~~0000802681 us-gaap:FinancialAssetOriginatedMember bmtc:HomeEquityLoansAndLinesOfCreditPortfolioSegmentMember us-gaap:SubstandardMember 2019-06-30~~0000802681bmtc:Banking1Memberus-gaap:DepositAccountMember2020-04-012020-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ ~~Quarterly Report Under Section~~QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~of the Securities Exchange Act of 1934~~ ☒

For Quarter ended June 30, ~~2019~~2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-35746

Bryn Mawr Bank ~~Corporation~~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~~ Identification No.)

801 Lancaster Avenue,	Bryn Mawr,	Pennsylvania	19010
(Address of principal executive offices)	(Zip Code)

(610) 525-1700

(Registrant’s telephone number, including area ~~code (610~~) ~~525-1700~~

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of class~~	~~Trading Symbol~~	~~Name of exchange on which registered~~
~~Common Stock, $1 par value~~	~~BMTC~~	~~The NASDAQ Stock Market~~

code)

Not Applicable

(Former name, former address and fiscal year, if changed since last ~~report.~~report)

Securities registered pursuant to Section 12(b) of the Act:


Title of class	Trading Symbol	Name of exchange on which registered
Common Stock, $1 par value	BMTC	The NASDAQ Stock Market

~~________________________________________________________________________________________~~________________________________________________________________________________

Indicate by checkmark whether the registrant (1) has filed all reports required 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 every Interactive Data File required to be submitted 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 check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

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 August 4, 2020
Common Stock, par value $1		19,928,481

~~Classes~~		~~Outstanding at August 1, 2019~~
~~Common Stock, par value $1~~	~~20,134,604~~

Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED ~~JUNE~~June 30, ~~2019~~2020

Index



PART I -	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)

	Consolidated Financial Statements (unaudited)	Page 3

	Notes to Consolidated Financial Statements (unaudited)	Page 1112

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 6157

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 8381

ITEM 4.	Controls and Procedures	Page 8381

PART II -	OTHER INFORMATION	Page 8482

ITEM 1.	Legal Proceedings	Page 8482

ITEM 1A.	Risk Factors	Page 8482

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 85

ITEM 3.	Defaults Upon Senior Securities	Page 86

ITEM 4.	Mine Safety Disclosures	Page 86

ITEM 5.	Other Information	Page 86

ITEM 6.	Exhibits	Page 87

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited


(dollars in thousands)	June 30, 2020		December 31, 2019
Assets
Cash and due from banks	$	16,408	$	11,603
Interest bearing deposits with banks	448,113		42,328
Cash and cash equivalents	464,521		53,931
Investment securities available for sale, at fair value (amortized cost of $517,041 and $1,001,034 as of June 30, 2020 and December 31, 2019, respectively)	530,581		1,005,984
Investment securities held to maturity, at amortized cost (fair value of $12,995 and $12,661 as of June 30, 2020 and December 31, 2019, respectively)	12,592		12,577
Investment securities, trading	7,801		8,621
Loans held for sale	4,116		4,249
Portfolio loans and leases, originated	3,422,890		3,320,816
Portfolio loans and leases, acquired	299,275		368,497
Total portfolio loans and leases	3,722,165		3,689,313
Less: Allowance for credit losses on originated loans and leases	(51,659)		(22,526)
Less: Allowance for credit losses on acquired loans and leases	(3,315)		(76)
Total allowance for credit losses on loans and leases	(54,974)		(22,602)
Net portfolio loans and leases	3,667,191		3,666,711
Premises and equipment, net	61,778		64,965
Operating lease right-of-use assets	39,348		40,961
Accrued interest receivable	15,577		12,482
Mortgage servicing rights	3,440		4,450
Bank owned life insurance	59,728		59,079
Federal Home Loan Bank stock	4,506		23,744
Goodwill	184,012		184,012
Intangible assets	17,303		19,131
Other investments	17,055		16,683
Other assets	181,762		85,679
Total assets	$	5,271,311	$	5,263,259
Liabilities
Deposits:
Noninterest-bearing	$	1,217,496	$	898,173
Interest-bearing	3,026,152		2,944,072
Total deposits	4,243,648		3,842,245

Short-term borrowings	28,891		493,219
Long-term FHLB advances	44,837		52,269
Subordinated notes	98,794		98,705
Junior subordinated debentures	21,843		21,753
Operating lease liabilities	43,693		45,258
Accrued interest payable	7,907		6,248
Other liabilities	178,024		91,335
Total liabilities	4,667,637		4,651,032
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares; issued 24,662,161 and 24,650,051 shares as of June 30, 2020 and December 31, 2019, respectively and outstanding of 19,927,893 and 20,126,296 as of June 30, 2020 and December 31, 2019, respectively	24,662		24,650
Paid-in capital in excess of par value	380,167		378,606
Less: Common stock in treasury at cost - 4,734,268 and 4,523,755 shares as of June 30, 2020 and December 31, 2019, respectively	(88,612)		(81,174)
Accumulated other comprehensive income, net of tax	9,019		2,187
Retained earnings	279,165		288,653
Total Bryn Mawr Bank Corporation shareholders' equity	604,401		612,922
Noncontrolling interest	(727)		(695)
Total shareholders' equity	603,674		612,227
Total liabilities and shareholders' equity	$	5,271,311	$	5,263,259

(dollars in thousands) June 30,
2019 December 31,
2018
Assets
Cash and due from banks $ 13,742
$ 14,099
Interest bearing deposits with banks 49,643
34,357
Cash and cash equivalents 63,385
48,456
Investment securities available for sale, at fair value (amortized cost of $584,382 and $745,328 as of June 30, 2019 and December 31, 2018, respectively) 588,119
737,442
Investment securities held to maturity, at amortized cost (fair value of $10,205 and $8,438 as of June 30, 2019 and December 31, 2018, respectively) 10,209
8,684
Investment securities, trading 8,516
7,502
Loans held for sale 6,333
1,749
Portfolio loans and leases, originated 3,088,849
2,885,251
Portfolio loans and leases, acquired 445,816
541,903
Total portfolio loans and leases 3,534,665
3,427,154
Less: Allowance for originated loan and lease losses (21,076 ) (19,329 )
Less: Allowance for acquired loan and lease losses (106 ) (97 )
Total allowance for loans and lease losses (21,182 )
(19,426 )
Net portfolio loans and leases 3,513,483
3,407,728
Premises and equipment, net 68,092
65,648
Operating lease right-of-use assets 43,116
—
Accrued interest receivable 13,312
12,585
Mortgage servicing rights 4,744
5,047
Bank owned life insurance 58,437
57,844
Federal Home Loan Bank stock 14,677
14,530
Goodwill 184,012
184,012
Intangible assets 21,038
23,455
Other investments 16,517
16,526
Other assets 122,575
61,277
Total assets $ 4,736,565
$ 4,652,485
Liabilities
Deposits:
Noninterest-bearing $ 940,911
$ 901,619
Interest-bearing 2,691,502
2,697,468
Total deposits 3,632,413
3,599,087

Short-term borrowings 207,828
252,367
Long-term FHLB advances 47,941
55,374
Subordinated notes 98,616
98,526
Junior subordinated debentures 21,665
21,580
Operating lease liabilities 47,393
—
Accrued interest payable 8,244
6,652
Other liabilities 82,310
54,195
Total liabilities 4,146,410
4,087,781
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares; issued 24,582,557 and 24,545,348 shares as of June 30, 2019 and December 31, 2018, respectively and outstanding of 20,131,854 and 20,163,816 as of June 30, 2019 and December 31, 2018, respectively 24,583
24,545
Paid-in capital in excess of par value 376,652
374,010
Less: Common stock in treasury at cost - 4,450,703 and 4,381,532 shares as of June 30, 2019 and December 31, 2018, respectively (78,583 ) (75,883 )
Accumulated other comprehensive income (loss), net of tax 1,700
(7,513 )
Retained earnings 266,496
250,230
Total Bryn Mawr Bank Corporation shareholders' equity 590,848
565,389
Noncontrolling interest (693 ) (685 )
Total shareholders' equity 590,155
564,704
Total liabilities and shareholders' equity $ 4,736,565
$ 4,652,485

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

Page 3

Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except share and per share data)	2020		2019		2020		2019
Interest income:
Interest and fees on loans and leases	$	40,690	$	44,783	$	83,485	$	89,620
Interest on cash and cash equivalents	37		73		148		205
Interest on investment securities:
Taxable	2,870		3,494		6,046		6,944
Non-taxable	22		37		46		84
Dividends	2		1		3		3
Total interest income	43,621		48,388		89,728		96,856
Interest expense:
Interest on deposits	4,476		9,655		12,113		17,752
Interest on short-term borrowings	232		357		685		1,300
Interest on FHLB advances and other borrowings	155		269		399		547
Interest on subordinated notes	1,144		1,144		2,289		2,289
Interest on junior subordinated debentures	229		352		524		710
Total interest expense	6,236		11,777		16,010		22,598
Net interest income	37,385		36,611		73,718		74,258
Provision for credit losses on loans and leases	4,302		1,627		36,637		5,363
Net interest income after provision for credit losses on loans and leases	33,083		34,984		37,081		68,895
Noninterest income:
Fees for wealth management services	9,069		11,510		20,237		21,902
Insurance commissions	1,303		1,697		2,836		3,369
Capital markets revenue	2,975		1,489		5,336		3,708
Service charges on deposits	603		852		1,449		1,660
Loan servicing and other fees	452		553		913		1,162
Net gain on sale of loans	3,134		752		3,916		1,071

Net gain (loss) on sale of other real estate owned ("OREO")	—		—		148		(24)
Dividends on FHLB and FRB stock	243		316		687		727
Other operating income	2,787		3,052		3,344		5,899
Total noninterest income	20,566		20,221		38,866		39,474
Noninterest expenses:
Salaries and wages	16,926		17,038		33,915		37,939
Employee benefits	3,221		3,317		6,721		7,483

Occupancy and bank premises	3,033		3,125		6,048		6,377

Furniture, fixtures, and equipment	2,120		2,568		4,551		4,957
Advertising	196		504		597		919
Amortization of intangible assets	910		956		1,828		1,894

Professional fees	1,575		1,316		2,943		2,636
Pennsylvania bank shares tax	116		513		232		922
Data processing	1,479		1,303		2,873		2,623
Other operating expenses	5,060		4,548		11,346		9,162
Total noninterest expenses	34,636		35,188		71,054		74,912
Income before income taxes	19,013		20,017		4,893		33,457
Income tax expense	4,010		4,239		1,053		7,003
Net income	15,003		15,778		3,840		26,454
Net loss attributable to noncontrolling interest	(32)		(7)		(32)		(8)
Net income attributable to Bryn Mawr Bank Corporation	$	15,035	$	15,785	$	3,872	$	26,462
Basic earnings per common share	$	0.75	$	0.78	$	0.19	$	1.31
Diluted earnings per common share	0.75		0.78		0.19		1.31
Dividends paid or accrued per common share	0.26		0.25		0.52		0.50
Weighted-average basic shares outstanding	19,926,737		20,144,651		19,989,948		20,156,509
Dilutive shares	81,482		99,758		87,211		99,960
Adjusted weighted-average diluted shares	20,008,219		20,244,409		20,077,159		20,256,469

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands, except share and per share data) 2019 2018 2019 2018
Interest income:
Interest and fees on loans and leases $ 44,783
$ 41,689
$ 89,620
$ 82,378
Interest on cash and cash equivalents 73
64
205
117
Interest on investment securities:
Taxable 3,494
2,922
6,944
5,628
Non-taxable 37
78
84
162
Dividends 1
1
3
3
Total interest income 48,388
44,754
96,856
88,288
Interest expense:
Interest on deposits 9,655
4,499
17,752
7,971
Interest on short-term borrowings 357
985
1,300
1,615
Interest on FHLB advances and other borrowings 269
490
547
1,052
Interest on subordinated notes 1,144
1,143
2,289
2,286
Interest on junior subordinated debentures 352
321
710
609
Total interest expense 11,777
7,438
22,598
13,533
Net interest income 36,611
37,316
74,258
74,755
Provision for loan and lease losses 1,627
3,137
5,363
4,167
Net interest income after provision for loan and lease losses 34,984
34,179
68,895
70,588
Noninterest income:
Fees for wealth management services 11,510
10,658
21,902
20,966
Insurance commissions 1,697
1,902
3,369
3,595
Capital markets revenue 1,489
2,105
3,708
2,771
Service charges on deposits 852
752
1,660
1,465
Loan servicing and other fees 553
475
1,162
1,161
Net gain on sale of loans 752
528
1,071
1,046
Net gain on sale of investment securities available for sale —
—
—
7
Net gain (loss) on sale of other real estate owned ("OREO") —
111
(24 ) 287
Dividends on FHLB and FRB stock 316
510
727
941
Other operating income 3,052
3,034
5,899
7,372
Total noninterest income 20,221
20,075
39,474
39,611
Noninterest expenses:
Salaries and wages 17,038
16,240
37,939
32,222
Employee benefits 3,317
2,877
7,483
6,585
Occupancy and bank premises 3,125
2,697
6,377
5,747
Furniture, fixtures, and equipment 2,568
2,069
4,957
3,967
Advertising 504
369
919
830
Amortization of intangible assets 956
889
1,894
1,768
Due diligence, merger-related and merger integration expenses —
3,053
—
7,372
Professional fees 1,316
932
2,636
1,680
Pennsylvania bank shares tax 513
473
922
946
Data processing 1,303
1,252
2,623
2,447
Other operating expenses 4,548
4,985
9,162
8,302
Total noninterest expenses 35,188
35,836
74,912
71,866
Income before income taxes 20,017
18,418
33,457
38,333
Income tax expense 4,239
3,723
7,003
8,353
Net income $ 15,778
$ 14,695
$ 26,454
$ 29,980
Net (loss) income attributable to noncontrolling interest (7 ) 7
(8 ) 6
Net income attributable to Bryn Mawr Bank Corporation $ 15,785
$ 14,688
$ 26,462
$ 29,974
Basic earnings per common share $ 0.78
$ 0.73
$ 1.31
$ 1.48
Diluted earnings per common share $ 0.78
$ 0.72
$ 1.31
$ 1.47
Dividends paid or accrued per common share $ 0.26
$ 0.22
$ 0.51
$ 0.44
Weighted-average basic shares outstanding 20,144,651
20,238,852
20,156,509
20,221,010
Dilutive shares 99,758
174,726
99,960
206,782
Adjusted weighted-average diluted shares 20,244,409
20,413,578
20,256,469
20,427,792

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

Page 4

Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands) 2019 2018 2019 2018
Net income attributable to Bryn Mawr Bank Corporation $ 15,785
$ 14,688
$ 26,462
$ 29,974

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 $1,319, $(402), $2,441, and $(1,721), respectively 4,962
(1,512 ) 9,181
(6,473 )
Reclassification adjustment for net (gain) on sale realized in net income, net of tax expense of $0, $0, $0, and $1 respectively —
—
—
(6 )
Reclassification adjustment for net (gain) realized on transfer of investment securities available for sale to trading, net of tax expense of $0, $0, $0, and $88 respectively —
—
—
(329 )
Unrealized investment gains (losses), net of tax expense (benefit) of $1,319, $(402), $2,441, and $(1,810), respectively 4,962
(1,512 ) 9,181
(6,808 )
Net change in unfunded pension liability:
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense (benefit) of $4, $(4), $8, and $9, respectively 16
(15 ) 32
31

Total other comprehensive income (loss) 4,978
(1,527 ) 9,213
(6,777 )

Total comprehensive income $ 20,763
$ 13,161
$ 35,675
$ 23,197


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2020		2019		2020		2019
Net income attributable to Bryn Mawr Bank Corporation	$	15,035	$	15,785	$	3,872	$	26,462

Other comprehensive income:
Net change in unrealized gains on investment securities available for sale:



Unrealized investment gains, net of tax expense of $34, $1,319, $1,804 and $2,441, respectively	127		4,962		6,786		9,181
Net change in unfunded pension liability:
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense of $6, $4, $12 and $8, respectively	23		16		46		32

Total other comprehensive income	150		4,978		6,832		9,213

Total comprehensive income	$	15,185	$	20,763	$	10,704	$	35,675

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

Page 5

Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited


	Six Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)	2019			2018			(dollars in thousands)	2020		2019
Operating activities:							Operating activities:
Net income attributable to Bryn Mawr Bank Corporation	$	26,462		$	29,974		Net income attributable to Bryn Mawr Bank Corporation	$	3,872	$	26,462
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	5,363			4,167
Provision for credit losses on loans and leases							Provision for credit losses on loans and leases	36,637		5,363
Depreciation of fixed assets	3,896			3,033			Depreciation of fixed assets	4,001		3,896
Amortization of operating lease right-of-use assets	1,828			—			Amortization of operating lease right-of-use assets	1,613		1,828

Net amortization of investment premiums and discounts	1,316			1,509			Net amortization of investment premiums and discounts	1,891		1,316
Net gain on sale of investment securities available for sale	—			(7		)

Net gain on sale of loans	(1,071		)	(1,046		)	Net gain on sale of loans	(3,916)		(1,071)
Stock based compensation	1,987			1,235			Stock based compensation	1,513		1,987
Amortization and net impairment of mortgage servicing rights	303			366			Amortization and net impairment of mortgage servicing rights	1,010		303
Net accretion of fair value adjustments	(2,285		)	(5,316		)	Net accretion of fair value adjustments	(1,989)		(2,285)
Amortization of intangible assets	1,894			1,768			Amortization of intangible assets	1,828		1,894
Net loss (gain) on sale of OREO	24			(287		)

Net (gain) loss on sale of OREO							Net (gain) loss on sale of OREO	(148)		24
Net increase in cash surrender value of bank owned life insurance ("BOLI")	(593		)	(576		)	Net increase in cash surrender value of bank owned life insurance ("BOLI")	(649)		(593)
Other, net	(832		)	(170		)	Other, net	1,216		(832)
Loans originated for resale	(35,781		)	(44,108		)
Loans originated for sale							Loans originated for sale	(46,750)		(35,781)
Proceeds from loans sold	35,187			44,663			Proceeds from loans sold	48,211		35,187
Provision for deferred income taxes	51			640			Provision for deferred income taxes	99		51

Change in income taxes payable/receivable, net	6,906			6,277			Change in income taxes payable/receivable, net	(4,963)		6,906
Change in accrued interest receivable	(727		)	1,131			Change in accrued interest receivable	(3,095)		(727)
Change in accrued interest payable	1,592			1,703			Change in accrued interest payable	1,659		1,592
Change in operating lease liabilities	(1,726		)	—			Change in operating lease liabilities	(1,565)		(1,726)
Change in other assets	(68,444		)	(4,627		)	Change in other assets	(96,979)		(68,444)
Change in other liabilities	30,744			(2,334		)	Change in other liabilities	90,831		30,744
Net cash provided by operating activities	6,094			37,995			Net cash provided by operating activities	34,327		6,094

Investing activities:							Investing activities:
Purchases of investment securities available for sale	(121,976		)	(94,824		)	Purchases of investment securities available for sale	(120,458)		(121,976)
Purchases of investment securities held to maturity	(1,827		)	—			Purchases of investment securities held to maturity	(1,103)		(1,827)
Proceeds from maturity and paydowns of investment securities available for sale	238,349			239,318			Proceeds from maturity and paydowns of investment securities available for sale	557,125		238,349
Proceeds from maturity and paydowns of investment securities held to maturity	273			77			Proceeds from maturity and paydowns of investment securities held to maturity	1,023		273
Proceeds from sale of investment securities available for sale	—			7

Net change in FHLB stock	(147		)	3,405			Net change in FHLB stock	19,238		(147)
Proceeds from calls of investment securities	43,285			310			Proceeds from calls of investment securities	45,500		43,285

Net change in other investments	9			(4,304		)	Net change in other investments	(372)		9

Purchase of customer relationships	(18		)	—			Purchase of customer relationships	—		(18)

Net portfolio loan and lease originations	(112,046		)	(104,700		)	Net portfolio loan and lease originations	(337,951)		(112,046)
Proceeds from sales of loans originally classified as portfolio loans and leases							Proceeds from sales of loans originally classified as portfolio loans and leases	302,169		—
Purchases of premises and equipment	(6,339		)	(2,843		)	Purchases of premises and equipment	(814)		(6,339)
Acquisitions, net of cash acquired	—			(380		)
Capitalize costs to OREO	—			(15		)

Proceeds from sale of OREO	309			420			Proceeds from sale of OREO	534		309
Net cash provided by investing activities	39,872			36,471			Net cash provided by investing activities	464,891		39,872

Financing activities:							Financing activities:
Change in deposits	33,719			(14,164		)	Change in deposits	401,624		33,719
Change in short-term borrowings	(44,539		)	(10,806		)	Change in short-term borrowings	(464,328)		(44,539)
Dividends paid	(10,086		)	(8,994		)	Dividends paid	(10,438)		(10,086)
Change in long-term FHLB advances and other borrowings	(7,500		)	(51,372		)	Change in long-term FHLB advances and other borrowings	(7,501)		(7,500)
Payment of contingent consideration for business combinations	(523		)	(631		)	Payment of contingent consideration for business combinations	(507)		(523)

Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation	(45		)	(732		)	Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation	(144)		(45)
Net (purchase of) proceeds from sale of treasury stock for deferred compensation plans	(82		)	99
Repurchase of warrants from U.S. Treasury	—			(1,755		)
Net purchase of treasury stock for deferred compensation plans							Net purchase of treasury stock for deferred compensation plans	(90)		(82)

Net purchase of treasury stock through publicly announced plans	(2,603		)	—			Net purchase of treasury stock through publicly announced plans	(7,249)		(2,603)

Proceeds from exercise of stock options	622			1,107			Proceeds from exercise of stock options	5		622
Net cash used in financing activities	(31,037		)	(87,248		)	Net cash used in financing activities	(88,628)		(31,037)

Change in cash and cash equivalents	14,929			(12,782		)	Change in cash and cash equivalents	410,590		14,929
Cash and cash equivalents at beginning of period	48,456			60,024			Cash and cash equivalents at beginning of period	53,931		48,456
Cash and cash equivalents at end of period	$	63,385		$	47,242		Cash and cash equivalents at end of period	$	464,521	$	63,385


Supplemental cash flow information:							Supplemental cash flow information:
Cash paid during the year for:							Cash paid during the year for:
Income taxes	$	4,580		$	1,606		Income taxes	$	5,922	$	4,580
Interest	$	21,006		$	11,830		Interest	$	14,351	$	21,006

Non-cash information:							Non-cash information:
Change in other comprehensive income (loss)	$	9,213		$	(6,777	)

Change in other comprehensive income							Change in other comprehensive income	$	6,832	$	9,213
Change in deferred tax due to change in comprehensive income	$	2,449		$	(1,801	)	Change in deferred tax due to change in comprehensive income	$	1,816	$	2,449
Transfer of loans to OREO and repossessed assets	$	72		$	345		Transfer of loans to OREO and repossessed assets	$	386	$	72
Acquisition of noncash assets and liabilities:
Assets acquired	$	—		$	1,096
Liabilities assumed	$	—		$	687

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


	For the Three Months Ended June 30, 2020
(dollars in thousands, except share and per share data)	Shares of Common Stock Issued	Common Stock		Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income		Retained Earnings		Noncontrolling Interest		Total Shareholders' Equity
Balance March 31, 2020	24,655,362	$	24,655	$	379,495	$	(88,540)	$	8,869	$	269,395	$	(695)	$	593,179
Net loss attributable to Bryn Mawr Bank Corporation	—	—		—		—		—		15,035		—		15,035
Net loss attributable to noncontrolling interest	—	—		—		—		—		—		(32)		(32)

Dividends paid or accrued, $0.26 per share	—	—		—		—		—		(5,265)		—		(5,265)
Other comprehensive income, net of tax expense of $40	—	—		—		—		150		—		—		150
Stock based compensation	—	—		624		—		—		—		—		624
Retirement of treasury stock	(3,816)	(4)		(41)		45		—		—		—		—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—	—		—		(63)		—		—		—		(63)
Net treasury stock activity for deferred compensation trusts	—	—		—		(54)		—		—		—		(54)


Common stock issued:
Common stock issued through share-based awards and options exercises	10,615	11		89		—		—		—		—		100

Balance June 30, 2020	24,662,161	$	24,662	$	380,167	$	(88,612)	$	9,019	$	279,165	$	(727)	$	603,674

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For the Six Months Ended June 30, 2019
(dollars in thousands, except share and per share data) Shares of Common Stock Issued
Common
Stock
Paid-in Capital
Treasury
Stock
Accumulated Other Comprehensive Loss
Retained
Earnings

Noncontrolling
Interest
Total Shareholders' Equity
Balance December 31, 2018 24,545,348
$ 24,545
$ 374,010
$ (75,883 ) $ (7,513 ) $ 250,230
$ (685 ) $ 564,704
Net income attributable to Bryn Mawr Bank Corporation —
—
—
—
—
26,462
—
26,462
Net loss attributable to noncontrolling interest —
—
—
—
—
—
(8 ) (8 )
Dividends paid or accrued, $0.51 per share —
—
—
—
—
(10,196 ) —
(10,196 )
Other comprehensive income, net of tax expense of $2,449 —
—
—
—
9,213
—
—
9,213
Stock based compensation —
—
1,987
—
—
—
—
1,987
Retirement of treasury stock (2,704 ) (3 ) (27 ) 30
—
—
—
—
Net purchase of treasury stock from stock awards for statutory tax withholdings —
—
—
(45 ) —
—
—
(45 )
Net treasury stock activity for deferred compensation trusts —
—
—
(82 ) —
—
—
(82 )
Purchase of treasury stock through publicly announced plans —
—
—
(2,603 ) —
—
—
(2,603 )
Common stock issued:

Common stock issued through share-based awards and options exercises 39,913
41
682
—
—
—
—
723
Balance June 30, 2019 24,582,557
$ 24,583
$ 376,652
$ (78,583 ) $ 1,700
$ 266,496
$ (693 ) $ 590,155
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited


	For the Three Months Ended June 30, 2019
	Shares of Common Stock Issued	Common Stock		Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive (Loss) Income		Retained Earnings		Noncontrolling Interest		Total Shareholders' Equity
Balance March 31, 2019	24,577,248	$	24,577	$	375,655	$	(76,974)	$	(3,278)	$	255,813	$	(686)	$	575,107
Net income attributable to Bryn Mawr Bank Corporation	—	—		—		—		—		15,785		—		15,785
Net loss attributable to noncontrolling interest	—	—		—		—		—		—		(7)		(7)
Dividends paid or accrued, $0.25 per share	—	—		—		—		—		(5,102)		—		(5,102)
Other comprehensive income, net of tax expense of $1,323	—	—		—		—		4,978		—		—		4,978
Stock based compensation	—	—		850		—		—		—		—		850
Retirement of treasury stock	(2,704)	(3)		(27)		30		—		—		—		—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—	—		—		(11)		—		—		—		(11)
Net treasury stock activity for deferred compensation trusts	—	—		—		(82)		—		—		—		(82)
Purchase of treasury stock through publicly announced plans	—	—		—		(1,546)		—		—		—		(1,546)

Common stock issued:
Common stock issued through share-based awards and options exercises	8,013	9		174		—		—		—		—		183

Balance June 30, 2019	24,582,557	$	24,583	$	376,652	$	(78,583)	$	1,700	$	266,496	$	(693)	$	590,155

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For the Three Months Ended June 30, 2019
(dollars in thousands, except share and per share data) Shares of Common Stock Issued
Common
Stock
Paid-in Capital
Treasury
Stock
Accumulated Other Comprehensive Loss
Retained
Earnings

Noncontrolling
Interest
Total Shareholders' Equity
Balance March 31, 2019 24,577,248
$ 24,577
$ 375,655
$ (76,974 ) $ (3,278 ) $ 255,813
$ (686 ) $ 575,107
Net income attributable to Bryn Mawr Bank Corporation —
—
—
—
—
15,785
—
15,785
Net loss attributable to noncontrolling interest —
—
—
—
—
—
(7 ) (7 )
Dividends paid or accrued, $0.26 per share —
—
—
—
—
(5,102 ) —
(5,102 )
Other comprehensive income, net of tax expense of $1,323 —
—
—
—
4,978
—
—
4,978
Stock based compensation —
—
850
—
—
—
—
850
Retirement of treasury stock (2,704 ) (3 ) (27 ) 30
—
—
—
—
Net purchase of treasury stock from stock awards for statutory tax withholdings —
—
—
(11 ) —
—
—
(11 )
Net treasury stock activity for deferred compensation trusts —
—
—
(82 ) —
—
—
(82 )
Purchase of treasury stock through publicly announced plans —
—
—
(1,546 ) —
—
—
(1,546 )
Common stock issued:
Common stock issued through share-based awards and options exercises 8,013
9
174
—
—
—
—
183
Balance June 30, 2019 24,582,557
$ 24,583
$ 376,652
$ (78,583 ) $ 1,700
$ 266,496
$ (693 ) $ 590,155
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited


	For the Six Months Ended June 30, 2020
(dollars in thousands, except share and per share data)	Shares of Common Stock Issued	Common Stock		Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income		Retained Earnings		Noncontrolling Interest		Total Shareholders' Equity
Balance December 31, 2019	24,650,051	$	24,650	$	378,606	$	(81,174)	$	2,187	$	288,653	$	(695)	$	612,227
Net income attributable to Bryn Mawr Bank Corporation	—	—		—		—		—		3,872		—		3,872
Net loss attributable to noncontrolling interest	—	—		—		—		—		—		(32)		(32)
Cumulative-effect adjustment due to the adoption of ASU No. 2016-13	—	—		—		—		—		(2,801)		—		(2,801)
Dividends paid or accrued, $0.52 per share	—	—		—		—		—		(10,559)		—		(10,559)
Other comprehensive income, net of tax expense of $1,816	—	—		—		—		6,832		—		—		6,832
Stock based compensation	—	—		1,513		—		—		—		—		1,513
Retirement of treasury stock	(3,816)	(4)		(41)		45		—		—		—		—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—	—		—		(144)		—		—		—		(144)
Net treasury stock activity for deferred compensation trusts	—	—		—		(90)		—		—		—		(90)
Purchase of treasury stock through publicly announced plans	—	—		—		(7,249)		—		—		—		(7,249)

Common stock issued:
Common stock issued through share-based awards and options exercises	15,926	16		89		—		—		—		—		105

Balance June 30, 2020	24,662,161	$	24,662	$	380,167	$	(88,612)	$	9,019	$	279,165	$	(727)	$	603,674

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For the Six Months Ended June 30, 2018
Shares of Common Stock Issued
Common
Stock
Paid-in Capital
Treasury
Stock
Accumulated Other Comprehensive Loss
Retained
Earnings

Noncontrolling
Interest
Total Shareholders' Equity
Balance December 31, 2017 24,360,049
$ 24,360
$ 371,486
$ (68,179 ) $ (4,414 ) $ 205,549
$ (683 ) $ 528,119
Net income attributable to Bryn Mawr Bank Corporation —
—
—
—
—
29,974
—
29,974
Net income attributable to noncontrolling interest —
—
—
—
—
—
6
6
Dividends paid or accrued, $0.44 per share —
—
—
—
—
(8,987 ) —
(8,987 )
Other comprehensive loss, net of tax benefit of $1,801 —
—
—
—
(6,777 ) —
—
(6,777 )
Stock based compensation —
—
1,235
—
—
—
—
1,235
Retirement of treasury stock (2,253 ) (2 ) (20 ) 22
—
—
—
—
Net purchase of treasury stock from stock awards for statutory tax withholdings —
—
—
(732 ) —
—
—
(732 )
Net treasury stock activity for deferred compensation trusts —
—
153
(54 ) —
—
—
99
Repurchase of warrants from U.S. Treasury —
—
(1,853 ) —
—
98
—
(1,755 )
Common stock issued:
Common stock issued through share-based awards and options exercises 93,059
92
1,116
—
—
—
—
1,208
Shares issued in acquisitions⁽¹⁾
2,562
3
110
—
—
—
—
113

Balance June 30, 2018 24,453,417
$ 24,453
$ 372,227
$ (68,943 ) $ (11,191 ) $ 226,634
$ (677 ) $ 542,503
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited


	For the Six Months Ended June 30, 2019
	Shares of Common Stock Issued	Common Stock		Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive (Loss) Income		Retained Earnings		Noncontrolling Interest		Total Shareholders' Equity
Balance December 31, 2018	24,545,348	$	24,545	$	374,010	$	(75,883)	$	(7,513)	$	250,230	$	(685)	$	564,704
Net income attributable to Bryn Mawr Bank Corporation	—	—		—		—		—		26,462		—		26,462
Net loss attributable to noncontrolling interest	—	—		—		—		—		—		(8)		(8)
Dividends paid or accrued, $0.50 per share	—	—		—		—		—		(10,196)		—		(10,196)
Other comprehensive income, net of tax expense of $2,449	—	—		—		—		9,213		—		—		9,213
Stock based compensation	—	—		1,987		—		—		—		—		1,987
Retirement of treasury stock	(2,704)	(3)		(27)		30		—		—		—		—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—	—		—		(45)		—		—		—		(45)
Net treasury stock activity for deferred compensation trusts	—	—		—		(82)		—		—		—		(82)
Purchase of treasury stock through publicly announced plans	—	—		—		(2,603)		—		—		—		(2,603)

Common stock issued:
Common stock issued through share-based awards and options exercises	39,913	41		682		—		—		—		—		723

Balance June 30, 2019	24,582,557	$	24,583	$	376,652	$	(78,583)	$	1,700	$	266,496	$	(693)	$	590,155

~~(1)~~
~~Restricted shares relating to the RBPI Merger (defined in Note 3 – Business Combinations below) recorded during the three months ended June 30, 2018.~~

For the Three Months Ended June 30, 2018
Shares of Common Stock Issued
Common
Stock
Paid-in Capital
Treasury
Stock
Accumulated Other Comprehensive Loss
Retained
Earnings

Noncontrolling
Interest
Total Shareholders' Equity
Balance March 31, 2018 24,438,758
$ 24,439
$ 371,319
$ (68,787 ) $ (9,664 ) $ 216,438
$ (684 ) $ 533,061
Net income attributable to Bryn Mawr Bank Corporation —
—
—
—
—
14,688
—
14,688
Net income attributable to noncontrolling interest —
—
—
—
—
—
7
7
Dividends paid or accrued, $0.22 per share —
—
—
—
—
(4,492 ) —
(4,492 )
Other comprehensive loss, net of tax benefit of $406 —
—
—
—
(1,527 ) —
—
(1,527 )
Stock based compensation —
—
615
—
—
—
—
615
Retirement of treasury stock (2,253 ) (2 ) (20 ) 22
—
—
—
—
Net purchase of treasury stock from stock awards for statutory tax withholdings —
—
—
(106 ) —
—
—
(106 )
Net treasury stock activity for deferred compensation trusts —
—
—
(72 ) —
—
—
(72 )
Common stock issued:
Common stock issued through share-based awards and options exercises 14,350
13
203
—
—
—
—
216
Shares issued in acquisitions⁽¹⁾
2,562
3
110
—
—
—
—
113

Balance June 30, 2018 24,453,417
$ 24,453
$ 372,227
$ (68,943 ) $ (11,191 ) $ 226,634
$ (677 ) $ 542,503

~~(1)~~ ~~Restricted shares relating to the RBPI Merger (defined in Note 3 – Business Combinations below) recorded during the three months ended June 30, 2018.~~

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, Principles of Consolidation, and Significant Accounting Policies

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 (“BMBC,” and together with its direct and indirect subsidiaries, the “Corporation”) management, all adjustments, which are normal and recurring in nature, 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 BMBC’s Annual Report on Form 10-K for the twelve months ended December 31, 2018 (the “2018 Annual Report”).

~~The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for any other interim period or for the full year.~~

~~Principles of Consolidation~~

The Unaudited Consolidated Financial Statements include the accounts of Bryn Mawr Bank Corporation (“BMBC,” and together with its subsidiaries, the “Corporation”) and its consolidated subsidiaries; BMBC's primary subsidiary is The Bryn Mawr Trust Company (the “Bank”). In connection with the ~~RBPI Merger (defined in Note 3 – Business Combinations below)~~merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC, and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), the Corporation acquired ~~two~~2 Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II. These two entities are not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and transactions ~~have been~~are eliminated in ~~consolidation. Certain prior period~~consolidation and certain prior-period amounts have been reclassified when necessary in order to conform to the ~~current-year~~current period presentation.

In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

In preparing the Unaudited Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto in BMBC’s Annual Report on Form 10-K for the twelve months ended December 31, 2019 (the “2019 Annual Report”). Except as described below, the accounting policies applied in these Unaudited Consolidated Financial Statements are the same as those applied in the 2019 Annual Report.

Updates to Significant Accounting Policies:

A.Allowance for Credit Losses (“ACL”) on Loans and Leases:

The ACL on loans and leases represents management’s estimate of all expected credit losses over the expected contractual life of our existing portfolio loans and leases. Determining the appropriateness of the ACL on loans and leases is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACL on loans and leases in those future periods.

The expense for credit loss recorded through earnings is the amount necessary to maintain the ACL on loans and leases at the amount of expected credit losses inherent within the loans and leases portfolio. The amount of expense and the corresponding level of ACL on loans and leases are based on management’s evaluation of the collectability of the loan and lease portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. The ACL on loans and leases, as reported in our Consolidated Statements of Financial Condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan and lease amounts, net of recoveries. For further information on the ACL on loans and leases, see Note 4 - Loans and Leases in the accompanying Notes to Unaudited Consolidated Financial Statements.

Management employs a disciplined process and methodology to establish the ACL on loans and leases that has two basic components: first, an asset-specific component involving individual loans and leases that do not share risk characteristics with other loans and leases and the measurement of expected credit losses for such individual loans; and second, a collective (pooled) component for estimated expected credit losses for pools of loans and leases that share similar risk characteristics.

Based upon this methodology, management establishes an asset-specific ACL on loans and leases that do not share risk characteristics with other loans and leases based on the amount of expected credit losses calculated on those loans and leases and charges off amounts determined to be uncollectible. Factors we consider in measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

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When a loan or lease does not share risk characteristics with other loans or leases, management measures expected credit loss as the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate except that, for collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. If the calculated expected credit loss is determined to be permanent, fixed or nonrecoverable, the credit loss portion of the loan will be charged off against the ACL on loans and leases. Loans and leases designated as having significantly increased credit risk are generally placed on nonaccrual and remain in that status until all principal and interest payments are current and the prospects for future payments in accordance with the loan agreement are reasonably assured, at which point the loan is returned to accrual status.

In estimating the component of the ACL on loans and leases that share common risk characteristics, loans and leases are segregated into portfolio segments based on federal call report codes which classify loans and leases based on the primary collateral supporting the loan and lease. Methods utilized by management to estimate expected credit losses include a discounted cash flow (“DCF”) methodology that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a weighted average remaining maturity (“WARM”) methodology which contemplates expected losses at a pool-level, utilizing historic loss information.

Under both methodologies, management estimates the ACL on loans and leases using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. After the end of the reasonable and supportable forecast period, the loss rates revert to the long-term mean loss rate, or in the case of an input-driven predictive method, the long-term mean of the input, using a reversion period where applicable. Historical credit loss experience, including examination of loss experience at representative peer institutions when the Corporation’s first-party loss history does not result in estimations that are meaningful to users of the Corporation’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

The DCF methodology uses inputs of current and forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicator utilized by the bank is the Pennsylvania unemployment rate. In building the current expected credit loss (“CECL”) model utilized in the DCF methodology, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Pennsylvania unemployment rates. The portfolio segments utilizing the DCF methodology as of June 30, 2020 included: CRE - owner-occupied and nonowner-occupied loans, home equity lines of credit, residential mortgages (first and junior liens), construction loans and consumer loans.

The WARM methodology uses combined historic loss rates for the Bank and peer institutions, if necessary, gathered from Call Report filings. The selected period for which historic loss rates are used is dependent on management's evaluation of current conditions and expectations of future loss conditions. The portfolio segments utilizing the WARM methodology as of June 30, 2020 included commercial and industrial loans and leases.

For those loans and leases where the ACL is measured on a collective (pool) basis, management has identified the following portfolio segments based on federal call report codes which classify loans and leases based on the primary collateral supporting the loan or lease:

Commercial Real Estate (“CRE”) Loans (owner-occupied and non-owner occupied): The Bank originates mortgage loans for multifamily properties (i.e. buildings which have five or more residential units) and other commercial real estate that is either owner-occupied or managed as an investment property (non-owner occupied) primarily within Pennsylvania, Delaware and Southern and Central New Jersey. Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Commercial real estate loans are generally considered to have a higher degree of credit risk than multifamily loans as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions.

Home equity lines of credit: The Bank originates the majority of its home equity lines of credit through its retail channel. The primary risk characteristics associated with home equity lines of credit typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as major medical expenses,

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catastrophic events, divorce and death. Home equity lines of credit are typically originated with variable or floating interest rates, which could expose the borrower to higher payments in a rising interest rate environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Residential Mortgages secured by first liens: The Bank originates one-to-four family residential mortgage loans primarily within Pennsylvania, Delaware and Southern and Central New Jersey. These loans are secured by first liens on a primary residence or investment property. The primary risk characteristics associated with residential mortgage loans typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as major medical expenses, catastrophic events, divorce or death. Residential mortgage loans that have adjustable rates could expose the borrower to higher payments in a rising interest rate environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Residential Mortgages secured by junior liens: The Bank originates loans secured by junior liens against one to four family properties primarily within Pennsylvania, Delaware and Southern and Central New Jersey. Loans secured by junior liens are primarily in the form of an amortizing home equity loan. These loans are subordinate to a first mortgage which may be from another lending institution. The primary risk characteristics associated with loans secured by junior liens typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. Real estate values could decrease and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Construction: The Bank originates construction loans to finance land development preparatory to erecting new structures or the on-site construction of industrial, commercial, or residential buildings. Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures. Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions.

Commercial & Industrial: The Bank originates lines of credit and term loans to operating companies for business purposes. The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment as well as the stock of a company, if privately held. Commercial & Industrial loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. The ability of the Bank to foreclose and realize sufficient value from business assets securing these loans is often uncertain. To mitigate the risk characteristics of commercial and industrial loans, commercial real estate may be included as a secondary source of collateral. The Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

Consumer: The Bank originates or lines of credit to individuals for household, family, and other personal expenditures as well as overdrawn customer deposit balances which are reported as loans. This also represents all other loans that cannot be categorized in any of the previous mentioned loan segments. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral.

Leases: The Bank’s wholly-owned subsidiary Bryn Mawr Equipment Financing, Inc. specializes in equipment leases for small- and mid-sized businesses nationally and across a broad range of industries. The Bank’s credit risk generally results from the potential default of borrowers or lessees, which may be driven by customer specific or broader industry related conditions.

Accrued interest receivable on loans and leases, which is reported in Accrued interest receivable on the Consolidated Balance Sheet, totaled $12.5 million as of June 30, 2020 and is excluded from the estimate of credit losses.

B.ACL on Off-Balance Sheet (“OBS”) Credit Exposures

Management estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The ACL on OBS credit exposure, included within Other Liabilities on the Consolidated Balance Sheet, is adjusted as a provision for credit loss expense included within other operating expense on the Consolidated Statement of Income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be

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funded over its estimated life. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the bank and applying the loss factors used in the ACL on loans and leases methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No credit loss estimate is reported for OBS credit exposures that are unconditionally cancellable by the Bank.

The ACL on OBS credit exposure as of June 30, 2020 was $3.3 million. For the three months ended June 30, 2020 the Corporation recorded a $867 thousand release of reserves for credit losses on OBS credit exposures. For the six months ended June 30, 2020, the Corporation recorded a $2.1 million provision for credit losses on OBS credit exposures.

C.Troubled Debt Restructurings (“TDRs”)

The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), loans to borrowers experiencing financial difficulty related to the COVID-19 pandemic which were granted short-term modifications after March 1, 2020 and which were not more than 30 days past due as of December 31, 2019 are exempt from TDR classification. In addition, for loans modified in response to the COVID-19 pandemic that do not meet the above delinquency criteria (e.g., not more than 30 days past due as of December 31, 2019), the Corporation applies the guidance included in an interagency statement issued by the bank regulatory agencies. This guidance states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were less than 30 days past due as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are also exempt from TDR classification. For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and nonaccrual status will not be impacted during the deferral period. Interest income will continue to be recognized over the contractual life of the loan. For more information on the Corporation's TDR accounting, see Note 1 – Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report.

D.Purchased Credit Deteriorated (“PCD”) Loans and Leases

The Corporation has purchased loans and leases, some of which have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An ACL is determined using the same methodology as other portfolio loans and leases. The initial ACL determined on a collective basis is allocated to individual loans. The loan’s purchase price is grossed-up by adding the allocated ACL to arrive at its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan or lease is a noncredit discount or premium, which is amortized into interest income over the life of the loan or lease. Subsequent changes to the ACL associated with PCD loans or leases are recorded through provision expense.

E.ACL on Held to Maturity Securities

Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. The Corporation’s held to maturity debt securities consist of mortgage-backed securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. With respect to these securities, management considers the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S. government were to default. Therefore, for those securities, the Corporation does not record expected credit losses. Accrued interest receivable on held to maturity debt securities, which is reported in Accrued interest receivable on the Consolidated Balance Sheet, totaled $36 thousand as of June 30, 2020 and is excluded from the estimate of credit losses.

F.ACL on Available for Sale Securities

For available for sale debt securities in an unrealized loss position, management first assesses whether it intends to sell, or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any explicit or implicit guarantees by the U.S. government, any changes to the rating of the security by the rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

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Changes in the ACL on available for sale debt securities are recorded as provision for (or release of) credit loss expense. Losses are charged against the ACL on available for sale debt securities when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available for sale debt securities, which is reported in Accrued interest receivable on the Consolidated Balance Sheet, totaled $1.9 million at June 30, 2020 and is excluded from the estimate of credit losses.

Note 2 – Recent Accounting Pronouncements

The following FASB Accounting Standards Updates (“ASUs”) are divided into pronouncements which have been adopted by the Corporation since January 1, ~~2019,~~2020, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of June 30, ~~2019.~~2020.

Adopted Pronouncements:

~~FASB ASU 2016-02 (Topic 842), “Leases”~~

In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard became effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Management has elected to use the effective date as its date of initial application. Consequently, financial information was not be updated, and the disclosures required under the new standard are not be provided for dates and periods before January 1, 2019.

The new standard provided a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

This standard had a material effect on our Consolidated Balance Sheet and related disclosures but did not have a material impact on our Consolidated Statement of Income. The additional assets recorded as a result of adoption had a negative impact on BMBC and Bank capital ratios under current regulatory guidance. On adoption, we had:

recognized operating lease liabilities of approximately $49.1 million, with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases, and

derecognized $541 thousand of favorable lease assets, $2.2 million in unfavorable lease liabilities, and $2.5 million in deferred rent, with a corresponding adjustment to the ROU asset for the same amounts.

The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we did not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also have elected the practical expedient to not separate lease and non-lease components for all of our leases.

~~FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”~~

~~Issued in June 2018, ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting~~” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this update became effective for us January 1, 2019. The adoption did not have an impact on our Consolidated Financial Statements and related disclosures as the Corporation has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting.

~~Pronouncements Not Yet Effective:~~

FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

~~Issued in June 2016,~~ On January 1, 2020, the Corporation adopted ASU 2016-13 (Topic ~~326 -Credit Losses)~~326), ~~commonly referenced~~“Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the ~~Current Expected Credit Loss (“CECL”),~~ current expected credit loss (or CECL) methodology. This standardeliminates the Provision for Loan and Lease Losses ~~(“PLLL”)~~ and Allowance for Loan and Lease Losses ~~(“ALLL”)~~ line items and establishes the Provision for Credit Losses (“PCL”) and Allowance for Credit Losses (“ACL”) line items.

~~Under the legacy “Incurred Loss” notion, management presents an ALLL intended to represent “probable and estimable” incurred but not yet realized~~The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to OBS credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on ~~assets in scope. When~~leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management deems collection of contractual cashflows for an instrument unlikely, a specific reserve is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical loss experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not ~~allow for projections beyond the~~intend to sell or believes that it is more likely ~~‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in 2022 are~~than not ~~currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.~~

In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for prepayment tendencies. Further, management’s specific expectations for the future economic environment must be incorporated in the projection, with loss expectations to revert to the long-run historical mean after such time as management can make or obtain a reasonable and supportable forecast. This valuation reservethey will be ~~established in the ACL and maintained through expense (provision) in the PCL. In the event that additional allocation is~~ required to fund the ACL at adoption, investors will see a cumulative-effect (one time) adjustment to retained earnings upon adoption of the new standard. The new CECL standard will become effective for the Corporation for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.sell.

The Corporation ~~has engaged with a leading vendor to assist in computing~~adopted ASC 326 using the modified retrospective approach method for all financial assets measured at amortized cost and ~~establishing the ACL, and management has completed the data gathering and model selection efforts, with continued effort through 2019 to operationalize the practice~~OBS credit exposures. Results for establishing the ACL and preparing its presentation. Significant additional quantitative analysis is included in management’s contemplated measurement regime, including examination of loss experience at representative peer institutions when the Corporation’s first-party loss history does not result in estimations thatreporting periods beginning after January 1, 2020 are ~~meaningful to users of the Corporation’s~~

Consolidated Financial Statements. Preliminary evaluations were performed by discounting instrument-level cashflows adjusted for timing (i.e. prepayment) and credit (default and loss) expectations. In addition, for portfolio segments for which insufficient loss experience exists and for which peer-bank data is not representative of the Bank's credit quality, a method utilizing a loss rate applied to the weighted average remaining maturity of the segment, at the pool level, is expectedpresented under ASC 326 while prior period amounts continue to be ~~used. Management will continue to evaluate other estimation methodologies and disaggregation approaches through the 2019 year.~~

~~The Corporation will comply~~reported in accordance with previously applicable GAAP. In conjunction with the ~~new disclosure and presentation requirements enumerated~~adoption of CECL, the Corporation has revised its segmentation to align with the methodology applied in ~~ASU 2016-13 (and as amended in ASU 2019-04), including presentation of the vintage disclosure organizing certain credit performance data by year of origination/renewal.~~

Financial statement users should be aware that the ACL is, by design, inherently sensitive to changes in economic outlook, loan and lease portfolio composition, portfolio duration, and other factors. The following factors could lead to a material impact to retained earnings - in either direction - as of the adoption date:

~~Increases or decreases to the time period management is able to forecast on a reasonable and supportable basis~~

~~Inclusion or exclusion of forecast factors~~

~~Adverse changes to reasonable and supportable forecasts~~

~~Detectable increases or decreases in the Corporation’s or comparable industry's credit loss parameters~~

~~Deterioration or improvement in the risk profile of the Corporation’s loan and lease portfolio~~

~~Changes in prepayment behavior or other factors impacting loan and lease portfolio duration~~

~~Changes in credit risk through the ordinary course of operations, (e.g. the launch or expansion of higher risk-bearing products)~~

~~Interest rate fluctuations impacting effective yield on certain instruments.~~

Management cautions that this list is not exhaustive. Further, management may adjust quantitatively-established allocations based on factors that defy numerical modeling, leading to a material adjustment not due to factors specified above. Moreover, interpretations and clarifications of the guidance through the FASB’s ongoing Transition Resource Group efforts may change management’s estimates of the impact. Finally, the impact of accounting treatment changes for establishingdetermining the ACL for ~~purchased assets~~loans and leases under ~~future acquisitions may effect a cumulative-effect adjustment to retained earnings that proves material.~~

Ongoing financial statement behavior will be impacted by the standard, regardless of any cumulative-effect adjustment at adoption. Under our currently-contemplated cashflow projection model, assets will originate with a specific allocation for the contract life of that instrument, adjusted for prepayment behavior and probabilistic credit performance expectations to arrive at an expected cashflow projection. All else being equal, as that continues toward its contract maturity, estimates of lifetime credit loss at the instrument level will decrease. Under steady-state conditions, portfolio-segment-level aggregation of management’s expected loss estimates should be stable or track with portfolio-segment growth (contraction and runoff). When management’s expectations of the likely future economic environment change based on reasonable and supportable forecasts, portfolio allocation may increase (decrease) rapidly between periods. The establishment of the ACL will be more responsive to deteriorating (improving) economic conditions than prior establishment of the ALLL,CECL, which is based on ~~historical experience~~federal call report codes which classify loans based on the primary collateral supporting the loan. Segmentation prior to the adoption of CECL was based on product type or purpose. As such, certain reclassifications were made to conform prior-period amounts to current period presentation.

Upon adoption, the Corporation's total ACL increased by $4.0 million, or 17.5%, which included an increase in ACL on loans and ~~agnostic to future conditions. In dynamic economic environments, users~~leases of ~~financial statements should expect expense (income)~~$3.2 million and an increase in the ~~PCL~~reserve for OBS exposures, which is included within Other Liabilities on the Consolidated Balance Sheet, of $821 thousand. The increase in the total ACL resulted in a $2.8 million decrease to ~~be concentrated~~retained earnings, net of deferred taxes. The overall change in ~~fewer quarters than~~total ACL upon adoption was ~~typical~~primarily due to the move to a life of loan reserve estimate as well as methodology changes required under CECL.

The Corporation adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the ~~PLLL. Users~~standard, management did not reassess whether PCI assets met the criteria of ~~financial statements should be aware that this accounting treatment does not determine the ultimate, realized loss or recovery for~~PCD assets ~~in scope; ASU 2016-13 impacts timing and possibly the magnitude~~as of the ~~impact~~date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $481 thousand of the allowance for credit losses. The remaining noncredit discount (based on ~~our financial condition and results~~the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of ~~operations in dynamic economic environments.~~January 1, 2020.

~~Criteria for establishment~~

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Table of specific reserves are still under evaluation, but are expected to be similar to criteria currently considered when identifying a loan or lease that should be individually evaluated for impairment. Specific reserve impact to instruments meeting the legacy “impairment” criteria are not anticipated to change, though the volume of such credits may change beforeContents

The following table illustrates the adoption ~~date due to deterioration (improvement)~~ of ~~portfolio credit quality. Management is evaluating additional criteria to identify instruments for specific evaluation under the future standard’s broader allowable criteria.~~CECL on January 1, 2020:

~~Management does not currently plan to implement an accounting election to recognize changes in the ACL valuation account due to timing (prepayment) behavior as interest income (expense).~~


	January 1, 2020
	Pre-CECL Adoption		Reclassification to CECL Portfolio Segmentation		Pre-CECL Adoption Portfolio Segmentation		Post-CECL Adoption Portfolio Segmentation		Impact of CECL Adoption
Assets:
Loans and leases:
Commercial mortgage	$	1,913,430	$	(1,913,430)	$	—	$	—	$	—
CRE - nonowner-occupied	—		1,337,167		1,337,167		1,337,464		297
CRE - owner-occupied	—		527,607		527,607		527,607		—
Home equity lines of credit	194,639		29,623		224,262		224,262		—
Residential mortgage	489,903		(489,903)		—		—		—
Residential mortgage - first liens	—		706,690		706,690		706,843		153
Residential mortgage - junior liens	—		36,843		36,843		36,843		—
Construction	159,867		42,331		202,198		202,198		—
Commercial & Industrial	709,257		(277,030)		432,227		432,248		21
Consumer	57,139		102		57,241		57,241		—
Leases	165,078		—		165,078		165,088		10
Total loans and leases	$	3,689,313	$	—	$	3,689,313	$	3,689,794	$	481

ACL on loans and leases
Commercial mortgage	$	10,434	$	(10,434)	$	—	$	—	$	—
CRE - nonowner-occupied	—		7,960		7,960		7,493		(467)
CRE - owner-occupied	—		2,825		2,825		2,841		16
Home equity lines of credit	890		224		1,114		1,068		(46)
Residential mortgage	1,538		(1,538)		—		—		—
Residential mortgage - first liens	—		2,501		2,501		4,909		2,408
Residential mortgage - junior liens	—		338		338		417		79
Construction	997		233		1,230		871		(359)
Commercial & Industrial	6,029		(2,194)		3,835		3,676		(159)
Consumer	353		85		438		578		140
Leases	2,361		—		2,361		3,955		1,594
Total ACL on loans and leases	$	22,602	$	—	$	22,602	$	25,808	$	3,206

Liabilities:
ACL on OBS credit exposures	$	360	$	—	$	360	$	1,181	$	821

Total ACL	$	22,962	$	—	$	22,962	$	26,989	$	4,027

Retained earnings:
Total increase in ACL									$	4,027
Balance sheet reclassification									(481)
Total pre-tax impact									3,546
Tax effect									(745)
Decrease to retained earnings									$	2,801

FASB ASU 2017-04 (Topic 350), “Intangibles – Goodwill and Others”

Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 isbecame effective for the Corporation on January 1, 2020, and will follow such guidance in connection with our next annual ~~periods beginning~~

~~after December 15, 2019 including interim periods within those periods.~~impairment testing, or prior to that if any such change constitutes a triggering event outside of the quarter from when the annual goodwill impairment test is performed. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

~~FASB ASU 2018-12 (Topic 944), “Targeted Improvements to the Accounting for Long-Duration Contracts”~~

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Issued in August 2018, ASU 2018-12 makes targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity. Specifically, the ASU is intended to (1) improve the timelinessTable of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows, (2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplify the amortization of deferred acquisition costs, and (4) improve the effectiveness of the required disclosures. ASU 2018-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application of the amendments is permitted. As an independent insurance agent, the Corporation does not issue insurance contracts. As a result, management does not expect the adoption of this ASU to have an impact on our Consolidated Financial Statements and related disclosures.Contents

FASB ASU 2018-13, “Fair Value Measurement Disclosure Framework”

Issued in August 2018, ASU 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. The guidance isbecame effective ~~in annual~~for the Corporation on January 1, 2020 and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption is required on both a prospective and retrospective basis depending on the amendment. Management does not expect the adoption of this ASU todid not have a material impact on our Consolidated Financial Statements and related disclosures.

Pronouncements Not Yet Effective:

FASB ASU 2018-14 (Topic 715), “Compensation-Retirement Benefits - Defined Benefit Plans-General”

Issued in August 2018, ASU 2018-14, modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements to financial statement users. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Use of the retrospective method is required. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU ~~2018-15~~2019-12, “Income Taxes (Topic ~~350), “Intangibles - Goodwill and Other - Internal-Use Software”~~740): Simplifying the Accounting for Income Taxes”

Issued in ~~August 2018,~~December 2019, ASU ~~2018-15 provides clarity on capitalizing~~2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and ~~expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized,~~makes minor improvements to the ~~cost should be recognized over the noncancellable term and periodically assessed for impairment.~~codification. The guidance is effective infor annual ~~and interim~~ periods ~~in fiscal years~~ beginning after December 15, ~~2019.~~2020. Early adoption is permitted. ~~Adoption should~~Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

Issued in March 2020, ASU No. 2020-04 provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP. It further allows hedge accounting to be ~~applied retrospectively~~maintained and a one-time transfer or ~~prospectively~~sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the amendments are permitted to ~~all implementation costs incurred~~be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after ~~the date~~December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of ~~adoption.~~December 31, 2022. Management is currently evaluating the potential impact of ASU ~~2018-15~~2020-04 on our Consolidated Financial Statements and related disclosures.

~~FASB ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”~~

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those preciously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management is currently evaluating the potential impact of ASU 2019-04 on our Consolidated Financial Statements and related disclosures.

~~Note 3 – Business Combinations~~

~~Domenick & Associates (“Domenick”)~~

The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993 and headquartered in Philadelphia, on May 1, 2018. The consideration for the transaction was an aggregate amount in cash not to exceed $1.5 million, of which $750 thousand was paid at closing, $225 thousand was paid during the third quarter of 2019, and two remaining contingent cash payments, not to exceed $250 thousand each, are payable in 2020 and 2021, respectively, subject to the attainment of certain targets during the related periods.

The following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:

(dollars in thousands)
Consideration paid:
Cash paid at closing $ 750
Contingent payment liability (present value) 706
Value of consideration 1,456

Assets acquired:
Cash and due from banks 370
Intangible assets - customer relationships 779
Premises and equipment 1
Other assets 316
Total assets 1,466

Liabilities assumed:
Accounts payable 657
Other liabilities 30
Total liabilities 687

Net assets acquired 779

Goodwill resulting from acquisition of Domenick $ 677

~~As of June 30, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Domenick acquisition were final.~~

~~Royal Bancshares of Pennsylvania, Inc.~~

On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC (the “Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the “RBPI Merger”), pursuant to the Agreement and Plan of Merger, by and between RBPI and BMBC, dated as of January 30, 2017 (the “Agreement”) was completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,101,316 shares of BMBC’s common stock. Shareholders of RBPI received 0.1025 shares of BMBC common stock for each share of RBPI Class A common stock and 0.1179 shares of BMBC common stock for each share of RBPI Class B common stock owned as of the Effective Date of the RBPI Merger, with cash-in-lieu of fractional shares totaling $7 thousand. Holders of in-the-money options to purchase RBPI Class A common stock received cash totaling $112 thousand. In addition, 1,368,040 warrants to purchase Class A common stock of RBPI, valued at $1.9 million were converted to 140,224 warrants to purchase BMBC common stock. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were preliminarily adjusted to their fair values as of the Effective Date. 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.

In connection with the RBPI Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of the Effective Date, which include the effects of any measurement period adjustments in accordance with ASC 805-10, are summarized in the following table:

(dollars in thousands)
Consideration paid:
Common shares issued (3,101,316) $ 136,768
Cash in lieu of fractional shares 7
Cash-out of certain options 112
Fair value of warrants assumed 1,853
Value of consideration 138,740

Assets acquired:
Cash and due from banks 17,092
Investment securities available for sale 121,587
Loans 566,228
Premises and equipment 8,264
Deferred income taxes 34,823
Bank-owned life insurance 16,550
Core deposit intangible 4,670
Favorable lease asset 566
Other assets 13,611
Total assets 783,391

Liabilities assumed:
Deposits 593,172
FHLB and other long-term borrowings 59,568
Short-term borrowings 15,000
Junior subordinated debentures 21,416
Unfavorable lease liability 322
Other liabilities 31,381
Total liabilities 720,859

Net assets acquired 62,532

Goodwill resulting from acquisition of RBPI $ 76,208

~~As of December 31, 2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the RBPI merger were final.~~

~~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:

Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2019 2018 2019 2018
Advertising $ —
$ 2
$ —
$ 61
Employee benefits —
68
—
271
Occupancy and bank premises —
289
—
2,145
Furniture, fixtures, and equipment —
186
—
365
Data processing —
142
—
254
Professional fees —
510
—
1,257
Salaries and wages —
477
—
823
Other —
1,378
—
2,195
Total due diligence, merger-related and merger integration expenses $ —
$ 3,052
$ —
$ 7,371

Note 43 – Investment Securities

The amortized cost and fair value of investment securities available for sale as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:

As of June 30, ~~2019~~2020


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	100	$	—	$	—	$	100
Obligations of the U.S. government and agencies	113,046		1,120		(17)		114,149
Obligations of state and political subdivisions	4,553		30		—		4,583
Mortgage-backed securities	365,521		12,056		(373)		377,204
Collateralized mortgage obligations	25,171		702		—		25,873
Corporate bonds	8,000		22		—		8,022
Other investment securities	650		—		—		650
Total	$	517,041	$	13,930	$	(390)	$	530,581

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(dollars in thousands)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value
U.S. Treasury securities $ 100
$ 1
$ —
$ 101
Obligations of the U.S. government and agencies 192,524
374
(99 ) 192,799
Obligations of state and political subdivisions 6,862
10
(2 ) 6,870
Mortgage-backed securities 345,611
3,597
(233 ) 348,975
Collateralized mortgage obligations 38,635
293
(204 ) 38,724
Other investment securities 650
—
—
650
Total $ 584,382
$ 4,275
$ (538 ) $ 588,119

As of December 31, ~~2018~~2019


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	500,066	$	35	$	—	$	500,101
Obligations of the U.S. government and agencies	102,179		193		(352)		102,020
Obligations of state and political subdivisions	5,366		13		—		5,379
Mortgage-backed securities	360,977		5,182		(157)		366,002
Collateralized mortgage obligations	31,796		195		(159)		31,832

Other investment securities	650		—		—		650
Total	$	1,001,034	$	5,618	$	(668)	$	1,005,984

(dollars in thousands)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value
U.S. Treasury securities $ 200,026
$ —
$ (13 ) $ 200,013
Obligations of the U.S. government and agencies 198,604
107
(2,856 ) 195,855
Obligations of state and political subdivisions 11,372
3
(43 ) 11,332
Mortgage-backed securities 294,076
554
(4,740 ) 289,890
Collateralized mortgage obligations 40,150
141
(1,039 ) 39,252
Other investment securities 1,100
—
—
1,100
Total $ 745,328
$ 805
$ (8,691 ) $ 737,442

The following tables present the aggregate amount of gross unrealized losses as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 on available for sale investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of June 30, ~~2019~~2020


	Less than 12 Months					12 Months or Longer					Total						Less than 12 Months						12 Months or Longer						Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of the U.S. government and agencies	$	12,987	$	(12	)	$	30,301	$	(87	)	$	43,288	$	(99	)	Obligations of the U.S. government and agencies	$	6,005	$	(17)	$	—	$	—	$	6,005	$	(17)
Obligations of state and political subdivisions	—		—			959		(2		)	959		(2		)

Mortgage-backed securities	8,528		(49		)	49,072		(184		)	57,600		(233		)	Mortgage-backed securities	32,503		(373)		—		—		32,503		(373)
Collateralized mortgage obligations	—		—			21,032		(204		)	21,032		(204		)

Total	$	21,515	$	(61	)	$	101,364	$	(477	)	$	122,879	$	(538	)	Total	$	38,508	$	(390)	$	—	$	—	$	38,508	$	(390)

As of December 31, ~~2018~~2019


	Less than 12 Months						12 Months or Longer						Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Obligations of the U.S. government and agencies	$	48,497	$	(315)	$	7,966	$	(37)	$	56,463	$	(352)

Mortgage-backed securities	33,783		(119)		5,977		(38)		39,760		(157)
Collateralized mortgage obligations	6,978		(67)		10,861		(92)		17,839		(159)

Total	$	89,258	$	(501)	$	24,804	$	(167)	$	114,062	$	(668)

Less than 12
Months

12 Months
or Longer
Total
(dollars in thousands)
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses
U.S. Treasury securities $ 199,912
$ (13 ) $ —
$ —
$ 199,912
$ (13 )
Obligations of the U.S. government and agencies 12,916
(62 ) 140,506
(2,794 ) 153,422
(2,856 )
Obligations of state and political subdivisions —
—
3,989
(43 ) 3,989
(43 )
Mortgage-backed securities 43,276
(352 ) 195,697
(4,388 ) 238,973
(4,740 )
Collateralized mortgage obligations 540
(1 ) 27,077
(1,038 ) 27,617
(1,039 )
Total $ 256,644
$ (428 ) $ 367,269
$ (8,263 ) $ 623,913
$ (8,691 )

As of June 30, 2020, the Corporation’s available for sale investment securities consisted of 392 securities, 14 of which were in an unrealized loss position.

~~Management evaluates~~As of June 30, 2020, management had not made a decision to sell any of the Corporation’s available for sale investment securities in an unrealized loss position, nor did management consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis. Management has evaluated available for sale debt securities that are in an unrealized loss position ~~in order to determine if~~and has determined that the decline in ~~fair~~ value is ~~other than temporary. The investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state~~unrelated to credit loss and ~~local municipalities and other issuers. All fixed income investment securities~~is related to the change in ~~the Corporation’s investment portfolio are rated as investment-grade or higher.~~market interest rates since purchase. Factors considered in ~~the~~this evaluation ~~include the current economic climate, the length of time and~~included the extent to which ~~the~~ fair value ~~has been below~~is less than amortized cost, ~~interest rates and~~any explicit or implicit guarantees by the ~~bond~~U.S. government, any changes to the rating of ~~each security. The unrealized losses presented in~~ the ~~tables above are temporary in nature~~security by the rating agency, and ~~are primarily~~adverse conditions specifically related to ~~market interest rates rather than~~ the ~~underlying credit quality~~security, among other factors. As of June 30, 2020, approximately 97.0% of the ~~issuers~~Corporation’s available for sale investment securities were U.S. Treasuries or ~~collateral. Management does not believe that these unrealized losses are other-than-temporary. Management does not intend to sell these~~mortgage-backed securities ~~prior to their maturity~~ or collateral mortgage obligations which were issued or guaranteed by U.S. government-sponsored entities and agencies. In addition, none of the ~~recovery of their cost bases and believes that it is more likely than not that~~available for sale debt securities held by the Corporation ~~will not have to sell these securities prior to their maturity or the recovery~~are past due as of ~~their cost bases.~~June 30, 2020.

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

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As of June 30, 2020 and December 31, 2019, securities having a fair value of ~~$134.6~~$268.2 million and ~~$123.5~~$156.4 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia (the “FRB”) discount window program, Federal Home Loan Bank (“FHLB”) borrowings, collateral requirements in derivative contracts, and other purposes. Advances by the FHLB are collateralized by a blanket lien on non-pledged, mortgage-related loans as part of the Corporation’s borrowing agreement with the FHLB as well as certain securities individually pledged by the Corporation.

The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2019				December 31, 2018					June 30, 2020						December 31, 2019
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities:									Investment securities:
Due in one year or less	$	7,315	$	7,313	$	209,129	$	209,099	Due in one year or less	$	2,511	$	2,514	$	504,851	$	504,890
Due after one year through five years	156,115		156,142		180,657		177,972		Due after one year through five years	11,808		11,905		38,710		38,623
Due after five years through ten years	24,596		24,692		7,258		7,268		Due after five years through ten years	102,829		103,479		53,598		53,457
Due after ten years	12,110		12,273		14,058		13,961		Due after ten years	9,201		9,606		11,102		11,180
Subtotal	200,136		200,420		411,102		408,300		Subtotal	126,349		127,504		608,261		608,150
Mortgage-related securities⁽¹⁾	384,246		387,699		334,226		329,142		Mortgage-related securities⁽¹⁾	390,692		403,077		392,773		397,834

Total	$	584,382	$	588,119	$	745,328	$	737,442	Total	$	517,041	$	530,581	$	1,001,034	$	1,005,984

(1) Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The amortized cost and fair value of investment securities held to maturity as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:

As of June 30, ~~2019~~2020


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-backed securities	$	10,209	$	38	$	(42	)	$	10,205	Mortgage-backed securities	$	12,592	$	403	$	—	$	12,995

As of December 31, ~~2018~~2019

(dollars in thousands)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value
Mortgage-backed securities $ 8,684
$ —
$ (246 ) $ 8,438


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-backed securities	$	12,577	$	104	$	(20)	$	12,661

The Corporation had no held to maturity securities with gross unrealized losses as of June 30, 2020. The following ~~tables present~~table presents the aggregate amount of gross unrealized losses as of ~~June 30, 2019 and~~ December 31, ~~2018~~2019 on held to maturity securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

~~As of June 30, 2019~~

Less than 12
Months

12 Months
or Longer
Total
(dollars in thousands)
Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
Mortgage-backed securities $ —
$ —
$ 5,025
$ (42 ) $ 5,025
$ (42 )

As of December 31, ~~2018~~2019


	Less than 12 Months						12 Months or Longer						Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities	$	3,159	$	(20)	$	—	$	—	$	3,159	$	(20)

As of June 30, 2020, none of the Corporation’s held to maturity investment securities were in an unrealized loss position. The Corporation’s held to maturity debt securities consist of mortgage-backed securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. With respect to these securities, the bank considers the history of credit

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losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S. government were to default. The bank does not record expected credit losses for these securities. Accrued interest receivable on held to maturity debt securities totaled $36 thousand at June 30, 2020 and is excluded from the estimate of credit losses.

The amortized cost and fair value of held to maturity investment securities as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown below:


	June 30, 2019				December 31, 2018					June 30, 2020						December 31, 2019
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-backed securities⁽¹⁾	$	10,209	$	10,205	$	8,684	$	8,438	Mortgage-backed securities⁽¹⁾	$	12,592	$	12,995	$	12,577	$	12,661

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Corporation’s investment securities held in trading accounts totaled ~~$8.5~~$7.8 million and ~~$7.5~~$8.6 million, respectively, and primarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants and a rabbi trust ~~account~~accounts established to fund certain unqualified pension obligations. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income. Changes in the fair value of investments held in the deferred compensation trust accounts create corresponding changes in the liability to the deferred compensation plan participants.

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Note 54 – Loans and Leases

The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in prior acquisitions. Certain tables in this footnote are presented with a breakdown between originated and acquired loans and leases.

A. The following table details the amortized cost of loans and leases as of the dates indicated:


Loans and Leases	Loans and Leases												Loans and Leases
	June 30, 2019						December 31, 2018							June 30, 2020										December 31, 2019
(dollars in thousands)	Originated		Acquired		Total Loans and Leases		Originated		Acquired		Total Loans and Leases		(dollars in thousands)	Originated		Acquired		Total Loans and Leases		Originated		Acquired		Total Loans and Leases
Loans held for sale	$	6,333	$	—	$	6,333	$	1,749	$	—	$	1,749	Loans held for sale	$	4,116	$	—	$	4,116	$	4,249	$	—	$	4,249
Real Estate Loans:
Commercial mortgage	1,476,340		279,458		1,755,798		1,327,822		329,614		1,657,436
Home equity lines and loans	180,715		23,137		203,852		181,506		25,845		207,351
Residential mortgage	433,169		72,924		506,093		411,022		83,333		494,355
Real estate loans:													Real estate loans:
Commercial real estate (CRE) - nonowner-occupied													Commercial real estate (CRE) - nonowner-occupied	1,252,173		123,731		1,375,904		1,161,815		175,352		1,337,167
Commercial real estate (CRE) - owner-occupied													Commercial real estate (CRE) - owner-occupied	499,650		43,038		542,688		479,466		48,141		527,607
Home equity lines of credit													Home equity lines of credit	182,035		12,732		194,767		209,239		15,023		224,262
Residential mortgage - 1st liens													Residential mortgage - 1st liens	596,597		98,673		695,270		604,884		101,806		706,690
Residential mortgage - junior liens													Residential mortgage - junior liens	32,083		1,561		33,644		34,903		1,940		36,843
Construction	149,424		3,130		152,554		174,592		6,486		181,078		Construction	203,833		8,541		212,374		193,307		8,891		202,198
Total real estate loans	2,239,648		378,649		2,618,297		2,094,942		445,278		2,540,220		Total real estate loans	2,766,371		288,276		3,054,647		2,683,614		351,153		3,034,767
Commercial and industrial	653,904		50,263		704,167		624,643		70,941		695,584
Commercial & Industrial													Commercial & Industrial	451,228		6,301		457,529		425,322		6,905		432,227
Consumer	46,809		2,526		49,335		44,099		2,715		46,814		Consumer	43,672		90		43,762		54,913		2,328		57,241
Leases	148,488		14,378		162,866		121,567		22,969		144,536		Leases	161,619		4,608		166,227		156,967		8,111		165,078
Total portfolio loans and leases	3,088,849		445,816		3,534,665		2,885,251		541,903		3,427,154		Total portfolio loans and leases	3,422,890		299,275		3,722,165		3,320,816		368,497		3,689,313
Total loans and leases	$	3,095,182	$	445,816	$	3,540,998	$	2,887,000	$	541,903	$	3,428,903	Total loans and leases	$	3,427,006	$	299,275	$	3,726,281	$	3,325,065	$	368,497	$	3,693,562
Loans with fixed rates	$	1,262,209	$	261,044	$	1,523,253	$	1,204,070	$	323,604	$	1,527,674	Loans with fixed rates	$	1,298,849	$	165,053	$	1,463,902	$	1,251,762	$	216,269	$	1,468,031
Loans with adjustable or floating rates	1,832,973		184,772		2,017,745		1,682,930		218,299		1,901,229		Loans with adjustable or floating rates	2,128,157		134,222		2,262,379		2,073,303		152,228		2,225,531
Total loans and leases	$	3,095,182	$	445,816	$	3,540,998	$	2,887,000	$	541,903	$	3,428,903	Total loans and leases	$	3,427,006	$	299,275	$	3,726,281	$	3,325,065	$	368,497	$	3,693,562
Net deferred loan origination fees included in the above loan table	$	183	$	—	$	183	$	2,226	$	—	$	2,226
Net deferred loan origination fees (costs) included in the above loan table													Net deferred loan origination fees (costs) included in the above loan table	$	210	$	—	$	210	$	(193)	$	—	$	(193)

B. The following table details the components of net investment in leases:


Components of Net Investment in Leases
	June 30, 2020										December 31, 2019
(dollars in thousands)	Originated		Acquired		Total Leases		Originated		Acquired		Total Leases
Minimum lease payments receivable	$	178,407	$	4,874	$	183,281	$	174,385	$	8,753	$	183,138
Unearned lease income	(23,182)		(346)		(23,528)		(23,641)		(813)		(24,454)
Initial direct costs and deferred fees	6,394		80		6,474		6,223		171		6,394
Total Leases	$	161,619	$	4,608	$	166,227	$	156,967	$	8,111	$	165,078

Components of Net Investment in Leases
June 30, 2019 December 31, 2018
(dollars in thousands) Originated Acquired Total Leases Originated Acquired Total Leases
Minimum lease payments receivable $ 165,463
$ 15,703
$ 181,166
$ 135,313
$ 25,372
$ 160,685
Unearned lease income (23,170 ) (1,658 ) (24,828 ) (19,388 ) (3,005 ) (22,393 )
Initial direct costs and deferred fees 6,195
333
6,528
5,642
602
6,244
Total Leases $ 148,488
$ 14,378
$ 162,866
$ 121,567
$ 22,969
$ 144,536

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C. The following table details the amortized cost of nonperforming loans and leases as of the dates indicated:


Nonperforming Loans and Leases	Nonperforming Loans and Leases												Nonperforming Loans and Leases
	June 30, 2019						December 31, 2018							June 30, 2020										December 31, 2019
(dollars in thousands)	Originated		Acquired		Total Loans and Leases		Originated		Acquired		Total Loans and Leases		(dollars in thousands)	Originated		Acquired		Total Loans and Leases		Originated		Acquired		Total Loans and Leases
Commercial mortgage	$	3,324	$	2,748	$	6,072	$	435	$	2,133	$	2,568
Home equity lines and loans	49		—		49		3,590		26		3,616
Residential mortgage	695		6		701		2,813		639		3,452
Commercial and industrial	3,785		710		4,495		1,786		315		2,101
CRE - nonowner-occupied													CRE - nonowner-occupied	$	245	$	—	$	245	$	199	$	—	$	199
CRE - owner-occupied													CRE - owner-occupied	2,937		1,109		4,046		1,523		2,636		4,159
Home equity lines of credit													Home equity lines of credit	741		174		915		636		—		636
Residential mortgage - 1st liens													Residential mortgage - 1st liens	899		13		912		630		1,817		2,447
Residential mortgage - junior liens													Residential mortgage - junior liens	72		—		72		83		—		83

Commercial & Industrial													Commercial & Industrial	1,642		331		1,973		1,799		381		2,180
Consumer	36		24		60		45		63		108		Consumer	36		—		36		19		42		61
Leases	465		337		802		392		583		975		Leases	190		29		219		747		136		883
Total non-performing loans and leases	$	8,354	$	3,825	$	12,179	$	9,061	$	3,759	$	12,820	Total non-performing loans and leases	$	6,762	$	1,656	$	8,418	$	5,636	$	5,012	$	10,648

~~D. Purchased Credit-Impaired Loans and Leases~~

~~The outstanding principal balance and related carrying amount of purchased credit-impaired loans, for which the Corporation applies ASC 310-30,~~ ~~Accounting for Purchased Loans with Deteriorated Credit Quality, to account for the interest earned, as of the dates indicated, are as follows:~~

Purchased Credit-Impaired Loans and Leases
(dollars in thousands) June 30,
2019 December 31,
2018
Outstanding principal balance $ 14,512
$ 17,904
Carrying amount 10,845
12,304

~~The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Corporation applies ASC 310-30, for the six months ended June 30, 2019:~~

Roll-Forward of Accretable Discount on Purchased Credit-Impaired Loans and Leases
(dollars in thousands)
Accretable
Discount
Balance, December 31, 2018 $ 2,697
Accretion (493 )
Reclassifications from nonaccretable difference 87
Additions/adjustments —
Disposals (526 )
Balance, June 30, 2019 $ 1,765

E.D. Age Analysis of Past Due Loans and Leases

The following tables present an aging of all portfolio loans and leases as of the dates indicated:


Payment Status of All Portfolio Loans and Leases	Payment Status of All Portfolio Loans and Leases																							Payment Status of All Portfolio Loans and Leases
	Accruing Loans and Leases																								Accruing Loans and Leases
As of June 30, 2019	30 – 59 Days Past Due		60 – 89 Days Past Due			Over 89 Days Past Due			Total Past Due				Current			Total Accruing Loans and Leases			Nonaccrual Loans and Leases			Total Loans and Leases
As of June 30, 2020								As of June 30, 2020				30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due			Total Past Due					Current				Total Accruing Loans and Leases			Nonaccrual Loans and Leases			Total Loans and Leases
(dollars in thousands)	30 – 59 Days Past Due				60 – 89 Days Past Due			Over 89 Days Past Due							Total Past Due						Current					Total Accruing Loans and Leases					Nonaccrual Loans and Leases				Total Loans and Leases			(dollars in thousands)
Commercial mortgage
Home equity lines and loans	60		250								—						310			203,493				203,803				49					203,852
Residential mortgage	2,404		115			—			2,519				502,873			505,392			701				506,093
CRE - nonowner-occupied																								CRE - nonowner-occupied	$	538			$	920			$	—			$	1,458		$	1,374,201		$	1,375,659	$	245	$	1,375,904
CRE - owner-occupied																								CRE - owner-occupied	995				501				—				1,496			537,146			538,642		4,046		542,688
Home equity lines of credit																								Home equity lines of credit	214				22				—				236			193,616			193,852		915		194,767
Residential mortgage - 1st liens																								Residential mortgage - 1st liens	4,826				153				—				4,979			689,379			694,358		912		695,270
Residential mortgage - junior liens																								Residential mortgage - junior liens	—				—				—				—			33,572			33,572		72		33,644
Construction	1,649		—			—			1,649				150,905			152,554			—			152,554		Construction	—				—				—				—			212,374			212,374		—		212,374
Commercial and industrial	3,072		225			—			3,297				696,375			699,672			4,495			704,167
Commercial & Industrial																								Commercial & Industrial	12				271				—				283			455,273			455,556		1,973		457,529
Consumer	96		29			—			125				49,150			49,275			60			49,335		Consumer	9				76				—				85			43,641			43,726		36		43,762
Leases	589		261			—			850				161,214			162,064			802			162,866		Leases	1,337				148				—				1,485			164,523			166,008		219		166,227
Total portfolio loans and leases	$	8,515	$	951		$	—		$	9,466			$	3,513,020		$	3,522,486		$	12,179		$	3,534,665	Total portfolio loans and leases	$	7,931			$	2,091			$	—			$	10,022		$	3,703,725		$	3,713,747	$	8,418	$	3,722,165

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Payment Status of All Portfolio Loans and Leases	Payment Status of All Portfolio Loans and Leases																							Payment Status of All Portfolio Loans and Leases
	Accruing Loans and Leases																								Accruing Loans and Leases
As of December 31, 2018	30 – 59 Days Past Due		60 – 89 Days Past Due			Over 89 Days Past Due			Total Past Due				Current⁽¹⁾			Total Accruing Loans and Leases			Nonaccrual Loans and Leases			Total Loans and Leases
As of December 31, 2019								As of December 31, 2019				30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due			Total Past Due					Current				Total Accruing Loans and Leases			Nonaccrual Loans and Leases			Total Loans and Leases
(dollars in thousands)	30 – 59 Days Past Due				60 – 89 Days Past Due			Over 89 Days Past Due							Total Past Due						Current⁽¹⁾					Total Accruing Loans and Leases					Nonaccrual Loans and Leases				Total Loans and Leases			(dollars in thousands)
Commercial mortgage
Home equity lines and loans	92		—								—						92			203,643				203,735				3,616					207,351
Residential mortgage	2,330		218			—			2,548				488,355			490,903			3,452				494,355
CRE - nonowner-occupied																								CRE - nonowner-occupied	$	184			$	—			$	—			$	184		$	1,336,784		$	1,336,968	$	199	$	1,337,167
CRE - owner-occupied																								CRE - owner-occupied	2,462				—				—				2,462			520,986			523,448		4,159		527,607
Home equity lines of credit																								Home equity lines of credit	354				365				—				719			222,907			223,626		636		224,262
Residential mortgage - 1st liens																								Residential mortgage - 1st liens	1,639				388				—				2,027			702,216			704,243		2,447		706,690
Residential mortgage - junior liens																								Residential mortgage - junior liens	116				—				—				116			36,644			36,760		83		36,843
Construction	—		—			—			—				181,078			181,078			—			181,078		Construction	—				—				—				—			202,198			202,198		—		202,198
Commercial and industrial	280		332			—			612				692,871			693,483			2,101			695,584
Commercial & Industrial																								Commercial & Industrial	—				—				—				—			430,047			430,047		2,180		432,227
Consumer	35		5			—			40				46,666			46,706			108			46,814		Consumer	98				140				—				238			56,942			57,180		61		57,241
Leases	641		460			—			1,101				142,460			143,561			975			144,536		Leases	857				594				—				1,451			162,744			164,195		883		165,078
Total portfolio loans and leases	$	4,199	$	1,266		$	—		$	5,465			$	3,408,869		$	3,414,334		$	12,820		$	3,427,154	Total portfolio loans and leases	$	5,710			$	1,487			$	—			$	7,197		$	3,671,468		$	3,678,665	$	10,648	$	3,689,313

(1) Included as “current” are $3.2 million of loans and leases as of December 31, 2018 which were classified as administratively delinquent. An administratively delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. Management does not consider these loans to be delinquent.

The following tables present an aging of originated portfolio loans and leases as of the dates indicated:


Payment Status of Originated Portfolio Loans and Leases
	Accruing Loans and Leases
As of June 30, 2020	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied	$	395	$	—	$	—	$	395	$	1,251,533	$	1,251,928	$	245	$	1,252,173
CRE - owner-occupied	995		383		—		1,378		495,335		496,713		2,937		499,650
Home equity lines of credit	112		22		—		134		181,160		181,294		741		182,035
Residential mortgage - 1st liens	1,007		121		—		1,128		594,570		595,698		899		596,597
Residential mortgage - junior liens	—		—		—		—		32,011		32,011		72		32,083
Construction	—		—		—		—		203,833		203,833		—		203,833
Commercial & Industrial	12		271		—		283		449,303		449,586		1,642		451,228
Consumer	9		76		—		85		43,551		43,636		36		43,672
Leases	1,256		147		—		1,403		160,026		161,429		190		161,619
Total portfolio loans and leases	$	3,786	$	1,020	$	—	$	4,806	$	3,411,322	$	3,416,128	$	6,762	$	3,422,890


Payment Status of Originated Portfolio Loans and Leases
	Accruing Loans and Leases
As of December 31, 2019	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied	$	184	$	—	$	—	$	184	$	1,161,432	$	1,161,616	$	199	$	1,161,815
CRE - owner-occupied	2,462		—		—		2,462		475,481		477,943		1,523		479,466
Home equity lines of credit	254		365		—		619		207,984		208,603		636		209,239
Residential mortgage - 1st liens	890		102		—		992		603,262		604,254		630		604,884
Residential mortgage - junior liens	116		—		—		116		34,704		34,820		83		34,903
Construction	—		—		—		—		193,307		193,307		—		193,307
Commercial & Industrial	—		—		—		—		423,523		423,523		1,799		425,322
Consumer	18		88		—		106		54,788		54,894		19		54,913
Leases	781		566		—		1,347		154,873		156,220		747		156,967
Total portfolio loans and leases	$	4,705	$	1,121	$	—	$	5,826	$	3,309,354	$	3,315,180	$	5,636	$	3,320,816

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Payment Status of Originated Portfolio Loans and Leases
Accruing Loans and Leases
As of June 30, 2019
30 – 59
Days
Past Due

60 – 89
Days
Past Due

Over 89
Days
Past Due

Total Past
Due
Current
Total Accruing
Loans and Leases

Nonaccrual
Loans and Leases

Total
Loans and Leases
(dollars in thousands)
Commercial mortgage $ 645
$ 71
$ —
$ 716
$ 1,472,300
$ 1,473,016
$ 3,324
$ 1,476,340
Home equity lines and loans 60
250
—
310
180,356
180,666
49
180,715
Residential mortgage 1,319
28
—
1,347
431,127
432,474
695
433,169
Construction 1,648
—
—
1,648
147,776
149,424
—
149,424
Commercial and industrial 3,072
—
—
3,072
647,047
650,119
3,785
653,904
Consumer 96
29
—
125
46,648
46,773
36
46,809
Leases 536
260
—
796
147,227
148,023
465
148,488
Total originated portfolio loans and leases $ 7,376
$ 638
$ —
$ 8,014
$ 3,072,481
$ 3,080,495
$ 8,354
$ 3,088,849

Payment Status of Originated Portfolio Loans and Leases
Accruing Loans and Leases
As of December 31, 2018
30 – 59
Days
Past Due

60 – 89
Days
Past Due

Over 89
Days
Past Due

Total Past
Due

Current⁽¹⁾

Total Accruing
Loans and Leases

Nonaccrual
Loans and Leases

Total
Loans and Leases
(dollars in thousands)
Commercial mortgage $ 816
$ 251
$ —
$ 1,067
$ 1,326,320
$ 1,327,387
$ 435
$ 1,327,822
Home equity lines and loans 25
—
—
25
177,891
177,916
3,590
181,506
Residential mortgage 1,545
—
—
1,545
406,664
408,209
2,813
411,022
Construction —
—
—
—
174,592
174,592
—
174,592
Commercial and industrial 280
332
—
612
622,245
622,857
1,786
624,643
Consumer 35
5
—
40
44,014
44,054
45
44,099
Leases 350
233
—
583
120,592
121,175
392
121,567
Total originated portfolio loans and leases $ 3,051
$ 821
$ —
$ 3,872
$ 2,872,318
$ 2,876,190
$ 9,061
$ 2,885,251

(1) Included as “current” are $2.0 million of loans and leases as of December 31, 2018 which were classified as administratively delinquent. An administratively delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. Management does not consider these loans to be delinquent.

The following tables present an aging of acquired portfolio loans and leases as of the dates indicated:


Payment Status of Acquired Portfolio Loans and Leases
	Accruing Loans and Leases
As of June 30, 2020	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied	$	143	$	920	$	—	$	1,063	$	122,668	$	123,731	$	—	$	123,731
CRE - owner-occupied	—		118		—		118		41,811		41,929		1,109		43,038
Home equity lines of credit	102		—		—		102		12,456		12,558		174		12,732
Residential mortgage - 1st liens	3,819		32		—		3,851		94,809		98,660		13		98,673
Residential mortgage - junior liens	—		—		—		—		1,561		1,561		—		1,561
Construction	—		—		—		—		8,541		8,541		—		8,541
Commercial & Industrial	—		—		—		—		5,970		5,970		331		6,301
Consumer	—		—		—		—		90		90		—		90
Leases	81		1		—		82		4,497		4,579		29		4,608
Total portfolio loans and leases	$	4,145	$	1,071	$	—	$	5,216	$	292,403	$	297,619	$	1,656	$	299,275


Payment Status of Acquired Portfolio Loans and Leases
	Accruing Loans and Leases
As of December 31, 2019	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied	$	—	$	—	$	—	$	—	$	175,352	$	175,352	$	—	$	175,352
CRE - owner-occupied	—		—		—		—		45,505		45,505		2,636		48,141
Home equity lines of credit	100		—		—		100		14,923		15,023		—		15,023
Residential mortgage - 1st liens	749		286		—		1,035		98,954		99,989		1,817		101,806
Residential mortgage - junior liens	—		—		—		—		1,940		1,940		—		1,940
Construction	—		—		—		—		8,891		8,891		—		8,891
Commercial & Industrial	—		—		—		—		6,524		6,524		381		6,905
Consumer	80		52		—		132		2,154		2,286		42		2,328
Leases	76		28		—		104		7,871		7,975		136		8,111
Total portfolio loans and leases	$	1,005	$	366	$	—	$	1,371	$	362,114	$	363,485	$	5,012	$	368,497

E. Allowance for Credit Losses (“ACL”) on Loan and Leases

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Payment Status of Acquired Portfolio Loans and Leases
Accruing Loans and Leases
As of June 30, 2019
30 – 59
Days
Past Due

60 – 89
Days
Past Due

Over 89
Days
Past Due

Total Past
Due
Current
Total Accruing
Loans and Leases

Nonaccrual
Loans and Leases

Total
Loans and Leases
(dollars in thousands)
Commercial mortgage $ —
$ —
$ —
$ —
$ 276,710
$ 276,710
$ 2,748
$ 279,458
Home equity lines and loans —
—
—
—
23,137
23,137
—
23,137
Residential mortgage 1,085
87
—
1,172
71,746
72,918
6
72,924
Construction 1
—
—
1
3,129
3,130
—
3,130
Commercial and industrial —
225
—
225
49,328
49,553
710
50,263
Consumer —
—
—
—
2,502
2,502
24
2,526
Leases 53
1
—
54
13,987
14,041
337
14,378
Total acquired portfolio loans and leases $ 1,139
$ 313
$ —
$ 1,452
$ 440,539
$ 441,991
$ 3,825
$ 445,816

Payment Status of Acquired Portfolio Loans and Leases
Accruing Loans and Leases
As of December 31, 2018
30 – 59
Days
Past Due

60 – 89
Days
Past Due

Over 89
Days
Past Due

Total Past
Due

Current⁽¹⁾

Total Accruing
Loans and Leases

Nonaccrual
Loans and Leases

Total
Loans and Leases
(dollars in thousands)
Commercial mortgage $ 5
$ —
$ —
$ 5
$ 327,476
$ 327,481
$ 2,133
$ 329,614
Home equity lines and loans 67
—
—
67
25,752
25,819
26
25,845
Residential mortgage 785
218
—
1,003
81,691
82,694
639
83,333
Construction —
—
—
—
6,486
6,486
—
6,486
Commercial and industrial —
—
—
—
70,626
70,626
315
70,941
Consumer —
—
—
—
2,652
2,652
63
2,715
Leases 291
227
—
518
21,868
22,386
583
22,969
Total acquired portfolio loans and leases $ 1,148
$ 445
$ —
$ 1,593
$ 536,551
$ 538,144
$ 3,759
$ 541,903

~~(1) Included as “current” are $1.2 million~~and the measurement of expected credit losses for such individual loans; and second, a collective (pooled) component for estimated expected credit losses for pools of loans and leases that share similar risk characteristics.

In estimating the component of the ACL on loans and leases that share common risk characteristics, loans and leases are segregated into portfolio segments based on federal call report codes which classify loans and leases based on the primary collateral supporting the loan and lease. Methods utilized by management to estimate expected credit losses include a DCF methodology that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a WARM methodology which contemplates expected losses at a pool-level, utilizing historic loss information.

The DCF methodology uses inputs of current and forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicator utilized by the bank is the Pennsylvania unemployment rate. In building the CECL model utilized in the DCF methodology, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Pennsylvania unemployment rates. The portfolio segments utilizing the DCF methodology as of ~~December 31, 2018~~June 30, 2020 included: CRE - owner-occupied and nonowner-occupied loans, home equity lines of credit, residential mortgages (first and junior liens), construction loans and consumer loans.

The WARM methodology uses combined historic loss rates for the Bank and peer institutions, if necessary, gathered from Call Report filings. The selected period for which ~~were classified as administratively delinquent. An administratively delinquent loan~~historic loss rates are used is ~~one which has been approved for a renewal or extension but has not had all~~dependent on management's evaluation of current conditions and expectations of future loss conditions. The portfolio segments utilizing the ~~required documents fully executed~~WARM methodology as of June 30, 2020 included commercial and industrial loans and leases.

For the ~~reporting date. Management does not consider these~~three months ended June 30, 2020, there was a significant change in the economic outlook impacting the ACL on loans and leases. Our CECL model included a sharp deterioration in the Pennsylvania unemployment rate, to levels observed during the last recessionary period, projected to be ~~delinquent.~~sustained in the third and fourth quarters of 2020, with a reversion to a long-term 15-year average.

~~F. Allowance for Loan~~In addition to these assumptions, management applied additional qualitative factors related to the loss mitigation expected to be provided by the various governmental aid programs, such as increased unemployment benefits, stimulus payments, and ~~Lease Losses (the “Allowance”)~~the SBA's Paycheck Protection Program, as well as the Bank's loan payment deferral programs being offered to borrowers which provide a three- or six-month payment deferral to borrowers affected by the COVID-19 pandemic. These qualitative factors were applied to all segments of the portfolio except the construction segment and the retail and hospitality sectors of the nonowner-occupied CRE segment, due to the significant expected impact on these specific segments and sectors from the economic shutdown, such as government mandated stay at home orders and closure of non-essential businesses.

Page 25

Table of Contents

The following tables ~~detail~~present the ~~roll-forward of~~activity in the ~~Allowance~~ACL on loans and leases, by portfolio segment, for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

Roll-Forward of Allowance for Loan and Lease Losses
(dollars in thousands)
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
Balance,
December 31, 2018 $ 7,567
$ 1,003
$ 1,813
$ 1,485
$ 5,461
$ 229
$ 1,868
$ 19,426
Charge-offs (1,387 ) (314 ) (671 ) —
(426 ) (231 ) (1,192 ) (4,221 )
Recoveries 17
87
3
2
54
18
433
614
Provision for loan and lease losses 2,761
267
748
(401 ) 611
237
1,140
5,363
Balance,
June 30, 2019 $ 8,958
$ 1,043
$ 1,893
$ 1,086
$ 5,700
$ 253
$ 2,249
$ 21,182

Roll-Forward of Allowance for Loan and Lease Losses
(dollars in thousands)
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
Balance,
March 31, 2019 $ 8,241
$ 1,038
$ 1,891
$ 1,186
$ 5,888
$ 328
$ 2,044
$ 20,616
Charge-offs —
(267 ) (341 ) —
(21 ) (126 ) (624 ) (1,379 )
Recoveries 3
87
2
1
39
7
179
318
Provision for loan and lease losses 714
185
341
(101 ) (206 ) 44
650
1,627
Balance,
June 30, 2019 $ 8,958
$ 1,043
$ 1,893
$ 1,086
$ 5,700
$ 253
$ 2,249
$ 21,182

Roll-Forward of Allowance for Loan and Lease Losses
(dollars in thousands)
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
Balance,
December 31, 2017 $ 7,550
$ 1,086
$ 1,926
$ 937
$ 5,038
$ 246
$ 742
$ 17,525
Charge-offs (16 ) (225 ) —
—
(750 ) (92 ) (1,348 ) (2,431 )
Recoveries 6
1
1
2
1
3
123
137
Provision for loan and lease losses 493
71
6
219
1,383
132
1,863
4,167
Balance,
June 30, 2018 $ 8,033
$ 933
$ 1,933
$ 1,158
$ 5,672
$ 289
$ 1,380
$ 19,398

Roll-Forward of Allowance for Loan and Lease Losses
(dollars in thousands)
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
Balance,
March 31, 2018 $ 7,174
$ 1,045
$ 1,898
$ 844
$ 5,361
$ 291
$ 1,049
$ 17,662
Charge-offs (16 ) (200 ) —
—
(467 ) (43 ) (751 ) (1,477 )
Recoveries 3
1
1
1
—
2
68
76
Provision for loan and lease losses 872
87
34
313
778
39
1,014
3,137
Balance,
June 30, 2018 $ 8,033
$ 933
$ 1,933
$ 1,158
$ 5,672
$ 289
$ 1,380
$ 19,398

Roll-Forward of ACL on Loans and Leases


(dollars in thousands)	CRE - nonowner-occupied		CRE - owner-occupied		Home equity lines of credit		Residential mortgage - 1st liens		Residential mortgage - junior liens		Construction		Commercial & Industrial		Consumer		Leases		Total
Balance, March 31, 2020	$	13,329	$	4,192	$	2,748	$	8,316	$	517	$	6,984	$	8,734	$	341	$	8,909	$	54,070
Loans and leases charged-off	—		(1,234)		—		(556)		—		—		(522)		(296)		(1,443)		(4,051)
Recoveries collected	4		—		4		136		—		1		22		57		428		652
PCL on loans and leases	1,998		2,125		(1,125)		302		4		(924)		(246)		338		1,831		4,303
Balance, June 30, 2020	$	15,331	$	5,083	$	1,627	$	8,198	$	521	$	6,061	$	7,988	$	440	$	9,725	$	54,974

~~The following tables detail the allocation~~

Roll-Forward of ~~the Allowance for~~ ~~all~~ ~~portfolio loans~~ACL on Loans and ~~leases by portfolio segment based~~Leases


(dollars in thousands)	CRE - nonowner-occupied		CRE - owner-occupied		Home equity lines of credit		Residential mortgage - 1st liens		Residential mortgage - junior liens		Construction		Commercial & Industrial		Consumer		Leases		Total
Balance, December 31, 2019 Prior to Adoption of ASC 326	$	7,960	$	2,825	$	1,114	$	2,501	$	338	$	1,230	$	3,835	$	438	$	2,361	$	22,602
Impact of Adopting ASC 326	(467)		16		(46)		2,408		79		(359)		(159)		140		1,594		3,206
Loans and leases charged-off	—		(1,233)		(114)		(1,284)		—		—		(1,149)		(590)		(4,069)		(8,439)
Recoveries collected	6		—		4		137		—		2		37		90		692		968
PCL on loans and leases	7,832		3,475		669		4,436		104		5,188		5,424		362		9,147		36,637
Balance, June 30, 2020	$	15,331	$	5,083	$	1,627	$	8,198	$	521	$	6,061	$	7,988	$	440	$	9,725	$	54,974

Roll-Forward of ACL on ~~the methodology used to evaluate the loans~~Loans and ~~leases for impairment as of June 30, 2019 and December 31, 2018:~~Leases


(dollars in thousands)	CRE - nonowner-occupied		CRE - owner-occupied		Home equity lines of credit		Residential mortgage - 1st liens		Residential mortgage - junior liens		Construction		Commercial & Industrial		Consumer		Leases		Total
Balance, March 31, 2019	$	6,308	$	2,740	$	1,222	$	2,634	$	350	$	1,372	$	3,507	$	439	$	2,044	$	20,616
Loans and leases charged-off	—		—		(211)		(341)		(56)		—		(20)		(127)		(624)		(1,379)
Recoveries collected	5		—		83		2		4		1		37		7		179		318
PCL on loans and leases	520		(80)		158		349		45		(93)		58		20		650		1,627
Balance, June 30, 2019	$	6,833	$	2,660	$	1,252	$	2,644	$	343	$	1,280	$	3,582	$	339	$	2,249	$	21,182


Roll-Forward of ACL on Loans and Leases
(dollars in thousands)	CRE - nonowner-occupied		CRE - owner-occupied		Home equity lines of credit		Residential mortgage - 1st liens		Residential mortgage - junior liens		Construction		Commercial & Industrial		Consumer		Leases		Total
Balance, December 31, 2018	$	5,856	$	2,454	$	1,140	$	2,561	$	364	$	1,715	$	3,166	$	303	$	1,867	$	19,426
Loans and leases charged-off	(1,515)		—		(313)		(682)		(56)		—		(217)		(247)		(1,192)		(4,222)
Recoveries collected	7		—		84		15		4		2		45		25		433		615
PCL on loans and leases	2,485		206		341		750		31		(437)		588		258		1,141		5,363
Balance, June 30, 2019	$	6,833	$	2,660	$	1,252	$	2,644	$	343	$	1,280	$	3,582	$	339	$	2,249	$	21,182

Page 26

Allocation of Allowance by Impairment Evaluation Method - All Loans and Leases
As of
June 30, 2019
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for impairment $ —
$ 153
$ 264
$ —
$ —
$ 43
$ —
$ 460
Collectively evaluated for impairment 8,958
890
1,629
1,086
5,700
210
2,249
20,722
Purchased credit-impaired⁽¹⁾
—
—
—
—
—
—
—
—
Total $ 8,958
�� $ 1,043
$ 1,893
$ 1,086
$ 5,700
$ 253
$ 2,249
$ 21,182

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

Allocation of Allowance by Impairment Evaluation Method - All Loans and Leases
As of
December 31, 2018
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for impairment $ —
$ 162
$ 272
$ —
$ —
$ 28
$ —
$ 462
Collectively evaluated for impairment 7,567
841
1,541
1,485
5,461
201
1,868
18,964
Purchased credit-impaired⁽¹⁾
—
—
—
—
—
—
—
—
Total $ 7,567
$ 1,003
$ 1,813
$ 1,485
$ 5,461
$ 229
$ 1,868
$ 19,426

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

~~The following tables detail the carrying value for~~ ~~all~~ ~~portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as~~Table of ~~June 30, 2019 and December 31, 2018:~~Contents

Carrying Value of All Portfolio Loans and Leases by Impairment Evaluation Method
As of
June 30, 2019
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for impairment $ 6,071
$ 1,493
$ 3,736
$ —
$ 4,886
$ 104
$ —
$ 16,290
Collectively evaluated for impairment 1,742,871
201,843
502,355
150,107
698,257
49,231
162,866
3,507,530
Purchased credit-impaired⁽¹⁾
6,856
516
2
2,447
1,024
—
—
10,845
Total $ 1,755,798
$ 203,852
$ 506,093
$ 152,554
$ 704,167
$ 49,335
$ 162,866
$ 3,534,665

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

Carrying Value of All Portfolio Loans and Leases by Impairment Evaluation Method
As of
December 31, 2018 Commercial
Mortgage Home Equity
Lines and
Loans Residential
Mortgage Construction Commercial
and
Industrial Consumer Leases Total
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for impairment $ 7,008
$ 4,998
$ 6,608
$ —
$ 2,629
$ 134
$ —
$ 21,377
Collectively evaluated for impairment 1,642,117
201,841
487,747
178,673
691,879
46,680
144,536
3,393,473
Purchased credit-impaired⁽¹⁾
8,311
512
—
2,405
1,076
—
—
12,304
Total $ 1,657,436
$ 207,351
$ 494,355
$ 181,078
$ 695,584
$ 46,814
$ 144,536
$ 3,427,154

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

~~The following tables detail the allocation of the Allowance for~~ ~~originated~~ ~~portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2019 and December 31, 2018:~~

Allocation of Allowance by Impairment Evaluation Method - Originated Loans and Leases
As of
June 30, 2019
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for impairment $ —
$ 153
$ 167
$ —
$ —
$ 37
$ —
$ 357
Collectively evaluated for impairment 8,958
890
1,629
1,086
5,700
210
2,246
20,719
Total $ 8,958
$ 1,043
$ 1,796
$ 1,086
$ 5,700
$ 247
$ 2,246
$ 21,076

Allocation of Allowance by Impairment Evaluation Method - Originated Loans and Leases
As of
December 31, 2018
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for impairment $ —
$ 162
$ 175
$ —
$ —
$ 28
$ —
$ 365
Collectively evaluated for impairment 7,567
841
1,541
1,485
5,461
201
1,868
18,964
Total $ 7,567
$ 1,003
$ 1,716
$ 1,485
$ 5,461
$ 229
$ 1,868
$ 19,329

~~The following tables detail the carrying value for~~ ~~originated~~ ~~portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2019 and December 31, 2018:~~

Carrying Value of Originated Portfolio Loans and Leases by Impairment Evaluation Method
As of
June 30, 2019 Commercial
Mortgage Home Equity
Lines and
Loans Residential
Mortgage Construction Commercial
and
Industrial Consumer Leases Total
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for impairment $ 3,323
$ 1,493
$ 2,878
$ —
$ 4,176
$ 61
$ —
$ 11,931
Collectively evaluated for impairment 1,473,017
179,222
430,291
149,424
649,728
46,748
148,488
3,076,918
Total $ 1,476,340
$ 180,715
$ 433,169
$ 149,424
$ 653,904
$ 46,809
$ 148,488
$ 3,088,849

Carrying Value of Originated Portfolio Loans and Leases by Impairment Evaluation Method
As of
December 31, 2018 Commercial
Mortgage Home Equity
Lines and
Loans Residential
Mortgage Construction Commercial
and
Industrial Consumer Leases Total
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for impairment $ 4,874
$ 4,972
$ 5,106
$ —
$ 2,314
$ 71
$ —
$ 17,337
Collectively evaluated for impairment 1,322,948
176,534
405,916
174,592
622,329
44,028
121,567
2,867,914
Total $ 1,327,822
$ 181,506
$ 411,022
$ 174,592
$ 624,643
$ 44,099
$ 121,567
$ 2,885,251

~~The following tables detail the allocation of the Allowance for~~ ~~acquired~~ ~~portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2019 and December 31, 2018:~~

Allocation of Allowance by Impairment Evaluation Method - Acquired Loans and Leases
As of
June 30, 2019 Commercial
Mortgage Home Equity
Lines and
Loans Residential
Mortgage Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for impairment $ —
$ —
$ 97
$ —
$ —
$ 6
$ —
$ 103
Collectively evaluated for impairment —
—
—
—
—
—
3
3
Purchased credit-impaired⁽¹⁾
—
—
—
—
—
—
—
—
Total $ —
$ —
$ 97
$ —
$ —
$ 6
$ 3
$ 106

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

Allocation of Allowance by Impairment Evaluation Method - Acquired Loans and Leases
As of
December 31, 2018 Commercial
Mortgage Home Equity
Lines and
Loans Residential
Mortgage Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Allowance on loans and leases:
Individually evaluated for impairment $ —
$ —
$ 97
$ —
$ —
$ —
$ —
$ 97
Collectively evaluated for impairment —
—
—
—
—
—
—
—
Purchased credit-impaired⁽¹⁾
—
—
—
—
—
—
—
—
Total $ —
$ —
$ 97
$ —
$ —
$ —
$ —
$ 97

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

~~The following tables detail the carrying value for~~ ~~acquired~~ ~~portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2019 and December 31, 2018:~~

Carrying Value of Acquired Portfolio Loans and Leases by Impairment Evaluation Method
As of
June 30, 2019
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for impairment $ 2,748
$ —
$ 858
$ —
$ 710
$ 43
$ —
$ 4,359
Collectively evaluated for impairment 269,854
22,621
72,064
683
48,529
2,483
14,378
430,612
Purchased credit-impaired⁽¹⁾
6,856
516
2
2,447
1,024
—
—
10,845
Total $ 279,458
$ 23,137
$ 72,924
$ 3,130
$ 50,263
$ 2,526
$ 14,378
$ 445,816

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

Carrying Value of Acquired Portfolio Loans and Leases by Impairment Evaluation Method
As of
December 31, 2018
Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage
Construction
Commercial
and
Industrial
Consumer Leases Total
(dollars in thousands)
Carrying value of loans and leases:
Individually evaluated for impairment $ 2,134
$ 26
$ 1,502
$ —
$ 315
$ 63
$ —
$ 4,040
Collectively evaluated for impairment 319,169
25,307
81,831
4,081
69,550
2,652
22,969
525,559
Purchased credit-impaired⁽¹⁾
8,311
512
—
2,405
1,076
—
—
12,304
Total $ 329,614
$ 25,845
$ 83,333
$ 6,486
$ 70,941
$ 2,715
$ 22,969
$ 541,903

~~(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.~~

As part of the process of determining the ~~Allowance~~ACL for the different segments of the loan and lease portfolio, management considers certain credit quality indicators. Periodic reviews of ~~the individual~~ loans are conducted 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:

•Pass – Loans considered satisfactory with no indications of deterioration.

•Pass-Watch – Loans that are performing, but which may have a potential deficiency which the borrower appears to be managing or a possible deficiency in the future.

•Special mention -– Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

•Substandard -– Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

•Doubtful -– Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Page 27

Table of Contents

The following ~~tables detail~~table details the ~~carrying value~~amortized cost of~~all~~ portfolio loans and leases, by year of origination (for term loans) and by risk grade within each portfolio segment ~~based on the credit quality indicators used, in part, in the determination of the Allowance~~ as of June 30, ~~2019 and December 31, 2018:~~2020:


			Term Loans																																				Revolving Loans
			Amortized Cost Basis by Origination Year⁽¹⁾																																				Amortized Cost Basis
(dollars in thousands)	Risk Rating		2020				2019				2018				2017				2016				2015 and Prior				Revolving Lines of Credit				Revolving Lines of Credit Converted to Term Loans				Total
CRE - nonowner-occupied	Pass		$	171,485			$	454,690			$	192,252			$	124,010			$	120,715			$	140,138			$	32,668			$	—			$	1,235,958
		Pass-Watch			332				676				2,963				—				1,686				2,455				—				—				8,112
		Special Mention			17,817				—				10,931				—				—				—				—				—				28,748
		Substandard			2,443				33,386				11,868				4,780				43,235				7,374				—				—				103,086
		Total			$	192,077			$	488,752			$	218,014			$	128,790			$	165,636			$	149,967			$	32,668			$	—			$	1,375,904
CRE - owner-occupied	Pass		$	73,670			$	111,679			$	109,629			$	87,028			$	51,683			$	50,568			$	13,430			$	—			$	497,687
		Pass-Watch			4,914				1,786				—				—				2,401				1,747				441				—				11,289
		Special Mention			3,367				434				3,698				—				—				879				50				—				8,428
		Substandard			3,153				6,746				7,597				860				5,907				858				163				—				25,284
		Total			$	85,104			$	120,645			$	120,924			$	87,888			$	59,991			$	54,052			$	14,084			$	—			$	542,688
Home equity lines of credit	Pass		$	98			$	887			$	332			$	123			$	276			$	2,777			$	184,201			$	4,327			$	193,021
		Special Mention			—				—				—				—				—				—				—				—				—
		Substandard			831				251				195				58				—				352				59				—				1,746
		Total			$	929			$	1,138			$	527			$	181			$	276			$	3,129			$	184,260			$	4,327			$	194,767
Residential mortgage - 1st liens	Pass		$	62,318			$	135,324			$	91,917			$	87,672			$	77,890			$	228,862			$	1,135			$	—			$	685,118
		Pass-Watch			505				—				—				—				—				265				—				—				770
		Special Mention			—				—				—				—				—				7,505				—				—				7,505
		Substandard			—				86				689				26				977				99				—				—				1,877
		Total			$	62,823			$	135,410			$	92,606			$	87,698			$	78,867			$	236,731			$	1,135			$	—			$	695,270
Residential mortgage - junior liens	Pass		$	1,825			$	5,056			$	9,251			$	4,371			$	3,412			$	9,425			$	177			$	—			$	33,517
		Substandard			55				—				—				—				36				36				—				—				127
		Total			$	1,880			$	5,056			$	9,251			$	4,371			$	3,448			$	9,461			$	177			$	—			$	33,644
Construction	Pass		$	85,546			$	66,421			$	25,739			$	10,134			$	—			$	5,079			$	13,033			$	—			$	205,952
		Pass-Watch			—				—				—				—				—				—				—				—				—
		Substandard			6,422				—				—				—				—				—				—				—				6,422
		Total			$	91,968			$	66,421			$	25,739			$	10,134			$	—			$	5,079			$	13,033			$	—			$	212,374
Commercial & Industrial	Pass		$	87,861			$	70,042			$	70,867			$	15,637			$	30,559			$	23,068			$	104,645			$	—			$	402,679
		Pass-Watch			10,564				7,656				205				3,492				305				916				6,486				—				29,624
		Special Mention			532				—				4,685				212				—				1,127				3,934				—				10,490
		Substandard			1,774				1,962				3,298				1,531				1,307				3,119				1,745				—				14,736
		Total			$	100,731			$	79,660			$	79,055			$	20,872			$	32,171			$	28,230			$	116,810			$	—			$	457,529
Consumer	Pass		$	1,154			$	4,817			$	2,554			$	379			$	32			$	235			$	33,401			$	—			$	42,572
		Substandard			1,154				18				6				12				—				—				—				—				1,190
		Total			$	2,308			$	4,835			$	2,560			$	391			$	32			$	235			$	33,401			$	—			$	43,762
Leases	Pass		$	34,974			$	69,578			$	45,476			$	12,391			$	3,163			$	426			$	—			$	—			$	166,008
		Substandard			—				69				66				68				16				—				—				—				219
		Total			$	34,974			$	69,647			$	45,542			$	12,459			$	3,179			$	426			$	—			$	—			$	166,227
Total portfolio loans and leases					$	572,794			$	971,564			$	594,218			$	352,784			$	343,600			$	487,310			$	395,568			$	4,327			$	3,722,165

(1) Year originated or renewed, whichever is more recent.

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Table of Contents

Credit Risk Profile by Internally Assigned Grade - All Portfolio Loans and Leases
As of June 30, 2019
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $ 1,725,550
$ 11,036
$ 19,212
$ —
$ 1,755,798
Home equity loans and lines 203,287
—
565
—
203,852
Residential 505,251
—
842
—
506,093
Construction 142,959
—
9,595
—
152,554
Commercial and industrial 691,317
3,196
9,654
—
704,167
Consumer 49,097
—
238
—
49,335
Leases 162,064
—
802
—
162,866
Total $ 3,479,525
$ 14,232
$ 40,908
$ —
$ 3,534,665

Credit Risk Profile by Internally Assigned Grade - All Portfolio Loans and Leases
As of December 31, 2018
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $ 1,635,068
$ 631
$ 20,639
$ 1,098
$ 1,657,436
Home equity loans and lines 203,037
—
4,314
—
207,351
Residential 490,789
—
3,566
—
494,355
Construction 171,353
938
8,787
—
181,078
Commercial and industrial 684,444
2,737
8,402
1
695,584
Consumer 46,588
—
226
—
46,814
Leases 143,561
—
975
—
144,536
Total $ 3,374,840
$ 4,306
$ 46,909
$ 1,099
$ 3,427,154

The following tables ~~detail~~present the ~~carrying value~~amortized cost basis of~~originated~~ ~~portfolio~~ loans and leases ~~by portfolio segment based~~ on ~~the credit quality indicators used, in part, in the determination~~nonaccrual status and loans and leases past due over 89 days still accruing as of the ~~Allowance as of~~dates indicated:


As of June 30, 2020
(dollars in thousands)	Nonaccrual with No ACL		Nonaccrual with ACL		Loans Past Due Over 89 Days Still Accruing
CRE - nonowner-occupied	$	245	$	—	$	—
CRE - owner-occupied	4,046		—		—
Home equity lines of credit	915		—		—
Residential mortgage - 1st liens	912		—		—
Residential mortgage - junior liens	72		—		—
Construction	—		—		—
Commercial & Industrial	1,973		—		—
Consumer	—		36		—
Leases	—		219		—
Total non-performing loans and leases	$	8,163	$	255	$	—


As of December 31, 2019
(dollars in thousands)	Nonaccrual with No ACL		Nonaccrual with ACL		Loans Past Due Over 89 Days Still Accruing
CRE - nonowner-occupied	$	199	$	—	$	—
CRE - owner-occupied	4,159		—		—
Home equity lines of credit	636		—		—
Residential mortgage - 1st liens	2,447		—		—
Residential mortgage - junior liens	83		—		—
Construction	—		—		—
Commercial & Industrial	2,180		—		—
Consumer	42		19		—
Leases	—		883		—
Total non-performing loans and leases	$	9,746	$	902	$	—

For the three months ended June 30, ~~2019~~2020, $78 thousand of interest income was recognized on nonaccrual loans and ~~December 31, 2018:~~leases.

Credit Risk Profile by Internally Assigned Grade - Originated Portfolio Loans and Leases
As of June 30, 2019
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $ 1,467,082
$ 5,600
$ 3,658
$ —
$ 1,476,340
Home equity loans and lines 180,666
—
49
—
180,715
Residential 432,333
—
836
—
433,169
Construction 142,276
—
7,148
—
149,424
Commercial and industrial 643,946
2,460
7,498
—
653,904
Consumer 46,595
—
214
—
46,809
Leases 148,023
—
465
—
148,488
Total $ 3,060,921
$ 8,060
$ 19,868
$ —
$ 3,088,849

Credit Risk Profile by Internally Assigned Grade - Originated Portfolio Loans and Leases
As of December 31, 2018
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $ 1,321,973
$ 631
$ 5,218
$ —
$ 1,327,822
Home equity loans and lines 177,916
—
3,590
—
181,506
Residential 408,095
—
2,927
—
411,022
Construction 167,272
938
6,382
—
174,592
Commercial and industrial 615,817
2,511
6,314
1
624,643
Consumer 43,936
—
163
—
44,099
Leases 121,175
—
392
—
121,567
Total $ 2,856,184
$ 4,080
$ 24,986
$ 1
$ 2,885,251

Collateral-dependent loans and leases for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral are, in general, individually evaluated for credit losses. Identified shortfalls between the amortized cost of the individually evaluated loan or lease and the value, less selling costs, of the underlying collateral are charged against the ACL. In certain cases, when the loan or lease is serviced by a third-party, and management is unable to process a timely charge-down of the loan or lease, it will assess a specific ACL to the individual loan or lease. This ACL represents the shortfall between the amortized cost and realizable value of the collateral.

Page 29

Table of Contents

The following tables ~~detail~~present the ~~carrying value~~amortized cost basis of ~~acquired~~ ~~portfolio~~collateral-dependent loans and leases, ~~by portfolio segment based on~~indicating the type of collateral and the ACL determined through individual evaluation for credit ~~quality indicators used, in part, in the determination~~loss, as of the ~~Allowance as of June 30, 2019 and December 31, 2018:~~

dates indicated:

Credit Risk Profile by Internally Assigned Grade - Acquired Portfolio Loans and Leases
As of June 30, 2019
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $ 258,468
$ 5,436
$ 15,554
$ —
$ 279,458
Home equity loans and lines 22,621
—
516
—
23,137
Residential 72,918
—
6
—
72,924
Construction 683
—
2,447
—
3,130
Commercial and industrial 47,371
736
2,156
—
50,263
Consumer 2,502
—
24
—
2,526
Leases 14,041
—
337
—
14,378
Total $ 418,604
$ 6,172
$ 21,040
$ —
$ 445,816


As of June 30, 2020
(dollars in thousands)	Real Estate Collateral		Non-Real Estate Collateral		Individually Evaluated ACL
CRE - nonowner-occupied	$	245	$	—	$	—
CRE - owner-occupied	4,046		—		—
Home equity lines of credit	915		—		—
Residential mortgage - 1st liens	912		—		—
Residential mortgage - junior liens	72		—		—
Construction	—		—		—
Commercial & Industrial	—		1,973		—
Consumer	—		36		36
Leases	—		219		165
Total collateral-dependent loans and leases	$	6,190	$	2,228	$	201

Credit Risk Profile by Internally Assigned Grade - Acquired Portfolio Loans and Leases
As of December 31, 2018
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $ 313,095
$ —
$ 15,421
$ 1,098
$ 329,614
Home equity loans and lines 25,121
—
724
—
25,845
Residential 82,694
—
639
—
83,333
Construction 4,081
—
2,405
—
6,486
Commercial and industrial 68,627
226
2,088
—
70,941
Consumer 2,652
—
63
—
2,715
Leases 22,386
—
583
—
22,969
Total $ 518,656
$ 226
$ 21,923
$ 1,098
$ 541,903


As of December 31, 2019
(dollars in thousands)	Real Estate Collateral		Non-Real Estate Collateral		Individually Evaluated ACL
CRE - nonowner-occupied	$	199	$	—	$	—
CRE - owner-occupied	4,159		—		—
Home equity lines of credit	636		—		—
Residential mortgage - 1st liens	2,447		—		—
Residential mortgage - junior liens	83		—		—
Construction	—		—		—
Commercial & Industrial	—		2,180		—
Consumer	—		61		19
Leases	—		883		60
Total collateral-dependent loans and leases	$	7,524	$	3,124	$	79

F. Troubled Debt Restructurings (“TDRs”)

The restructuring of a loan is considered a “troubled debt restructuring” if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

Page 30

Table of Contents

The following table presents the balance of TDRs as of the indicated dates:


Troubled Debt Restructurings
Troubled Debt Restructurings⁽¹⁾					Troubled Debt Restructurings⁽¹⁾
(dollars in thousands)	June 30, 2019		December 31, 2018		(dollars in thousands)	June 30, 2020		December 31, 2019
TDRs included in nonperforming loans and leases	$	4,190	$	1,217	TDRs included in nonperforming loans and leases	$	1,792	$	3,018
TDRs in compliance with modified terms	5,141		9,745		TDRs in compliance with modified terms	10,013		5,071
Total TDRs	$	9,331	$	10,962	Total TDRs	$	11,805	$	8,089

(1) The Corporation began entering into loan modifications with borrowers in response to the COVID-19 pandemic, which have not been classified as TDRs, and therefore are not included in the above table. For more information on the criteria for classifying loans as TDRs, see Note 1 – Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies to the Unaudited Consolidated Financial Statements.

The following tables present information regarding loan and lease modifications categorized as TDRs for the three and six months ended June 30, ~~2019:~~2020:

Troubled Debt Restructurings
For the Three Months Ended June 30, 2019
(dollars in thousands) Number of Contracts Pre-Modification Outstanding
Recorded Investment Post-Modification Outstanding
Recorded Investment
Home equity loans and lines 1 $ 64
$ 64
Residential mortgages 1 40
40
Commercial and industrial 2
919

919
Leases 1 105
105
Total 5 $ 1,128
$ 1,128


Troubled Debt Restructurings⁽¹⁾
	For the Three Months Ended June 30, 2020
(dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
CRE - nonowner-occupied	2	$	1,818	$	1,818
Residential mortgage - 1st liens	1	200		200
Construction	4	3,419		3,419
Leases	6	141		141
Total	13	$	5,578	$	5,578


Troubled Debt Restructurings⁽¹⁾
	For the Six Months Ended June 30, 2020
(dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
CRE - nonowner-occupied	2	$	1,818	$	1,818
Residential mortgage - 1st liens	1	200		200
Construction	4	3,419		3,419
Leases	6	141		141
Total	13	$	5,578	$	5,578

Page 31

Troubled Debt Restructurings
For the Six Months Ended June 30, 2019
(dollars in thousands) Number of Contracts Pre-Modification Outstanding
Recorded Investment Post-Modification Outstanding
Recorded Investment
Home equity loans and lines 1 $ 64
$ 64
Residential mortgages 1 40
40
Commercial and industrial 2 919
919
Leases 2 131
131
Total 6 $ 1,154
$ 1,154

Table of Contents

The following ~~tables~~table presents information regarding the types of loan and lease modifications made for the three and six months ended June 30, ~~2019:~~2020:

Troubled Debt Restructurings
Number of Contracts for the Three Months Ended June 30, 2019
Loan Term Extension Interest Rate Change and Term Extension Interest Rate Change and/or Interest-Only Period
Contractual
Payment Reduction
(Leases only)
Temporary Payment Deferral
Home equity loans and lines — 1 — — —
Residential mortgages 1 — — — —
Commercial and industrial —
—
2
—
—
Leases — — — 1 —
Total 1 1 2 1 —


Troubled Debt Restructurings⁽¹⁾
	Number of Contracts for the Three Months Ended June 30, 2020
	Loan Term Extension	Interest Rate Change and Term Extension	Interest Rate Change and/or Interest-Only Period	Contractual Payment Reduction (Leases only)	Temporary Payment Deferral
CRE - nonowner-occupied	—	—	—	—	2
Residential mortgage - 1st liens	1	—	—	—	—
Construction	—	—	—	—	4
Leases	—	—	—	6	—
Total	1	—	—	6	6

Troubled Debt Restructurings
Number of Contracts for the Six Months Ended June 30, 2019
Loan Term Extension Interest Rate Change and Term Extension Interest Rate Change and/or Interest-Only Period
Contractual
Payment Reduction
(Leases only)
Temporary Payment Deferral
Home equity loans and lines — 1 — — —
Residential mortgages 1 — — — —
Commercial and industrial — — 2 — —
Leases — — — 2 —
Total 1 1 2 2 —

~~H. Impaired Loans~~


Troubled Debt Restructurings⁽¹⁾
	Number of Contracts for the Six Months Ended June 30, 2020
	Loan Term Extension	Interest Rate Change and Term Extension	Interest Rate Change and/or Interest-Only Period	Contractual Payment Reduction (Leases only)	Temporary Payment Deferral
CRE - nonowner-occupied	—	—	—	—	2
Residential mortgage - 1st liens	1	—	—	—	—
Construction	—	—	—	—	4
Leases	—	—	—	6	—
Total	1	—	—	6	6

(1) The ~~following tables detail~~Corporation began entering into loan modifications with borrowers in response to the ~~recorded investment~~COVID-19 pandemic, which have not been classified as TDRs, and ~~principal balance~~therefore are not included in the above table. For more information on the criteria for classifying loans as TDRs, see Note 1 – Basis of ~~impaired loans by portfolio segment, their related Allowance~~Presentation, Principles of Consolidation, and ~~interest income recognized for~~Significant Accounting Policies to the ~~three and~~Unaudited Consolidated Financial Statements.

For the six months ended June 30, ~~2019 and balances as of~~ ~~December 31, 2018~~ ~~(purchased credit-impaired~~2020, two residential mortgage loans, ~~are not included~~ in the ~~tables):~~aggregate amount of $228 thousand, and one commercial and industrial loan in the amount of $477 thousand that were modified as a TDR during the past 12 months defaulted and were charged off.

Impaired Loans
As of and for the Three Months Ended
June 30, 2019
Recorded
Investment⁽²⁾

Contractual
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest Income
Recognized

Cash-Basis
Interest Income
Recognized
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans $ 1,233
$ 1,233
$ 153
$ 1,177
$ 10
$ —
Residential mortgage 1,946
1,946
264
1,950
23
—
Consumer 78
91
43
78
1
—
Total 3,257
3,270
460
3,205
34
—

Impaired loans without related allowance⁽¹⁾:

Commercial mortgage 6,072
7,704
—
6,148
—
—
Home equity lines and loans 260
260
—
262
3
—
Residential mortgage 1,790
1,790
—
1,797
15
—
Commercial and industrial 4,886
5,153
—
4,916
5
—
Consumer 26
29
—
26
—
—
Total 13,034
14,936
—
13,149
23
—
Grand total $ 16,291
$ 18,206
$ 460
$ 16,354
$ 57
$ —

~~(1) The table above does not include the recorded investment of $1.0 million of impaired leases without a related Allowance.~~

~~(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~

Impaired Loans
As of and for the Six Months Ended
June 30, 2019
Recorded
Investment⁽²⁾

Contractual
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest Income
Recognized

Cash-Basis
Interest Income
Recognized
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans $ 1,233
$ 1,233
$ 153
$ 1,235
$ 22
$ —
Residential mortgage 1,946
1,946
264
1,956
46
—
Consumer 78
91
43
79
2
—
Total $ 3,257
$ 3,270
$ 460
$ 3,270
$ 70
$ —

Impaired loans without related allowance⁽¹⁾:

Commercial mortgage $ 6,072
$ 7,704
$ —
$ 6,870
$ 20
$ —
Home equity lines and loans 260
260
—
264
5
—
Residential mortgage 1,790
1,790
—
1,807
31
—
Commercial and industrial 4,886
5,153
—
4,940
64
—
Consumer 26
29
27
—
—
Total $ 13,034
$ 14,936
$ —
$ 13,908
$ 120
$ —
Grand total $ 16,291
$ 18,206
$ 460
$ 17,178
$ 190
$ —

~~(1) The table above does not include the recorded investment of $1.0 million of impaired leases without a related Allowance.~~

~~(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~

Impaired Loans
As of and for the Three Months Ended
June 30, 2018
Recorded
Investment⁽²⁾

Contractual
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest Income
Recognized

Cash-Basis
Interest Income
Recognized
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans $ 570
$ 570
$ 19
$ 572
$ 6
$ —
Residential mortgage 2,379
2,379
299
2,383
22
—
Commercial and industrial 267
362
104
314
—
—
Consumer 27
27
4
27
—
—
Total $ 3,243
$ 3,338
$ 426
$ 3,296
$ 28
$ —

Impaired loans without related allowance⁽¹⁾:

Commercial mortgage $ 1,011
$ 1,010
$ —
$ 1,022
$ —
$ —
Home equity lines and loans 2,425
2,487
—
2,450
2
—
Residential mortgage 3,223
3,265
—
3,236
19
—
Commercial and industrial 1,598
2,300
—
1,620
5
—
Total $ 8,257
$ 9,062
$ —
$ 8,328
$ 26
$ —
Grand total $ 11,500
$ 12,400
$ 426
$ 11,624
$ 54
$ —

~~(1) The table above does not include the recorded investment of $2 million of impaired leases without a related Allowance.~~

~~(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~

Impaired Loans
As of and for the Six Months Ended
June 30, 2018
Recorded
Investment⁽²⁾

Contractual
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest Income
Recognized

Cash-Basis
Interest Income
Recognized
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans $ 570
$ 570
$ 19
$ 574
$ 11
$ —
Residential mortgage 2,379
2,379
299
2,387
45
—
Commercial and industrial 267

362

104

391

—

—
Consumer 27
27
4
27
1
—
Total $ 3,243
$ 3,338
$ 426
$ 3,379
$ 57
$ —

Impaired loans without related allowance⁽¹⁾:

Commercial mortgage $ 1,011
$ 1,010
$ —
$ 771
$ 6
$ —
Home equity lines and loans 2,425
2,487
—
2,473
8
—
Residential mortgage 3,223
3,265
—
3,105
41
—
Commercial and industrial 1,598
2,300
—
1,569
12
—
Total $ 8,257
$ 9,062
$ —
$ 7,918
$ 67
$ —
Grand total $ 11,500
$ 12,400
$ 426
$ 11,297
$ 124
$ —

~~(1) The table above does not include the recorded investment of $2 million of impaired leases without a related Allowance.~~

~~(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~

Impaired Loans
As of
December 31, 2018
Recorded
Investment ⁽²⁾

Contractual
Principal
Balance

Related
Allowance
(dollars in thousands)
Impaired loans with related allowance:
Home equity lines and loans $ 1,280
$ 1,280
$ 162
Residential mortgage 1,966
1,966
272
Consumer 50
50
28
Total $ 3,296
$ 3,296
$ 462
Impaired loans without related allowance⁽¹⁾:

Commercial mortgage $ 7,007
$ 7,264
$ —
Home equity lines and loans 3,718
3,724
—
Residential mortgage 4,641
4,728
—
Commercial and industrial 2,629
3,803
—
Consumer 83
86

Total $ 18,078
$ 19,605
$ —
Grand total $ 21,374
$ 22,901
$ 462

~~(1) The table above does not include the recorded investment of$1.2 millionof impaired leases without a related Allowance.~~

~~(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.~~

~~I. Loan Mark~~

Loans acquired in mergers and acquisitions are recorded at fair value as of the date of the transaction. This adjustment to the acquired principal amount is referred to as the “Loan Mark.” With the exception of purchased credit impaired loans, for which the Loan Mark is accounted under ASC 310-30, the Loan Mark is amortized or accreted as an adjustment to yield over the lives of the loans.

~~The following tables detail, for~~ ~~acquired loans, the outstanding principal, remaining Loan Mark, and recorded investment, by portfolio segment, as of the dates indicated:~~

Loan Mark on Acquired Loans and Leases
As of June 30, 2019
(dollars in thousands) Outstanding
Principal Remaining
Loan Mark Recorded
Investment
Commercial mortgage $ 286,496
$ (7,038 ) $ 279,458
Home equity lines and loans 25,289
(2,152 ) 23,137
Residential mortgage 75,404
(2,480 ) 72,924
Construction 3,345
(215 ) 3,130
Commercial and industrial 52,078
(1,815 ) 50,263
Consumer 2,616
(90 ) 2,526
Leases 14,762
(384 ) 14,378
Total $ 459,990
$ (14,174 ) $ 445,816

Loan Mark on Acquired Loans and Leases
As of December 31, 2018
(dollars in thousands) Outstanding
Principal Remaining
Loan Mark Recorded
Investment
Commercial mortgage $ 339,241
$ (9,627 ) $ 329,614
Home equity lines and loans 28,212
(2,367 ) 25,845
Residential mortgage 86,111
(2,778 ) 83,333
Construction 6,780
(294 ) 6,486
Commercial and industrial 72,948
(2,007 ) 70,941
Consumer 2,828
(113 ) 2,715
Leases 23,695
(726 ) 22,969
Total $ 559,815
$ (17,912 ) $ 541,903

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Note 65 – Mortgage Servicing Rights

The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,							Three Months Ended June 30,
(dollars in thousands)	2019			2018			(dollars in thousands)	2020		2019
Balance, beginning of period	$	4,910		$	5,706		Balance, beginning of period	$	4,115	$	4,910
Additions	—			—			Additions	—		—
Amortization	(156		)	(196		)	Amortization	(453)		(156)
(Impairment) / Recovery	(10		)	1
Impairment							Impairment	(222)		(10)
Balance, end of period	$	4,744		$	5,511		Balance, end of period	$	3,440	$	4,744

Fair value	$	5,175		$	6,695		Fair value	$	3,440	$	5,175
Residential mortgage loans serviced for others	$	545,743		$	614,259		Residential mortgage loans serviced for others	$	445,233	$	545,743


	Six Months Ended June 30,
(dollars in thousands)	2020		2019
Balance, beginning of period	$	4,450	$	5,047
Additions	—		—
Amortization	(557)		(276)
Impairment	(453)		(27)
Balance, end of period	$	3,440	$	4,744

Six Months Ended June 30,
(dollars in thousands) 2019 2018
Balance, beginning of period $ 5,047
$ 5,861
Additions —
16
Amortization (276 ) (417 )
(Impairment) / Recovery (27 ) 51
Balance, end of period $ 4,744
$ 5,511

As of June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10% and 20% adverse changes in those assumptions are as follows:


(dollars in thousands)	June 30, 2019			December 31, 2018			(dollars in thousands)	June 30, 2020			December 31, 2019
Fair value amount of MSRs	$	5,175		$	6,277		Fair value amount of MSRs	$	3,440		$	4,838
Weighted average life (in years)	6.0			6.7			Weighted average life (in years)	4.7			6.0
Prepayment speeds (constant prepayment rate)⁽¹⁾	10.9		%	9.1		%	Prepayment speeds (constant prepayment rate)⁽¹⁾	14.4		%	10.5		%
Impact on fair value:							Impact on fair value:
10% adverse change	$	(172	)	$	(124	)	10% adverse change	$	(151)		$	(149)
20% adverse change	(343		)	(257		)	20% adverse change	(292)			(297)
Discount rate	9.55		%	9.55		%	Discount rate	9.56		%	9.55		%
Impact on fair value:							Impact on fair value:
10% adverse change	$	(178	)	$	(234	)	10% adverse change	$	(88)		$	(166)
20% adverse change	(344		)	(451		)	20% adverse change	(172)			(321)

(1) Represents the weighted average prepayment rate for the life of the MSR asset.

At June 30, ~~2019~~2020 and December 31, ~~2018~~2019, the fair value of the MSRs was ~~$5.2~~$3.4 million and ~~$6.3~~$4.8 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party which utilizes a valuation model which calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent third-party valuation experts.

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These assumptions and sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which could magnify or counteract the sensitivities.

Note 76 – Goodwill and Intangible Assets

The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other than MSRs, for the six months ended June 30, ~~2019:~~2020:


(dollars in thousands)	Balance December 31, 2019		Additions		Amortization		Balance June 30, 2020		Amortization Period
Goodwill – Wealth	$	20,412	$	—	$	—	$	20,412	Indefinite
Goodwill – Banking	156,991		—		—		156,991		Indefinite
Goodwill – Insurance	6,609		—		—		6,609		Indefinite
Total Goodwill	184,012		—		—		184,012
Core deposit intangible	4,598		—		(584)		4,014		10 years
Customer relationships	11,820		—		(906)		10,914		5 to 20 years
Non-compete agreements	911		—		(94)		817		5 to 10 years
Trade name	1,651		—		(244)		1,407		3 to 5 years
Domain name	151		—		—		151		Indefinite
Total Intangible Assets	19,131		—		(1,828)		17,303
Total Goodwill and Intangible Assets	$	203,143	$	—	$	(1,828)	$	201,315

(dollars in thousands) Balance
December 31, 2018 Additions Adjustments Amortization Balance
June 30, 2019 Amortization
Period
Goodwill – Wealth $ 20,412
$ —
$ —
$ —
$ 20,412
Indefinite
Goodwill – Banking 156,991
—
—
—
156,991
Indefinite
Goodwill – Insurance 6,609
—
—
—
6,609
Indefinite
Total Goodwill 184,012
—
—
—
184,012

Core deposit intangible 5,906
—
—
(655 ) 5,251
10 years
Customer relationships 13,607
18
—
(895 ) 12,730
5 to 20 years
Non-compete agreements 1,101
—
—
(95 ) 1,006
5 to 10 years
Trade name 2,149
—
—
(249 ) 1,900
3 to 5 years
Domain name 151
—
—
—
151
Indefinite
Favorable lease assets 541
—
(541 ) —
—

Total Intangible Assets 23,455
18
(541 ) (1,894 ) 21,038

Total Goodwill and Intangible Assets $ 207,467
$ 18
$ (541 ) $ (1,894 ) $ 205,050

Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31, ~~2018~~2019 using generally accepted valuation methods. Management determined that no0 impairment of goodwill or indefinite-lived intangible assets was identified as a result of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the ~~eight~~five months ended June 30, ~~2019,~~2020, management determined there were no0 events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets. Management continues to monitor the economic environment as impacted by the COVID-19 pandemic in the markets we serve and resulting effect on the Corporation's long-term forecast.

Note 87 – Deposits

The following table details the components of deposits:


(dollars in thousands)	June 30, 2020		December 31, 2019

Interest-bearing demand	$	910,441	$	944,915
Money market	1,239,523		1,106,478
Savings	249,636		220,450
Retail time deposits	400,186		405,123
Wholesale non-maturity deposits	146,463		177,865
Wholesale time deposits	79,903		89,241
Total interest-bearing deposits	3,026,152		2,944,072
Noninterest-bearing deposits	1,217,496		898,173
Total deposits	$	4,243,648	$	3,842,245

June 30,
2019 December 31,
2018
(dollars in thousands)
Interest-bearing demand $ 745,134
$ 664,749
Money market 966,596
862,644
Savings 263,830
247,081
Retail time deposits 502,745
542,702
Wholesale non-maturity deposits 100,047
55,031
Wholesale time deposits 113,150
325,261
Total interest-bearing deposits 2,691,502
2,697,468
Noninterest-bearing deposits 940,911
901,619
Total deposits $ 3,632,413
$ 3,599,087

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Note 98 – Short-Term Borrowings and Long-Term FHLB Advances

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, FHLB advances with original maturities of one year or less and overnight fed funds, are detailed below.

A summary of short-term borrowings is as follows:


(dollars in thousands)	June 30, 2019		December 31, 2018		(dollars in thousands)	June 30, 2020		December 31, 2019
Repurchase agreements⁽¹⁾ – commercial customers	$	12,798	$	22,717	Repurchase agreements⁽¹⁾ – commercial customers	$	28,891	$	10,819
Short-term FHLB advances	195,030		229,650		Short-term FHLB advances	—		482,400

Total short-term borrowings	$	207,828	$	252,367	Total short-term borrowings	$	28,891	$	493,219

(1) Overnight repurchase agreements with no expiration date

The following table sets forth information concerning short-term borrowings:


	Three Months Ended June 30,									Six Months Ended June 30,
(dollars in thousands)	2020			2019			2020			2019
Balance at period-end	$	28,891		$	207,828		$	28,891		$	207,828
Maximum amount outstanding at any month end	174,431			207,828			174,431			207,828
Average balance outstanding during the period	136,816			68,529			138,700			112,844

Weighted-average interest rate:
As of the period-end	0.10		%	2.33		%	0.10		%	2.33		%
Paid during the period	0.68		%	2.09		%	0.99		%	2.32		%

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands) 2019 2018 2019 �� 2018
Balance at period-end $ 207,828
$ 227,059
$ 207,828
$ 227,059
Maximum amount outstanding at any month end 207,828
279,525
207,828
279,525
Average balance outstanding during the period 68,529
218,566
112,844
198,079

Weighted-average interest rate:
As of the period-end 2.33 % 1.89 % 2.33 % 1.89 %
Paid during the period 2.09 % 1.92 % 2.32 % 1.72 %

Average balances outstanding during the year represent daily average balances and average interest rates represent interest expense divided by the related average balance.

B. Long-term FHLB Advances

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Corporation had ~~$47.9~~$44.8 million and ~~$55.4~~$52.3 million, respectively, of long-term FHLB advances (original maturities exceeding one year).

The following table presents the remaining periods until maturity of long-term FHLB advances:

(dollars in thousands) June 30,
2019 December 31,
2018
Within one year $ 28,104
$ 28,105
Over one year through five years 19,837
27,269
Total $ 47,941
$ 55,374


(dollars in thousands)	June 30, 2020		December 31, 2019
Within one year	$	4,861	$	12,363
Over one year through five years	39,976		39,906
Total	$	44,837	$	52,269

The following table presents rate and maturity information on FHLB advances and other borrowings:


	Maturity Range⁽¹⁾		Weighted Average Rate⁽¹⁾			Coupon Rate⁽¹⁾					Balance at							Maturity Range⁽¹⁾							Weighted Average Rate⁽¹⁾			Coupon Rate⁽¹⁾									Balance at
Description	From	To			From			To		June 30, 2019				December 31, 2018		Description	From			To				From				To			June 30, 2020			December 31, 2019
Bullet maturity – fixed rate	7/29/2019	8/24/2021		1.79	%		1.40	%	2.13	%		$	47,941		$	55,374	Bullet maturity – fixed rate		12/9/2020		11/12/2021	1.73	%			1.40	%		2.13	%		$	44,837		$	52,269

(1) Maturity range, weighted average rate and coupon rate range refers to June 30, ~~2019~~2020 balances.

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C. Other Borrowings Information

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 ~~$14.7~~$4.5 million at June 30, ~~2019,~~2020, and ~~$14.5~~$23.7 million at December 31, ~~2018.~~2019. The carrying amount of the FHLB stock approximates its redemption value.

The level of required investment in FHLB stock is based on the balance of outstanding borrowings 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 had a maximum borrowing capacity with the FHLB of ~~$1.61~~$1.83 billion as of June 30, ~~2019~~2020 of which the unused capacity was ~~$1.36~~$1.78 billion. In addition, there were ~~$79.0~~$74.0 million in the overnight federal funds line available and ~~$164.2~~$166.8 million of FRB discount window capacity.

Note 109 – Subordinated Notes

On December 13, 2017, BMBC completed the issuance of $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the “2027 Notes”) in an underwritten public offering. On August 6, 2015, BMBC completed the issuance of $30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the “2025 Notes”) in a private placement transaction to institutional accredited investors. The net proceeds of both offerings increased Tier II regulatory capital at BMBC.

The following tables detail the subordinated notes, including debt issuance costs, as of June 30, ~~2019,~~2020, and December 31, ~~2018:~~2019:


	June 30, 2019				December 31, 2018					June 30, 2020						December 31, 2019
(dollars in thousands)	Balance		Rate⁽¹⁾⁽²⁾		Balance		Rate⁽¹⁾⁽²⁾		(dollars in thousands)	Balance		Rate⁽¹⁾⁽²⁾		Balance		Rate⁽¹⁾⁽²⁾
Subordinated notes – due 2027	$	68,948	4.25	%	$	68,885	4.25	%	Subordinated notes – due 2027	$	69,071	4.25	%	$	69,009	4.25	%
Subordinated notes – due 2025	29,668		4.75		29,641		4.75		Subordinated notes – due 2025	29,723		4.75		29,696		4.75
Total subordinated notes	$	98,616			$	98,526			Total subordinated notes	$	98,794			$	98,705

(1) The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until and including December 14, 2022, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 2.050% until December 15, 2027, or any early redemption date.

(2) The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until and including August 14, 2020, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 3.068% until August 15, 2025, or any early redemption date.

Note 1110 – Junior Subordinated Debentures

In connection with the RBPI Merger, BMBC acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although BMBC owns an aggregate of $774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation’s Consolidated Financial Statements as the Corporation is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, RBPI issued, and the Corporation assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7 million each, totaling $21.4 million representing the Corporation’s maximum exposure to loss. The junior subordinated debentures incur interest at a coupon rate of ~~4.56%~~2.46% as of June 30, ~~2019.~~2020. The rate resets quarterly based on 3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the Corporation. As a result of the RBPI Merger, the Corporation has

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fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15, 2034, currently and may be called at par by the Corporation. The Corporation records its investments in the Trusts’ common securities of $387 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

Note 1211 – Operating Leases

~~On January 1, 2019, the Corporation adopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 2, Recent Accounting Pronouncements.~~

The Corporation’s operating leases consist of various retail branch locations and corporate offices. As of June 30, ~~2019,~~2020, the Corporation’s leases have remaining lease terms ranging from ~~six~~three months to 2322 years including extension options that the Corporation is reasonably certain will be exercised.

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize right-of-use assets (“ROU ~~assets~~assets”) and lease liabilities for short-term leases, which consist of certain leases of the Corporation’s limited-hour retirement community offices.

As of June 30, ~~2019~~2020 the Corporation’s ROU assets and related lease liabilities were ~~$43.1~~$39.3 million and ~~$47.4~~$43.7 million, respectively.

The components of lease expense were as follows:


								Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019				2020		2019		2020		2019
(dollars in thousands)							(dollars in thousands)
Operating lease expense	$	1,333		$	2,663		Operating lease expense	$	1,198	$	1,333	$	2,396	$	2,663
Short term lease expense	14			29			Short term lease expense	14		14		29		29
Variable lease expense	392			810			Variable lease expense	308		392		665		810
Sublease income	(7		)	(16		)	Sublease income	(8)		(7)		(17)		(16)
Total lease expense	$	1,732		$	3,486		Total lease expense	$	1,512	$	1,732	$	3,073	$	3,486

Supplemental cash flow information related to leases was as follows:

Six Months Ended
June 30, 2019
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 2,561
ROU assets obtained in exchange for lease liabilities 44,944


	Six Months Ended June 30,
	2020		2019
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,348	$	2,561
ROU assets obtained in exchange for lease liabilities	—		44,944

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Maturities of operating lease liabilities under FASB ASC 842 “Leases” as of June 30, ~~2019~~2020 are as follows:

June 30, 2019
(dollars in thousands)
2019 $ 2,613
2020 4,707
2021 4,484
2022 4,209
2023 4,061
2024 and thereafter 41,862
Total lease payments 61,936
Less: imputed interest 14,543
Present value of operating lease liabilities $ 47,393


	June 30, 2020
(dollars in thousands)
2020	$	2,357
2021	4,479
2022	4,200
2023	4,047
2024	4,076
2025 and thereafter	37,308
Total lease payments	56,467
Less: imputed interest	12,774
Present value of operating lease liabilities	$	43,693

As of June 30, ~~2019,~~2020, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised, for all operating leases is ~~14.51~~13.94 years.

Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of June 30, ~~2019~~2020 is ~~3.56%~~3.58%.

As of June 30, ~~2019,~~2020, the Corporation had not entered into any material leases that have not yet commenced.

~~Future minimum cash rent commitments from various operating leases under FASB ASC 840 “Leases” as of December 31, 2018 are as follows:~~

(dollars in thousands)
December 31,
2018
2019 $ 5,211
2020 4,700
2021 4,478
2022 4,203
2023 4,051
2024 and thereafter 41,845
Total $ 64,488

Note 1312 – Derivative Instruments and Hedging Activities

Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Management manages these risks as part of its asset and liability management process and through credit policies and procedures. Management seeks to minimize counterparty credit risk by establishing credit limits and collateral agreements and utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative transactions entered into by the Corporation are an economic hedge of a derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.

Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps with commercial loan customers and correspondent banks wishing to manage interest rate risk. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge the exposure arising from these contracts. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of June 30, ~~2019,~~2020, there were no fair value adjustments related to credit quality.

Foreign Exchange Forward Contracts. The Corporation enters into foreign exchange forward contracts (“FX forwards”) with customers to exchange one currency for another on an agreed date in the future at an agreed exchange rate. The Corporation then enters into corresponding FX forwards with swap dealer counterparties to economically hedge its exposure on the exchange rate component of the customer agreements. The FX forwards with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. As the FX forwards are structured to offset each other, changes to the underlying term structure of currency exchange rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of June 30, ~~2019,~~2020, there were no fair value adjustments related to credit quality.

Risk Participation Agreements. The Corporation may enter into a risk participation agreement (“RPA”) with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the

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Corporation has provided a loan structured with a derivative, the Corporation may purchase an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased.”

The following tables detail the derivative instruments as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Asset Derivatives Liability Derivatives
(dollars in thousands)
Notional
Amount

Fair
Value

Notional
Amount

Fair
Value
Derivatives not designated as hedging instruments
As of June 30, 2019:
Customer derivatives – interest rate swaps $ 527,942
$ 44,256
$ 527,942
$ 44,101
FX forwards 4,975
105
4,997
82
RPAs sold —
—
4,895
19
RPAs purchased 34,981
124
—
—
Total derivatives $ 567,898
$ 44,485
$ 537,834
$ 44,202
As of December 31, 2018:
Customer derivatives – interest rate swaps $ 369,623
$ 12,550
$ 369,623
$ 12,549
RPAs sold —
—
854
2
RPAs purchased 35,305
71
—
—
Total derivatives $ 404,928
$ 12,621
$ 370,477
$ 12,551


	Asset Derivatives						Liability Derivatives
(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives not designated as hedging instruments
As of June 30, 2020:
Customer derivatives – interest rate swaps	$	970,146	$	143,339	$	970,146	$	143,339
FX forwards	3,528		36		4,116		107
RPAs sold	—		—		14,164		39
RPAs purchased	39,995		358		—		—
Total derivatives	$	1,013,669	$	143,733	$	988,426	$	143,485
As of December 31, 2019:
Customer derivatives – interest rate swaps	$	790,209	$	47,627	$	790,209	$	47,627
RPAs sold	—		—		4,232		16
RPAs purchased	20,249		90		—		—
Total derivatives	$	810,458	$	47,717	$	794,441	$	47,643

The Corporation has International Swaps and Derivatives Association agreements with third parties that requires a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$43.7~~$157.5 million and ~~$8.8~~$63.8 million, ~~respectively.~~respectively, and is comprised of a combination of cash and investment securities. The amount of collateral posted with third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was ~~$43.8~~$143.3 million and ~~$11.5~~$46.7 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Note 1413 – Accounting for Uncertainty in Income Taxes

The Corporation recognizes the financial statement benefit of a tax position only after determining that the Corporation would be more likely than not to sustain the position following an examination. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the relevant tax authority.

The Corporation is subject to income taxes in the United States federal jurisdiction and multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by taxing authorities for years before ~~2015.~~2016.

The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. NoNaN interest or penalties were accrued for the six months ended June 30, ~~2019~~2020 or ~~2018.~~2019.

Note 1514 – Shareholders’ Equity

Dividend

On July ~~18, 2019,~~20, 2020, BMBC’s Board of Directors declared a regular quarterly dividend of ~~$0.26~~$0.27 per share payable September 1, ~~2019~~2020 to shareholders of record as of August ~~1, 2019.~~3, 2020. During the second quarter of ~~2019,~~2020, the Corporation paid or accrued, as applicable, a regular quarterly dividend of ~~$0.25~~$0.26 per share. This dividend totaled ~~$5.2~~$5.3 million, based on outstanding shares and restricted stock units as of ~~May 1, 2019~~April 30, 2020 of ~~20,404,174~~20,251,459 shares.

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S-3 Shelf Registration Statement and Offerings Thereunder

In May 2018, BMBC filed a shelf registration statement on Form S-3, SEC File No. 333-224849 (the “Shelf Registration Statement”). The Shelf Registration Statement allows BMBC to raise additional capital from time to time through offers and sales of registered securities consisting of common stock, debt securities, warrants, purchase contracts, rights and units or units consisting of any combination of the foregoing securities. BMBC may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, from time to time, in one or more offerings.

In addition, BMBC has in place a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which allows it to issue up to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year. A RFW is granted based on a variety of factors, including BMBC’s current and projected capital needs, prevailing market prices of BMBC’s common stock and general economic and market conditions.

For the three and six months ended June 30, ~~2019,~~2020, BMBC did not issue any shares under the Plan. The Plan administrator conducted dividend reinvestments for Plan participants through open market purchases. No RFWs were approved during the three and six months ended June 30, ~~2019.~~2020. No other sales of equity securities were executed under the Shelf Registration Statement during the three and six months ended June 30, ~~2019.~~2020.

Option Exercises and Vesting of Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”)

In addition to shares that may be issued through the Plan, the Corporation also issues shares through the exercise of stock options and the vesting of RSUs and PSUs. During the ~~three and~~ six months ended June 30, ~~2019, 4,475~~2020, 338 shares ~~and 34,075 shares, respectively,~~ were issued pursuant to the exercise of stock options, increasing shareholders’ equity by ~~$82 thousand and $622 thousand, respectively.~~$5 thousand. NaN shares were issued pursuant to the exercise of stock options during the three months ended June 30, 2020. The increase in shareholders’ equity related to the vesting of RSUs and PSUs, which is recognized over the vesting period through stock based compensation expense, was ~~$875~~$624 thousand and ~~$2.0~~$1.5 million for the three and six months ended June 30, ~~2019, respectively.~~2020.

Stock Repurchases

On August 6, 2015, BMBC announced a stock repurchase program (the “2015 Program”) pursuant to which the Corporation may repurchase up to 1,200,000 shares of BMBC’s common stock, at an aggregate purchase price not to exceed $40 million. During the three months ended June 30, 2019, 12,894 shares were repurchased under the 2015 Program at an average price of $36.35. As of June 30, 2019, there were no shares remaining authorized for repurchase under the 2015 Program.

On April 18, 2019, BMBC announced a new stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program became effective in the second quarter of ~~2019 upon the completion of BMBC’s existing 2015 Program.~~2019. During the three months ended ~~June 30, 2019, 28,476~~March 31, 2020, 207,201 shares were repurchased under the 2019 Program at an average price of ~~$37.82.~~$34.99. No shares were repurchased during the three months ended June 30, 2020. All share repurchases were accomplished in open market transactions. As of June 30, ~~2019,~~2020, the maximum number of shares remaining authorized for repurchase under the 2019 Program was ~~971,524,~~710,032, at an aggregate purchase price not to exceed ~~$43.9~~$34.8 million.

In addition to the ~~2015 Program and~~ 2019 Program, it is BMBC’s practice to retire shares to its treasury account upon the vesting of stock awards to certain officers in order to cover the statutory income tax withholdings related to such vestings.

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Note 1615 – Accumulated Other Comprehensive Income (Loss) ~~Income~~

The following table details the components of accumulated other comprehensive income (loss) ~~income~~ for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

(dollars in thousands)
Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities

Net Change in
Unfunded
Pension Liability

Accumulated
Other
Comprehensive
(Loss) Income
Balance, March 31, 2019 $ (2,010 ) $ (1,268 ) $ (3,278 )
Other comprehensive income 4,962
16
4,978
Balance, June 30, 2019 $ 2,952
$ (1,252 ) $ 1,700

Balance, March 31, 2018 $ (8,157 ) $ (1,507 ) $ (9,664 )
Other comprehensive (loss) (1,512 ) (15 ) (1,527 )
Balance, June 30, 2018 $ (9,669 ) $ (1,522 ) $ (11,191 )


(dollars in thousands)	Net Change in Unrealized Gains on Available-for- Sale Investment Securities		Net Change in Unfunded Pension Liability		Accumulated Other Comprehensive Income (Loss)
Balance, March 31, 2020	$	10,569	$	(1,700)	$	8,869
Other comprehensive income	127		23		150
Balance, June 30, 2020	$	10,696	$	(1,677)	$	9,019

Balance, March 31, 2019	$	(2,010)	$	(1,268)	$	(3,278)
Other comprehensive income	4,962		16		4,978
Balance, June 30, 2019	$	2,952	$	(1,252)	$	1,700

(dollars in thousands)
Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities

Net Change in
Unfunded
Pension Liability

Accumulated
Other
Comprehensive
(Loss) Income
Balance, December 31, 2018 $ (6,229 ) $ (1,284 ) $ (7,513 )
Other comprehensive income 9,181
32
9,213
Balance, June 30, 2019 $ 2,952
$ (1,252 ) $ 1,700

Balance, December 31, 2017 $ (2,861 ) $ (1,553 ) $ (4,414 )
Other comprehensive (loss) income (6,808 ) 31
(6,777 )
Balance, June 30, 2018 $ (9,669 ) $ (1,522 ) $ (11,191 )


(dollars in thousands)	Net Change in Unrealized Gains on Available-for- Sale Investment Securities		Net Change in Unfunded Pension Liability		Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2019	$	3,910	$	(1,723)	$	2,187
Other comprehensive income	6,786		46		6,832
Balance, June 30, 2020	$	10,696	$	(1,677)	$	9,019

Balance, December 31, 2018	$	(6,229)	$	(1,284)	$	(7,513)
Other comprehensive income	9,181		32		9,213
Balance, June 30, 2019	$	2,952	$	(1,252)	$	1,700

The following table details the amounts reclassified from each component of accumulated other comprehensive ~~loss~~income (loss) to each component’s applicable income statement line, for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

Amount Reclassified from Accumulated Other Comprehensive Loss
Description of Accumulated Other
Comprehensive Loss Component
Three Months Ended
June 30, Affected Income Statement Category
2019 2018
Unfunded pension liability:
Amortization of net loss included in net periodic pension costs⁽¹⁾
$ 13
$ 25
Other operating expenses
Income tax effect (3 ) (5 ) Income tax expense
Net of income tax $ 10
$ 20
Net income


	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Description of Accumulated Other Comprehensive Income (Loss) Component	Three Months Ended June 30,					Affected Income Statement Category
	2020		2019







Unfunded pension liability:
Amortization of net loss included in net periodic pension costs⁽¹⁾	$	17	$	13	Other operating expenses
Income tax effect	(3)		(3)		Income tax expense
Net of income tax	$	14	$	10	Net income

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									Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Description of Accumulated Other Comprehensive Income (Loss) Component								Description of Accumulated Other Comprehensive Income (Loss) Component	Six Months Ended June 30,					Affected Income Statement Category
									2020		2019

	Amount Reclassified from Accumulated Other Comprehensive Loss
Description of Accumulated Other Comprehensive Loss Component	Six Months Ended June 30,						Affected Income Statement Category
	2019			2018
Net unrealized gain on investment securities available for sale:
Realization of gain on sale of investment securities available for sale	$	—		$	(7	)	Net gain on sale of available for sale investment securities
Realization of gain on transfer of investment securities available for sale to trading	—			(417		)	Other operating income
Total	—			(424		)
Income tax effect	—			89			Income tax expense
Net of income tax	$	—		$	(335	)	Net income


Unfunded pension liability:								Unfunded pension liability:
Amortization of net loss included in net periodic pension costs⁽¹⁾	$	24		$	50		Other operating expenses	Amortization of net loss included in net periodic pension costs⁽¹⁾	$	35	$	24	Other operating expenses
Income tax effect	(5		)	(10		)	Income tax expense	Income tax effect	(7)		(5)		Income tax expense
Net of income tax	$	19		$	40		Net income	Net of income tax	$	28	$	19	Net income

(1) Accumulated other comprehensive ~~loss~~income (loss) components are included in the computation of net periodic pension cost.

Note 1716 – 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 that would occur if in-the-money stock options were exercised and converted into common shares and RSUs and PSUs were vested. Proceeds assumed to have been received on option exercises are assumed to be used to purchase shares of BMBC’s common stock at the average market price during the period, as required by the treasury stock method of accounting. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands except share and per share data) 2019 2018 2019 2018
Numerator:

Net income available to common shareholders $ 15,785
$ 14,688
$ 26,462
$ 29,974
Denominator for basic earnings per share – weighted average shares outstanding
20,144,651
20,238,852
20,156,509
20,221,010
Effect of dilutive common shares 99,758
174,726
99,960
206,782
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
20,244,409
20,413,578
20,256,469
20,427,792
Basic earnings per share $ 0.78
$ 0.73
$ 1.31
$ 1.48
Diluted earnings per share 0.78
0.72
1.31
1.47
Antidilutive shares excluded from computation of average dilutive earnings per share 14,441
1,422
30,506
2,495


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands except share and per share data)	2020		2019		2020		2019
Numerator:
Net income available to common shareholders	$	15,035	$	15,785	$	3,872	$	26,462
Denominator for basic earnings per share – weighted average shares outstanding	19,926,737		20,144,651		19,989,948		20,156,509
Effect of dilutive common shares	81,482		99,758		87,211		99,960
Denominator for diluted earnings per share – adjusted weighted average shares outstanding	20,008,219		20,244,409		20,077,159		20,256,469
Basic earnings per share	$	0.75	$	0.78	$	0.19	$	1.31
Diluted earnings per share	0.75		0.78		0.19		1.31
Antidilutive shares excluded from computation of average dilutive earnings per share	76,038		14,441		71,260		30,506

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Note 1817 – Revenue from Contracts with Customers

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following table presents the Corporation’s noninterest income by revenue stream and reportable segment for the three and six months ended June 30, ~~2019~~2020 and ~~2018.~~2019. Items outside the scope of ASC 606 are noted as such.


	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018							Three Months Ended June 30, 2020										Three Months Ended June 30, 2019
(dollars in thousands)	Banking		Wealth Management		Consolidated		Banking		Wealth Management		Consolidated		(dollars in thousands)	Banking		Wealth Management		Consolidated		Banking		Wealth Management		Consolidated
Fees for wealth management services	$	—	$	11,510	$	11,510	$	—	$	10,658	$	10,658	Fees for wealth management services	$	—	$	9,069	$	9,069	$	—	$	11,510	$	11,510
Insurance commissions	—		1,697		1,697		—		1,902		1,902		Insurance commissions	—		1,303		1,303		—		1,697		1,697
Capital markets revenue⁽¹⁾	1,489		—		1,489		2,105		—		2,105		Capital markets revenue⁽¹⁾	2,975		—		2,975		1,489		—		1,489
Service charges on deposit accounts	852		—		852		752		—		752		Service charges on deposit accounts	603		—		603		852		—		852
Loan servicing and other fees⁽¹⁾	553		—		553		475		—		475		Loan servicing and other fees⁽¹⁾	452		—		452		553		—		553
Net gain on sale of loans⁽¹⁾	752		—		752		528		—		528		Net gain on sale of loans⁽¹⁾	3,134		—		3,134		752		—		752
Net gain on sale of OREO	—		—		—		111		—		111

Dividends on FHLB and FRB stock⁽¹⁾	316		—		316		510		—		510		Dividends on FHLB and FRB stock⁽¹⁾	243		—		243		316		—		316
Other operating income⁽²⁾	3,026		26		3,052		2,976		58		3,034		Other operating income⁽²⁾	2,699		88		2,787		3,026		26		3,052
Total noninterest income	$	6,988	$	13,233	$	20,221	$	7,457	$	12,618	$	20,075	Total noninterest income	$	10,106	$	10,460	$	20,566	$	6,988	$	13,233	$	20,221

(1) Not within the scope of ASC 606.

(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling ~~$525~~$733 thousand and ~~$610~~$525 thousand for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which are within the scope of ASC 606.


	Six Months Ended June 30, 2019								Six Months Ended June 30, 2018							Six Months Ended June 30, 2020										Six Months Ended June 30, 2019
(dollars in thousands)	Banking			Wealth Management		Consolidated			Banking		Wealth Management		Consolidated		(dollars in thousands)	Banking		Wealth Management		Consolidated		Banking		Wealth Management		Consolidated
Fees for wealth management services	$	—		$	21,902	$	21,902		$	—	$	20,966	$	20,966	Fees for wealth management services	$	—	$	20,237	$	20,237	$	—	$	21,902	$	21,902
Insurance commissions	—			3,369		3,369			—		3,595		3,595		Insurance commissions	—		2,836		2,836		—		3,369		3,369
Capital markets revenue⁽¹⁾	3,708			—		3,708			2,771		—		2,771		Capital markets revenue⁽¹⁾	5,336		—		5,336		3,708		—		3,708
Service charges on deposit accounts	1,660			—		1,660			1,465		—		1,465		Service charges on deposit accounts	1,449		—		1,449		1,660		—		1,660
Loan servicing and other fees⁽¹⁾	1,162			—		1,162			1,161		—		1,161		Loan servicing and other fees⁽¹⁾	913		—		913		1,162		—		1,162
Net gain on sale of loans⁽¹⁾	1,071			—		1,071			1,046		—		1,046		Net gain on sale of loans⁽¹⁾	3,916		—		3,916		1,071		—		1,071
Net gain on sale of investment securities available for sale⁽¹⁾	—			—		—			7		—		7
Net (loss) gain on sale of OREO	(24		)	—		(24		)	287		—		287

Net gain (loss) on sale of OREO															Net gain (loss) on sale of OREO	148		—		148		(24)		—		(24)
Dividends on FHLB and FRB stock⁽¹⁾	727			—		727			941		—		941		Dividends on FHLB and FRB stock⁽¹⁾	687		—		687		727		—		727
Other operating income⁽²⁾	5,852			47		5,899			7,270		102		7,372		Other operating income⁽²⁾	3,243		101		3,344		5,852		47		5,899
Total noninterest income	$	14,156		$	25,318	$	39,474		$	14,948	$	24,663	$	39,611	Total noninterest income	$	15,692	$	23,174	$	38,866	$	14,156	$	25,318	$	39,474

(1) Not within the scope of ASC 606.

(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling ~~$1.0~~$1.4 million and ~~$1.1~~$1.0 million for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which are within the scope of ASC 606.

A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:

Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are

earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation.

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Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Wealth Management Fees: The Corporation earns wealth management fee revenue from a variety of sources including fees from trust administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service fees, shareholder service fees and brokerage.

Fees that are determined based on the market value of the assets held in their accounts are generally billed monthly or quarterly, in arrears, based on the market value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date.

Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.

Insurance Commissions: The Corporation earns commissions from the sale of insurance policies, which are generally calculated as a percentage of the policy premium, and contingent income, which is calculated based on the volume and performance of the policies held by each carrier. Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point in time in which the amounts are known and collection is reasonably assured. Performance metrics for contingent income are generally satisfied over time, not exceeding one year, and are recognized at the point in time in which the amounts are known and collection is reasonably assured.

Visa Debit Card Income: The Corporation earns income fees from debit cardholder transactions conducted through the Visa payment network. Fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

Note 1918 – Stock-Based Compensation

A. General Information

BMBC permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation rights and restricted stock units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is identical. The terms and conditions of awards under the plans are determined by the Corporation’s Management Development and 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 BMBC’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of BMBC’s common stock were made available for award grants. On April 28, 2010, the shareholders approved BMBC’s “2010 Long Term Incentive Plan” under which a total of 445,002 shares of BMBC’s common stock were made available for award grants, and on April 30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010 LTIP”) to, among other things, increase the number of shares available for award grants by 500,000 to 945,002.

In addition to the shareholder-approved plans mentioned in the preceding paragraph, BMBC periodically authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)(4) of the NASDAQ listing rules.

The equity awards are authorized to be in the form of, among others, options to purchase BMBC’s common stock, RSUs and PSUs.

RSUs have a restriction based on the passage of time. The grant date fair value of the RSUs is based on the closing price on the date of the grant.

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PSUs have restrictions based on performance criteria and the passage of time. The performance criteria may be a market-based criteria measured by BMBC’s total shareholder return (“TSR”) relative to the performance of the community bank index for the respective period. The fair value of the PSUs based on BMBC’s TSR relative to the performance of a designated peer group or the NASDAQ Community Bank Index is calculated using the Monte Carlo Simulation method. The performance criteria may also be based on a non-market-based criteria such as return on average equity relative to that designated peer group. The grant date fair value of these PSUs is based on the closing price of BMBC’s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to 150%.

B. Other Stock Option Information

The following table provides information about options outstanding for the three and six months ended June 30, ~~2019:~~2020:


	Shares	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, March 31, 2020	563	$	21.32	$	19.09
Forfeited	—	—		—
Expired	—	—		—
Exercised	—	—		—
Options outstanding, June 30, 2020	563	21.32		19.09

Shares Weighted
Average
Exercise
Price Weighted
Average
Grant Date
Fair Value
Options outstanding, March 31, 2019 21,001
$ 18.32
$ 4.95
Forfeited —
—
—
Expired —
—
—
Exercised (4,475 ) 18.27
4.42
Options outstanding, June 30, 2019 16,526
18.33
5.09

Shares Weighted
Average
Exercise
Price Weighted
Average
Grant Date
Fair Value
Options outstanding, December 31, 2018 50,601
$ 18.28
$ 4.68
Forfeited —
—
—
Expired —
—
—
Exercised (34,075 ) 18.25
4.48
Options outstanding, June 30, 2019 16,526
18.33
5.09


	Shares	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, December 31, 2019	901	$	19.33	$	16.78
Forfeited	—	—		—
Expired	—	—		—
Exercised	(338)	16.02		12.93
Options outstanding, June 30, 2020	563	21.32		19.09

As of June 30, ~~2019~~2020 there were no0 unvested options.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows for the periods presented:

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands) 2019 2018 2019 2018
Proceeds from exercise of stock options $ 82
$ 115
$ 622
$ 1,107
Related tax benefit recognized 18
21
155
231
Net proceeds of options exercised $ 100
$ 136
$ 777
$ 1,338

Intrinsic value of options exercised $ 86
$ 99
$ 738
$ 1,098


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2020		2019		2020		2019
Proceeds from exercise of stock options	$	—	$	82	$	5	$	622
Related tax benefit recognized	—		18		2		155
Net proceeds of options exercised	$	—	$	100	$	7	$	777

Intrinsic value of options exercised	$	—	$	86	$	8	$	738

The following table provides information about options outstanding and exercisable at June 30, ~~2019:~~2020:

(dollars in thousands, except share data and exercise price) Outstanding Exercisable
Number of shares 16,526
16,526
Weighted average exercise price $ 18.33
$ 18.33
Aggregate intrinsic value $ 314
$ 314
Weighted average remaining contractual term in years 0.3
0.3


(dollars in thousands, except share data and exercise price)	Outstanding		Exercisable
Number of shares	563		563
Weighted average exercise price	$	21.32	$	21.32
Aggregate intrinsic value	$	4	$	4
Weighted average remaining contractual term in years	3.6		3.6

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C. Restricted Stock Units and Performance Stock Units

The Corporation has granted RSUs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with Rule 5635(c)(4) of the NASDAQ listing standards.

RSUs

The compensation expense for the RSUs 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.

For the three and six months ended June 30, ~~2019,~~2020, the Corporation recognized ~~$422~~$471 thousand and ~~$898 thousand,~~$0.9 million, respectively, of expense related to the Corporation’s RSUs. As of June 30, ~~2019,~~2020, there was ~~$3.7~~$2.8 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of ~~2.5~~2 years.

During the first quarter of 2019, the Corporation adopted a voluntary Years of Service Incentive Program (the “Incentive Program”) which offers certain benefits to eligible employees who meet the Incentive Program requirements and voluntarily exit from service with the Corporation, the Bank or one of their subsidiaries. As part of the Incentive Program, the Corporation elected to remove the service requirement as an RSU vesting condition for employees who held RSUs and chose to participate in the Incentive Program. As a result, 3,494 RSUs were modified which resulted in $112 thousand of incremental expense recognized during the three months ended March 31, 2019.

The following table details the RSUs for the three and six months ended June 30, ~~2019:~~2020:

Three Months Ended
June 30, 2019 Six Months Ended
June 30, 2019
Number of Shares Weighted
Average
Grant Date
Fair Value Number of Shares Weighted
Average
Grant Date
Fair Value
Beginning balance 107,635
$ 38.14
76,746
$ 39.71
Granted 30,618
38.26
67,308
36.34
Vested (834 ) 25.65
(3,134 ) 30.07
Forfeited (1,928 ) 36.70
(5,429 ) 39.56
Ending balance 135,491
38.27
135,491
38.27


	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Beginning balance	136,725	$	38.02	115,466	$	38.57
Granted	—	—		26,818	35.90
Vested	(6,799)	39.82		(11,772)	39.73
Forfeited	—	—		(586)	35.74
Ending balance	129,926	37.92		129,926	37.92

PSUs

For the three and six months ended June 30, ~~2019,~~2020, the Corporation recognized ~~$453~~$153 thousand and ~~$1.1~~$0.6 million, respectively, of expense related to the PSUs. As of June 30, ~~2019,~~2020, there was ~~$3.8~~$2.3 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of ~~2.3~~1.8 years.

As part of the Incentive Program, the Corporation elected to remove the service requirement as a PSU vesting condition for employees who held PSUs and chose to participate in the Incentive Program. As a result, 8,208 PSUs were modified which resulted in $250 thousand of incremental expense recognized during the three months ended March 31, 2019.

The following table details the PSUs for the three and six months ended June 30, ~~2019:~~2020:

Three Months Ended
June 30, 2019 Six Months Ended
June 30, 2019
Number of Shares Weighted
Average
Grant Date
Fair Value Number of Shares Weighted
Average
Grant Date
Fair Value
Beginning balance 159,797
$ 35.58
121,656
$ 36.82
Granted 22,714
36.93
69,109
34.29
Vested —
—
—
—
Forfeited (2,618 ) 38.17
(10,872 ) 39.02
Ending balance 179,893
35.72
179,893
35.72


	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Beginning balance	189,808	$	37.31	136,271	$	37.87
Granted	—	—		53,685	35.90

Vested	—	—		—	—
Forfeited	—	—		(148)	40.35
Ending balance	189,808	37.31		189,808	37.31

Note 2019 – Fair Value Measurement

FASB ASC 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

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The three levels of the fair value hierarchy under FASB ASC Topic 820 are:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

A. Assets and liabilities measured on a recurring basis

A description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Investment Securities

The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government and its agencies, mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies, obligations of state and political subdivisions, corporate bonds and other debt securities are determined by the Corporation, taking into account the input of an independent third party valuation service provider. The third party’s evaluations are based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions. Management reviews, annually, the process utilized by its independent third-party valuation service provider. On a quarterly basis, management tests the validity of the prices provided by the third party by selecting a representative sample of the portfolio and obtaining actual trade results, or if actual trade results are not available, competitive broker pricing. On an annual basis, management evaluates, for appropriateness, the methodology utilized by the independent third-party valuation service provider.

U.S. ~~Government~~government agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage-backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available-for-sale investments are evaluated using a broker-quote based application, including quotes from issuers.

Interest Rate Swaps, FX Forwards, and Risk Participation Agreements

The Corporation’s interest rate swaps, FX forwards, and RPAs are reported at fair value utilizing Level 2 inputs. Prices of these instruments are obtained through an independent pricing source utilizing pricing information which may include market observed quotations for swaps, LIBOR rates, forward rates and rate volatility. When entering into a derivative contract, the Corporation is exposed to fair value changes due to interest rate movements, and the potential non-performance of our contract counterparty. The Corporation has developed a methodology to value the non-performance risk based on internal credit risk metrics and the unique characteristics of derivative instruments, which include notional exposure rather than principle at risk and interest payment netting. The results of this methodology are used to adjust the base fair value of the instrument for the potential counterparty credit risk.

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The following tables present the Corporation’s assets measured at fair value on a recurring basis as of June 30, ~~2019~~2020 and December 31, ~~2018:~~

As of June 30, 2019
(dollars in thousands) Total Level 1 Level 2 Level 3
Investment securities available for sale:
U.S. Treasury securities $ 101
$ 101
$ —
$ —
Obligations of U.S. government & agencies 192,799
—
192,799
—
Obligations of state & political subdivisions 6,870
—
6,870
—
Mortgage-backed securities 348,975
—
348,975
—
Collateralized mortgage obligations 38,724
—
38,724
—
Other investment securities 650
—
650
—
Total investment securities available for sale 588,119
101
588,018
—

Investment securities trading:
Mutual funds 8,516
8,516
—
—

Derivatives:
Interest rate swaps 44,256
—
44,256
—
RPAs purchased 124
—
124
—
FX forwards 105
—
105
—
Total derivatives 44,485
—
44,485
—

Total recurring fair value measurements $ 641,120
$ 8,617
$ 632,503
$ —
2019:

As of December 31, 2018
(dollars in thousands) Total Level 1 Level 2 Level 3
Investment securities available for sale:
U.S. Treasury securities $ 200,013
$ 200,013
$ —
$ —
Obligations of U.S. government & agencies 195,855
—
195,855
—
Obligations of state & political subdivisions 11,332
—
11,332
—
Mortgage-backed securities 289,890
—
289,890
—
Collateralized mortgage obligations 39,252
—
39,252
—
Other investment securities 1,100
—
1,100
—
Total investment securities available for sale 737,442
200,013
537,429
—

Investment securities trading:
Mutual funds 7,502
7,502
—
—

Derivatives:
Interest rate swaps 12,550
—
12,550
—
RPAs purchased 71
—
71
—
Total derivatives 12,621
—
12,621
—

Total recurring fair value measurements $ 757,565
$ 207,515
$ 550,050
$ —


As of June 30, 2020
(dollars in thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury securities	$	100	$	100	$	—	$	—
Obligations of U.S. government & agencies	114,149		—		114,149		—
Obligations of state & political subdivisions	4,583		—		4,583		—
Mortgage-backed securities	377,204		—		377,204		—
Collateralized mortgage obligations	25,873		—		25,873		—
Corporate bonds	8,022		—		8,022		—
Other investment securities	650		—		650		—
Total investment securities available for sale	530,581		100		530,481		—

Investment securities trading:
Mutual funds	7,801		7,801		—		—

Derivatives:
Interest rate swaps	143,339		—		143,339		—
RPAs purchased	358		—		358		—
FX forwards	36		—		36		—
Total derivatives	143,733		—		143,733		—

Total recurring fair value measurements	$	682,115	$	7,901	$	674,214	$	—


As of December 31, 2019
(dollars in thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury securities	$	500,101	$	500,101	$	—	$	—
Obligations of U.S. government & agencies	102,020		—		102,020		—
Obligations of state & political subdivisions	5,379		—		5,379		—
Mortgage-backed securities	366,002		—		366,002		—
Collateralized mortgage obligations	31,832		—		31,832		—
Other investment securities	650		—		650		—
Total investment securities available for sale	1,005,984		500,101		505,883		—

Investment securities trading:
Mutual funds	8,621		8,621		—		—

Derivatives:
Interest rate swaps	47,627		—		47,627		—
RPAs purchased	90		—		90		—

Total derivatives	47,717		—		47,717		—

Total recurring fair value measurements	$	1,062,322	$	508,722	$	553,600	$	—

There have been no transfers between levels during the three and six months ended June 30, ~~2019.~~2020.

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B. Assets and liabilities measured on a non-recurring basis

Fair value is used on a nonrecurring basis to evaluate certain financial assets and financial liabilities in specific circumstances. Similarly, fair value is used on a nonrecurring basis for nonfinancial assets and nonfinancial liabilities such as foreclosed assets, OREO, intangible assets, nonfinancial assets and liabilities evaluated in a goodwill impairment analysis and other nonfinancial assets measured at fair value for purposes of assessing impairment. A description of the valuation methodologies used for financial and nonfinancial assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy, is set forth below.

~~Impaired~~Collateral-dependent Loans and Leases

Collateral-dependent loans and leases for which the repayment is expected to be provided substantially through the sale of the collateral and the borrower is experiencing financial difficulty are, in general, individually evaluated for credit losses. Management evaluates and values ~~impaired~~collateral-dependent loans and leases when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the ~~time~~reporting date and repayment is expected to be provided substantially through the ~~loan is identified as impaired,~~operation or sale of the collateral, and the fair values of such loans and leases are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each ~~impaired loan.~~loan or lease. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

The Corporation has an appraisal policy in which an appraisal is obtained for a commercial loan at the point at which the loan either becomes nonperforming or is downgraded to a substandard or worse classification. For consumer loans, management obtains updated appraisals when a loan becomes 90 days past due or when it receives other information that may indicate possible impairment. Based on the appraisals obtained by the Corporation, a partial or full charge-off may be necessary.

Other Real Estate Owned (“OREO”)

OREO consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties classified as OREO are reported at the lower of cost or fair value less cost to sell, and are classified as Level 3 in the fair value hierarchy. The Corporation did not have any OREO at June 30, 2020 or December 31, 2019.

Mortgage Servicing Rights

The model to value MSRs estimates the present value of projected net servicing cash flows of the remaining servicing portfolio based on various assumptions, including changes in anticipated loan prepayment rates, the discount rate, reflective of a market participant's required return on an investment for similar assets, and other market-based economic factors. All of these assumptions are considered to be unobservable inputs. Accordingly, MSRs are classified within Level 3 of the fair value hierarchy.

The following tables present the Corporation’s assets measured at fair value on a non-recurring basis as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

As of June 30, 2019
(dollars in thousands) Total Level 1 Level 2 Level 3
MSRs $ 5,175
$ —
$ —
$ 5,175
Impaired loans and leases 16,861
—
—
16,861
OREO 155
—
—
155
Total non-recurring fair value measurements $ 22,191
$ —
$ —
$ 22,191

As of December 31, 2018
(dollars in thousands) Total Level 1 Level 2 Level 3
MSRs $ 6,277
$ —
$ —
$ 6,277
Impaired loans and leases 22,112
—
—
22,112
OREO 417
—
—
417
Total non-recurring fair value measurements $ 28,806
$ —
$ —
$ 28,806


As of June 30, 2020
(dollars in thousands)	Total		Level 1		Level 2		Level 3
MSRs	$	3,440	$	—	$	—	$	3,440
Collateral-dependent loans and leases	8,217		—		—		8,217

Total non-recurring fair value measurements	$	11,657	$	—	$	—	$	11,657


As of December 31, 2019
(dollars in thousands)	Total		Level 1		Level 2		Level 3
MSRs	$	4,838	$	—	$	—	$	4,838
Impaired loans and leases	15,311		—		—		15,311

Total non-recurring fair value measurements	$	20,149	$	—	$	—	$	20,149

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During the three and six months ended June 30, ~~2019,~~2020, a net ~~decreases~~decrease and a net increase of ~~$145~~$110 thousand and $2$122 thousand were recorded in the ~~Allowance~~ACL on loans and leases as a result of adjusting the carrying value and estimated fair value of the ~~impaired~~collateral-dependent loans in the above tables.

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Note 2120 – Fair Value of Financial Instruments

FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” 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. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies, are based on the exit price notion. 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. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.

The carrying amount and fair value of the Corporation’s financial instruments are as follows:


		As of June 30, 2019				As of December 31, 2018						June 30, 2020						December 31, 2019
(dollars in thousands)	Fair Value Hierarchy Level⁽¹⁾	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(dollars in thousands)	Fair Value Hierarchy Level⁽¹⁾	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:										Financial assets:
Cash and cash equivalents	Level 1	$	63,385	$	63,385	$	48,456	$	48,456	Cash and cash equivalents	Level 1	$	464,521	$	464,521	$	53,931	$	53,931
Investment securities - available for sale	See Note 20	588,119		588,119		737,442		737,442		Investment securities - available for sale	See Note 19	530,581		530,581		1,005,984		1,005,984
Investment securities - trading	See Note 20	8,516		8,516		7,502		7,502		Investment securities - trading	See Note 19	7,801		7,801		8,621		8,621
Investment securities – held to maturity	Level 2	10,209		10,205		8,684		8,438		Investment securities – held to maturity	Level 2	12,592		12,995		12,577		12,661
Loans held for sale	Level 2	6,333		6,333		1,749		1,749		Loans held for sale	Level 2	4,116		4,116		4,249		4,249
Net portfolio loans and leases	Level 3	3,513,483		3,509,533		3,407,728		3,414,921		Net portfolio loans and leases	Level 3	3,667,191		3,564,380		3,666,711		3,596,268
MSRs	Level 3	4,744		5,175		5,047		6,277		MSRs	Level 3	3,440		3,440		4,450		4,838
Interest rate swaps	Level 2	44,256		44,256		12,550		12,550		Interest rate swaps	Level 2	143,339		143,339		47,627		47,627
FX forwards	Level 2	105		105		—		—		FX forwards	Level 2	36		36		—		—
RPAs purchased	Level 2	124		124		71		71		RPAs purchased	Level 2	358		358		90		90
Other assets	Level 3	44,507		44,507		43,641		43,641		Other assets	Level 3	37,137		37,137		52,908		52,908
Total financial assets		$	4,283,781	$	4,280,258	$	4,272,870	$	4,281,047	Total financial assets		$	4,871,112	$	4,768,704	$	4,857,148	$	4,787,177
Financial liabilities:										Financial liabilities:
Deposits	Level 2	$	3,632,413	$	3,631,844	$	3,599,087	$	3,594,123	Deposits	Level 2	$	4,243,648	$	4,248,488	$	3,842,245	$	3,842,014
Short-term borrowings	Level 2	207,828		207,828		252,367		252,367		Short-term borrowings	Level 2	28,891		28,891		493,219		493,219
Long-term FHLB advances	Level 2	47,941		47,951		55,374		54,803		Long-term FHLB advances	Level 2	44,837		45,664		52,269		52,380
Subordinated notes	Level 2	98,616		99,187		98,526		100,120		Subordinated notes	Level 2	98,794		91,748		98,705		97,199
Junior subordinated debentures	Level 2	21,665		24,385		21,580		31,176		Junior subordinated debentures	Level 2	21,843		26,097		21,753		25,652
Interest rate swaps	Level 2	44,101		44,101		12,549		12,549		Interest rate swaps	Level 2	143,339		143,339		47,627		47,627
FX forwards	Level 2	82		82		—		—		FX forwards	Level 2	107		107		—		—
RPAs sold	Level 2	19		19		2		2		RPAs sold	Level 2	39		39		16		16
Other liabilities	Level 3	46,350		46,350		60,847		60,847		Other liabilities	Level 3	42,447		42,447		50,251		50,251
Total financial liabilities		$	4,099,015	$	4,101,747	$	4,100,332	$	4,105,987	Total financial liabilities		$	4,623,945	$	4,626,820	$	4,606,085	$	4,608,358

(1) See Note 2019 in the Notes to Unaudited Consolidated Financial Statements above for a description of hierarchy levels.

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Note 2221 – Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk

Off-Balance Sheet Arrangements

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, which include unused lines of credit and unfunded commitments to originate loans, 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 June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$738.9~~$826.3 million and ~~$867.2~~$828.9 million, respectively. Management 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 a 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 credit 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 obligations under standby letters of credit as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$36.0~~$13.2 million and ~~$21.2~~$20.7 million, respectively.

Contingencies

Legal Matters

In the ordinary course of its operations, BMBC and its subsidiaries are parties to various claims, litigation, investigations, and legal and administrative cases and proceedings. Such pending or threatened claims, litigation, investigations, legal and administrative cases and proceedings typically entail matters that are considered ordinary routine litigation incidental to our business. Claims for significant monetary damages may be asserted in many of these types of legal actions. Based on the information currently available, management believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders.

On a regular basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information available. For those matters where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, a liability may be recorded in the Consolidated Financial Statements. These legal reserves may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount or range of the loss is not estimable, legal reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

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Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. Subsequent to the end of the first quarter of 2019, on May 1, 2019, the Court rendered a decision against Crusader. ~~Both sides have filed for appeal with~~The matter was appealed, and on March 18, 2020, the Superior Court of the Commonwealth of Pennsylvania returned an opinion reversing in part and ~~Crusader is considering other strategic options~~affirming in part the trial court's judgment. The effect of this was to vacate the initial judgment awarded by the trial court, and instead to require an appraisal process in accordance with ~~respect~~Crusader's Shareholders' Agreement to ~~this matter during~~determine the ~~pendency~~value of ~~the appeal.~~Mr. Snyder's shares. We do not believe that this ruling and ~~the~~any monetary award ~~if any,~~ ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Indemnifications

In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These indemnifications may include the repurchase of loans by the Corporation, and are considered customary provisions in the secondary market for conforming mortgage loan sales. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such repurchases for the three orand six months ended June 30, ~~2019.~~2020.

Concentrations of Credit Risk

The Corporation has a material portion of its loans in real estate-related loans. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is in the Corporation’s primary trade area which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and attempts to mitigate this risk to the extent possible in many ways, including the underwriting and assessment of borrower’s capacity to repay. See Note 54 – “Loans and Leases” for additional information.

Note 2322 – Segment Information

FASB Codification 280 – “Segment Reporting” identifies operating segments as components of an enterprise which are evaluated regularly by the Corporation’s chief operating decision maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

The Corporation’s Banking segment consists of commercial and retail banking. The Banking segment is evaluated as a single strategic unit which generates revenues from a variety of products and services. The Banking segment generates interest income from its lending (including leases) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale in available for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash sweep fees, overdraft fees, bank owned life insurance (“BOLI”) income and revenue associated with its Visa Check Card offering. Also included in the Banking segment are two subsidiaries of the Bank, KCMI Capital, Inc. and Bryn Mawr Equipment Financing, Inc., both of which provide specialized lending solutions to our customers.

The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related fiduciary services, custody, investment management and advisory services, employee benefits and IRA administration, estate settlement, tax services and brokerage. Bryn Mawr Trust of Delaware ~~and Lau Associates are~~is included in the Wealth Management segment of the Corporation since ~~they have~~it has similar economic characteristics, products and services to those of the Wealth Management Division of the ~~Corporation.~~Bank. Effective January 1, 2020, the business of Lau Associates LLC was transitioned into the Wealth Management Division of the Bank. BMT Investment Advisers, formed in May 2017, which serves as investment adviser to BMT Investment Funds, a Delaware statutory trust, is also reported under the Wealth Management segment. In addition, the Wealth Management Division oversees all insurance services of the Corporation, which are conducted through the Bank’s insurance subsidiary, BMT Insurance Advisors, Inc., and are reported in the Wealth Management segment.

The accounting policies of the Corporation are applied by segment in the following tables. The segments are presented on a pre-tax basis.

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The following tables detail the Corporation’s segments for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30, 2020															Three Months Ended June 30, 2019
(dollars in thousands)	Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated
Net interest income	$	37,384		$	1		$	37,385		$	36,610		$	1		$	36,611
PCL on loans and leases	4,302			—			4,302			1,627			—			1,627
Net interest income after PCL on loans and leases	33,082			1			33,083			34,983			1			34,984
Noninterest income:
Fees for wealth management services	—			9,069			9,069			—			11,510			11,510
Insurance commissions	—			1,303			1,303			—			1,697			1,697
Capital markets revenue	2,975			—			2,975			1,489			—			1,489
Service charges on deposit accounts	603			—			603			852			—			852
Loan servicing and other fees	452			—			452			553			—			553
Net gain on sale of loans	3,134			—			3,134			752			—			752


Other operating income	2,942			88			3,030			3,342			26			3,368
Total noninterest income	10,106			10,460			20,566			6,988			13,233			20,221

Noninterest expenses:
Salaries & wages	11,699			5,227			16,926			12,295			4,743			17,038
Employee benefits	2,301			920			3,221			2,338			979			3,317
Occupancy and bank premises	2,535			498			3,033			2,608			517			3,125
Amortization of intangible assets	291			619			910			328			628			956
Professional fees	1,357			218			1,575			1,221			95			1,316
Other operating expenses	7,496			1,475			8,971			7,983			1,453			9,436
Total noninterest expenses	25,679			8,957			34,636			26,773			8,415			35,188
Segment profit	17,509			1,504			19,013			15,198			4,819			20,017
Intersegment (revenues) expenses⁽¹⁾	(177)			177			—			(125)			125			—
Pre-tax segment profit after eliminations	$	17,332		$	1,681		$	19,013		$	15,073		$	4,944		$	20,017
% of segment pre-tax profit after eliminations	91.2		%	8.8		%	100.0		%	75.3		%	24.7		%	100.0		%
Segment assets (dollars in millions)	$	5,221.7		$	49.6		$	5,271.3		$	4,682.0		$	54.6		$	4,736.6

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	Three Months Ended June 30, 2019									Three Months Ended June 30, 2018										Six Months Ended June 30, 2020															Six Months Ended June 30, 2019
(dollars in thousands)	Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated			(dollars in thousands)	Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated
Net interest income	$	36,610		$	1		$	36,611		$	37,315		$	1		$	37,316		Net interest income	$	73,716		$	2		$	73,718		$	74,255		$	3		$	74,258
Provision for loan and lease losses	1,627			—			1,627			3,137			—			3,137
Net interest income after loan loss provision	34,983			1			34,984			34,178			1			34,179
PCL on loans and leases																			PCL on loans and leases	36,637			—			36,637			5,363			—			5,363
Net interest income after PCL on loans and leases																			Net interest income after PCL on loans and leases	37,079			2			37,081			68,892			3			68,895
Noninterest income:																			Noninterest income:
Fees for wealth management services	—			11,510			11,510			—			10,658			10,658			Fees for wealth management services	—			20,237			20,237			—			21,902			21,902
Insurance commissions	—			1,697			1,697			—			1,902			1,902			Insurance commissions	—			2,836			2,836			—			3,369			3,369
Capital markets revenue	1,489			—			1,489			2,105			—			2,105			Capital markets revenue	5,336			—			5,336			3,708			—			3,708
Service charges on deposit accounts	852			—			852			752			—			752			Service charges on deposit accounts	1,449			—			1,449			1,660			—			1,660
Loan servicing and other fees	553			—			553			475			—			475			Loan servicing and other fees	913			—			913			1,162			—			1,162
Net gain on sale of loans	752			—			752			528			—			528			Net gain on sale of loans	3,916			—			3,916			1,071			—			1,071
Net gain on sale of investment securities available for sale	—			—			—			—			—			—
Net gain on sale of OREO	—			—			—			111			—			111

Net gain (loss) on sale of OREO																			Net gain (loss) on sale of OREO	148			—			148			(24)			—			(24)
Other operating income	3,342			26			3,368			3,486			58			3,544			Other operating income	3,930			101			4,031			6,579			47			6,626
Total noninterest income	6,988			13,233			20,221			7,457			12,618			20,075			Total noninterest income	15,692			23,174			38,866			14,156			25,318			39,474

Noninterest expenses:																			Noninterest expenses:
Salaries & wages	12,295			4,743			17,038			11,184			5,056			16,240			Salaries & wages	23,558			10,357			33,915			28,070			9,869			37,939
Employee benefits	2,338			979			3,317			1,922			955			2,877			Employee benefits	4,898			1,823			6,721			5,510			1,973			7,483
Occupancy and bank premises	2,608			517			3,125			2,235			462			2,697			Occupancy and bank premises	5,051			997			6,048			5,340			1,037			6,377
Amortization of intangible assets	328			628			956			385			504			889			Amortization of intangible assets	583			1,245			1,828			655			1,239			1,894
Professional fees	1,221			95			1,316			879			53			932			Professional fees	2,454			489			2,943			2,384			252			2,636
Other operating expenses	7,983			1,453			9,436			10,875			1,326			12,201			Other operating expenses	16,732			2,867			19,599			15,252			3,331			18,583
Total noninterest expenses	26,773			8,415			35,188			27,480			8,356			35,836			Total noninterest expenses	53,276			17,778			71,054			57,211			17,701			74,912
Segment profit	15,198			4,819			20,017			14,155			4,263			18,418
Segment (loss) profit																			Segment (loss) profit	(505)			5,398			4,893			25,837			7,620			33,457
Intersegment (revenues) expenses⁽¹⁾	(125		)	125			—			(150		)	150			—			Intersegment (revenues) expenses⁽¹⁾	(355)			355			—			(248)			248			—
Pre-tax segment profit after eliminations	$	15,073		$	4,944		$	20,017		$	14,005		$	4,413		$	18,418		Pre-tax segment profit after eliminations	$	(860)		$	5,753		$	4,893		$	25,589		$	7,868		$	33,457
% of segment pre-tax profit after eliminations	75.3		%	24.7		%	100.0		%	76.0		%	24.0		%	100.0		%	% of segment pre-tax profit after eliminations	(17.6)		%	117.6		%	100.0		%	76.5		%	23.5		%	100.0		%
Segment assets (dollars in millions)	$	4,682.0		$	54.6		$	4,736.6		$	4,339.3		$	54.9		$	4,394.2		Segment assets (dollars in millions)	$	5,221.7		$	49.6		$	5,271.3		$	4,682.0		$	54.6		$	4,736.6

Six Months Ended June 30, 2019 Six Months Ended June 30, 2018
(dollars in thousands) Banking
Wealth
Management
Consolidated Banking
Wealth
Management
Consolidated
Net interest income $ 74,255
$ 3
$ 74,258
$ 74,753
$ 2
$ 74,755
Provision for loan and lease losses 5,363
—
5,363
4,167
—
4,167
Net interest income after loan loss provision 68,892
3
68,895
70,586
2
70,588
Noninterest income:
Fees for wealth management services —
21,902
21,902
—
20,966
20,966
Insurance commissions —
3,369
3,369
—
3,595
3,595
Capital markets revenue 3,708
—
3,708
2,771
—
2,771
Service charges on deposit accounts 1,660
—
1,660
1,465
—
1,465
Loan servicing and other fees 1,162
—
1,162
1,161
—
1,161
Net gain on sale of loans 1,071
—
1,071
1,046
—
1,046
Net gain on sale of investment securities available for sale —
—
—
7
—
7
Net (loss) gain on sale of OREO (24 ) —
(24 ) 287
—
287
Other operating income 6,579
47
6,626
8,211
102
8,313
Total noninterest income 14,156
25,318
39,474
14,948
24,663
39,611

Noninterest expenses:
Salaries & wages 28,070
9,869
37,939
22,340
9,882
32,222
Employee benefits 5,510
1,973
7,483
4,598
1,987
6,585
Occupancy and bank premises 5,340
1,037
6,377
4,811
936
5,747
Amortization of intangible assets 655
1,239
1,894
783
985
1,768
Professional fees 2,384
252
2,636
1,608
72
1,680
Other operating expenses 15,252
3,331
18,583
21,306
2,558
23,864
Total noninterest expenses 57,211
17,701
74,912
55,446
16,420
71,866
Segment profit 25,837
7,620
33,457
30,088
8,245
38,333
Intersegment (revenues) expenses* (248 ) 248
—
(299 ) 299
—
Pre-tax segment profit after eliminations $ 25,589
$ 7,868
$ 33,457
$ 29,789
$ 8,544
$ 38,333
% of segment pre-tax profit after eliminations 76.5 % 23.5 % 100.0 % 77.7 % 22.3 % 100.0 %
Segment assets (dollars in millions)
$ 4,682.0
$ 54.6
$ 4,736.6
$ 4,339.3
$ 54.9
$ 4,394.2

(1) Inter-segment revenues consist of rental payments, interest on deposits and management fees.

Wealth Management Segment Information


(dollars in millions)	June 30, 2020		December 31, 2019
Assets under management, administration, supervision and brokerage	$	17,012.9	$	16,548.1

(dollars in millions) June 30,
2019 December 31,
2018
Assets under management, administration, supervision and brokerage $ 14,815.3
$ 13,429.5

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ITEM 2. Management’s Discussion and Analysis of Results of Operation and Financial Condition

The following discussion describes the significant changes to the financial condition of the Corporation that have occurred during the first six months of ~~2019~~2020 compared to the financial condition as of December 31, ~~2018.~~2019. In addition, this discussion summarizes the significant factors affecting the results of operations, liquidity and cash flows of the Corporation for the three and six months ended June 30, ~~2019,~~2020, compared to the same periods in ~~2018.~~2019. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Annual Report”). Certain financial condition comparisons to the prior year and results of operations comparisons for the linked quarter are included for additional trend analysis.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements contained in this ~~report~~Quarterly Report on Form 10-Q and the documents incorporated by reference herein may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). ~~As such, they are only predictionsand~~Such forward-looking statements may ~~involve known and unknown risks, uncertainties~~include financial and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (the “Corporation”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-lookingprojections as well as statements ~~include statements with respect to~~regarding the Corporation’s financial goals, future business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words “may,”~~“might,~~ “might,” “would,”~~“could,~~ “should,”~~“will,~~ “could,”~~“likely,~~ “will,”~~“expect,~~ “likely,” “possibly,” “expect,” “anticipate,” “intend,”~~“estimate,~~ “indicate,”~~“plan,~~ “estimate,”~~“forecast,~~ “target,”~~“project,~~ “potentially,” “promising,” “probably,” “outlook,” “predict,”~~“believe”~~ “contemplate,” “continue,” “plan,” “strategy,” “forecast,” “project,” “annualized,” “are optimistic,” “are looking,” “are looking forward,” and “believe” or other similar expressions ~~are intended to~~may identify statements that constitute forward-looking statements. Persons reading this Quarterly Report on Form 10-Q are cautioned that such statements are only predictions and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Corporation to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

The COVID-19 pandemic is adversely affecting us, our clients, counterparties, employees, and third party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill in future periods.Changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to the COVID-19 pandemic, could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance. In addition, the Corporation’s actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:

•local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;

•our need for capital;

•reduced demand for our products and services, and lower revenues and earnings due to an economic recession;

•lower earnings due to other-than-temporary impairment charges related to our investment securities portfolios or other assets;

•changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions, including those concerning banking, securities. insurance or taxes, that adversely affect our business, the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;

•changes in the level of non-performing assets and charge-offs;

•effectiveness of capital management strategies and activities;

~~changes in estimates~~•uncertainty relating to the LIBOR calculation process and potential phasing out of ~~future reserve requirements based upon~~ LIBOR after 2021;

•the ~~periodic review thereof under relevant regulatory and accounting requirements;~~

~~other~~effect of changes in accounting ~~requirements~~policies and practices or ~~interpretations;~~

accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the ~~accuracy~~SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of ~~assumptions underlying~~Credit Losses on Financial Instruments,” commonly referenced as the ~~establishment of provisions for loan~~Current Expected Credit Loss (“CECL”) model, which has changed how we estimate credit losses and ~~lease losses, estimates~~may result in further increases in the ~~value~~required level of ~~collateral, and various financial assets and liabilities;~~our allowance for credit losses;

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•inflation, securities market and monetary fluctuations, including changes in the market values of financial assets and the stability of particular securities markets;

•changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;

~~uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021;~~

•prepayment speeds, loan originations and credit losses;

•changes in the value of our mortgage servicing rights;

•sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;

•possible credit-related impairments of securities held by us;

•results of examinations by the Board of Governors of the Federal Reserve ~~Board~~System (the “Federal Reserve”) of the Corporation, ~~or its subsidiaries,~~ including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability to: engage in new products or services; engage in future mergers or acquisitions; open new branches; pay future dividends; or otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may violate applicable law or constitute an unsafe or unsound banking practice;

•variances in common stock outstanding and/or volatility in common stock price;

•fair value of and number of stock-based compensation awards to be issued in future periods;

•risks related to our past or future, if any, mergers and acquisitions, including, but not limited to: reputational risks; client and customer retention risks; diversion of management’s time for integration-related issues; integration may take longer than anticipated or cost more than expected; anticipated benefits of the merger or acquisition, including any anticipated cost savings or strategic gains, may take longer or be significantly harder to achieve, or may not be realized;

•deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without limitation, difficulties in maintaining relationships with employees, customers, and/or suppliers may be greater than expected;

•the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;

•our success in continuing to generate new business in our existing markets, as well as identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;

•our ability to continue to generate investment results for customers or introduce competitive new products and services on a timely, cost-effective basis, including investment and banking products that meet customers’ needs;

•changes in consumer and business spending, borrowing and savings habits and demand for financial services in the relevant market areas;

•extent to which products or services previously offered (including but not limited to mortgages and asset back securities) require us to incur liabilities or absorb losses not contemplated at their initiation or origination;

•rapid technological developments and changes;

•technological systems failures, interruptions and security breaches, internally or through a third-party provider, could negatively impact our operations, customers and/or reputation;

•competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

•protection and validity of intellectual property rights;

•reliance on large customers;

•technological, implementation and cost/financial risks in contracts;

•the outcome of pending and future litigation and governmental proceedings;

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•any extraordinary events (such as natural disasters, global health risks or pandemics, acts of terrorism, wars or political conflicts);, including the COVID-19 pandemic, and the effects of the economic and business environments in which we operate, including our credit quality and business operations, as well as the impact on general economic and financial market conditions;

•ability to retain key employees and members of senior management;

•changes in relationships with employees, customers, and/or suppliers;

•the ability of key third-party providers to perform their obligations to us and our subsidiaries;

•our need for capital, or our ability to control operating costs and expenses or manage loan and lease delinquency rates;

•other material adverse changes in operations or earnings; and

•our success in managing the risks involved in the foregoing.

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning on page 1214 of the ~~2018~~Corporation's 2019 Annual Report. All forward-looking statements included in this Quarterly Report and the documents incorporated by reference herein are based upon the Corporation’s beliefs and assumptions as of the date of this Quarterly Report. The Corporation assumes no obligation to update any forward-looking statement, whether the result of new information, future events, uncertainties or otherwise, as of any future date. In light of these risks, uncertainties and assumptions, you should not put undue reliance on any forward-looking statements discussed in this Quarterly Report or incorporated documents. For a complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review our filings with the SEC, including our 2019 Annual Report, as updated by our quarterly or other reports subsequently filed with the SEC.

Brief History of the Corporation

The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (“BMBC”, together with ~~its direct and indirect~~ subsidiaries, the “Corporation”) was formed and the Bank became a wholly-owned subsidiary of BMBC. The Bank and BMBC are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation offers a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from 43 banking locations, five wealth management offices and two insurance and risk management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden Counties in New Jersey. The common stock of BMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. BMBC and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Bank of Philadelphia (the “FRB”) and the Pennsylvania Department of Banking and Securities. The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation conform ~~with~~to U.S. generally accepted accounting principles (“GAAP”). All ~~inter-company~~significant intercompany balances and transactions are eliminated in consolidation and certain ~~reclassifications are made~~prior-period amounts have been reclassified when necessary in order to conform to current period presentation. In preparing the ~~previous year’s financial statements~~Consolidated Financial Statements, management is required to make estimates and assumptions that affect the ~~current year’s presentation.~~reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates. In preparing the Consolidated Financial Statements, the Corporation is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. However, there are uncertainties inherent in making these estimates and actual results could differ from these estimates. The Corporation has identified certain areas that require estimates and assumptions, which include the allowance for ~~loan~~credit losses (“ACL”) on loans and ~~lease losses (the “Allowance”~~leases, the ACL on Off-Balance Sheet (“OBS”), Credit Exposures, the valuation of goodwill and intangible assets, the fair value of investment securities, the fair value of derivative financial instruments, and the valuation of mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation. The Corporation’s derivative financial instruments are not exchange-traded and therefore are valued utilizing models that use as their basis readily observable market parameters, specifically the London Interbank Offered Rate (“LIBOR”) swap curve, and are classified within Level 2

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compensation. In addition, certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain ~~circumstances (for example, when there is evidence of impairment).~~circumstances.

~~These critical~~On January 1, 2020, ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”) became effective for the Corporation. CECL has changed the way we estimate credit losses for loans and leases, including off-balance sheet (“OBS”) credit exposures for reporting periods beginning after January 1, 2020. For more information regarding the CECL standard, see Note 2, “Recent Accounting Pronouncements” in the accompanying Unaudited Notes to the Consolidated Financial Statements.

As a result, management has identified the accounting policies ~~along with other significant~~and estimates related to the ACL on loans and leases that, due to the inherent judgments and assumptions and the potential sensitivity of the financial statements to those judgments and assumptions, are critical to an understanding of our financial statements. We believe that the judgments, estimates and assumptions used in the preparation of the Company’s financial statements are appropriate. For a further description of our accounting policies, ~~are presented in Footnote~~see Note 1, ~~– Summary~~“Summary of Significant Accounting Policies,” in the Notes to the audited Consolidated Financial Statements in the ~~2018~~2019 Annual ~~Report.~~Report, as well as Note 1, “Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies,” in the accompanying Notes to Unaudited Consolidated Financial Statements.

Allowance for Credit Losses on Loans and Leases

~~Recent Acquisitions~~

The ACL on loans and ~~Expansions~~leases represents management’s estimate of all expected credit losses over the expected contractual life of our existing portfolio loans and leases. Determining the appropriateness of the ACL on loans and leases is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACL on loans and leases in those future periods.

~~On May 1, 2018, BMT Insurance Advisors, Inc. acquired Domenick & Associates, a full-service insurance agency established in 1993~~The expense for credit loss recorded through earnings is the amount necessary to maintain the ACL on loans and ~~headquartered in Philadelphia. Domenick & Associates has a specialty niche with nonprofit~~leases at the amount of expected credit losses inherent within the loans and ~~social service organizations which aligns well with our banking and wealth management solutions in these specialty service areas. This acquisition furthers our objective~~leases portfolio. The amount of ~~pursuing strategic growth opportunities to enhance, broaden, and diversify our revenue streams.~~

~~On December 15, 2017 (the “Effective Date”), the merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC (collectively, the “RBPI Merger”),~~expense and the ~~merger~~corresponding level of ~~Royal Bank America~~ACL on loans and leases are based on management’s evaluation of the collectability of the loan and lease portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. The ACL on loans and leases, as reported in our Consolidated Statements of Financial Condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan and lease amounts, net of recoveries. For further information on the ACL on loans and leases, see Note 4 - Loans and Leases in the accompanying Notes to Unaudited Consolidated Financial Statements.

Management employs a disciplined process and methodology to establish the ACL on loans and leases that has two basic components: first, an asset-specific component involving individual loans and leases that do not share risk characteristics with other loans and ~~into~~leases and the ~~Bank, were completed. Consideration totaled $138.7 million, comprised~~measurement of ~~3,101,316 shares~~expected credit losses for such individual loans; and second, a collective (pooled) component for estimated expected credit losses for pools of ~~BMBC’s common stock,~~loans and leases that share similar risk characteristics.

Based upon this methodology, management establishes an asset-specific ACL on loans and leases that do not share risk characteristics with other loans and leases based on the ~~assumption~~amount of ~~140,224 warrants~~expected credit losses calculated on those loans and leases and charges off amounts determined to ~~purchase BMBC common stock, valued~~be uncollectible. Factors we consider in measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

When a loan or lease does not share risk characteristics with other loans or leases, management measures expected credit loss as the difference between the amortized cost basis in the loan and the present value of expected future cash flows discounted at ~~$1.9 million, $112 thousand~~the loan’s effective interest rate except that, for collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the ~~cash-out~~estimated cost to sell if repayment or satisfaction of ~~certain options~~a loan is dependent on the sale (rather than only on the operation) of the collateral. If the calculated expected credit loss is determined to be permanent, fixed or nonrecoverable, the credit loss portion of the loan will be charged off against the ACL on loans and ~~$7 thousand cash~~leases. Loans and leases designated as having significantly increased credit risk are generally placed on nonaccrual and remain in ~~lieu of fractional shares. Including~~that status until all principal and interest payments are current and the ~~effects of any measurement period adjustments~~prospects for future payments in accordance with ~~ASC 805-10,~~ the ~~RBPI Merger initially added $566.2 million~~loan agreement are reasonably assured, at which point the loan is returned to accrual status.

In estimating the component of the ACL on loans ~~$121.6 million~~and leases that share common risk characteristics, loans and leases are segregated into portfolio segments based on federal call report codes which classify loans and leases based on the primary collateral supporting the loan and lease. Methods utilized by management to estimate expected credit losses include a discounted cash flow (“DCF”) methodology that discounts instrument-level contractual cash flows, adjusted for prepayments

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~~twelve new branches~~and curtailments, incorporating loss expectations, and a ~~loan production office. The acquisition~~weighted average remaining maturity (“WARM”) methodology which contemplates expected losses at a pool-level, utilizing historic loss information.

Under both methodologies, management estimates the ACL on loans and leases using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. After the end of ~~RBPI expanded~~the reasonable and supportable forecast period, the loss rates revert to the long-term mean loss rate, or in the case of an input-driven predictive method, the long-term mean of the input, using a reversion period where applicable. Historical credit loss experience, including examination of loss experience at representative peer institutions when the Corporation’s ~~footprint within Montgomery, Chester, Berks and Philadelphia Counties~~first-party loss history does not result in ~~Pennsylvania~~estimations that are meaningful to users of the Corporation’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as ~~Camden~~for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

The DCF methodology uses inputs of current and ~~Mercer Counties in New Jersey.~~forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicator utilized by the bank is the Pennsylvania unemployment rate. In building the CECL model, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Pennsylvania unemployment rates. The portfolio segments utilizing the DCF methodology as of June 30, 2020 included: CRE - owner-occupied and nonowner-occupied loans, home equity lines of credit, residential mortgages (first and junior liens), construction loans and consumer loans.

Impact of COVID-19

In ~~addition~~the first quarter of 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic has resulted in authorities implementing numerous measures attempting to contain the ~~RBPI Merger,~~spread and impact of COVID-19. Our banking products and services are delivered primarily in Southeastern Pennsylvania, Southern and Central New Jersey, and Delaware, each of which had a stay at home order in place and had closed all non-essential businesses during a period of the second quarter of 2020.

To address the economic impact in the U.S., in March and April 2020, the President signed into law four economic stimulus packages to provide relief to businesses and individuals, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among other measures, the CARES Act created funding for the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), which provides loans to small businesses to keep their employees on payroll and make other eligible payments. The original funding for the PPP was fully allocated by mid-April 2020, with additional funding made available on April 24, 2020 under the Paycheck Protection Program and Health Care Enhancement Act.

On April 9, 2020, the Federal Reserve took additional steps to bolster the economy by providing additional funding sources for small and mid-sized businesses as well as for state and local governments as they work through cash flow stresses caused by the COVID-19 pandemic. Additionally, the Federal Reserve has taken other steps to provide fiscal and monetary stimuli, including reducing the federal funds rate and the interest rate on the Federal Reserve’s discount window, and implementing programs to promote liquidity in certain securities markets. The Federal Reserve, along with other U.S. banking regulators, has also issued interagency guidance to financial institutions that are working with borrowers affected by the COVID-19 pandemic.

We participated in the PPP and during the second quarter of 2020 originated 1,866 loans with a recorded investment of $307.9 million. Recognizing the significance of operational risk that this portfolio poses, and the continued complexity and uncertainty surrounding evolving regulatory pronouncements regarding various aspects of the PPP, management reviewed several options for continued servicing of the PPP loan portfolio through forgiveness and beyond. After thoughtful consideration, management decided that it is in the best interests of both the Bank and our PPP borrowers that the loans be serviced by an organization that has ~~continued~~the servicing infrastructure in place to ~~execute on~~support the significant volume and short timeframe involved in the complex and evolving PPP forgiveness process. In that regard, in late June the Bank sold substantially all of its ~~strategies of diversification~~PPP loans to The Loan Source, Inc., which, together with its servicing partner, ACAP SME, LLC, have taken over the forgiveness and ~~acquiring and/or establishing specialty offices in strategically targeted areas where management believes there to be a high demand~~ongoing servicing process for the ~~Bank’s products and services. On May 24, 2017,~~PPP loans. In connection with the Bank completed its acquisition of Hirshorn Boothby, a full-service insurance agency established in 1931 and headquartered in the Chestnut Hill section of Philadelphia. Hirshorn Boothby was immediately merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc., expanding the footprint of this growing segment.

~~On May 12, 2017,~~sale, the Corporation ~~established~~recognized a ~~wealth management-focused office in Princeton, New Jersey which complements~~$2.4 million gain on the ~~already-established presence in central New Jersey that was acquired in the RBPI Merger.~~

~~Beginning~~sale of approximately $292.1 million of PPP loans in the second quarter of ~~2017,~~2020. The remaining loans within the ~~Bank’s Capital Markets department commenced operations focusing~~Bank's PPP portfolio were sold in the third quarter of 2020 and did not result in a material impact on ~~providing risk management services~~our Consolidated Financial Statements. Also, the Corporation recognized $1.8 million of net deferred PPP loan origination fees during the second quarter of 2020, which is included within interest and fees on loans and leases on the Consolidated Statement of Income.

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To provide relief from the economic impacts of COVID-19, the Corporation has offered assistance to ~~address~~our commercial, consumer and small business clients by waiving fees for early CD redemptions, overdrafts, and minimum deposit balance requirements, as well as implemented consumer and commercial loan modification programs.

The Corporation’s modification program for consumer credit products includes a six-month deferral of principal and interest, with interest continuing to accrue on unpaid principal. Upon completion of the ~~needs~~deferral period, resumed payments will be applied to the interest accrued during the deferral period, followed by principal and interest payments through the extended maturity date. As of ~~its commercial customer base. These capital markets capabilities enable~~June 30, 2020, 209 consumer loans in the amount of $48.3 million were within their deferral periods under the program. As the Bank continues to ~~offer hedging tools~~receive and process applications, management expects additional modifications under the program.

The Corporation’s modification programs for ~~qualified~~ commercial ~~customers~~loan and lease products include a three- or six-month deferral of principal and interest or a three- or six-month period of interest-only payments, with interest continuing to accrue on unpaid principal. Upon completion of the deferral period, resumed payments will be applied to the interest accrued during the deferral period, followed by principal and interest payments through the ~~use~~contractual maturity date. As of ~~interest rate swaps~~June 30, 2020 1,532 commercial loans and ~~options designed to mitigate~~leases in the ~~interest rate risk on variable rate loans. This interest rate hedging offering allows~~amount of $721.9 million were within their deferral periods under the program. As the Bank continues to ~~participate~~receive and ~~lead~~process applications, management expects additional modifications under the program.

Based on the provisions of the CARES Act, short-term COVID-19 related modifications to consumer and commercial loans that were not more than 30 days past due as of December 31, 2019 are exempt from TDR classification under GAAP. In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to consumer or commercial loans that were less than 30 days past due as of the loan modification program implementation date are not considered TDRs. For more information, see Note 1 – Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies and Note 4 –Loans and Leases to the Unaudited Consolidated Financial Statements.

As discussed in ~~larger~~more detail below, we recorded an increase in PCL and ~~longer-dated credits without incurring additional interest rate risk. Additional services will focus~~ACL on ~~assisting qualified customers~~loans and leases, both of which were driven by the current and forward-looking adverse economic impacts of the COVID-19 pandemic.

Due to the high degree of uncertainty surrounding the COVID-19 pandemic, the full extent of COVID-19’s effects on our business, operations or the economy as a whole are not yet known. However, the COVID-19 pandemic is expected to have a complex and significant adverse impact on the economy, the banking industry and the Corporation in ~~hedging their foreign exchange risk~~future fiscal periods. For more information on how the risks related to COVID-19 may adversely affect our business, results of operations and ~~meeting their trade finance needs through enhanced international services capabilities.~~financial condition, see Part II, Item 1A. Risk Factors.

Executive Overview

The following items highlight the Corporation’s results of operations for the three and six months ended June 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, and the changes in its financial condition as of June 30, ~~2019~~2020 as compared to December 31, ~~2018.~~2019. More detailed information related to these highlights can be found in the sections that follow.

Effective January 1, 2020, the Corporation adopted ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The Corporation adopted ASC 326 using the modified retrospective approach method for all financial assets measured at amortized cost and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. In conjunction with the adoption of CECL, the Corporation has revised its segmentation to align with the methodology applied in determining the ACL for loans and leases under CECL, which is based on federal call report codes which classify loans based on the primary collateral supporting the loan. Segmentation prior to the adoption of CECL was based on product type or purpose. As such, certain reclassifications were made to conform prior-period amounts to current period presentation. For more information, see Note 1 – Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies to the Unaudited Consolidated Financial Statements.

Three Month Results of Operations

•Net income attributable to the Corporation was $15.0 million, or $0.75 diluted earnings per share, for the three months ended June 30, ~~2019 was $15.8 million, an increase of $1.1 million~~2020 as compared to ~~$14.7~~$15.8 million, or $0.78 diluted earnings per share for the same period in ~~2018. Diluted earnings per share was $0.78 for the three months ended June 30, 2019 as compared to $0.72 for the same period in 2018.~~2019.

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•Return on average equity (“ROAE”) and return on average assets (“ROAA”) for the three months ended June 30, ~~2019~~2020 were ~~10.89%~~10.07% and ~~1.36%~~1.16%, respectively, as compared to ROAE and ROAA of ~~11.03%~~10.89% and 1.36% respectively, for the same period in ~~2018.~~2019.

•Tax-equivalent net interest income ~~decreased $687~~increased $741 thousand, or ~~1.8%~~2.0%, to ~~$36.7~~$37.5 million for the three months ended June 30, ~~2019,~~2020, as compared to ~~$37.4~~$36.7 million for the same period in ~~2018.~~2019.

•Provision for ~~loan~~credit losses (“PCL”) on loans and ~~lease losses (the “Provision”)~~leases of ~~$1.6~~$4.3 million for the three months ended June 30, ~~2019~~2020 was ~~a decrease~~an increase of ~~$1.5~~$2.7 million from the ~~$3.1~~$1.6 million ~~Provision~~PCL on loans and leases recorded for the same period in ~~2018.~~2019.

•Noninterest income of ~~$20.2~~$20.6 million for the three months ended June 30, ~~2019~~2020 increased ~~$146~~$345 thousand as compared to ~~$20.1~~$20.2 million for the same period in ~~2018.~~2019.

~~Fees for wealth management services~~•Capital markets revenue of ~~$11.5~~$3.0 million for the three months ended June 30, ~~2019~~2020 increased ~~$852 thousand~~$1.5 million as compared to the same period in ~~2018. Insurance~~2019. Fees for wealth management services and insurance commissions ~~and capital markets revenue~~ of ~~$1.7~~$9.1 million and ~~$1.5~~$1.3 million, respectively, for the three months ended June 30, ~~2019~~2020 decreased ~~$205 thousand~~$2.4 million and ~~$616~~$394 thousand, respectively, as compared to the same period in ~~2018.~~2019.

•Noninterest expense of ~~$35.2~~$34.6 million for the three months ended June 30, ~~2019~~2020 decreased ~~$648~~$552 thousand, from ~~$35.8~~$35.2 million for the same period in ~~2018.~~2019.

Six Month Results of Operations

•Net income attributable to the Corporation for the six months ended June 30, ~~2019~~2020 was ~~$26.5~~$3.9 million, a decrease of ~~$3.5~~$22.6 million as compared to ~~$30.0~~$26.5 million for the same period in ~~2018.~~2019. Diluted earnings per share was ~~$1.31~~$0.19 for the six months ended June 30, ~~2019~~2020 as compared to ~~$1.47~~$1.31 for the same period in ~~2018.~~2019.

•ROAE and ROAA for the six months ended June 30, ~~2019~~2020 were ~~9.25%~~1.28% and ~~1.16%~~0.15%, respectively, as compared to ~~11.49%~~9.25% and ~~1.41%~~1.16% respectively, for the same period in ~~2018.~~2019.

•Tax-equivalent net interest income decreased ~~$431~~$595 thousand, or ~~0.6%~~0.8%, to ~~$74.5~~$73.9 million for the six months ended June 30, ~~2019,~~2020, as compared to ~~$74.9~~$74.5 million for the same period in ~~2018.~~2019.

~~The Provision~~•PCL on loans and leases of ~~$5.4~~$36.6 million for the six months ended June 30, ~~2019~~2020 was an increase of ~~$1.2~~$31.2 million from the ~~$4.2~~$5.4 million ~~Provision~~PCL on loans and leases recorded for the same period in ~~2018.~~2019.

•Noninterest income of ~~$39.5~~$38.9 million for the six months ended June 30, ~~2019~~2020 decreased ~~$137~~$608 thousand as compared to ~~$39.6~~$39.5 million for the same period in ~~2018.~~2019.

~~Fees for wealth management services and capital~~•Capital markets revenue of $21.9 million, and $3.7 million, respectively, for the six months ended June 30, 2019 increased $936 thousand and $937 thousand, respectively, as compared to the same period in 2018. Insurance commissions of $3.4$5.3 million for the six months ended June 30, ~~2019~~2020 increased $1.6 million as compared to the same period in 2019. Fees for wealth management services of $20.2 million for the six months ended June 30, 2020 decreased ~~$226~~$1.7 million as compared to the same period in 2019. Insurance commissions of $2.8 million for the six months ended June 30, 2020 decreased $533 thousand as compared to the same period in ~~2018.~~2019.

•Noninterest expense of ~~$74.9~~$71.1 million for the six months ended June 30, ~~2019 increased $3.0~~2020 decreased $3.8 million, from ~~$71.9~~$74.9 million for the same period in ~~2018.~~2019.

Changes in Financial Condition

•Total assets of ~~$4.74~~$5.27 billion as of June 30, ~~2019~~2020 increased ~~$84.1~~$8.1 million from ~~$4.65~~$5.26 billion as of December 31, ~~2018.~~2019.

•Total shareholders’ equity of ~~$590.2~~$603.7 million as of June 30, ~~2019 increased $25.5~~2020 decreased $8.5 million from ~~$564.7~~$612.2 million as of December 31, ~~2018.~~2019.

•Total portfolio loans and leases as of June 30, ~~2019~~2020 were ~~$3.53~~$3.72 billion, an increase of ~~$107.5~~$32.9 million from ~~$3.43~~$3.69 billion as of December 31, ~~2018.~~2019.

•Total non-performing loans and leases of ~~$12.2~~$8.4 million represented ~~0.34%~~0.23% of portfolio loans and leases as of June 30, ~~2019~~2020 as compared to ~~$12.8~~$10.6 million, or ~~0.37%~~0.29% of portfolio loans and leases as of December 31, ~~2018.~~2019.

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•The ~~$21.2~~$55.0 million ~~Allowance,~~ACL on loans and leases, as of June 30, ~~2019,~~2020, represented ~~0.60%~~1.48% of portfolio loans and leases, as compared to ~~$19.4~~$22.6 million or ~~0.57%~~0.61% of portfolio loans and leases as of December 31, ~~2018.~~2019.

•Total deposits of ~~$3.63~~$4.24 billion as of June 30, ~~2019~~2020 increased ~~$33.3~~$401.4 million from ~~$3.60~~$3.84 billion as of December 31, ~~2018.~~2019.

•Wealth assets under management, administration, supervision and brokerage as of June 30, ~~2019~~2020 were ~~$14.82~~$17.01 billion, an increase of ~~$1.39~~$464.8 million from $16.55 billion ~~from $13.43 billion~~as of December 31, ~~2018.~~2019.

Key Performance Ratios

Key financial performance ratios for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 are shown in the table below:


	Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,									Six Months Ended June 30,
	2019			2018			2019			2018				2020			2019			2020			2019
Return on average equity	10.89		%	11.03		%	9.25		%	11.49		%	Return on average equity	10.07		%	10.89		%	1.28		%	9.25		%
Return on average assets	1.36			1.36			1.16			1.41			Return on average assets	1.16			1.36			0.15			1.16
Tax-equivalent net interest margin	3.55			3.81			3.65			3.87			Tax-equivalent net interest margin	3.22			3.55			3.30			3.65
Equity to assets ratio													Equity to assets ratio	11.49			12.50			12.07			12.54
Basic earnings per share	$	0.78		$	0.73		$	1.31		$	1.48		Basic earnings per share	$	0.75		$	0.78		$	0.19		$	1.31
Diluted earnings per share	0.78			0.72			1.31			1.47			Diluted earnings per share	0.75			0.78			0.19			1.31
Dividends paid or accrued per share	0.26			0.22			0.51			0.44			Dividends paid or accrued per share	0.26			0.25			0.52			0.50
Dividends paid or accrued per share to net income per basic common share	33.3		%	30.1		%	38.9		%	29.7		%	Dividends paid or accrued per share to net income per basic common share	34.7		%	32.1		%	273.7		%	38.2		%

The following table presents certain key period-end balances and ratios as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


(dollars in millions, except per share amounts)	June 30, 2019			December 31, 2018			(dollars in millions, except per share amounts)	June 30, 2020			December 31, 2019
Book value per share	$	29.31		$	28.01		Book value per share	$	30.29		$	30.42
Allowance as a percentage of portfolio loans and leases	0.60		%	0.57		%

ACL on loans and leases as a percentage of portfolio loans and leases							ACL on loans and leases as a percentage of portfolio loans and leases	1.48		%	0.61		%
Tier I capital to risk weighted assets	11.12			10.92			Tier I capital to risk weighted assets	11.27			11.42

Loan to deposit ratio	97.3			95.2			Loan to deposit ratio	87.7			96.0
Wealth assets under management, administration, supervision and brokerage	$	14,815.3		$	13,429.5		Wealth assets under management, administration, supervision and brokerage	$	17,012.9		$	16,548.1
Portfolio loans and leases	3,534.7			3,427.2			Portfolio loans and leases	3,722.2			3,689.3
Total assets	4,736.6			4,652.5			Total assets	5,271.3			5,263.3
Total shareholders’ equity	590.2			564.7			Total shareholders’ equity	603.7			612.2

The following sections discuss, in greater detail, the Corporation’s results of operations for the three and six months ended June 30, ~~2019,~~2020, as compared to the same period in ~~2018,~~2019, and the changes in its financial condition as of June 30, ~~2019~~2020 as compared to December 31, ~~2018.~~2019.

~~Recent Developments~~Other Matters

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. On May 1, 2019, the Court rendered a decision in favor of Snyder and ordered Crusader to pay Snyder the amount of $2,190,000 plus interest at the rate of 6% from December 1, 2006. ~~Both sides have filed for appeal with~~The matter was appealed, and on March 18, 2020, the Superior Court of the Commonwealth of Pennsylvania returned an opinion reversing in part and ~~Crusader is considering other strategic options~~affirming in part the trial court's judgment. The effect of this was to vacate the judgment of $2,190,000 plus interest, and instead to require an appraisal process in accordance with ~~respect~~Crusader's Shareholders' Agreement to ~~this matter during~~determine the ~~pendency~~value of ~~the appeal.~~

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Mr. Snyder's shares. We do not believe that this ruling and ~~the~~any monetary award ~~if any,~~ ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Components of Net Income

Net income is comprised of five major elements:


•	~~Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;~~


•	~~Provision for Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;~~


•	~~Noninterest Income,~~ which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;


•	~~Noninterest Expense~~, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and


•	~~Income Tax Expense,~~ ~~which includes state and federal jurisdictions.~~

•Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;

•Provision for Credit Losses on Loans and Leases, or the amount added to the ACL on loans and leases to provide for estimated inherent losses on portfolio loans and leases;

•Noninterest Income, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;

•Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and

•Income Tax Expense, which includes state and federal jurisdictions.

TAX-EQUIVALENT NET INTEREST INCOME

Net interest income is the primary source of the Corporation’s revenue. The below ~~tables present~~table presents a summary, for the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The tax-equivalent net interest margin is the tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread is the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of noninterest-bearing liabilities represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

Three Months Ended June 30, ~~2019~~2020 Compared to the Same Period in ~~2018~~2019

For the three months ended June 30, ~~2019,~~2020, tax-equivalent net interest income ~~decreased $687~~increased $741 thousand, or ~~1.8%~~2.0%, to ~~$36.7~~$37.5 million, as compared to ~~$37.4~~$36.7 million for the same period in ~~2018.~~2019.

~~The decrease~~Items contributing to the increase in tax-equivalent net interest income ~~was primarily due to the~~included a decrease of $5.2 million ~~increase~~ in interest expense on deposits for the three months ended June 30, 2019 as compared to the same period in 2018. The increase in interest expense on deposits was primarily due to a 67 basis point increase in the rate paid on deposits, as compared to the same period in 2018. The increase in rate paid was related to the competitive dynamics in the markets in which we operate and certain promotional interest rates offered during the first and second quarterspartially offset by decreases of ~~2019. A $305.6 million increase in average interest-bearing deposits also contributed to the increase in interest expense on deposits.~~

~~Partially offsetting the increase in interest expense on deposits were increases of $3.1~~$4.1 million and ~~$507~~$642 thousand in tax-equivalent interest ~~income~~ and fees earned on loans and leases and tax-equivalent interest income on available for sale investment securities, respectively, ~~and decreases of $628 thousand and $221 thousand in interest expense on short-term borrowings and long-term FHLB advances, respectively,~~ for the three months ended June 30, ~~2019~~2020 as compared to the same period in ~~2018.~~2019.

~~The $3.1 million increase in tax-equivalent interest and fees~~Interest expense on ~~loans and leases was primarily related to the $170.9 million increase in average loans to $3.52 billion~~deposits for the three months ended June 30, ~~2019 from $3.35 billion~~2020 decreased $5.2 million as compared to the same period in 2019. The decrease was primarily due to a 78 basis point decrease in the rate paid on average interest-bearing deposits for the three months ended June 30, ~~2018 coupled with~~2020 as compared to the same period in 2019. The effect of the decrease in the tax-equivalent rate paid was partially offset by an ~~11 basis point~~ increase onof $174.3 million in average interest-bearing deposits for the ~~yield~~three months ended June 30, 2020 as compared to the same period in 2019.

Tax-equivalent interest and fees earned on loans and leases ~~over~~for the three months ended June 30, 2020 decreased $4.1 million as compared to the same ~~period.~~

period in 2019. The ~~$507 thousand~~decrease was primarily due to a 95 basis point decrease in the tax-equivalent yield on average loans and leases for the three months ended June 30, 2020 as compared to the same period in 2019. The effect of the decrease in the tax-equivalent yield was partially offset by an increase of $415.8 million in average loans and leases for the three months ended June 30, 2020 as compared to same period in 2019. Included in tax-equivalent interest and fees earned on loans and leases for the three months ended June 30, 2020 was the recognition of $1.8 million of net deferred PPP loan origination fees.

Tax-equivalent interest income on available for sale investment securities for the three months ended June 30, 2020 decreased $642 thousand as compared to the same period in 2019. The decrease was primarily ~~related~~due to a 27 basis point decrease in the tax-equivalent yield on average available for sale investment securities for the three months ended June 30, 2020 as compared to the ~~$35.3~~same period in 2019 coupled with a decrease of $47.1 million ~~increase~~ in average available for sale investment securities for the ~~second quarter of 2019 as compared to the second quarter of 2018 coupled with a 22 basis point increase in the yield on available for sale investment securities over the same period.~~

~~Interest expense on short-term borrowings and long-term FHLB advances for the~~ three months ended June 30, ~~2019 decreased $628 thousand and $221 thousand, respectively~~2020 as compared to the same period in 2018. Average short-term borrowings and average long-term FHLB advances decreased $136.8 million and $49.6 million, respectively, offset by a 17 and 13 basis point increase in the rate paid on short-term borrowings and long-term FHLB advances, respectively, as compared to the same period in 2018.2019.

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Six Months Ended June 30, ~~2019~~2020 Compared to the Same Period in ~~2018~~2019

For the six months ended June 30, ~~2019,~~2020, tax-equivalent net interest income decreased ~~$431~~$595 thousand, or ~~0.6%~~0.8%, to ~~$74.5~~$73.9 million, as compared to ~~$74.9~~$74.5 million for the same period in ~~2018.~~2019.

~~The~~Items contributing to the decrease in tax-equivalent net interest income was primarily due to the $9.8 million increase in interest expense on deposits for the six months ended June 30, 2019 as compared to the same period in 2018. The increase in interest expense on deposits was primarily due to a 66 basis point increase in the rate paid on deposits as compared to the same period in 2018. The increase in rate paid was related to the competitive dynamics in the markets in which we operate and certain promotional interest rates offered during the first and second quartersincluded decreases of ~~2019. A $270.2 million increase in average interest-bearing deposits also contributed to the increase in interest expense on deposits.~~

~~Partially offsetting the increase in interest expense on deposits were increases of $7.3~~$6.2 million and ~~$1.2 million~~$967 thousand in tax-equivalent interest ~~income~~ and fees earned on loans and leases and tax-equivalent interest income on available for sale investment securities, respectively, ~~and~~for the six months ended June 30, 2020 as compared to the same period in 2019. The effect of these decreases on tax-equivalent net interest income were partially offset by decreases of ~~$505 thousand~~$5.6 million and ~~$315~~$615 thousand in interest ~~expense~~paid on ~~long-term FHLB advances~~deposits and interest paid on and short-term borrowings, respectively, for the six months ended June 30, ~~2019~~2020 as compared to the same period in ~~2018.~~2019.

~~The $7.3 million increase in tax-equivalent~~Tax-equivalent interest and fees earned on loans and leases ~~was primarily related to the $178.7 million increase in average loans to $3.50 billion~~ for the six months ended June 30, ~~2019 from $3.32 billion~~2020 decreased $6.2 million as compared to the same period in 2019. The decrease was primarily due to an 80 basis point decrease in the tax-equivalent yield on average loans and leases for the six months ended June 30, ~~2018 coupled with a 17 basis point~~2020 as compared to the same period in 2019. The effect of the decrease in the tax-equivalent yield was partially offset by an increase onof $338.1 million in average loans and leases for the ~~yield~~six months ended June 30, 2020 as compared to same period in 2019. Included in tax-equivalent interest and fees earned on loans and leases ~~over~~for the ~~same period.~~six months ended June 30, 2020 was the recognition of $1.8 million of net deferred PPP loan origination fees.

~~The $1.2 million increase in tax-equivalent~~Tax-equivalent interest income on available for sale investment securities for the six months ended June 30, 2020 decreased $967 thousand as compared to the same period in 2019. The decrease was primarily ~~related~~due to a 20 basis point decrease in the tax-equivalent yield on average available for sale investment securities for the six months ended June 30, 2020 as compared to the ~~$34.8~~same period in 2019 coupled with a decrease of $39.8 million ~~increase~~ in average available for sale investment securities for the six months ended June 30, ~~2019~~2020 as compared to the same period in 2019.

Interest expense on deposits for the six months ended June 30, ~~2018 coupled with~~2020 decreased $5.6 million as compared to the same period in 2019. The decrease was primarily due to a 3047 basis point ~~increase~~decrease in the ~~yield~~rate paid on ~~available~~average interest-bearing deposits for ~~sale investment securities over~~the six months ended June 30, 2020 as compared to the same ~~period.~~period in 2019. The effect of the decrease in the rate paid was partially offset by an increase of $176.6 million in average interest-bearing deposits for the six months ended June 30, 2020 as compared to the same period in 2019.

Interest expense on ~~long-term FHLB advances and~~ short-term borrowings for the six months ended June 30, ~~2019~~2020 decreased ~~$505~~$615 thousand ~~and $315 thousand, respectively~~ as compared to the same period in ~~2018. Average long-term FHLB advances and average short-term borrowings decreased $59.0 million and $76.2 million, respectively, offset by~~2019. The decrease was primarily due to a ~~17 and 60~~133 basis point ~~increase~~decrease in the rate paid on ~~long-term FHLB advances and~~average short-term borrowings ~~respectively,~~for the six months ended June 30, 2020 as compared to the same period in ~~2018.~~2019. The effect of the decrease in the rate paid was partially offset by an increase of $25.9 million in average short-term borrowings for the six months ended June 30, 2020 as compared to the same period in 2019.

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Analyses of Interest Rates and Interest Differential

The tables below present the major asset and liability categories on an average daily balance basis for the periods presented, along with interest income, interest expense and key rates and yields.


	For the Three Months Ended June 30,															Three Months Ended June 30,
	2019							2018								2020										2019
(dollars in thousands)	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid		(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid
Assets:															Assets:
Interest-bearing deposits with banks	$	37,843		$	73	0.77	%	$	37,215		$	64	0.69	%	Interest-bearing deposits with banks	$	195,966	$	37	0.08	%	$	37,843	$	73	0.77	%
Investment securities - available for sale:															Investment securities - available for sale:
Taxable	560,999			3,400		2.43		514,966			2,843		2.21		Taxable	516,823		2,775		2.16		560,999		3,400		2.43
Tax-exempt⁽⁴⁾	7,530			43		2.29		18,215			93		2.05		Tax-exempt⁽⁴⁾	4,572		26		2.29		7,530		43		2.29
Total investment securities – available for sale	568,529			3,443		2.43		533,181			2,936		2.21		Total investment securities – available for sale	521,395		2,801		2.16		568,529		3,443		2.43
Investment securities – held to maturity	10,417			71		2.73		7,866			58		2.96		Investment securities – held to maturity	13,126		73		2.24		10,417		71		2.73
Investment securities – trading	8,572			24		1.12		8,202			22		1.08		Investment securities – trading	7,800		24		1.24		8,572		24		1.12
Loans and leases^(1)(2)(3)(4)	3,524,219			44,903		5.11		3,353,339			41,782		5.00		Loans and leases^(1)(2)(3)(4)	3,940,032		40,779		4.16		3,524,219		44,903		5.11
Total interest-earning assets	4,149,580			48,514		4.69		3,939,803			44,862		4.57		Total interest-earning assets	4,678,319		43,714		3.76		4,149,580		48,514		4.69
Cash and due from banks	13,725							7,153							Cash and due from banks	16,263						13,725
Allowance for loan and lease losses	(20,844		)					(18,043		)
ACL on loans and leases															ACL on loans and leases	(54,113)						(20,844)
Other assets	509,164							415,628							Other assets	585,605						509,164
Total assets	$	4,651,625						$	4,344,541						Total assets	$	5,226,074					$	4,651,625
Liabilities:															Liabilities:
Savings, NOW, and market rate accounts	$	1,928,755		$	5,040	1.05		$	1,722,328		$	2,073	0.48		Savings, NOW, and market rate accounts	$	2,313,150	$	2,341	0.41		$	1,928,755	$	5,040	1.05
Wholesale deposits	345,782			2,143		2.49		233,714			973		1.67		Wholesale deposits	245,052		486		0.80		345,782		2,143		2.49
Retail time deposits	520,317			2,472		1.91		533,254			1,453		1.09		Retail time deposits	410,911		1,649		1.61		520,317		2,472		1.91
Total interest-bearing deposits	2,794,854			9,655		1.39		2,489,296			4,499		0.72		Total interest-bearing deposits	2,969,113		4,476		0.61		2,794,854		9,655		1.39
Short-term borrowings	68,529			357		2.09		205,323			985		1.92		Short-term borrowings	136,816		232		0.68		68,529		357		2.09
Long-term FHLB advances	52,397			269		2.06		102,023			490		1.93		Long-term FHLB advances	46,161		155		1.35		52,397		269		2.06
Subordinated notes	98,587			1,144		4.65		98,463			1,143		4.66		Subordinated notes	98,770		1,144		4.66		98,587		1,144		4.65
Junior subordinated debt	21,637			352		6.53		21,470			321		6.00		Junior subordinated debt	21,814		229		4.22		21,637		352		6.53
Total interest-bearing liabilities	3,036,004			11,777		1.56		2,916,575			7,438		1.02		Total interest-bearing liabilities	3,272,674		6,236		0.77		3,036,004		11,777		1.56
Noninterest-bearing deposits	909,945							841,676							Noninterest-bearing deposits	1,126,139						909,945
Other liabilities	124,211							52,389							Other liabilities	226,698						124,211
Total noninterest-bearing liabilities	1,034,156							894,065							Total noninterest-bearing liabilities	1,352,837						1,034,156
Total liabilities	4,070,160							3,810,640							Total liabilities	4,625,511						4,070,160
Shareholders’ equity	581,465							533,901							Shareholders’ equity	600,563						581,465
Total liabilities and shareholders’ equity	$	4,651,625						$	4,344,541						Total liabilities and shareholders’ equity	$	5,226,074					$	4,651,625
Net interest spread						3.13							3.55		Net interest spread					2.99						3.13
Effect of noninterest-bearing sources						0.42							0.26		Effect of noninterest-bearing sources					0.23						0.42
Net interest income/margin on earning assets⁽⁴⁾				$	36,737	3.55					$	37,424	3.81		Net interest income/margin on earning assets⁽⁴⁾			$	37,478	3.22				$	36,737	3.55
Tax-equivalent adjustment⁽⁴⁾				$	126	0.01	%				$	108	0.01	%	Tax-equivalent adjustment⁽⁴⁾			$	93	0.01	%			$	126	0.01	%


~~(1)~~	~~Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.~~


~~(2)~~	~~Includes portfolio loans and leases and loans held for sale.~~


~~(3)~~	~~Interest on loans and leases includes deferred fees of $634 thousand and $421 thousand for the three months ended June 30, 2019 and 2018, respectively.~~


~~(4)~~	~~Tax rate used for tax-equivalent calculations is 21% for 2019 and 2018.~~

(1)Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.

(2)Includes portfolio loans and leases and loans held for sale.

(3)Interest on loans and leases includes net accretion of deferred fees of $258 thousand and $634 thousand for the three months ended June 30, 2020 and 2019, respectively.

(4)Tax rate used for tax-equivalent calculations is 21% for 2020 and 2019.

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	For the Six Months Ended June 30,															Six Months Ended June 30,
	2019							2018								2020										2019
(dollars in thousands)	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid		(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid
Assets:															Assets:
Interest-bearing deposits with banks	$	35,306		$	205	1.17	%	$	37,627		$	117	0.63	%	Interest-bearing deposits with banks	$	123,148	$	148	0.24	%	$	35,306	$	205	1.17	%
Investment securities - available for sale:															Investment securities - available for sale:
Taxable	552,391			6,763		2.47		506,887			5,472		2.18		Taxable	516,534		5,840		2.27		552,391		6,763		2.47
Tax-exempt⁽⁴⁾	8,656			98		2.28		19,352			193		2.01		Tax-exempt⁽⁴⁾	4,740		54		2.29		8,656		98		2.28
Total investment securities – available for sale	561,047			6,861		2.47		526,239			5,665		2.17		Total investment securities – available for sale	521,274		5,894		2.27		561,047		6,861		2.47
Investment securities – held to maturity	9,615			138		2.89		7,889			116		2.97		Investment securities – held to maturity	13,160		160		2.44		9,615		138		2.89
Investment securities – trading	8,103			46		1.14		8,270			43		1.05		Investment securities – trading	8,164		49		1.21		8,103		46		1.14
Loans and leases^(1)(2)(3)(4)	3,501,107			89,861		5.18		3,322,447			82,536		5.01		Loans and leases^(1)(2)(3)(4)	3,839,208		83,677		4.38		3,501,107		89,861		5.18
Total interest-earning assets	4,115,178			97,111		4.76		3,902,472			88,477		4.57		Total interest-earning assets	4,504,954		89,928		4.01		4,115,178		97,111		4.76
Cash and due from banks	14,068							8,916							Cash and due from banks	14,371						14,068
Allowance for loan and lease losses	(20,368		)					(17,837		)					Allowance for loan and lease losses	(39,950)						(20,368)
Other assets	489,794							402,086							Other assets	556,120						489,794
Total assets	$	4,598,672						$	4,295,637						Total assets	$	5,035,495					$	4,598,672
Liabilities:															Liabilities:
Savings, NOW, and market rate accounts	$	1,863,790		$	8,804	0.95		$	1,701,732		$	3,552	0.42		Savings, NOW, and market rate accounts	$	2,255,215	$	7,322	0.65		$	1,863,790	$	8,804	0.95
Wholesale deposits	344,247			4,155		2.43		232,508			1,706		1.48		Wholesale deposits	249,186		1,463		1.18		344,247		4,155		2.43
Retail time deposits	526,820			4,793		1.83		530,378			2,713		1.03		Retail time deposits	407,011		3,328		1.64		526,820		4,793		1.83
Total interest-bearing deposits	2,734,857			17,752		1.31		2,464,618			7,971		0.65		Total interest-bearing deposits	2,911,412		12,113		0.84		2,734,857		17,752		1.31
Short-term borrowings	112,844			1,300		2.32		189,019			1,615		1.72		Short-term borrowings	138,700		685		0.99		112,844		1,300		2.32
Long-term FHLB advances	53,883			547		2.05		112,911			1,052		1.88		Long-term FHLB advances	46,748		399		1.72		53,883		547		2.05
Subordinated notes	98,564			2,289		4.68		98,447			2,286		4.68		Subordinated notes	98,748		2,289		4.66		98,564		2,289		4.68
Junior subordinated debt	21,616			710		6.62		21,450			609		5.73		Junior subordinated debt	21,791		524		4.84		21,616		710		6.62
Total interest-bearing liabilities	3,021,764			22,598		1.51		2,886,445			13,533		0.95		Total interest-bearing liabilities	3,217,399		16,010		1.00		3,021,764		22,598		1.51
Noninterest-bearing deposits	890,941							840,571							Noninterest-bearing deposits	1,010,202						890,941
Other liabilities	109,165							42,482							Other liabilities	200,107						109,165
Total noninterest-bearing liabilities	1,000,106							883,053							Total noninterest-bearing liabilities	1,210,309						1,000,106
Total liabilities	4,021,870							3,769,498							Total liabilities	4,427,708						4,021,870
Shareholders’ equity	576,802							526,139							Shareholders’ equity	607,787						576,802
Total liabilities and shareholders’ equity	$	4,598,672						$	4,295,637						Total liabilities and shareholders’ equity	$	5,035,495					$	4,598,672
Net interest spread						3.25							3.62		Net interest spread					3.01						3.25
Effect of noninterest-bearing sources						0.40							0.25		Effect of noninterest-bearing sources					0.29						0.40
Net interest income/margin on earning assets⁽⁴⁾				$	74,513	3.65					$	74,944	3.87		Net interest income/margin on earning assets⁽⁴⁾			$	73,918	3.30				$	74,513	3.65
Tax-equivalent adjustment⁽⁴⁾				$	255	0.01	%				$	189	0.01	%	Tax-equivalent adjustment⁽⁴⁾			$	200	0.01	%			$	255	0.01	%


~~(1)~~	~~Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.~~


~~(2)~~	~~Includes portfolio loans and leases and loans held for sale.~~


~~(3)~~	~~Interest on loans and leases includes deferred fees of $919 thousand and $699 thousand for the six months ended June 30, 2019 and 2018, respectively.~~


~~(4)~~	~~Tax rate used for tax-equivalent calculations is 21% for 2019 and 2018.~~

(1)Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.

(2)Includes portfolio loans and leases and loans held for sale.

(3)Interest on loans and leases includes deferred fees of $620 thousand and $919 thousand for the six months ended June 30, 2020 and 2019, respectively.

(4)Tax rate used for tax-equivalent calculations is 21% for 2020 and 2019.

Rate/Volume Analysis (tax-equivalent basis)⁽¹⁾

The rate/volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for

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the three and six months ended June 30, ~~2019~~2020 as compared to the same period in ~~2018,~~2019, allocated by rate and volume. The change in interest income and/or expense due to both volume and rate has been allocated to changes in volume.


	2019 Compared to 2018																			2020 Compared to 2019
(dollars in thousands)	Three Months Ended June 30,									Six Months Ended June 30,									(dollars in thousands)	Three Months Ended June 30,										Six Months Ended June 30,
increase/(decrease)	Volume			Rate			Total			Volume			Rate			Total			increase/(decrease)	Volume		Rate		Total		Volume		Rate		Total
Interest Income:																			Interest Income:
Interest-bearing deposits with banks	$	1		$	8		$	9		$	(21	)	$	109		$	88		Interest-bearing deposits with banks	$	1,264	$	(1,300)	$	(36)	$	1,056	$	(1,113)	$	(57)
Investment securities - taxable	299			273			572			525			791			1,316			Investment securities - taxable	(211)		(412)		(623)		(337)		(561)		(898)
Investment securities -nontaxable	(80		)	30			(50		)	(128		)	33			(95		)	Investment securities -nontaxable	(17)		—		(17)		(45)		1		(44)
Loans and leases	2,147			974			3,121			4,400			2,925			7,325			Loans and leases	25,614		(29,738)		(4,124)		20,061		(26,245)		(6,184)
Total interest income	2,367			1,285			3,652			4,776			3,858			8,634			Total interest income	26,650		(31,450)		(4,800)		20,735		(27,918)		(7,183)
Interest expense:																			Interest expense:
Savings, NOW and market rate accounts	245			2,722			2,967			339			4,913			5,252			Savings, NOW and market rate accounts	5,765		(8,464)		(2,699)		4,274		(5,756)		(1,482)
Wholesale deposits	465			705			1,170			822			1,627			2,449			Wholesale deposits	(625)		(1,032)		(1,657)		(1,146)		(1,546)		(2,692)
Retail time deposits	(240		)	1,259			1,019			(55		)	2,135			2,080			Retail time deposits	(518)		(305)		(823)		(1,083)		(382)		(1,465)
Short-term borrowings	(824		)	196			(628		)	(1,100		)	785			(315		)	Short-term borrowings	1,587		(1,712)		(125)		754		(1,369)		(615)
Long-term FHLB advances	(334		)	113			(221		)	(636		)	131			(505		)	Long-term FHLB advances	(32)		(82)		(114)		(72)		(76)		(148)
Subordinated notes	8			(7		)	1			3			—			3			Subordinated notes	—		—		—		12		(12)		—
Junior subordinated debt	2			29			31			5			96			101			Junior subordinated debt	20		(143)		(123)		17		(203)		(186)
Total interest expense	(678		)	5,017			4,339			(622		)	9,687			9,065			Total interest expense	6,197		(11,738)		(5,541)		2,756		(9,344)		(6,588)
Interest differential	$	3,045		$	(3,732	)	$	(687	)	$	5,398		$	(5,829	)	$	(431	)	Interest differential	$	20,453	$	(19,712)	$	741	$	17,979	$	(18,574)	$	(595)

(1) The tax rate used in the calculation of the tax-equivalent income is 21% for ~~2019~~2020 and ~~2018.~~2019.

Tax-Equivalent Net Interest Margin

The tax-equivalent net interest margin of ~~3.55%~~3.22% for the three months ended June 30, ~~2019~~2020 was a 2633 basis point decrease from ~~3.81%~~3.55% for the same period in ~~2018.~~2019. The ~~main driver for the~~ decrease in the tax-equivalent net interest margin was primarily due to the reduced interest rates during the three months ended June 30, 2020 as compared to the same period in 2019 and driven by management's active balance sheet management in the current interest rate ~~and volume increases of interest-bearing deposits.~~environment.

The tax-equivalent net interest margin and related components for the past five consecutive quarters are shown in the table below:


Quarter	Interest- Earning Asset Yield	Interest- Bearing Liability Cost	Net Interest Spread	Effect of Noninterest Bearing Sources	Net Interest Margin
2nd Quarter 2020	3.76%	0.77%	2.99%	0.23%	3.22%
1st Quarter 2020	4.29	1.24	3.05	0.33	3.38
4th Quarter 2019	4.39	1.41	2.98	0.38	3.36
3rd Quarter 2019	4.69	1.55	3.14	0.40	3.54
2nd Quarter 2019	4.69	1.56	3.13	0.42	3.55

Quarter Interest-
Earning
Asset Yield Interest-
Bearing
Liability Cost Net Interest
Spread Effect of Noninterest Bearing Sources Net Interest
Margin
2nd Quarter 2019 4.69% 1.56% 3.13% 0.42% 3.55%
1st Quarter 2019 4.83 1.46 3.37 0.38 3.75
4th Quarter 2018 4.74 1.30 3.44 0.35 3.79
3rd Quarter 2018 4.54 1.16 3.38 0.31 3.69
2nd Quarter 2018 4.57 1.02 3.55 0.26 3.81

Interest Rate Sensitivity

Management actively manages the Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income changes associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies approved by the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities. This is accomplished through the management of the investment portfolio, the pricings of loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple sources including borrowings from the FHLB, the

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Federal Reserve Bank of Philadelphia’s discount window, federal funds from correspondent banks, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, and Insured Cash Sweep (“ICS”).

Management utilizes several tools to measure the effect of interest rate risk on net interest income. These methods include gap analysis, market value of portfolio equity analysis, and net interest income simulations under various scenarios. The results of these analyses are compared to limits established by the Corporation’s ALCO policies and make adjustments as appropriate if the results are outside the established limits.

The below table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or “shock”, in the yield curve and subjective adjustments in deposit pricing, might have on management’s projected net interest income over the next 12 months.

This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. By definition, the simulation assumes static interest rates and does not incorporate forecasted changes in the yield curve. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.

Summary of Interest Rate Simulation


	Change in Net Interest Income Over the Twelve Months Beginning After June 30, 2019					Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2018						Change in Net Interest Income Over the Twelve Months Beginning After June 30, 2020						Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2019
	Amount			Percentage		Amount			Percentage			Amount		Percentage		Amount		Percentage
+300 basis points	$	4,443		2.97	%	$	5,644		3.74	%	+300 basis points	$	5,902	4.13	%	$	15,357	10.52	%
+200 basis points	2,974			1.99		3,734			2.47		+200 basis points	4,291		3.01		10,217		7.00
+100 basis points	1,521			1.02		1,860			1.23		+100 basis points	2,534		1.78		5,079		3.48
-100 basis points	(5,842		)	(3.90	)	(6,546		)	(4.34	)	-100 basis points	(894)		0.63		(6,817)		(4.67)

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of June 30, ~~2019~~2020 in the +100 basis point scenario, demonstrating that a 100 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is significantly less asset sensitive in a rising-rate environment as of June 30, ~~2019~~2020 than it was as of December 31, ~~2018. The decrease in sensitivity is related~~2019. Rates declined significantly during the quarter due to ~~an increase in in interest bearing deposits that can increase with market rates. The reduction in sensitivity in the 100 basis point decrease in rates is also~~economic conditions related to the ~~ability~~COVID-19 pandemic. The Bank responded to ~~decrease~~these concerns by decreasing rates ~~more quickly~~ on deposit accounts to offset some of the decline that it would experience on the asset side. The reduction of loss of net interest ~~bearing deposits when market~~income as rates ~~decline.~~decline 100 basis points is partially the result of floor rates being implemented on the asset side as well as the inability for rates to decline much further on the deposit side.

The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along with expectations of future behavior relative to interest rate changes. In today’s economic environment and emerging from an extended period of very low interest rates, the reliability of management’s assumptions in the interest rate simulation model is more uncertain than in prior years. Actual customer behavior, as it relates to deposit activity, may be significantly different than expected behavior, which could cause an unexpected outcome and may result in lower net interest income than that derived from the analysis referenced above.

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Gap Analysis

The interest sensitivity, or gap analysis, identifies interest rate risk by showing repricing gaps in the Corporation’s balance sheet. All assets and liabilities are reflected based on behavioral sensitivity, which is usually the earliest of: repricing, maturity, contractual amortization, prepayments or likely call dates. Non-maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the expected sensitivity of these rates considering liquidity. Non-rate-sensitive assets and liabilities are spread over time periods to reflect management’s view of the maturity of these funds.

Non-maturity deposits (demand deposits in particular) are recognized by the industry to have different sensitivities to interest rate environments. Consequently, it is an accepted practice to spread non-maturity deposits over defined time periods to capture that sensitivity. Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of these deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the industry practice has suggested distribution limits for non-maturity deposits. However, management has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity. These assumptions are also reflected in the above interest rate simulation.

The following table presents the Corporation’s gap analysis as of June 30, ~~2019:~~2020:


(dollars in millions)	0 to 90 Days			91 to 365 Days			1 - 5 Years			Over 5 Years			Non-Rate Sensitive			Total			(dollars in millions)	0 to 90 Days			91 to 365 Days			1 - 5 Years			Over 5 Years			Non-Rate Sensitive		Total
Assets:																			Assets:
Interest-bearing deposits with banks	$	49.6		$	—		$	—		$	—		$	—		$	49.6		Interest-bearing deposits with banks	$	448.1		$	—		$	—		$	—		$	—	$	448.1
Investment securities⁽¹⁾	34.0			66.1			345.1			161.6			—			606.8			Investment securities⁽¹⁾	89.2			123.1			231.0			107.7			—		551.0
Loans and leases⁽²⁾	1,466.1			381.4			1,328.3			365.2			—			3,541.0			Loans and leases⁽²⁾	1,374.6			497.1			1,395.0			459.6			—		3,726.3
Allowance	—			—			—			—			(21.2		)	(21.2		)
ACL on loans and leases																			ACL on loans and leases	—			—			—			—			(55.0)		(55.0)
Cash and due from banks	—			—			—			—			13.7			13.7			Cash and due from banks	—			—			—			—			16.4		16.4
Operating lease right-of-use assets	0.8			2.3			10.7			29.3			—			43.1			Operating lease right-of-use assets	0.7			2.2			10.4			26.0			—		39.3
Other assets	—			—			—			—			503.5			503.5			Other assets	—			—			—			—			545.2		545.2
Total assets	1,550.5			449.8			1,684.1			556.1			496.0			4,736.5			Total assets	1,912.6			622.4			1,636.4			593.3			506.6		5,271.3
Liabilities and shareholders’ equity:																			Liabilities and shareholders’ equity:
Demand, noninterest-bearing	26.4			79.3			274.6			560.6			—			940.9			Demand, noninterest-bearing	34.5			103.5			355.9			723.6			—		1,217.5
Savings, NOW and market rate	83.3			249.9			765.7			876.7			—			1,975.6			Savings, NOW and market rate	92.7			278.0			898.8			1,130.1			—		2,399.6
Time deposits	88.8			257.6			154.6			1.7			—			502.7			Time deposits	92.1			207.6			99.2			1.3			—		400.2
Wholesale non-maturity deposits	100.0			—			—			—			—			100.0			Wholesale non-maturity deposits	146.5			—			—			—			—		146.5
Wholesale time deposits	92.8			20.0			0.4			—			—			113.2			Wholesale time deposits	0.5			43.4			36.0			—			—		79.9
Short-term borrowings	207.8			—			—			—			—			207.8			Short-term borrowings	28.9			—			—			—			—		28.9
Long-term FHLB advances	3.2			25.0			19.8			—			—			47.9			Long-term FHLB advances	—			5.0			39.8			—			—		44.8
Subordinated notes	—			—			98.6			—			—			98.6			Subordinated notes	30.0			—			68.8			—			—		98.8
Junior subordinated debentures	21.7			—			—			—			—			21.7			Junior subordinated debentures	21.8			—			—			—			—		21.8
Operating lease liabilities	0.8			2.5			11.7			32.4			—			47.4			Operating lease liabilities	0.8			2.4			11.6			28.9			—		43.7
Other liabilities	—			—			—			—			90.6			90.6			Other liabilities	—			—			—			—			185.9		185.9
Shareholders’ equity	21.1			63.2			337.2			168.7			—			590.2			Shareholders’ equity	21.6			64.7			345.0			172.4			—		603.7
Total liabilities and shareholders’ equity	645.9			697.5			1,662.6			1,640.1			90.6			4,736.5			Total liabilities and shareholders’ equity	469.4			704.6			1,855.1			2,056.3			185.9		5,271.3
Interest-earning assets	1,549.7			447.5			1,673.4			526.8			—			4,197.4			Interest-earning assets	1,911.9			620.2			1,626.0			567.3			—		4,725.4
Interest-bearing liabilities	597.6			552.5			1,039.1			878.4			—			3,067.4			Interest-bearing liabilities	412.5			534.0			1,142.6			1,131.4			—		3,220.5
Difference between interest-earning assets and interest-bearing liabilities	952.1			(105.0		)	634.3			(351.6		)	—			1,130.0			Difference between interest-earning assets and interest-bearing liabilities	1,499.4			86.2			483.4			(564.1)			—		1,504.9
Cumulative difference between interest earning assets and interest-bearing liabilities	$	952.1		$	847.1		$	1,481.5		$	1,129.9		$	—		$	1,130.0		Cumulative difference between interest earning assets and interest-bearing liabilities	$	1,499.4		$	1,585.6		$	2,069.0		$	1,504.9		$	—	$	1,504.9
Cumulative earning assets as a % of cumulative interest-bearing liabilities	259		%	174		%	168		%	137		%							Cumulative earning assets as a % of cumulative interest-bearing liabilities	463		%	268		%	199		%	147		%

(1) Investment securities include available for sale, held to maturity and trading.

(2) Loans include portfolio loans and leases and loans held for sale.

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The table above indicates that the Corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is only one tool used to measure interest rate sensitivity and should be used in conjunction with other measures such as the interest rate simulation discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the Corporation’s balance sheet. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at December 31, ~~2018.~~2019.

PROVISION FOR ~~LOAN~~CREDIT LOSSES ON LOANS AND ~~LEASE LOSSES~~LEASES

For the three and six months ended June 30, 2020, the Corporation recorded a PCL on loans and leases of $4.3 million and $36.6 million, respectively, bringing the June 30, 2020 ACL to $55.0 million, or 1.48% of portfolio loans and leases, as compared to an ACL of $21.2 million, or 0.60% of portfolio loans and leases, as of June 30, 2019. The ACL at June 30, 2020 reflects management's current estimate of expected future credit losses considering the adverse economic indicators and other assumptions largely driven by the COVID-19 pandemic. Net charge-offs for the three months ended June 30, 2019, the Corporation recorded a Provision of $1.6 million which was a $1.5 million decrease as compared to the same period in 2018. The decrease in Provision was related to the smaller volume of loan and lease growth during the second quarter of 2019 as compared to the same period in 2018. Net loan and lease growth during the second quarter of 2019 totaled $11.22020 were $3.4 million as compared to ~~$83.7~~$1.1 million for the same period in ~~2018. Net charge-offs for the second quarter of 2019 were $1.1 million as compared to $1.4 million for the same period in 2018.~~

For the six months ended June 30, 2019, the Corporation recorded a Provision of $5.4 million which was a $1.2 million increase as compared to the same period in 2018. The increase in Provision was largely related to the increase in net charge-offs of loans and leases for which a specific Allowance had not been previously established.2019. Net charge-offs for the six months ended June 30, ~~2019~~2020 were ~~$3.6~~$7.5 million as compared to ~~$2.3~~$3.6 million for the same period in ~~2018.~~2019.

The following table details the allocation of the ACL as of the dates indicated:


Allocation of ACL
	June 30, 2020						December 31, 2019
(dollars in thousands)	ACL		% Loans and Leases to Total Loans and Leases		ACL		% Loans and Leases to Total Loans and Leases
CRE - nonowner-occupied	$	15,331	37.0	%	$	7,960	36.2	%
CRE - owner-occupied	5,083		14.6		2,825		14.3
Home equity lines of credit	1,627		5.2		1,114		6.1
Residential mortgage - 1st liens	8,198		18.7		2,501		19.2
Residential mortgage - junior liens	521		0.9		338		1.0
Construction	6,061		5.7		1,230		5.5
Commercial & Industrial	7,988		12.3		3,835		11.7
Consumer	440		1.2		438		1.6
Leases	9,725		4.5		2,361		4.5

Total ACL on loans and leases	$	54,974	100.0	%	$	22,602	100.0	%

Asset Quality and Analysis of Credit Risk

As of June 30, ~~2019,~~2020, total nonperforming loans and leases decreased by ~~$0.6~~$2.2 million to ~~$12.2~~$8.4 million,, representing ~~0.34%~~0.23% of portfolio loans and leases, as compared to ~~$12.8~~$10.6 million, or ~~0.37%~~0.29% of portfolio loans and leases, as of December 31, ~~2018.~~2019. The decrease in nonperforming loans and leases was related to pay-offs and pay-downs of $2.4 million, charge-offs of $2.7 million, transfers to OREO of $380 thousand and the sale of $1.7 million of loans and leases classified as nonperforming as of December 31, 2019, offset by the addition of ~~$8.6~~$5.0 million of new nonperforming loans and leases during the six months ended June 30, 2019, offset by pay-offs and pay-downs of $4.7 million, charge-offs of $1.6 million, upgrades to performing status of $545 thousand, foreclosures added to OREO of $72 thousand and the sale of $2.4 million of loans and leases classified as nonperforming as of December 31, 2018.2020. All nonperforming loans are evaluated for impairment and charged-off to net realizable value, when necessary.

As of June 30, ~~2019,~~2020, the ~~Allowance~~ACL on loans and leases of ~~$21.2~~$55.0 million represented ~~0.60%~~1.48% of portfolio loans and leases, an increase of 387 basis points from December 31, ~~2018.~~2019. The ~~Allowance~~significant increase was driven by the current and forward-looking adverse economic impacts of the COVID-19 pandemic included in the estimation of expected credit losses on ~~originated (non-acquired) portfolio~~ loans ~~as a percentage of originated (non-acquired) portfolio loans, was 0.68%~~and leases as of June 30, ~~2019~~2020 as compared to ~~0.67% as~~our initial adoption of December 31, 2018. Loans acquired in mergers are recorded at fair value as of the date of acquisition. This fair value estimate takes into account an estimate of the expected lifetime losses of the acquired loans. As such, an acquired loan will not generally become subject to additional Allowance unless it becomes impaired.CECL effective January 1, 2020.

As of June 30, ~~2019,~~2020, the Corporation had ~~$9.3~~$11.8 million of TDRs, of which ~~$5.1~~$10.0 million were in compliance with ~~the~~ modified terms and excluded from non-performing loans and leases. As of December 31, ~~2018,~~2019, the Corporation had ~~$11.0~~$8.1 million of TDRs, of which ~~$9.7~~$5.1 million were in compliance with ~~the~~ modified terms, and were excluded from non-performing loans and leases. The decrease in TDRs during the six months ended June 30, 2019 was primarily the result of $1.7 million of charge-offs, to net realizable value, of loans designated as TDRs as of December 31, 2018. As a result of this partial charge-off of TDRs, the remaining balances of these loans, which had previously been included as in compliance with modified terms, were moved to non-performing status.

As of June 30, ~~2019, the Corporation had a recorded investment of $17.3 million of impaired loans~~2020, 1,690 loan and leases which included $9.3 million of TDRs. Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest in accordance with the original terms of the loans and leases. Impaired loans and leases as of December 31, 2018 totaled $22.6lease modifications totaling $768.2 million, which ~~included $11.0 million~~were related to COVID-19 and were not classified as TDRs, had been completed. For more information on our loan modification programs offered in response to the COVID-19 pandemic, which are not classified as TDRs, see COVID-19 Impact within ITEM 2. Management’s

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Table of ~~TDRs. Refer~~Contents

Discussion and Analysis of Results of Operation and Financial Condition and Note 1 – Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies to ~~Note 5H in~~ the ~~Notes to~~ Unaudited Consolidated Financial ~~Statements for more information regarding the Corporation’s impaired loans and leases.~~Statements.

Management continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. Management believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.

Nonperforming Assets and Related Ratios

Nonperforming assets and related ratios as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:


(dollars in thousands)	June 30, 2020			December 31, 2019
Nonperforming Assets:
Nonperforming loans and leases	$	8,418		$	10,648
Other real estate owned	—			—
Total nonperforming assets	$	8,418		$	10,648

Troubled Debt Restructurings⁽¹⁾:
TDRs included in non-performing loans	$	1,792		$	3,018
TDRs in compliance with modified terms	10,013			5,071
Total TDRs	$	11,805		$	8,089

Loan and Lease quality indicators:
Allowance for credit losses on loans and leases to nonperforming loans and leases	653.1		%	212.3		%
Nonperforming loans and leases to total portfolio loans and leases	0.23			0.29
Allowance for credit losses on loans and leases to total portfolio loans and leases	1.48			0.61
Nonperforming assets to total loans and leases and OREO	0.23			0.29
Nonperforming assets to total assets	0.16			0.20
Total portfolio loans and leases	$	3,722,165		$	3,689,313
Allowance for credit losses on loans and leases	54,974			22,602

(dollars in thousands) June 30,
2019 December 31,
2018
Nonperforming Assets:
Nonperforming loans and leases $ 12,179
$ 12,820
Other real estate owned 155
417
Total nonperforming assets $ 12,334
$ 13,237

Troubled Debt Restructurings:
TDRs included in non-performing loans $ 4,190
$ 1,217
TDRs in compliance with modified terms 5,141
9,745
Total TDRs $ 9,331
$ 10,962

Loan and Lease quality indicators:
Allowance for loan and lease losses to nonperforming loans and leases 173.9 % 151.5 %
Nonperforming loans and leases to total portfolio loans and leases 0.34
0.37
Allowance for loan and lease losses to total portfolio loans and leases 0.60
0.57
Nonperforming assets to total loans and leases and OREO 0.35
0.39
Nonperforming assets to total assets 0.26
0.28
Total portfolio loans and leases $ 3,534,665
$ 3,427,154
Allowance for loan and lease losses 21,182
19,426
(1) For more information on our loan modification programs offered in response to the COVID-19 pandemic, which are not TDRs, see COVID-19 Impact within ITEM 2. Management’s Discussion and Analysis of Results of Operation and Financial Condition and Note 1 – Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies to the Unaudited Consolidated Financial Statements.

NONINTEREST INCOME

Three Months Ended June 30, ~~2019~~2020 Compared to the Same Period in ~~2018~~2019

Noninterest income of ~~$20.2~~$20.6 million for the three months ended June 30, ~~2019~~2020 increased ~~$146~~$345 thousand as compared to ~~$20.1~~$20.2 million for the same period in ~~2018. Increases~~2019. The increase was primarily due to increases of ~~$852~~$2.4 million and $1.5 million in net gain on sale of loans and capital markets revenue, respectively, partially offset by decreases of $2.4 million, $394 thousand, $265 thousand, and ~~$224~~$249 thousand in fees for wealth management services, insurance commissions, other operating income, and service charges on deposits, respectively. The increase in net gain on sale of loans ~~respectively, were partially offset~~was driven by ~~decreases~~a $2.4 million gain on the sale of ~~$616 thousand and $205 thousand~~approximately $292.1 million of PPP loans in the second quarter of 2020. The increase in capital markets revenue was primarily due to increased volume and ~~insurance commissions, respectively.~~size of interest rate swap transactions with commercial loan customers for the three months ended June 30, 2020 as compared to the same period in 2019. The decrease in fees for wealth management services was primarily driven by $2.2 million of costs incurred in the second quarter of 2020 associated with the wind-down of BMT Investment Advisers.

Six Months Ended June 30, ~~2019~~2020 Compared to the Same Period in ~~2018~~2019

Noninterest income of ~~$39.5~~$38.9 million for the six months ended June 30, ~~2019~~2020 decreased ~~$137~~$608 thousand as compared to ~~$39.6~~$39.5 million for the same period in ~~2018. Decreases~~2019. The decrease was primarily due to decreases of ~~$1.5~~$2.6 million, ~~$311 thousand, $226 thousand,~~$1.7 million, and ~~$214~~$533 thousand in other operating income, fees for wealth management services, and insurance commissions, respectively, partially offset by increases of $2.8 million and $1.6 million in net gain on sale of ~~OREO, insurance commissions,~~loans and ~~dividends~~capital markets revenue, respectively. The

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increase in net gain on ~~FHLB and FRB stocks, respectively, were partially offset~~sale of loans was driven by ~~increases~~a $2.4 million gain on the sale of ~~$937 thousand and $936 thousand~~approximately $292.1 million of PPP loans in the second quarter of 2020. The increase in capital markets revenue ~~and fees for wealth management services, respectively. The decrease in other operating income~~ was primarily due to ~~$3.0 million~~increased volume and size of ~~recoveries of purchase accounting fair value marks resulting from the pay offs of purchased credit impaired loans acquired in the RBPI merger~~interest rate swap transactions with commercial loan customers for the six months ended June 30, ~~2018~~2020 as compared to ~~$48 thousand for~~ the ~~six months ended June 30, 2018.~~same period in 2019. The ~~increase~~decrease in fees for wealth management services was primarily ~~due to~~driven by $2.2 million of costs incurred in the ~~$1.41 billion increase in wealth assets under management, administration, supervision and brokerage between June 30, 2018 and June 30, 2019.~~second quarter of 2020 associated with the wind-down of BMT Investment Advisers.

The following table provides details of other operating income for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands) 2019 2018 2019 2018
Visa debit card income $ 431
$ 469
$ 850
$ 856
BOLI income 303
298
597
576
Commissions and fees 344
470
699
725
Safe deposit box rentals 87
96
171
187
Other investment income 411
125
447
147
Rental income 7
45
16
88
Gain on trading investments 214
84
946
419
Recovery of purchase accounting fair value loan mark 36
710
48
3,004
Miscellaneous other income 1,219
737
2,125
1,370
Other operating income $ 3,052
$ 3,034
$ 5,899
$ 7,372


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2020		2019		2020		2019
Visa debit card income	$	643	$	431	$	1,174	$	850
BOLI income	330		303		650		597
Commissions and fees	264		344		568		699
Safe deposit box rentals	82		87		162		171
Other investment income	20		411		39		447
Rental income	8		7		17		16
Gain on trading investments	1,017		214		39		946
Recovery of purchase accounting fair value loan mark	—		36		—		48
Miscellaneous other income	423		1,219		695		2,125
Other operating income	$	2,787	$	3,052	$	3,344	$	5,899

The following table provides supplemental information regarding mortgage loan originations and sales:


	As of or for the Three Months Ended June 30,						As of or for the Six Months Ended June 30,							As of or for the Three Months Ended June 30,									As of or for the Six Months Ended June 30,
(dollars in thousands)	2019			2018			2019			2018			(dollars in thousands)	2020			2019			2020			2019
Mortgage originations	$	49,617		$	35,763		$	84,058		$	61,818		Mortgage originations	$	38,771		$	49,614		$	68,134		$	84,058
Mortgage loans sold:													Mortgage loans sold:
Servicing retained	—			—			—			1,850			Servicing retained	—			—			—			—
Servicing released	21,979			25,892			31,197			41,848			Servicing released	31,984			21,979			46,883			31,197
Total mortgage loans sold	$	21,979		$	25,892		$	31,197		$	43,698		Total mortgage loans sold	$	31,984		$	21,979		$	46,883		$	31,197
Percentage of originated mortgage loans sold	44.3		%	72.4		%	37.1		%	70.7		%	Percentage of originated mortgage loans sold	82.5		%	44.3		%	68.8		%	37.1		%
Servicing retained %	—			—			—			4.2			Servicing retained %	—			—			—			—
Servicing released %	100.0			100.0			100.0			95.8			Servicing released %	100.0			100.0			100.0			100.0
Residential mortgage loans serviced for others	$	545,743		$	614,259		$	545,743		$	614,259		Residential mortgage loans serviced for others	$	445,233		$	545,743		$	445,233		$	545,743
Mortgage servicing rights	4,744			5,511			4,744			5,511			Mortgage servicing rights	3,440			4,744			3,440			4,744
Gain on sale of mortgage loans	622			419			883			764			Gain on sale of mortgage loans	615			622			1,213			883
Loan servicing and other fees	553			475			1,162			1,161			Loan servicing and other fees	452			553			913			1,162
Amortization of MSRs	156			196			276			417			Amortization of MSRs	453			156			557			276
(Impairment) / Recovery of MSRs	(10		)	1			(27		)	51
Impairment of MSRs													Impairment of MSRs	(222)			(10)			(453)			(27)

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Wealth Assets Under Management, Administration, Supervision and Brokerage (“Wealth Assets”)

Wealth Asset accounts are categorized into two groups. The first account group consists predominantly of clients whose fees are determined based on the market value of the assets held in their accounts (“Market Value” basis). The second account group consists predominantly of clients whose fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are not affected by market value changes.

The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management services:


(dollars in thousands)	Wealth Assets as of:
Fee Basis	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Market value	$	6,661,996	$	6,001,999	$	6,977,009	$	6,396,399	$	6,346,861
Fixed fee	10,350,908		9,591,733		9,571,051		9,213,387		8,468,437
Total	$	17,012,904	$	15,593,732	$	16,548,060	$	15,609,786	$	14,815,298

(dollars in thousands) Wealth Assets as of:
Fee Basis June 30,
2019 March 31,
2019 December 31,
2018 September 30,
2018 June 30,
2018
Market value $ 6,346,861
$ 6,232,651
$ 5,764,189
$ 6,032,831
$ 5,779,774
Fixed fee 8,468,437
8,503,861
7,665,355
7,880,433
7,624,949
Total $ 14,815,298
$ 14,736,512
$ 13,429,544
$ 13,913,264
$ 13,404,723


	Percentage of Wealth Assets as of:											Percentage of Wealth Assets as of:
Fee Basis	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		Fee Basis	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Market value	42.8	%	42.3	%	42.9	%	43.4	%	43.1	%	Market value	39.2	%	38.5	%	42.2	%	41.0	%	42.8	%
Fixed fee	57.2	%	57.7	%	57.1	%	56.6	%	56.9	%	Fixed fee	60.8	%	61.5	%	57.8	%	59.0	%	57.2	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

The following tables detail the composition of fees for wealth management services for the periods indicated:


(dollars in thousands)	For the Three Months Ended:
Fee Basis	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Market value	$	5,525	$	8,131	$	8,126	$	7,924	$	7,802
Fixed fee	3,544		3,037		3,546		2,902		3,708
Total	$	9,069	$	11,168	$	11,672	$	10,826	$	11,510

(dollars in thousands) For the Three Months Ended:
Fee Basis June 30,
2019 March 31,
2019 December 31,
2018 September 30,
2018 June 30,
2018
Market value $ 7,802
$ 7,618
$ 7,801
$ 7,841
$ 7,620
Fixed fee 3,708
2,774
3,217
2,501
3,038
Total $ 11,510
$ 10,392
$ 11,018
$ 10,342
$ 10,658


	Percentage of Fees for Wealth Management for the Three Months Ended:
Fee Basis	June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
Market value	60.9	%	72.8	%	69.6	%	73.2	%	67.8	%
Fixed fee	39.1	%	27.2	%	30.4	%	26.8	%	32.2	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Percentage of Fees for Wealth Management for the Three Months Ended:
Fee Basis June 30,
2019 March 31,
2019 December 31,
2018 September 30,
2018 June 30,
2018
Market value 67.8 % 73.3 % 70.8 % 75.8 % 71.5 %
Fixed fee 32.2 % 26.7 % 29.2 % 24.2 % 28.5 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Customer Derivatives

To accommodate the risk management needs of qualified commercial customers, the Bank enters into financial derivative transactions consisting of interest rate swaps, options, risk participation agreements and foreign exchange contracts. Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Market risk exposure from customer derivative positions is managed by simultaneously entering into matching transactions with institutional dealer counterparties that offset customer contracts in notional amount and term. Derivative contracts create counterparty credit risk with both the Bank’s customers and with institutional dealer counterparties. The Corporation manages customer counterparty credit risk through its credit policy, approval processes, monitoring procedures and by obtaining adequate collateral, when appropriate. The Bank seeks to minimize dealer counterparty credit risk by establishing credit limits and collateral agreements through industry standard agreements published by the International Swaps and Derivatives Association (ISDA) and associated credit support annex (CSA) agreements. None of the Bank’s outstanding derivative contracts associated with the customer derivative program is designated as a hedge and none is entered into for speculative purposes. Derivative instruments are recorded at fair value, with changes in fair values recognized in earnings as components of noninterest income and noninterest expense on the consolidated statements of income.

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NONINTEREST EXPENSE

Three Months Ended June 30, ~~2019~~2020 Compared to the Same Period in ~~2018~~2019

Noninterest expense of $34.6 million for the three months ended June 30, ~~2019~~2020 decreased ~~$648~~$552 thousand as compared to $35.2 million ~~as compared to~~for the same period in ~~2018. Contributing~~2019. The decrease was primarily due to ~~the decrease were~~ decreases of ~~$3.1 million and~~ $448 thousand, ~~in due diligence, merger-related and merger integration expenses and other operating expenses, respectively. Partially offsetting these decreases were increases of $798 thousand, $499 thousand, $440~~$397 thousand, and ~~$428~~$308 thousand in ~~salaries and wages,~~ furniture, fixtures and equipment expenses, ~~employee benefits,~~Pennsylvania bank shares tax, and ~~occupancy~~advertising expenses, respectively, partially offset by increases of $512 thousand and ~~bank premises expense,~~$259 thousand in other operating expenses and professional fees, respectively.

Six Months Ended June 30, ~~2019~~2020 Compared to the Same Period in ~~2018~~2019

Noninterest expense for the six months ended June 30, ~~2019 increased $3.0~~2020 decreased $3.8 million, to ~~$74.9~~$71.1 million, as compared to $74.9 million for the same period in ~~2018. Contributing~~2019. The decrease was primarily due to ~~the~~decreases of $4.0 million, $762 thousand, and $690 thousand in salaries and wages, employee benefits, and Pennsylvania bank shares tax, respectively, partially offset by an increase ~~were increases~~ of ~~$5.7~~$1.8 million ~~and $898 thousand~~in other operating expenses. The decrease in salaries and wages and employee benefits ~~respectively. During~~was largely driven by a pre-tax, non-recurring, charge of $4.5 million in the first quarter of 2019 ~~the Corporation adopted a~~related to Corporation’s voluntary Years of Service Incentive Program (the “Incentive Program”), which offered certain benefits to eligible employees who met the Incentive Program requirements and voluntarily exited from service with the Corporation, the Bank or one of their subsidiaries. The ~~increases~~increase in ~~salaries and wages and employee benefits were largely~~other operating expenses was primarily driven by a ~~pre-tax, non-recurring, charge~~$2.3 million increase in provision for credit losses on off-balance sheet credit exposures primarily driven by the adverse economic impacts of ~~$4.5 million related to~~ the ~~Incentive Program recognized during~~COVID-19 pandemic as well as the ~~first quarter~~Corporation’s adoption of 2019. Also contributing to the increase were increases of $990 thousand, $956 thousand, $782 thousand, and $630 thousand in furniture, fixtures and equipment expenses, professional fees, other operating expenses, and occupancy and bank premises expenses, respectively. Partially offsetting these increases in noninterest expense was a decrease of $7.4 million in due diligence, merger-related and merger integration expenses for the six months ended June 30, 2019 as compared to the same period in 2018.CECL effective January 1, 2020.

The following table provides details of other operating expenses for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2020		2019		2020		2019
Contributions	$	521	$	410	$	968	$	754
Deferred compensation expense	654		178		(441)		721
Director fees	151		141		304		286
Dues and subscriptions	523		524		884		819
FDIC insurance	673		509		823		910

Insurance	302		217		541		431
Loan processing	139		199		282		451
Miscellaneous other expenses	1,331		761		2,651		1,751
MSR amortization and impairment	675		166		1,010		303
Other taxes	2		33		24		123
Outsourced services	63		65		125		130
Wealth custodian fees	116		98		229		216
Postage	158		188		314		390
(Release of reserve) / provision for credit losses on off-balance sheet credit exposures	(867)		(17)		2,148		(138)
Stationary and supplies	79		120		224		256
Telephone and data lines	438		446		866		870
Temporary help and recruiting	67		174		134		380
Travel and entertainment	35		336		260		509
Other operating expenses	$	5,060	$	4,548	$	11,346	$	9,162

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Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands) 2019 2018 2019 2018
Contributions $ 410
$ 441
$ 754
$ 629
Deferred compensation expense 178
171
721
252
Director fees 141
177
286
338
Dues and subscriptions 524
250
819
507
FDIC insurance 509
552
910
752
Insurance 217
214
431
441
Loan processing 199
273
451
297
Miscellaneous other expenses 744
1,318
1,613
2,127
MSR amortization and impairment 166
195
303
366
Other taxes 33
24
123
37
Outsourced services 65
67
130
133
Wealth custodian fees 98
113
216
236
Postage 188
192
390
355
Stationary and supplies 120
111
256
263
Telephone and data lines 446
531
870
936
Temporary help and recruiting 174
58
380
157
Travel and entertainment 336
298
509
476
Other operating expenses $ 4,548
$ 4,985
$ 9,162
$ 8,302

Table of Contents

INCOME TAXES

Income before income taxes increased $1.6 million for the three months ended June 30, 2019 as compared to the same period in 2018, which resulted in a reduction of income tax expense of $516 thousand for the three months ended June 30, 2019 as compared to the same period in 2018. Income tax expense for the three months ended June 30, ~~2019 and June 30, 2018 included net discrete tax benefits from stock-based compensation~~2020 was $4.0 million, a decrease of ~~$16~~$229 thousand ~~and $111 thousand, respectively.~~as compared to $4.2 million for the same period in 2019. The effective tax rate for the three months ended June 30, ~~2019 increased~~2020 was 21.1%, relatively unchanged as compared to 21.2% ~~from 20.2%~~ for the same period in ~~2018.~~2019.

Income before income taxes decreased $4.9 million for the six months ended June 30, 2019 as compared to the same period in 2018, which resulted in a reduction of income tax expense of $1.4 million for the six months ended June 30, 2019 as compared to the same period in 2018. Income tax expense for the six months ended June 30, ~~2019 included~~2020 was $1.1 million, a ~~net discrete tax benefit from stock-based compensation~~decrease of ~~$129 thousand~~$5.9 million as compared to ~~a net discrete tax expense of $118 thousand~~$7.0 million for the same period in 2019. Income before income taxes decreased $28.6 million for the six months ended June 30, 2020 as ~~a result of excess tax benefits from stock-based compensation as well as~~compared for the ~~re-measurement of deferred tax items related to Tax Reform.~~same period in 2019. The effective tax rate for the six months ended June 30, ~~2019 decreased~~2020 increased to ~~20.9%~~21.5% from ~~21.8%~~20.9% for the same period in ~~2018.~~2019. The increase in the effective tax rate was primarily due to a $144 thousand decrease in net discrete tax benefits for the six months ended June 30, 2020 as compared to the same period in 2019.

BALANCE SHEET ANALYSIS

Total assets of ~~$4.74~~$5.27 billion as of June 30, ~~2019~~2020 increased ~~$84.1~~$8.1 million from ~~$4.65~~$5.26 billion as of December 31, ~~2018.~~2019. The following sections detail the balance sheet changes:

Loans and Leases

The table below compares the portfolio loans and leases outstanding at June 30, ~~2019~~2020 to December 31, ~~2018:~~2019:


	June 30, 2019				December 31, 2018				Change						June 30, 2020						December 31, 2019						Change
(dollars in thousands)	Balance		Percent of Portfolio		Balance		Percent of Portfolio		Amount			Percent		(dollars in thousands)	Balance		Percent of Portfolio		Balance		Percent of Portfolio		Amount		Percent
Commercial mortgage	$	1,755,798	49.7	%	$	1,657,436	48.4	%	$	98,362		5.9	%
Home equity lines & loans	203,852		5.8	%	207,351		6.1	%	(3,499		)	(1.7	)%
Residential mortgage	506,093		14.3	%	494,355		14.4	%	11,738			2.4	%
CRE - nonowner-occupied														CRE - nonowner-occupied	$	1,375,904	37.0	%	$	1,337,167	36.2	%	$	38,737	2.9	%
CRE - owner-occupied														CRE - owner-occupied	542,688		14.6		527,607		14.3		15,081		2.9
Home equity lines of credit														Home equity lines of credit	194,767		5.2		224,262		6.1		(29,495)		(13.2)
Residential mortgage - 1st liens														Residential mortgage - 1st liens	695,270		18.7		706,690		19.2		(11,420)		(1.6)
Residential mortgage - jr. liens														Residential mortgage - jr. liens	33,644		0.9		36,843		1.0		(3,199)		(8.7)
Construction	152,554		4.3	%	181,078		5.3	%	(28,524		)	(15.8	)%	Construction	212,374		5.7		202,198		5.5		10,176		5.0
Commercial and industrial	704,167		19.9	%	695,584		20.3	%	8,583			1.2	%
Commercial & Industrial														Commercial & Industrial	457,529		12.3		432,227		11.7		25,302		5.9
Consumer	49,335		1.4	%	46,814		1.4	%	2,521			5.4	%	Consumer	43,762		1.2		57,241		1.6		(13,479)		(23.5)
Leases	162,866		4.6	%	144,536		4.2	%	18,330			12.7	%	Leases	166,227		4.5		165,078		4.5		1,149		0.7
Total portfolio loans and leases	3,534,665		100.0	%	3,427,154		100.0	%	107,511			3.1	%	Total portfolio loans and leases	3,722,165		100.0	%	3,689,313		100.0	%	32,852		0.9
Loans held for sale	6,333				1,749				4,584			262.1	%	Loans held for sale	4,116				4,249				(133)		(3.1)
Total loans and leases	$	3,540,998			$	3,428,903			$	112,095		3.3	%	Total loans and leases	$	3,726,281			$	3,693,562			$	32,719	0.9	%

Investment Securities

Investment securities available for sale as of June 30, ~~2019~~2020 totaled ~~$588.1~~$530.6 million, as compared to ~~$737.4 million~~$1.01 billion as of December 31, ~~2018.~~2019. The decrease was primarily related to the maturing of ~~$200.0~~$500.0 million of short-term U.S. Treasury securities in the first quarter of ~~2019.~~2020, partially offset by increases of $12.1 million, $11.2 million, and $8.0 million of U.S. government and agency securities, mortgage-backed securities, and corporate bonds, respectively.

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Deposits

Deposits as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:


	June 30, 2019				December 31, 2018				Change						June 30, 2020						December 31, 2019						Change
(dollars in thousands)	Balance		Percent of Deposits		Balance		Percent of Deposits		Amount			Percent		(dollars in thousands)	Balance		Percent of Deposits		Balance		Percent of Deposits		Amount		Percent
Interest-bearing demand	$	745,134	20.5	%	$	664,749	18.5	%	$	80,385		12.1	%	Interest-bearing demand	$	910,441	21.5	%	$	944,915	24.6	%	$	(34,474)	(3.6)	%
Money market	966,596		26.6		862,644		24.0		103,952			12.1		Money market	1,239,523		29.2		1,106,478		28.8		133,045		12.0
Savings	263,830		7.3		247,081		6.9		16,749			6.8		Savings	249,636		5.9		220,450		5.7		29,186		13.2
Retail time deposits	502,745		13.8		542,702		15.1		(39,957		)	(7.4	)	Retail time deposits	400,186		9.4		405,123		10.5		(4,937)		(1.2)
Wholesale non-maturity deposits	100,047		2.8		55,031		1.5		45,016			81.8		Wholesale non-maturity deposits	146,463		3.5		177,865		4.6		(31,402)		(17.7)
Wholesale time deposits	113,150		3.1		325,261		9.0		(212,111		)	(65.2	)	Wholesale time deposits	79,903		1.9		89,241		2.3		(9,338)		(10.5)
Interest-bearing deposits	2,691,502		74.1		2,697,468		74.9		(5,966		)	(0.2	)	Interest-bearing deposits	3,026,152		71.3		2,944,072		76.6		82,080		2.8
Noninterest-bearing deposits	940,911		25.9		901,619		25.1		39,292			4.4		Noninterest-bearing deposits	1,217,496		28.7		898,173		23.4		319,323		35.6
Total deposits	$	3,632,413	100.0		$	3,599,087	100.0		$	33,326		0.9		Total deposits	$	4,243,648	100.0	%	$	3,842,245	100.0	%	$	401,403	10.4	%

Borrowings

Borrowings as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:


	June 30, 2020						December 31, 2019						Change
(dollars in thousands)	Balance		Percent of Borrowings		Balance		Percent of Borrowings		Amount		Percent
Short-term borrowings	$	28,891	14.9	%	$	493,219	74.1	%	$	(464,328)	(94.1)	%
Long-term FHLB advances	44,837		23.1		52,269		7.8		(7,432)		(14.2)
Subordinated notes	98,794		50.8		98,705		14.8		89		0.1
Junior subordinated debentures	21,843		11.2		21,753		3.3		90		0.4
Total borrowed funds	$	194,365	100.0	%	$	665,946	100.0	%	$	(471,581)	(70.8)	%

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June 30, 2019 December 31, 2018 Change
(dollars in thousands) Balance
Percent of
Borrowings
Balance
Percent of
Borrowings
Amount Percent
Short-term borrowings $ 207,828
55.3 % $ 252,367
59.0 % $ (44,539 ) (17.6 )%
Long-term FHLB advances 47,941
12.7 % 55,374
12.9 % (7,433 ) (13.4 )%
Subordinated notes 98,616
26.2 % 98,526
23.0 % 90
0.1 %
Junior subordinated debentures 21,665
5.8 % 21,580
5.0 % 85
0.4 %
Total borrowed funds $ 376,050
100.0 % $ 427,847
100.0 % $ (51,797 ) (12.1 )%

Table of Contents

Capital

Consolidated shareholders' equity of the Corporation was ~~$590.2~~$603.7 million, or ~~12.5%~~11.5% of total assets, as of June 30, ~~2019,~~2020, as compared to ~~$564.7~~$612.2 million, or ~~12.1%~~11.6% of total assets, as of December 31, ~~2018.~~2019. The following table presents BMBC’s and Bank’s regulatory capital ratios and the minimum capital requirements for the Bank to be considered “Well Capitalized” by regulators as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	Actual				Minimum to be Well Capitalized					Actual						Minimum to be Well Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		(dollars in thousands)	Amount		Ratio		Amount		Ratio
June 30, 2019

June 30, 2020									June 30, 2020
Total capital to risk weighted assets:									Total capital to risk weighted assets:
BMBC	$	521,562	14.44	%	$	361,110	10.00	%	BMBC	$	569,428	15.14	%	$	375,986	10.00	%
Bank	448,243		12.42		360,853		10.00		Bank	485,780		12.93		375,633		10.00
Tier I capital to risk weighted assets:									Tier I capital to risk weighted assets:
BMBC	401,630		11.12		288,888		8.00		BMBC	423,762		11.27		300,789		8.00
Bank	426,927		11.83		288,682		8.00		Bank	438,908		11.68		300,506		8.00
Common equity Tier I risk weighted assets:									Common equity Tier I risk weighted assets:
BMBC	380,658		10.54		234,721		6.50		BMBC	402,646		10.71		244,391		6.50
Bank	426,927		11.83		234,554		6.50		Bank	438,908		11.68		244,161		6.50
Tier I leverage ratio (Tier I capital to total quarterly average assets):									Tier I leverage ratio (Tier I capital to total quarterly average assets):
BMBC	401,630		9.04		222,241		5.00		BMBC	423,762		8.44		250,950		5.00
Bank	426,927		9.61		222,022		5.00		Bank	438,908		8.75		250,775		5.00

December 31, 2018


December 31, 2019									December 31, 2019
Total capital to risk weighted assets:									Total capital to risk weighted assets:
BMBC	500,375		14.30		349,918		10.00		BMBC	547,440		14.69		372,690		10.00
Bank	419,136		11.99		349,692		10.00		Bank	450,212		12.09		372,435		10.00
Tier I capital to risk weighted assets:									Tier I capital to risk weighted assets:
BMBC	382,151		10.92		279,934		8.00		BMBC	425,773		11.42		298,152		8.00
Bank	399,438		11.42		279,754		8.00		Bank	427,250		11.47		297,948		8.00
Common equity Tier I risk weighted assets:									Common equity Tier I risk weighted assets:
BMBC	361,256		10.32		227,446		6.50		BMBC	404,715		10.86		242,249		6.50
Bank	399,438		11.42		227,300		6.50		Bank	427,250		11.47		242,083		6.50
Tier I leverage ratio (Tier I capital to total quarterly average assets):									Tier I leverage ratio (Tier I capital to total quarterly average assets):
BMBC	382,151		9.06		210,830		5.00		BMBC	425,773		9.33		228,216		5.00
Bank	399,438		9.48		216,615		5.00		Bank	427,250		9.37		227,997		5.00

~~The~~In March 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital, ~~ratios for~~relative to the ~~Bank and BMBC, as of~~incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. The June 30, ~~2019, as shown in~~2020 ratios reflect the above tables, indicate levels above the regulatory minimum to be considered “well capitalized.” Excluding BMBC's Tier I leverage ratio, all regulatory capital ratios increased from their December 31, 2018 levels primarily as a resultCorporation's election of the increase in retained earnings, and partially offset by the adoption of ASU 2016-02 (Topic 842), “Leases”, which resulted in $43.1 million of operating lease right-of-use assets being risk weighted at 100% as of June 30, 2019.five-year transition provision.

Liquidity

BMBC’s liquidity position is managed on a daily basis as part of the daily settlement function and continuously as part of the formal asset liability management process. The Bank’s liquidity is maintained by managing its core deposits as the primary source, purchasing federal funds, selling loans in the secondary market, borrowing from the FHLB and the FRB, maintaining a highly liquid investment portfolio, and purchasing and issuing wholesale certificates of deposit as its secondary sources.

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Unused availability is detailed on the following table:


(dollars in millions)	Available Funds as of June 30, 2019		Percent of Total Borrowing Capacity		Available Funds as of December 31, 2018		Percent of Total Borrowing Capacity		Dollar Change		Percent Change		(dollars in millions)	Available Funds as of June 30, 2020		Percent of Total Borrowing Capacity		Available Funds as of December 31, 2019		Percent of Total Borrowing Capacity		Dollar Change		Percent Change
FHLB of Pittsburgh	$	1,364.1	84.9	%	$	1,245.4	74.4	%	$	118.7	9.5	%	FHLB of Pittsburgh	$	1,783.7	97.5	%	$	1,110.6	67.5	%	$	673.1	60.6	%
FRB of Philadelphia	164.2		100.0		140.4		100.0		23.8		17.0		FRB of Philadelphia	166.8		100.0		174.3		100.0		(7.5)		(4.3)
Fed Funds Lines (seven banks)	79.0		100.0		79.0		100.0		—		—
Fed Funds Lines (six banks)													Fed Funds Lines (six banks)	74.0		100.0		79.0		100.0		(5.0)		(6.3)
Total	$	1,607.3	86.9		$	1,464.8	77.6		$	142.5	9.7		Total	$	2,024.5	97.8		$	1,363.9	71.8		$	660.6	48.4

Quarterly, the ALCO reviews the Corporation’s liquidity position and reports its findings to BMBC’s Board of Directors.

The Corporation has an agreement with ~~IND~~Insured Network Deposits to provide up to ~~$55~~$175 million, excluding accrued interest, of money market and NOW funds at an agreed upon interest rate equal to the current Fed Funds rate plus 20 basis points. The Corporation had ~~$49.9~~$146.5 million in balances as of June 30, ~~2019~~2020 under this program.

Management continually evaluates its borrowing capacity and sources of liquidity. Management currently believes that it has sufficient capacity to fund expected short- and long-term earning asset growth with wholesale sources, along with deposit growth from its internal branch and wealth products.

Discussion of Segments

The Corporation has two principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking and Wealth Management (see Note 2322 in the accompanying Notes to Unaudited Consolidated Financial Statements).

The Wealth Management segment recorded a pre-tax segment profit (“PTSP”) of ~~$4.9~~$1.7 million and ~~$7.9~~$5.8 million for the three and six months ended June 30, ~~2019,~~2020, as compared to a PTSP of ~~$4.4~~$4.9 million and ~~$8.5~~$7.9 million for the same periods in ~~2018. The Wealth Management segment provided 24.7%~~2019. Fees for wealth management services decreased $2.4 million and ~~23.5% of the Corporation’s pre-tax profit~~$1.7 million, respectively, for the three and six months ended June 30, 2019, as compared to 24.0% and 22.3% for the same periods in 2018. For the three and six month periods ended June 30, 2019, fees for wealth management services increased and insurance commissions decreased2020 as compared to the same periods in ~~2018.~~2019. The decrease in PTSP and fees for wealth management services for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was primarily driven by $2.2 million of costs incurred in the second quarter of 2020 associated with the wind-down of BMT Investment Advisers. Also contributing to the decrease in PTSP were decreases in insurance commissions of $394 thousand and $533 thousand for the three and six months ended June 30, 2020 as compared to the same periods in 2019. Effective January 1, 2020, the business of Lau Associates LLC was transitioned into the Wealth Management Division of the Bank, also reported in the Wealth Management segment.

The Banking segment recorded a PTSP of $17.3 million and a pre-tax segment loss of $860 thousand for the three and six months ended June 30, 2020, as compared to a PTSP of $15.1 million and $25.6 million for the ~~three and~~same periods in 2019. The decrease in PTSP for the six months ended June 30, ~~2019,~~2020 as compared to ~~PTSP of $14.0 million and $29.8 million for~~ the same ~~periods~~period in ~~2018. The Banking segment provided 75.3%~~2019 was primarily driven by the first quarter 2020 provision for credit losses on loans and ~~76.5% of~~leases, as calculated under the ~~Corporation’s pre-tax profit for~~CECL framework, driven by the ~~three and six month periods ended June 30, 2019, as compared to 76.0% and 77.7% for the same periods in 2018.~~COVID-19 pandemic.

Off Balance Sheet Arrangements

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at June 30, ~~2019~~2020 were ~~$738.9~~$826.3 million, as compared to ~~$867.2~~$828.9 million at December 31, ~~2018.~~2019.

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Estimated fair values of the Corporation’s off-balance sheet arrangements are based on fees and rates 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 the estimated fair value of off-balance sheet arrangements.

Contractual Cash Obligations of the Corporation as of June 30, ~~2019~~2020:


(dollars in thousands)	Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Deposits without a stated maturity	$	3,763,559	$	3,763,559	$	—	$	—	$	—
Wholesale and retail time deposit	480,089		343,479		122,473		13,255		882
Short-term borrowings	28,891		28,891		—		—		—
Long-term FHLB Advances	44,837		4,861		39,976		—		—
Subordinated Notes	100,000		—		—		—		100,000
Junior subordinated debentures	25,800		—		—		—		25,800
Operating lease liabilities	56,467		4,680		8,395		8,145		35,247
Purchase obligations	22,785		6,560		9,161		3,904		3,160
Total	$	4,522,428	$	4,152,030	$	180,005	$	25,304	$	165,089

(dollars in thousands) Total
Within
1 Year

2 - 3
Years

4 - 5
Years

After
5 Years
Deposits without a stated maturity $ 3,016,518
$ 3,016,518
$ —
$ —
$ —
Wholesale and retail time deposit 615,895
459,069
145,966
10,058
802
Short-term borrowings 207,828
207,828
—
—
—
Long-term FHLB Advances 47,941
28,104
19,837
—
—
Subordinated Notes 100,000
—
—
—
100,000
Junior subordinated debentures 25,800
—
—
—
25,800
Operating lease liabilities 61,936
4,961
8,997
8,150
39,828
Purchase obligations 9,669
6,240
3,429
—
—
Total $ 4,085,587
$ 3,722,720
$ 178,229
$ 18,208
$ 166,430

Other Information

Effects of Inflation

Inflation has some impact on the Corporation’s operating costs. Unlike many industrial companies, however, substantially all of the Corporation’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.

Effects of Government Monetary Policies

The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.

The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Corporation’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

See the discussion of quantitative and qualitative disclosures about market risks in the Corporation’s ~~2018~~2019 Annual Report, as updated by the disclosure in “Management’s Discussion and Analysis of Results of Operations – Impact of COVID-19,” “–Interest Rate Sensitivity,” “– Summary of Interest Rate Simulation,” “Customer Derivatives” and “– Gap Analysis” in this Quarterly Report on Form 10-Q.

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer, Francis J. Leto, and Chief

Financial Officer, Michael W. Harrington, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief

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Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, ~~2019.~~2020.

~~There~~The adoption of ASU 2016-13 (Topic 326 - Credit Losses) required the implementation of new accounting policies and procedures which changed the Corporation's internal controls over financial reporting for the analysis of the allowance for credit losses and related disclosures. Other than the changes related to the adoption of ASU 2016-13 (Topic 326 - Credit Losses), there were no changes during the period covered by this Quarterly Report on Form 10-Q in the Corporation’s internal controls over financial reporting ~~during the last fiscal quarter~~ that have materially affected, or are reasonably likely to materially affect, ~~the Corporation’s internal control over financial reporting.~~those controls.

PART II OTHER INFORMATION.

ITEM 1. Legal Proceedings.

The information required by this Item is set forth in the “Legal Matters” discussion in Note 2221 “Contingencies” in the Notes to Unaudited Consolidated Financial Statements in Part I Item I of this Form 10-Q, which is incorporated herein by reference in response to this Item.

ITEM 1A. Risk Factors

~~For~~The section titled Risk Factors in Part I, Item 1A of our 2019 Annual Report includes a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Corporation. The information ~~regarding~~presented below provides an update to, and should be read in conjunction with, the risk factors ~~affecting~~and other information contained in our 2019 Annual Report.

The recent global coronavirus (COVID-19) pandemic has led to periods of significant volatility in financial, commodities and other markets and could harm our business and results of operations.

In December 2019, a novel strain of coronavirus (COVID-19) was first reported in Wuhan, Hubei Province, China. Since then, COVID-19 infections have spread to additional countries including the ~~Corporation, please see~~United States. In March 2020, the ~~cautionary language regarding forward-looking statements~~World Health Organization declared COVID-19 to be a pandemic. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the coronavirus pandemic on our business, and there is no guarantee that our efforts to address or mitigate the adverse impacts of the coronavirus will be effective. The impact to date has included periods of significant volatility in financial, commodities and other markets. This volatility, if it continues, could have an adverse impact on our customers and on our business, financial condition and results of operations as well as our growth strategy.

Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 has caused and could continue to cause severe disruptions in the ~~introduction~~U.S. economy at large, and has resulted and may continue to ~~Item 2~~result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally. In addition, recent actions by US federal, state and local governments to address the pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, may have a significant adverse effect on our customers and the markets in which we conduct our business. The extent of ~~Part I~~impacts resulting from the coronavirus pandemic and other events beyond our control will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus pandemic and actions taken to contain the coronavirus or its impact, among others.

Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability.

For a description of the impact the COVID-19 pandemic has had on our business and results of operations during the period covered by this Quarterly Report on Form 10-Q, see “Management’s Discussion and ~~Part I, Item 1A~~Analysis of ~~our 2018 Annual Report, which~~Results of Operation and Financial Condition – Impact of COVID-19” beginning at page 61. If the global response to contain COVID-19 escalates or is ~~supplemented by the~~unsuccessful, we could experience additional ~~risk factor set forth below. There have been no~~effects, including a material ~~changes to the risk factors described in our 2018 Annual Report.~~

~~Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the results of our operations.~~

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offering Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Efforts in the United States to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. Uncertainty as to the nature of alternative reference rates and as to potential changes in other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures and trust preferred securities. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently and we may incur significant costs to transition both our borrowing arrangements and the loan agreements with our customers from LIBOR, which may have an adverse effect, on our business, financial condition, results of operations and cash flows.

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The spread of the COVID-19 outbreak and the governmental responses may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.

The outbreak of COVID-19 and the U.S. federal, state and local governmental responses may result in a disruption in the services we provide. We rely on our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services or experience interruptions in their ability to provide us with these services, it could negatively impact our ability to serve our customers. Furthermore, the coronavirus pandemic could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to infection, quarantine or other effects and restrictions of a COVID-19 outbreak in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. If we are unable to promptly recover from such business disruptions, our business and financial conditions and results of operations would be adversely affected. We also may incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations.

Our past participation in the SBA PPP loan program exposes us to risks related to noncompliance with the PPP, as well as litigation risk related to our administration of the PPP loan program, which could have a material adverse impact on our business, financial condition and results of operations.

We participated as a lender in the PPP, a loan program administered through the SBA, that was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the amounts loaned under the PPP. The PPP opened on April 3, 2020; however, because of the short window between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. For instance, other financial institutions have experienced litigation related to their process and procedures used in processing applications for the PPP. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations. ~~The~~As previously announced, we have sold our PPP loan portfolio, however, we may be required to repurchase, and as a result be exposed to credit risk, on sold PPP loans in certain circumstances if a determination is made by the SBA that there was a deficiency by the Bank with respect to the manner in which the loan was originated, funded, or serviced.

Interest rate volatility stemming from the COVID-19 pandemic could negatively affect our net interest income, lending activities, deposits and profitability.

Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19.In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of ~~alternatives~~COVID-19 on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to ~~LIBOR~~benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

We are subject to increasing credit risk as a result of the COVID-19 pandemic, which could adversely impact our profitability.

Our business depends on our ability to successfully measure and manage credit risk. As a commercial lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely or at all or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In addition, we are exposed to risks with respect to the risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual loans and borrowers. As the overall economic climate in the U.S., generally, and in our market areas specifically, experiences material disruption due to the COVID-19 pandemic, our borrowers may experience difficulties in repaying their loans and governmental actions may provide payment relief to borrowers affected by COVID-19 and preclude our ability to initiate foreclosure proceedings in certain circumstances and, as a result, the collateral we hold may decrease in value or become illiquid, and the level of our nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for credit losses. Additional factors related to the credit quality of certain commercial real estate and multifamily residential loans include the duration of state and local moratoriums on evictions for non-payment of rent or other fees. The payment on these loans that are secured by income producing properties are typically dependent on the ~~valuations, pricing and~~successful operation of the related real estate property and may subject us to risks from adverse conditions in the real estate market or the general economy.

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We are actively working to support our borrowers to mitigate the impact of the COVID-19 pandemic on them and on our loan portfolio, including through loan modifications that defer payments for those who experienced a hardship as a result of the COVID-19 pandemic. Although recent regulatory guidance provides that such loan modifications are exempt from the calculation and reporting of TDRs and loan delinquencies, we cannot predict whether such loan modifications may ultimately have an adverse impact on our profitability in future periods. Our inability to successfully manage the increased credit risk caused by the COVID-19 pandemic could have a material adverse effect on our business, financial ~~instruments is~~condition and results of operations.

Unpredictable future developments related to or resulting from the COVID-19 pandemic could materially and adversely affect our business and results of operations.

Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet ~~known.~~know the full extent of the COVID-19 pandemic’seffects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic.We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us. However, if the pandemic continues to spread or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations and cash flows as well as our regulatory capital and liquidity ratios could be materially adversely affected and many of the risks described in our 2019 Annual Report will be heightened.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase

The following table presents the shares repurchased by the Corporation during the second quarter of ~~2019:~~2020:


Period	Total Number of Shares Purchased⁽¹⁾⁽²⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽³⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
April 1, 2020 – April 30, 2020	414	$	25.56	—	710,032
May 1, 2020 – May 31, 2020	953	$	27.98	��	710,032
June 1, 2020 – June 30, 2020	2,879	$	27.78	—	710,032
Total	4,246	$	27.61	—

(1)On June 30, 2020, 2,017 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.

(2)Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of BMBC or the Bank as follows: 414 shares on April 4, 2020, 953 shares on May 6, 2020, and 862 shares on June 5, 2020.

(3)On April 18, 2019, BMBC announced a new stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. No shares were repurchased during the three months ended June 30, 2020. As of June 30, 2020, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 710,032, at an aggregate purchase price not to exceed $34.8 million.

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Period
Total Number of Shares Purchased⁽¹⁾⁽²⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽³⁾⁽⁴⁾

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
April 1, 2019 – April 30, 2019 17,013
$ 36.59
16,725
996,169
May 1, 2019 – May 31, 2019 24,645
$ 37.89
24,645
971,524
June 1, 2019 – June 30, 2019 2,230
$ 36.92
—
971,524
Total 43,888
$ 37.34
41,370

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~~(1)~~	~~On June 30, 2019, 2,230 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.~~


~~(2)~~	~~Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of BMBC or Bank as follows: 288 shares on April 4, 2019.~~

~~(3)~~

On August 6, 2015, BMBC announced a stock repurchase program (the “2015 Program”) pursuant to which the Corporation was authorized to repurchase up to 1,200,000 shares of BMBC's common stock, at an aggregate purchase price not to exceed $40 million. All share repurchases under the 2015 Program were accomplished in open market transactions. As of June 30, 2019, there were no shares remaining authorized for repurchase under the 2015 Program as the 2015 Program completed in the second quarter of 2019.

~~(4)~~

On April 18, 2019, BMBC announced a new stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program became effective in the second quarter of 2019 upon the completion of BMBC's existing 2015 Program. All share repurchases during the period presented under the 2019 Program were accomplished in open market transactions. As of June 30, 2019, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 971,524, at an aggregate purchase price not to exceed $43.9 million.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits

Exhibit No.

Description and References

3.1

Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007

3.2

Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007

~~10.1~~31.1

2019 Standard Form of Restricted Stock Unit Agreement for Executives (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.1 of the Corporation's Form 10-Q filed with the SEC on May 8, 2019

~~10.2~~

2019 Standard Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, incorporated by reference to Exhibit 10.2 of the Corporation's Form 10-Q filed with the SEC on May 8, 2019

~~31.1~~

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

31.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

*32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

*32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

101.INS XBRL

Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL Document

101.SCH XBRL

Taxonomy Extension Schema Document, filed herewith

101.CAL XBRL

Taxonomy Extension Calculation Linkbase Document, filed herewith

101.DEF XBRL

Taxonomy Extension Definition Linkbase Document, filed herewith

101.LAB XBRL

Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE XBRL

Taxonomy Extension Presentation Linkbase Document, filed herewith

104

The cover page of Bryn Mawr Bank Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019,~~2020, formatted in Inline XBRL (contained in Exhibit 101)

*Furnished herewith. Notwithstanding any incorporation of this Quarterly Statement on Form 10-Q in any other filing by
the Registrant, Exhibits furnished herewith and designated with one (*) shall not be deemed incorporated by reference to
any other filing unless specifically otherwise set forth herein or therein.

Page 86

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

BRYN MAWR BANK CORPORATION

Date: August ~~7, 2019~~10, 2020

~~By:~~

By:

/s/ Francis J. Leto

Francis J. Leto

Chief Executive Officer

(Principal Executive Officer)

Date: August ~~7, 2019~~10, 2020

~~By:~~

By:

/s/ Michael W. Harrington

Michael W. Harrington

Chief Financial Officer

(Principal Financial Officer)

Page 8887



	For the Six Months Ended June 30, 2018
	Shares of Common Stock Issued		Common Stock			Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Noncontrolling Interest			Total Shareholders' Equity
Balance December 31, 2017	24,360,049		$	24,360		$	371,486		$	(68,179	)	$	(4,414	)	$	205,549		$	(683	)	$	528,119
Net income attributable to Bryn Mawr Bank Corporation	—		—			—			—			—			29,974			—			29,974
Net income attributable to noncontrolling interest	—		—			—			—			—			—			6			6
Dividends paid or accrued, $0.44 per share	—		—			—			—			—			(8,987		)	—			(8,987		)
Other comprehensive loss, net of tax benefit of $1,801	—		—			—			—			(6,777		)	—			—			(6,777		)
Stock based compensation	—		—			1,235			—			—			—			—			1,235
Retirement of treasury stock	(2,253	)	(2		)	(20		)	22			—			—			—			—
Net purchase of treasury stock from stock awards for statutory tax withholdings	—		—			—			(732		)	—			—			—			(732		)
Net treasury stock activity for deferred compensation trusts	—		—			153			(54		)	—			—			—			99
Repurchase of warrants from U.S. Treasury	—		—			(1,853		)	—			—			98			—			(1,755		)
Common stock issued:
Common stock issued through share-based awards and options exercises	93,059		92			1,116			—			—			—			—			1,208
Shares issued in acquisitions⁽¹⁾	2,562		3			110			—			—			—			—			113

Balance June 30, 2018	24,453,417		$	24,453		$	372,227		$	(68,943	)	$	(11,191	)	$	226,634		$	(677	)	$	542,503



(dollars in thousands)
Consideration paid:
Cash paid at closing	$	750
Contingent payment liability (present value)	706
Value of consideration	1,456

Assets acquired:
Cash and due from banks	370
Intangible assets - customer relationships	779
Premises and equipment	1
Other assets	316
Total assets	1,466

Liabilities assumed:
Accounts payable	657
Other liabilities	30
Total liabilities	687

Net assets acquired	779

Goodwill resulting from acquisition of Domenick	$	677



(dollars in thousands)
Consideration paid:
Common shares issued (3,101,316)	$	136,768
Cash in lieu of fractional shares	7
Cash-out of certain options	112
Fair value of warrants assumed	1,853
Value of consideration	138,740

Assets acquired:
Cash and due from banks	17,092
Investment securities available for sale	121,587
Loans	566,228
Premises and equipment	8,264
Deferred income taxes	34,823
Bank-owned life insurance	16,550
Core deposit intangible	4,670
Favorable lease asset	566
Other assets	13,611
Total assets	783,391

Liabilities assumed:
Deposits	593,172
FHLB and other long-term borrowings	59,568
Short-term borrowings	15,000
Junior subordinated debentures	21,416
Unfavorable lease liability	322
Other liabilities	31,381
Total liabilities	720,859

Net assets acquired	62,532

Goodwill resulting from acquisition of RBPI	$	76,208



Roll-Forward of Accretable Discount on Purchased Credit-Impaired Loans and Leases
(dollars in thousands)	Accretable Discount
Balance, December 31, 2018	$	2,697
Accretion	(493		)
Reclassifications from nonaccretable difference	87
Additions/adjustments	—
Disposals	(526		)
Balance, June 30, 2019	$	1,765



Roll-Forward of Allowance for Loan and Lease Losses
(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Total
Balance, December 31, 2018	$	7,567		$	1,003		$	1,813		$	1,485		$	5,461		$	229		$	1,868		$	19,426
Charge-offs	(1,387		)	(314		)	(671		)	—			(426		)	(231		)	(1,192		)	(4,221		)
Recoveries	17			87			3			2			54			18			433			614
Provision for loan and lease losses	2,761			267			748			(401		)	611			237			1,140			5,363
Balance, June 30, 2019	$	8,958		$	1,043		$	1,893		$	1,086		$	5,700		$	253		$	2,249		$	21,182



Allocation of Allowance by Impairment Evaluation Method - All Loans and Leases
As of June 30, 2019	Commercial Mortgage			Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—		$	153	$	264	$	—	$	—	$	43	$	—	$	460
Collectively evaluated for impairment	8,958			890		1,629		1,086		5,700		210		2,249		20,722
Purchased credit-impaired⁽¹⁾	—			—		—		—		—		—		—		—
Total	$	8,958	��	$	1,043	$	1,893	$	1,086	$	5,700	$	253	$	2,249	$	21,182



Allocation of Allowance by Impairment Evaluation Method - All Loans and Leases
As of December 31, 2018	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	162	$	272	$	—	$	—	$	28	$	—	$	462
Collectively evaluated for impairment	7,567		841		1,541		1,485		5,461		201		1,868		18,964
Purchased credit-impaired⁽¹⁾	—		—		—		—		—		—		—		—
Total	$	7,567	$	1,003	$	1,813	$	1,485	$	5,461	$	229	$	1,868	$	19,426



Impaired Loans
As of and for the Three Months Ended June 30, 2019	Recorded Investment⁽²⁾		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Cash-Basis Interest Income Recognized
Impaired loans with related allowance:
Home equity lines and loans	$	1,233	$	1,233	$	153	$	1,177	$	10	$	—
Residential mortgage	1,946		1,946		264		1,950		23		—
Consumer	78		91		43		78		1		—
Total	3,257		3,270		460		3,205		34		—

Impaired loans without related allowance⁽¹⁾:
Commercial mortgage	6,072		7,704		—		6,148		—		—
Home equity lines and loans	260		260		—		262		3		—
Residential mortgage	1,790		1,790		—		1,797		15		—
Commercial and industrial	4,886		5,153		—		4,916		5		—
Consumer	26		29		—		26		—		—
Total	13,034		14,936		—		13,149		23		—
Grand total	$	16,291	$	18,206	$	460	$	16,354	$	57	$	—



Impaired Loans
As of and for the Six Months Ended June 30, 2019	Recorded Investment⁽²⁾		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Cash-Basis Interest Income Recognized
Impaired loans with related allowance:
Home equity lines and loans	$	1,233	$	1,233	$	153	$	1,235	$	22	$	—
Residential mortgage	1,946		1,946		264		1,956		46		—
Consumer	78		91		43		79		2		—
Total	$	3,257	$	3,270	$	460	$	3,270	$	70	$	—

Impaired loans without related allowance⁽¹⁾:
Commercial mortgage	$	6,072	$	7,704	$	—	$	6,870	$	20	$	—
Home equity lines and loans	260		260		—		264		5		—
Residential mortgage	1,790		1,790		—		1,807		31		—
Commercial and industrial	4,886		5,153		—		4,940		64		—
Consumer	26		29				27		—		—
Total	$	13,034	$	14,936	$	—	$	13,908	$	120	$	—
Grand total	$	16,291	$	18,206	$	460	$	17,178	$	190	$	—



Impaired Loans
As of December 31, 2018	Recorded Investment ⁽²⁾		Contractual Principal Balance		Related Allowance
(dollars in thousands)	Recorded Investment ⁽²⁾		Contractual Principal Balance		Related Allowance
Impaired loans with related allowance:
Home equity lines and loans	$	1,280	$	1,280	$	162
Residential mortgage	1,966		1,966		272
Consumer	50		50		28
Total	$	3,296	$	3,296	$	462
Impaired loans without related allowance⁽¹⁾:
Commercial mortgage	$	7,007	$	7,264	$	—
Home equity lines and loans	3,718		3,724		—
Residential mortgage	4,641		4,728		—
Commercial and industrial	2,629		3,803		—
Consumer	83		86
Total	$	18,078	$	19,605	$	—
Grand total	$	21,374	$	22,901	$	462



Loan Mark on Acquired Loans and Leases
	As of June 30, 2019
(dollars in thousands)	Outstanding Principal		Remaining Loan Mark			Recorded Investment
Commercial mortgage	$	286,496	$	(7,038	)	$	279,458
Home equity lines and loans	25,289		(2,152		)	23,137
Residential mortgage	75,404		(2,480		)	72,924
Construction	3,345		(215		)	3,130
Commercial and industrial	52,078		(1,815		)	50,263
Consumer	2,616		(90		)	2,526
Leases	14,762		(384		)	14,378
Total	$	459,990	$	(14,174	)	$	445,816



(dollars in thousands)	Balance December 31, 2018		Additions		Adjustments			Amortization			Balance June 30, 2019		Amortization Period
Goodwill – Wealth	$	20,412	$	—	$	—		$	—		$	20,412	Indefinite
Goodwill – Banking	156,991		—		—			—			156,991		Indefinite
Goodwill – Insurance	6,609		—		—			—			6,609		Indefinite
Total Goodwill	184,012		—		—			—			184,012
Core deposit intangible	5,906		—		—			(655		)	5,251		10 years
Customer relationships	13,607		18		—			(895		)	12,730		5 to 20 years
Non-compete agreements	1,101		—		—			(95		)	1,006		5 to 10 years
Trade name	2,149		—		—			(249		)	1,900		3 to 5 years
Domain name	151		—		—			—			151		Indefinite
Favorable lease assets	541		—		(541		)	—			—
Total Intangible Assets	23,455		18		(541		)	(1,894		)	21,038
Total Goodwill and Intangible Assets	$	207,467	$	18	$	(541	)	$	(1,894	)	$	205,050



(dollars in thousands)	Total		Within 1 Year		2 - 3 Years		4 - 5 Years		After 5 Years
Deposits without a stated maturity	$	3,016,518	$	3,016,518	$	—	$	—	$	—
Wholesale and retail time deposit	615,895		459,069		145,966		10,058		802
Short-term borrowings	207,828		207,828		—		—		—
Long-term FHLB Advances	47,941		28,104		19,837		—		—
Subordinated Notes	100,000		—		—		—		100,000
Junior subordinated debentures	25,800		—		—		—		25,800
Operating lease liabilities	61,936		4,961		8,997		8,150		39,828
Purchase obligations	9,669		6,240		3,429		—		—
Total	$	4,085,587	$	3,722,720	$	178,229	$	18,208	$	166,430