The sale of the OREO property in 1996 eliminated the OREO revenue stream in
March 1996. No OREO revenues were earned in 1997, compared to one quarter's
revenue being earned in 1996.
Other operating income increased 15% in 1997 from 1996 levels, primarily due to
fee income of $134,000 earned by TCBM from July 1997 to December 1997. No such
fees were earned in 1996. Partially offsetting these fees was a decrease of
$55,000 representing a non-recurring fee for brokering a loan transaction
between two other financial institutions, earned in 1996.
OTHER EXPENSES
The following table details other expenses for the years ended December 31, 1997
and 1996, and the percent change from year to year:
TABLE 8 - OTHER EXPENSES
1997 1996 % Change
-----------------------------
Salaries-regular.................... $ 8,604 $ 7,594 13%
Salaries-other...................... 1,655 1,045 58
Employee benefits................... 1,791 1,585 13
Occupancy expense................... 1,365 1,537 (11)
Furniture, fixtures and equipment... 1,565 1,246 26
Advertising......................... 1,069 991 8
Computer processing................. 584 836 (30)
Stationery and supplies............. 322 355 (9)
Professional fees................... 822 677 21
Insurance........................... 188 159 18
Merchant credit card processing..... 390 376 4
Net cost of operation of other real
estate owned....................... 9 97 (91)
Other operating expenses............ 2,473 2,480 --
-----------------------------
Total other expenses................ $ 20,837 $18,978 10%
-----------------------------
Other expenses increased for the year ended December 31, 1997, by 10% compared
to 1996. Regular salaries, consisting of regular, part time and overtime salary
expense and the largest component of other expenses, rose 13%, due primarily to
merit increases and staffing additions, including the establishment of TCBM in
July 1997. As of December 31, 1997, the Corporation's consolidated full-time
equivalent staffing level was 220.0 compared to 205.5 as of December 31, 1996.
Other salaries, which primarily consist of incentive compensation, increased 58%
from 1996 to 1997. The $610,000 increase was primarily related to incentive
based compensation, tied to the overall profitability of the Corporation and
specific lines of business. Trust incentive compensation related to the Trust
division's profitability increased $569,000 or 605% in 1997. The Bank's overall
incentive salaries increased $34,000 or 7% and the mortgage banking incentive
pool grew by $39,000 or 25%, due to increased profitability in the mortgage
banking line of business. A Trust incentive related to acquisition of new Trust
business increased by $96,000 or 81%, as Trust new business referrals grew
during 1997. Offsetting these increases was a decrease of $92,000 for a onetime
bonus, related to the nonrecurring gain on the sale of the OREO property,
incurred in 1996. Commissions paid to mortgage originators decreased $36,000 or
54% in 1997. The Mortgage Banking line of business relied more heavily on
mortgage originations through its own employees or from refinances of existing
mortgages, not specifically requiring the services of a mortgage originator.
These changes from 1996 accounted for all of the $610,000 increase in other
salary expense from 1996 to 1997.
Employee benefit costs increased $206,000 or 13% in 1997 over 1996 levels, due
to increases of $160,000 in actuarially computed post-retirement benefits costs
for 1997 compared to 1996, social security expenses increasing $73,000, the cost
of medical and life insurance increasing $87,000 and the cost of the
Corporation's Supplemental Employee Retirement Plan increasing $22,000. These
increases were partially offset by a $150,000 reduction in the cost of the
Corporation's pension expense.
The primary reason for the decrease in occupancy expenses, down $172,000 or 11%
from 1996 to 1997, was a reduction in interest expense on mortgage debt of the
Corporation. The Corporation prepaid a mortgage loan on one of its properties,
thereby reducing interest on mortgage loans by $126,000 from 1996 to 1997. The
Corporation also did not incur the expense of snow removal in 1997, associated
with costs incurred for the "Blizzard of 1996".
Furniture, fixtures and equipment expense increased by $319,000 of 26% in 1997,
compared to 1996. Depreciation expense increased $46,000, reflecting the effect
of capital improvements made during 1997. The amortization of EDP conversion
costs, capitalized during the first quarter of 1996, increased by $58,000,
reflecting a full year's amortization for 1997, compared to a partial year's
amortization in 1996. The cost of maintenance agreements on an expanded volume
of computer related and other equipment increased by $133,000 in 1997 and the
cost of non-capitalized small equipment expense rose by $42,000.
Advertising increased $78,000 or 8%, reflecting the continued commitment to both
print and electronic media as a means of
8
increasing the public's awareness of the Bank's array of products and services.
Computer processing expense decreased $252,000 or 30% in 1997, compared to 1996.
During the first quarter of 1996, the Corporation converted to an in-house data
processing system. The expenses for 1997 reflect a full year's benefit of lower
computer processing fees, compared to a partial year's benefit in 1996.
Stationery and supplies decreased $33,000 or 9% in 1997, compared to 1996, due
primarily to additional costs, in 1996, associated with the in-house data
processing conversion.
The cost of professional fees increased by $145,000 or 21% in 1997, compared to
1996. The largest increase came in legal fees, up $117,000 or 32%. During 1997,
the Corporation incurred $97,000 in legal fees, of a non-recurring nature, in
connection with the workout of two problem loans.
Insurance expense increased by $29,000 or 18%. 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. During 1996, the FDIC announced that while the bank insurance fund
("BIF") was sufficiently funded to provide necessary coverage for insured bank
deposits, there was a deficiency in funding to pay interest on the savings
associations' insurance fund ("SAIF") debt. Therefore, the FDIC, starting in
1997, charged commercial banks a premium to assist in the coverage of the
deficiency. In 1996, the Bank paid $2,000 in deposit insurance premiums,
compared to $36,000 in 1997, a $34,000 increase over 1996 premiums. The Bank's
business insurance premiums decreased $5,000 or 3% during 1997, compared to
similar premiums in 1996.
Other operating expenses increased $7,000 from 1996 to 1997. Included in 1996's
expense was $155,000 of nonrecurring expenses related to the sale of the OREO
property, discussed previously. Exclusive of these nonrecurring expenses, other
operating expense increased $162,000 or 6% over 1996's similar expenses.
INCOME TAXES
The Corporation's provision for federal income taxes is based on the statutory
tax rate of 34%. Federal income taxes for 1997 were $2,950,000, compared to
$2,900,000 for 1996. This represents an effective tax rate of 32.5% and 32.4%
for 1997 and 1996, 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 8 to the consolidated financial statements.
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 $40,666,000 and $34,747,000 as of December 31, 1997 and 1996,
respectively. The amortized cost of the portfolio as of December 31, 1997, was
$40,573,000, resulting in net unrealized gains of $93,000. The amortized cost of
the portfolio at December 31, 1996, was $34,748,000, resulting in net unrealized
losses of $1,000.
The maturity distribution and weighted average yields on a fully tax-equivalent
basis of investment securities at December 31, 1997, are as follows:
TABLE 9 - INVESTMENT PORTFOLIO
MATURING MATURING
FROM FROM
MATURING 1999 2003 MATURING
DURING THROUGH THROUGH AFTER
(DOLLARS IN THOUSANDS) 1998 2002 2007 2007 TOTAL
---------------------------------------------------
Obligations of the
U.S. Government and
agencies:
Book value.......... $8,018 $27,054 $ -- $ -- $35,072
Weighted average
yield............. 5.7% 6.2% -- -- 6.2%
State and political
subdivisions:
Book value.......... 979 3,329 -- -- 4,308
Weighted average
yield............. 7.3% 7.1% -- -- 7.1%
Other investment
securities:
Book value.......... -- -- -- 1,286 1,286
Weighted average
yield............. -- -- -- 6.3% 6.3%
---------------------------------------------------
Total book value..... $8,997 $30,383 -- $1,286 $40,666
Weighted average
yield............... 5.9% 6.3% -- 6.3% 6.2%
In addition to $15,200,000 in maturities, during 1997, $8,955,000 in municipal
bonds were called and $27,000 of Federal Home Loan Bank of Pittsburgh (the
"FHLB") stock was sold back to the FHLB with no gain or loss on the transaction.
With a decline in overall loan demand in 1997, Bank management purchased
$30,013,000 in U.S. Government or U.S. Government Agency securities. Those
transactions were primarily responsible for the $5,919,000 or 17% increase in
the investment portfolio from December 31, 1996, to December 31, 1997. At
December 31, 1997, approximately 86% 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.
9
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 CreditLine loans 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) 1997 1996 1995 1994 1993
-----------------------------------------------------
Real estate loans:
Permanent mortgage
loans............. $ 102,474 $ 95,588 $ 85,752 $ 92,395 $ 78,553
Construction
loans............. 13,647 7,639 8,905 4,884 9,482
Commercial and
industrial loans.... 75,474 74,688 67,507 54,631 49,800
Consumer loans....... 76,963 81,512 73,189 76,828 53,882
-----------------------------------------------------
Total............. $ 268,558 $259,427 $235,353 $228,738 $191,717
-----------------------------------------------------
The maturity distribution of the loan portfolio, excluding loans secured by
one-family residential property and consumer loans, at December 31, 1997, is
shown below.
MATURING
FROM
MATURING 1999 MATURING
DURING THROUGH AFTER
(IN THOUSANDS) 1998 2002 2002 TOTAL
-----------------------------------------
Commercial, financial, and
agricultural................. $46,193 $20,542 $ 8,739 $ 75,474
Real estate--construction..... 8,250 5,397 -- 13,647
Real estate--other............ 1,898 8,274 28,802 38,974
-----------------------------------------
Total...................... $56,341 $34,213 $37,541 $128,095
-----------------------------------------
Interest sensitivity on the
above loans:
Loans with predetermined
rates...................... $ 8,161 $22,623 $ 6,438 $ 37,222
Loans with adjustable or
floating rates............. 48,180 11,590 31,103 90,873
-----------------------------------------
Total...................... $56,341 $34,213 $37,541 $128,095
-----------------------------------------
There are no scheduled prepayments on the loans included in the maturity
distributions.
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................... $ 15,619 $ 2 $ -- $ 15,621 $ 35 $-- $ 35 $ --
Commercial.................... 38,286 -- 688 38,974 688 25 713 --
Home equity................... 47,687 120 72 47,879 72 -- 72 --
------------------------------------------------------------------------------------------------
Total permanent mortgage
loans..................... 101,592 122 760 102,474 795 25 820 184
Construction mortgage loans:
Residential................... 11,400 -- -- 11,400 -- -- -- --
Commercial.................... 2,247 -- -- 2,247 -- -- -- --
------------------------------------------------------------------------------------------------
Total construction mortgage
loans..................... 13,647 -- -- 13,647 -- -- -- 1,111
------------------------------------------------------------------------------------------------
Total real estate loans..... 115,239 122 760 116,121 795 25 820 1,295
COMMERCIAL AND INDUSTRIAL LOANS... 75,006 121 347 75,474 347 -- 347 --
------------------------------------------------------------------------------------------------
Total commercial and
industrial loans.......... 75,006 121 347 75,474 347 -- 347 316
------------------------------------------------------------------------------------------------
CONSUMER LOANS:
Direct.......................... 9,079 32 6 9,117 6 -- 6 --
Indirect........................ 65,557 274 17 65,848 17 -- 17 --
CreditLine...................... 1,971 23 4 1,998 4 -- 4 --
------------------------------------------------------------------------------------------------
Total consumer loans........ 76,607 329 27 76,963 27 -- 27 465
Unallocated reserve for loan
loss............................ -- -- -- -- -- -- -- 1,998
------------------------------------------------------------------------------------------------
Total........................... $266,852 $572 $1,134 $268,558 $1,169 $25 $1,194 $4,074
------------------------------------------------------------------------------------------------
* 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
$1,169,000 includes the $1,134,000 in loans past due 90 days or more plus
$35,000 in loans less than 90 days delinquent, on which certain borrowers
have paid interest regularly.
** Other real estate owned was written down to current market values at the time
of reclassification to this category.
These amounts are not included in the total loan amounts.
10
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, 1997, increased 4% to $268,558,000 from $259,427,000
as of December 31, 1996.
The largest increase was in permanent mortgage loans, which consist of
commercial and residential mortgages as well as home equity loans. Outstanding
permanent mortgage loan balances increased by 7% or $6,886,000 during 1997, from
$95,588,000 at December 31, 1996, to $102,474,000 at December 31, 1997. This
growth was due primarily to a $7,916,000 or 25% increase in commercial mortgage
loans. Home equity loans decreased by $248,000 or 4%, and residential mortgage
loans decreased by $782,000 or 5%, primarily due to increased sales of
residential mortgage loans to the secondary mortgage market.
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 $4,549,000 or 6%,
from $81,512,000 at December 31, 1996, to $76,963,000 at December 31, 1997. The
largest decrease occurred in the outstanding balances of the indirect automobile
paper. Outstanding indirect automobile paper decreased $2,327,000 or 3% from
$67,396,000 at December 31, 1996, to $65,069,000 at December 31, 1997.
Competition from automobile manufacturers' credit facilities and lower costing
financing from home equity loans are the primary reasons for this decrease.
The Bank's commercial and industrial lending grew $786,000 or 1%, from
$74,688,000 at December 31, 1996 to $75,474,000 at December 31, 1997. Increased
competition in the Bank's commercial lending market area and prepayments of
loans during 1997 are the primary reasons for the 1% growth of this portfolio.
In recent years, the Bank had made a decision to reduce its construction loan
balances, to lower its exposure to higher risk loans. As of December 31, 1995,
1996 and 1997, the construction lending portfolio had no nonperforming loans nor
any loans delinquent 30 days or more. The Bank has chosen to selectively return
to the construction lending market. As of December 31, 1997, the construction
loan portfolio increased by $6,008,000 or 79%, from $7,639,000 at December 31,
1996, to $13,647,000 at December 31, 1997.
DEPOSITS
The Bank attracts deposits from within its primary market area by offering
various deposit instruments, including savings accounts, NOW accounts, market
rate accounts, and certificates of deposit.
Total deposits increased 8% to $328,806,000 at December 31, 1997, from
$303,183,000 at year end 1996. A more meaningful measure of deposit change is
average daily balances. As illustrated in Table 12, average daily deposit
balances increased 4%. In an effort to increase its deposit base in 1995, the
Bank offered one and two year Premier CDs, at interest rates of 6.50% and 7.00%,
respectively. During the first quarter of 1997, the remaining two year Premier
CDs matured. In an effort to retain some of the maturing CDs, the Bank offered a
nine month CD at a premium rate. This is the primary reason for the 21% increase
in average outstanding CD balances from 1996 to 1997. In a reaction to continued
low market rates of interest on savings related balances, average daily
outstanding balances of regular savings and market rate accounts both decreased
by 7%. Partially offsetting these decreases were increases in the average daily
balances of NOW accounts and noninterest-bearing demand deposits, which grew 5%
and 4%, respectively, over similar balances for 1996.
During 1997, with strong growth in CDs and a decline in loan demand, the Bank
only occasionally had to purchase federal funds. The average daily outstanding
balance of federal funds purchased was $5,000 for 1997, compared to $1,824,000
in 1996. The Bank maintains federal funds credit lines with various
correspondent banks as well as the ability to borrow from the FHLB.
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
1997 vs. 1996 vs.
(IN THOUSANDS) 1997 1996 1996 1995 1995
-----------------------------------------------------
Demand deposits,
non-interest-
bearing............ $ 76,076 $ 73,034 4.2 $ 68,654 6.4
-----------------------------------------------------
Market rate
accounts........... 45,903 49,451 (7.2) 50,720 (2.5)
NOW accounts......... 73,958 70,549 4.8 65,999 6.9
Regular savings...... 38,891 41,577 (6.5) 45,025 (7.7)
-----------------------------------------------------
158,752 161,577 (1.7) 161,744 (0.1)
-----------------------------------------------------
Time deposits........ 73,792 60,930 21.1 68,328 (10.8)
-----------------------------------------------------
Total............... $ 308,620 $295,541 4.4 $298,726 (1.1)
-----------------------------------------------------
11
The following table shows the maturity of certificates of deposit of $100,000 or
greater as of December 31, 1997:
TABLE 13 - MATURITY OF CERTIFICATES OF DEPOSITS OF $100,000 OR GREATER
(in thousands)
Three months or less............. $11,332
Three to six months.............. 985
Six to twelve months............. 1,602
Greater than twelve months....... 305
-------
Total........................... $14,224
=======
CAPITAL ADEQUACY
At December 31, 1997, total shareholders' equity of the Corporation was
$39,349,000, a $3,541,000 or 10% increase over $35,808,000 at December 31, 1996.
In addition to earnings and dividends for the year, the impact of SFAS No. 115
resulted in an increase in shareholders' equity in 1997. As of December 31,
1997, shareholders' equity included unrealized gains on investment securities,
net of deferred taxes, of $62,000 compared to unrealized losses on investment
securities, net of taxes, of $1,000 at December 31, 1996. This change accounted
for a $63,000 increase in total shareholders' equity from December 31, 1996, to
year-end 1997.
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, 1997 and 1996, are listed
below. These ratios are all in excess of the minimum required capital ratios,
also listed below.
TABLE 14 - RISK-BASED CAPITAL RATIOS
1997 1996
-----------------------------------
Minimum Minimum
Actual Required Actual Required
-----------------------------------
Tier I capital ratio...... 12.21% 4.00% 12.27% 4.00%
Total capital ratio....... 13.47 8.00 13.53 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, 1997 and 1996, the Bank exceeded the levels required to meet the definition
of a "well-capitalized" bank. Management anticipates that the Corporation and
the Bank will continue to be in compliance with all capital requirements and
continue to be classified as "well-capitalized."
The Corporation's ability to declare dividends in the future is dependent on
future earnings.
RISK ELEMENTS
Risk elements, as defined by the Securities and Exchange Commission in its
Industry Guide 3, are composed of four specific categories: (1) nonaccrual, past
due, and restructured loans, (2) potential problem loans, loans not included in
the first category, but where information known by Bank management indicates
that the borrower may not be able to comply with present payment terms, (3)
foreign loans outstanding, and (4) loan concentrations. Table 11 presents a
summary, by loan type, of the Bank's nonaccrual and past due loans as of
December 31, 1997. It is the Bank's policy to promptly place nonperforming 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, 1997.
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.
Nonperforming assets amounted to $1,194,000 at December 31, 1997, a 51% decrease
from $2,430,000 at December 31, 1996, because of a decrease in OREO balances.
Nonperforming loans were $1,169,000 at December 31, 1997, a 29% increase from
$907,000 at December 31, 1996. OREO decreased $1,498,000 or 98% to $25,000 at
December 31, 1997, from $1,523,000 at December 31, 1996, primarily because of
the sale of a commercial office building, included in OREO. As of December 31,
1997, there was one property remaining in OREO. The ratio of nonperforming
assets as a percentage of total assets was 0.32% as of December 31, 1997,
compared to 0.70% as of December 31, 1996.
12
Total nonperforming assets, which include non-accruing and past due loans and
other real estate owned, are presented in the table below for each of the five
years in the period ended December 31, 1997.
TABLE 15 - NONPERFORMING ASSETS
December 31
------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
------------------------------------------
Loans past due 90 days or more not
on nonaccrual status:
Real estate--mortgage............ $ 72 $ 68 $ -- $ 48 $ 139
Consumer......................... 27 51 155 82 59
Loans on which the accrual of
interest has been discontinued:
Commercial and industrial........ 347 76 339 -- 205
Real estate--mortgage............ 723 712 117 371 1,032
Real estate--construction........ -- -- -- 275 708
------------------------------------------
Total nonperforming loans...... 1,169 907 611 776 2,143
Other real estate owned*.......... 25 1,523 3,794 3,475 3,539
------------------------------------------
Total nonperforming assets..... $1,194 $2,430 $4,405 $4,251 $5,682
==========================================
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
$298,000 for the year ended December 31, 1997. Interest earned and included in
interest income on these loans prior to their nonperforming status amounted to
$1,000 in 1997.
* 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 nonaccrual and impaired loans, loans criticized by
both the Bank's regulators and an independent consultant retained to review both
the loan portfolio as well as the overall adequacy of the loan loss reserve.
During the review of the loan loss reserve, the Committee considers specific
loans on a loan-by-loan basis, pools of similar loans, prior historical
write-off activity, and a supplemental reserve allocation as a measure of
conservatism for any unforeseen loan loss reserve requirements. The sum of these
components is compared to the loan loss reserve balance, and any additions
deemed necessary to the loan loss reserve balance are charged to operating
expenses on a timely basis.
The Corporation is regulated and periodically inspected by The Federal Reserve
Board. During 1995, the Bank became a state member bank of the Federal Reserve
System. The Bank is regulated and periodically examined by the Federal Reserve
Board and the Pennsylvania Department of Banking. There are no recommendations
by the regulators which would have a material effect on the Corporation's
liquidity, capital resources, or results of operations.
ASSET AND LIABILITY MANAGEMENT
Through its Asset/Liability Committee ("ALCO") and the application of Risk
Management Policies and Procedures, the Bank seeks to minimize its exposure to
interest rate risk as well as to maintain sufficient liquidity and capital
compliance.
INTEREST RATE SENSITIVITY
The difference between interest sensitive assets and interest sensitive
deposits, stated in dollars, is referred to as the interest rate sensitivity
gap. A positive gap is created when interest rate sensitive assets exceed
interest rate sensitive deposits. A positive interest rate sensitive gap will
result in a greater portion of assets compared to deposits repricing with
changes in interest rates within specified time periods. The opposite effect
results from a negative gap. In practice, however, there may be a lag in
repricing some products in comparison to others. A positive gap in the
short-term, 30 days or less, in a rising interest rate environment should
produce an increase in net interest income. The converse is true of a negative
gap in a rising interest rate environment.
As shown in the following table, the Bank is presently asset interest rate
sensitive in the short-term, 30 days or less category.
TABLE 16 - INTEREST RATE SENSITIVITY ANALYSIS
as of December 31, 1997
REPRICING PERIODS
------------------------------------------------------------------------------
0 TO 30 31 TO 90 91 TO 180 181 TO 365 OVER 1 NON-RATE
(DOLLARS IN THOUSANDS) DAYS DAYS DAYS DAYS YEAR SENSITIVE TOTAL
------------------------------------------------------------------------------
Assets:
Interest-bearing deposits with other banks..... $ 2,118 $ -- $ -- $ -- $ -- $ -- $ 2,118
Federal funds sold............................. 16,600 -- -- -- -- -- 16,600
Investment securities.......................... 2,001 3,980 8,463 12,503 13,719 -- 40,666
Loans.......................................... 79,473 11,061 13,973 28,742 135,309 (4,074) 264,484
Cash and due from banks........................ -- -- -- -- -- 34,464 34,464
Other assets................................... -- -- -- -- -- 11,687 11,687
------------------------------------------------------------------------------
Total assets................................. $100,192 $15,041 $22,436 $41,245 $149,028 $ 42,077 $370,019
------------------------------------------------------------------------------
Liabilities and shareholders' equity:
Demand, noninterest-bearing.................... $ -- $ -- $ -- $ -- $ -- $ 102,210 $102,210
Savings deposits............................... 62,152 -- -- -- 103,587 -- 165,739
Time deposits.................................. 12,461 9,550 11,912 17,782 10,174 -- 61,879
Other liabilities.............................. -- -- -- -- -- 5,344 5,344
Shareholders' equity........................... -- -- -- -- -- 34,847 34,847
------------------------------------------------------------------------------
Total liabilities and shareholders' equity... $ 74,613 $ 9,550 $11,912 $17,782 $113,761 $ 142,401 $370,019
------------------------------------------------------------------------------
Gap.............................................. $ 25,579 $ 5,491 $10,524 $23,463 $ 35,267 $(100,324) --
Cumulative gap................................... $ 25,579 $31,070 $41,594 $65,057 $100,324 -- --
Cumulative earning assets as a ratio
of interest bearing liabilities................ 134% 137% 143% 157% 144% -- --
13
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 1997, based on an analysis of the results
from the simulation models, the Bank's interest rate risk was within the
acceptable range as established by the Bank's Risk Management Policies and
Procedures.
While future interest rate movements and their effect on Bank revenue cannot be
predicted, there are no trends, events, or uncertainties of which the
Corporation's management is currently aware that will have, or are reasonably
likely to have, a material effect on the Corporation's liquidity, capital
resources, or results of operations in the future.
LIQUIDITY
The Bank's liquidity is maintained by managing its core deposits, purchasing
federal funds, selling loans in the secondary market, and borrowing from the
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, 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 1997, cash provided by operations amounted to $5,459,000 and was
primarily from net income of $6,130,000 for 1997. Cash used for investing
activities amounted to $11,893,000. Investment activity used $5,831,000 in cash,
as the balance in the investment portfolio increased by 17% at December 31,
1997, compared to December 31, 1996. Loan activity, including the purchase of
$32,859,000 in indirect automobile paper, used $6,397,000 in funds during 1997.
The sale of OREO properties in 1997 provided $1,879,000 in cash while the
purchase of capital additions used $1,542,000. Offsetting the decrease in funds
from investing activities was an increase in funds from the Corporation's
financing activities, which provided $21,162,000 in net cash, primarily the
result of a $22,622,000 net increase in outstanding noninterest-bearing demand
and savings related deposits. The Corporation used $1,809,000 in repayment of
its mortgage debt. Specifically, the Corporation paid off a mortgage loan during
the first quarter of 1997. The Corporation also used $1,228,000 to repurchase
30,950 shares of treasury stock. The Corporation's cash and cash equivalents
increased from December 31, 1996, to December 31, 1997, by $14,728,000, from
$38,454,000 at December 31, 1996 to $53,182,000 at December 31, 1997.
OTHER
- -----
YEAR 2000
The Corporation began the process of preparing its computer systems and
applications for the year 2000 in November 1996. The process involves modifying
or replacing certain hardware and software as well as communicating with
external service providers to ensure they are taking the appropriate action to
remedy their year 2000 issues. Management expects to have substantially all
essential systems, hardware and software reviewed and upgraded, as necessary,
for compliance, by year-end 1998. Management believes that its level of
preparedness is appropriate.
The Corporation estimates cumulative costs of the process to approximate
$250,000, which includes costs of replacing or modifying hardware and software.
Purchased hardware and software will be capitalized in accordance with
Corporation policy. Other costs related to the project are being expensed as
incurred.
The Bank is also assessing the impact, if any, the century date change may have
on its credit risk and loan underwriting. In connection with potential credit
risk related to the year 2000 issue, the Bank is contacting its large commercial
loan customers regarding their level of preparedness for year 2000.
The costs of the project and expected completion dates are based on management's
best estimates.
14
1996 vs. 1995 Results of Operations
NET INCOME
Net income for the year ended December 31, 1996, was $6,042,000, a 30% increase
over net income of $4,643,000 for the year ended December 31, 1995. During the
first quarter of 1996, the Bank sold a commercial property it had acquired in
connection with its workout of a defaulted loan. The Bank recognized a
non-recurring gain on the sale of $1,073,000 which was in part offset by
increases in its OREO and contingency reserves, totaling $155,000, and the
payment of a onetime bonus of $92,000 to certain Bank officers and employees.
The after-tax effect of these transactions added $545,000 to 1996 net income.
Exclusive of these transactions, 1996 net income would have been $5,497,000, an
18% increase over 1995's net income. Basic earnings per share rose from $2.12 in
1995 to $2.76 in 1996. The addition of $545,000 to net income discussed in the
previous paragraph added $.25 per basic common share to earnings per share.
Earnings per share-assuming dilution was $2.66 for 1996, compared to $2.08 in
1995. In 1996, the Corporation paid dividends of $0.92 per share, including a
onetime special dividend of $0.32 per share to pay the after-tax gain on the
sale of an OREO property to the Corporation's shareholders. Exclusive of this
onetime dividend, dividends per share amounted to $0.60 per share, a 20%
increase over $0.50 per share, declared in 1995.
Return on average assets was 1.79% for 1996 compared to 1.39% in 1995. Return on
average equity was 18.16% in 1996 versus 15.79% in 1995.
NET INTEREST INCOME
While average earning assets remained relatively level from 1995 to 1996, a 3%
rise in interest income was due to a 20 basis point increase in the average
yield on earning assets, from 7.9% in 1995 to 8.1% in 1996 and a change in the
mix of earning assets, increasing higher yielding average loan volumes and
decreasing lower yielding investment and federal fund sold average balances.
Interest expense decreased 10% or $756,000 from 1995 to 1996. The primary reason
for this decrease was an 11% decrease in higher costing CDs and a decrease in
the average effective rate paid on interest bearing liabilities from 3.1% in
1995 to 2.9% in 1996.
Net interest income increased 9%, while the net interest margin increased from
5.21% for 1995 to 5.67% for 1996.
LOAN LOSS PROVISION
The provision for loan losses amounted to $500,000 for 1995 and was decreased to
$350,000 for 1996. The allowance for possible loan losses as a percentage of
nonperforming loans amounted to 461% and 598% as of December 31, 1996 and 1995,
respectively.
OTHER INCOME
Other income increased 13% in 1996 from 1995 levels. Primarily responsible for
this $1,226,000 increase in other income was a $944,000 or 689% increase in
gains on the sale of OREO. Fees for Trust services increased $440,000 or 8%. Net
gains on the sale of mortgage loans decreased $81,000 or 17%, due primarily to a
reduction in the sale of residential mortgage loans to the secondary mortgage
market, from $67,826,000 in 1995 compared to $55,276,000 in 1996. The sale of a
commercial OREO property, during the first quarter of 1996, caused the
elimination of the OREO revenue stream and is the reason for the $279,000 or 79%
decrease in OREO revenues in 1996, compared to 1995. Other operating income
increased $130,000 or 29%, primarily due to a $35,000 increase in revenues from
merchant credit card processing and a $55,000 fee for brokering a loan
transaction between two other financial institutions.
OTHER EXPENSES
Other expenses increased by $653,000 or 4% in 1996 over 1995. Regular salaries
increased $688,000 or 10%, primarily due to merit increases and staffing
additions for Investment Counsellors of Bryn Mawr in the Trust Division.
Salaries, other, primarily incentive based, decreased $67,000 or 6%. Increases
in incentive based compensation, tied to overall profitability of the Bank of
$95,000, as well as a onetime bonus of $92,000 related to the non-recurring gain
on the sale of OREO were offset by a $122,000 and $16,000 reduction in the
respective Trust and Mortgage Banking incentive pools.
Employee benefit costs decreased by $305,000 or 16%, due to reductions in the
actuarially computed pension and post-retirement benefit costs. The expense
reductions, from 1995 to 1996, amounted to $85,000 and $173,000, respectively.
The $369,000 or 42% increase in furniture, fixtures and equipment expense was
primarily due to the additional depreciation on fixed assets and amortization of
EDP conversion costs associated with a first quarter 1996 conversion to an
in-house EDP system. Partially offsetting this increase was a $338,000 or 29%
decrease in computer processing fees.
15
The $76,000 or 27% increase in stationery and supplies in 1996, compared to
1995, is due primarily to additional costs associated with the in-house EDP
conversion.
Insurance, including the Corporation's business coverage premiums and FDIC
deposit insurance premiums, decreased by $327,000 or 67% in 1996 compared to
1995 levels. During 1995, the FDIC announced that the bank insurance fund was
sufficiently funded to provide necessary coverage for insured bank deposits.
Therefore, for those banks considered "well-capitalized" by FDIC criteria, which
the Bank is considered, the FDIC refunded premiums paid from May through
September 1995 and eliminated any further premiums for the 4th quarter of 1995.
During 1996, the Bank paid a minimum deposit insurance premium of $2,000, which
was a $332,000 decrease in FDIC deposit insurance premiums from 1995 to 1996.
Other operating expenses increased $255,000 or 11% from 1995 to 1996. The larger
increases were in employee tuition expense, up $42,000, related to a Certified
Financial Planning program run by the Bank; the cost of corporate wear for
tellers and customer service representatives, up $31,000; postage expense, up
$30,000 related to the in-house EDP conversion and travel and entertainment, up
$47,000.
INCOME TAXES
The income tax provision for 1996 was $2,900,000, or a 32.4% effective rate,
compared to $2,100,000, or a 31.1% effective rate, for 1995. All of the increase
in income before income taxes from 1995 to 1996 occurred in taxable income,
thereby increasing the effective tax rate for 1996, compared to 1995.
16
Consolidated Balance Sheets
(in thousands)
As of December 31 1997 1996
---------------------------
ASSETS
- ------
Cash and due from banks..................................... $ 34,464 $ 26,717
Interest-bearing deposits with other banks.................. 2,118 121
Federal funds sold.......................................... 16,600 11,616
Investment securities available for sale, at market value
(amortized cost of $40,573,000 and $34,748,000
at December 31, 1997 and 1996, respectively).............. 40,666 34,747
Loans....................................................... 268,558 259,427
Less: Allowance for possible loan losses.................. (4,074) (4,182)
---------------------------
Net loans............................................. 264,484 255,245
---------------------------
Premises and equipment, net................................. 11,790 11,334
Accrued interest receivable................................. 2,039 2,164
Deferred federal income taxes............................... 1,086 1,312
Other real estate owned..................................... 25 1,523
Other assets................................................ 938 968
---------------------------
Total assets.......................................... $ 374,210 $ 345,747
---------------------------
LIABILITIES
- -----------
Deposits:
Demand, noninterest-bearing............................... $ 101,188 $ 81,865
Savings................................................... 165,739 162,440
Time...................................................... 61,879 58,878
---------------------------
Total deposits........................................ 328,806 303,183
Other liabilities........................................... 6,055 6,756
---------------------------
Total liabilities..................................... 334,861 309,939
---------------------------
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY
- --------------------
Common stock, par value $1,
authorized, 5,000,000 shares,
issued 2,519,379 shares and 2,503,885 shares
as of December 31, 1997 and 1996, respectively,
and outstanding 2,185,609 shares and
2,201,065 shares as of December 31, 1997
and 1996, respectively.................................... 2,519 2,504
Paid-in capital in excess of par value...................... 4,589 4,445
Unrealized investment appreciation/(depreciation), net of
deferred income taxes..................................... 62 (1)
Retained earnings........................................... 34,946 30,399
---------------------------
42,116 37,347
Less: Common stock in treasury, at cost -- 333,770 and
302,820 shares at December 31, 1997 and 1996,
respectively.............................................. (2,767) (1,539)
---------------------------
Total shareholders' equity................................ 39,349 35,808
---------------------------
Total liabilities and shareholders' equity................ $ 374,210 $ 345,747
---------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
17
Consolidated Statements of Income
(in thousands, except for share and per share data)
For the years ended December 31 1997 1996 1995
--------------------------------------------------
Net interest income:
Interest income:
Interest and fees on loans................................ $ 22,083 $ 21,513 $ 19,627
Interest on federal funds sold............................ 935 257 813
Interest and dividends on investment securities:
Taxable interest income................................. 1,916 2,082 2,491
Tax-exempt interest income.............................. 283 406 607
Dividend income........................................... 80 79 79
--------------------------------------------------
Total interest income................................. 25,297 24,337 23,617
Interest expense on deposits................................ 6,929 6,490 7,246
--------------------------------------------------
Net interest income......................................... 18,368 17,847 16,371
Loan loss provision......................................... 200 350 500
--------------------------------------------------
Net interest income after loan loss provision............... 18,168 17,497 15,871
--------------------------------------------------
Other income:
Fees for trust services................................... 7,698 5,936 5,496
Service charges on deposit accounts....................... 1,124 1,081 1,049
Other fees and service charges............................ 1,378 1,280 1,240
Net gain on sale of loans................................. 509 398 479
Gain on sale of other real estate owned................... 379 1,081 137
Other real estate owned income............................ 0 74 353
Other operating income.................................... 661 573 443
--------------------------------------------------
Total other income.................................... 11,749 10,423 9,197
--------------------------------------------------
Other expenses:
Salaries-regular.......................................... 8,604 7,594 6,906
Salaries-other............................................ 1,655 1,045 1,112
Employee benefits......................................... 1,791 1,585 1,890
Occupancy expense......................................... 1,365 1,537 1,441
Furniture, fixtures, and equipment........................ 1,565 1,246 877
Advertising............................................... 1,069 991 868
Professional fees......................................... 822 677 701
Computer processing....................................... 584 836 1,174
Merchant credit card processing........................... 390 376 314
Stationery and supplies................................... 322 355 279
Insurance................................................. 188 159 486
Net cost of operation of other real estate owned.......... 9 97 52
Other operating expenses.................................. 2,473 2,480 2,225
--------------------------------------------------
Total other expenses.................................. 20,837 18,978 18,325
--------------------------------------------------
Income before income taxes.................................. 9,080 8,942 6,743
Applicable income taxes..................................... 2,950 2,900 2,100
--------------------------------------------------
Net income.................................................. $ 6,130 $ 6,042 $ 4,643
--------------------------------------------------
Earnings per common share................................... $ 2.79 $ 2.76 $ 2.12
Earnings per common share-assuming dilution................. $ 2.67 $ 2.66 $ 2.08
Weighted-average shares outstanding......................... 2,196,081 2,192,547 2,188,528
Dilutive potential common shares............................ 101,830 75,849 45,370
--------------------------------------------------
Adjusted weighted-average shares............................ 2,297,911 2,268,396 2,233,898
The accompanying notes are an integral part of the consolidated financial
statements.
18
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31 1997 1996 1995
------------------------------------------
OPERATING ACTIVITIES:
- --------------------
Net income.................................................. $ 6,130 $ 6,042 $ 4,643
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 200 350 500
Provision for depreciation and amortization............... 1,091 1,142 986
Loans originated for resale............................... (78,407) (56,915) (61,105)
Proceeds from sale of loans............................... 75,874 55,276 67,826
Net Gain on sale of loans................................. (509) (398) (479)
Net gain on disposal of other real estate owned........... (379) (1,081) (137)
Provision for deferred income taxes....................... 194 (161) (148)
Change in income taxes payable/refundable................. -- -- 160
Change in accrued interest receivable..................... 125 299 (464)
Change in accrued interest payable........................ (345) 1,443 101
Other..................................................... 1,485 (713) 944
------------------------------------------
Net cash provided by operating activities............... 5,459 5,284 12,827
------------------------------------------
INVESTING ACTIVITIES:
- --------------------
Purchases of investment securities........................ (30,013) (12,086) (21,289)
Proceeds from maturities of investment securities......... 15,200 16,685 22,320
Proceeds from sales of investment securities available for
sale.................................................... 27 9,502 --
Proceeds from calls of investment securities.............. 8,955 9,905 --
Proceeds on disposition of other real estate owned........ 1,879 3,462 415
Purchase of other real estate owned....................... -- (141) (404)
Capitalization of costs of other real estate owned........ (2) -- (193)
Loan repayments, net of originations...................... 26,462 18,974 12,765
Purchase of automobile retail installment contracts....... (32,859) (40,831) (26,088)
Purchases of premises and equipment....................... (1,542) (557) (1,309)
------------------------------------------
Net cash (used)/provided by investing activities........ (11,893) 4,913 (13,783)
------------------------------------------
FINANCING ACTIVITIES:
- --------------------
Change in demand and savings deposits..................... 22,622 1,837 (17,049)
Change in time deposits................................... 3,001 (16,255) 33,313
Dividends paid............................................ (1,583) (2,017) (1,095)
Repayment of mortgage debt................................ (1,809) (54) (49)
Proceeds from issuance of common stock.................... 260 93 52
Purchase of Treasury Stock................................ (1,329) -- --
------------------------------------------
Net cash provided/(used) by financing activities........ 21,162 (16,396) 15,172
------------------------------------------
Change in cash and cash equivalents......................... 14,728 (6,199) 14,216
Cash and cash equivalents at beginning of year.............. 38,454 44,653 30,437
------------------------------------------
Cash and cash equivalents at end of year.................... $ 53,182 $ 38,454 $ 44,653
------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
- ----------------------------------
Cash paid during the year for:
Income taxes............................................ $ 2,153 $ 3,340 $ 1,414
Interest................................................ 6,835 5,047 7,145
The accompanying notes are an integral part of the consolidated financial
statements.
19
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except for shares of common stock)
Shares of Unrealized
Common Common Paid-in Retained Gains Treasury
For the years ended 1997, 1996, and 1995 Stock issued Stock Capital Earnings (Losses) Stock
---------------------------------------------------------------------------------
Balance, December 31, 1994.................... 1,245,100 $1,245 $5,559 $22,826 $(945) $(1,539)
Net income.................................... -- -- -- 4,643 -- --
Dividends declared, $0.50 per share........... -- -- -- (1,095) -- --
Change in unrealized gains (losses), net of
income taxes of $596,000.................... -- -- -- -- 1,157 --
Common stock issued........................... 1,500 1 51 -- -- --
Common stock issued in conjunction with the
2-for-1 stock split, effective December 29,
1995........................................ 1,246,600 1,247 (1,247) -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 1995.................... 2,493,200 2,493 4,363 26,374 212 (1,539)
Net income.................................... -- -- -- 6,042 -- --
Dividends declared, $0.92 per share........... -- -- -- (2,017) -- --
Change in unrealized gains (losses), net of
income taxes of $109,000.................... -- -- -- -- (213) --
Purchase of treasury stock.................... -- -- -- -- -- (138)
Retirement of treasury stock.................. (4,975) (5) (133) -- -- 138
Common stock issued........................... 15,660 16 215 -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 1996.................... 2,503,885 2,504 4,445 30,399 (1) (1,539)
Net income.................................... -- -- -- 6,130 -- --
Dividends declared, $0.72 per share........... -- -- -- (1,583) -- --
Change in unrealized gains (losses), net of
income taxes of $32,000..................... -- -- -- -- 63 --
Purchase of treasury stock.................... -- -- -- -- -- (1,329)
Retirement of treasury stock.................. (2,006) (2) (99) -- -- 101
Common stock issued........................... 17,500 17 243 -- -- --
---------------------------------------------------------------------------------
Balance, December 31, 1997.................... 2,519,379 $2,519 $4,589 $34,946 $ 62 $(2,767)
---------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
20
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"), and
Tax Counsellors of Bryn Mawr Inc. ("TCBM").
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") 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. For all
years presented, all adjusting entries required for the fair presentation of the
financial statements were made. All such adjustments were of a normal recurring
nature. All significant intercompany transactions and accounts have been
eliminated upon consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------
The accounting policies of the Corporation conform to GAAP and to general
practices of the banking industry. The significant accounting policies are as
follows:
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash and due from banks, federal funds sold,
and interest-bearing deposits with other banks with original maturities of three
months or less. Cash balances reserved to meet regulatory requirements of the
Federal Reserve Board amounted to $10,601,000 and $10,487,000 at December 31,
1997 and 1996, respectively.
INVESTMENT SECURITIES:
As required by the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"), all entities must allocate their investments among three categories
as applicable: (1) trading, (2) available for sale, and (3) held to maturity.
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, 1996, shareholders' equity was decreased by
$1,000 due to unrealized losses of $1,000 in the investment portfolio. As of
December 31, 1997, shareholders' equity was increased by $62,000 due to
unrealized gains (net of $32,000 in deferred income taxes)of $94,000 in the
investment securities portfolio.
LOANS:
Interest income on loans performing satisfactorily is recognized on the accrual
method of accounting. Nonperforming loans are loans on which scheduled principal
and/or interest is past due 90 days or more or loans less than 90 days past due
which are deemed to be problem loans by management. All nonperforming loans,
except consumer loans, are placed on nonaccrual status, and any outstanding
interest receivable at the time the loan is deemed nonperforming is deducted
from interest income. The charge-off policy for all loans, including
nonperforming and impaired loans, considers such factors as the type and size of
the loan, the quality of the collateral, and historical creditworthiness of the
borrower.
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 nonperforming and impaired loan. All of the Corporation's
impaired loans, which amounted to $3,524,000 and $2,069,000 at December 31, 1997
and 1996, respectively, were put on a nonaccrual basis and any outstanding
accrued interest receivable on such loans, at the time they were put on a
nonaccrual status, was reversed from income.
Impaired loans are required to be measured based upon the present value of
expected future cash flows, discounted at the loan's initial effective interest
rate or at the loan's market price
21
or fair value of the collateral, if the loan is collateral dependent. As of
December 31, 1997, no impaired loans were measured using the present value of
expected future cash flows. As of December 31, 1996, impaired loans measured
using the present value of expected future cash flows amounted to $165,000.
Impaired loans measured by the fair value of the loan's collateral amounted to
$3,524,000 and $1,904,000, 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 1997 or 1996 were allocated from the
existing reserve for loan losses. As of December 31, 1997 and 1996, there were
$791,000 and $1,381,000, respectively, of impaired loans for which there is a
related allowance for loan losses. The total related allowance for loan loss on
impaired loans at December 31, 1997 and 1996 was $226,000 and $191,000,
respectively. Impaired loans for which no loan loss allowance was allocated
amounted to $2,733,000 and $688,000 at December 31, 1997 and 1996. Average
impaired loans during both 1997 and 1996 amounted to $2,927,000 and $2,237,000,
respectively.
When a loan is classified as impaired, it is put on a nonaccrual status and any
income subsequently collected is credited to the outstanding principal balance.
Therefore, no interest income was reported on outstanding loans while considered
impaired in either 1997 or 1996. 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, during 1997,
$409,000 in loan balances were removed from impaired status and returned to
accrual status. No loans considered impaired during 1996 were removed from the
impaired loan status.
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.
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.
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 being amortized over the shorter of the
estimated useful life or the term of the lease.
Maintenance and repairs are charged to expense; major renewals and betterments
are capitalized. Gains and losses on dispositions are reflected in current
operations.
INCOME TAXES:
The Corporation files a consolidated Federal income tax return with its
subsidiaries. Certain items of income and expense (primarily loan origination
fees, provision for loan loss and other real estate owned losses) are reported
in different periods for tax purposes. Deferred taxes are provided on such
temporary differences existing between financial and income tax reporting,
subject to the deferred tax asset realization criteria required under Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109").
TRUST INCOME:
Trust Division income is recognized on the cash basis of accounting. Reporting
such income on a cash basis does not materially affect net income.
RECENTLY ISSUED ACCOUNTING STANDARDS:
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 the
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, "Earnings per Share", ("SFAS No. 128").
SFAS No. 128 specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly
22
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; the weighted-average number of shares is increased to
include the number of additional common shares that would have been outstanding
if the dilutive common stock equivalents 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. All prior periods have been restated.
3. INVESTMENT SECURITIES:
- -------------------------
The amortized cost and estimated market value of investments, all of which were
classified as available for sale, are as follows:
(IN THOUSANDS) 1997
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
------------------------------------------------------
Obligations of the
U.S. Government and
agencies........... $35,030 $ 71 $29 $35,072 $35,072
State & political
subdivisions....... 4,270 38 -- 4,308 4,308
Other securities..... 1,273 13 -- 1,286 1,286
------------------------------------------------------
Total............... $40,573 $122 $29 $40,666 $40,666
------------------------------------------------------
(in thousands) 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
------------------------------------------------------
Obligations of the
U.S. Government and
agencies........... $26,524 $16 $84 $26,456 $26,456
State & political
subdivisions....... 6,924 58 -- 6,982 6,982
Other securities..... 1,300 9 -- 1,309 1,309
------------------------------------------------------
Total............... $34,748 $83 $84 $34,747 $34,747
------------------------------------------------------
At December 31, 1997, securities having a book value of $12,540,595 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, 1997, 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.
(IN THOUSANDS) 1997
--------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------------------
Due in one year or less................................... $ 8,983 $ 8,997
Due after one year through five years..................... 30,317 30,383
Due after five years through ten years.................... -- --
Due after ten years....................................... -- --
Other securities.......................................... 1,273 1,286
--------------------
Total.................................................... $40,573 $40,666
--------------------
Proceeds from sales of debt securities are as follows:
(IN THOUSANDS) 1997 1996 1995
----------------------
Proceeds................................................ $ -- $9,502 $ --
Gross gains............................................. -- 2 --
Gross losses............................................ -- -- --
4. LOANS:
- ---------
Loans outstanding at December 31 are detailed by category as follows:
(IN THOUSANDS) 1997 1996
------------------
Real estate loans:
Permanent mortgage loans................................... $102,474 $ 95,588
Construction loans......................................... 13,647 7,639
Commercial and industrial loans............................. 75,474 74,688
Loans to individuals for household, family, and other
consumer expenditures..................................... 76,963 81,512
------------------
Total.................................................... $268,558 $259,427
------------------
All loans past due 90 days or more, except consumer loans, are placed on
nonaccrual status. Nonperforming loans amounted to $1,169,000 and $907,000 at
December 31, 1997 and 1996, respectively. Forgone interest on nonaccrual loans
was $298,000, $144,000, and $59,000 in 1997, 1996, and 1995, respectively.
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
- --------------------------------------
The summary of the changes in the allowance for possible loan losses is as
follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Balance, January 1................................... $4,182 $3,652 $3,618
Charge-offs.......................................... (433) (268) (769)
Recoveries........................................... 125 448 303
------------------------
Net charge-offs/(recoveries)........................ (308) 180 (466)
Loan loss provision.................................. 200 350 500
------------------------
Balance, December 31................................. $4,074 $4,182 $3,652
------------------------
6. PREMISES AND EQUIPMENT:
- --------------------------
A summary of premises and equipment at December 31 is as follows:
(IN THOUSANDS) 1997 1996
----------------
Land.......................................................... $ 2,973 $ 2,973
Buildings..................................................... 10,484 10,479
Furniture and equipment....................................... 9,785 8,350
Leasehold improvements........................................ 184 169
----------------
23,426 21,971
Less accumulated depreciation................................. 11,636 10,637
----------------
Total........................................................ $11,790 $11,334
----------------
23
During 1997, the Corporation paid off a mortgage loan on its property located at
10 Bryn Mawr Avenue. As of December 31, 1997, the Corporation has borrowings
outstanding of $694,000. The borrowings are collateralized by a property with a
book value of $1,714,000. The weighted average interest rate on the borrowings
was 9.54% and 9.75% in 1997 and 1996, respectively.
7. 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. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
LOANS:
For variable rate loans that reprice frequently and which have no significant
change in credit risk, estimated fair values are based on carrying values. Fair
values of certain mortgage loans and consumer loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The estimated
fair value of nonperforming loans is based on discounted estimated cash flows as
determined by the internal loan review of the Bank or the appraised market value
of the underlying collateral, as determined by independent third party
appraisers.
DEPOSITS:
The estimated fair values disclosed for noninterest-bearing demand deposits, NOW
accounts, and Market Rate and Market Rate Checking accounts are, by definition,
equal to the amounts payable on demand at the reporting date (i.e., their
carrying amounts). Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of expected monthly maturities on the
certificate of deposit. SFAS No. 107 defines the fair value of demand deposits
as the amount payable on demand and prohibits adjusting estimated fair value
from any value derived from retaining those deposits for an expected future
period of time.
OTHER LIABILITIES:
Estimated fair values of long term mortgages, collateralized by one property
included in premises and equipment, are based on discounted cash flow analyses,
using interest rates currently being offered for similar types of loans and
amortizing the loan under existing amortization tables for each loan.
OFF-BALANCE SHEET INSTRUMENTS:
Estimated fair values of the Corporation's off-balance sheet instruments
(standby letters of credit and loan commitments) are based on fees currently
charged to enter into similar loan agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing. Since fees and
rates charged for off-balance sheet items are at market levels when set, there
is no material difference between the stated amount and estimated fair values of
off-balance sheet instruments.
The carrying amount and estimated fair value of the Corporation's financial
instruments at December 31 are as follows:
(IN THOUSANDS) 1997 1996
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------
Financial assets:
Cash and due from banks.............. $ 34,464 $ 34,464 $ 26,717 $ 26,717
Interest-bearing deposits
with other banks................... 2,118 2,118 121 121
Federal funds sold................... 16,600 16,600 11,616 11,616
Investment securities................ 40,666 40,666 34,747 34,747
Net loans............................ 264,484 269,656 255,245 255,417
----------------------------------------
Total financial assets............. $358,332 $363,504 $328,446 $328,618
----------------------------------------
Financial liabilities:
Deposits............................. $328,806 $328,644 $303,183 $303,131
Other liabilities.................... 694 719 2,503 2,811
----------------------------------------
Total financial liabilities........ $329,500 $329,363 $305,686 $305,942
----------------------------------------
Off-balance sheet instruments......... $ 80,607 $ 80,607 $ 69,653 $ 69,653
----------------------------------------
24
8. APPLICABLE FEDERAL INCOME TAXES:
- -----------------------------------
The components of the net deferred tax asset as of December 31 are as follows:
(IN THOUSANDS) 1997 1996
-------------------
Deferred tax assets:
Other real estate owned.................................. $ -- $ 364
Loan loss reserve........................................ 659 591
Deferred loan fees....................................... 34 46
Depreciation............................................. 15 --
Other reserves........................................... 410 348
-------------------
1,118 1,349
Deferred tax liabilities:
Depreciation............................................. -- (37)
Unrealized appreciation on investment securities......... (32) --
-------------------
Total deferred tax assets................................. $1,086 $1,312
-------------------
No valuation allowance was recorded as of December 31, 1997 and 1996.
The provisions for federal income taxes consist of the following:
(IN THOUSANDS) 1997 1996 1995
------------------------
Currently payable..................................... $2,756 $3,061 $2,008
Deferred.............................................. 194 (161) 92
------------------------
Total................................................. $2,950 $2,900 $2,100
------------------------
The sources of temporary differences resulting in deferred federal income taxes
and the approximate tax effect of each are as follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Other real estate owned.............................. $364 $ (8) $ 10
Loan loss provision.................................. (68) (119) 47
Depreciation......................................... (52) (83) (33)
Pension expense...................................... 9 (37) (67)
Deferred loan fees................................... 12 27 26
Other................................................ (71) 59 109
------------------------
Total................................................ $194 $ (161) $ 92
------------------------
Applicable federal income taxes differed from the amount derived by applying the
statutory federal tax rate to income as follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Statutory federal tax rate........................... 34% 34% 34%
------------------------
Computed "expected" tax expense...................... $3,087 $3,040 $2,201
Benefit reductions in taxes resulting from tax-exempt
income............................................. (113) (181) (285)
Other, net........................................... (24) 41 184
------------------------
Actual tax expense................................... $2,950 $2,900 $2,100
------------------------
9. EMPLOYEE BENEFIT PLANS:
- --------------------------
PENSION PLAN:
The Bank sponsors a noncontributory, defined benefit pension plan (the "Plan")
covering substantially all employees. The Plan provides for normal retirement at
age 65 and, under certain conditions, also permits early retirement and payment
of spouse's benefits. Total pension (income) expense under the Plan amounted to
($122,000), $37,000 and $122,000 for the years ended December 31, 1997, 1996,
and 1995, respectively.
Pension (income) expense for the years ended December 31 is comprised of the
following:
(IN THOUSANDS) 1997 1996 1995
------------------------
Service cost--benefits earned during the period...... $ 543 $ 480 $ 428
Interest cost on projected benefit obligation........ 754 668 669
Actual return on Plan assets......................... (3,469) (2,196) (3,009)
Unrecognized gain.................................... -- -- --
Net amortization and deferral........................ 2,050 1,085 2,034
------------------------
Net periodic pension (income) cost................... $ (122) $ 37 $ 122
------------------------
The following table presents a reconciliation of the funded status of the
defined benefit plan at December 31, 1997 and 1996. The accrued pension
liability is included in "Other liabilities" on the accompanying consolidated
balance sheets.
(IN THOUSANDS) 1997 1996
-------------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation (including vested benefits
of $9,793,000 and $7,867,000 as of December 31, 1997
and 1996).............................................. $ (9,554) $ (7,955)
-------------------
Projected benefit obligation for service rendered to
date.................................................... (11,886) (9,811)
Plan assets at fair value (invested primarily in the
Bank's temporary, income, and equity common trust
funds).................................................. 17,527 14,508
-------------------
Plan assets in excess of projected benefit obligation..... 5,641 4,697
Unrecognized net gain..................................... (5,754) (4,932)
Unrecognized prior service cost........................... -- --
-------------------
Accrued pension liability included in consolidated
balance sheets.......................................... $ (113) $ (235)
-------------------
Significant assumptions used in determining the accrued pension obligation were
as follows:
(IN THOUSANDS) 1997 1996 1995
------------------------
Discount rate........................................ 7.0% 7.5% 7.0%
Projected compensation increase...................... 5.0 5.0 5.0
Expected long-term rate of return on plan assets..... 8.0 8.0 8.0
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN:
The Bank sponsors a noncontributory Supplemental Employee Retirement Plan (the
"SERP") covering three employees. The SERP provides for supplemental retirement
benefits, in an amount that is equal to the difference between what would have
been payable under the Plan and the maximum amount payable under current
regulations. SERP expense was first recognized in 1995. SERP expense was
$94,000, $72,000 and $71,000 for 1997, 1996 and 1995, respectively.
25
SERP expense for the year ended December 31 is comprised of the following:
(IN THOUSANDS) 1997 1996 1995
-------------------------
Service cost--benefits earned
during the period........... $12 $ 9 $ 9
Interest cost on projected
benefit obligation.......... 35 25 24
Actual return on Plan
assets...................... -- -- --
Unrecognized gain............. -- -- --
Net amortization and
deferral.................... 47 38 38
-------------------------
Net periodic SERP cost........ $94 $72 $71
-------------------------
The following table presents a reconciliation of the accrued liability for the
SERP as of December 31, 1997 and 1996. The accrued SERP liability is included in
"Other liabilities" on the accompanying consolidated balance sheets.
(IN THOUSANDS) 1997 1996
-------------
Actuarial present value of benefit
obligation:
Accumulated benefit obligation (including
vested benefits of $266,000 and $71,000
as of December 31, 1997 and 1996,
respectively)........................... $(266) $ (71)
-------------
Projected benefit obligation for service
rendered to date......................... (736) (363)
Unrecognized net (gain) loss............... 174 (6)
Unrecognized prior service cost............ 325 226
Adjustment to recognize minimum
liability................................ (29) --
-------------
Accrued SERP liability included in
consolidated balance sheets.............. $(266) $(143)
-------------
Significant assumptions used in determining the accrued pension obligation were
as follows:
1997 1996
-------------------
Discount rate......................... 7.0% 7.5%
Projected compensation increase....... 5.0 5.0
Expected long-term rate of return on
plan assets......................... 8.0 8.0
THRIFT PLAN:
The Corporation sponsors a thrift and savings plan (the "Thrift Plan") covering
substantially all employees. The Thrift Plan provides for the Corporation to
make incentive contributions equal to the participant's basic contribution up to
a maximum of 3% of compensation and provides for voluntary employee
contributions.
All contributions and interest earned thereon are vested immediately. The Thrift
Plan expense was approximately $208,000, $180,000, and $165,000 in 1997, 1996,
and 1995, respectively.
POST-RETIREMENT BENEFITS:
In addition to providing pension and thrift plan benefits, the Corporation
provides certain health care and life insurance benefits for certain retired
employees. The Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-Retirement Benefits other than
Pensions" ("SFAS No. 106"), in the first quarter of 1993. SFAS No. 106 requires
that the expected cost of such benefits be actuarially determined and accrued
ratably from the date of hire to the date the employee is fully eligible to
receive benefits. The Corporation elected to amortize the net obligation
existing as of the date of adoption (transition obligation) over the remaining
service periods of active plan participants.
The net periodic post-retirement benefit cost for 1997, 1996 and 1995 was
$298,000, $162,000 and $335,000, respectively.
The net periodic post-retirement benefit cost for the years ended December 31 is
comprised of the following:
(IN THOUSANDS) 1997 1996 1995
------------------
Service cost -- benefits attributed
to service during the period...... $ 11 $ 11 $ 12
Interest cost on accumulated
postretirement benefit
obligation........................ 165 106 204
Amortization of transition
obligation........................ 122 122 119
Amortization of unrecognized gain... -- (77) --
-----------------
Net periodic post-retirement benefit
cost.............................. $298 $162 $335
-----------------
The assumed discount rate used in the calculation for the accumulated
post-retirement benefit obligation was 7.0% for 1997 and 7.5% for 1996. The
assumed health care cost trend rate for 1998 was 7% and was graded down in 1%
increments per year to an ultimate rate of 6% per year.
The following table summarizes the amounts recognized in the Corporation's
balance sheet as of December 31, 1997 and 1996:
(IN THOUSANDS) 1997 1996
-----------------
Accumulated post-retirement benefit
obligation............................... $(2,366) $(1,573)
Unrecognized variance of experience
different from that assumed and
unamortized transition obligation........ 1,910 1,223
-----------------
Accrued post-retirement benefit cost....... $ (456) $ (350)
-----------------
The impact of a 1% increase in the assumed health care cost trend rate for each
future year would be as follows:
(IN THOUSANDS) 1997
-------
Accumulated post-retirement benefit obligation
as of December 31....................................... $2,532
Service cost.............................................. 11
Interest cost............................................. 177
10. STOCK OPTION PLAN:
- ----------------------
At December 31, 1997, the Corporation maintains a stock option and stock
appreciation rights plan (the "Stock Option Plan"), which is described below.
The Corporation applies APB Opinion 25 and related interpretations in accounting
for the Stock Option Plan. Accordingly, no compensation cost has been recognized
for the Stock Option Plan. Had
26
compensation for the Corporation's Stock Option Plan been determined based on
the fair value at the grant date for awards in 1997, 1996 and 1995, 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:
1997 1996 1995
----------------------
Net income -- as reported..... $6,130 $6,042 $4,643
Net income pro forma.......... $6,003 $5,946 $4,568
Basic earnings per share -- as
reported.................... $2.79 $2.67 $2.08
Basic earnings per share --
pro forma................... $2.73 $2.63 $2.04
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 1995, 1996 and 1997: dividend yield of 3.09
percent, expected volatility of 43.2 percent, expected life of nine years and
risk-free interest rates of 7.1, 6.5 and 6.3 percent, respectively.
The Plan had, prior to 1994, up to 108,000 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 108,860 shares for issuance
under the Plan. The option to purchase shares of the Corporation's common stock
may be issued to key officers. During 1995, the shareholders approved the
issuance of 40,000 shares, 10,000 to be granted to outside directors, for 4
years after each Annual Meeting. The option price will be set at the last sale
price for the stock on the 3rd business day following the Corporation's Annual
Meeting.
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,
1994.................. 181,660 1,260 $ 9.00 - $18.60 $15.08
Options authorized..... 40,000
Options granted........ 10,000 (10,000) $17.375 $17.38
Options exercised...... (3,000) $17.375 $17.38
Options expired........ (3,200) $15.50 - $18.60 $17.15
-------------------
Balance at December 31,
1995.................. 185,460 31,260 $ 9.00 - $18.60 $15.12
Options granted........ 9,000 (9,000) $25.00 $25.00
Options exercised...... (15,660) $13.50 - $16.50 $14.72
-------------------
Balance at December 31,
1996.................. 178,800 22,260 $ 9.00 - $25.00 $15.65
Options granted........ 9,000 (9,000) $33.19 $33.19
Options exercised...... (17,500) $14.00 - $25.00 $14.86
-------------------
Balance at December 31,
1997.................. 170,300 13,260 $ 9.00 - $33.19 $16.52
-------------------
Weighted-average
remaining contractual
life of options
outstanding at
December 31, 1997..... 6.25 years
The weighted-average fair value of options granted during 1995, 1996 and 1997
were $7.52, $10.64 and $13.99, respectively.
The number of exercisable shares at December 31, 1995, 1996 and 1997 were
105,420, 119,840 and 139,980, respectively, with respective weighted average
exercise prices of $14.42, $15.42 and $16.77.
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 $.12 per share, $.10 per share and $.04 per share dilutive effect
on earnings per share for the years ended December 31, 1997, 1996 and 1995,
respectively.
11. RELATED PARTY TRANSACTIONS:
- -------------------------------
The Corporation had loans outstanding directly to executive officers, directors
and certain other related parties of $3,506,000 and $3,465,000 at December 31,
1997 and 1996, respectively.
Following is a summary of these transactions:
(IN THOUSANDS) 1997 1996
-------------------
Balance, beginning of year............ $3,465 $2,898
Additions............................. 549 871
Amounts collected..................... (508) (304)
-------------------
Balance, end of year.................. $3,506 $3,465
-------------------
27
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK:
------------
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated statements of
financial condition. The contractual amounts of those instruments reflect the
extent of involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument of commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet financial
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Some of the commitments are expected to expire without
being drawn upon, and the total commitment amounts do not necessarily represent
future cash requirements. Total commitments to extend credit at December 31,
1997 are $76,940,000. 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, 1997 amounted to $3,667,000.
As of December 31, 1997, 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.
13. 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.
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 these
estimates.
Significant estimates are made by management in determining the allowance for
possible loan losses, the carrying value of other real estate owned and employee
benefit plan expense. Consideration is given to a variety of factors in
establishing these estimates, including current economic conditions, the results
of the internal loan review process, delinquency statistics, borrowers perceived
financial and managerial strengths and the adequacy of supporting collateral, if
collateral dependent, or the present value of future cash flows. Since the
allowance for possible loan losses and the carrying value of other real estate
owned are dependent, to a great extent, on general and other economic conditions
beyond the Bank's control, it is at least reasonably possible that the estimates
of the allowance for possible loan losses and the carrying value of other real
estate owned could differ materially from currently reported values in the near
term.
28
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- --------------------------------------------------
QUARTERS ENDING 1997
(IN THOUSANDS, EXCEPT ------------------------------
PER SHARE DATA) 3/31 6/30 9/30 12/31
------------------------------
Interest income....... $6,125 $6,255 $6,482 $6,435
Interest expense...... 1,682 1,776 1,826 1,645
Net interest income... 4,443 4,479 4,656 4,790
Provision for loan
losses.............. 50 50 50 50
Income before income
taxes............... 2,178 2,075 2,311 2,516
Net income............ 1,458 1,390 1,540 1,742
Earnings per common
share............... 0.66 0.63 0.70 0.80
Earnings per common
share -- assuming
dilution............ 0.63 0.60 0.67 0.76
Quarters ending 1996
(IN THOUSANDS, EXCEPT ------------------------------
PER SHARE DATA) 3/31 6/30 9/30 12/31
------------------------------
Interest income....... $5,959 $6,053 $6,203 $6,122
Interest expense...... 1,679 1,592 1,624 1,595
Net interest income... 4,280 4,461 4,579 4,527
Provision for loan
losses.............. 125 75 75 75
Income before income
taxes............... 2,597 1,915 2,245 2,185
Net income............ 1,757 1,275 1,499 1,511
Earnings per common
share............... 0.80 0.58 0.68 0.69
Earnings per common
share -- assuming
dilution............ 0.77 0.56 0.66 0.66
15. CONDENSED FINANCIAL STATEMENTS:
- -----------------------------------
The condensed financial statements of the Corporation (parent company only) as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, are as follows:
CONDENSED BALANCE SHEETS
(IN THOUSANDS) 1997 1996
-----------------
Assets:
Cash..................................... $ 967 $ 128
Investments in subsidiaries, at equity in
net assets............................. 34,922 33,932
Premises and equipment, net.............. 4,155 4,253
Other assets............................. -- 14
-----------------
Total assets........................... $40,044 $38,327
-----------------
Liabilities and shareholders' equity:
Mortgages payable........................ $ 694 $ 2,503
Other liabilities........................ 1 16
-----------------
Total liabilities...................... 695 2,519
Common stock, par value $1, authorized
5,000,000 shares, issued 2,519,379
shares and 2,503,885 shares as of
December 31, 1997 and 1996,
respectively, and outstanding 2,185,609
shares and 2,201,065 shares as of
December 31, 1997 and 1996,
respectively............................ 2,519 2,504
Paid-in capital in excess of par value.... 4,589 4,445
Unrealized investment appreciation
(depreciation), net of deferred income
taxes................................... 62 (1)
Retained earnings......................... 34,946 30,399
Less common stock in treasury, at cost --
333,770 shares and 302,820 shares as of
December 31, 1997 and 1996.............. (2,767) (1,539)
-----------------
Total shareholders' equity............. 39,349 35,808
-----------------
Total liabilities and shareholders'
equity............................... $40,044 $38,327
-----------------
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS) 1997 1996 1995
----------------------
Dividends from The Bryn Mawr
Trust Company............... $5,359 $2,017 $1,095
Interest and other income..... 237 237 236
----------------------
Total operating income....... 5,596 2,254 1,331
Expenses...................... 360 445 478
----------------------
Income before equity in
undistributed income of
subsidiaries................ 5,236 1,809 853
Equity in undistributed income
of subsidiaries............. 852 4,162 3,708
----------------------
Income before income taxes.... 6,088 5,971 4,561
Federal income tax benefit.... 42 71 82
----------------------
Net income.................... $6,130 $6,042 $4,643
----------------------
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) 1997 1996 1995
------------------------
Operating activities:
Net income................... $6,130 $6,042 $4,643
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
earnings of subsidiaries.... (852) (4,162) (3,708)
Depreciation expense.......... 98 98 98
Other......................... (1) (56) (42)
------------------------
Net cash provided by
operating activities..... 5,375 1,922 991
Investing Activities:
Investment in Tax Counsellors
of Bryn Mawr............... (75) -- --
------------------------
Net cash used by investing
activities............... (75) -- --
Financing activities:
Dividends paid............... (1,583) (2,017) (1,095)
Repayment of mortgage debt... (1,809) -- --
Repurchase of treasury
stock...................... (1,329) -- --
Proceeds from issuance of
stock...................... 260 93 52
------------------------
Net cash used by financing
activities............... (4,461) (1,924) (1,043)
------------------------
(Increase) decrease in cash
and cash equivalents........ 839 (2) (52)
Cash and cash equivalents at
beginning of year........... 128 130 182
------------------------
Cash and cash equivalents at
end of year................. $ 967 $ 128 $ 130
------------------------
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, 1997, the Bank's retained earnings
amounted to $28,196,000. Therefore, as of December 31, 1997, dividends available
for payment to the Corporation are limited to $28,196,000. Since the sole 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
29
the amount of dividends that it may pay to an amount equal to the limits placed
on the Bank, as discussed above.
16. SEGMENT INFORMATION:
- ------------------------
As a part of its operating segments, the Bank generates significant operating
profits from its banking, its trust and mortgage banking activities. The Bank's
Trust Division provides both corporate and individual trust products and
services to its customers. Assets under management were $1,666,472,000,
$1,229,926,000, and $1,039,804,000 at December 31, 1997, 1996, and 1995,
respectively. The Bank also originates and sells residential mortgage loans in
the secondary mortgage loan market. The Bank originated and sold mortgage loans
in the secondary mortgage loan market amounting to $75,874,000, $55,276,000, and
$67,826,000 in 1997, 1996, and 1995, respectively.
Segment information for the years ended December 31, 1997, 1996, and 1995 is as
follows:
1997
--------------------------------------------
MORTGAGE
(IN THOUSANDS) BANKING TRUST BANKING CONSOLIDATED
--------------------------------------------
Interest income....... $ 24,960 $ -- $ 337 $ 25,297
--------------------------------------------
Other operating
income--
Fees for trust
services........... 7,698 -- 7,698
Service charges on
checking accounts.. 1,124 -- -- 1,124
Other fees and
service charges.... 503 -- 875 1,378
Net gains on sale of
loans.............. 43 -- 466 509
Gains on sale of
other real estate
owned.............. 379 -- -- 379
Other................ 657 -- 4 661
--------------------------------------------
Total other operating
income.............. 2,706 7,698 1,345 11,749
--------------------------------------------
Total gross
revenues............ $ 27,666 $7,698 $1,682 $ 37,046
--------------------------------------------
Operating profit...... $ 5,489 $2,810 $ 921 $ 9,220
--------------------------------------------
General corporate
expenses............ -- -- -- $ 140
--------------------------------------------
Income before income
taxes............... -- -- -- $ 9,080
--------------------------------------------
Identifiable assets at
December 31......... $ 374,048 $ 158 $ 4 $374,210
--------------------------------------------
Capital
expenditures........ $ 1,462 $ 80 -- $ 1,542
--------------------------------------------
Depreciation and
amortization........ $ 983 $ 105 $ 3 $ 1,091
--------------------------------------------
1996
--------------------------------------------
Mortgage
(IN THOUSANDS) Banking Trust Banking Consolidated
--------------------------------------------
Interest income....... $ 24,081 $ -- $ 256 $ 24,337
--------------------------------------------
Other operating
income--
Fees for trust
services........... 5,936 -- 5,936
Service charges on
checking accounts.. 1,081 -- -- 1,081
Other fees and
service charges.... 458 -- 822 1,280
Net gains on sale of
loans.............. 35 -- 363 398
Gains on sale of
other real estate
owned.............. 1,081 -- -- 1,081
Other real estate
owned revenue...... 74 -- -- 74
Other................ 520 -- 53 573
--------------------------------------------
Total other operating
income.............. 3,249 5,936 1,238 10,423
--------------------------------------------
Total gross
revenues............ $ 27,330 $5,936 $1,494 $ 34,760
--------------------------------------------
Operating profit...... $ 6,144 $2,119 $ 779 $ 9,042
--------------------------------------------
General corporate
expenses............ -- -- -- $ 100
--------------------------------------------
Income before income
taxes............... -- -- -- $ 8,942
--------------------------------------------
Identifiable assets at
December 31......... $345,551 $ 189 $ 7 $345,747
--------------------------------------------
Capital
expenditures........ $ 409 $ 143 5 $ 557
--------------------------------------------
Depreciation and
amortization........ $ 1,007 $ 125 $ 10 $ 1,142
--------------------------------------------
1995
--------------------------------------------
Mortgage
(IN THOUSANDS) Banking Trust Banking Consolidated
--------------------------------------------
Interest income....... $ 23,137 $ -- $ 480 $ 23,617
--------------------------------------------
Other operating
income--
Fees for trust
services........... -- 5,496 -- 5,496
Service charges on
checking accounts.. 1,049 -- -- 1,049
Other fees and
service charges.... 487 -- 753 1,240
Net gains on sale of
loans.............. 45 -- 434 479
Gains on sale of
other real estate
owned.............. 137 -- -- 137
Other real estate
owned revenue...... 353 -- -- 353
Other................ 443 -- -- 443
--------------------------------------------
Total other operating
income.............. 2,514 5,496 1,187 9,197
--------------------------------------------
Total gross
revenues............ $ 25,651 $5,496 $1,667 $ 32,814
--------------------------------------------
Operating profit...... $ 3,849 $2,083 $ 939 $ 6,871
--------------------------------------------
General corporate
expenses............ -- -- -- $ 128
--------------------------------------------
Income before income
taxes............... -- -- -- $ 6,743
--------------------------------------------
Identifiable assets at
December 31......... $354,774 $ 170 $ 12 $354,956
--------------------------------------------
Capital
expenditures........ $ 1,269 $ 34 -- $ 1,303
--------------------------------------------
Depreciation and
amortization........ $ 873 $ 99 $ 14 $ 986
--------------------------------------------
30
Report of Independent Accountants
To the Board of Directors and Shareholders of Bryn Mawr Bank Corporation:
We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bryn Mawr Bank
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 15, 1998
31
Price Range of Shares
1997 1996
High-Low Quotations High-Low Quotations
-------------------------------------------------------------------------------------
HIGH LOW DIVIDEND High Low Dividend
QUARTER BID BID DECLARED Bid Bid Declared
-------------------------------------------------------------------------------------
1st....................................... $36 3/4 $26 1/2 $0.18 $27 1/2 $25 $0.47*
2nd....................................... 35 3/4 33 0.18 26 1/4 22 3/4 0.15
3rd....................................... 45 7/8 35 1/4 0.18 26 1/4 23 1/4 0.15
4th....................................... 54 44 0.18 28 25 1/4 0.15
The approximate number of holders of record of common stock as of December 31,
1997 was 503.
The shares are traded on the over-the-counter market, and the price information
was obtained from The National Association of Securities Dealers (NASD).
* First quarter 1996 dividend includes a nonrecurring dividend of $.32 per
share, paid to shareholders from the after tax proceeds of the sale of a
commercial property held in the Bank's other real estate owned portfolio. The
sale occured during the first quarter of 1996.
32
[LOGO OF BRYN MAWR BANK CORPORATION APPEARS HERE]