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Bryn Mawr Bank 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
bmtc20150930_10q.htm 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 Exchange Act of 1934

 

For Quarter ended September 30, 2015

 

Commission File Number 1-35746

 


 

Bryn Mawr Bank Corporation

(Exact name of registrant as specified in its charter)

 


 

Pennsylvania

23-2434506

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer identification No.)

   

801 Lancaster Avenue, Bryn Mawr, Pennsylvania

19010

(Address of principal executive offices)

(Zip Code)

 

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  ☒    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.

 

Large accelerated filer  ☐    Accelerated filer  ☒

 

Non-accelerated filer  ☐    Smaller reporting company  ☐

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ☐    No   ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Classes

 

Outstanding at November 3, 2015 

Common Stock, par value $1

 

17,168,714

 



 

 

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

 

FORM 10-Q

 

QUARTER ENDED September 30, 2015

 

Index

 

     

PART I -

FINANCIAL INFORMATION

 

     

ITEM 1.

Financial Statements (unaudited)

 

     

 

Consolidated Financial Statements

Page 3

     

 

Notes to Consolidated Financial Statements

Page 8

     

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Page 45

     

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Page 63

     

ITEM 4.

Controls and Procedures

Page 63

     

PART II -

OTHER INFORMATION

Page 63

     

ITEM 1.

Legal Proceedings

Page 63

     

ITEM 1A.

Risk Factors

Page 63

     

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Page 64

     

ITEM 3.

Defaults Upon Senior Securities

Page 64

     

ITEM 4.

Mine Safety Disclosures

Page 64

     

ITEM 5.

Other Information

Page 64

     

ITEM 6.

Exhibits

Page 65

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited

 

 

 

 

   

(unaudited)

         
   

September 30,

   

December 31,

 

(dollars in thousands)

 

2015

   

2014

 

Assets

               

Cash and due from banks

  $ 17,161     $ 16,717  

Interest bearing deposits with banks

    100,980       202,552  

Cash and cash equivalents

    118,141       219,269  

Investment securities available for sale, at fair value (amortized cost of $337,978 and $227,553 as of September 30, 2015 and December 31, 2014 respectively)

    341,421       229,577  

Investment securities, trading

    3,451       3,896  

Loans held for sale

    8,721       3,882  

Portfolio loans and leases, originated

    1,804,834       1,535,004  

Portfolio loans and leases, acquired

    423,930       117,253  

Total portfolio loans and leases

    2,228,764       1,652,257  

Less: Allowance for originated loan and lease losses

    (15,900 )     (14,500 )

Less: Allowance for acquired loan and lease losses

    (35 )     (86 )

Total allowance for loans and lease losses

    (15,935 )     (14,586 )

Net portfolio loans and leases

    2,212,829       1,637,671  

Premises and equipment, net

    44,370       33,748  

Accrued interest receivable

    7,744       5,560  

Deferred income taxes

    11,216       7,209  

Mortgage servicing rights

    5,031       4,765  

Bank owned life insurance

    38,157       20,535  

Federal Home Loan Bank stock

    11,742       11,523  

Goodwill

    104,338       35,781  

Intangible assets

    25,356       22,521  

Other investments

    9,499       5,226  

Other assets

    10,726       5,343  

Total assets

  $ 2,952,742     $ 2,246,506  

Liabilities

               

Deposits:

               

Non-interest-bearing

  $ 605,607     $ 446,903  

Interest-bearing

    1,634,237       1,241,125  

Total deposits

    2,239,844       1,688,028  
                 

Short-term borrowings

    24,264       23,824  

Long-term FHLB advances and other borrowings

    254,893       260,146  

Subordinated notes

    29,466       -  

Accrued interest payable

    1,444       1,040  

Other liabilities

    34,676       27,994  

Total liabilities

    2,584,587       2,001,032  

Shareholders' equity

               

Common stock, par value $1; authorized 100,000,000 shares; issued 20,853,511 and 16,742,135 shares as of September 30, 2015 and December 31, 2014, respectively, and outstanding of 17,166,323 and 13,769,336 as of September 30, 2015 and December 31, 2014, respectively

    20,854       16,742  

Paid-in capital in excess of par value

    226,980       100,486  

Less: Common stock in treasury at cost - 3,687,188 and 2,972,799 shares as of September 30, 2015 and December 31, 2014, respectively

    (53,000 )     (31,642 )

Accumulated other comprehensive loss, net of tax benefit

    (11,040 )     (11,704 )

Retained earnings

    184,361       171,592  

Total shareholders' equity

    368,155       245,474  

Total liabilities and shareholders' equity

  $ 2,952,742     $ 2,246,506  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 
Page 3

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2015

   

2014

   

2015

   

2014

 

(dollars in thousands, except per share data)

                               

Interest income:

                               

Interest and fees on loans and leases

  $ 25,620     $ 19,710     $ 76,352     $ 58,628  

Interest on cash and cash equivalents

    107       46       346       127  

Interest on investment securities:

                               

Taxable

    1,135       863       3,616       2,705  

Non-taxable

    125       100       366       304  

Dividends

    42       30       96       87  

Total interest income

    27,029       20,749       80,776       61,851  

Interest expense on:

                               

Deposits

    1,076       742       3,166       2,144  

Short-term borrowings

    8       3       39       12  

FHLB advances and other borrowings

    881       828       2,642       2,354  

Subordinated notes

    231       -       231       -  

Total interest expense

    2,196       1,573       6,078       4,510  

Net interest income

    24,833       19,176       74,698       57,341  

Provision for loan and lease losses

    1,200       550       2,619       1,200  

Net interest income after provision for loan and lease losses

    23,633       18,626       72,079       56,141  

Non-interest income:

                               

Fees for wealth management services

    9,194       9,099       27,899       27,511  
Insurance commissions     1,065       164       2,903       369  

Service charges on deposits

    721       663       2,185       1,920  

Loan servicing and other fees

    397       431       1,585       1,305  

Net gain on sale of loans

    685       440       2,271       1,301  

Net gain on sale of investment securities available for sale

    60       -       873       81  

Net (loss) gain on sale of other real estate owned ("OREO")

    -       (49 )     90       171  

Dividend on bank stocks

    138       126       1,052       404  

Other operating income

    1,090       669       3,434       2,377  

Total non-interest income

    13,350       11,543       42,292       35,439  

Non-interest expenses:

                               

Salaries and wages

    10,941       9,110       32,875       27,244  

Employee benefits

    2,590       1,652       7,937       5,440  

Occupancy and bank premises

    2,557       1,881       7,831       5,497  

Furniture, fixtures, and equipment

    1,712       1,078       4,712       3,150  

Advertising

    410       310       1,446       1,104  

Amortization of intangible assets

    953       633       2,890       1,906  

Due diligence, merger-related and merger integration expenses

    1,015       775       4,810       1,416  

Professional fees

    843       701       2,343       2,208  

Pennsylvania bank shares tax

    433       412       1,299       1,192  

Information technology

    1,053       678       2,569       2,024  

Other operating expenses

    2,896       2,731       10,102       8,305  

Total non-interest expenses

    25,403       19,961       78,814       59,486  
                                 

Income before income taxes

    11,580       10,208       35,557       32,094  

Income tax expense

    4,084       3,702       12,448       11,295  

Net income

  $ 7,496     $ 6,506     $ 23,109     $ 20,799  
                                 

Basic earnings per common share

  $ 0.43     $ 0.48     $ 1.31     $ 1.54  

Diluted earnings per common share

  $ 0.42     $ 0.47     $ 1.29     $ 1.50  

Dividends declared per share

  $ 0.20     $ 0.19     $ 0.58     $ 0.55  
                                 

Weighted-average basic shares outstanding

    17,572,421       13,600,348       17,610,353       13,539,327  

Dilutive shares

    261,877       272,516       320,067       294,114  

Adjusted weighted-average diluted shares

    17,834,298       13,872,864       17,930,520       13,833,441  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 
Page 4

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

 

(dollars in thousands)

 

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2015

   

2014

   

2015

   

2014

 
                                 

Net income

  $ 7,496     $ 6,506     $ 23,109     $ 20,799  
                                 

Other comprehensive income (loss):

                               

Net change in unrealized gains (losses) on investment securities available for sale:

                               

Net unrealized gains (losses) arising during the period, net of tax expense (benefit) of $503, $(227), $803 and $1,090, respectively

    935       (421 )     1,489       2,025  

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $21, $0, $306 and $28, respectively

    (39 )     -       (567 )     (53 )

Unrealized investment gains (losses), net of tax expense (benefit) of $482, $(227), $497 and $1,062, respectively

    896       (421 )     922       1,972  

Net change in fair value of derivative used for cash flow hedge:

                               

Change in fair value of hedging instruments, net of tax benefit of $(188), $(4), $(216) and $(257), respectively

    (349 )     (8 )     (400 )     (477 )

Net change in unfunded pension liability:

                               

Change in unfunded pension liability, net of tax expense of $26, $25, $76 and $74, respectively

    47       46       142       139  

Total other comprehensive (loss) income

    594       (383 )     664       1,634  
                                 

Total comprehensive income

  $ 8,090     $ 6,123     $ 23,773     $ 22,433  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 
Page 5

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited 

(dollars in thousands)

 

Nine Months Ended September 30,

 
   

2015

   

2014

 

Operating activities:

               

Net Income

  $ 23,109     $ 20,799  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for loan and lease losses

    2,619       1,200  

Depreciation of fixed assets

    3,510       2,401  

Net amortization of investment premiums and discounts

    2,486       1,786  

Net gain on sale of investment securities available for sale

    (873 )     (81 )

Net gain on sale of loans

    (2,271 )     (1,301 )

Stock based compensation cost

    1,047       911  

Amortization and net impairment of mortgage servicing rights

    531       357  

Net accretion of fair value adjustments

    (4,029 )     (2,244 )

Amortization of intangible assets

    2,890       1,906  

Impairment of other real estate owned ("OREO")

    90       -  

Net gain on sale of OREO

    (90 )     (171 )

Net increase in cash surrender value of bank owned life insurance ("BOLI")

    (568 )     (231 )

Other, net

    1,770       (2,454 )

Loans originated for resale

    (110,098 )     (41,192 )

Proceeds from loans sold

    107,240       42,065  

Provision for deferred income taxes

    2,753       2,025  

Excess tax benefit from stock-based compensation

    (715 )     (720 )

Change in income taxes payable/receivable

    1,824       269  

Change in accrued interest receivable

    (90 )     67  

Change in accrued interest payable

    109       33  

Net cash provided by operating activities

    31,244       25,425  
                 

Investing activities:

               

Purchases of investment securities available for sale

    (124,161 )     (41,647 )

Proceeds from maturity of investment securities and paydowns of mortgage-related securities

    48,968       29,230  

Proceeds from sale of investment securities available for sale

    64,528       4,165  

Net change in FHLB stock

    4,762       (1,235 )

Proceeds from calls of investment securities

    80,465       29,450  

Net change in other investments

    (4,223 )     (155 )

Net portfolio loan and lease originations

    (150,812 )     (98,144 )

Purchases of premises and equipment

    (5,194 )     (3,422 )

Purchases of BOLI

    (5,000 )     -  

Acquisitions, net of cash acquired

    16,129       -  

Proceeds from sale of OREO

    928       1,325  

Net cash used in investing activities

    (73,610 )     (80,433 )
                 

Financing activities:

               

Change in deposits

    70,780       19,004  

Change in short-term borrowings

    (108,066 )     3,089  

Dividends paid

    (10,395 )     (7,597 )

Change in FHLB advances and other borrowings

    (24,883 )     25,021  

Net proceeds from issuance of subordinated debentures

    29,466       -  

Excess tax benefit from stock-based compensation

    715       720  

Proceeds from sale of treasury stock from deferred compensation plans

    -       79  

Net purchase of treasury stock

    (21,402 )     (920 )

Proceeds from issuance of common stock

    20       45  

Proceeds from exercise of stock options

    5,003       2,061  

Net cash (used in) provided by financing activities

    (58,762 )     41,502  
                 

Change in cash and cash equivalents

    (101,128 )     (13,506 )

Cash and cash equivalents at beginning of period

    219,269       81,071  

Cash and cash equivalents at end of period

  $ 118,141     $ 67,565  
                 

Supplemental cash flow information:

               

Cash paid during the year for:

               

Income taxes

  $ 7,301     $ 9,005  

Interest

  $ 5,674     $ 4,477  
                 

Non-cash information:

               

Change in other comprehensive loss

  $ 664     $ 1,634  

Change in deferred tax due to change in comprehensive income

  $ 357     $ 879  

Transfer of loans to other real estate owned

  $ 401     $ 1,193  

Issuance of shares and options for acquisitions

  $ 123,734       -  

Acquisition of noncash assets and liabilities:

               

Assets acquired

    727,379       -  

Liabilities assumed

    619,774       -  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 
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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited

 

(dollars in thousands, except per share information)

   

For the Nine Months Ended September 30, 2015

 
   

Shares of

Common

Stock Issued

   

Common

Stock

   

Paid-in

Capital

   

Treasury

Stock

   

Accumulated

Other

Comprehensive

Loss

   

Retained

Earnings

   

Total

Shareholders'

Equity

 
                                                         

Balance December 31, 2014

    16,742,135     $ 16,742     $ 100,486     $ (31,642 )   $ (11,704 )   $ 171,592     $ 245,474  

Net income

    -       -       -       -       -       23,109       23,109  

Dividends declared, $0.58 per share

    -       -       -       -       -       (10,340 )     (10,340 )

Other comprehensive income, net of tax expense of $357

    -       -       -       -       664       -       664  

Stock based compensation

    -       -       1,047       -       -       -       1,047  

Excess tax benefit from stock-based compensation

    -       -       715       -       -       -       715  

Retirement of treasury stock

    (4,418 )     (4 )     (40 )     44       -       -       -  

Cancellation of forfeited restricted stock awards

    (27,375 )     (27 )     27       -       -       -       -  

Net purchase of treasury stock

    -       -               (21,402 )     -       -       (21,402 )

Shares issued in acquisitions

    3,878,304       3,878       117,513                               121,391  

Options assumed in acquisitions

    -       -       2,343                               2,343  

Common stock issued:

                                                       

Dividend Reinvestment and Stock Purchase Plan

    663       1       19       -       -       -       20  

Share-based awards and options exercises

    264,202       264       4,870       -       -       -       5,134  

Balance September 30, 2015

    20,853,511     $ 20,854     $ 226,980     $ (53,000 )   $ (11,040 )   $ 184,361     $ 368,155  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.                                           

 

 
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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 - Basis of Presentation 

 

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) management, all 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 Annual Report on Form 10-K for the twelve months ended December 31, 2014 (the “2014 Annual Report”).

 

The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.

 

Note 2 - 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, as well as the effect of restricted and performance shares becoming unrestricted 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.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(dollars in thousands except per share data)

 

2015

   

2014

   

2015

   

2014

 

Numerator:

                               

Net income available to common shareholders

  $ 7,496     $ 6,506     $ 23,109     $ 20,799  

Denominator for basic earnings per share – weighted average shares outstanding

    17,572,421       13,600,348       17,610,353       13,539,327  

Effect of dilutive common shares

    261,877       272,516       320,067       294,114  

Denominator for diluted earnings per share – adjusted weighted average shares outstanding

    17,834,298       13,872,864       17,930,420       13,833,441  

Basic earnings per share

  $ 0.43     $ 0.48     $ 1.31     $ 1.54  

Diluted earnings per share

  $ 0.42     $ 0.47     $ 1.29     $ 1.50  

Anti-dilutive shares excluded from computation of average dilutive earnings per share

                       

 

 
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Note 3 - Business Combinations

 

Robert J. McAllister Agency, Inc. (“RJM”)

 

The acquisition of RJM, an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed on April 1, 2015. The consideration paid by the Corporation was $1.0 million, of which $500 thousand was paid at closing and five contingent cash payments, not to exceed $100 thousand each, will be payable on each of March 31, 2016, March 31, 2017, March 31, 2018, March 31, 2019, and March 31, 2020, subject to the attainment of certain revenue targets during the related periods. The acquisition will enhance the Corporation’s ability to offer comprehensive insurance solutions to both individual and business clients.

 

In connection with the RJM acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:

 

(dollars in thousands)

       

Consideration paid:

       

Cash paid at closing

  $ 500  

Contingent payment liability

    500  

Value of consideration

    1,000  
         

Assets acquired:

       

Cash operating accounts

    20  

Intangible assets – customer relationships

    424  

Intangible assets – non-competition agreements

    257  

Intangible assets – trade name

    129  

Other assets

    4  

Total assets

    834  
         

Liabilities assumed:

       

Deferred tax liability

    336  

Other liabilities

    46  

Total liabilities

    382  
         

Net assets acquired

    452  
         

Goodwill resulting from acquisition of RJM

  $ 548  

 

The fair values of the assets acquired and liabilities assumed are preliminary estimates. The fair value estimates are subject to adjustment if additional information becomes available during the measurement period in accordance with Accounting Standards Codification (ASC) Topic 805. Such adjustments may change the amount of the purchase price allocation to goodwill.

 

 

Continental Bank Holdings, Inc. (“CBH”)

 

On January 1, 2015, the previously announced merger (the “Merger”) of CBH with and into the Corporation, and the merger of Continental Bank with and into The Bryn Mawr Trust Company, the wholly-owned subsidiary of the Corporation (the “Bank”), as contemplated by the Agreement and Plan of Merger, by and between CBH and the Corporation, dated as of May 5, 2014 (as amended by the Amendment to Agreement and Plan of Merger, dated as of October 23, 2014, the “Agreement”), were completed. In accordance with the Agreement, the aggregate share consideration paid to CBH shareholders consisted of 3,878,383 shares (which included fractional shares paid in cash) of the Corporation’s common stock. Shareholders of CBH received 0.45 shares of Corporation common stock for each share of CBH common stock they owned as of the effective date of the Merger. Holders of options to purchase shares of CBH common stock received options to purchase shares of Corporation common stock, converted at the same ratio of 0.45. In addition, $1,323,000 was paid to certain warrant holders to cash-out certain warrants. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were preliminarily adjusted to their fair values as of the date of the Merger. The excess of consideration paid above the fair value of net assets acquired was recorded as goodwill. This goodwill is not amortizable nor is it deductible for income tax purposes.

 

 
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In connection with the Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of the date of the Merger are summarized in the following table:

 

(dollars in thousands)

       

Consideration paid:

       

Common shares issued (3,878,304)

  $ 121,391  

Cash in lieu of fractional shares

    2  

Cash-out of certain warrants

    1,323  

Fair value of options assumed

    2,343  

Value of consideration

    125,059  
         

Assets acquired:

       

Cash and due from banks

    17,934  

Investment securities available for sale

    181,838  

Loans

    424,737  

Premises and equipment

    9,037  

Deferred income taxes

    7,453  

Bank-owned life insurance

    12,054  

Core deposit intangible

    4,191  

Favorable lease asset

    724  

Other assets

    17,974  

Total assets

    675,942  
         

Liabilities assumed:

       

Deposits

    481,674  

FHLB and other long-term borrowings

    19,726  

Short-term borrowings

    108,609  

Unfavorable lease liability

    2,884  

Other liabilities

    5,999  

Total liabilities

    618,892  
         

Net assets acquired

    57,050  
         

Goodwill resulting from acquisition of CBH

  $ 68,009  

 

The following table details the effect, on goodwill, of adjustments to the initial fair value estimates of the assets acquired and liabilities assumed:

 

Goodwill resulting from acquisition of CBH based on initial fair value estimates:

  $ 65,838  

Effect on goodwill of adjustments to:

       

Assets:

       
Portfolio loans     1,864  

Deferred income taxes

    (1,165
Favorable lease asset     68  

Other assets

    111

 

Liabilities:

       

Other liabilities

    1,293  

Adjusted goodwill resulting from acquisition of CBH as of September 30, 2015

  $ 68,009  

 

The fair values of the assets acquired and liabilities assumed are preliminary estimates. The fair value estimates are subject to adjustment if additional information becomes available during the measurement period in accordance with ASC Topic 805. Such adjustments may change the amount of the purchase price allocation to goodwill while changes to other assets and liabilities may impact the statement of income due to adjustments in the yield and/or amortization/accretion of the adjusted assets and liabilities.

 

 
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Pro Forma Income Statements

 

The following pro forma income statements for the three and nine months ended September 30, 2014 and 2015 present the pro forma results of operations of the combined institution (CBH and the Corporation) had the merger occurred on January 1, 2014 and January 1, 2015, respectively. The pro forma income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization. No cost savings or additional merger expenses have been included in the pro forma results of operations for the three or nine months ended September 30, 2014.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(dollars in thousands)

 

2015

   

2014

   

2015

   

2014

 

Net interest income

  $ 24,833     $ 25,027     $ 74,698     $ 74,702  

Provision for loan and lease losses

    1,200       850       2,619       2,057  

Net interest income after provision for loan and lease losses

    23,633       24,177       72,079       72,645  

Non-interest income

    13,350       11,812       42,292       37,088  

Non-interest expense

    25,403       24,106       78,814       72,970  

Income before income taxes

    11,580       11,883       35,557       36,763  

Income tax expense

    4,084       4,279       12,448       13,017  

Net income

  $ 7,496     $ 7,604     $ 23,109     $ 23,746  

Per share data*:

                               

Weighted-average basic shares outstanding

    17,572,421       17,478,652       17,610,353       17,417,631  

Dilutive shares

    261,877       351,099       320,067       372,697  

Adjusted weighted-average diluted shares

    17,834,298       17,829,751       17,930,420       17,790,328  

Basic earnings per common share

  $ 0.43     $ 0.44     $ 1.31     $ 1.36  

Diluted earnings per common share

  $ 0.42     $ .043     $ 1.29     $ 1.33  

 

* Assumes that the shares of common stock outstanding as of December 31, 2014 for CBH were outstanding for the full three and nine months ended September 30, 2014 and therefore equal the weighted average shares of common stock outstanding for the three and nine months ended September 30, 2014. The merger conversion of 8,618,629 shares of CBH common stock equals 3,878,304 shares of Corporation common stock (8,618,629 times 0.45, minus 79 fractional shares paid in cash).

 

 
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Powers Craft Parker and Beard, Inc. (“PCPB”)

 

The acquisition of PCPB, an insurance brokerage headquartered in Rosemont, Pennsylvania, was completed on October 1, 2014. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing. The remaining $1.6 million consists of three contingent payments, with each payment not to exceed $542 thousand. Each payment is subject to the attainment of certain revenue targets during the applicable periods. The measurement periods for the three contingent payments are the twelve month periods ending September 30, 2015, 2016 and 2017. As of September 30, 2015, the revenue targets for the twelve month period ended September 30, 2015 had been satisfied and payment of $542 thousand is scheduled to occur during the fourth quarter of 2015. The acquisition of PCPB has enabled the Corporation to offer a comprehensive line of insurance solutions to both individual and business clients.

 

In connection with the PCPB acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:

 

(dollars in thousands)

       

Consideration paid:

       

Cash paid at closing

  $ 5,399  

Contingent payment liability

    1,625  

Value of consideration

    7,024  
         

Assets acquired:

       

Cash operating accounts

    1,274  

Other investments

    302  

Premises and equipment

    100  

Intangible assets – customer relationships

    3,280  

Intangible assets – non-competition agreements

    1,580  

Intangible assets – trade name

    955  

Other assets

    850  

Total assets

    8,341  
         

Liabilities assumed:

       

Deferred tax liability

    2,437  

Other liabilities

    1,818  

Total liabilities

    4,255  
         

Net assets acquired

    4,086  
         

Goodwill resulting from acquisition of PCPB

  $ 2,938  

 

As of December 31, 2014, the Corporation had finalized its fair value estimates related to the acquisition of PCPB.

  

Due Diligence, Merger-Related and Merger Integration Expenses

 

Due diligence, merger-related and merger integration expenses include consultant costs, investment banker fees, contract breakage fees, retention bonuses for severed employees, salary and wages for redundant staffing involved in the integration of the institutions and bonus accruals for members of the merger integration team. The following table details the costs identified and classified as due diligence, merger-related and merger integration costs for the periods indicated:

 

(dollars in thousands)

 

Three Months Ended September 30,

   

Nine months Ended September 30,

 
   

2015

   

2014

   

2015

   

2014

 

Advertising

  $ 36     $     $ 83     $  

Employee benefits

    60             213        

Furniture, fixtures and equipment

    64       1       93       1  

Professional fees

    319       693       2,084       819  

Salaries and wages

    480       28       1,224       29  

Other

    56       53       1,113       567