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Bryn Mawr Bank 10-Q 2011 Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d) of the Securities and Exchange Act of 1934. For Quarter ended March 31, 2011 Commission File Number 0-15261
Bryn Mawr Bank Corporation (Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code (610) 525-1700 Not Applicable Former name, former address and fiscal year, if changed since last report.
Indicate by checkmark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨ Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date.
Table of ContentsBRYN MAWR BANK CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED March 31, 2011 Index
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Table of Contents
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets - Unaudited
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Table of ContentsBRYN MAWR BANK CORPORATION AND SUBSIDIARIES Consolidated Statements of Income - Unaudited
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Table of ContentsBRYN MAWR BANK CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows - Unaudited
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Table of ContentsBRYN MAWR BANK CORPORATION AND SUBSIDIARIES Consolidated Statement of Changes In Shareholders’ Equity - Unaudited
Consolidated Statements of Comprehensive Income - Unaudited
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Table of ContentsBRYN MAWR BANK CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to the financial services industry (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) Management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Corporation’s 2010 Annual Report on Form 10-K (the “2010 Annual Report”). The Corporation’s consolidated statements of financial condition and results of operations consist almost entirely of The Bryn Mawr Trust Company’s (the “Bank”) financial condition and results of operations. The results of operations for the three month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year. 2. Business Combinations The merger with First Keystone Financial, Inc. (“FKF”) was completed on July 1, 2010 (the “Merger”). The Merger was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill in the amount of $9.7 million, which will not be amortizable and is not deductible for tax purposes. The Corporation allocated the total balance of goodwill recorded in connection with the Merger to its Banking segment. The Corporation also recorded $2.1 million in core deposit intangibles which will be amortized over ten years using a declining balance method. The fair value of loans (and the related deferred tax asset) acquired in the Merger is a preliminary estimate and is subject to adjustment; however it is not expected to be materially different from the amounts already recorded. The following table details the effect on goodwill of the changes in estimates of the fair values of the assets acquired and liabilities assumed from the amounts originally reported on the Form 10-Q for the period ending September 30, 2010:
The adjustments shown in the above table were recorded during the three months ended December 31, 2010. No adjustments were recorded during the three months ended March 31, 2011. No further adjustments to fair value estimates will be recorded after June 30, 2011.
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Table of Contents3. Earnings Per Common Share Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share takes into account the potential dilution, computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive. All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and splits.
4. Investment Securities The amortized cost and estimated fair value of investments, all of which were classified as available for sale, are as follows: As of March 31, 2011
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Table of ContentsAs of December 31, 2010
The following table shows the amount of securities that were in an unrealized loss position: As of March 31, 2011
The following table shows the amount of securities that were in an unrealized loss position: As of December 31, 2010
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Table of ContentsManagement evaluates the Corporation’s investment securities that are in an unrealized loss position in order to determine if the decline in market value is other than temporary. The investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state and local municipalities and other issuers. All investment securities in the Corporation’s investment portfolio are highly rated as investment grade. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers. None of the investments in the tables above is believed to be other-than-temporarily impaired. Management believes that it is more likely than not that it will be able to hold the securities until recovery of their amortized cost bases. As of March 31, 2011, securities having a market value of $122.0 million were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”) borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Bank’s borrowing agreement with the FHLB. The amortized cost and fair value of available for sale investment securities as of March 31, 2011, by contractual maturity, are shown below:
Included in the investment portfolio, but not in the table above, are $35.0 million of bond mutual funds and $264 thousand of equity securities which have no stated maturity or constant stated coupon rate. 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. 5. Loans and Leases A. Loans and leases outstanding are detailed by category as follows:
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Table of ContentsB. Components of the net investment in leases are detailed as follows:
C. Troubled Debt Restructurings (“TDR”s):
D. Non-Performing Loans and Leases(1)
E. Purchased Credit-Impaired Loans The outstanding principal balance and related carrying amount of credit-impaired loans, for which the Bank applies ASC 310-30 to account for the interest earned, as of the dates indicated, are as follows:
The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Bank applies ASC 310-30, for the three months ended March 31, 2010:
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Table of ContentsF. Age Analysis of Past Due Loans and Leases The following tables present an aging of the Corporation’s loan and lease portfolio as of March 31, 2011 and December 31, 2010:
G. Allowance for Loan and Lease Losses (the “Allowance”) The following table details the roll-forward of the Corporation’s allowance for loan and lease losses, by loan category, for the three months ended March 31, 2011:
The following table details the roll-forward of the Corporation’s allowance for loan and lease losses for the three months ended March 31, 2010:
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Table of ContentsThe following table details the allocation of the allowance for loan and lease losses by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2011 and December 31, 2010:
The following table details the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31, 2011 and December 31, 2010:
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Table of ContentsAs part of the process of allocating the allowance to the different segments of the loan and lease portfolio, Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by both in-house staff as well as external loan reviewers. The result of these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:
In addition, the remaining segments of the loan and lease portfolio, which include residential mortgage, home equity lines and loans, consumer, and leases, are allocated portions of the allowance based on their performance status. The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to allocate the allowance for loan and lease losses as of March 31, 2011 and December 31, 2010: Credit Risk Profile by Internally Assigned Grade(2)
Credit Risk Profile by Payment Activity
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Table of ContentsH. Impaired Loans The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related allowance for loan and lease losses and interest income recognized for the three month periods ended March 31, 2011 and 2010:
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Table of Contents6. Short-term and Other Borrowings A. Short-term borrowings The Corporation’s short-term borrowings (original maturity of one year or less) which consist of funds obtained from overnight repurchase agreements with commercial customers and overnight fed funds are detailed below. A summary of short-term borrowings is as follows:
The following table sets forth information concerning short-term borrowings:
B. FHLB Advances and Other Borrowings The Corporation’s other borrowings consist mainly of advances from the FHLB as well as a commercial mortgage on its Wealth Management Division’s offices located in Bryn Mawr, Pennsylvania. The following table presents the remaining periods until maturity of the FHLB advances and other borrowings:
The following table presents rate and maturity information on FHLB advances and other borrowings:
Included in the table above as of March 31, 2011 and December 31, 2010 are $48.4 million and $73.6 million, respectively, of FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of March 31, 2011, substantially all the FHLB advances with this convertible feature are subject to conversion in fiscal 2011. These advances are included in the periods in which they mature, rather than the period in which they are subject to conversion.
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Table of ContentsC. Other FHLB Information As of March 31, 2011, the Corporation had a maximum borrowing capacity (“MBC”) with the FHLB of approximately $639.6 million, of which the unused capacity was $485.7 million. In addition, there were unused capacities of $49 million in overnight federal funds line and $61 million of Federal Reserve Discount Window borrowings as of March 31, 2011. In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of capital stock held was $13.5 million at March 31, 2011, and $14.2 million at December 31, 2010. The carrying amount of the FHLB stock approximates its redemption value. On December 23, 2008, the FHLB announced that it would voluntarily suspend the payment of dividends and the repurchase of excess capital stock until further notice. There were no dividends paid on FHLB stock during the three month periods ended March 31, 2011 and 2010 and limited repurchases of capital stock during the three months ended March 31, 2011 and the twelve months ended December 31, 2010. The level of required investment in FHLB stock is based on the balance of outstanding loans the Corporation has from the FHLB. Although FHLB stock is a financial instrument that represents an equity interest in the FHLB, it does not have a readily determinable fair value. FHLB stock is generally viewed as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, its value should be determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Corporation regularly reviews financial statements filed by the FHLB. The most recent financial information available as of April 28, 2011 indicates net income of $2.5 million for the first quarter of 2011. In addition, credit-related other-than-temporary impairments have declined for the three months ended March 31, 2011, as compared to the same period in 2010. Management believes that these indicators, as well as the fact that the FHLB has recently resumed redemption of its capital stock, support the Corporation’s assessment that its investment in FHLB capital stock is not other-than-temporarily impaired. 7. Stock Based Compensation A. General Information The Corporation permits the issuance of stock options, dividend equivalents, performance awards, stock appreciation rights, restricted stock and/or restricted stock units to employees and directors of the Corporation under several plans. The terms and conditions of awards under the plans are determined by the Corporation’s Compensation Committee. Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the Shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the Shareholders approved the Corporation’s “2010 Long Term Incentive Plan” (“2010 LTIP”) under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants. The equity awards granted under the 2007 and 2010 LTIPs were authorized to be in the form of, among others, options to purchase the Corporation’s common stock, restricted stock awards (“RSAs”) and performance stock awards (“PSAs”). The fair value of the RSAs is based on the closing price on the day preceding the date of the grant. The PSAs that have been granted to-date vest based on the Corporation’s total shareholder return relative to the performance of the community bank index for the respective period. The amount of PSAs earned will not exceed 100% of the PSAs awarded. The fair value of the PSAs is calculated using the Monte Carlo Simulation method. B. Other Stock Option Information Stock based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period. The fair value of stock option grants is determined using the Black-Scholes pricing model. The assumptions necessary for the calculation of the fair value are expected life of options, annual volatility of stock price, risk free interest rate and annual dividend yield.
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Table of ContentsThe following table provides information about options outstanding for the three-months ended March 31, 2011:
The following table provides information about unvested options for the three-months ended March 31, 2011:
For the three months ended March 31, 2011, the Corporation recognized $95 thousand of expense related to the Corporation’s stock options. The total not-yet-recognized compensation expense of unvested stock options is $939 thousand. This expense will be recognized over a weighted average period of 2.45 years. Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three months ended March 31, 2011 and 2010 were as follows:
The following table provides information about options outstanding and exercisable at March 31, 2011:
C. Restricted Stock Awards and Performance Stock Awards The Corporation has granted restricted stock awards and Performance Stock Awards under the 2007 LTIP and 2010 LTIP Plans. The compensation expense for the RSAs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight line basis over the vesting period, accelerated for retirement eligibility. Stock restrictions are subject to alternate vesting for death and disability and retirement. During the three months ended March 31, 2011, the Corporation granted nine thousand shares of restricted stock awards at a grant price of $17.50. The award is subject to a three-year cliff-vesting period and is contingent on achievement of specific performance goals. For the three months ended March 31, 2011, the Corporation recognized $24 thousand of expense related to the Corporation’s RSAs. As of March 31, 2011, there was $309 thousand of unrecognized compensation cost related to RSAs. This cost will be recognized over a weighted average period of 3.1 years.
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Table of ContentsThe following table details the RSAs for the three month periods ended March 31, 2011 and 2010:
The compensation expense for PSAs is measured based on the grant date fair value as calculated using the Monte Carlo Simulation. The Simulation used various assumptions that include expected volatility of 54.8%, a risk free rate of return of 0.74% and a correlation co-efficient of 0.56% For the three months ended March 31, 2011, the Corporation recognized $58 thousand of expense related to the PSAs in 2010. As of March 31, 2011, there was $440 thousand of unrecognized compensation cost related to PSAs. This cost will be recognized over a weighted average period of 2.6 years. The following table details the PSAs for the three month periods ended March 31, 2011 and 2010:
8. Pension and Other Post-Retirement Benefit Plans The Corporation sponsors two pension plans; the qualified defined benefit pension plan (“QDBP”) and the non-qualified defined benefit pension plan (“SERP”). In addition, the Corporation also sponsors a post-retirement benefit plan (“PRBP”). On February 12, 2008, the Corporation amended the QDBP to cease further accruals of benefits effective March 31, 2008, and amended the 401(K) Plan to provide for a new class of immediately vested discretionary, non-matching employer contributions effective April 1, 2008. Additionally, the Corporation amended the SERP to expand the class of eligible participants to include certain officers of the Bank and to provide that each participant’s accrued benefit shall be reduced by the actuarially equivalent value of the immediately vested discretionary, non-matching employer contribution to the 401(K) Plan made on his or her behalf. The following table provides a reconciliation of the components of the net periodic benefits cost (benefit) for the three months ended March 31, 2011 and 2010:
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Table of ContentsQDBP: As stated in the Corporation’s 2010 Annual Report, the Corporation did not have any minimum funding requirements for its QDBP for 2010. As of March 31, 2011 no contributions were made to the QDBP. SERP: The Corporation contributed $37 thousand during the first quarter of 2011 and it is expected to contribute an additional $110 thousand to the SERP plan for the remaining nine months of 2011. PRBP: In 2005, the Corporation capped the maximum annual payment under the PRBP at 120% of the 2005 benefit. This maximum was reached in 2008 and the cap is not expected to be increased above this level. 9. Segment Information The Corporation aggregates certain of its operations and has identified four “segments” as follows: Banking, Wealth Management, Mortgage Banking, and All Other. Segment information for the three month periods ended March 31, 2011 and 2010 is as follows:
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