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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of ~~Changes In Shareholders’ Equity~~Cash Flows - Unaudited
(dollars in thousands, except per share information)

For the Three Months Ended March 31, 2017

Shares of Common Stock Issued

Common
Stock

Paid-in
Capital

Treasury Stock

Accumulated Other Comprehensive Loss

Retained Earnings

Total Shareholders' Equity

Balance December 31, 2016
21,110,968 $ 21,111 $ 232,806 $ (66,950 ) $ (2,409 ) $ 196,569 $ 381,127
Net income
- - - - 9,044 9,044
Dividends declared, $0.21 per share
- - - - (3,610 ) (3,610 )
Other comprehensive income, net of tax expense of $225
- - - 419 - 419
Stock based compensation
- 484 - - - 484
Net purchase of treasury stock from stock awards for statutory tax withholdings
- - (19 ) - - (19 )
Common stock issued through share-based awards and options exercises
30,178 30 620 - - - 650
Balance March 31, 2017
21,141,146 $ 21,141 $ 233,910 $ (66,969 ) $ (1,990 ) $ 202,003 $ 388,095
(dollars in thousands)

Nine Months Ended September 30,

2017

2016

Operating activities:

Net Income
$ 29,216 $ 26,628
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan and lease losses
1,541 3,267
Depreciation of fixed assets
4,181 4,234
Net amortization of investment premiums and discounts
2,189 2,415
Net (gain) loss on sale of investment securities available for sale
(73 ) 86
Net gain on sale of loans
(1,948 ) (2,440 )
Stock based compensation cost
1,476 1,233
Amortization and net impairment of mortgage servicing rights
619 1,236
Net accretion of fair value adjustments
(2,038 ) (2,966 )
Amortization of intangible assets
2,057 2,668
Impairment of other real estate owned ("OREO") and other repossessed assets
200 -
Net loss on sale of OREO
12 76
Net increase in cash surrender value of bank owned life insurance ("BOLI")
(602 ) (684 )
Other, net
2,130 (460 )
Loans originated for resale
(91,214 ) (114,087 )
Proceeds from loans sold
95,599 113,121
Provision for deferred income taxes
325 790
Change in income taxes payable/receivable
(2,576 ) 412
Change in accrued interest receivable
(754 ) (197 )
Change in accrued interest payable
(467 ) 3
Net cash provided by operating activities
39,873 35,335

Investing activities:

Purchases of investment securities available for sale
(200,292 ) (120,839 )
Purchases of investment securities held to maturity
(3,466 ) (2,928 )
Proceeds from maturity and paydowns of investment securities available for sale
259,765 45,666
Proceeds from maturity and paydowns of investment securities held to maturity
71 22
Proceeds from sale of investment securities available for sale
12,982 202
Net change in FHLB stock
1,057 (243 )
Proceeds from calls of investment securities
22,180 58,406
Net change in other investments
(314 ) 339
Purchase of domain name
(151 ) -
Net portfolio loan and lease originations
(142,416 ) (223,438 )
Purchases of premises and equipment
(5,251 ) (1,559 )
Acquisitions, net of cash acquired
(4,792 ) -
Capitalize costs to OREO
(50 ) -
Proceeds from sale of OREO
375 1,806
Net cash used in investing activities
(60,302 ) (242,566 )

Financing activities:

Change in deposits
104,558 225,352
Change in short-term borrowings
(23,277 ) (44,091 )
Dividends paid
(11,043 ) (10,400 )
Change in long-term FHLB advances and other borrowings
(55,000 ) (50,000 )
Payment of contingent consideration for business combinations (100 ) (85 )
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation
(1,112 ) (726 )
Net purchase of treasury stock for deferred compensation plans
(98 ) (97 )
Net purchase of treasury stock through publicly announced plans - (7,971 )
Proceeds from exercise of stock options 1,288 1,205
Net cash provided by financing activities
15,216 113,187

Change in cash and cash equivalents
(5,213 ) (94,044 )
Cash and cash equivalents at beginning of period
50,765 143,067
Cash and cash equivalents at end of period
$ 45,552 $ 49,023

Supplemental cash flow information:

Cash paid during the year for:

Income taxes
$ 16,537 $ 12,372
Interest
$ 10,422 $ 7,823

Non-cash information:

Change in other comprehensive loss
$ 1,009 $ 2,540
Change in deferred tax due to change in comprehensive income
$ 544 $ 1,379
Transfer of loans to other real estate owned and repossessed assets
$ 309 $ 296
Acquisition of noncash assets and liabilities:

Assets acquired
$ 7,284 $ -
Liabilities assumed
$ 2,492 $ -

The accompanying notes are an integral part of the unaudited consolidated financial statements.
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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes In Shareholders’ Equity - Unaudited
(dollars in thousands, except per share information)

For the Nine Months Ended September 30, 2017

Shares of
Common
Stock Issued

Common
Stock

Paid-in
Capital

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Retained
Earnings

Total
Shareholders'
Equity

Balance December 31, 2016
21,110,968 $ 21,111 $ 232,806 $ (66,950 ) $ (2,409 ) $ 196,569 $ 381,127
Net income
- - - - - 29,216 29,216
Dividends declared, $0.64 per share
- - - - - (11,019 ) (11,019 )
Other comprehensive income, net of tax expense of $544
- - - - 1,009 - 1,009
Stock based compensation
- - 1,476 - - - 1,476
Form S-4 stock issuance costs
- - (108 ) - - (108 )
Retirement of treasury stock
(2,628 ) (3 ) (23 ) 26 - - -
Net purchase of treasury stock from stock awards for statutory tax withholdings
- - - (1,112 ) - - (1,112 )
Net purchase of treasury stock for deferred compensation trusts
- - - (98 ) - - (98 )
Common stock issued through share-based awards and options exercises
139,455 140 1,261 - - - 1,401
Balance September 30, 2017
21,247,795 $ 21,248 $ 235,412 $ (68,134 ) $ (1,400 ) $ 214,766 $ 401,892
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Notes toConsolidatedFinancial Statements
(Unaudited)

Note 1 - Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank ~~Corporation’s~~Corporation’s (the “Corporation”) management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Corporation’s Annual Report on Form 10-K for the twelve months ended December 31, 2016 (the “2016 Annual Report”).

The results of operations for the three and nine months ended ~~March 31,~~September 30, 2017 are not necessarily indicative of the results to be expected for the full year.

Note 2 - Earnings ~~per~~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~~includes the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock, as well as the effect of restricted and performance shares becoming unrestricted common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive. All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and splits.

Three Months Ended

March 31,

(dollars in thousands except per share data)

2017

2016

Numerator:

Net income available to common shareholders
$ 9,044 $ 8,321
Denominator for basic earnings per share –weighted average shares outstanding
16,954,132 16,848,202
Effect of dilutive common shares
228,557 34,991
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
17,182,689 16,883,193
Basic earnings per share
$ 0.53 $ 0.49
Diluted earnings per share
$ 0.53 $ 0.49
Anti-dilutive shares excluded from computation of average dilutive earnings per share
— —

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands except per share data)

2017

2016

2017

2016

Numerator:

Net income available to common shareholders
$ 10,739 $ 9,374 $ 29,216 $ 26,628
Denominator for basic earnings per share – weighted average shares outstanding
17,023,046 16,860,727 16,987,499 16,840,457
Effect of dilutive common shares
230,936 211,631 254,728 153,998
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
17,253,982 17,072,358 17,242,227 16,994,455
Basic earnings per share
$ 0.63 $ 0.56 $ 1.72 $ 1.58
Diluted earnings per share
$ 0.62 $ 0.55 $ 1.69 $ 1.57
Antidilutive shares excluded from computation of average dilutive earnings per share
21,621 — 47,268 —

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Note 3 - Business Combinations
Harry R. Hirshorn & Company, Inc., d/b/a Hirshorn Boothby (“Hirshorn”)

The acquisition of Hirshorn, an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed on May 24, 2017. Immediately after the acquisition, Hirshorn was merged into the Bank’s existing insurance subsidiary, Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, with three contingent cash payments, not to exceed $575 thousand each, to be payable on each of May 24, 2018, May 24, 2019, and May 24, 2020, subject to the attainment of certain targets during the related periods. The acquisition enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted areas.
In connection with the Hirshorn acquisition, 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
$ 5,770
Contingent payment liability (present value)
1,690
Value of consideration
7,460

Assets acquired:

Cash operating accounts
978
Intangible assets – trade name
195
Intangible assets – customer relationships
2,672
Intangible assets – non-competition agreements
41
Premises and equipment
1,795
Accounts receivable
192
Other assets
27
Total assets
5,900

Liabilities assumed:

Accounts payable
800
Other liabilities
2
Total liabilities
802

Net assets acquired
5,098

Goodwill resulting from acquisition of Hirshorn
$ 2,362
Pending Business Combination – Royal Bancshares of Pennsylvania, Inc.

On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal Bancshares of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value of $127.7 million (the ~~“Acquisition”~~“RBPI Acquisition”). In connection with the Acquisition, RBPI will merge with and into the Corporation and RBA will merge with and into the Bank. The RBPI Acquisition, which is expected to add approximately $602 million in loans and $630 million in deposits (based on December 31, 2016 financial information), strengthens the Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ranks it as the eighth largest community bank headquartered in Pennsylvania. The RBPI Acquisition, which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and an expanded physical presence in Philadelphia County, Pennsylvania, is expected to close during the ~~third~~fourth quarter of ~~2017.~~2017, subject to customary regulatory approvals and closing conditions.

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Due Diligence, Merger-Related and Merger IntegrationExpenses

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

Three Months EndedMarch 31,

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)
2017

2016

2017

2016

2017

2016

Salaries and wages
$ 28 $ — $ 428 $ —
Employee benefits
5 — 10 —
Advertising
89 — 108 —
Professional fees
$ 396 $ — 662 — 1,600 —
Salaries and wages
80 —
Information technology
41 — 300 —
Other
35 — 25 — 151 —
Total due diligence and merger-related expenses
$ 511 $ — $ 850 $ — $ 2,597 $ —

Note 4 - Investment Securities

The amortized cost and fair value of investment securitiesavailable for sale are as follows:

~~As of~~~~March 31, 2017~~
(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

U.S. Treasury securities
$ 101 $ — $ — $ 101
Obligations of the U.S. government and agencies
101,279 161 (964
)
100,476
Obligations of state and political subdivisions
30,949 56 (65
)
30,940
Mortgage-backed securities
197,224 1,281 (1,085
)
197,420
Collateralized mortgage obligations
46,253 87 (864
)
45,476
Other investments
16,520 177 (82
)
16,615

Total
$ 392,326 $ 1,762 $ (3,060
)
$ 391,028
As of September 30, 2017
(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
143,632 175 (1,095
)
142,712
Obligations of state and political subdivisions
24,055 48 (24
)
24,079
Mortgage-backed securities
259,812 1,491 (622
)
260,681
Collateralized mortgage obligations
40,235 56 (696
)
39,595
Other investments
4,324 246 (16
)
4,554
Total
$ 472,158 $ 2,016 $ (2,453
)
$ 471,721
As of December 31,~~2016~~2016
(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

U.S. Treasury securities
$ 200,094 $ 3 $ — $ 200,097
Obligations of the U.S. government and agencies
83,111 167 (1,080
)
82,198
Obligations of state and political subdivisions
33,625 26 (121
)
33,530
Mortgage-backed securities
185,997 1,260 (1,306
)
185,951
Collateralized mortgage obligations
49,488 108 (902
)
48,694
Other investments
16,575 105 (154
)
16,526
Total
$ 568,890 $ 1,669 $ (3,563
)
$ 566,996

~~Page 9~~
~~Table of Contents~~
The following ~~tables~~tables detail the amount of investment securitiesavailable for sale that were in an unrealized loss position as of the dates indicated:

As of~~March 31, 2017~~September 30, 2017

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
$ 91,172 $ (726
)
$ 15,631 $ (369
)
$ 106,803 $ (1,095
)
Obligations of state and political subdivisions
4,207 (15
)
2,859 (9
)
7,066 (24
)
Mortgage-backed securities
104,579 (447
)
11,444 (175
)
116,023 (622
)
Collateralized mortgage obligations
9,916 (100
)
21,899 (596
)
31,815 (696
)
Other investments
1,480 (16
)
— — 1,480 (16
)
Total
$ 211,354 $ (1,304
)
$ 51,833 $ (1,149
)
$ 263,187 $ (2,453
)

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
$ 101 $ — $ — $ — $ 101 $ —
Obligations of the U.S. government and agencies
75,404 (964
)
— — 75,404 (964
)
Obligations of state and political subdivisions
13,847 (65
)
— — 13,847 (65
)
Mortgage-backed securities
103,807 (1,085
)
— — 103,807 (1,085
)
Collateralized mortgage obligations
34,441 (864
)
— — 34,441 (864
)
Other investments
2,331 (46
)
11,920 (36
)
14,251 (82
)
Total
$ 229,931 $ (3,024
)
$ 11,920 $ (36
)
$ 241,851 $ (3,060
)
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As of December 31,2016

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
$ 62,211 $ (1,080
)
$ — $ — $ 62,211 $ (1,080
)
Obligations of state and political subdivisions
24,482 (121
)
— — 24,482 (121
)
Mortgage-backed securities
101,433 (1,306
)
— — 101,433 (1,306
)
Collateralized mortgage obligations
35,959 (902
)
— — 35,959 (902
)
Other investments
2,203 (93
)
11,895 (61
)
14,098 (154
)
Total
$ 226,288 $ (3,502
)
$ 11,895 $ (61
)
$ 238,183 $ (3,563
)

Management evaluates the ~~Corporation’s~~Corporation’s investment securities available for sale that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. The available for sale investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state and local municipalities and other issuers. All fixed income investment securities in the Corporation’s available for sale investment portfolio are rated as investment grade. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers. The Corporation does not believe that these unrealized losses are other-than-temporary. The Corporation does not have the intent to sell these securities prior to their maturity or the recovery of their cost bases and believes that it is more likely than not that it will not have to sell these securities prior to their maturity or the recovery of their cost bases.

As of ~~March 31,~~September 30, 2017 and December 31, 2016, securities having fair values of ~~$103.4~~$105.9 million and $119.4 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”) borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans as part of the Corporation’s borrowing agreement with the FHLB.

~~Page 10~~
~~Table of Contents~~
The amortized cost and fair value of investment securitiesavailable for sale as of ~~March 31,~~September 30, 2017 and December 31, 2016, by contractual maturity, are detailed below:

March 31, 2017

December 31,2016

September 30, 2017

December 31, 2016

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Investment securities¹:

Due in one year or less
$ 12,019 $ 12,026 $ 213,876 $ 213,885 $ 11,870 $ 11,873 $ 213,876 $ 213,885
Due after one year through five years
65,360 65,221 40,335 40,270 98,400 97,785 40,335 40,270
Due after five years through ten years
39,023 38,328 45,840 44,914 42,700 42,342 45,840 44,914
Due after ten years
17,226 17,240 18,079 18,055 15,917 15,990 18,079 18,055
Subtotal
133,628 132,815 318,130 317,124 168,887 167,990 318,130 317,124
Mortgage-related securities¹
243,477 242,896 235,485 234,644 300,047 300,276 235,485 234,644
Mutual funds with no stated maturity
15,221 15,317 15,275 15,228 3,224 3,455 15,275 15,228
Total
$ 392,326 $ 391,028 $ 568,890 $ 566,996 $ 472,158 $ 471,721 $ 568,890 $ 566,996
¹
Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the right to call orprepay obligations with or without call or prepayment penalties.
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Table of Contents

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 securitiesheld to maturity as of ~~March 31,~~September 30, 2017 and December 31, 2016 are detailed below:

As of~~March~~September 3130, 2017

(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Mortgage-backed securities
$ 5,194 $ — $ (78
)
$ 5,116 $ 6,255 $ 10 $ (47
)
$ 6,218
Total
$ 5,194 $ — $ (78
)
$ 5,116 $ 6,255 $ 10 $ (47
)
$ 6,218

As ofDecember 31, 2016

(dollars in thousands)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Mortgage-backed securities
$ 2,879 $ — $ (61
)
$ 2,818
Total
$ 2,879 $ — $ (61
)
$ 2,818

TheThe following ~~tables~~tables detail the amount ofheld to maturitysecurities that were in an unrealized loss position as of ~~March 31,~~September 30, 2017 and December 31, ~~2016~~:2016:

As of ~~March 31, 2017~~September 30, 2017

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
$ 5,116 $ (78
)
$ — $ — $ 5,116 $ (78
)
Total
$ 5,116 $ (78
)
$ — $ — $ 5,116 $ (78
)
~~Page 11~~
~~Table of Contents~~

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
$ 2,194 $ (5
)
$ 2,783 $ (42
)
$ 4,977 $ (47
)
Total
$ 2,194 $ (5
)
$ 2,783 $ (42
)
$ 4,977 $ (47
)

As ofDecember 31, 2016

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
$ 2,818 $ (61
)
$ — $ — $ 2,818 $ (61
)
Total
$ 2,818 $ (61
)
$ — $ — $ 2,818 $ (61
)

The amortized cost and fair value of investment securitiesheld to maturity as of ~~March 31,~~September 30, 2017 and December 31, 2016, by contractual maturity, are detailed ~~below~~:below:

September 30, 2017

December 31, 2016

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Mortgage-related securities¹
$ 6,255 $ 6,218 $ 2,879 $ 2,818
Total
$ 6,255 $ 6,218 $ 2,879 $ 2,818

March 31, 2017

December 31,2016

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Mortgage-related securities¹
$ 5,194 $ 5,116 $ 2,879 $ 2,818
Total
$ 5,194 $ 5,116 $ 2,879 $ 2,818
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.
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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.~~
As of ~~March 31,~~September 30, 2017 and December 31, 2016, the Corporation’s investment securities held intrading accounts totaled ~~$4.1~~$4.4 million and $3.9 million, respectively, and consisted solely of deferred compensation trust accounts which were invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through ~~income.~~earnings.

Note 5 - Loans and Leases

The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers and acquisitions. These mergers and acquisitions include the January 2015 acquisition of CBH, the November 2012 transaction with First Bank of Delaware (“FBD”) and the July 2010 acquisition of First Keystone Financial, Inc. (“FKF”). Many of the tables in this footnote are presented for all loans as well as supplemental tables fororiginatedandacquired loans.

~~Page 12~~
~~Table of Contents~~
A. The table below detailsallportfolioloans and leases as of the dates ~~indicated:~~indicated:

March 31,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Loans held for sale
$ 3,015 $ 9,621 $ 6,327 $ 9,621
Real estate loans:

Commercial mortgage
$ 1,137,870 $ 1,110,898 $ 1,224,571 $ 1,110,898
Home equity lines and loans
203,962 207,999 206,974 207,999
Residential mortgage
418,264 413,540 422,524 413,540
Construction
145,699 141,964 133,505 141,964
Total real estate loans
1,905,795 1,874,401 1,987,574 1,874,401
Commercial and industrial
567,917 579,791 597,595 579,791
Consumer
23,932 25,341 31,306 25,341
Leases
57,945 55,892 60,870 55,892
Total portfolio loans and leases
2,555,589 2,535,425 2,677,345 2,535,425
Total loans and leases
$ 2,558,604 $ 2,545,046 $ 2,683,672 $ 2,545,046
Loans with fixed rates
$ 1,124,066 $ 1,130,172 $ 1,141,433 $ 1,130,172
Loans with adjustable or floating rates
1,434,538 1,414,874 1,542,239 1,414,874
Total loans and leases
$ 2,558,604 $ 2,545,046 $ 2,683,672 $ 2,545,046
Net deferred loan origination fees included in the above loan table
$ (864
)
$ (735
)
$ (718
)
$ (735
)

The table below details the Corporation’soriginated portfolio loans and leases as of the dates indicated:

March 31,
2017

December 31,
2016

Loans held for sale
$ 3,015 $ 9,621
Real estate loans:

Commercial mortgage
$ 990,579 $ 946,879
Home equity lines and loans
176,555 178,450
Residential mortgage
351,349 342,268
Construction
145,699 141,964
Total real estate loans
1,664,182 1,609,561
Commercial and industrial
540,896 550,334
Consumer
23,791 25,200
Leases
57,945 55,892
Total portfolio loans and leases
2,286,814 2,240,987
Total loans and leases
$ 2,289,829 $ 2,250,608
Loans with fixed rates
$ 995,798 $ 992,917
Loans with adjustable or floating rates
1,294,031 1,257,691
Total originated loans and leases
$ 2,289,829 $ 2,250,608
Net deferred loan origination fees included in the above loan table
$ (864
)
$ (735
)

September 30,
2017

December 31,
2016

Loans held for sale
$ 6,327 $ 9,621
Real estate loans:

Commercial mortgage
$ 1,089,369 $ 946,879
Home equity lines and loans
182,301 178,450
Residential mortgage
362,237 342,268
Construction
133,505 141,964
Total real estate loans
1,767,412 1,609,561
Commercial and industrial
573,607 550,334
Consumer
31,165 25,200
Leases
60,870 55,892
Total portfolio loans and leases
2,433,054 2,240,987
Total loans and leases
$ 2,439,381 $ 2,250,608
Loans with fixed rates
$ 1,026,646 $ 992,917
Loans with adjustable or floating rates
1,412,735 1,257,691
Total originated loans and leases
$ 2,439,381 $ 2,250,608
Net deferred loan origination fees included in the above loan table
$ (718
)
$ (735
)

Page 13
Table of Contents

The table below details the Corporation’sacquired portfolio loans as of the dates indicated:

March 31,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Real estate loans:

Commercial mortgage
$ 147,291 $ 164,019 $ 135,202 $ 164,019
Home equity lines and loans
27,407 29,549 24,673 29,549
Residential mortgage
66,915 71,272 60,287 71,272
Construction
— —
Total real estate loans
241,613 264,840 220,162 264,840
Commercial and industrial
27,021 29,457 23,988 29,457
Consumer
141 141 141 141
Total portfolio loans and leases
268,775 294,438 244,291 294,438
Total loans and leases
$ 268,775 $ 294,438
Total acquired loans and leases
$ 244,291 $ 294,438
Loans with fixed rates
$ 128,268 $ 137,255 $ 114,787 $ 137,255
Loans with adjustable or floating rates
140,507 157,183 129,504 157,183
Total acquired loans and leases
$ 268,775 $ 294,438 $ 244,291 $ 294,438

B. Components of the net investment in leases are detailed as follows:

(dollars in thousands)

March 31,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Minimum lease payments receivable
$ 64,502 $ 62,379 $ 67,561 $ 62,379
Unearned lease income
(8,648
)
(8,608
)
(8,946
)
(8,608
)
Initial direct costs and deferred fees
2,091 2,121 2,255 2,121
Total
$ 57,945 $ 55,892 $ 60,870 $ 55,892

CC.. Non-Performing Loans and Leases⁽¹⁾

The following table detailsall non-performing portfolio loans and leases as of the dates indicated:

(dollars in thousands)

March 31,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Non-accrual loans and leases:

Commercial mortgage
$ 315 $ 320 $ 193 $ 320
Home equity lines and loans
1,828 2,289 613 2,289
Residential mortgage
2,640 2,658 1,589 2,658
Commercial and industrial
2,471 2,957 1,977 2,957
Consumer
— 2 — 2
Leases
75 137 100 137
Total
$ 7,329 $ 8,363 $ 4,472 $ 8,363

⁽¹⁾
Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of $270thousandand $344 thousandof purchased credit-impaired loans as of September 30, 2017and December 31, 2016, respectively, which became non-performing subsequent to acquisition.
The following table details non-performing originated portfolio loans and leases as of the dates indicated:
(dollars in thousands)

September 30,
2017

December 31,
2016

Non-accrual originated loans and leases:

Commercial mortgage
$ 144 $ 265
Home equity lines and loans
270 2,169
Residential mortgage
458 1,654
Commercial and industrial
1,131 941
Consumer
— 2
Leases
100 137
Total
$ 2,103 $ 5,168
Page 14
Table of Contents
The following table details non-performing acquired portfolio loans⁽¹⁾ as of the dates indicated:
(dollars in thousands)

September 30,
2017

December 31,
2016

Non-accrual acquired loans and leases:

Commercial mortgage
$ 49 $ 55
Home equity lines and loans
343 120
Residential mortgage
1,131 1,004
Commercial and industrial
846 2,016
Total
$ 2,369 $ 3,195
⁽¹⁾
Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of$~~343~~270 ~~thousand~~ ~~and $~~~~344 tho~~~~usand of purchased credit-impaired loans as of~~~~March 31, 2017~~ ~~and December 31,~~~~2016~~~~, respectively, which became non-performing subsequent to acquisition.~~
~~The following table details non-performing~~~~originated~~ ~~portfolio loans and leases as of the dates indicated:~~
(dollars in thousands)

March 31,
2017

December 31,
2016

Non-accrual originated loans and leases:

Commercial mortgage
$ 263 $ 265
Home equity lines and loans
1,674 2,169
Residential mortgage
1,624 1,654
Commercial and industrial
908 941
Consumer
— 2
Leases
75 137
Total
$ 4,544 $ 5,168
~~Page 14~~
~~Table of Contents~~
~~The following table details non-performing~~~~acquired~~ ~~portfolio loans~~⁽¹⁾ ~~as of the dates indicated:~~
(dollars in thousands)

March 31,
2017

December 31,
2016

Non-accrual acquired loans and leases:

Commercial mortgage
$ 52 $ 55
Home equity lines and loans
154 120
Residential mortgage
1,016 1,004
Commercial and industrial
1,563 2,016
Total
$ 2,785 $ 3,195
⁽¹⁾
~~Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of~~$~~343~~thousand and $344 thousand of purchased credit-impaired loans as of~~March 31,~~September 30, 2017 and December 31,~~2016~~2016, respectively, which became non-performing subsequent to acquisition.

DD.. Purchased Credit-Impaired Loans

The outstanding principal balance and related carrying amount of 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:

(dollars in thousands)

March 31,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Outstanding principal balance
$ 17,264 $ 18,091 $ 15,149 $ 18,091
Carrying amount⁽¹⁾
$ 11,862 $ 12,432 $ 10,380 $ 12,432

⁽¹⁾
Includes $274~~360~~ thousand and $368 ~~thousand~~thousandofpurchased credit-impaired loans as of~~March 31,~~ September 30, 2017 and December 31,~~2016~~2016, respectively, for which the Corporation could not estimate the timing or amount of expected cash flows to be collected at acquisition, and for which no accretable yield is recognized. Additionally, the table above includes $~~343~~$270 ~~thousand~~ thousandand $344 thousandof purchased credit-impaired loans as of~~March 31,~~of September30, 2017 and December 31,~~2016~~2016, respectively, whichbecame non-performing subsequent to acquisition, which are disclosed in Note ~~5C,~~5C, above, and which also have no accretable yield.

The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Corporation applies ASC 310-30, for the ~~three~~nine months ended ~~March 31,~~September 30, 2017:

(dollars in thousands)

Accretable
Discount

Accretable
Discount

Balance, December 31, 2016
$ 3,233 $ 3,233
Accretion
(485
)
(1,553
)
Reclassifications from nonaccretable difference
— —
Additions/adjustments
— 666
Disposals
— —
Balance, March 31, 2017
$ 2,748
Balance, September 30, 2017
$ 2,346
Page 15
Table of Contents

EE.. Age Analysis of Past Due Loans and Leases

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

Accruing Loans and Leases

(dollars in thousands)

As of March 31, 2017

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
Commercial mortgage
$ 1,926 $ — $ — $ 1,926 $ 1,135,629 $ 1,137,555 $ 315 $ 1,137,870
Home equity lines and loans
24 200 — 224 201,910 202,134 1,828 203,962
Residential mortgage
1,967 233 — 2,200 413,424 415,624 2,640 418,264
Construction
— — — — 145,699 145,699 — 145,699
Commercial and industrial
519 719 — 1,238 564,208 565,446 2,471 567,917
Consumer
10 10 — 20 23,912 23,932 — 23,932
Leases
159 310 — 469 57,401 57,870 75 57,945
$ 4,605 $ 1,472 $ — $ 6,077 $ 2,542,183 $ 2,548,260 $ 7,329 $ 2,555,589

~~Page 15~~
~~Table of Contents~~

Accruing 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

As of September 30, 2017

Commercial mortgage
$ 525 $ — $ — $ 525 $ 1,223,853 $ 1,224,378 $ 193 $ 1,224,571
Home equity lines and loans
— — — — 206,361 206,361 613 206,974
Residential mortgage
1,608 1,857 — 3,465 417,470 420,935 1,589 422,524
Construction
— 116 — 116 133,389 133,505 — 133.505
Commercial and industrial
— — — — 595,618 595,618 1,977 597,595
Consumer
22 — — 22 31,284 31,306 — 31,306
Leases
296 133 — 429 60,341 60,770 100 60,870
Total
$ 2,451 $ 2,106 $ — $ 4,557 $ 2,668,316 $ 2,672,873 $ 4,472 $ 2,677,345

(dollars in thousands)
Accruing Loans and Leases

As of December 31, 2016

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
Commercial mortgage
$ 666 $ 722 $ — $ 1,388 $ 1,109,190 $ 1,110,578 $ 320 $ 1,110,898
Home equity lines and loans
11 — — 11 205,699 205,710 2,289 207,999
Residential mortgage
823 490 — 1,313 409,569 410,882 2,658 413,540
Construction
— — — — 141,964 141,964 — 141,964
Commercial and industrial
36 — — 36 576,798 576,834 2,957 579,791
Consumer
10 5 — 15 25,324 25,339 2 25,341
Leases
177 86 — 263 55,492 55,755 137 55,892
$ 1,723 $ 1,303 $ — $ 3,026 $ 2,524,036 $ 2,527,062 $ 8,363 $ 2,535,425

Accruing 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

As of December 31, 2016

Commercial mortgage
$ 666 $ 722 $ — $ 1,388 $ 1,109,190 $ 1,110,578 $ 320 $ 1,110,898
Home equity lines and loans
11 — — 11 205,699 205,710 2,289 207,999
Residential mortgage
823 490 — 1,313 409,569 410,882 2,658 413,540
Construction
— — — — 141,964 141,964 — 141,964
Commercial and industrial
36 — — 36 576,798 576,834 2,957 579,791
Consumer
10 5 — 15 25,324 25,339 2 25,341
Leases
177 86 — 263 55,492 55,755 137 55,892
Total
$ 1,723 $ 1,303 $ — $ 3,026 $ 2,524,036 $ 2,527,062 $ 8,363 $ 2,535,425
**includedIncluded as “current” are $~~2.0~~$4.2 million and $1~~5.3~~$15.3 million of loans and leases as of~~March~~September ~~31, 201~~730, 2017 andDecember 31, 2016, respectively, which are 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. The Corporation does not consider these loans to be delinquent.

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

Accruing Loans and Leases

Accruing Loans and Leases

(dollars in thousands)

As of March 31, 2017

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

As of September 30, 2017

Commercial mortgage
$ 714 $ — $ — $ 714 $ 989,602 $ 990,316 $ 263 $ 990,579 $ 398 $ — $ — $ 398 $ 1,088,827 $ 1,089,225 $ 144 $ 1,089,369
Home equity lines and loans
24 — — 24 174,857 174,881 1,674 176,555 — — — — 182,031 182,031 270 182,301
Residential mortgage
1,732 — — 1,732 347,993 349,725 1,624 351,349 1,511 — — 1,511 360,268 361,779 458 362,237
Construction
— — — — 145,699 145,699 — 145,699 — 116 — 116 133,389 133,505 — 133,505
Commercial and industrial
364 — — 364 539,624 539,988 908 540,896 — — — — 572,476 572,476 1,131 573,607
Consumer
10 10 — 20 23,771 23,791 — 23,791 22 — — 22 31,143 31,165 — 31,165
Leases
159 310 — 469 57,401 57,870 75 57,945 296 133 — 429 60,341 60,770 100 60,870
$ 3,003 $ 320 $ — $ 3,323 $ 2,278,947 $ 2,282,270 $ 4,544 $ 2,286,814
Total
$ 2,227 $ 249 $ — $ 2,476 $ 2,428,475 $ 2,430,951 $ 2,103 $ 2,433,054

Accruing Loans and Leases

(dollars in thousands)

As of December 31, 2016

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
Commercial mortgage
$ — $ 722 $ — $ 722 $ 945,892 $ 946,614 $ 265 $ 946,879
Home equity lines and loans
11 — — 11 176,270 176,281 2,169 178,450
Residential mortgage
773 64 — 837 339,778 340,615 1,653 342,268
Construction
— — — — 141,964 141,964 — 141,964
Commercial and industrial
— — — — 549,393 549,393 941 550,334
Consumer
10 5 — 15 25,183 25,198 2 25,200
Leases
177 86 — 263 55,492 55,755 137 55,892
$ 971 $ 877 $ — $ 1,848 $ 2,233,972 $ 2,235,820 $ 5,167 $ 2,240,987
Page 16
Table of Contents

Accruing 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

As of December 31, 2016

Commercial mortgage
$ — $ 722 $ — $ 722 $ 945,892 $ 946,614 $ 265 $ 946,879
Home equity lines and loans
11 — — 11 176,270 176,281 2,169 178,450
Residential mortgage
773 64 — 837 339,778 340,615 1,653 342,268
Construction
— — — — 141,964 141,964 — 141,964
Commercial and industrial
— — — — 549,393 549,393 941 550,334
Consumer
10 5 — 15 25,183 25,198 2 25,200
Leases
177 86 — 263 55,492 55,755 137 55,892
Total
$ 971 $ 877 $ — $ 1,848 $ 2,233,972 $ 2,235,820 $ 5,167 $ 2,240,987
**includedIncluded as “current” are $~~2.0~~$4.2 million and $~~13.5~~$13.5 million of loans and leases as of~~March~~ September ~~31, 201~~730, 2017 andDecember 31, 2016,, respectively, which are 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. The Corporation does not consider these loans to be delinquent.

T~~The~~he following tables present an aging ofacquired portfolio loans and leases as of the dates indicated:

Accruing Loans and Leases

(dollars in thousands)

As of March 31, 2017

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
Commercial mortgage
$ 1,212 $ — $ — $ 1,212 $ 146,027 $ 147,239 $ 52 $ 147,291
Home equity lines and loans
— 200 — 200 27,053 27,253 154 27,407
Residential mortgage
235 233 — 468 65,431 65,899 1,016 66,915
Commercial and industrial
155 719 — 874 24,584 25,458 1,563 27,021
Consumer
— — — — 141 141 — 141
$ 1,602 $ 1,152 $ — $ 2,754 $ 263,236 $ 265,990 $ 2,785 $ 268,775

~~Page 16~~
~~Table of Contents~~

Accruing 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

As of September 30, 2017

Commercial mortgage
$ 127 $ — $ — $ 127 $ 135,026 $ 135,153 $ 49 $ 135,202
Home equity lines and loans
— — — — 24,330 24,330 343 24,673
Residential mortgage
97 1,857 — 1,954 57,202 59,156 1,131 60,287
Commercial and industrial
— — — — 23,142 23,142 846 23,988
Consumer
— — — — 141 141 — 141
Total
$ 224 $ 1,857 $ — $ 2,081 $ 239,841 $ 241,922 $ 2,369 $ 244,291

Accruing Loans and Leases

(dollars in thousands)

As of December 31, 2016

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
Commercial mortgage
$ 666 $ — $ — $ 666 $ 163,298 $ 163,964 $ 55 $ 164,019
Home equity lines and loans
— — — — 29,429 29,429 120 29,549
Residential mortgage
50 426 — 476 69,791 70,267 1,005 71,272
Commercial and industrial
36 — — 36 27,405 27,441 2,016 29,457
Consumer
— — — — 141 141 — 141
$ 752 $ 426 $ — $ 1,178 $ 290,064 $ 291,242 $ 3,196 $ 294,438

Accruing 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

As of December 31, 2016

Commercial mortgage
$ 666 $ — $ — $ 666 $ 163,298 $ 163,964 $ 55 $ 164,019
Home equity lines and loans
— — — — 29,429 29,429 120 29,549
Residential mortgage
50 426 — 476 69,791 70,267 1,005 71,272
Commercial and industrial
36 — — 36 27,405 27,441 2,016 29,457
Consumer
— — — — 141 141 — 141
Total
$ 752 $ 426 $ — $ 1,178 $ 290,064 $ 291,242 $ 3,196 $ 294,438
**includedIncluded as “current” ~~are $~~0is ~~and $~~~~1.8~~$1.8 million of loans and leases as of~~March~~ December 31, ~~31, 201~~7 ~~and~~~~December 31,~~ 2016~~, respectively,~~ which are 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. The Corporation does not consider these loans to be delinquent.

Page 17
Table of Contents
FF.. Allowance for Loan and Lease Losses (the “Allowance”)

The following tables detail the roll-forward of the Allowance for the three and nine months ended ~~March 31,~~September 30, 2017:

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2016
$ 6,227 $ 1,255 $ 1,917 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,486
Balance, June 30, 2017
$ 6,608 $ 1,214 $ 1,776 $ 1,111 $ 4,813 $ 177 $ 700 $ — $ 16,399
Charge-offs
— (438
)
(27
)
— (59
)
(41
)
(206
)
— (771
)
— (69
)
(88
)
— (301
)
(37
)
(411
)
— (906
)
Recoveries
3 — — 1 — 2 95 — 101 3 — 85 1 2 1 86 — 178
Provision for loan and lease losses
180 426 (92
)
(39
)
(336
)
21 131 — 291 721 (53
)
�� 48 (182
)
366 69 364 — 1,333
Balance, March 31, 2017
$ 6,410 $ 1,243 $ 1,798 $ 2,195 $ 4,747 $ 135 $ 579 $ — $ 17,107
Balance, September 30, 2017
$ 7,332 $ 1,092 $ 1,821 $ 930 $ 4,880 $ 210 $ 739 $ — $ 17,004
(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2016
$ 6,227 $ 1,255 $ 1,917 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,486
Charge-offs
— (676
)
(158
)
— (560
)
(96
)
(924
)
(2,414
)
Recoveries
9 — 85 3 18 5 271 391
Provision for loan and lease losses
1,096 513 (23
)
(1,306
)
280 148 833 1,541
Balance, September 30, 2017
$ 7,332 $ 1,092 $ 1,821 $ 930 $ 4,880 $ 210 $ 739 $ — $ 17,004

The following table details the roll-forward of the Allowance for the three and nine months ended ~~March 31,~~September 30, 2016:

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2015
$ 5,199 $ 1,307 $ 1,740 $ 1,324 $ 5,609 $ 142 $ 518 $ 18 $ 15,857
Balance, June 30, 2016
$ 6,021 $ 1,185 $ 1,949 $ 2,144 $ 5,045 $ 127 $ 565 $ — $ 17,036
Charge-offs
(110
)
(75
)
(4
)
— (28
)
(34
)
(300
)
— (551
)
— (402
)
(4
)
— (112
)
(64
)
(240
)
— (822
)
Recoveries
3 4 39 — 3 14 66 — 129 4 27 2 — 16 7 62 — 118
Provision for loan and lease losses
764 (110
)
93 578 (139
)
(2
)
244 (18
)
1,410 224 402 44 (28
)
500 74 176 — 1,412
Balance, March 31, 2016
$ 5,856 $ 1,126 $ 1,868 $ 1,902 $ 5,445 $ 120 $ 528 $ — $ 16,845
Balance, September 30, 2016
$ 6,269 $ 1,212 $ 1,991 $ 2,116 $ 5,449 $ 144 $ 563 $ — $ 17,744

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

Balance, December 31, 2015
$ 5,199 $ 1,307 $ 1,740 $ 1,324 $ 5,609 $ 142 $ 518 $ 18 $ 15,857
Charge-offs
(110
)
(488
)
(275
)
— (144
)
(131
)
(650
)
— (1,798
)
Recoveries
10 31 46 63 67 23 178 — 418
Provision for loan and lease losses
1,170 362 480 729 (83
)
110 517 (18
)
3,267
Balance September 30, 2016
$ 6,269 $ 1,212 $ 1,991 $ 2,116 $ 5,449 $ 144 $ 563 $ — $ 17,744
Page 18
Table of Contents
The following table details the allocation of the Allowance forall portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in thousands)

As of March 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

As of September 30, 2017

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ $ 73 $ — $ 11 $ 5 $ — $ — $ 89 $ — $ 3 $ 116 $ — $ — $ 4 $ — $ — $ 123
Collectively evaluated for impairment
6,410 1,243 1,725 2,195 4,736 130 579 — 17,018 7,332 1,089 1,705 930 4,880 206 739 — 16,881
Purchased credit-impaired⁽¹⁾
— — — — — — — — — — — — — — — — — —
Total
$ 6,410 $ 1,243 $ 1,798 $ 2,195 $ 4,747 $ 135 $ 579 $ — $ 17,107 $ 7,332 $ 1,092 $ 1,821 $ 930 $ 4,880 $ 210 $ 739 $ — $ 17,004
As of December 31,2016

As of December 31, 2016

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 73 $ — $ 5 $ 8 $ — $ — $ 86 $ — $ — $ 73 $ — $ 5 $ 8 $ — $ — $ 86
Collectively evaluated for impairment
6,227 1,255 1,844 2,233 5,137 145 559 — 17,400 6,227 1,255 1,844 2,233 5,137 145 559 — 17,400
Purchased credit-impaired⁽¹⁾
— — — — — — — — — — — — — — — — — —
Total
$ 6,227 $ 1,255 $ 1,917 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,486 $ 6,227 $ 1,255 $ 1,917 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,486

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

~~Page 17~~
~~Table of Contents~~

The following table details the carrying value forall portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in thousands)

As of March 31, 2017

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

As of September 30, 2017

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,570 $ 1,945 $ 7,256 $ — $ 2,444 $ 29 $ — $ 13,244 $ 1,449 $ 654 $ 6,459 $ — $ 1,940 $ 27 $ — $ 10,529
Collectively evaluated for impairment
1,126,325 201,917 411,008 145,699 563,686 23,903 57,945 2,530,483 1,214,225 206,232 416,065 133,505 594,260 31,279 60,870 2,656,436
Purchased credit-impaired⁽¹⁾
9,975 100 — — 1,787 — — 11,862 8,897 88 — — 1,395 — — 10,380
Total
$ 1,137,870 $ 203,962 $ 418,264 $ 145,699 $ 567,917 $ 23,932 $ 57,945 $ 2,555,589 $ 1,224,571 $ 206,974 $ 422,524 $ 133,505 $ 597,595 $ 31,306 $ 60,870 $ 2,677,345
As of December 31,2016

As of December 31, 2016

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,576 $ 2,354 $ 7,266 $ — $ 2,946 $ 31 $ — $ 14,173 $ 1,576 $ 2,354 $ 7,266 $ — $ 2,946 $ 31 $ — $ 14,173
Collectively evaluated for impairment
1,098,788 205,540 406,271 141,964 575,055 25,310 55,892 2,508,820 1,098,788 205,540 406,271 141,964 575,055 25,310 55,892 2,508,820
Purchased credit-impaired⁽¹⁾
10,534 105 3 — 1,790 — — 12,432 10,534 105 3 — 1,790 — — 12,432
Total
$ 1,110,898 $ 207,999 $ 413,540 $ 141,964 $ 579,791 $ 25,341 $ 55,892 $ 2,535,425 $ 1,110,898 $ 207,999 $ 413,540 $ 141,964 $ 579,791 $ 25,341 $ 55,892 $ 2,535,425

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

Page 19
Table of Contents
The following table details the allocation of the Allowance fororiginated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in thousands)

As ofMarch 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

As of September 30, 2017

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 45 $ — $ 1 $ 5 $ — $ — $ 51 $ — $ 3 $ 69 $ — $ — $ 4 $ — $ — $ 76
Collectively evaluated for impairment
6,410 1,243 1,725 2,195 4,736 130 579 — 17,018 7,332 1,089 1,705 930 4,880 206 739 — 16,881
Total
$ 6,410 $ 1,243 $ 1,770 $ 2,195 $ 4,737 $ 135 $ 579 $ — $ 17,069 $ 7,332 $ 1,092 $ 1,774 $ 930 $ 4,880 $ 210 $ 739 $ — $ 16,957
As of December 31,2016

As of December 31, 2016

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 45 $ — $ 5 $ 8 $ — $ — $ 58 $ — $ — $ 45 $ — $ 5 $ 8 $ — $ — $ 58
Collectively evaluated for impairment
6,227 1,255 1,844 2,233 5,137 145 559 — 17,400 6,227 1,255 1,844 2,233 5,137 145 559 — 17,400
Total
$ 6,227 $ 1,255 $ 1,889 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,458 $ 6,227 $ 1,255 $ 1,889 $ 2,233 $ 5,142 $ 153 $ 559 $ — $ 17,458

The following table details the carrying value fororiginated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in thousands)

As of March 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Total

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,518 $ 1,873 $ 4,070 $ — $ 1,141 $ 29 $ — $ 8,631
Collectively evaluated for impairment
989,061 174,682 347,279 145,699 539,755 23,762 57,945 2,278,183
Total
$ 990,579 $ 176,555 $ 351,349 $ 145,699 $ 540,896 $ 23,791 $ 57,945 $ 2,286,814
As of December 31,2016

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,521 $ 2,319 $ 4,111 $ — $ 1,190 $ 31 $ — $ 9,172
Collectively evaluated for impairment
945,358 176,131 338,157 141,964 549,144 25,169 55,892 2,231,815
Total
$ 946,879 $ 178,450 $ 342,268 $ 141,964 $ 550,334 $ 25,200 $ 55,892 $ 2,240,987

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Total

As of September 30, 2017

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,400 $ 388 $ 3,153 $ — $ 1,287 $ 27 $ — $ 6,255
Collectively evaluated for impairment
1,087,969 181,913 359,084 133,505 572,319 31,139 60,870 2,426,799
Total
$ 1,089,369 $ 182,301 $ 362,237 $ 133,505 $ 573,606 $ 31,166 $ 60,870 $ 2,433,054
As of December 31, 2016

Carrying value of loans and leases:

Individually evaluated for impairment
$ 1,521 $ 2,319 $ 4,111 $ — $ 1,190 $ 31 $ — $ 9,172
Collectively evaluated for impairment
945,358 176,131 338,157 141,964 549,144 25,169 55,892 2,231,815
Total
$ 946,879 $ 178,450 $ 342,268 $ 141,964 $ 550,334 $ 25,200 $ 55,892 $ 2,240,987

Page 1820
Table of Contents

The following table details the allocation of the Allowance foracquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in thousands)

As of March 31, 2017

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Unallocated

Total

As of September 30, 2017

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 28 $ — $ 10 $ — $ — $ — $ 38 $ — $ — $ 47 $ — $ — $ — $ — $ — $ 47
Collectively evaluated for impairment
— — — — — — — — — — — — — — — — — —
Purchased credit-impaired⁽¹⁾
— — — — — — — — — — — — — — — — — —
Total
$ — $ — $ 28 $ — $ 10 $ — $ — $ — $ 38 $ — $ — $ 47 $ — $ — $ — $ — $ — $ 47
As of December 31,2016

As of December 31, 2016

Allowance on loans and leases:

Individually evaluated for impairment
$ — $ — $ 28 $ — $ — $ — $ — $ — $ 28 $ — $ — $ 28 $ — $ — $ — $ — $ — $ 28
Collectively evaluated for impairment
— — — — — — — — — — — — — — — — — —
Purchased credit-impaired⁽¹⁾
— — — — — — — — — — — — — — — — — —
Total
$ — $ — $ 28 $ — $ — $ — $ — $ — $ 28 $ — $ — $ 28 $ — $ — $ — $ — $ — $ 28

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

The following table details the carrying value foracquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in thousands)

As of March 31, 2017

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

As of September 30, 2017

Carrying value of loans and leases:

Individually evaluated for impairment
$ 52 $ 72 $ 3,186 $ — $ 1,303 $ — $ — $ 4,613 $ 49 $ 266 $ 3,306 $ — $ 653 $ — $ — $ 4,274
Collectively evaluated for impairment
137,264 27,235 63,729 — 23,931 141 — 252,300 126,256 24,319 56,981 — 21,941 140 — 229,637
Purchased credit-impaired⁽¹⁾
9,975 100 — — 1,787 — — 11,862 8,897 88 — — 1,395 — — 10,380
Total
$ 147,291 $ 27,407 $ 66,915 $ — $ 27,021 $ 141 $ — $ 268,775 $ 135,202 $ 24,673 $ 60,287 $ — $ 23,989 $ 140 $ — $ 244,291
As of December 31,2016

As of December 31, 2016

Carrying value of loans and leases:

Individually evaluated for impairment
$ 55 $ 35 $ 3,155 $ — $ 1,756 $ — — $ 5,001 $ 55 $ 35 $ 3,155 $ — $ 1,756 $ — $ — $ 5,001
Collectively evaluated for impairment
153,430 29,409 68,114 — 25,911 141 — 277,005 153,430 29,409 68,114 — 25,911 141 — 277,005
Purchased credit-impaired⁽¹⁾
10,534 105 3 — 1,790 — — 12,432 10,534 105 3 — 1,790 — — 12,432
Total
$ 164,019 $ 29,549 $ 71,272 $ — $ 29,457 $ 141 — $ 294,438 $ 164,019 $ 29,549 $ 71,272 $ — $ 29,457 $ 141 $ — $ 294,438
⁽¹⁾
⁽¹⁾
Purchased credit-impaired loans are evaluated for impairment on an individual basis.
Page 21
Table of Contents

As part of the process of determining the Allowance for the different segments of the loan and lease portfolio, Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by both in-house staff as well as external loan reviewers. The result of these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

Pass – Loans considered satisfactory with no indications of deterioration.

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.

In addition, for the remaining segments of the loan and lease portfolio, which include residential mortgage, home equity lines and loans, consumer, and leases, the credit quality indicator used to determine this component of the Allowance is based on performance status.

~~Page 19~~
~~Table of Contents~~
The following tables detail the carrying value ofall portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of ~~March 31,~~September 30, 2017 and December 31, 2016:

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

Pass
$ 1,126,655 $ 1,099,557 $ 143,732 $ 140,370 $ 559,773 $ 570,342 $ 1,830,160 $ 1,810,269
Special Mention
1,886 1,892 — — 674 2,315 2,560 4,207
Substandard
9,329 9,449 1,967 1,594 7,123 5,512 18,419 16,555
Doubtful
— — — — 347 1,622 347 1,622
Total
$ 1,137,870 $ 1,110,898 $ 145,699 $ 141,964 $ 567,917 $ 579,791 $ 1,851,486 $ 1,832,653
Credit Risk Profile by Payment Activity

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Residential Mortgage

Home Equity
Lines and Loans

Consumer

Leases

Total

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Performing
$ 415,624 $ 410,882 $ 202,134 $ 205,710 $ 23,932 $ 25,339 $ 57,870 $ 55,755 $ 699,560 $ 697,686
Non-performing
2,640 2,658 1,828 2,289 — 2 75 137 4,543 5,086
Pass
$ 1,215,039 $ 1,099,557 $ 130,398 $ 140,370 $ 591,495 $ 570,342 $ 1,936,932 $ 1,810,269
Special Mention
— 1,892 — — 1,332 2,315 1,332 4,207
Substandard
9,532 9,449 3,107 1,594 4,249 5,512 16,888 16,555
Doubtful
— — — — 519 1,622 519 1,622
Total
$ 418,264 $ 413,540 $ 203,962 $ 207,999 $ 23,932 $ 25,341 $ 57,945 $ 55,892 $ 704,103 $ 702,772 $ 1,224,571 $ 1,110,898 $ 133,505 $ 141,964 $ 597,595 $ 579,791 $ 1,955,671 $ 1,832,653

Credit Risk Profile by Payment Activity

(dollars in thousands)

Residential Mortgage

Home Equity Lines and Loans

Consumer

Leases

Total

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

Performing
$ 420,935 $ 410,882 $ 206,361 $ 205,710 $ 31,606 $ 25,339 $ 60,770 $ 55,755 $ 719,372 $ 697,686
Non-performing
1,589 2,658 613 2,289 — 2 100 137 2,302 5,086
Total
$ 422,524 $ 413,540 $ 206,974 $ 207,999 $ 31,606 $ 25,341 $ 60,870 $ 55,892 $ 721,674 $ 702,772
The following tables detail the carrying value oforiginatedportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of ~~March 31,~~September 30, 2017 and December 31, 2016:

Credit Risk Profile by Internally Assigned Grade

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Commercial Mortgage

Construction

Commercial and Industrial

Total

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Pass
$ 980,545 $ 936,737 $ 143,732 $ 140,370 $ 536,621 $ 544,876 $ 1,660,898 $ 1,621,983 $ 1,081,187 $ 936,737 $ 130,398 $ 140,370 $ 570,427 $ 544,876 $ 1,782,012 $ 1,621,983
Special Mention
1,886 1,892 — — 642 2,279 2,528 4,171 — 1,892 — — 1,332 2,279 1,332 4,171
Substandard
8,148 8,250 1,967 1,594 3,508 3,054 13,623 12,898 8,182 8,250 3,107 1,594 1,494 3,054 12,783 12,898
Doubtful
— — — — 125 125 125 125 — — — — 354 125 354 125
Total
$ 990,579 $ 946,879 $ 145,699 $ 141,964 $ 540,896 $ 550,334 $ 1,677,174 $ 1,639,177 $ 1,089,369 $ 946,879 $ 133,505 $ 141,964 $ 573,607 $ 550,334 $ 1,796,481 $ 1,639,177

Credit Risk Profile by Payment Activity

(dollars in thousands)

Residential Mortgage

Home Equity
Lines and Loans

Consumer

Leases

Total

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

March 31, 2017

December 31,2016

Performing
$ 349,725 $ 340,615 $ 174,882 $ 176,281 $ 23,791 $ 25,198 $ 57,870 $ 55,755 $ 606,268 $ 597,849
Non-performing
1,624 1,653 1,673 2,169 — 2 75 137 3,372 3,961
Total
$ 351,349 $ 342,268 $ 176,555 $ 178,450 $ 23,791 $ 25,200 $ 57,945 $ 55,892 $ 609,640 $ 601,810
Page 22
Table of Contents
Credit Risk Profile by Payment Activity

(dollars in thousands)

Residential Mortgage

Home Equity Lines and Loans

Consumer

Leases

Total

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

September
30, 2017

December
31, 2016

Performing
$ 361,779 $ 340,615 $ 182,031 $ 176,281 $ 31,165 $ 25,198 $ 60,770 $ 55,755 $ 635,745 $ 597,849
Non-performing
458 1,653 270 2,169 — 2 100 137 828 3,961
Total
$ 362,237 $ 342,268 $ 182,301 $ 178,450 $ 31,165 $ 25,200 $ 60,870 $ 55,892 $ 636,573 $ 601,810

The following tables detail the carrying value ofacquiredportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of ~~March 31,~~September 30, 2017 and December 31, 2016:

Credit Risk Profile by Internally Assigned Grade

Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)

Commercial Mortgage

Construction

Commercial and Industrial

Total

Commercial Mortgage

Construction

Commercial and Industrial

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Pass
$ 146,110 $ 162,820 $ — $ — $ 23,152 $ 25,466 $ 169,262 $ 188,286 $ 133,852 $ 162,820 $ — $ — $ 21,068 $ 25,466 $ 154,920 $ 188,286
Special Mention
— — — — 32 36 32 36 — — — — — 36 — 36
Substandard
1,181 1,199 — — 3,615 2,458 4,796 3,657 1,350 1,199 — — 2,755 2,458 4,105 3,657
Doubtful
— — — — 222 1,497 222 1,497 — — — — 165 1,497 165 1,497
Total
$ 147,291 $ 164,019 $ — $ — $ 27,021 $ 29,457 $ 174,312 $ 193,476 $ 135,202 $ 164,019 $ — $ — $ 23,988 $ 29,457 $ 159,190 $ 193,476

~~Page 20~~
~~Table of Contents~~
Credit Risk Profile by Payment Activity
Credit Risk Profile by Payment Activity
(dollars in thousands)

Residential Mortgage

Home Equity Lines and Loans

Consumer

Total

Residential Mortgage

Home Equity Lines and Loans

Consumer

Total

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

March 31,
2017

December 31,2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Performing
$ 65,899 $ 70,267 $ 27,252 $ 29,429 $ 141 $ 141 $ 93,292 $ 99,837 $ 59,156 $ 70,267 $ 24,330 $ 29,429 $ 141 $ 141 $ 83,627 $ 99,837
Non-performing
1,016 1,005 155 120 — — 1,171 1,125 1,131 1,005 343 120 — — 1,474 1,125
Total
$ 66,915 $ 71,272 $ 27,407 $ 29,549 $ 141 $ 141 $ 94,463 $ 100,962 $ 60,287 $ 71,272 $ 24,673 $ 29,549 $ 141 $ 141 $ 85,101 $ 100,962

G. 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.

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

(dollars in thousands)

March 31,
2017

December 31,
2016

September 30, 2017

December 31, 2016

TDRs included in nonperforming loans and leases
$ 2,681 $ 2,632 $ 2,033 $ 2,632
TDRs in compliance with modified terms
6,492 6,395 6,597 6,395
Total TDRs
$ 9,173 $ 9,027 $ 8,630 $ 9,027
Page 23
Table of Contents

The following table ~~presents~~presents information regarding loan and lease modifications categorized as TDRs for the three months ended ~~March 31,~~September 30, 2017:

For the Three Months Ended March 31, 2017

For the Three Months Ended September 30, 2017

(dollars in thousands)

Number of Contracts

Pre-Modification
Outstanding Recorded Investment

Post-Modification Outstanding Recorded Investment

Number of Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Home equity loans and lines
1 $ 8 $ 8
Residential mortgage
1 194 202 2 $ 240 $ 240
Leases
3 62 62 2 28 28
Total
5 $ 264 $ 272 4 $ 268 $ 268

The following table ~~presents~~presents information regarding the types of loan and lease modifications made for the three months ended ~~March 31,~~September 30, 2017:

Number of Contracts for the Three Months Ended March 31, 2017

Number of Contracts for the Three Months Ended September 30, 2017

Interest Rate Change

Loan Term Extension

Interest Rate Change and Term Extension

Interest Rate Change and/or Interest-Only Period

Contractual Payment Reduction (Leases only)

Forgiveness of Interest

Forgiveness of Principal

Interest
Rate
Change

Loan Term
Extension

Interest Rate
Change and
Term
Extension

Interest
Rate
Change
and/or
Interest-
Only Period

Contractual
Payment
Reduction
(Leases
only)

Forgiveness
of Interest

Forgiveness of
Principal

Home equity loans and lines
— 1 — — — — —
Residential mortgage
— — 1 — — — — — 1 1 — — — —
Leases
— — — — 3 — — — — — — 2 — —
Total
— 1 1 — 3 — — — 1 1 — 2 — —

~~During~~The following table presents information regarding loan and lease modifications categorized as TDRs for the nine months ended September 30, 2017:

For the Nine Months Ended September 30, 2017

(dollars in thousands)

Number of Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Home equity loans and lines
1 $ 8 $ 8
Residential mortgage
3 442 442
Leases
4 87 87
Total
8 $ 537 $ 537
The following table presents information regarding the types of loan and lease modifications made for the nine months ended September 30, 2017:

Number of Contracts for the Nine Months Ended September 30, 2017

Interest
Rate
Change

Loan Term
Extension

Interest Rate
Change and
Term
Extension

Interest Rate
Change
and/or
Interest-
Only Period

Contractual
Payment
Reduction
(Leases only)

Forgiveness
of Interest

Forgiveness
of Principal

Home equity loans and lines
1 — — — — — —
Residential mortgage
1 1 1 — — — —
Leases
— — — — 4 — —
Total
2 1 1 — 4 — —
During the three and nine months ended ~~March 31,~~September 30, 2017, ~~there were no defaults~~one commercial and industrial loan with a principal balance of ~~loans or leases that~~$63 thousand which had been previously modified to a troubled debt ~~restructurings.~~
restructurings defaulted and was charged off.

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H. Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by ~~portfolio~~portfolio segment, their related Allowance and interest income recognized as of the dates or for the periods indicated:

(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of or for the three months ended March 31, 2017

As of or for the three months ended September 30, 2017

Impaired loans with related Allowance:

Home equity lines and loans
$ 21 $ 21 $ 3 $ 21 $ — $ —
Residential mortgage
$ 620 $ 619 $ 73 $ 621 $ 7 $ — 1,770 1,770 116 1,776 23 —
Commercial and industrial
88 121 11 110 1 —
Consumer
29 29 5 29 — — 27 27 4 28 — —
Total
$ 737 $ 769 $ 89 $ 760 $ 8 $ — $ 1,818 $ 1,818 $ 123 $ 1,825 $ 23 $ —

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 1,570 $ 1,570 $ — $ 1,573 $ 15 $ — $ 1,449 $ 1,485 $ — $ 1,451 $ 15 $ —
Home equity lines and loans
1,945 2,806 — 2,358 2 — 633 694 — 655 1 —
Residential mortgage
6,637 6,623 — 6,755 53 — 4,688 5,015 — 4,243 43 —
Commercial and industrial
2,357 3,156 — 2,456 2 — 1,940 2,796 — 2,605 2 —
Total
$ 12,509 $ 14,155 $ — $ 13,142 $ 72 $ — $ 8,710 $ 9,990 $ — $ 8,954 $ 61 $ —

Grand total
$ 13,246 $ 14,924 $ 89 $ 13,902 $ 80 $ — $ 10,528 $ 11,808 $ 123 $ 10,779 $ 84 $ —

⁽¹⁾
The table above does not include the recorded investment of $~~232~~$270 thousand of impaired leases without a relatedA~~llowance.~~ Allowance.
⁽²⁾
Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.
⁽³⁾
This table excludes all purchased credit-impaired loans, which are discussed in Note5D,, above.

(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of or for the three months endedMarch 31, 2016

Impaired loans with related Allowance:

Residential mortgage
$ 628 $ 642 $ 74 $ 642 $ 7 $ —
Commercial and industrial
1,947 1,966 519 1,990 1 —
Consumer
30 30 5 30 — —
Total
$ 2,605 $ 2,638 $ 598 $ 2,662 $ 8 $ —

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 405 $ 527 $ — $ 528 $ — $ —
Home equity lines and loans
1,906 2,393 — 2,538 1 —
Residential mortgage
6,861 7,707 — 8,134 52 —
Construction
12 974 — 994 — —
Commercial and industrial
2,009 2,826 — 4,759 1 —
Total
$ 11,193 $ 14,427 $ — $ 16,953 $ 54 $ —

Grand total
$ 13,798 $ 17,065 $ 598 $ 19,615 $ 62 $ —

(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of or for the nine months ended September 30, 2017

Impaired loans with related Allowance:

Home equity lines and loans
$ 21 $ 21 $ 3 $ 21 $ 1 $ —
Residential mortgage
1,770 1,770 116 1,797 67 —
Consumer
27 27 4 28 1 —
Total
$ 1,818 $ 1,818 $ 123 $ 1,846 $ 69 $ —

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 1,449 $ 1,485 $ — $ 1,475 $ 45 $ —
Home equity lines and loans
633 694 — 669 5 —
Residential mortgage
4,688 5,015 — 4,288 118 —
Commercial and industrial
1,940 2,796 — 2,746 34 —
Total
$ 8,710 $ 9,990 $ — $ 9,178 $ 202 $ —

Grand total
$ 10,528 $ 11,808 $ 123 $ 11,024 $ 271 $ —

⁽¹⁾
The table above does not include the recorded investment of$~~122~~$270 ~~thousand~~thousand of impaired leases without a related ~~Allowance.~~Allowance.
⁽²⁾
Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.
⁽³⁾
~~This~~ This table excludes all purchased credit-impaired loans, which are discussed in Note ~~5D,~~5D, above.

Page 2225
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(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of December 31,2016

Impaired loans with related allowance:

As of or for the three months ended September 30, 2016

Impaired loans with related Allowance:

Residential mortgage
$ 622 $ 622 $ 73 $ 624 $ 624 $ 74 $ 638 $ 7 $ —
Commercial and industrial
84 84 5 1,832 1,832 519 1,901 1 —
Consumer
31 31 8 30 30 6 31 — —
Total
$ 737 $ 737 $ 86 $ 2,486 $ 2,486 $ 599 $ 2,570 $ 8 $ —

Impaired loans⁽¹⁾⁽³⁾ without related allowance:

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 1,577 $ 1,577 $ — $ 1,395 $ 1,395 $ — $ 1,398 $ 15 $ —
Home equity lines and loans
2,354 2,778 — 2,891 3,498 — 3,651 1 —
Residential mortgage
6,644 6,970 — 6,838 7,170 — 8,136 53 —
Commercial and industrial
2,862 3,692 — 1,984 2,544 — 3,799 1 —
Consumer
2 2 — 2 — —
Total
$ 13,437 $ 15,017 $ — $ 13,110 $ 14,609 $ — $ 16,986 $ 70 $ —

Grand total
$ 14,174 $ 15,754 $ 86 $ 15,596 $ 17,095 $ 599 $ 19,556 $ 78 $ —

⁽¹⁾
The table above does not ~~include~~include the recorded investment of $203$~~240~~thousand 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.
⁽³⁾
This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.

(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

Average
Principal
Balance

Interest
Income
Recognized

Cash-Basis
Interest
Income
Recognized

As of or for the nine months ended September 30, 2016

Impaired loans with related Allowance:

Residential mortgage
$ 624 $ 624 $ 74 $ 640 $ 21 $ —
Commercial and industrial
1,832 1,832 519 1,944 4 —
Consumer
30 30 6 32 1 —
Total
$ 2,486 $ 2,486 $ 599 $ 2,616 $ 26 $ —

Impaired loans without related Allowance^{(1) (3)}:

Commercial mortgage
$ 1,395 $ 1,395 $ — $ 1,399 $ 46 $ —
Home equity lines and loans
2,891 3,498 — 3,675 22 —
Residential mortgage
6,838 7,170 — 8,131 164 —
Commercial and industrial
1,984 2,544 — 4,246 30 —
Consumer
2 2 — 2 — —
Total
$ 13,110 $ 14,609 $ — $ 17,453 $ 262 $ —

Grand total
$ 15,596 $ 17,095 $ 599 $ 20,069 $ 288 $ —
⁽¹⁾
The table above does not include the recorded investment of $203 thousand 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.
⁽³⁾
This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.
Page 26
Table of Contents
(dollars in thousands)

Recorded
Investment⁽²⁾

Principal
Balance

Related
Allowance

As of December 31, 2016

Impaired loans with related allowance:

Residential mortgage
$ 622 $ 622 $ 73
Commercial and industrial
84 84 5
Consumer
31 31 8
Total
$ 737 $ 737 $ 86

Impaired loans⁽¹⁾⁽³⁾ without related allowance:

Commercial mortgage
$ 1,577 $ 1,577 $ —
Home equity lines and loans
2,354 2,778 —
Residential mortgage
6,644 6,970 —
Commercial and industrial
2,862 3,692 —
Total
$ 13,437 $ 15,017 $ —
Grand total
$ 14,174 $ 15,754 $ 86
⁽¹⁾
The table above does not include the recorded investment of $240 thousand 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.
⁽³⁾
This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.

II.. 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, whose Loan Mark is accounted for 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, foracquired loans, the outstanding principal, remaining loan mark, and recorded investment, by portfolio segment, as of the dates indicated:

(dollars in thousands)

As of March 31, 2017

As of September 30, 2017

Outstanding
Principal

Remaining
Loan Mark

Recorded
Investment

Outstanding
Principal

Remaining
Loan Mark

Recorded
Investment

Commercial mortgage
$ 151,454 $ (4,163
)
$ 147,291 $ 138,926 $ (3,724
)
$ 135,202
Home equity lines and loans
29,047 (1,640
)
27,407 26,181 (1,508
)
24,673
Residential mortgage
69,338 (2,423
)
66,915 62,455 (2,168
)
60,287
Commercial and industrial
30,317 (3,296
)
27,021 26,790 (2,802
)
23,988
Consumer
162 (21
)
141
Consumer
162 (21
)
141
Total
$ 280,318 $ (11,543
)
$ 268,775 $ 254,514 $ (10,223
)
$ 244,291

(dollars in thousands)

As of December 31, 2016

Outstanding
Principal

Remaining
Loan Mark

Recorded
Investment

Commercial mortgage
$ 168,612 $ (4,593
)
$ 164,019
Home equity lines and loans
31,236 (1,687
)
29,549
Residential mortgage
73,902 (2,630
)
71,272
Commercial and industrial
32,812 (3,355
)
29,457
Consumer
163 (22
)
141
Total
$ 306,725 $ (12,287
)
$ 294,438

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Note 6 - Deposits

~~The~~The following table details the components of deposits:

(dollars in thousands)

March 31,
2017

December 31,
2016

Interest-bearing checking accounts
$ 395,131 $ 379,424
Money market accounts
757,071 761,657
Savings accounts
255,791 232,193
Wholesale non-maturity deposits
69,471 74,272
Wholesale time deposits
68,164 73,037
Time deposits
319,381 322,912
Total interest-bearing deposits
1,865,009 1,843,495
Non-interest-bearing deposits
771,556 736,180
Total deposits
$ 2,636,565 $ 2,579,675
(dollars in thousands)

September 30,
2017

December 31,
2016

Interest-bearing checking accounts
$ 395,383 $ 379,424
Money market accounts
720,613 761,657
Savings accounts
264,273 232,193
Wholesale non-maturity deposits
48,620 74,272
Wholesale time deposits
178,610 73,037
Time deposits
316,068 322,912
Total interest-bearing deposits
1,923,567 1,843,495
Non-interest-bearing deposits
760,614 736,180
Total deposits
$ 2,684,181 $ 2,579,675

Note 7 ~~- Borrowings~~ -Borrowings

A. Short-term borrowings

The ~~Corporation’s~~Corporation’s short-term borrowings (original maturity of one year or less), which consist of a revolving line of credit with a correspondent bank, 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)

March 31,
2017

December 31,
2016

September 30,
2017

December 31,
2016

Repurchase agreements* – commercial customers
$ 23,613 $ 39,151 $ 18,874 $ 39,151
Short-term FHLB advances
— 165,000 162,000 165,000
Overnight federal funds
— — — —
Total short-term borrowings
$ 23,613 $ 204,151 $ 180,874 $ 204,151
* ~~overnight~~Overnight repurchase agreements with no expiration date

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

(dollars in thousands)

Three Months EndedMarch 31,

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

2017

2016

Balance at period-end
$ 23,613 $ 37,010 $ 180,874 $ 50,065 $ 180,874 $ 50,065
Maximum amount outstanding at any month-end
39,378 38,972 184,578 50,065 184,578 54,715
Average balance outstanding during the period
47,603 34,158
Average balance outstanding during the period
182,845 40,966 110,268 35,836
Weighted-average interest rate:

As of period-end
0.10
%
0.27
%
1.17
%
0.32
%
1.17
%
0.32 %
Paid during the period
0.23
%
0.20
%
1.19
%
0.33
%
0.98
%
0.26 %

B. Long-term FHLB Advances ~~and Other Borrowings~~

The ~~Corporation’s~~Corporation’s long-term FHLB advances ~~and other borrowings consist~~are comprised of advances from the FHLB with original maturities of greater than one ~~year and an adjustable-rate commercial loan from a correspondent bank.~~year.

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

(dollars in thousands)

March 31,
2017

December 31,
2016

Within one year
$ 91,471 $ 75,000
Over one year through five years
83,240 114,742
Total
$ 174,711 $ 189,742
(dollars in thousands)

September 30,
2017

December 31,
2016

Within one year
$ 76,411 $ 75,000
Over one year through five years
58,240 114,742
Total long-term FHLB advances
$ 134,651 $ 189,742

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The following table presents rate and maturity information on long-term FHLB ~~advances and other borrowings:~~advances:

(dollars in thousands)

Maturity Range⁽¹⁾

Weighted

Coupon Rate⁽¹⁾

Balance

Maturity Range⁽¹⁾

Weighted

Coupon Rate⁽¹⁾

Balance

Description

From
To
Average
Rate⁽¹⁾

From
To
March 31,
2017

December 31,
2016

From
To
Average
Rate⁽¹⁾

From
To
September 30,
2017

December 31,
2016

Bullet maturity – fixed rate

05/24/2017

12/19/2020
1.48
%
0.95
%
2.13
%
$ 138,612 $ 153,612
12/29/2017

12/09/2020
1.60
%
0.95
%
2.13
%
$ 98,612 $ 153,612
Bullet maturity – variable rate

11/28/2017

11/28/2017
1.20
%
1.20
%
1.20
%
15,000 15,000
11/28/2017

11/28/2017
1.46
%
1.46
%
1.46
%
15,000 15,000
Convertible-fixed⁽²⁾

01/03/2018

08/20/2018
2.94
%
2.58
%
3.50
%
21,099 21,130
01/03/2018

08/20/2018
2.94
%
2.58
%
3.50
%
21,039 21,130
Total
$ 174,711 $ 189,742 $ 134,651 $ 189,742

⁽¹⁾Maturity range, weighted average rate and coupon rate range refers to~~March 31,~~September 30, 2017 balances
⁽²⁾⁽²⁾FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of~~March 31,~~September 30, 2017, substantially all FHLB advances with this convertible feature are subject to conversion in fiscal 2017. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to ~~conversion.~~
conversion.

C. Other Borrowings Information

As of ~~March 31,~~September 30, 2017, the Corporation had a maximum borrowing capacity with the FHLB of ~~$1.23~~$1.28 billion, of which the unused capacity was ~~$1.04~~1.03 billion. In addition, there were unused capacities of $79.0 million in overnight federal funds lines, ~~$108.0~~$125.1 million of Federal Reserve Discount Window borrowings and $5.0 million in a revolving line of credit from a correspondent ~~bank as of March 31, 2017.~~bank. In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of FHLB capital stock held was ~~$8.5~~$16.2 million and $17.3 million as of ~~March 31,~~September 30, 2017 and December 31, 2016, respectively. The carrying amount of the FHLB capital stock approximates its redemption value.

Note 8– ~~Stock-Based~~ Stock-Based Compensation

A. General Information

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 of the Corporation approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders of the Corporation approved the Corporation’s “2010 Long Term Incentive Plan” (the “2010 LTIP”) under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants. On April 30, 2015, the shareholders of the Corporation approved the Amended and Restated Bryn Mawr Bank Corporation 2010 Long-Term Incentive Plan (the “Amended 2010 LTIP”), under which the total number of shares of Corporation Common Stock made available for award grants was increased by 500,000 shares to 945,002 shares.

In addition to the shareholder-approved plans mentioned in the preceding paragraph, the Corporation 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.

Equity awards are authorized to be in the form of, among others, options to purchase the Corporation’s common stock, restricted stock ~~awards or~~ units (“~~RSAs” or “RSUs”~~RSUs”) and performance stock ~~awards or~~ units (“~~PSAs” or “PSUs”~~PSUs”).

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

~~PSAs and~~ PSUs have a restriction based on the passage of time and also have a restriction based on a performance criteria. The performance criteria may be a market-based criteria measured by the ~~Corporation’s~~Corporation’s total shareholder return (“TSR”) relative to the performance of the community bank index or a bank peer group for the respective period. The grant date fair value of the ~~PSAs and~~ PSUs, based on the Corporation’s TSR relative to the performance of the 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. The grant date fair value of these PSUs ~~and PSAs~~ is based on the closing price of the Corporation’s stock on the date of the grant. PSU ~~and PSA~~ grants may have a vesting percent ranging from 0% to 150%.
Page 29
Table of Contents
B. Stock Options

Stock~~B. Stock Options~~
~~Stock-based~~-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period. The fair value of stock option grants is determined using the Black-Scholes pricing model. The assumptions necessary for the calculation of the fair value ~~are~~include expected life of options, annual volatility of stock price, risk-free interest rate and annual dividend yield.

~~Page 25~~
~~Table of Contents~~

The following table provides information about options outstanding for the three months ended ~~March 31,~~September 30, 2017:

Shares

Weighted
Average
Exercise Price

Weighted
Average Grant
Date Fair
Value

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair Value

Options outstanding, December 31, 2016
185,023 $ 21.04 $ 4.88
Options outstanding, June 30, 2017
139,834 $ 20.65 $ 4.85
Forfeited
— $ — $ — — $ — $ —
Expired
— $ — $ — (250
)
$ 22.00 $ 4.90
Exercised
(29,178
)
$ 22.29 $ 4.98 (12,838
)
$ 22.03 $ 5.11
Options outstanding, March 31, 2017
155,845 $ 20.80 $ 4.86
Options outstanding, September 30, 2017
126,746 $ 20.51 $ 4.82
The following table provides information about options outstanding for the nine months ended September 30, 2017:

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair Value

Options outstanding, December 31, 2016
185,023 $ 21.04 $ 4.88
Forfeited
— $ — $ —
Expired
(250
)
$ 22.00 $ 4.90
Exercised
(58,027
)
$ 22.20 $ 5.00
Options outstanding, September 30, 2017
126,746 $ 20.51 $ 4.82

As of ~~March 31,~~September 30, 2017, there were no unvested stock options.

For the three and nine months ended ~~March 31,~~September 30, 2017, the Corporation did not recognize any expense related to stock options. As of ~~March 31,~~September 30, 2017, there was no unrecognized expense related to stock options.

~~Proceeds,~~Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three and nine months ended ~~March 31,~~September 30, 2017 and 2016 are detailed below:

(dollars in thousands)

Three Months Ended March 31,

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

2017

2016

Proceeds from exercise of stock options
$ 650 $ 283 $ 283 $ 559 $ 1,288 $ 1,205
Related tax benefit recognized
141 47 96 98 402 188
Net proceeds of options exercised
$ 791 $ 330
Intrinsic value of options exercised
$ 548 $ 131
Net proceeds of options exercised
$ 379 $ 657 $ 1,690 $ 1,393
Intrinsic value of options exercised
$ 273 $ 279 $ 1,147 $ 537

The following table provides information about options outstanding and exercisable at ~~March 31,~~September 30, 2017:

(dollars in thousands, except exercise price)

Outstanding

Exercisable

Outstanding

Exercisable

Number of shares
155,845 155,845
Weighted average exercise price
$ 20.80 $ 20.80
Number of shares
126,746 126,746
Weighted average exercise price
$ 20.51 $ 20.51
Aggregate intrinsic value
$ 2,914 $ 2,914 $ 2,952 $ 2,952
Weighted average contractual term in years
1.8 1.8 1.5 1.5

For the three and nine months ended September 30, 2017, the Corporation recorded $74 thousand and $302 thousand, respectively, of excess tax benefits related to the exercise of stock options.
Page 30
Table of Contents
C. Restricted Stock ~~Awards~~Units and Performance Stock ~~Awards~~Units

The Corporation has granted ~~RSAs,~~ RSUs ~~PSAs~~ and PSUs under the ~~2007 LTIP,~~ 2010 LTIP and Amended 2010 LTIP.

~~RSAs and~~ RSUs

The compensation expense for the ~~RSAs and~~ 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 nine months ended ~~March 31,~~September 30, 2017, the Corporation recognized ~~$180~~$202 thousand and $525 thousand, respectively, of expense related to the Corporation’s ~~RSAs and~~ RSUs. As of ~~March 31,~~September 30, 2017, there was ~~$1.1~~$1.7 million of unrecognized compensation cost related to ~~RSAs and~~ RSUs. This cost will be recognized over a weighted average period of ~~2.0~~2.4 years.

The following table details the unvested ~~RSAs and~~ RSUs for the three and nine months ended ~~March 31,~~September 30, 2017:

Three Months EndedMarch 31, 2016

Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2017

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Beginning balance
58,862 $ 29.57 55,262 $ 30.95 58,862 $ 29.57
Granted
2,000 $ 38.51 22,117 $ 39.35 28,317 $ 39.48
Vested
(1,000
)
$ 30.04 (10,687
)
$ 30.14 (16,987
)
$ 29.27
Forfeited
— $ — (161
)
$ 30.43 (3,661
)
$ 29.38
Ending balance
59,862 $ 29.86
Ending balance
66,531 $ 33.88 66,531 $ 33.88

For the three and nine months ended ~~March 31,~~September 30, 2017, the Corporation recorded ~~a $4~~$42 thousand and $73 thousand, respectively, of excess tax ~~benefit~~benefits related to the vesting of ~~RSAs and~~ RSUs.

~~Page 26~~
~~Table of Contents~~
~~PSAs and~~ PSUs

The compensation expense for ~~PSAs and~~ PSUs is measured based on the grant date fair value as calculated using the Monte Carlo Simulation method.

For the three and nine months ended ~~March 31,~~September 30, 2017, the Corporation recognized ~~$304~~$359 thousand and $951 thousand, respectively, of expense related to the ~~PSAs and~~ PSUs. As of ~~March 31,~~September 30, 2017, there was ~~$1.7~~$2.6 million of unrecognized compensation cost related to ~~PSAs and~~ PSUs. This cost will be recognized over a weighted average period of ~~1.9~~2.0 years.
~~For the three months ended March 31, 2017, the Corporation recorded $0 of tax benefit related to the vesting of PSAs and PSUs.~~

The following table details the unvested ~~PSAs and~~ PSUs for the three and nine months ended ~~March 31,~~September 30, 2017:

Three Months EndedMarch 31, 2017

Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2017

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Beginning balance
192,844 $ 18.77 192,844 $ 18.77 192,844 $ 18.77
Granted
— — 40,719 $ 37.84 40,719 $ 37.84
Vested
— — (61,815
)
$ 15.05 (61,815
)
$ 15.05
Forfeited
— — (1,335
)
$ 19.46 (1,335
)
$ 19.46
Ending balance
192,844 $ 18.77 170,413 $ 24.67 170,413 $ 24.67

For the three and nine months ended September 30, 2017, the Corporation recorded $578 thousand and $578 thousand, respectively, of excess tax benefits related to the vesting of PSUs.
Note 9 - Pension and Other Post-Retirement Benefit Plans

T~~The~~he Corporation has two defined benefit pension plans (“SERP I” and “SERP II”), both of which are non-qualified plans which are restricted to certain senior officers of the Corporation.

SERP I provides each participant with the equivalent pension benefit provided by a previously settled qualified defined benefit plan on any compensation and bonus deferrals that exceed the IRS limit applicable to such plan.
Page 31
Table of Contents

On February 12, 2008, the Corporation amended SERP I to freeze further increases in the ~~defined-benefit~~defined-benefit amounts to all participants, effective March 31, 2008.

On April 1, 2008, the Corporation added SERP II, a non-qualified defined-benefit plan which was restricted to certain senior officers of the Corporation. Effective January 1, 2013, the Corporation curtailed SERP II, as further increases to the defined-benefit amounts to over 20% of the participants were frozen.

The Corporation also has a postretirement ~~medicalbenefit~~medical benefit plan (“PRBP”) that covers or will cover a portion of health insurance costs ~~ofcertain~~of certain retired employees and a group of current employees. The PRBP was closed to new participants in 1994. In 2007, the Corporation amended the PRBP to allow for settlement of obligations to certain current and retired employees. Certain retired participant obligations were settled in 2007 and current employee obligations were settled in 2008.

The following tables provide details of the components of the net periodic benefits cost (benefit) for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016:

Three Months EndedMarch 31,

Three Months Ended September 30,

SERP I and SERP II

PRBP

SERP I and SERP II

PRBP

(dollars in thousands)

2017

2016

2017

2016

2017

2016

2017

2016

Service cost
$ — $ — $ — $ — $ — $ — $ — $ —
Interest cost
44 46 3 4 44 46 3 5
Expected return on plan assets
— — — — — — — —
Amortization of prior service costs
— — — — — — — —
Amortization of net loss
14 14 9 10 15 14 9 10
Net periodic benefit cost
$ 58 $ 60 $ 12 $ 14 $ 59 $ 60 $ 12 $ 15

Nine Months Ended September 30,

SERP I and SERP II

PRBP

(dollars in thousands)

2017

2016

2017

2016

Service cost
$ — $ — $ — $ —
Interest cost
132 138 9 14
Expected return on plan assets
— — — —
Amortization of prior service costs
— — — —
Amortization of net loss
44 43 27 30
Net periodic benefit cost
$ 176 $ 181 $ 36 $ 44

SERP I and SERP II:The Corporation contributed $65 thousand and $195 thousand during the three and nine months ended ~~March 31,~~September 30, 2017, respectively, and is expected to contribute an additional ~~$195~~$65 thousand to the SERP I and SERP II plans for the remaining ~~nine~~three months of 2017.

PRBP:In 2005, the Corporation capped the maximum annual payment under the PRBP at 120% of the 2005 benefit. This maximum was reached in 2008 and the cap is not expected to be increased above this level.

~~Page 27~~
~~Table of Contents~~
Note 1010 - 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,~~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~~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 leasing) 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 of available for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering.

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 included in the Wealth Management segment of the Corporation since they have similar economic characteristics, products and services to those of the Wealth Management Division of the Corporation. Powers Craft Parker and Beard (“PCPB”), which was merged with the Corporation’s existing insurance subsidiary, Insurance Counsellors of Bryn Mawr (“ICBM”), and ~~RJM,~~the Robert J. McAllister agency (“RJM”), which was acquired on April 1, 2015, now operate under the Powers Craft Parker and Beard, Inc. name. The Wealth Management Division has assumed oversight responsibility for all insurance services of the Corporation. Prior to the PCPB and RJM acquisitions, ICBM was reported through the Banking segment. Any adjustments to prior year figures are immaterial and are not reflected in the tables below.
Page 32
Table of Contents

The following tables detail segment information for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016:

Three Months EndedMarch 31, 2017

Three Months EndedMarch 31,2016

(dollars in thousands)

Banking

Wealth
Management

Consolidated

Banking

Wealth
Management

Consolidated

Net interest income
$ 27,402 $ 1 $ 27,403 $ 25,901 $ 1 $ 25,902
Less: loan loss provision
291 — 291 1,410 — 1,410
Net interest income after loan loss provision
27,111 1 27,112 24,491 1 24,492
Other income:

Fees for wealth management services
— 9,303 9,303 — 8,832 8,832
Service charges on deposit accounts
647 — 647 702 — 702
Loan servicing and other fees
503 — 503 492 — 492
Net gain on sale of loans
629 — 629 705 — 705
Net gain (loss) on sale of available for sale securities
1 — 1 (15
)
— (15
)
Net (loss) gain on sale of other real estate owned
— — — (76
)
— (76
)
Insurance commissions
— 763 763 — 1,276 1,276
Other operating income
1,333 48 1,381 1,201 36 1,237
Total other income
3,113 10,114 13,227 3,009 10,144 13,153

Other expenses:

Salaries & wages
8,630 3,820 12,450 7,897 3,841 11,738
Employee benefits
1,627 932 2,559 1,645 840 2,485
Occupancy & equipment
2,127 399 2,526 2,082 406 2,488
Amortization of intangible assets
353 340 693 220 671 891
Professional fees
681 30 711 799 14 813
Due diligence, merger-related and merger integration costs
511 — 511 — — —
Other operating expenses
6,184 1,026 7,210 5,717 864 6,581
Total other expenses
20,113 6,547 26,660 18,360 6,636 24,996
Segment profit
10,111 3,568 13,679 9,140 3,509 12,649
Intersegment (revenues) expenses*
(112
)
112 — (99
)
99 —
Pre-tax segment profit after eliminations
$ 9,999 $ 3,680 $ 13,679 $ 9,041 $ 3,608 $ 12,649
% of segment pre-tax profit after eliminations
73.1
%
26.9
%
100.0
%
71.5
%
28.5
%
100.0
%
Segment assets(dollars in millions)
$ 3,247 $ 46 $ 3,293 $ 3,010 $ 48 $ 3,058
*
~~Inter-segment revenues consist of rental payments, interest on deposits and management fees.~~

Three Months Ended September 30, 2017

Three Months Ended September 30, 2016

(dollars in thousands)

Banking

Wealth
Management

Consolidated

Banking

Wealth
Management

Consolidated

Net interest income
$ 29,437 $ 1 $ 29,438 $ 26,716 $ 1 $ 26,717
Less: loan loss provision
1,333 — 1,333 1,412 — 1,412
Net interest income after loan loss provision
28,104 1 28,105 25,304 1 25,305
Other income:

Fees for wealth management services
— 9,651 9,651 — 9,100 9,100
Service charges on deposit accounts
676 — 676 688 — 688
Loan servicing and other fees
548 — 548 497 — 497
Net gain on sale of loans
799 — 799 879 — 879
Net gain (loss) on sale of available for sale securities
72 — 72 (28
)
— (28
)
Net (loss) gain on sale of other real estate owned
— — — — — —
Dividends on FHLB and FRB stock
217 — 217 277 — 277
Insurance commissions
— 1,373 1,373 — 886 886
Other operating income
2,207 41 2,248 1,447 40 1,487
Total other income
4,519 11,065 15,584 3,760 10,026 13,786

Other expenses:

Salaries & wages
9,130 4,472 13,602 7,995 3,626 11,621
Employee benefits
1,658 973 2,631 1,611 809 2,420
Occupancy & equipment
2,049 436 2,485 1,943 406 2,349
Amortization of intangible assets
197 480 677 217 671 888
Professional fees
681 58 739 923 14 937
Other operating expenses
6,899 1,151 8,050 6,306 850 7,156
Total other expenses
20,614 7,570 28,184 18,995 6,376 25,371
Segment profit
12,009 3,496 15,505 10,069 3,651 13,720
Intersegment (revenues) expenses*
(112
)
112 — (99
)
99 —
Pre-tax segment profit after eliminations
$ 11,897 $ 3,608 $ 15,505 $ 9,970 $ 3,750 $ 13,720
% of segment pre-tax profit after eliminations
76.7
%
23.3
%
100.0
%
72.7
%
27.3
%
100.0
%
Segment assets (dollars in millions)
$ 3,425 $ 52 $ 3,477 $ 3,128 $ 47 $ 3,175

~~Other~~
*     Inter-segment revenues consist of rental payments, interest on deposits and management fees.
Page 33
Table of Contents
Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(dollars in thousands)

Banking

Wealth
Management

Consolidated

Banking

Wealth
Management

Consolidated

Net interest income
$ 84,804 $ 2 $ 84,806 $ 79,244 $ 2 $ 79,246
Less: loan loss provision
1,541 — 1,541 3,267 — 3,267
Net interest income after loan loss provision
83,263 2 83,265 75,977 2 75,979
Other income:

Fees for wealth management services
— 28,761 28,761 — 27,363 27,363
Service charges on deposit accounts
1,953 — 1,953 2,103 — 2,103
Loan servicing and other fees
1,570 — 1,570 1,528 — 1,528
Net (loss) gain on sale of loans
1,948 — 1,948 2,440 — 2,440
Net (loss) gain on sale of available for sale securities
73 — 73 (86
)
— (86
)
Net loss on sale of other real estate owned
(12
)
— (12
)
(76
)
— (76
)
Dividends on FHLB and FRB stock
649 — 649 754 — 754
Insurance commissions
— 3,079 3,079 — 3,007 3,007
Other operating income
5,437 138 5,575 3,582 104 3,686
Total other income
11,618 31,978 43,596 10,245 30,474 40,719

Other expenses:

Salaries & wages
27,044 12,588 39,632 24,174 11,382 35,556
Employee benefits
4,777 2,888 7,665 4,846 2,495 7,341
Occupancy & equipment
6,025 1,233 7,258 5,997 1,207 7,204
Amortization of intangible assets
588 1,469 2,057 655 2,013 2,668
Professional fees
2,318 181 2,499 2,619 77 2,696
Other operating expenses
20,988 3,240 24,228 18,304 2,817 21,121
Total other expenses
61,740 21,599 83,339 56,595 19,991 76,586
Segment profit
33,141 10,381 43,522 29,627 10,485 40,112
Intersegment (revenues) expenses*
(336
)
336 — (297
)
297 —
Pre-tax segment profit after eliminations
$ 32,805 $ 10,717 $ 43,522 $ 29,330 $ 10,782 $ 40,112
% of segment pre-tax profit after eliminations
75.4
%
24.6
%
100.0
%
73.1
%
26.9
%
100.0
%
Segment assets (dollars in millions)
$ 3,425 $ 52 $ 3,477 $ 3,128 $ 47 $ 3,175
* Inter-segment revenues consist of rental payments, interest on deposits and management fees.
Other segment information is as follows:

Wealth Management Segment Information

(dollars in millions)

March 31, 2017

December 31,2016

Assets under management, administration, supervision and brokerage:
$ 11,725.5 $ 11,328.5

(dollars in millions)

September 30, 2017

December 31, 2016

Assets under management, administration, supervision and brokerage
$ 12,431.4 $ 11,328.5

Page 2834
Table of Contents

Note 1111 - Mortgage Servicing Rights

The following table summarizes the ~~Corporation’s~~Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016:

Three Months EndedMarch 31,

Three Months Ended September 30,

(dollars in thousands)

2017

2016

2017

2016

Balance, beginning of period
$ 5,582 $ 5,142 $ 5,682 $ 4,646
Additions
276 259 282 386
Amortization
(169
)
(136
)
(229
)
(210
)
Recovery
2 — — —
Impairment
(5
)
(83
)
(3
)
(29
)
Balance, end of period
$ 5,686 $ 5,182 $ 5,732 $ 4,793
Fair value
$ 6,394 $ 5,182 $ 6,146 $ 4,877

Nine Months Ended September 30,

(dollars in thousands)

2017

2016

Balance, beginning of period
$ 5,582 $ 5,142
Additions
770 888
Amortization
(571
)
(526
)
Recovery
3 —
Impairment
(52
)
(711
)
Balance, end of period
$ 5,732 $ 4,793
Fair value
$ 6,146 $ 4,877
Residential mortgage loans serviced for others, end of period
$ 647,997 $ 618,134

As of ~~March 31,~~September 30, 2017 and December 31, 2016, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:

(dollars in thousands)

March 31,
2017

December 31,
2016

September 30, 2017

December 31, 2016

Fair value amount of MSRs
$ 6,394 $ 6,154 $ 6,146 $ 6,154
Weighted average life (in years)
6.3 6.3 6.0 6.3
Prepayment speeds (constant prepayment rate)*
10.0
%
10.2
%
11.5
%
10.2
%
Impact on fair value:

10% adverse change
$ (115
)
$ (115
)
$ (176
)
$ (115
)
20% adverse change
$ (238
)
$ (238
)
$ (356
)
$ (238
)
Discount rate
9.55
%
9.55
%
9.55
%
9.55
%
Impact on fair value:

10% adverse change
$ (236
)
$ (225
)
$ (211
)
$ (225
)
20% adverse change
$ (455
)
$ (434
)
$ (409
)
$ (434
)
*     Represents the weighted average prepayment rate for the life of the MSR asset.
Page 35
Table of Contents

These assumptions and sensitivities are hypothetical and should be used with caution. 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.

~~Page 29~~
~~Table of Contents~~
Note 1212 - Goodwill and Other Intangibles

The ~~Corporation’s~~Corporation’s goodwill and intangible assets related to the acquisitions of Lau Associates, LLC (“Lau”) in July 2008, FKF in July 2010, the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May 2011, Davidson Trust Company (“DTC”) in May 2012, the loan and deposit accounts and a branch location of FBD in November 2012, PCPB in October 2014, CBH in January 2015, ~~and~~ RJM in April 2015 and Hirshorn in May 2017 are detailed below:

(dollars in thousands)

Balance
December 31,
2016

Additions/
Adjustments

Amortization

Balance
March 31,
2017

Amortization
Period

Goodwill – Wealth
$ 20,412 $ — $ — $ 20,412 Indefinite
Goodwill – Banking
80,783 — — 80,783 Indefinite
Goodwill – Insurance
3,570 — — 3,570 Indefinite
Total
$ 104,765 $ — $ — $ 104,765
Core deposit intangible (years)
$ 3,447 $ — $ (184
)
$ 3,263 10
Customer relationships (years)
13,056 — (368
)
12,688 10 to 20
Non-compete agreements (years)
1,634 — (129
)
1,505 5 to 10
Trade name
2,165 — — 2,165 Indefinite
Domain name
— 152 — 152 Indefinite
Favorable lease (months)
103 — (12
)
91 17 to 75
Total
$ 20,405 $ 152 $ (693
)
$ 19,864
Grand total
$ 125,170 $ 152 $ (693
)
$ 124,629
(dollars in thousands)

Balance
December 31,
2016

Additions/
Adjustments

Amortization

Balance
September 30,
2017

Amortization
Period

Goodwill – Wealth
$ 20,412 $ — $ — $ 20,412 Indefinite
Goodwill – Banking
80,783 — — 80,783 Indefinite
Goodwill – Insurance
3,570 2,362 — 5,932 Indefinite
Total Goodwill
$ 104,765 $ 2,362 $ — $ 107,127

Core deposit intangible
$ 3,447 $ — $ (553
)
$ 2,894 10 years
Customer relationships
13,056 2,672 (1,152
)
14,576 10 to 20 years
Non-compete agreements
1,634 41 (295
)
1,380 5 to 10 years
Trade name
2,165 195 (22
)
2,338 3 years to Indefinite
Domain name
— 151 — 151 Indefinite
Favorable lease
103 — (35
)
68 17 to 75 months
Total Other Intangibles
$ 20,405 $ 3,059 $ (2,057 ) $ 21,407
Grand Total
$ 125,170 $ 5,421 $ (2,057 ) $ 128,534

The Corporation performed its annual review of goodwill and identifiable intangible assets as of October 31, 2016 in accordance with ASC 350, “Intangibles Goodwill and Other.” For the ~~five~~eleven months ended ~~March 31,~~September 30, 2017, the Corporation determined there were no events that would necessitate impairment testing of goodwill and other intangible assets.

Note 13 – Derivative Instruments and Hedging Activities
Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. The Corporation manages these risks as part of its asset and liability management process and through credit policies and procedures. The Corporation seeks to minimize counterparty credit risk by 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 that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Corporation originates variable-rate loans with customers in addition to interest rate swap agreements, which serve to effectively swap the customers’ variable-rate loans into a fixed-rate loans. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its exposure on the variable and fixed components of the customer agreements. 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 September 30, 2017, 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 Corporation has provided a loan structured with a derivative, the Corporation may purchase a risk participation agreement 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”.
Page 3036
Table of Contents

The following table details the derivative instruments as of September 30, 2017 and December 31, 2016:

Asset Derivatives

Liability Derivatives

(dollars in thousands)

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

Derivatives not designated as hedging instruments

As of September 30, 2017:

Customer derivatives – interest rate swaps
$ 83,217 $ 1.950 $ 83,217 $ 1,946
Risk participation agreements sold
— — 905 3
Risk participation agreements purchased
6,474 1 — —
Total derivatives
$ 89,691 $ 1,951 $ 84,122 $ 1,949

As of December 31, 2016:

Customer derivatives – interest rate swaps
$ — $ — $ — $ —
Risk participation agreements
— — — —
Total derivatives
$ — $ — $ — $ —
The Corporation has an International Swaps and Derivatives Association agreement with a third party 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 the third party at September 30, 2017 and December 31, 2016 was $1.7 million and $0, respectively. The amount of collateral posted with the third party 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 the third party was $1.9 million and $0 as of September 30, 2017 and December 31, 2016, respectively.
Note 1314 – Accumulated Other ComprehensiveIncome (Loss)

The following ~~table details~~tables detail the components of accumulated other comprehensive income (loss) for the three and nine month periods ended ~~March 31,~~September 30, 2017 and 2016:

(dollars in thousands)

Net Change in Unrealized Gains on Available-for-Sale Investment Securities

Net Change in Unfunded Pension Liability

Accumulated Other ComprehensiveIncome (Loss)

Balance, December 31, 2016
$ (1,231
)
(1,178
)
(2,409
)
Net change
387 32 419
Balance, March 31, 2017
$ (844
)
(1,146
)
(1,990
)

Balance, December 31, 2015
$ 774 (1,186
)
(412
)
Net change
1,921 (7 ) 1,914
Balance, March 31, 2016
$ 2,695 (1,193
)
1,502
(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, June 30, 2017
$ (433
)
$ (1,131
)
$ (1,564
)
Net change
149 15 164
Balance, September 30, 2017
$ (284
)
$ (1,116
)
$ (1,400
)

Balance, June 30, 2016
$ 3,665 $ (1,177
)
$ 2,488
Net change
(376
)
16 (360
)
Balance, September 30, 2016
$ 3,289 $ (1,161
)
$ 2,128
(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, 2016
$ (1,231
)
$ (1,178
)
$ (2,409
)
Net change
947 62 1,009
Balance, September 30, 2017
$ (284
)
$ (1,116
)
$ (1,400
)

Balance, December 31, 2015
$ 774 $ (1,186
)
$ (412
)
Net change
2,515 25 2,540
Balance, September 30, 2016
$ 3,289 $ (1,161
)
$ 2,128
Page 37
Table of Contents

The following table details the amounts reclassified from each component of accumulated other comprehensive loss to each ~~component’s~~component’s applicable income statement line, for the three and nine month periods ended ~~March 31,~~September 30, 2017 and 2016:

Description of Accumulated Other

Amount Reclassified from Accumulated
Other Comprehensive Loss

Comprehensive Loss Component
For The Three Months Ended March 31,
Affected Income Statement Category

2017

2016

Net unrealized gain on investment securities available for sale:

Realization of loss (gain) on sale of investment securities available for sale
$ (1
)
$ 15
Net (loss) gain on sale of available for sale investment securities
Less: income tax benefit (expense)
— 6
Less: income tax benefit (expense)
Net of income tax
$ (1
)
$ 9
Net of income tax

Unfunded pension liability:

Amortization of net loss included in net periodic pension costs*
$ 23 $ 24
Employee benefits
Amortization of prior service cost included in net periodic pension costs*
— —
Employee benefits
Total expense before income tax benefit
23 24
Total expense before income tax benefit
Less: income tax benefit
8 8
Less: income tax benefit
Net of income tax
$ 15 $ 16
Net of income tax
Description of Accumulated Other

Amount Reclassified from Accumulated
Other Comprehensive Loss

Comprehensive Loss Component
Three Months Ended September 30,

Affected Income Statement Category

2017

2016

Net unrealized gain on investment securities available for sale:

Realization of loss on sale of investment securities available for sale
$ (72
)
$ 28
Net gain on sale of available for sale investment securities
Less: income tax benefit (expense)
(25
)
10
Less: income tax expense
Net of income tax
$ (47
)
$ 18
Net of income tax

Unfunded pension liability:

Amortization of net loss included in net periodic pension costs*
$ 24 $ 24
Employee benefits
Amortization of prior service cost included in net periodic pension costs*
— —
Employee benefits
Total expense before income tax benefit
24 24
Total expense before income tax benefit
Less: income tax benefit
8 8
Less: income tax benefit
Net of income tax
$ 16 $ 16
Net of income tax

Description of Accumulated Other

Amount Reclassified from Accumulated
Other Comprehensive Loss

Comprehensive Loss Component

Nine Months Ended September 30,

Affected Income Statement Category

2017

2016

Net unrealized gain on investment securities available for sale:

Realization of (gain) loss on sale of investment securities available for sale
$ (73
)
$ 86
Net (loss) gain on sale of available for sale investment securities
Less: income tax expense
(25
)
30
Less: income tax expense
Net of income tax
$ (48
)
$ 56
Net of income tax

Unfunded pension liability:

Amortization of net loss included in net periodic pension costs*
$ 71 $ 73
Employee benefits
Amortization of prior service cost included in net periodic pension costs*
— —
Employee benefits
Total expense before income tax benefit
71 73
Total expense before income tax benefit
Less: income tax benefit
25 26
Less: income tax benefit
Net of income tax
$ 46 $ 47
Net of income tax
*Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note9 - Pension and Other Post-Retirement Benefit Plans
Note 15 - Shareholders’ Equity

~~Page 31~~
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~~Note 14 - Shareholders’ Equity~~
Dividend

On ~~April 20,~~October 19, 2017, the Corporation’s Board of Directors declared a regular quarterly dividend of ~~$0.21~~$0.22 per share payable ~~June~~December 1, 2017 to shareholders of record as of ~~May 2,~~November 1, 2017. During the ~~first~~third quarter of 2017, the Corporation paid or accrued, as applicable, a regular quarterly dividend of ~~$0.21~~$0.22 per share. This dividend totaled ~~$3.6~~$3.8 million, based on outstanding shares and restricted stock units as of ~~February~~August 2, 2017 of ~~17,190,700~~17,248,984 shares.

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S-3 Shelf Registration Statement and Offerings Thereunder

In March 2015, the Corporation filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) to replace its 2012 Shelf Registration Statement, which was set to expire in April 2015. The Shelf Registration Statement allows the Corporation to raise additional capital through offers and sales of registered securities consisting of common stock, debt securities, warrants to purchase common stock, stock purchase contracts and units or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar amount up to $200 million, in the aggregate.

In addition, the Corporation has in place under its Shelf Registration Statement 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. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’s common stock and general economic and market conditions.

Options

In addition to shares that may be issued through the Plan, the Corporation also issues shares through the exercise of stock ~~options.~~options and the vesting of RSUs and PSUs. During the ~~three~~nine months ended ~~March 31,~~September 30, 2017, ~~29,178~~58,027 shares were issued pursuant to the exercise of stock options, increasing shareholders’ equity by ~~$650 thousand.~~$1.3 million. During the nine months ended September 30, 2017, 16,985 RSUs vested and were issued and 61,815 PSUs vested and were issued. The increase in shareholders’ equity related to the issuance of the RSUs and PSUs, which is recognized over the vesting period through stock based compensation expense, was $497 thousand and $930 thousand, respectively.

Stock~~Stock Repurchases~~ Repurchases

On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million. During the ~~three~~nine months ended ~~March 31,~~September 30, 2017, no shares were repurchased under the 2015 Program. As of ~~March 31,~~September 30, 2017, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300. In addition to the 2015 Program, it is the Corporation’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.

Note 1516 - 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 ~~2013.~~2014.

The ~~Corporation’s~~Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued for the three ~~months~~or nine month periods ended ~~March 31,~~September 30, 2017 or 2016.

Note 1617 - Fair Value Measurement

The following disclosures are made in conjunction with the application of fair value measurements.

FASB ASC 820 “Fair Value Measurement” establishes a fair value hierarchy based on the nature of data inputs for fair value determinations, under which the Corporation is required to value each asset using assumptions that market participants would utilize to value that asset. When the Corporation uses its own assumptions, it is required to disclose additional information about the assumptions used and the effect of the measurement on earnings or the net change in assets for the period.
~~Page 32~~
~~Table of Contents~~

The ~~Corporation’s~~Corporation’s investment securities available for sale, which generally include state and municipal securities, U.S. government agency securities and mortgage-related securities, are reported at fair value. These securities are valued by an independent third party. The third party’s evaluations are based on market data. They utilize evaluated 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 applications 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.
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U.S. Government agency securities 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-related 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. The Corporation has a sufficient understanding of the third party service’s valuation models, assumptions and inputs used in determining the fair value of available for sale investments to enable management to maintain an appropriate system of internal control.
The Corporation’s interest rate swaps 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.

The value of the investment portfolio isand interest rate swaps are determined using three broad levels of inputs:

Level 1 – Quoted prices in active markets for identical securities.

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

Level 3 – Instruments whose significant value drivers are unobservable.

These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets at ~~March 31,~~September 30, 2017 and December 31, 2016 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input.

The following table sets forth the ~~fair~~fair value of assets measured on a recurring and non-recurring basis as of ~~March 31,~~September 30, 2017:

(dollars in millions)

Total

Level 1

Level 2

Level 3

(dollars in millions)

Total

Level 1

Level 2

Level 3

Assets Measured at Fair Value on a Recurring Basis:

Investment securities (available for sale and trading):

U.S. Treasury securities
$ 0.1 $ 0.1 $ — $ — $ 0.1 $ 0.1 $ — $ —
Obligations of the U.S. government agency securities
100.5 — 100.5 — 142.7 — 142.7 —
Obligations of state & political subdivisions
30.9 — 30.9 — 24.1 — 24.1 —
Mortgage-backed securities
202.5 — 202.5 — 266.9 — 266.9 —
Collateralized mortgage obligations
45.5 — 45.5 — 39.6 — 39.6 —
Mutual funds 19.5 19.5 — — 7.9 7.9 — —
Other debt securities
1.3 — 1.3 — 1.1 — 1.1 —
Interest rate swaps
1.9 — 1.9 —
Total assets measured on a recurring basis at fair value
$ 400.3 $ 19.6 $ 380.7 $ — $ 484.3 $ 8.0 $ 476.3 $ —

Assets Measured at Fair Value on a Non-Recurring Basis

Mortgage servicing rights
$ 6.4 $ — $ — $ 6.4 $ 6.1 $ — $ — $ 6.1
Impaired loans and leases
13.4 — — 13.4 10.7 — — 10.7
Other real estate owned (“OREO”)
1.0 — — 1.0 0.9 — — 0.9
Total assets measured on a non-recurring basis at fair value
$ 20.8 $ — $ — $ 20.8 $ 17.7 $ — $ — $ 17.7
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~~The~~The following table sets forth the fair value of assets measured on a recurring and non-recurring basis as of December 31, 2016:

(dollars in millions)

Total

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Assets Measured at Fair Value on a Recurring Basis:

Investment securities (available for sale and trading):

U.S. Treasury securities
$ 200.1 $ 200.1 $ — $ — $ 200.1 $ 200.1 $ — $ —
Obligations of the U.S. government agency securities
82.2 — 82.2 — 82.2 — 82.2 —
Obligations of state & political subdivisions
33.5 — 33.5 — 33.5 — 33.5 —
Mortgage-backed securities
188.8 — 188.8 — 188.8 — 188.8 —
Collateralized mortgage obligations
48.7 — 48.7 — 48.7 — 48.7 —
Mutual funds 19.1 19.1 — —
19.1

19.1
— —
Other debt securities
1.3 — 1.3 — 1.3 — 1.3 —
Total assets measured on a recurring basis at fair value
$ 573.7 $ 219.2 $ 354.5 $ — $ 573.7 $ 219.2 $ 354.5 $ —

Assets Measured at Fair Value on a Non-Recurring Basis

Mortgage servicing rights
$ 6.2 $ — $ — $ 6.2 $ 6.2 $ — $ — $ 6.2
Impaired loans and leases
14.3 — — 14.3 14.3 — — 14.3
OREO
1.0 — — 1.0 1.0 — — 1.0
Total assets measured on a non-recurring basis at fair value
$ 21.5 $ — $ — $ 21.5 $ 21.5 $ — $ — $ 21.5

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~~Table of Contents~~

During the three and nine months ended ~~March 31,~~September 30, 2017, a decrease of $6 thousand and an increase of $3$37 thousand ~~was~~were recorded in the Allowance as a result of adjusting the carrying value and estimated fair value of the impaired loans in the above tables. As it relates to the fair values of assets measured on a recurring basis, there have been no transfers between levels during the three and nine months ended ~~March 31,~~September 30, 2017.

Impaired Loans

The Corporation evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each ~~loan’s~~loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. 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, the Corporation 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, an appropriate Allowance is allocated to the particular loan.

Other Real Estate Owned
Other real estate owned consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties are classified as OREO and 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.

Mortgage Servicing Rights

MSRs do not trade in an active, open market with readily observable prices. Accordingly, the Corporation obtains the fair value of the MSRs using a third-party pricing provider. The provider determines the fair value by discounting projected net servicing cash flows of the remaining servicing portfolio. The valuation model used by the provider considers market loan prepayment predictions and other economic factors which the Corporation considers to be significant unobservable inputs. The fair value of MSRs is mostly affected by changes in mortgage interest rates since rate changes cause the loan prepayment acceleration factors to increase or decrease. All assumptions are market driven. The Corporation has a sufficient understanding of the third party ~~service’s~~service’s valuation models, assumptions and inputs used in determining the fair value of MSRs to enable management to maintain an appropriate system of internal control. Mortgage servicing rights are classified within Level 3 of the fair value hierarchy as the valuation is model driven and primarily based on unobservable inputs.

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Note 1718 - 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. In cases where quoted market prices are not available, fair values are based on estimates using present value or other fair 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 following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair values.

Investment Securities

Estimated fair values for investment securities are generally valued by an independent third party based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. Management reviews, annually, the process utilized by its independent third-party valuation experts. 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. See Note 4 of the Notes to Consolidated Financial Statements for more information.

~~Page 34~~
~~Table of Contents~~
Loans Held for Sale

The fair value of loans held for sale is based on pricing obtained from secondary markets.

Net Portfolio Loans and Leases

For ~~variable-rate~~variable-rate loans that re-price frequently and which have no significant change in credit risk, estimated fair values are based on carrying values. Fair values of certain mortgage loans and consumer loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and is indicative of an entry price. The estimated fair value of nonperforming loans is based on discounted estimated cash flows as determined by the internal loan review of the Corporation or the appraised fair value of the underlying collateral, as determined by independent third party appraisers. This technique does not reflect an exit price.

Impaired Loans

The Corporation evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each ~~loan’s~~loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. 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.

Mortgage Servicing Rights

The fair value of the MSRs for these periods was determined using a proprietary third-party valuation model that 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. Due to the proprietary nature of the valuation model used, the Corporation classifies the value of MSRs as using Level 3 inputs.

Other Assets

The carrying amount of accrued interest receivable, income taxes receivable and other investments approximates fair value.

Deposits

The estimated fair values disclosed for noninterest-bearing demand deposits, savings, NOW accounts, and market rate accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on the certificate of deposit. FASB Codification 825 defines the fair value of demand deposits as the amount payable on demand as of the reporting date and prohibits adjusting estimated fair value from any value derived from retaining those deposits for an expected future period of time.

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Short-term borrowings

The carrying amount of short-term borrowings, which include overnight repurchase agreements, fed funds and FHLB advances with original maturity of one year or less, approximates their fair value.

Long-term FHLB Advances ~~and Other Borrowings~~

The fair value of long-term FHLB advances ~~and other borrowings~~ (with original maturities of greater than one year) is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.

SubordinatedNotes

The fair value of the Notes is estimated by discounting the principal balance using the FHLB yield curve for the term to the call date as the Corporation has the option to call the Notes. The Notes are classified within Level 2 in the fair value hierarchy.

Other Liabilities

The carrying amounts of accrued interest payable and other accrued payables approximate fair value.

Interest Rate Swaps and Risk Participation Agreements
The Corporation’s interest rate swaps 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.
Off-Balance Sheet Instruments

Estimated fair values of the ~~Corporation’s~~Corporation’s commitments to extend credit, standby letters of credit and financial guarantees are not included in the table below as their carrying values generally approximate their fair values. These instruments generate fees that approximate those currently charged to originate similar commitments.
~~Page 35~~
~~Table of Contents~~

As of the dates indicated, the carrying amount and estimated fair value of the ~~Corporation’s~~Corporation’s financial instruments are as follows:

As ofMarch 31, As of December 31,
As of September 30,

As of December, 31

Fair Value 2017   2016   Fair Value
2017

2016

(dollars in thousands)
Hierarchy
Level*

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Hierarchy
Level*

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Financial assets:
Cash and cash equivalents

Level 1
$ 87,435 $ 87,435 $ 50,765 $ 50,765
Cash and cash equivalents
Level 1
$ 45,552 $ 45,552 $ 50,765 $ 50,765
Investment securities, available for sale

See Note 16
391,028 392,239 566,996 566,996
See Note 17
471,721 471,721 566,996 566,996
Investment securities, trading

See Note 16
4,138 4,138 3,888 3,888
Investments, held to maturity

Level 2
5,194 5,116 2,879 2,818
Loans held for sale

Level 2
3,015 3,015 9,621 9,621
Net portfolio loans and leases

Level 3
2,538,482 2,564,015 2,517,939 2,505,546
Investment securities, trading
See Note 17
4,423 4,423 3,888 3,888
Investments, held to maturity
Level 2
6,255 6,218 2,879 2,818
Loans held for sale
Level 2
6,327 6,327 9,621 9,621
Net portfolio loans and leases
Level 3
2,660,341 2,693,099 2,517,939 2,505,546
Mortgage servicing rights

Level 3
5,686 6,394 5,582 6,154
Level 3
5,732 6,146 5,582 6,154
Interest rate swaps
Level 2
1,950 1,950 — —
Risk participation agreements purchased
Level 2
1 1
Other assets

Level 3
25,613 25,613 34,465 34,465
Level 3
34,476 34,476 34,465 34,465
Total financial assets
Total financial assets
$ 3,060,591 $ 3,087,965 $ 3,192,135 $ 3,180,253
Total financial assets
$ 3,236,778 $ 3,269,913 $ 3,192,135 $ 3,180,253
Financial liabilities:

Deposits

Level 2
$ 2,636,565 $ 2,635,731 $ 2,579,675 $ 2,579,011
Level 2
$ 2,684,181 $ 2,682,737 $ 2,579,675 $ 2,579,011
Short-term borrowings

Level 2
23,613 23,612 204,151 204,151
Long-term FHLB advances and other borrowings

Level 2
174,711 174,967 189,742 186,863
Short-term borrowings
Level 2
180,874 180,874 204,151 204,151
Long-term FHLB advances
Level 2
134,651 134,789 189,742 186,863
Subordinated notes

Level 2
29,546 29,624 29,532 29,228
Level 2
29,573 30,320 29,532 29,228
Other liabilities

Level 2
40,087 40,087 37,303 37,303
Interest rate swaps
Level 2
1,946 1,946 — —
Risk participation agreements sold
Level 2
3 3
Other liabilities
Level 2
43,701 43,701 37,303 37,303
Total financial liabilities
Total financial liabilities
$ 2,904,522 $ 2,904,021 $ 3,040,403 $ 3,036,556
Total financial liabilities
$ 3,074,929 $ 3,074,370 $ 3,040,403 $ 3,036,556

*See Note 1617 for a description of fair value hierarchy levels.
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Note 19 -Recent Accounting Pronouncements

~~Note 18 - Recent Accounting Pronouncements~~
FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers”

Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment defers the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016- 08, “Principal versus Agent Considerations (Reporting Gross versus Net),” which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers and 2016-12, Narrow-Scope Improvements and Practical Expedients, both of which provide additional clarification of certain provisions in Topic 606. These Accounting Standards Codification (“ASC”) updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or retrospectively with the cumulative effect transition method. The Corporation ~~is currently in the process of evaluating~~has evaluated all revenue streams, accounting policies, practices and reporting to identify and understand any impact on the adoption of ASU 2014-09 will have on the Corporation’s Consolidated Financial Statements. Our ~~preliminary~~ evaluation ~~suggests~~indicates that adoption of this guidance iswill not ~~expected to~~ have a material effect on our Consolidated Financial Statements.

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~~unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017-04 will have on its consolidated financial statements and related disclosures.

FASB ASU 2017-01 (Topic 805), “Business Combinations”

Issued in January 2017, ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017-01 will have on its consolidated financial statements and related disclosures.

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FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”

Issued in August 2016, ASU 2016-15 provides guidance on eight specific cash flow issues and their disclosure in the consolidated statements of cash flows. The issues addressed include debt prepayment, settlement of zero-coupon debt, contingent consideration in business combinations, proceeds from settlement of insurance claims, proceeds from settlement of BOLI, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the Predominance principle. 2016-15 is effective for the annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Corporation is currently evaluating the impact of this guidance and does not anticipate a material impact on its consolidated financial ~~statements.~~statements.

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

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Corporation is evaluating the effect that ASU ~~2016-02~~2016-13 will have on its consolidated financial statements and related disclosures.

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

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Corporation is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

FASB ASU 2016-01 (Subtopic 825-10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”

Issued in January 2016, ASU 2016-01 provides that equity investments will be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable an entity may elect to measure the equity investment at cost, minus impairment, plus or minus any change in the ~~investment’s~~investment’s observable price. For financial liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument-specific credit risk. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. The Corporation ~~is evaluating~~has evaluated the effect ~~that~~of the adoption of ASU 2016-02 and had determined that it will not have a material impact on its consolidated financial statements and related disclosures.

FASB ASU 2017-08 (Subtopic 310-20), “Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”

Issued in March 2017, ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendments does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December ~~15,2018.~~15, 2018. Early adoption is permitted, including adoption in an interim period. The Corporation has evaluated ASU 2017-08 and determined that it currently follows the guidance related to premium amortization on callable debt securities.

FASB ASU 2017-07—Compensation—Retirement Benefits (Topic 715):“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”

Issued in March 2017, ASU 2017-07 require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset). The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Corporation is evaluating the effect that ASU 2017-07 will have on its consolidated financial statements and related disclosures, but does not expect that it will materially affect the Corporation’s financial statements.

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ITEM 2 ~~Management’s~~Management’s Discussionand Analysisof Results of Operation and Financial Condition

The following is the ~~Corporation’s~~Corporation’s discussion and analysis of the significant changes in the financial condition, results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements. Current performance does not guarantee, and may not be indicative of, similar performance in the future.

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 (the “Corporation”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries offer 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 25 full-service branches, eight limited-hour retirement community offices, one limited-service branch, ~~five~~six wealth management offices and a full-service insurance agency located throughout Montgomery, Delaware, Chester, Dauphin and Philadelphia counties in Pennsylvania and New Castle county in Delaware. The common stock of the Corporation 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. The Corporation and its subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve 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 and its subsidiaries conform with U.S. generally accepted accounting principles (“GAAP”). All inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous ~~year’s~~year’s financial statements to the current year’s presentation. 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 and lease losses (the “Allowance”), 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 of the valuation hierarchy. 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).

These critical accounting policies, along with other significant accounting policies, are presented in Footnote 1 – Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in the Corporation’s 2016 Annual Report on Form 10-K (the “2016 Annual Report”).

In addition to the critical accounting policies described and referenced above, as it relates to derivative financial instruments, the Corporation recognizes all derivative instruments at fair value as either assets or liabilities in other assets or other liabilities on the balance sheet. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. As of September 30, 2017, the Corporation’s derivative financial instruments are not designated as hedges and gains or losses are recognized in current earnings.
Pending Business Combination – Royal Bancshares of Pennsylvania, Inc.

On January 30, 2017, the Corporation entered into a definitive Agreement and Plan of Merger to acquire Royal Bancshares of Pennsylvania, Inc. (“RBPI”), parent company of Royal Bank America (“RBA”), in a transaction with an aggregate value of $127.7 million (the “Acquisition” or the “RBPI Acquisition”). In connection with the Acquisition, RBPI will merge with and into the Corporation and RBA will merge with and into the Bank. The Acquisition, which is expected to add approximately $602 million in loans and $630 million in deposits (based on December 31, 2016 financial information), ~~strengthens~~is expected to strengthen the Corporation’s position as the largest community bank in Philadelphia’s western suburbs and, based on deposits, ~~ranks~~will rank it as the eighth largest community bank headquartered in Pennsylvania. The Acquisition, which will expand the Corporation's distribution network by providing entry into the new markets of New Jersey and Berks County, Pennsylvania, and an expanded physical presence in Philadelphia County, Pennsylvania, is expected to close during the ~~third~~fourth quarter of 2017 and is subject to ~~shareholder approval as well as~~ applicable regulatory approvals and closing conditions.

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Other ~~Pending~~Recent Acquisitions and Expansion ~~Plans~~s

In addition to the RBPI Acquisition, the Bank has continued to execute on its strategies of diversification and acquiring and/or establishing specialty offices in strategically targeted areas where management believes there to be a high demand for the ~~Bank’s~~Bank’s products and services. On ~~April 19,~~May 24, 2017, the Bank ~~announced that it had entered into a definitive agreement to acquire~~completed its acquisition of Hirshorn Boothby, a full-service insurance agency established in 1931 and headquartered in the Chestnut Hill section of Philadelphia. ~~Following receipt of applicable regulatory approvals and satisfaction of certain closing conditions,~~ Hirshorn Boothby ~~will be integrated~~was immediately merged into the Bank’s existing insurance subsidiary, Powers Craft Parker and Beard, Inc., ~~which will expand~~expanding the footprint of this growing segment.
~~Page 38~~
~~Table of Contents~~

On ~~April 4,~~May 12, 2017, the Corporation ~~announced the anticipated opening, subject to regulatory approval, of~~established a wealth management-focused office in Princeton, New Jersey which is expected to complement the already-established presence in central New Jersey that is to be acquired in the anticipated merger with RBPI.

~~In addition to these expansions of the Corporation’s physical presence, beginning~~Beginning in the second quarter of 2017, the Bank’s newly established Capital Markets department ~~will begin~~commenced operations ~~that will focus~~focusing on providing risk management services to address the needs of its commercial customer base. These capital markets capabilities ~~will~~ enable the Bank to offer hedging tools for qualified commercial customers through the use of interest rate swaps and options designed to mitigate the interest rate risk on variable rate loans. This interest rate hedging offering ~~will allow~~allows the Bank to participate on and lead in larger and ~~longer dated~~longer-dated credits without incurring additional interest rate ~~risk itself.~~risk. Additional services will ~~similarly~~ focus on ~~helping~~assisting qualified customers ~~to hedge~~in hedging their foreign exchange risk and ~~meet~~meeting their trade finance needs through enhanced international services capabilities.

Executive Overview

The following items highlight the ~~Corporation’s~~Corporation’s results of operations for the three and nine months ended ~~March 31,~~September 30, 2017, as compared to the same ~~period~~periods in 2016, and the changes in its financial condition as of ~~March 31,~~September 30, 2017 as compared to December 31, 2016. More detailed information related to these highlights can be found in the sections that follow.

Three Month Results of Operations

●
Net income for the three months ended ~~March 31,~~September 30, 2017 was ~~$9.0~~$10.7 million, an increase of ~~$723 thousand~~$1.3 million as compared to net income of ~~$8.3~~$9.4 million for the same period in 2016. Diluted earnings per share was ~~$0.53~~$0.62 for the three months ended ~~March 31,~~September 30, 2017 as compared to ~~$0.49~~$0.55 for the same period in 2016.

●
~~Return~~Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended ~~March 31,~~September 30, 2017 were ~~9.60%~~10.72% and ~~1.13%~~1.24%, respectively, as compared to ROE and ROA of ~~9.27%~~10.00% and ~~1.13%~~1.19%, respectively, for the same period in 2016.

●
Tax-equivalent net interest income increased ~~$1.6~~$2.7 million, or ~~6.0%~~10.3%, to ~~$27.6~~$29.6 million for the three months ended ~~March 31,~~September 30, 2017, as compared to ~~$26.0~~$26.9 million for the same period in 2016.

●
~~Provision~~Provision for loan and lease losses (the “Provision”), of ~~$291 thousand~~$1.3 million for the three months ended ~~March 31,~~September 30, 2017 was a decrease of ~~$1.1 million~~$79 thousand from the $1.4 million Provision recorded for the same period in 2016.

●
~~Non-interest~~Noninterest income of ~~$13.2~~$15.6 million for the three months ended ~~March 31,~~September 30, 2017 was ~~relatively unchanged, increasing $74 thousand as compared to~~a $1.8 million increase from the same period in 2016.

●
Fees for wealth management services and insurance revenue of ~~$9.3~~$9.7 million and ~~$763 thousand,~~$1.4 million, respectively, for the three months ended ~~March 31,~~September 30, 2017 ~~were an increase~~represented increases of ~~$471~~$551 thousand and ~~a decrease of $513~~$487 thousand, respectively, from the same period in 2016. In addition, capital markets revenue from the Bank’s new Capital Markets initiative, comprised primarily of fees for interest rate swaps, totaled $843 thousand for the third quarter of 2017.

●
~~Non-interest~~Noninterest expense of ~~$26.7~~$28.2 million for the three months ended ~~March 31,~~September 30, 2017 increased ~~$1.7~~$2.8 million, from ~~$25.0~~$25.4 million for the same period in 2016.
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Nine Month Results of Operations
●
Net income for the nine months ended September 30, 2017 was $29.2 million, an increase of $2.6 million as compared to net income of $26.6 million for the same period in 2016. Diluted earnings per share was $1.69 for the nine months ended September 30, 2017 as compared to $1.57 for the same period in 2016.
●
ROE and ROA for the nine months ended September 30, 2017 were 10.02% and 1.17%, respectively, as compared to ROE and ROA of 9.70% and 1.16%, respectively, for the same period in 2016.
●
Tax-equivalent net interest income increased $5.7 million, or 7.2%, to $85.4 million for the nine months ended September 30, 2017, as compared to $79.7 million for the same period in 2016.
●
The Provision of $1.5 million for the nine months ended September 30, 2017 was a decrease of $1.7 million from $3.3 million for the same period in 2016.
●
Noninterest income of $43.6 million for the nine months ended September 30, 2017 was a $2.9 million increase from the same period in 2016.
●
Fees for wealth management services and insurance revenue of $28.7 million and $3.1 million, respectively, for the nine months ended September 30, 2017 represented increases of $1.4 million and $72 thousand, respectively, from the same period in 2016. In addition, capital markets revenue, comprised primarily of fees for interest rate swaps, totaled $1.8 million for the nine months ended September 30, 2017.
●
Noninterest expense of $83.3 million for the nine months ended September 30, 2017 increased $6.7 million, from $76.6 million for the same period in 2016.

Changes in Financial Condition

●
Total assets of ~~$3.29~~$3.48 billion as of ~~March 31,~~September 30, 2017 ~~decreased $128.9~~increased $55.3 million from December 31, 2016.

●
~~Shareholders’~~Shareholders’ equity of ~~$388.1~~$401.9 million as of ~~March 31,~~September 30, 2017 increased ~~$7.0~~$20.8 million from $381.1 million as of December 31, 2016.
~~Page 39~~
~~Table of Contents~~

●
Total portfolio loans and leases as of ~~March 31,~~September 30, 2017 were ~~$2.56~~$2.68 billion, an increase of ~~$20.2~~$141.9 million from the December 31, 2016 balance.

●
Total non-performing loans and leases of ~~$7.3~~$4.5 million represented ~~0.29%~~0.17% of portfolio loans and leases as of ~~March 31,~~September 30, 2017 as compared to $8.4 million, or 0.33% of portfolio loans and leases as of December 31, 2016.

●
The ~~$17.1~~$17.0 million Allowance, as of ~~March 31,~~September 30, 2017, represented ~~0.67%~~0.64% of portfolio loans and leases, as compared to $17.5 million, or 0.69% of portfolio loans and leases as of December 31, 2016.

●
Total deposits of ~~$2.64~~$2.68 billion as of ~~March 31,~~September 30, 2017 increased ~~$56.9~~$104.5 million from $2.58 billion as of December 31, 2016.

●
Wealth Management assets under management, administration, supervision and brokerage as of ~~March 31,~~September 30, 2017 were ~~$11.73~~$12.43 billion, an increase of ~~$397.0 million~~$1.10 billion from December 31, 2016.

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Key Performance Ratios

Key financial performance ratios for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016 are shown in the table below:

Three Months Ended March 31,

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

2017

2016

Annualized return on average equity
9.60
%
9.27
%
10.72
%
10.00
%
10.02
%
9.70
%
Annualized return on average assets
1.13
%
1.13
%
1.24
%
1.19
%
1.17
%
1.16
%
Tax-equivalent net interest margin
3.74
%
3.87
%
3.71
%
3.71
%
3.71
%
3.79
%
Basic earnings per share
$ 0.53 $ 0.49
Basic earnings per share
$ 0.63 $ 0.56 $ 1.72 $ 1.58
Diluted earnings per share
$ 0.53 $ 0.49 $ 0.62 $ 0.55 $ 1.69 $ 1.57
Dividend per share
$ 0.21 $ 0.20 $ 0.22 $ 0.21 $ 0.64 $ 0.61
Dividend declared per share to net income per basic common share
39.4
%
40.5
%
34.9
%
37.5
%
37.2
%
38.6
%

The following table presents certain ~~key~~key period-end balances and ratios as of ~~March 31,~~September 30, 2017 and December 31, 2016:

(dollars in millions, except per share amounts)

March 31, 2017

December 31, 2016

September 30,
2017

December 31,
2016

Book value per share
$ 22.87 $ 22.50 $ 23.57 $ 22.50
Tangible book value per share
$ 15.53 $ 15.11 $ 16.03 $ 15.11
Allowance as a percentage of loans and leases
0.67
%
0.69
%
0.64
%
0.69
%
Tier I capital to risk weighted assets
10.50
%
10.51
%
10.50
%
10.51
%
Tangible common equity ratio
8.32
%
7.76
%
8.16
%
7.76
%
Loan to deposit ratio
97.0
%
98.7
%
100.0
%
98.7
%
Wealth assets under management, administration, supervision and brokerage
$ 11,725.5 $ 11,328.5 $ 12,431.4 $ 11,328.5
Portfolio loans and leases
$ 2,555.6 $ 2,535.4 $ 2,677.3 $ 2,535.4
Total assets
$ 3,292.6 $ 3,421.5 $ 3,476.8 $ 3,421.5
Shareholders’ equity
$ 388.1 $ 381.1
Shareholders’ equity
$ 401.9 $ 381.1

The following sections discuss, in detail, the ~~Corporation’s~~Corporation’s results of operations for the three and nine months ended ~~March 31,~~September 30, 2017, as compared to the same periods in 2016, and the changes in its financial condition as of ~~March 31,~~September 30, 2017 as compared to December 31, 2016.

~~Page 40~~
~~Table of Contents~~

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;

●
Non~~Non-Interest~~interest Income, which is made up primarily of ~~Wealth Management~~wealth management revenue, insurance revenue, gains and losses from the sale loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;

●
Non~~Non-Interest~~interest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees and other operating expenses; and

●
Income Taxes, which include state and federal jurisdictions.

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TAX-EQUIVALENT NET INTEREST INCOME

Net interest income is the primary source of the ~~Corporation’s~~Corporation’s revenue. The below tables present a summary, for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the tax-equivalent 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.

~~Tax-equivalent~~For the three months ended September 30, 2017, tax-equivalent net interest income increased ~~$1.6~~$2.7 million, or ~~6.0%~~10.3%, to ~~$27.6~~$29.6 million for the three months ended ~~March 31,~~September 30, 2017, as compared to ~~$26.0~~$26.9 million for the same period in 2016. The increase in net interest income between the periods was largely related to the $203.3 million increase in average loans and leases for the three months ended ~~March 31,~~September 30, 2017 as compared to the same period in 2016. ~~Average loans for the first quarter of 2017 increased by $247.1 million from the same period in 2016, while the~~The tax-equivalent yield earned on loans ~~decreased by 13~~and leases increased ten basis ~~points.~~points from the third quarter of 2016 to the third quarter of 2017. The impact of the accretion of purchase accounting adjustments was comparable for both periods, contributing $708 thousand to interest income, or ten basis points to the tax-equivalent yield on loans and leases for the three months ended September 30, 2017, as compared to a contribution of $578 thousand, or nine basis points to the tax-equivalent yield on loans and leases, for the same period in 2016. In addition to increases in loans and leases, the average ~~long-term FHLB advances decreased $67.5~~balance of available for sale investment securities increased by $85.2 million and experienced a 26 basis point increase in tax-equivalent yield earned between the third quarters of 2016 and 2017. Partially offsetting the impact of the earning asset volume increase between the periods was a $141.9 million increase in average interest-bearing deposits, coupled with ~~a 9~~an eleven basis point increase in rate paid ~~between periods.~~on deposits from the third quarter of 2016 to the third quarter of 2017.
For the nine months ended September 30, 2017, tax-equivalent net interest income increased $5.7 million, or 7.2%, to $85.4 million for the nine months ended September 30, 2017, as compared to $79.7 million for the same period in 2016. The increase in net interest income between the periods was largely related to the $218.0 million increase in average ~~loan balances~~loans and leases for the nine months ended September 30, 2017 as compared to the same period in 2016. The tax-equivalent yield earned on loans and leases decreased five basis points from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The impact of the accretion of purchase accounting adjustments contributed significantly to the decrease in tax-equivalent yield earned on loans and leases and the rate paid on time deposits. For the nine months ended September 30, 2017, the accretion of purchase accounting adjustments on loans contributed $1.8 million to interest income, or nine basis points to the tax-equivalent yield on loans and leases, as compared to a contribution of $2.6 million, or 15 basis points to the tax-equivalent yield on loans and leases, for the same period in 2016. In addition to increases in loans and leases, the average ~~long-term FHLB advances were offset~~balance of available for sale investment securities increased by 56.5 million and experienced a ~~$218.5~~21 basis point increase in tax-equivalent yield earned between the nine months ended September 30, 2016 and the nine months ended September 30, 2017. Partially offsetting the impact of the earning asset volume increase between the periods was a $165.5 million increase in average interest-bearing deposits, ~~whose tax-equivalent~~coupled with an eleven basis point increase in rate paid ~~increased~~on deposits from the third quarter of 2016 to the third quarter of 2017. The accretion of purchase accounting adjustments related to acquired time deposits reduced interest expense on time deposits for the nine months ended September 30, 2017 by 14$52 thousand, or two basis points, ~~between~~as compared to $200 thousand, or eleven basis points, for the ~~periods.~~same period in 2016.

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Analyses of Interest Rates and Interest Differential

The tables below ~~presents~~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 theThree Months EndedMarch 31,

For the Three Months Ended September 30,

2017

2016

2017

2016

(dollars in thousands)

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Assets:

Interest-bearing deposits with banks
$ 39,669 $ 66 0.67
%
$ 39,050 $ 46 0.47
%
$ 26,628 $ 36 0.54
%
$ 33,532 $ 27 0.32
%
Investment securities - available for sale:

Taxable
354,229 1,653 1.89
%
316,353 1,397 1.78
%
427,106 2,160 2.01
%
329,293 1,423 1.72
%
Non-taxable⁽³⁾
31,485 164 2.11
%
40,658 191 1.89
%
25,268 134 2.10
%
37,893 189 1.98
%
Total investment securities - available for sale
385,714 1,817 1.91
%
357,011 1,588 1.79
%
452,374 2,294 2.01
%
367,186 1,612 1.75
%
Investment securities – held to maturity
3,702 7 0.77
%
— — — 6,044 11 0.72
%
2,907 6 0.82
%
Investment securities – trading
3,890 8 0.83
%
3,946 2 0.20
%
Investment securities - trading
4,282 8 0.74
%
3,523 2 0.23
%
Loans and leases⁽¹⁾⁽²⁾⁽³⁾
2,555,677 28,622 4.54
%
2,308,584 26,778 4.67
%
2,680,317 31,058 4.60
%
2,476,972 28,032 4.50
%
Total interest-earning assets
2,988,652 30,520 4.14
%
2,708,591 28,414 4.22
%
3,169,645 33,407 4.18
%
2,884,120 29,679 4.09
%
Cash and due from banks
14,942 16,501 15,709 16,228
Allowance for loan and lease losses
(17,580
)
(16,239
)
(16,564
)
(17,257
)

Other assets
258,046 264,295 273,116 258,928
Total assets
$ 3,244,060 $ 2,973,148 $ 3,441,906 $ 3,142,019
Liabilities:

Savings, NOW, and market rate accounts
$ 1,388,561 756 0.22
%
$ 1,279,630 569 0.18
%
$ 1,359,293 823 0.24
%
$ 1,286,404 641 0.20
%
Wholesale deposits
143,461 317 0.90
%
137,201 233 0.68
%
Wholesale deposits
190,849 548 1.14
%
164,706 327 0.79
%
Time deposits
320,172 755 0.96
%
216,820 274 0.51
%
321,352 827 1.02
%
278,579 607 0.87
%
Total interest-bearing deposits
1,852,194 1,828 0.40
%
1,633,651 1,076 0.26
%
1,871,494 2,198 0.47
%
1,729,689 1,575 0.36
%
Short-term borrowings
47,603 27 0.23
%
34,158 17 0.20
%
182,845 547 1.19
%
40,966 34 0.33
%
Long-term FHLB advances and other borrowings
182,507 698 1.55
%
250,015 908 1.46
%
Long-term FHLB advances
155,918 645 1.64
%
218,920 818 1.49
%
Subordinated notes
29,537 370 5.08
%
29,482 366 4.99
%
29,564 370 4.97
%
29,509 370 4.99
%
Total borrowings
259,647 1,095 1.71
%
313,655 1,291 1.66
%
368,327 1,562 1.68
%
289,395 1,222 1.68
%
Total interest-bearing liabilities
2,111,841 2,923 0.56
%
1,947,306 2,367 0.49
%
2,239,821 3,760 0.67
%
2,019,084 0.55
%
Non-interest-bearing deposits
711,794 631,047 764,562 716,581
Other liabilities
38,211 33,923 40,166 33,400
Total non-interest-bearing liabilities
750,005 664,970 804,728 749,981
Total liabilities
2,861,846 2,612,276 3,044,549 2,769,065
Shareholders’ equity
382,214 360,872
Total liabilities and shareholders’ equity
$ 3,244,060 $ 2,973,148
Shareholders’ equity
397,357 372,954
Total liabilities and shareholders’ equity
$ 3,441,906 $ 3,142,019
Net interest spread
3.58
%
3.73
%
3.51
%
3.54
%
Effect of non-interest-bearing liabilities
0.16
%
0.14
%
0.20
%
0.17
%
Tax-equivalent net interest income and margin on earning assets⁽³⁾
$ 27,597 3.74
%
$ 26,047 3.87
%
Tax-equivalent net interest income and margin on earning assets⁽³⁾
$ 29,647 3.71
%
$ 26,882 3.71
%
Tax-equivalent adjustment⁽³⁾
$ 194 0.02
%
$ 145 0.02
%
$ 209 0.03
%
$ 165 0.02
%

⁽¹⁾
Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.
⁽²⁾
Loans include portfolio loans and leases and loans held for sale.
⁽³⁾
Tax rate used for tax-equivalent calculations is 35%.
Page 51
Table of Contents

For the Nine Months Ended September 30,

2017

2016

(dollars in thousands)

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Average
Balance

Interest
Income/
Expense

Average
Rates
Earned/
Paid

Assets:

Interest-bearing deposits with banks
$ 30,807 $ 137 0.59
%
$ 39,157 $ 115 0.39
%
Investment securities - available for sale:

Taxable
391,082 5,799 1.98
%
323,866 4,263 1.76
%
Non-taxable⁽³⁾
28,552 448 2.10
%
39,243 567 1.93
%
Total investment securities - available for sale
419,634 6,247 1.99
%
363,109 4,830 1.78
%
Investment securities – held to maturity
4,984 4 0.11
%
1,782 4 0.30
%
Investment securities - trading
4,105 2 0.07
%
3,703 2 0.07
%
Loans and leases⁽¹⁾⁽²⁾⁽³⁾
2,617,658 88,989 4.55
%
2,399,683 82,571 4.60
%
Total interest-earning assets
3,077,188 95,379 4.14
%
2,807,434 87,522 4.16
%
Cash and due from banks
15,462 16,380
Allowance for loan and lease losses
(17,227
)
(16,924
)

Other assets
265,061 261,752
Total assets
$ 3,340,484 $ 3,068,642
Liabilities:

Savings, NOW, and market rate accounts
$ 1,374,494 2,392 0.23
%
$ 1,280,023 1,799 0.19
%
Wholesale deposits
163,086 1,243 1.02
%
166,136 921 0.74
%
Retail time deposits
321,608 2,374 0.99
%
247,504 1,333 0.72
%
Total interest-bearing deposits
1,859,188 6,009 0.43
%
1,693,663 4,053 0.32
%
Short-term borrowings
110,268 811 0.98
%
35,836 71 0.26
%
Long-term FHLB advances
169,900 2,025 1.59
%
235,002 2,593 1.47
%
Subordinated notes
29,550 1,110 5.02
%
29,496 1,106 5.01
%
Total borrowings
309,718 3,946 1.70
%
300,334 3,770 1.68
%
Total interest-bearing liabilities
2,168,906 9,955 0.61
%
1,993,997 7,823 0.52
%
Non-interest-bearing deposits
744,178 674,601
Other liabilities
37,582 33,375
Total non-interest-bearing liabilities
781,760 707,976
Total liabilities
2,950,666 2,701,973
Shareholders’ equity
389,818 366,669
Total liabilities and shareholders’ equity
$ 3,340,484 $ 3,068,642
Net interest spread
3.53
%
3.64
%
Effect of non-interest-bearing liabilities
0.18
%
$ 0.15
%
Tax-equivalent net interest income and margin on earning assets⁽³⁾
$ 85,424 3.71
%
$ 79,699 3.79
%
Tax-equivalent adjustment⁽³⁾
$ 618 0.03
%
$ 453 0.02
%
⁽¹⁾
Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.
⁽²⁾
Loans include portfolio loans and leases and loans held for sale.
⁽³⁾
Tax rate used for tax-equivalent calculations is 35%.

~~Page 42~~
~~Table of Contents~~
Rate/Volume Analysis (tax-equivalent basis)*
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 the three months ended ~~March 31,~~September 30, 2017 as compared to the same period in 2016, 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.

2017 Compared to 2016

2017 Compared to 2016

Three Months Ended March 31,

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

Volume

Rate

Total

Volume

Rate

Total

Volume

Rate

Total

Interest income

Interest-bearing deposits with other banks
$ 1 $ 19 $ 20 $ (30
)
$ 39 $ 9 $ (35
)
$ 57 $ 22
Investment securities
51 191 242 335 358 693 724 693 1,417
Loans and leases
6,591 (4,747
)
1,844 2,340 686 3,026 7,992 (1,574
)
6,418
Total interest income
$ 6,643 $ (4,537
)
$ 2,106 $ 2,645 $ 1,083 $ 3,728 $ 8,681 $ (824
)
$ 7,857
Interest expense:

Savings, NOW and market rate accounts
$ 49 $ 138 $ 187 $ 38 $ 144 $ 182 $ 146 $ 447 $ 593
Wholesale deposits
10 74 84 52 169 221 (28
)
350 322
Retail time deposits
129 352 481 96 124 220 396 645 1,041
Borrowed funds**
(455
)
255 (200
)
(395
)
735 340 (659
)
831 172
Subordinated notes
— 4 4 4 (4
)
— 2 2 4
Total interest expense
(267
)
823 556 (205
)
1,168 963 (143
)
2,275 2,132
Interest differential
$ 6,910 $ (5,360
)
$ 1,550 $ 2,850 $ (85
)
$ 2,765 $ 8,824 $ (3,099
)
$ 5,725

*The tax rate used in the calculation of thetax-equivalent income is 35%.
         ****Borrowed funds include short-term borrowings and long-term Federal Home Loan Bank ~~advances and other borrowings.~~advances.

Page 52
Table of Contents
Tax-Equivalent Net Interest Margin

The tax-equivalent net interest margin of ~~3.74%~~3.71% for the three months ended ~~March 31,~~September 30, 2017 was unchanged from the same period in 2016. A ten basis point increase in tax-equivalent yield on loans and leases was largely offset by a 13twelve basis point increase in rate paid on interest-bearing deposits between the periods. The contribution of fair value mark accretion to the tax equivalent net interest margin was also unchanged, at nine basis points for each of the three month periods ended September 30, 2016 and 2017.
The tax-equivalent net interest margin of 3.71% for the nine months ended September 30, 2017 was an eight basis point decrease from ~~3.87%~~3.79% for the same period in 2016. The decrease was largely the result of the 13five basis point decrease in tax-equivalent yield earned on loans and leases and the 14eleven basis point increase in rate paid on interest-bearing deposits. ~~The $280.1 million volume~~Partially offsetting these reductions to tax-equivalent net interest margin was a 21 basis point increase in ~~average interest-earning assets versus the $164.5 million increase in average interest-bearing liabilities partially offset the effect of the~~tax-equivalent yield ~~decrease and rate increase~~earned on available for sale investment securities between the periods. The contribution of fair value mark accretion to the tax equivalent net interest margin accounted for 11nine basis points of the margin for the ~~first quarter of~~nine months ended September 30, 2017 as compared to 1614 basis points for the ~~first quarter of~~same period in 2016.

The ~~tax-equivalent~~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 Non-
Interest Bearing
Sources

Net Interest
Margin

1^st Quarter 2017
4.14
%
0.56
%
3.58
%
0.16
%
3.74
%
4^th Quarter 2016
4.05
%
0.56
%
3.49
%
0.16
%
3.65
%
3^rd Quarter 2016
4.09
%
0.55
%
3.54
%
0.17
%
3.71
%
2^nd Quarter 2016
4.18
%
0.53
%
3.65
%
0.16
%
3.81
%
1^st Quarter 2016
4.22
%
0.49
%
3.73
%
0.14
%
3.87
%
~~Page 43~~
~~Table of Contents~~
Quarter

Interest-
Earning
Asset Yield

Interest-
Bearing
Liability Cost

Net Interest
Spread

Effect of
Non-Interest Bearing
Sources

Net Interest Margin
3^rd Quarter 2017

4.18
%

0.67
%

3.51
%

0.20
%

3.71
%
2^nd Quarter 2017

4.11
%

0.61
%

3.50
%

0.18
%

3.68
%
1^st Quarter 2017

4.14
%

0.56
%

3.58
%

0.16
%

3.74
%
4^th Quarter 2016

4.05
%

0.56
%

3.49
%

0.16
%

3.65
%
3^rd Quarter 2016

4.09
%

0.55
%

3.54
%

0.17
%

3.71
%

Interest Rate Sensitivity

The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The ~~Corporation’s~~Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures 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, through the management of its investment portfolio, its offerings of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, certificates of deposit from institutional brokers, including the Certificate of Deposit Account Registry Service (“CDARS”), the Insured Network Deposit (“IND”) Program, the Charity Deposits Corporation (“CDC”), the Insured Cash Sweep (“ICS”) and the Pennsylvania Local Government Investment Trust (“PLGIT”).

The Corporation uses several tools to measure its interest rate risk including interest rate sensitivity analysis, or gap analysis, market value of portfolio equity analysis, interest rate simulations under various rate scenarios and tax-equivalent net interest margin trend reports. The results of these reports are compared to limits established by the Corporation’s ALCO policies and appropriate adjustments are made if the results are outside the established limits.

The following 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 the Corporation’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 12 months. 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
March 31, 2016

Change in Net Interest Income
Over the Twelve Months
Beginning After
December 31, 2015

Change in Net Interest
Income Over the Twelve
Months Beginning After
September 30, 2017

Change in Net Interest
Income Over the Twelve
Months Beginning After
December 31, 2016

Amount

Percentage

Amount

Percentage

Amount

Percentage

Amount

Percentage

+300 basis points
$ 10,798 9.40
%
$ 10,207 9.01
%
$ 8,256 6.98
%
$ 10,207 9.01
%
+200 basis points
$ 7,226 6.29
%
$ 6,653 5.87
%
$ 5,549 4.69
%
$ 6,654 5.87
%
+100 basis points
$ 3,560 3.10
%
$ 3,048 2.69
%
$ 2,775 2.35
%
$ 3,048 2.69
%
-100 basis points
$ (4,362
)
(3.80
)%
$ (4,397
)
(3.88
)%
$ (4,050
)
(3.42
)%
$ (4,397
)
(3.88
)%

The above interest rate simulation suggests that the ~~Corporation’s~~Corporation’s balance sheet is asset sensitive as of ~~March 31,~~September 30, 2017 in the +100 basis point scenario, which is similar to the December 31, 2016 simulation. The asset sensitivity table indicates that a 100, 200 or 300 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is ~~slightly more~~less asset sensitive in comparison to December 31, 2016. This is a result of ~~rise~~the addition of fixed rate assets funded with short term liabilities in anticipation of the RBPI Acquisition later this year and positioning the combined entity’s investments and funding to align with management’s desired liquidity and interest ~~rates that is impacting interest income on interest bearing assets while the cost~~rate risk profile.
Page 53
Table of ~~interest bearing liabilities remained stable.~~

Contents
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 uncertain economic environment and~~Given the current extended period of very low interest rates, the reliability of the Corporation’s assumptions in the interest rate simulation model is more uncertain than in other periods. Actual customer behavior may be different than expected behavior, which could cause an unexpected outcome and may result in lower net interest income.

Gap Analysis

The interest sensitivity, or gap analysis, shows interest rate risk by identifying re-pricing gaps in the Corporation’s balance sheet. All assets and liabilities are categorized in the following table according to their behavioral sensitivity, which is usually the earliest of either: re-pricing, 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 and the investment preferences of the Corporation. Non-rate-sensitive assets and liabilities are placed in a separate period. Capital is spread over time periods to reflect the Corporation’s view of the maturity of these funds.
~~Page 44~~
~~Table of Contents~~

The following table presents the ~~Corporation’s~~Corporation’s interest rate sensitivity position or gap analysis as of ~~March 31,~~September 30, 2017:

(dollars in millions)

0 to 90
Days

91 to 365
Days

1 - 5
Years

Over
5 Years

Non-Rate
Sensitive

Total

0 to 90
Days

91 to 365
Days

1 - 5
Years

Over
5 Years

Non-Rate
Sensitive

Total

Assets:

Interest-bearing deposits with banks
$ 70.0 $ — $ — $ — $ — $ 70.0 $ 36.9 $ — $ — $ — $ — $ 36.9
Investment securities – available for sale
31.3 76.1 191.4 92.3 — 391.1 28.6 58.0 268.8 116.3 — 471.7
Investment securities – held to maturity
— — — 5.2 — 5.2 — — — 6.3 — 6.3
Investment securities – trading
4.1 — — — — 4.1
Investment securities – trading
4.4 — — — — 4.4
Loans and leases⁽¹⁾
942.3 288.1 965.5 362.7 — 2,558.6 1,044.4 310.2 989.5 339.5 — 2,683.6
Allowance for loan and lease losses
— — — — (17.1
)
(17.1
)
— — — — (17.0
)
(17.0
)
Cash and due from banks
— — — — 17.5 17.5 — — — — 8.7 8.7
Other assets
— — — — 263.2 263.2 — — — — 282.2 282.2
Total assets
$ 1,047.7 $ 364.2 $ 1,156.9 $ 460.2 $ 263.6 $ 3,292.6 $ 1,114.3 $ 368.2 $ 1,258.3 $ 462.1 $ 273.9 $ 3,476.8
Liabilities and shareholders’ equity:

Liabilities and shareholders’ equity:

Demand, non-interest-bearing
$ 47.9 $ 143.7 $ 202.2 $ 377.8 $ — $ 771.5 $ 47.0 $ 140.9 $ 197.2 $ 375.6 $ — $ 760.6
Savings, NOW and market rate
96.8 290.3 693.6 327.3 — 1,408.0 94.0 281.9 678.5 325.9 — 1,380.3
Time deposits
104.6 176.4 38.3 0.1 — 319.4 63.1 178.1 74.9 — — 316.1
Wholesale non-maturity deposits
69.5 — — — — 69.5 48.6 — — — — 48.6
Wholesale time deposits
17.9 14.4 35.9 — — 68.2 62.0 101.7 14.9 — — 178.6
Short-term borrowings
23.6 — — — — 23.6 180.9 — — — — 180.9
Long-term FHLB advances
25.0 66.4 83.3 — — 174.7
20.0
56.4 58.2 — — 134.6
Subordinated notes
— — 29.5 — — 29.5
Subordinated notes
— — 29.6 — — 29.6
Other liabilities
— — — — 40.1 40.1 — — — — 45.6 45.6
Shareholders’ equity
13.9 41.6 221.8 110.8 — 388.1
Total liabilities and shareholders’ equity
$ 399.2 $ 732.8 $ 1,304.6 $ 816.0 $ 40.1 $ 3,292.6
Interest-earning assets
$ 1,047.7 $ 364.2 $ 1,156.9 $ 460.2 $ — $ 3,029.0
Shareholders’ equity
14.4 43.1 229.7 114.7 — 401.9
Total liabilities and shareholders’ equity
$ 530.0 $ 802.1 $ 1,283.0 $ 816.2 $ 45.6 $ 3,476.8
Interest-earning assets
$ 1,114.3 $ 368.2 $ 1,258.3 $ 462.1 $ — $ 3,202.9
Interest-bearing liabilities
337.4 547.5 880.6 327.4 — 2,092.9 468.6 618.1 856.1 325.9 — 2,268.7
Difference between interest-earning assets and interest-bearing liabilities
$ 710.3 $ (183.3
)
$ 276.3 $ 132.8 $ — $ 936.1
Difference between interest-earning assets and interest-bearing liabilities
$ 645.7 $ (249.9
)
$ 402.2 $ 136.2 $ — $ 934.2
Cumulative difference between interest earning assets and interest-bearing liabilities
$ 710.3 527.0 803.3 936.1 — 936.1 $ 645.7 $ 395.8 $ 798.0 $ 934.2 $ — $ 934.2
Cumulative earning assets as a % of cumulative interest bearing liabilities
311
%
160
%
145
%
145
%
— 145
%
Cumulative earning assets as a % of cumulative interest bearing liabilities
238
%
136
%
141
%
141
%
141
%
¹¹Loans include portfolio loans and loans held for sale

The table above indicates that the Corporation is ~~asset-sensitive~~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, 2016.

Page 4554
Table of Contents

PROVISION FOR LOAN AND LEASE LOSSES

For the three months ended ~~March 31,~~September 30, 2017, the Corporation recorded a Provision of ~~$291~~$1.3 million which was a ~~$1.1~~$79 thousand decrease from the same period in 2016. Net charge-offs for the third quarter of 2017 were $728 thousand as compared to $704 thousand for the same period in 2016. The loan and lease portfolio experienced improvements in the historic charge-off rates during the lookback period and in certain credit quality and economic indicators used in the Allowance calculation. The slight decrease in the Provision between the periods reflects the effect these quantitative and qualitative factor improvements had on the overall Allowance requirement, largely offset by the increase in Allowance related to the growth of the portfolio.
For the nine months ended September 30, 2017, the Corporation recorded a Provision of $1.5 million which was a $1.7 million decrease from the same period in 2016. Net charge-offs for the ~~first quarter of~~nine months ended September 30, 2017 were ~~$670 thousand~~$2.0 million as compared to ~~$422 thousand~~$1.4 million for the same period in 2016. The decrease in the Provision ~~is indicative~~was largely the result of improvements in the historic charge-off rates during the lookback period and certain ~~qualitative factors~~credit quality indicators and economic indicators used ~~to determine~~in the ~~Allowance.~~Allowance calculation. For a general discussion of the Allowance, and our policies related thereto, refer to page 34 of the Corporation’s 2016 Annual Report.

Asset Quality and Analysis of Credit Risk

As of ~~March 31,~~September 30, 2017, total nonperforming loans and leases decreased by ~~$1.0~~$3.9 million, to ~~$7.3~~$4.5 million, representing ~~0.29%~~0.17% of portfolio loans and leases, as compared to $8.4 million, or 0.33% of portfolio loans and leases as of December 31, 2016. The decrease in nonperforming loans and leases ~~resulted from~~was comprised of pay-offs orand pay-downs of ~~$563~~$2.8 million, charge-offs of $1.1 million, foreclosures taken into OREO of $306 thousand and upgrades to performing status of $608 thousand of loans and ~~the charge-off of $641 thousand of loans~~leases classified as nonperforming as of December 31, 2016. ~~Partially offsetting the~~These decreases ~~in nonperforming loans from December 31, 2016 was~~were partially offset by the addition ~~during the first quarter~~ of ~~2017 of $170~~$986 thousand of new nonperforming loans and ~~leases.~~leases as of September 30, 2017.

As of ~~March 31,~~September 30, 2017, the Allowance of ~~$17.1~~$17.0 million represented ~~0.67%~~0.64% of portfolio loans and leases, a ~~two~~five basis point decrease from 0.69% as of December 31, 2016. The Allowance on originated portfolio loans, as a percentage of originated portfolio loans, was ~~0.75%~~0.70% as of ~~March 31,~~September 30, 2017 as compared to 0.78% as of December 31, 2016. 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.

As of ~~March 31,~~September 30, 2017, the Corporation had OREO valued at ~~$978~~$865 thousand, as compared to $1.0 million as of December 31, ~~2016. During~~2016 One residential mortgage loan was foreclosed and the ~~three~~$306 thousand collateral was taken into OREO. In addition, during the nine months ended ~~March 31,~~September 30, 2017, ~~a $39~~impairments to OREO of $121 thousand were recorded, related to OREO ~~property~~properties acquired in the CBH ~~merger was sold, resulting in no gain or loss on sale.~~merger. The balance of OREO as of ~~March 31,~~September 30, 2017 was comprised of ~~six~~three residential properties, ~~four~~one of which ~~are~~is a manufactured housing ~~properties~~property acquired in the ~~Continental Merger.~~CBH merger. All properties are recorded at the lower of cost or fair value less cost to sell.

As of ~~March 31,~~September 30, 2017, the Corporation had ~~$9.2~~$8.6 million of troubled debt restructurings (“TDRs”), of which ~~$6.5~~$6.6 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2016, the Corporation had $9.0 million of TDRs, of which $6.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases.

As of ~~March 31,~~September 30, 2017, the Corporation had a recorded investment of ~~$13.5~~$10.5 million of impaired loans and leases which included ~~$9.2~~$8.6 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, 2016 totaled $14.4 million, which included $9.0 million of TDRs. Refer to Note 5H in the Notes to unaudited consolidated Financial Statements for more information regarding the Corporation’s impaired loans and leases.

The Corporation 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. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.

Page 4655
Table of Contents

Non~~Nonperforming~~performing Assets and Related Ratios

(dollars in thousands)

March 31, 2017

December 31, 2016

September 30,
2017

December 31,
2016

Nonperforming Assets:

Nonperforming loans and leases
$ 7,329 $ 8,363 $ 4,472 $ 8,363
Other real estate owned
978 1,017 865 1,017
Total nonperforming assets
$ 8,307 $ 9,380 $ 5,337 $ 9,380

Troubled Debt Restructures:

TDRs included in non-performing loans
$ 2,681 $ 2,632 $ 2,033 $ 2,632
TDRs in compliance with modified terms
6,492 6,395 6,597 6,395
Total TDRs
$ 9,173 $ 9,027 $ 8,630 $ 9,027

Loan and Lease quality indicators:

Allowance for loan and lease losses to nonperforming loans and leases
233.4
%
209.1
%
380.2
%
209.1
%
Nonperforming loans and leases to total portfolio loans and leases
0.29
%
0.33
%
0.17
%
0.33
%
Allowance for loan and lease losses to total portfolio loans and leases
0.67
%
0.69
%
0.64
%
0.69
%
Nonperforming assets to total loans and leases and OREO
0.32
%
0.37
%
0.20
%
0.37
%
Total portfolio loans and leases
$ 2,555,589 $ 2,535,425
Nonperforming assets to total assets
0.15
%
0.27
%
Total portfolio loans and leases
$ 2,677,345 $ 2,535,425
Allowance for loan and lease losses
$ 17,107 $ 17,486 $ 17,004 $ 17,486

NON~~NON-INTEREST~~INTEREST INCOME

Three Months Ended ~~March 31,~~September 30, 2017 Compared to the Same Period in 2016
Noninterest income for the three months ended September 30, 2017 increased by $1.8 million from the same period in 2016. An increase of $551 thousand in fees for wealth management services resulted as wealth assets under management, administration, supervision and brokerage increased $2.46 billion from September 30, 2016 to September 30, 2017. Insurance revenue increased $487 thousand for the third quarter of 2017 as compared to the same period in 2016, largely due to the May 2017 acquisition of Hirshorn Boothby. In addition, revenue from our Capital Markets initiative, which was launched in the second quarter of 2017, contributed $843 thousand to noninterest income.
Nine Months Ended September 30, 2017 Compared to the Same Period in 2016

~~Non-interest~~Noninterest income for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 increased by ~~$74 thousand~~$2.9 million from the same period in 2016. ~~A $144 thousand~~An increase ~~in other operating income and a $471 thousand increase~~of $1.4 million in fees for wealth management ~~services, as~~was primarily related to the growth in the wealth assets ~~have increased 26.3%~~under management, administration, supervision and brokerage mentioned in the preceding paragraph. In addition, revenue from our Capital Markets initiative, which was launched in the ~~March 31, 2016 level, were partially offset by~~second quarter of 2017, contributed $1.8 million to noninterest income. Partially offsetting these increases was a $492 thousand decrease ~~of $76 thousand~~ in gain on sale of loans, as the volume of residential mortgage ~~loans,~~loan originations from new home buyers as ~~market~~well as refinancing activity has slowed due to rising interest rate increases reduced origination activity, and a $513 thousand decrease in insurance revenues related to the recognition of contingent commissions from providers during the first quarter of 2016, which are being ratably recognized in 2017. rates.

The following table ~~provides~~provides supplemental information regarding mortgage loan originations and sales:

As of or for the
Three Months Ended March 31,

As of or for the
Three Months Ended
September 30,

As of or for the
Nine Months Ended
September 30,

(dollars in millions)

2017

2016

2017

2016

2017

2016

Residential mortgage loans held in portfolio
$ 418.3 $ 412.0 $ 422.5 $ 418.4 $ 422.5 $ 418.4
Mortgage originations
$ 48.6 $ 51.5 $ 48.2 $ 84.9 $ 143.6 $ 201.3

Mortgage loans sold:

Servicing retained
$ 28.2 $ 40.5 $ 77.7 $ 93.4
Servicing released
8.0 10.5 16.8 18.2
Total mortgage loans sold
$ 32.7 $ 28.4 $ 36.2 $ 51.0 $ 94.5 $ 111.6

Percent servicing-retained
77.9
%
79.4
%
82.2
%
83.7
%
Percent servicing-released
22.1
%
20.6
%
17.8
%
16.3
%
Percent of originated mortgage loans sold
67.3
%
55.0
%
75.1
%
60.1
%
65.8
%
55.4
%
Percent of sold with servicing-retained
84.8
%
91.6
%
Percent of sold with servicing-released
15.2
%
8.4
%
Mortgage servicing rights at period end (“MSRs”)
$ 5.7 $ 5.2
Mortgage servicing rights (“MSRs”)
$ 5.7 $ 4.8 $ 5.7 $ 4.8
Net gain on sale of residential mortgage loans
$ 0.6 $ 0.7 $ 0.4 $ 0.7 $ 1.5 $ 1.6
Residential mortgage loans serviced for others
$ 638.6 $ 605.4 $ 647.0 $ 618.1 $ 647.0 $ 618.1

Page 4756
Table of Contents

The following table provides details ofother operating income for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016:

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

Three Months EndedMarch 31,

2017

2016

2017

2016

2017

2016

Merchant interchange fees
$ 341 $ 408 $ 378 $ 340 $ 1,079 $ 1,069
Commissions and fees
131 205 161 145 434 535
Bank-owned life insurance (“BOLI”) income
201 245 201 219 602 684
Safe deposit box rentals
90 94 98 98 282 287
Other investment income
— 2 10 24 19 126
Rental income
48 42 44 46 139 121
Miscellaneous other income
356 27 513 615 1,224 864
Other operating income
$ 1,167 $ 1,023 $ 1,405 $ 1,487 $ 3,779 $ 3,686

Wealth Assets Under Management,Administration,Supervision andBrokerage (“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” fee 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:

Wealth Assets as of:

Fee Basis

March 31,
2017

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

September 30,
2016

Market value
$ 5,483,237 $ 5,302,463 $ 5,276,756 $ 5,078,386 $ 5,032,841 $ 5,759,375 $ 5,593,936 $ 5,483,237 $ 5,302,463 $ 5,276,756
Fixed
6,242,223 6,025,994 4,692,989 4,554,135 4,248,902 6,671,995 6,456,619 6,242,223 6,025,994 4,692,989
$ 11,725,460 $ 11,328,457 $ 9,969,745 $ 9,632,521 $ 9,281,743
Total
$ 12,431,370 $ 12,050,555 $ 11,725,460 $ 11,328,457 $ 9,969,745

Percentage of Wealth Assets

Percentage of Wealth Assets

March 31,
2017

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

September 30,
2016

Market value
46.8 % 46.8 % 52.9 % 52.7 % 54.2 % 46.3 % 46.4 % 46.8 % 46.8 % 52.9 %
Fixed
53.2 % 53.2 % 47.1 % 47.3 % 45.8 % 53.7 % 53.6 % 53.2 % 53.2 % 47.1 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Total
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

The following ~~tables~~tables detail the composition of fees for wealth management services for the periods indicated:

(dollars in thousands)

For the Three Months Ended:

For the Three Months Ended:

Fee Basis

March 31,
2017

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

September 30,
2016

Market value
$ 7,230 7,212 $ 7,196 $ 7,187 $ 6,823 $ 7,522 $ 7,382 $ 7,230 $ 7,212 $ 7,196
Fixed
2,073 2,115 1,904 2,244 2,009 2,129 2,425 2,073 2,115 1,904
$ 9,303 9,327 $ 9,100 $ 9,431 $ 8,832
Total
$ 9,651 $ 9,807 $ 9,303 $ 9,327 $ 9,100

Percentage ofFees for Wealth Management

March 31,
2017

December 31,
2016

September 30,
2016

June 30, 2016

March 31,
2016

Market value
77.7 % 77.3 % 79.1 % 76.2 % 77.3 %
Fixed
22.3 % 22.7 % 20.9 % 23.8 % 22.7 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Percentage of Fees for Wealth Management

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

September 30,
2016

Market value
77.9 % 75.3 % 77.7 % 77.3 % 79.1 %
Fixed
22.1 % 24.7 % 22.3 % 22.7 % 20.9 %
Total
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Page 4857
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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, ~~NON-INTEREST EXPENSE~~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.

NONINTEREST EXPENSE
Three Months Ended ~~March 31, 2017~~September 30, 2017 Compared to the Same Period in ~~2016~~2016

~~Non-interest~~Noninterest expense for the three months ended ~~March 31,~~September 30, 2017 increased ~~$1.7~~$2.8 million from the same period in ~~2016, primarily~~2016. The increase was largely related to ~~salary~~a $2.0 million increase in salaries and ~~wage increases of $712 thousand~~wages due to staffing increases from our Capital Markets initiative, the Hirshorn Boothby acquisition and the Princeton wealth management office, annual salary and wage increases and increases in incentive ~~compensation, a $511~~compensation. In addition, an $850 thousand increase in due diligence, merger-related and merger ~~expenses in connection with~~integration costs primarily related to the ~~merger with~~ RBPI Acquisition, and a ~~$700~~$597 thousand increase in other operating expenses, which included a $368 thousand increase in contributions, largely comprised of contributions to local schools under the Pennsylvania Educational Improvement Tax Credit (EITC) program, contributed to the increase. Contributions made through the EITC program result in tax credits towards the Bank’s Pennsylvania bank shares tax obligation.
Nine Months Ended September 30, 2017 Compared to the Same Period in 2016
Noninterest expense for the nine months ended September 30, 2017 increased $6.8 million from the same period in 2016. Contributing to the increase were increases of $4.1 million in salaries and wages, which included staffing additions from the Hirshorn Boothby acquisition, the Capital Markets initiative, our new Princeton wealth management office, as well as annual salary increases and increases in incentive compensation. Due diligence and merger-related expenses increased $2.6 million, primarily related to ~~deferred compensation expense associated with~~ the ~~valuation of Corporation stock held~~RBPI Acquisition and other operating expenses increased $2.1 million as detailed in the ~~deferred compensation trusts.~~table below. As mentioned in the preceding paragraph, contributions increased related to the Corporation’s participation in the EITC program. Partially offsetting these expense increases was a $662 thousand decrease in impairments of MSRs, which saw a significant increase during the third quarter of 2016, as well as a $675 thousand decrease in Pennsylvania bank shares tax in connection with tax credits earned through the EITC program.

The following table provides details ofother operating ~~expenses~~expenses for the three and nine months ended ~~March 31,~~September 30, 2017 and 2016:

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)
2017

2016

2017

2016

Contributions
$ 368 $ — $ 779 $ 2
Deferred compensation trust expense
222 286 590 270
Director fees
137 102 473 448
Dues and subscriptions
230 109 647 326
FDIC insurance
433 498 1,176 1,320
Impairment of OREO and other repossessed assets
— — 200 —
Insurance
211 202 629 624
Loan processing
490 544 1,540 1,316
Miscellaneous
372 198 587 202
MSR amortization
229 210 571 527
Other taxes
21 7 34 38
Outsourced services
99 159 218 409
Portfolio maintenance
85 62 314 246
Postage
147 125 450 418
Stationary and supplies
149 111 375 376
Telephone
407 406 1,201 1,237
Temporary help and recruiting
158 157 672 635
Travel and entertainment
239 224 636 618
Other operating expense
$ 3,997 $ 3,400 $ 11,092 $ 9,012

(dollars in thousands)

Three Months EndedMarch 31,

2017

2016

Deferred compensation trust expense
$ 125 $ (213
)
Director fees
157 185
Dues and subscriptions
154 101
FDIC insurance
374 434
Impairment of mortgage servicing rights
3 83
Insurance
207 219
Loan processing
523 268
Miscellaneous
156 160
Mortgage servicing rights (“MSR”) amortization
169 136
Other taxes
9 9
Outsourced services
99 103
Portfolio maintenance
99 51
Postage
148 141
Stationary and supplies
117 153
Telephone
400 399
Temporary help and recruiting
397 265
Travel and entertainment
175 198
Other operating expense
$ 3,012 $ 2,692
Page 58
Table of Contents

I~~INCOME~~NCOME TAXES

Income tax expense for the three months ended ~~March 31,~~September 30, 2017 was ~~$4.6~~$4.8 million, as compared to $4.3 million for the same period in 2016. The tax expense recorded reflects a decrease in the effective tax rate from ~~34.6%~~31.7% for the ~~first~~third quarter of 2016 to ~~33.9%~~30.7% for the ~~first~~third quarter of 2017. The decrease in effective tax rate for the three months ended ~~March 31,~~September 30, 2017 as compared to the same period in 2016 was related to recognition, during the three months ended ~~March 31,~~September 30, 2017 and 2016, of excess tax benefits of ~~$145~~$694 thousand and $385 thousand, respectively, related to the stock based compensation vesting and option exercises, partially offset by the non-deductible merger costs related to the anticipated RBPI ~~merger~~Acquisition incurred in the ~~first~~third quarter of 2017.

Income tax expense for the nine months ended September 30, 2017 was $14.3 million, as compared to $13.5 million for the same period in 2016. The tax expense recorded reflects a decrease in the effective tax rate from 33.6% for the nine months ended September 30, 2016 to 32.9% for the nine months ended September 30, 2017. The decrease in effective tax rate for the nine months ended September 30, 2017 as compared to the same period in 2016 was related to recognition, during both periods, of excess tax benefits of $953 thousand and $445 thousand, respectively, related to the stock based compensation vesting and option exercises, partially offset by the non-deductible merger costs related to the anticipated RBPI Acquisition incurred in the nine months ended September 30, 2017.
BALANCE SHEET ANALYSIS

Total assets as of ~~March 31,~~September 30, 2017 of ~~$3.29~~$3.48 billion ~~decreased $128.9~~increased $55.3 million from $3.42 billion as of December 31, 2016. The following tables detail the changes:

Loans and Leases

The table below compares the portfolio loans and leases outstanding at ~~March 31,~~September 30, 2017 to December 31, 2016:

March 31, 2017

December 31, 2016

Change

(dollars in thousands)

Balance

Percent of
Portfolio

Balance

Percent of
Portfolio

Amount

Percent

Commercial mortgage
$ 1,137,870 44.5
%
$ 1,110,898 43.8
%
$ 26,972 2.4
%
Home equity lines & loans
203,962 8.0
%
207,999 8.2
%
(4,037
)
(1.9
) %
Residential mortgage
418,264 16.4
%
413,540 16.3
%
4,724 1.1
%
Construction
145,699 5.7
%
141,964 5.6
%
3,735 2.6
%
Commercial and industrial
567,917 22.2
%
579,791 22.9
%
(11,874
)
(2.0
) %
Consumer
23,932 0.9
%
25,341 1.0
%
(1,409
)
(5.6
) %
Leases
57,945 2.3
%
55,892 2.2
%
2,053 3.7
%
Total portfolio loans and leases
2,555,589 100.0
%
2,535,425 100.0
%
20,164 0.8
%
Loans held for sale
3,015 9,621 (6,606
)
(68.7
) %
Total loans and leases
$ 2,558,604 $ 2,545,046 $ 13,558 0.5
%
~~Page 49~~
~~Table of Contents~~

September 30, 2017

December 31, 2016

Change

(dollars in thousands)

Balance

Percent of
Portfolio

Balance

Percent of
Portfolio

Amount

Percent

Commercial mortgage
$ 1,224,571 45.7
%
$ 1,110,898 43.8
%
$ 113,673 10.2
%
Home equity lines & loans
206,974 7.7
%
207,999 8.2
%
(1,025
)
(0.5
)%
Residential mortgage
422,524 15.8
%
413,540 16.3
%
8,984 2.2
%
Construction
133,505 5.0
%
141,964 5.6
%
(8,459
)
(6.0
)%
Commercial and industrial
597,595 22.3
%
579,791 22.9
%
17,804 3.1
%
Consumer
31,306 1.2
%
25,341 1.0
%
5,965 23.5
%
Leases
60,870 2.3
%
55,892 2.2
%
4,978 8.9
%
Total portfolio loans and leases
2,677,345 100.0
%
2,535,425 100.0
%
141,920 5.6
%
Loans held for sale
6,327 9,621 (3,294
)
(34.2
)%
Total loans and leases
$ 2,683,672 $ 2,545,046 $ 138,626 5.4
%

Cash and Investment Securities

As of ~~March 31,~~September 30, 2017, liquidity remained strong as the Corporation had ~~$69.4~~$34.6 million of cash balances at the Federal Reserve and ~~$590 thousand~~$2.3 million in other interest-bearing accounts, along with significant borrowing capacity as discussed in the “Liquidity” section below.

Investment securities available for sale as of ~~March 31,~~September 30, 2017 totaled ~~$391.0~~$471.7 million, as compared to $567.0 million as of December 31, 2016. The decrease was primarily related to the maturing, at the beginning of January 2017, of $200.0 million of short-term U.S. Treasury ~~bills.~~bills, partially offset by purchases made during the nine months ended September 30, 2017 in a strategic effort to position the investment portfolio in anticipation of the RBPI Acquisition.

Page 59
Table of Contents

D~~Deposits, Borrowings~~eposits,Borrowings and Subordinated Debt

Deposits and borrowings as of ~~March 31,~~September 30, 2017 and December 31, 2016 were as follows:

March 31, 2017

December 31, 2016

Change

September 30, 2017

December 31, 2016

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 checking
$ 395,131 15.0
%
$ 379,424 14.7
%
$ 15,707 4.1
%
$ 395,383 14.7
%
$ 379,424 14.7
%
$ 15,959 4.2
%
Money market
757,071 28.7
%
761,657 29.6
%
(4,586
)
(0.6
)%
720,613 26.9
%
761,657 29.6
%
(41,044
)
(5.4
)%
Savings
255,791 9.7
%
232,193 9.0
%
23,598 10.2
%
264,273 9.8
%
232,193 9.0
%
32,080 13.8
%
Wholesale non-maturity deposits
69,471 2.6
%
74,272 2.9
%
(4,801
)
(6.5
)%
48,620 1.8
%
74,272 2.9
%
(25,652
)
(34.5
)%
Wholesale time deposits
68,164 2.6
%
73,037 2.8
%
(4,873
)
(6.7
)%
178,610 6.7
%
73,037 2.8
%
105,573 144.5
%
Retail time deposits
319,381 12.1
%
322,912 12.5
%
(3,531
)
(1.1
)%
316,068 11.8
%
322,912 12.5
%
(6,844
)
(2.1
)%
Interest-bearing deposits
1,865,009 70.7
%
1,843,495 71.5
%
21,514 1.2
%
1,923,567 71.7
%
1,843,495 71.5
%
80,072 4.3
%
Non-interest-bearing deposits
771,556 29.3
%
736,180 28.5
%
35,376 4.8
%
760,614 28.3
%
736,180 28.5
%
24,434 3.3
%
Total deposits
$ 2,636,565 100.0
%
$ 2,579,675 100.0
%
$ 56,890 2.2
%
$ 2,684,181 100.0
%
$ 2,579,675 100.0
%
$ 104,506 4.1
%

March 31, 2017

December 31, 2016

Change

(dollars in thousands)

Balance

Percent of Borrowings

Balance

Percent of Borrowings

Amount

Percent

Short-term borrowings
$ 23,613 10.4
%
$ 204,151 48.2
%
$ (180,538
)
(88.4
)%
Long-term FHLB advances
174,711 76.7
%
189,742 44.8
%
(15,031
)
(7.9
)%
Subordinated notes
29,546 12.9
%
29,532 7.0
%
14 <0.1
%
Borrowed funds
$ 227,870 100.0
%
$ 423,425 100.0
%
$ (195,555
)
(46.2
)%
~~Page 50~~
~~Table of Contents~~

September 30, 2017

December 31, 2016

Change

(dollars in thousands)

Balance

Percent of Borrowings

Balance

Percent of Borrowings

Amount

Percent

Short-term borrowings
$ 180,874 52.4
%
$ 204,151 48.2
%
$ (23,277
)
(11.4
)%
Long-term FHLB advances
134,651 39.0
%
189,742 44.8
%
(55,091
)
(29.0
)%
Subordinated notes
29,573 8.6
%
29,532 7.0
%
41 0.1
%
Borrowed funds
$ 345,098 100.0
%
$ 423,425 100.0
%
$ (78,327
)
(18.5
)%

Capital

Consolidated ~~shareholder’s~~shareholder’s equity of the Corporation was ~~$388.1~~$401.9 million, or ~~11.8%~~11.6% of total assets as of ~~March 31,~~September 30, 2017, as compared to $381.1 million, or 11.1% of total assets as of December 31, 2016. The following table presents the Corporation’s and Bank’s capital ratios and the minimum capital requirements to be considered “Well Capitalized” by regulators as of ~~March 31,~~September 30, 2017 and December 31, 2016:

Actual

Minimum to be Well-Capitalized
Under Prompt Corrective Action
Provisions

Actual

Minimum to be Well-
Capitalized Under Prompt
Corrective Action Provisions

(dollars in thousands)
Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

March 31, 2017:

September 30, 2017:

Total (Tier II) capital to risk weighted assets

Corporation
$ 321,604 12.30
%
$ 261,501 10.00
%
$ 331,689 12.23
%
$ 271,238 10.00
%
Bank
293,689 11.25
%
261,091 10.00
%
309,069 11.42
%
270,659 10.00
%
Tier I capital to risk weighted assets

Corporation
274,570 10.50
%
209,201 8.00
%
284,770 10.50
%
216,990 8.00
%
Bank
276,201 10.58
%
208,873 8.00
%
291,723 10.78
%
216,527 8.00
%
Common equity Tier I capital to risk weighted assets

Corporation
274,570 10.50
%
169,976 6.50
%
284,770 10.50
%
176,305 6.50
%
Bank
276,201 10.58
%
169,709 6.50
%
291,723 10.78
%
175,928 6.50
%
Tier I Leverage ratio (Tier I capital to total quarterly average assets)

Corporation
274,570 8.77
%
156,506 5.00
%
284,270 8.57
%
166,152 5.00
%
Bank
276,201 8.83
%
156,319 5.00
%
291,723 8.79
%
165,960 5.00
%
Tangible common equity to tangible assets⁽¹⁾

Corporation
263,467 8.32
%
— — 273,358 8.16
%
— —
Bank
267,704 8.46
%
— — 283,021 8.46
%
— —

December 31,2016:

Total (Tier II) capital to risk weighted assets

Corporation
$ 318,191 12.35
%
$ 257,651 10.00
%
Bank
287,897 11.19
%
257,179 10.00
%
Tier I capital to risk weighted assets

Corporation
270,845 10.51
%
206,121 8.00
%
Bank
270,083 10.50
%
205,743 8.00
%
Common equity Tier I capital to risk weighted assets

Corporation
270,845 10.51
%
167,474 6.50
%
Bank
270,083 10.50
%
167,166 6.50
%
Tier I leverage ratio (Tier I capital to total quarterly average assets)

Corporation
270,845 8.73
%
155,035 5.00
%
Bank
270,083 8.73
%
154,761 5.00
%
Tangible common equity to tangible assets⁽¹⁾

Corporation
255,959 7.76
%
— —
Bank
258,352 7.85
%
— —
Page 60
Table of Contents

Actual

Minimum to be Well-
Capitalized Under Prompt
Corrective Action Provisions

(dollars in thousands)
Amount

Ratio

Amount

Ratio

December 31, 2016:

Total (Tier II) capital to risk weighted assets

Corporation
$ 318,191 12.35
%
$ 257,651 10.00
%
Bank
287,897 11.19
%
257,179 10.00
%
Tier I capital to risk weighted assets

Corporation
270,845 10.51
%
206,121 8.00
%
Bank
270,083 10.50
%
205,743 8.00
%
Common equity Tier I capital to risk weighted assets

Corporation
270,845 10.51
%
167,474 6.50
%
Bank
270,083 10.50
%
167,166 6.50
%
Tier I leverage ratio (Tier I capital to total quarterly average assets)

Corporation
270,845 8.73
%
155,035 5.00
%
Bank
270,083 8.73
%
154,761 5.00
%
Tangible common equity to tangible assets⁽¹⁾

Corporation
255,959 7.76
%
— —
Bank
258,352 7.85
%
— —

                       ⁽¹⁾ There is no official regulatory guideline for the tangible common equity to tangible asset ratio.

~~Page 51~~
~~Table of Contents~~
The capital ratios for the Bank and the Corporation, as of ~~March 31,~~September 30, 2017, as shown in the above ~~table,~~tables, indicate levels well above the regulatory minimum to be considered “well ~~capitalized” under the prompt corrective actions provisions.~~capitalized.” At both the Bank ~~level, all~~and Corporation levels, the capital ratios to risk-weighted assets have ~~increased slightly~~all decreased from their December 31, 2016 levels ~~due to~~largely as a result of the effect of an increase in retained earnings and a decrease in other comprehensive loss partially offset by an increase in risk-weighted assets. At the Corporation level, Tier 1 and Total (Tier 1 & 2) capital to risk weighted assets declined by 1 and 5 basis points, respectively, related to an increase in risk-weighted assets, much of which was in the commercial mortgage, construction, and the decrease in retained earnings associated with the dividend payment during the first quarter of 2017 which totaled $3.6 million. Neither the Corporation nor the Bank is under any agreement with regulatory authorities which would have a material effect on liquidity, capital resources or operationscommercial and industrial segments of the ~~Corporation or the Bank.~~loan portfolio, which are typically risk-weighted at 100%.

L~~Liquidity~~iquidity

The ~~Corporation’s~~Corporation’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 Federal Reserve Bank, and purchasing and issuing wholesale certificates of deposit as its secondary sources.

Unused availability is detailed on the following table:

(dollars in millions)

Available
Funds as
of March 31,
2017

Percent of Total
Borrowing
Capacity

Available
Funds as
of December 31,
2016

Percent of Total
Borrowing
Capacity

Dollar Change

Percent Change

Available
Funds as of September 30,
2017

Percent of
Total
Borrowing Capacity

Available
Funds as of December 31,
2016

Percent of Total Borrowing Capacity

Dollar
Change

Percent
Change

Federal Home Loan Bank of Pittsburgh
$ 1,036.8 84.5
%
$ 886.0 72.9
%
$ 150.8 17.0
%
$ 1,033.3 80.5
%
$ 886.0 72.9
%
$ 147.3 16.6
%
Federal Reserve Bank of Philadelphia
108.0 100.0
%
117.3 100.0
%
(9.3
)
(7.9
)%
125.1 100.0
%
117.3 100.0
%
7.8 6.6
%
Fed Funds Lines (six banks)
79.0 100.0
%
79.0 100.0
%
— —
%
79.0 100.0
%
79.0 100.0
%
— —
%
Revolving line of credit with correspondent bank
5.0 100.0
%
5.0 100.0
%
— —
%
5.0 100.0
%
5.0 100.0
%
— —
%
$ 1,228.8 86.6
%
$ 1,087.3 76.7
%
$ 141.5 13.0
%
Total
$ 1,242.4 83.3
%
$ 1,087.3 76.7
%
$ 155.1 14.3
%

Quarterly, the ALCO reviews the ~~Corporation’s~~Corporation’s liquidity needs and reports its findings to the Corporation’s Board of Directors.

~~The~~The Corporation has an agreement with IND to provide up to $40 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 ~~$42.8~~$26.3 million in balances as of ~~March 31,~~September 30, 2017 under this program.

The Corporation continually evaluates the cost and mix of its retail and wholesale funding sources relative to earning assets and expected future earning-asset growth. The Corporation believes that with its current branch network, along with the available borrowing capacity at FHLB and other sources, it has sufficient capacity available to fund expected earning-asset growth.
~~Discussion of Segments~~

Discussion of Segments
The Corporation has ~~two~~two principal segments as defined by FASB ASC 280, “Segment Reporting.”The segments are Banking and Wealth Management (see Note 10 in the accompanying Notes to Unaudited Consolidated Financial Statements).

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Table of Contents
The Wealth Management Segment ~~as discussed in the Non-Interest Income section above,~~ recorded a pre-tax segment profit (“PTSP”) of ~~$3.7~~$3.6 million and $10.7 million for the three and nine months ended ~~March 31,~~September 30, 2017, respectively, as compared to PTSP of ~~$3.6~~$3.8 million and $10.8 million, respectively, for the same ~~period~~periods in 2016. The Wealth Management Segment provided ~~26.9%~~23.3% and 24.6% of the Corporation’s pre-tax profit for the three ~~months~~and nine month periods ended ~~March 31,~~September 30, 2017, respectively, as compared to ~~28.5%~~27.3% and 26.9% for the same ~~period~~respective periods in 2016. ~~While~~For the three and nine month periods ended September 30, 2017, both insurance revenues ~~decreased by $513 thousand for the first quarter of 2017 as compared to the same period in 2016,~~and fees for wealth management services increased ~~by $471 thousand for~~from the same ~~periods.~~respective periods in 2016.

The Banking Segment recorded a PTSP of ~~$10.0~~$11.9 million and $32.8 million for the three and nine months ended ~~March 31, 2017~~September 30, 2017. Respectively, as compared to PTSP of ~~$9.0~~$10.0 million and $29.3 million for the same ~~period~~respective periods in 2016. The Banking Segment provided ~~73.1%~~76.7% and 75.4% of the Corporation’s pre-tax profit for both the three ~~months~~and nine month periods ended ~~March 31,~~September 30, 2017, respectively, as compared to ~~71.5%~~72.7% and 73.1% for the same ~~period~~respective periods in 2016.

~~Page 52~~
~~Table of Contents~~
Off Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.

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 ~~March 31,~~September 30, 2017 were ~~$682.7~~$727.3 million, as compared to $675.4 million at December 31, 2016.

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 granting loan facilities to customers. The Bank’s obligation under standby letters of credit at ~~March 31,~~September 30, 2017 amounted to ~~$12.3~~$16.4 million, as compared to $12.7 million at December 31, 2016.

Estimated fair values of the ~~Corporation’s~~Corporation’s off-balance sheet instruments 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 instruments.

C~~Contractual~~ontractual Cash Obligations of the Corporation as of~~March 31, 2017~~September 30, 2017:

(dollars in millions)

Total

Within 1 Year

2 – 3 Years

4 – 5 Years

After 5 Years

Total

Within 1
Year

2 – 3 Years

4 – 5 Years

After 5 Years

Deposits without a stated maturity
$ 2,249.1 $ 2,249.1 $ — $ — $ — $ 2,189.5 $ 2,189.5 $ — $ — $ —
Wholesale and retail time deposits
387.6 312.4 69.4 5.8 — 494.7 403.7 86.0 5.0 —
Short-term borrowings
23.6 23.6 — — — 180.9 180.9 — — —
Long-term FHLB advances
174.7 91.5 75.7 7.5 — 134.7 76.5 53.2 5.0 —
Operating leases
30.4 4.2 7.9 5.8 12.5 29.7 4.4 8.1 5.8 11.4
Purchase obligations
8.1 2.3 2.9 2.9 — 8.1 2.3 2.9 2.9 —
Total
$ 2,873.5 $ 2,683.1 $ 155.9 $ 22.0 12.5 $ 3,037.6 $ 2,857.3 $ 150.2 $ 18.7 $ 11.4

O~~Other~~ther Information

Effects of Inflation

Inflation has some impact on the ~~Corporation’s~~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.

Effect~~Effects~~s 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~~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.

Page 62
Table of Contents
Special Cautionary Notice Regarding Forward Looking Statements

Certain of the statements contained in this report 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 may involve known and unknown risks, uncertainties 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-looking statements include statements with respect to the ~~Corporation’s~~Corporation’s financial goals, 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 The words “may”, “would”, ~~“could”~~��could”, “will”, “likely”, “expect,” “anticipate,” “intend”, “estimate”, “plan”, “forecast”, “project” and “believe” and similar expressions are intended to identify such forward-looking statements. 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:
~~Page 53~~
~~Table of Contents~~

•
local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact;

our need for capital;

lower demand for our products and services and lower revenues and earnings could result from an economic recession;

lower earnings could result from 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 that adversely affect our business, including changes in federal income tax or other tax regulations;

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

changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

other changes in accounting requirements or interpretations;

the accuracy of assumptions underlying the establishment of provisions for loan and lease losses and estimates in the value of collateral, and various financial assets and liabilities;

inflation, securities market and monetary fluctuations;

changes in the securities markets with respect to 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;

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;

legislation or other governmental action affecting the financial services industry as a whole, us or our subsidiaries individually or collectively, including changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;

results of examinations by the Federal Reserve Board, including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets;

our common stock outstanding and common stock price volatility;

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

with respect to mergers and acquisitions, our business and the acquired business will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;

revenues following the completion of a merger or acquisition may be lower than expected;

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

material differences in the actual financial results of our merger and acquisition activities compared with expectations, such as with respect to the full realization of anticipated cost savings and revenue enhancements within the expected time frame;

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

Page 63
Table of Contents
our ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that meets customers’ needs;

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

rapid technological developments and changes;

the effects of competition from 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;

~~Page 54~~
~~Table of Contents~~
our ability to continue to introduce competitive new products and services on a timely, cost-effective basis and the mix of those products and services;

containing costs and expenses;

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;

any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);

ability to retain key employees and members of senior management;

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

Our success in managing the risks involved in the foregoing;

as it relates to our pending merger with RBPI, that required regulatory, shareholder or other approvals are not obtained or other closing conditions are not satisfied in a timely manner or at all;

that prior to the completion of the transaction or thereafter, the Corporation’s and RBPI’s respective businesses may not perform as expected due to transaction-related uncertainty or other factors;

that the parties are unable to successfully implement integration strategies;

the inability of RBPI to cash out outstanding warrants to purchase RBPI Class A Common Stock;

reputational risks and the reaction of the ~~companies’~~companies’ customers to the transaction;

diversion of management time on merger-related issues;
the integration ofthe acquired business with the Corporation may take longer than anticipated or be more costly to complete and that the anticipated benefits, including any anticipated cost savings or strategic gains may be significantly harder to achieve or take longer than anticipated or may not be achieved;
the need for capital, ability to control operating costs and expenses, and to manage loan and lease delinquency rates;

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

the inability of key third-party providers to perform their obligations to us.

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Report and the documents incorporated by reference herein are based upon the ~~Corporation’s~~Corporation’s beliefs and assumptions as of the date of this Report. The Corporation assumes no obligation to update any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this Report or incorporated documents might not occur and you should not put undue reliance on any forward-looking statements.

Page 64
Table of Contents
Additional Information About the Merger with RBPI and Where to Find It

In connection with the proposed merger transaction between the Corporation and RBPI, on April 20, 2017, the Corporation filed with the Securities and Exchange Commission a Registration Statement on Form S-4/A which included a Proxy Statement of RBPI, and a Prospectus of the Corporation, as well as other relevant documents concerning the proposed transaction. Shareholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger with RBPI and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information.

A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about the Corporation and RBPI, may be obtained at the ~~SEC’s~~SEC’s Internet site (http://www.sec.gov).

The Corporation and RBPI and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of RBPI in connection with the proposed merger. Information about the directors and executive officers of the Corporation is set forth in the proxy statement for the ~~Corporation’s~~Corporation’s 2017 annual meeting of shareholders, filed with the SEC on a Schedule 14A on March 10, 2017. Information about the directors and executive officers of RBPI is set forth in the Form 10-K for RBPI, as filed with the SEC on March 22, 2017. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger. Free copies of this document may be obtained as described in the preceding paragraph.

~~Page 55~~
~~Table of Contents~~
ITEM 3.Quantitative and Qualitative Disclosures About Market Risks

See the discussion of quantitative and qualitative disclosures about market risks in the ~~Corporation’s~~Corporation’s 2016 Annual Report, as updated by the disclosure in “Management’s Discussion and Analysis of Results of Operations – Interest Rate Summary,” “– 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~~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 Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2017.

There were no changes in the Corporation’s internal controls over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Page 65
Table of Contents

PART II OTHER ~~INFO~~RM~~ATION.~~INFORMATION.

ITEM 1. Legal P~~roceedings.~~Proceedings.

In a Complaint filed on April 11, 2017 in the U.S. District Court for the Eastern District of Pennsylvania, the Corporation was named as a defendant in a lawsuit entitled Parshall v. Royal Bancshares of Pennsylvania, Inc., et al. In relevant part, Mr. Parshall, a purported shareholder of RBPI, ~~alleges~~alleged that the Corporation, as a “control person” of RBPI, should be liable for what Mr. Parshall ~~claims~~claimed to be inadequate disclosures in the proxy statement/prospectus RBPI sent to its shareholders in connection with soliciting approval of the ~~Corporation’s~~Corporation’s acquisition of RBPI. Mr. Parshall ~~purports~~purported to bring this claim on behalf of a class of similarly-situated RBPI shareholders, although no class ~~has yet been~~was certified by the court. Mr. Parshall ~~does~~did not articulate any monetary damages in his complaint, but ~~seeks~~sought the right to prevent the Corporation’s acquisition of RBPI (or in the alternative, if it does proceed, rescind it or award rescissory damages), an order for an amended proxy statement/prospectus, a declaratory judgment that the defendants, including the Corporation, violated federal securities laws, and unspecified attorney's fees and litigation costs. On September 27, 2017, the parties submitted a stipulation dismissing as “moot” the action with prejudice as to Mr. Parshall’s claims and without prejudice as to the putative class. The court approved the stipulation and entered an order dismissing the action on September 28, 2017. In accordance with the stipulation, the court retained jurisdiction to decide any motion or request for attorney’s fees and expenses by Mr. Parshall’s counsel.

ITEM 1A~~ITEM 1A~~.~~. Risk~~ Risk Factors
None.

ITEM 2. UnregisteredSalesof Equity Securities and Use of Proceeds

Share Repurchase

The following table ~~presents~~presents the shares repurchased by the Corporation during the ~~first~~third quarter of 2017⁽¹⁾:

Period

Total Number of
Shares Purchased⁽²⁾

Average Price Paid
Per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs

January 1, 2017 – January 31, 2017
— $ — — 189,300
February 1, 2017 – February 28, 2017
— $ — — 189,300
March 1, 2017 – March 31, 2017
442 $ 42.00 — 189,300

Total
442 $ 42.00 — 189,300
Period

Total Number of
Shares Purchased⁽²⁾⁽³⁾

Average Price
Paid
Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs

July 1, 2017 – July 31, 2017
— $ — — 189,300
August 1, 2017 – August 31, 2017
22,923 $ 41.74 — 189,300
September 1, 2017 – September 30, 2017
2,113 $ 41.15 — 189,300
Total
25,036 $ 41.69 — 189,300

⁽¹⁾
OOnn August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million.There is no expiration date on the 20152015 Program and the Corporation has no plans for an early termination of the 20152015 Program. All sharere~~purchase~~s repurchases underthe 2015 Programwere accomplished in open market transactions.As of~~March 31,~~ September 30, 2017,,the maximum number of shares remaining authorized for repurchase under the 2015 Program was~~189,300~~. 189,300.
⁽²⁾
On~~March 2~~~~, 201~~7,~~442~~ September 29, 2017, 680 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.
⁽³⁾
Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation or Bank as follows: 2,403 shares on August 12, 2017; 20,520 shares on August 14, 2017; 305 shares on September 2, 2017; and ~~Bank~~1,128 shares on September 15, 2017.

ITEM 3. De~~faults~~Defaults Upon Senior Securities
None.

ITEM 4~~ITEM 4~~. Mine Safety Disclosures. ~~MineSafetyDisclosures.~~
         Not applicable.

ITEM 5. Other~~Information~~ Information
None.

Page 5666
Table of Contents

ITEM 6.Exhibits

Exhibit~~Exhibit~~ No.

Description and References

~~2.1~~
Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on January 31, 2017
3.1

Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the ~~Corporation’s~~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~~Corporation’s Form 8-K filed with the SEC on November 21, 2007
10.1
Employment Agreement, dated as of April 1, 2015, between The Bryn Mawr Trust Company and Lori Goldman
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, filed herewith
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

Page 5767
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: ~~May 5,~~November 3, 2017

By:
/s/ Francis J. Leto
~~Francis J. Leto~~

~~President & Chief Executive Officer~~
~~(Principal Executive Officer)~~
~~Date: May 5, 2017~~
~~By:~~
~~/s/ Michael W. Harrington~~        Francis J. Leto

President & Chief Executive Officer
(Principal Executive Officer)
Date: November 3, 2017
By:
/s/ Michael W. Harrington

Michael W. Harrington
Chief Financial Officer

(Principal Financial ~~and Accounting~~ Officer)
~~Page 58~~
~~Table of Contents~~
~~Form 10-Q~~
~~Index to Exhibits~~
~~Exhibit No.~~
~~Description and References~~
~~2.1~~
Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed with the SEC on January 31, 2017
~~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~~
~~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, filed herewith~~
~~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~~

Page 5968

Pennsylvania	23-2434506
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer identification No.)

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

Classes		Outstanding atNovember~~May 2~~1, 2017
Common Stock, par value $1		~~16,987,574~~17,063,041


PART~~PART~~ I -	FINANCIAL INFORMATION	~~Page 3~~

ITEM~~ITEM~~ 1.	Financial Statements (unaudited)	~~Page 3~~

	Consolidated Financial Statements	Page 3

	Notes to Consolidated Financial Statements	Page 8

ITEM~~ITEM~~ 2.	Management~~Management’s~~’s Discussion and Analysis of Financial Condition and Results of Operations	Page 3846

ITEM~~ITEM~~ 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 5665

ITEM~~ITEM~~ 4.	Controls and Procedures	Page 5665

PART~~PART~~ II -	OTHER INFORMATION	Page 5666

ITEM~~ITEM~~ 1.	Legal Proceedings	Page 5666

ITEM~~ITEM~~ 1A.	Risk Factors	Page 5666

ITEM~~ITEM~~ 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 5666

ITEM~~ITEM~~ 3.	Defaults Upon Senior Securities	Page 5666

ITEM~~ITEM~~ 4.	Mine Safety Disclosures	Page 5666

ITEM~~ITEM~~ 5.	Other Information	Page 5666

ITEM~~ITEM~~ 6.	Exhibits	Page 57 67

	(unaudited)						(unaudited)
	March 31,			December 31,			September 30,			December 31,
(dollars in thousands)	2017			2016			2017			2016
Assets
Cash and due from banks	$	17,457		$	16,559		$	8,682		$	16,559
Interest bearing deposits with banks		69,978			34,206			36,870			34,206
Cash and cash equivalents		87,435			50,765			45,552			50,765
Investment securities available for sale, at fair value (amortized cost of $392,326 and $568,890as of March 31, 2017 and December 31, 2016 respectively)		391,028			566,996
Investment securities held to maturity, at amortized cost (fair value of $5,116 and $2,818as of March 31, 2017 and December 31, 2016, respectively)		5,194			2,879
Investment securities available for sale, at fair value (amortized cost of $472,158 and $568,890 as of September 30, 2017 and December 31, 2016 respectively)								471,721			566,996
Investment securities held to maturity, at amortized cost (fair value of $6,218 and $2,818 as of September 30, 2017 and December 31, 2016, respectively)								6,255			2,879
Investment securities, trading		4,138			3,888			4,423			3,888
Loans held for sale		3,015			9,621			6,327			9,621
Portfolio loans and leases, originated		2,286,814			2,240,987			2,433,054			2,240,987
Portfolio loans and leases, acquired		268,775			294,438			244,291			294,438
Total portfolio loans and leases		2,555,589			2,535,425			2,677,345			2,535,425
Less: Allowance for originated loan and lease losses		(17,069	)		(17,458	)		(16,957	)		(17,458	)
Less: Allowance for acquired loan and lease losses		(38	)		(28	)		(47	)		(28	)
Total allowance for loans and lease losses		(17,107	)		(17,486	)		(17,004	)		(17,486	)
Net portfolio loans and leases		2,538,482			2,517,939			2,660,341	��		2,517,939
Premises and equipment, net		40,515			41,778			44,544			41,778
Accrued interest receivable		8,392			8,533			9,287			8,533
Mortgage servicing rights		5,686			5,582			5,732			5,582
Bank owned life insurance		39,479			39,279			39,881			39,279
Federal Home Loan Bank stock		8,505			17,305			16,248			17,305
Goodwill		104,765			104,765			107,127			104,765
Intangible assets		19,864			20,405			21,407			20,405
Other investments		8,716			8,627			8,941			8,627
Other assets		27,403			23,168			29,035			23,168
Total assets	$	3,292,617		$	3,421,530		$	3,476,821		$	3,421,530
Liabilities
Deposits:
Non-interest-bearing	$	771,556		$	736,180		$	760,614		$	736,180
Interest-bearing		1,865,009			1,843,495			1,923,567			1,843,495
Total deposits		2,636,565			2,579,675			2,684,181			2,579,675

Short-term borrowings		23,613			204,151			180,874			204,151
Long-term FHLB advances		174,711			189,742			134,651			189,742
Subordinated notes		29,546			29,532			29,573			29,532
Accrued interest payable		2,722			2,734			2,267			2,734
Other liabilities		37,365			34,569			43,383			34,569
Total liabilities		2,904,522			3,040,403			3,074,929			3,040,403
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares;issued 21,141,146 and 21,110,968 shares as of March 31, 2017 and December 31, 2016, respectively,and outstanding of 16,969,451 and 16,939,715 as of March 31, 2017 and December 31, 2016, respectively		21,141			21,111
Common stock, par value $1; authorized 100,000,000 shares; issued 21,247,795 and 21,110,968 shares as of September 30, 2017 and December 31, 2016, respectively, and outstanding of 17,050,151 and 16,939,715 as of September 30, 2017 and December 31, 2016, respectively								21,248			21,111
Paid-in capital in excess of par value		233,910			232,806			235,412			232,806
Less: Common stock in treasury at cost - 4,171,695 and 4,171,253 shares as of March 31, 2017and December 31, 2016, respectively		(66,969	)		(66,950	)
Less: Common stock in treasury at cost - 4,197,644 and 4,171,253 shares as of September 30, 2017 and December 31, 2016, respectively								(68,134	)		(66,950	)
Accumulated other comprehensive loss, net of tax		(1,990	)		(2,409	)		(1,400	)		(2,409	)
Retained earnings		202,003			196,569			214,766			196,569
Total shareholders' equity		388,095			381,127			401,892			381,127
Total liabilities and shareholders' equity	$	3,292,617		$	3,421,530		$	3,476,821		$	3,421,530

	Three Months Ended March 31,
	2017		2016
(dollars in thousands, except per share data)
Interest income:
Interest and fees on loans and leases	$	28,482	$	26,696
Interest on cash and cash equivalents		66		46
Interest on investment securities:
Taxable		1,623		1,351
Non-taxable		110		128
Dividends		45		48
Total interest income		30,326		28,269
Interest expense:
Interest on deposits		1,828		1,076
Interest on short-term borrowings		27		17
Interest on FHLB advances and other borrowings		698		908
Interest on subordinated notes		370		366
Total interest expense		2,923		2,367
Net interest income		27,403		25,902
Provision for loan and lease losses		291		1,410
Net interest income after provision for loan and lease losses		27,112		24,492
Non-interest income:
Fees for wealth management services		9,303		8,832
Insurance commissions		763		1,276
Service charges on deposits		647		702
Loan servicing and other fees		503		492
Net gain on sale of loans		629		705
Net gain (loss) on sale of investment securities available for sale		1		(15	)
Net loss on sale of other real estate owned ("OREO")		-		(76	)
Dividends on FHLB and FRB stock		214		214
Other operating income		1,167		1,023
Total non-interest income		13,227		13,153
Non-interest expenses:
Salaries and wages		12,450		11,738
Employee benefits		2,559		2,485
Occupancy and bank premises		2,526		2,488
Furniture, fixtures, and equipment		1,974		1,919
Advertising		386		284
Amortization of intangible assets		693		891
Due diligence, merger-related and merger integration expenses		511		-
Professional fees		711		813
Pennsylvania bank shares tax		664		638
Information technology		874		1,048
Other operating expenses		3,312		2,692
Total non-interest expenses		26,660		24,996

Income before income taxes		13,679		12,649
Income tax expense		4,635		4,328
Net income	$	9,044	$	8,321

Basic earnings per common share	$	0.53	$	0.49
Diluted earnings per common share	$	0.53	$	0.49
Dividends declared per share	$	0.21	$	0.20

Weighted-average basic shares outstanding		16,954,132		16,848,202
Dilutive shares		228,557		34,991
Adjusted weighted-average diluted shares		17,182,689		16,883,193

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
(dollars in thousands, except per share data)
Interest income:
Interest and fees on loans and leases	$	30,892	$	27,931		$	88,517		$	82,306
Interest on cash and cash equivalents		36		27			137			115
Interest on investment securities:
Taxable		2,177		1,373			5,706			4,108
Non-taxable		91		125			302			379
Dividends		2		58			99			161
Total interest income		33,198		29,514			94,761			87,069
Interest expense:
Interest on deposits		2,198		1,575			6,009			4,053
Interest on short-term borrowings		547		34			811			71
Interest on FHLB advances and other borrowings		645		818			2,025			2,593
Interest on subordinated notes		370		370			1,110			1,106
Total interest expense		3,760		2,797			9,955			7,823
Net interest income		29,438		26,717			84,806			79,246
Provision for loan and lease losses		1,333		1,412			1,541			3,267
Net interest income after provision for loan and lease losses		28,105		25,305			83,265			75,979
Non-interest income:
Fees for wealth management services		9,651		9,100			28,761			27,363
Insurance commissions		1,373		886			3,079			3,007
Capital markets revenue		843		-			1,796			-
Service charges on deposits		676		688			1,953			2,103
Loan servicing and other fees		548		497			1,570			1,528
Net gain on sale of loans		799		879			1,948			2,440
Net gain (loss) on sale of investment securities available for sale		72		(28	)		73			(86	)
Net loss on sale of other real estate owned ("OREO")		-		-			(12	)		(76	)
Dividends on FHLB and FRB stock		217		277			649			754
Other operating income		1,405		1,487			3,779			3,686
Total non-interest income		15,584		13,786			43,596			40,719
Non-interest expenses:
Salaries and wages		13,602		11,621			39,632			35,556
Employee benefits		2,631		2,420			7,665			7,341
Occupancy and bank premises		2,485		2,349			7,258			7,204
Furniture, fixtures, and equipment		1,726		1,837			5,569			5,651
Advertising		277		334			1,068			990
Amortization of intangible assets		677		888			2,057			2,668
Impairment of mortgage servicing rights		3		29			49			711
Due diligence, merger-related and merger integration expenses		850		-			2,597			-
Professional fees		739		937			2,499			2,696
Pennsylvania bank shares tax		317		675			1,278			1,953
Information technology		880		881			2,575			2,804
Other operating expenses		3,997		3,400			11,092			9,012
Total non-interest expenses		28,184		25,371			83,339			76,586
Income before income taxes		15,505		13,720			43,522			40,112
Income tax expense		4,766		4,346			14,306			13,484
Net income	$	10,739	$	9,374		$	29,216		$	26,628

Basic earnings per common share	$	0.63	$	0.56		$	1.72		$	1.58
Diluted earnings per common share	$	0.62	$	0.55		$	1.69		$	1.57
Dividends declared per share	$	0.22	$	0.21		$	0.64		$	0.61

Weighted-average basic shares outstanding		17,023,046		16,860,727			16,987,499			16,840,457
Dilutive shares		230,936		211,631			254,728			153,998
Adjusted weighted-average diluted shares		17,253,982		17,072,358			17,242,227			16,994,455

(dollars in thousands)	Three Months Ended March 31,
	2017			2016
Operating activities:
Net Income	$	9,044		$	8,321
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		291			1,410
Depreciation of fixed assets		1,392			1,422
Net amortization of investment premiums and discounts		673			779
Net (gain) loss on sale of investment securities available for sale		(1	)		15
Net gain on sale of loans		(629	)		(760	)
Stock based compensation cost		484			403
Amortization and net impairment of mortgage servicing rights		172			219
Net accretion of fair value adjustments		(795	)		(1,124	)
Amortization of intangible assets		693			891
Net loss on sale of OREO		-			76
Net increase in cash surrender value of bank owned life insurance ("BOLI")		(200	)		(245	)
Other, net		(6,380	)		(5,340	)
Loans originated for resale		(26,064	)		(27,183	)
Proceeds from loans sold		33,023			28,864
Provision for deferred income taxes		167			(60	)
Change in income taxes payable/receivable		4,324			2,738
Change in accrued interest receivable		141			(336	)
Change in accrued interest payable		(12	)		(557	)
Net cash provided by operating activities		16,323			9,533

Investing activities:
Purchases of investment securities available for sale		(42,842	)		(45,507	)
Purchases of investment securities held to maturity		(2,335	)		-
Proceeds from maturity and paydowns of investment securities available for sale		217,539			13,955
Proceeds from maturity and paydowns of investment securities held to maturity		15			-
Proceeds from sale of investment securities available for sale		65			65
Net change in FHLB stock		8,800			800
Proceeds from calls of investment securities		1,134			16,795
Proceeds from sales of other investments		-			-
Net change in other investments		(89	)		973
Purchase of domain name		(152	)
Net portfolio loan and lease originations		(20,108	)		(109,322	)
Purchases of premises and equipment		(162	)		(828	)
Proceeds from sale of OREO		39			1,806
Net cash provided by (used in) investing activities		161,904			(121,263	)

Financing activities:
Change in deposits		56,909			91,427
Change in short-term borrowings		(180,538	)		(57,146	)
Dividends paid		(3,559	)		(3,357	)
Change in long-term FHLB advances and other borrowings		(15,000	)		(5,000	)
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation		(19	)		(25	)
Net purchase of treasury stock through publicly announced plans		-			(7,971	)
Proceeds from exercise of stock options		650			283
Net cash (used in) provided by financing activities		(141,557	)		18,211

Change in cash and cash equivalents		36,670			(93,519	)
Cash and cash equivalents at beginning of period		50,765			143,067
Cash and cash equivalents at end of period	$	87,435		$	49,548

Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	117		$	1,651
Interest	$	2,935		$	2,924

Non-cash information:
Change in other comprehensive loss	$	419		$	1,914
Change in deferred tax due to change in other comprehensive loss	$	225		$	1,042

(dollars in thousands, except per share information)
	For the Three Months Ended March 31, 2017
	Shares of Common Stock Issued		Common Stock		Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders' Equity

Balance December 31, 2016		21,110,968	$	21,111	$	232,806	$	(66,950	)	$	(2,409	)	$	196,569		$	381,127
Net income				-		-		-			-			9,044			9,044
Dividends declared, $0.21 per share				-		-		-			-			(3,610	)		(3,610	)
Other comprehensive income, net of tax expense of $225				-		-		-			419			-			419
Stock based compensation				-		484		-			-			-			484
Net purchase of treasury stock from stock awards for statutory tax withholdings				-		-		(19	)		-			-			(19	)
Common stock issued through share-based awards and options exercises		30,178		30		620		-			-			-			650
Balance March 31, 2017		21,141,146	$	21,141	$	233,910	$	(66,969	)	$	(1,990	)	$	202,003		$	388,095

	For the Nine Months Ended September 30, 2017
	Shares of Common Stock Issued			Common Stock			Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders' Equity

Balance December 31, 2016		21,110,968		$	21,111		$	232,806		$	(66,950	)	$	(2,409	)	$	196,569		$	381,127
Net income		-			-			-			-			-			29,216			29,216
Dividends declared, $0.64 per share		-			-			-			-			-			(11,019	)		(11,019	)
Other comprehensive income, net of tax expense of $544		-			-			-			-			1,009			-			1,009
Stock based compensation		-			-			1,476			-			-			-			1,476
Form S-4 stock issuance costs		-			-			(108	)		-			-						(108	)
Retirement of treasury stock		(2,628	)		(3	)		(23	)		26			-			-			-
Net purchase of treasury stock from stock awards for statutory tax withholdings		-			-			-			(1,112	)		-			-			(1,112	)
Net purchase of treasury stock for deferred compensation trusts		-			-			-			(98	)		-			-			(98	)
Common stock issued through share-based awards and options exercises		139,455			140			1,261			-			-			-			1,401
Balance September 30, 2017		21,247,795		$	21,248		$	235,412		$	(68,134	)	$	(1,400	)	$	214,766		$	401,892

	Three Months Ended
	March 31,
(dollars in thousands except per share data)	2017		2016
Numerator:
Net income available to common shareholders	$	9,044	$	8,321
Denominator for basic earnings per share –weighted average shares outstanding		16,954,132		16,848,202
Effect of dilutive common shares		228,557		34,991
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		17,182,689		16,883,193
Basic earnings per share	$	0.53	$	0.49
Diluted earnings per share	$	0.53	$	0.49
Anti-dilutive shares excluded from computation of average dilutive earnings per share		—		—

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands except per share data)	2017		2016		2017		2016
Numerator:
Net income available to common shareholders	$	10,739	$	9,374	$	29,216	$	26,628
Denominator for basic earnings per share – weighted average shares outstanding		17,023,046		16,860,727		16,987,499		16,840,457
Effect of dilutive common shares		230,936		211,631		254,728		153,998
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		17,253,982		17,072,358		17,242,227		16,994,455
Basic earnings per share	$	0.63	$	0.56	$	1.72	$	1.58
Diluted earnings per share	$	0.62	$	0.55	$	1.69	$	1.57
Antidilutive shares excluded from computation of average dilutive earnings per share		21,621		—		47,268		—

(dollars in thousands)
Consideration paid:
Cash paid at closing	$	5,770
Contingent payment liability (present value)		1,690
Value of consideration		7,460

Assets acquired:
Cash operating accounts		978
Intangible assets – trade name		195
Intangible assets – customer relationships		2,672
Intangible assets – non-competition agreements		41
Premises and equipment		1,795
Accounts receivable		192
Other assets		27
Total assets		5,900

Liabilities assumed:
Accounts payable		800
Other liabilities		2
Total liabilities		802

Net assets acquired		5,098

Goodwill resulting from acquisition of Hirshorn	$	2,362

	Three Months EndedMarch 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2017		2016		2017		2016		2017		2016
Salaries and wages					$	28	$	—	$	428	$	—
Employee benefits						5		—		10		—
Advertising						89		—		108		—
Professional fees	$	396	$	—		662		—		1,600		—
Salaries and wages		80		—
Information technology						41		—		300		—
Other		35		—		25		—		151		—
Total due diligence and merger-related expenses	$	511	$	—	$	850	$	—	$	2,597	$	—

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	101	$	—	$	—		$	101
Obligations of the U.S. government and agencies		101,279		161		(964	)		100,476
Obligations of state and political subdivisions		30,949		56		(65	)		30,940
Mortgage-backed securities		197,224		1,281		(1,085	)		197,420
Collateralized mortgage obligations		46,253		87		(864	)		45,476
Other investments		16,520		177		(82	)		16,615

Total	$	392,326	$	1,762	$	(3,060	)	$	391,028

(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		143,632		175		(1,095	)		142,712
Obligations of state and political subdivisions		24,055		48		(24	)		24,079
Mortgage-backed securities		259,812		1,491		(622	)		260,681
Collateralized mortgage obligations		40,235		56		(696	)		39,595
Other investments		4,324		246		(16	)		4,554
Total	$	472,158	$	2,016	$	(2,453	)	$	471,721

	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	$	91,172	$	(726	)	$	15,631	$	(369	)	$	106,803	$	(1,095	)
Obligations of state and political subdivisions		4,207		(15	)		2,859		(9	)		7,066		(24	)
Mortgage-backed securities		104,579		(447	)		11,444		(175	)		116,023		(622	)
Collateralized mortgage obligations		9,916		(100	)		21,899		(596	)		31,815		(696	)
Other investments		1,480		(16	)		—		—			1,480		(16	)
Total	$	211,354	$	(1,304	)	$	51,833	$	(1,149	)	$	263,187	$	(2,453	)

	March 31, 2017				December 31,2016				September 30, 2017				December 31, 2016
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities¹:
Due in one year or less	$	12,019	$	12,026	$	213,876	$	213,885	$	11,870	$	11,873	$	213,876	$	213,885
Due after one year through five years		65,360		65,221		40,335		40,270		98,400		97,785		40,335		40,270
Due after five years through ten years		39,023		38,328		45,840		44,914		42,700		42,342		45,840		44,914
Due after ten years		17,226		17,240		18,079		18,055		15,917		15,990		18,079		18,055
Subtotal		133,628		132,815		318,130		317,124		168,887		167,990		318,130		317,124
Mortgage-related securities¹		243,477		242,896		235,485		234,644		300,047		300,276		235,485		234,644
Mutual funds with no stated maturity		15,221		15,317		15,275		15,228		3,224		3,455		15,275		15,228
Total	$	392,326	$	391,028	$	568,890	$	566,996	$	472,158	$	471,721	$	568,890	$	566,996

	September 30, 2017				December 31, 2016
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-related securities¹	$	6,255	$	6,218	$	2,879	$	2,818
Total	$	6,255	$	6,218	$	2,879	$	2,818

	March 31, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Loans held for sale	$	3,015		$	9,621		$	6,327		$	9,621
Real estate loans:
Commercial mortgage	$	1,137,870		$	1,110,898		$	1,224,571		$	1,110,898
Home equity lines and loans		203,962			207,999			206,974			207,999
Residential mortgage		418,264			413,540			422,524			413,540
Construction		145,699			141,964			133,505			141,964
Total real estate loans		1,905,795			1,874,401			1,987,574			1,874,401
Commercial and industrial		567,917			579,791			597,595			579,791
Consumer		23,932			25,341			31,306			25,341
Leases		57,945			55,892			60,870			55,892
Total portfolio loans and leases		2,555,589			2,535,425			2,677,345			2,535,425
Total loans and leases	$	2,558,604		$	2,545,046		$	2,683,672		$	2,545,046
Loans with fixed rates	$	1,124,066		$	1,130,172		$	1,141,433		$	1,130,172
Loans with adjustable or floating rates		1,434,538			1,414,874			1,542,239			1,414,874
Total loans and leases	$	2,558,604		$	2,545,046		$	2,683,672		$	2,545,046
Net deferred loan origination fees included in the above loan table	$	(864	)	$	(735	)	$	(718	)	$	(735	)

	September 30, 2017			December 31, 2016
Loans held for sale	$	6,327		$	9,621
Real estate loans:
Commercial mortgage	$	1,089,369		$	946,879
Home equity lines and loans		182,301			178,450
Residential mortgage		362,237			342,268
Construction		133,505			141,964
Total real estate loans		1,767,412			1,609,561
Commercial and industrial		573,607			550,334
Consumer		31,165			25,200
Leases		60,870			55,892
Total portfolio loans and leases		2,433,054			2,240,987
Total loans and leases	$	2,439,381		$	2,250,608
Loans with fixed rates	$	1,026,646		$	992,917
Loans with adjustable or floating rates		1,412,735			1,257,691
Total originated loans and leases	$	2,439,381		$	2,250,608
Net deferred loan origination fees included in the above loan table	$	(718	)	$	(735	)

(dollars in thousands)	March 31, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Non-accrual loans and leases:
Commercial mortgage	$	315	$	320	$	193	$	320
Home equity lines and loans		1,828		2,289		613		2,289
Residential mortgage		2,640		2,658		1,589		2,658
Commercial and industrial		2,471		2,957		1,977		2,957
Consumer		—		2		—		2
Leases		75		137		100		137
Total	$	7,329	$	8,363	$	4,472	$	8,363

(dollars in thousands)	September 30, 2017		December 31, 2016
Non-accrual originated loans and leases:
Commercial mortgage	$	144	$	265
Home equity lines and loans		270		2,169
Residential mortgage		458		1,654
Commercial and industrial		1,131		941
Consumer		—		2
Leases		100		137
Total	$	2,103	$	5,168

(dollars in thousands)	March 31, 2017		December 31, 2016
Non-accrual originated loans and leases:
Commercial mortgage	$	263	$	265
Home equity lines and loans		1,674		2,169
Residential mortgage		1,624		1,654
Commercial and industrial		908		941
Consumer		—		2
Leases		75		137
Total	$	4,544	$	5,168

(dollars in thousands)	Accretable Discount			Accretable Discount
Balance, December 31, 2016	$	3,233		$	3,233
Accretion		(485	)		(1,553	)
Reclassifications from nonaccretable difference		—			—
Additions/adjustments		—			666
Disposals		—			—
Balance, March 31, 2017	$	2,748
Balance, September 30, 2017				$	2,346

	Accruing Loans and Leases
(dollars in thousands) As of March 31, 2017	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
Commercial mortgage	$	1,926	$	—	$	—	$	1,926	$	1,135,629	$	1,137,555	$	315	$	1,137,870
Home equity lines and loans		24		200		—		224		201,910		202,134		1,828		203,962
Residential mortgage		1,967		233		—		2,200		413,424		415,624		2,640		418,264
Construction		—		—		—		—		145,699		145,699		—		145,699
Commercial and industrial		519		719		—		1,238		564,208		565,446		2,471		567,917
Consumer		10		10		—		20		23,912		23,932		—		23,932
Leases		159		310		—		469		57,401		57,870		75		57,945
	$	4,605	$	1,472	$	—	$	6,077	$	2,542,183	$	2,548,260	$	7,329	$	2,555,589

	Accruing 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
As of September 30, 2017
Commercial mortgage	$	525	$	—	$	—	$	525	$	1,223,853	$	1,224,378	$	193	$	1,224,571
Home equity lines and loans		—		—		—		—		206,361		206,361		613		206,974
Residential mortgage		1,608		1,857		—		3,465		417,470		420,935		1,589		422,524
Construction		—		116		—		116		133,389		133,505		—		133.505
Commercial and industrial		—		—		—		—		595,618		595,618		1,977		597,595
Consumer		22		—		—		22		31,284		31,306		—		31,306
Leases		296		133		—		429		60,341		60,770		100		60,870
Total	$	2,451	$	2,106	$	—	$	4,557	$	2,668,316	$	2,672,873	$	4,472	$	2,677,345

(dollars in thousands)	Accruing Loans and Leases
As of December 31, 2016	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
Commercial mortgage	$	666	$	722	$	—	$	1,388	$	1,109,190	$	1,110,578	$	320	$	1,110,898
Home equity lines and loans		11		—		—		11		205,699		205,710		2,289		207,999
Residential mortgage		823		490		—		1,313		409,569		410,882		2,658		413,540
Construction		—		—		—		—		141,964		141,964		—		141,964
Commercial and industrial		36		—		—		36		576,798		576,834		2,957		579,791
Consumer		10		5		—		15		25,324		25,339		2		25,341
Leases		177		86		—		263		55,492		55,755		137		55,892
	$	1,723	$	1,303	$	—	$	3,026	$	2,524,036	$	2,527,062	$	8,363	$	2,535,425

	Accruing Loans and Leases
(dollars in thousands) As of December 31, 2016	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
Commercial mortgage	$	—	$	722	$	—	$	722	$	945,892	$	946,614	$	265	$	946,879
Home equity lines and loans		11		—		—		11		176,270		176,281		2,169		178,450
Residential mortgage		773		64		—		837		339,778		340,615		1,653		342,268
Construction		—		—		—		—		141,964		141,964		—		141,964
Commercial and industrial		—		—		—		—		549,393		549,393		941		550,334
Consumer		10		5		—		15		25,183		25,198		2		25,200
Leases		177		86		—		263		55,492		55,755		137		55,892
	$	971	$	877	$	—	$	1,848	$	2,233,972	$	2,235,820	$	5,167	$	2,240,987

	Accruing Loans and Leases
(dollars in thousands) As of December 31, 2016	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
Commercial mortgage	$	666	$	—	$	—	$	666	$	163,298	$	163,964	$	55	$	164,019
Home equity lines and loans		—		—		—		—		29,429		29,429		120		29,549
Residential mortgage		50		426		—		476		69,791		70,267		1,005		71,272
Commercial and industrial		36		—		—		36		27,405		27,441		2,016		29,457
Consumer		—		—		—		—		141		141		—		141
	$	752	$	426	$	—	$	1,178	$	290,064	$	291,242	$	3,196	$	294,438

(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total			Commercial Mortgage		Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total
Balance, December 31, 2016	$	6,227	$	1,255		$	1,917		$	2,233		$	5,142		$	153		$	559		$	—	$	17,486
Balance, June 30, 2017																										$	6,608	$	1,214		$	1,776		$	1,111		$	4,813		$	177		$	700		$	—	$	16,399
Charge-offs		—		(438	)		(27	)		—			(59	)		(41	)		(206	)		—		(771	)		—		(69	)		(88	)		—			(301	)		(37	)		(411	)		—		(906	)
Recoveries		3		—			—			1			—			2			95			—		101			3		—			85			1			2			1			86			—		178
Provision for loan and lease losses		180		426			(92	)		(39	)		(336	)		21			131			—		291			721		(53	)	��	48			(182	)		366			69			364			—		1,333
Balance, March 31, 2017	$	6,410	$	1,243		$	1,798		$	2,195		$	4,747		$	135		$	579		$	—	$	17,107
Balance, September 30, 2017																										$	7,332	$	1,092		$	1,821		$	930		$	4,880		$	210		$	739		$	—	$	17,004

(dollars in thousands) As ofMarch 31, 2017	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Unallocated		Total
(dollars in thousands)																			Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Unallocated		Total
As of September 30, 2017
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	—	$	45	$	—	$	1	$	5	$	—	$	—	$	51	$	—	$	3	$	69	$	—	$	—	$	4	$	—	$	—	$	76
Collectively evaluated for impairment		6,410		1,243		1,725		2,195		4,736		130		579		—		17,018		7,332		1,089		1,705		930		4,880		206		739		—		16,881
Total	$	6,410	$	1,243	$	1,770	$	2,195	$	4,737	$	135	$	579	$	—	$	17,069	$	7,332	$	1,092	$	1,774	$	930	$	4,880	$	210	$	739	$	—	$	16,957
As of December 31,2016
As of December 31, 2016
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	—	$	45	$	—	$	5	$	8	$	—	$	—	$	58	$	—	$	—	$	45	$	—	$	5	$	8	$	—	$	—	$	58
Collectively evaluated for impairment		6,227		1,255		1,844		2,233		5,137		145		559		—		17,400		6,227		1,255		1,844		2,233		5,137		145		559		—		17,400
Total	$	6,227	$	1,255	$	1,889	$	2,233	$	5,142	$	153	$	559	$	—	$	17,458	$	6,227	$	1,255	$	1,889	$	2,233	$	5,142	$	153	$	559	$	—	$	17,458

(dollars in thousands) As of March 31, 2017	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
As of September 30, 2017
Carrying value of loans and leases:
Individually evaluated for impairment	$	52	$	72	$	3,186	$	—	$	1,303	$	—	$	—	$	4,613	$	49	$	266	$	3,306	$	—	$	653	$	—	$	—	$	4,274
Collectively evaluated for impairment		137,264		27,235		63,729		—		23,931		141		—		252,300		126,256		24,319		56,981		—		21,941		140		—		229,637
Purchased credit-impaired⁽¹⁾		9,975		100		—		—		1,787		—		—		11,862		8,897		88		—		—		1,395		—		—		10,380
Total	$	147,291	$	27,407	$	66,915	$	—	$	27,021	$	141	$	—	$	268,775	$	135,202	$	24,673	$	60,287	$	—	$	23,989	$	140	$	—	$	244,291
As of December 31,2016
As of December 31, 2016
Carrying value of loans and leases:
Individually evaluated for impairment	$	55	$	35	$	3,155	$	—	$	1,756	$	—		—	$	5,001	$	55	$	35	$	3,155	$	—	$	1,756	$	—	$	—	$	5,001
Collectively evaluated for impairment		153,430		29,409		68,114		—		25,911		141		—		277,005		153,430		29,409		68,114		—		25,911		141		—		277,005
Purchased credit-impaired⁽¹⁾		10,534		105		3		—		1,790		—		—		12,432		10,534		105		3		—		1,790		—		—		12,432
Total	$	164,019	$	29,549	$	71,272	$	—	$	29,457	$	141		—	$	294,438	$	164,019	$	29,549	$	71,272	$	—	$	29,457	$	141	$	—	$	294,438

	Credit Risk Profile by Internally Assigned Grade

(dollars in thousands)	Commercial Mortgage				Construction				Commercial and Industrial				Total
	March 31, 2017		December 31,2016		March 31, 2017		December 31,2016		March 31, 2017		December 31,2016		March 31, 2017		December 31,2016
Pass	$	1,126,655	$	1,099,557	$	143,732	$	140,370	$	559,773	$	570,342	$	1,830,160	$	1,810,269
Special Mention		1,886		1,892		—		—		674		2,315		2,560		4,207
Substandard		9,329		9,449		1,967		1,594		7,123		5,512		18,419		16,555
Doubtful		—		—		—		—		347		1,622		347		1,622
Total	$	1,137,870	$	1,110,898	$	145,699	$	141,964	$	567,917	$	579,791	$	1,851,486	$	1,832,653