Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

For Quarter endedMarch 31,September 30, 2018

Commission File Number1-357461-35746


Bryn Mawr Bank Corporation

(Exact name of registrant as specified in its charter)

Pennsylvania

23-2434506

Pennsylvania23-2434506
(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

identification No.)

  

801 Lancaster Avenue, Bryn Mawr, Pennsylvania

19010

(Address of principal executive offices)

(Zip Code)

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

Not Applicable

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

Indicate by checkmark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act..

Act.

Large accelerated filer  ☒    Accelerated filer  ☐

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

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

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

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

Classes

Classes 

Outstanding at MayNovember 1,, 2018

2018

Common Stock, par value $1

 

20,232,714

20,250,227

Table of Contents


BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED March 31,SEPTEMBER 30, 2018


Index

PART I -

FINANCIAL INFORMATION

   

ITEM 1.

Financial Statements (unaudited)

   

Consolidated Financial Statements (unaudited)

Page 3

   

Notes to Consolidated Financial Statements (unaudited)

Page 8

   

ITEM 2.

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

Page 43

56
   

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Page 60

78
   

ITEM 4.

Controls and Procedures

Page 60

78
   

PART II -

OTHER INFORMATION

Page 61

78
   

ITEM 1.

Legal Proceedings

Page 61

78
   

ITEM 1A.

Risk Factors

Page 61

78
   

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Page 61

79
   

ITEM 3.

Defaults Upon Senior Securities

Page 61

80
   

ITEM 4.

Mine Safety Disclosures

Page 61

80
   

ITEM 5.

Other Information

Page 61

80
   

ITEM 6.

Exhibits

Page 62

81



Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited

  

March 31,

  

December 31,

 

(dollars in thousands)

 

2018

  

2017

 

Assets

        

Cash and due from banks

 $7,804  $11,657 

Interest bearing deposits with banks

  24,589   48,367 

Cash and cash equivalents

  32,393   60,024 

Investment securities available for sale, at fair value (amortized cost of $544,428 and $692,824 as of March 31, 2018 and December 31, 2017 respectively)

  534,103   689,202 

Investment securities held to maturity, at amortized cost (fair value of $7,629 and $7,851 as of March 31, 2018 and December 31, 2017, respectively)

  7,885   7,932 

Investment securities, trading

  8,211   4,610 

Loans held for sale

  5,522   3,794 

Portfolio loans and leases, originated

  2,564,827   2,487,296 

Portfolio loans and leases, acquired

  740,968   798,562 

Total portfolio loans and leases

  3,305,795   3,285,858 

Less: Allowance for originated loan and lease losses

  (17,570)  (17,475)

Less: Allowance for acquired loan and lease losses

  (92)  (50)

Total allowance for loans and lease losses

  (17,662)  (17,525)

Net portfolio loans and leases

  3,288,133   3,268,333 

Premises and equipment, net

  54,986   54,458 

Accrued interest receivable

  12,521   14,246 

Mortgage servicing rights

  5,706   5,861 

Bank owned life insurance

  56,946   56,667 

Federal Home Loan Bank stock

  15,499   20,083 

Goodwill

  182,200   179,889 

Intangible assets

  25,087   25,966 

Other investments

  11,720   12,470 

Other assets

  59,464   46,185 

Total assets

 $4,300,376  $4,449,720 

Liabilities

        

Deposits:

        

Non-interest-bearing

 $863,118  $924,844 

Interest-bearing

  2,452,421   2,448,954 

Total deposits

  3,315,539   3,373,798 
         

Short-term borrowings

  173,704   237,865 

Long-term FHLB advances

  107,784   139,140 

Subordinated notes

  98,448   98,416 

Junior subordinated debentures

  21,456   21,416 

Accrued interest payable

  4,814   3,527 

Other liabilities

  45,570   47,439 

Total liabilities

  3,767,315   3,921,601 

Shareholders' equity

        

Common stock, par value $1; authorized 100,000,000 shares; issued 24,438,758 and 24,360,049 shares as of March 31, 2018 and December 31, 2017, respectively, and outstanding of 20,229,896 and 20,161,395 as of March 31, 2018 and December 31, 2017, respectively

  24,439   24,360 

Paid-in capital in excess of par value

  371,319   371,486 

Less: Common stock in treasury at cost - 4,208,862 and 4,198,654 shares as of March 31, 2018 and December 31, 2017, respectively

  (68,787)  (68,179)

Accumulated other comprehensive loss, net of tax

  (9,664)  (4,414)

Retained earnings

  216,438   205,549 

Total Bryn Mawr Bank Corporation shareholders' equity

  533,745   528,802 

Noncontrolling interest

  (684)  (683)

Total shareholders' equity

  533,061   528,119 

Total liabilities and shareholders' equity

 $4,300,376  $4,449,720 

(dollars in thousands) September 30,
2018		 December 31,
2017
Assets    
Cash and due from banks $10,121
 $11,657
Interest bearing deposits with banks 35,233
 48,367
Cash and cash equivalents 45,354
 60,024
Investment securities available for sale, at fair value (amortized cost of $543,240 and $692,824 as of September 30, 2018 and December 31, 2017, respectively) 528,064
 689,202
Investment securities held to maturity, at amortized cost (fair value of $8,544 and $7,851 as of September 30, 2018 and December 31, 2017, respectively) 8,916
 7,932
Investment securities, trading 8,340
 4,610
Loans held for sale 4,111
 3,794
Portfolio loans and leases, originated 2,752,160
 2,487,296
Portfolio loans and leases, acquired 629,315
 798,562
Total portfolio loans and leases 3,381,475
 3,285,858
Less: Allowance for originated loan and lease losses (18,612) (17,475)
Less: Allowance for acquired loan and lease losses (72) (50)
Total allowance for loans and lease losses (18,684)
(17,525)
Net portfolio loans and leases 3,362,791
 3,268,333
Premises and equipment, net 63,281
 54,458
Accrued interest receivable 13,232
 14,246
Mortgage servicing rights 5,328
 5,861
Bank owned life insurance 57,543
 56,667
Federal Home Loan Bank stock 14,678
 20,083
Goodwill 183,864
 179,889
Intangible assets 24,301
 25,966
Other investments 16,529
 12,470
Other assets 52,110
 46,185
Total assets $4,388,442
 $4,449,720
Liabilities    
Deposits:    
Noninterest-bearing $834,363
 $924,844
Interest-bearing 2,522,863
 2,448,954
Total deposits 3,357,226
 3,373,798
     
Short-term borrowings 226,498
 237,865
Long-term FHLB advances 72,841
 139,140
Subordinated notes 98,482
 98,416
Junior subordinated debentures 21,538
 21,416
Accrued interest payable 7,193
 3,527
Other liabilities 53,239
 47,439
Total liabilities 3,837,017
 3,921,601
Shareholders' equity    
Common stock, par value $1; authorized 100,000,000 shares; issued 24,532,745 and 24,360,049 shares as of September 30, 2018 and December 31, 2017, respectively and outstanding of 20,292,420 and 20,161,395 as of September 30, 2018 and December 31, 2017, respectively 24,533
 24,360
Paid-in capital in excess of par value 373,205
 371,486
Less: Common stock in treasury at cost - 4,240,325 and 4,198,654 shares as of September 30, 2018 and December 31, 2017, respectively (70,437) (68,179)
Accumulated other comprehensive loss, net of tax (13,402) (4,414)
Retained earnings 238,204
 205,549
Total Bryn Mawr Bank Corporation shareholders' equity 552,103
 528,802
Noncontrolling interest (678) (683)
Total shareholders' equity 551,425
 528,119
Total liabilities and shareholders' equity $4,388,442
 $4,449,720
The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.


Page 3
Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited

  

Three Months Ended March 31,

 
  

2018

  

2017

 

(dollars in thousands, except per share data)

        

Interest income:

        

Interest and fees on loans and leases

 $40,689  $28,482 

Interest on cash and cash equivalents

  53   66 

Interest on investment securities:

        

Taxable

  2,706   1,623 

Non-taxable

  84   110 

Dividends

  2   45 

Total interest income

  43,534   30,326 

Interest expense:

        

Interest on deposits

  3,472   1,828 

Interest on short-term borrowings

  630   27 

Interest on FHLB advances and other borrowings

  562   698 

Interest on subordinated notes

  1,143   370 

Interest on junior subordinated debentures

  288   - 

Total interest expense

  6,095   2,923 

Net interest income

  37,439   27,403 

Provision for loan and lease losses

  1,030   291 

Net interest income after provision for loan and lease losses

  36,409   27,112 

Noninterest income:

        

Fees for wealth management services

  10,308   9,303 

Insurance commissions

  1,693   763 

Capital markets revenue

  666   - 

Service charges on deposits

  713   647 

Loan servicing and other fees

  686   503 

Net gain on sale of loans

  518   629 

Net gain on sale of investment securities available for sale

  7   1 

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

  176   - 

Dividends on FHLB and FRB stock

  431   214 

Other operating income

  4,338   1,167 

Total noninterest income

  19,536   13,227 

Noninterest expenses:

        

Salaries and wages

  15,982   12,450 

Employee benefits

  3,708   2,489 

Occupancy and bank premises

  3,050   2,526 

Furniture, fixtures, and equipment

  1,898   1,974 

Advertising

  461   386 

Amortization of intangible assets

  879   693 

Due diligence, merger-related and merger integration expenses

  4,319   511 

Professional fees

  748   711 

Pennsylvania bank shares tax

  473   664 

Information technology

  1,195   874 

Other operating expenses

  3,317   3,382 

Total noninterest expenses

  36,030   26,660 

Income before income taxes

  19,915   13,679 

Income tax expense

  4,630   4,635 

Net income

 $15,285  $9,044 

Add: Net loss attributable to noncontrolling interest

  1   - 

Net income attributable to Bryn Mawr Bank Corporation

 $15,286  $9,044 
         

Basic earnings per common share

 $0.76  $0.53 

Diluted earnings per common share

 $0.75  $0.53 

Dividends declared per share

 $0.22  $0.21 
         

Weighted-average basic shares outstanding

  20,202,969   16,954,132 

Dilutive shares

  247,525   228,557 

Adjusted weighted-average diluted shares

  20,450,494   17,182,689 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(dollars in thousands, except share and per share data)2018 2017 2018 2017
Interest income:       
Interest and fees on loans and leases$42,103
 $30,892
 $124,481
 $88,517
Interest on cash and cash equivalents64
 36
 181
 137
Interest on investment securities:       
Taxable2,993
 2,177
 8,621
 5,706
Non-taxable71
 91
 233
 302
Dividends2
 2
 5
 99
Total interest income45,233
 33,198
 133,521
 94,761
Interest expense:       
Interest on deposits5,533
 2,198
 13,504
 6,009
Interest on short-term borrowings1,096
 547
 2,711
 811
Interest on FHLB advances and other borrowings394
 645
 1,446
 2,025
Interest on subordinated notes1,144
 370
 3,430
 1,110
Interest on junior subordinated debentures337
 —
 946
 —
Total interest expense8,504
 3,760
 22,037
 9,955
Net interest income36,729
 29,438
 111,484
 84,806
Provision for loan and lease losses664
 1,333
 4,831
 1,541
Net interest income after provision for loan and lease losses36,065
 28,105
 106,653
 83,265
Noninterest income:       
Fees for wealth management services10,343
 9,651
 31,309
 28,761
Insurance commissions1,754
 1,373
 5,349
 3,079
Capital markets revenue710
 843
 3,481
 1,796
Service charges on deposits726
 676
 2,191
 1,953
Loan servicing and other fees559
 548
 1,720
 1,570
Net gain on sale of loans631
 799
 1,677
 1,948
Net gain on sale of investment securities available for sale—
 72
 7
 73
Net gain (loss) on sale of other real estate owned ("OREO")5
 —
 292
 (12)
Dividends on FHLB and FRB stock375
 217
 1,316
 649
Other operating income3,171
 1,405
 10,543
 3,779
Total noninterest income18,274
 15,584
 57,885
 43,596
Noninterest expenses:       
Salaries and wages16,528
 13,602
 48,750
 39,632
Employee benefits3,356
 2,560
 9,941
 7,453
Occupancy and bank premises2,717
 2,485
 8,464
 7,258
Furniture, fixtures, and equipment2,070
 1,726
 6,037
 5,569
Advertising349
 277
 1,179
 1,068
Amortization of intangible assets891
 677
 2,659
 2,057
Due diligence, merger-related and merger integration expenses389
 850
 7,761
 2,597
Professional fees997
 739
 2,677
 2,499
Pennsylvania bank shares tax472
 317
 1,418
 1,278
Information technology1,155
 880
 3,602
 2,575
Other operating expenses4,668
 4,071
 12,970
 11,353
Total noninterest expenses33,592
 28,184
 105,458
 83,339
Income before income taxes20,747
 15,505
 59,080
 43,522
Income tax expense4,066
 4,766
 12,419
 14,306
Net income$16,681
 $10,739
 $46,661
 $29,216
Net (loss) income attributable to noncontrolling interest(1) —
 5
 —
Net income attributable to Bryn Mawr Bank Corporation$16,682
 $10,739
 $46,656
 $29,216
Basic earnings per common share$0.82
 $0.63
 $2.31
 $1.72
Diluted earnings per common share$0.82
 $0.62
 $2.28
 $1.69
Dividends paid or accrued per common share$0.25
 $0.22
 $0.69
 $0.64
Weighted-average basic shares outstanding20,270,706
 17,023,046
 20,237,757
 16,987,499
Dilutive shares167,670
 230,936
 206,318
 254,728
Adjusted weighted-average diluted shares20,438,376
 17,253,982
 20,444,075
 17,242,227
The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.


Page 4
Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

(dollars in thousands)

 

Three Months Ended March 31,

 
  

2018

  

2017

 
         

Net income attributable to Bryn Mawr Bank Corporation

 $15,286  $9,044 
         

Other comprehensive (loss) income:

        

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

        

Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(1,319) and $208, respectively

  (4,961)  388 

Reclassification adjustment for net (gain) on sale realized in net income, net of tax (expense) benefit of $(1) and $0, respectively

  (6)  (1)

Reclassification adjustment for net (gain) realized on transfer of investment securities available for sale to trading, net of tax (expense) benefit of $(88) and $0, respectively

  (329)  - 

Unrealized investment (losses) gains, net of tax (benefit) expense of $(1,408) and $208, respectively

  (5,296)  387 

Net change in unfunded pension liability:

        

Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense of $12 and $17, respectively

  46   32 
         

Total other comprehensive (loss) income

  (5,250)  419 
         

Total comprehensive income

 $10,036  $9,463 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(dollars in thousands)2018 2017 2018 2017
Net income attributable to Bryn Mawr Bank Corporation$16,682
 $10,739
 $46,656
 $29,216
        
Other comprehensive (loss) income:       
Net change in unrealized (losses) gains on investment securities available for sale:       
Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(616), $105, $(2,337), and $535, respectively(2,319) 196
 (8,792) 995
Reclassification adjustment for net (gain) on sale realized in net income, net of tax (expense) of $0, $(25), $(1), and $(25), respectively—
 (47) (6) (48)
Reclassification adjustment for net (gain) realized on transfer of investment securities available for sale to trading, net of tax (expense) benefit of $0, $0, $(88), and $0, respectively—
 —
 (329) —
Unrealized investment (losses) gains, net of tax (benefit) expense of $(616), $80, $(2,426), and $510, respectively(2,319) 149
 (9,127) 947
Net change in unfunded pension liability:       
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense of $28, $9, $37, and $34, respectively108
 15
 139
 62
        
Total other comprehensive (loss) income(2,211) 164
 (8,988) 1,009
        
Total comprehensive income$14,471
 $10,903
 $37,668
 $30,225
The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.


Page 5
Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited

(dollars in thousands)

 

Three Months Ended March 31,

 
  

2018

  

2017

 

Operating activities:

        

Net income attributable to Bryn Mawr Bank Corporation

 $15,286  $9,044 

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

        

Provision for loan and lease losses

  1,030   291 

Depreciation of fixed assets

  1,493   1,392 

Net amortization of investment premiums and discounts

  761   673 

Net gain on sale of investment securities available for sale

  (7)  (1)

Net gain on sale of loans

  (518)  (629)

Stock based compensation

  620   484 

Amortization and net impairment of mortgage servicing rights

  171   172 

Net accretion of fair value adjustments

  (3,004)  (795)

Amortization of intangible assets

  879   693 

Net gain on sale of OREO

  (176)  - 

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

  (279)  (200)

Other, net

  (17,436)  (6,380)

Loans originated for resale

  (19,534)  (26,064)

Proceeds from loans sold

  18,265   33,023 

Provision for deferred income taxes

  656   167 

Change in income taxes payable/receivable

  3,819   4,324 

Change in accrued interest receivable

  1,725   141 

Change in accrued interest payable

  1,287   (12)

Net cash provided by operating activities

  5,038   16,323 
         

Investing activities:

        

Purchases of investment securities available for sale

  (74,029)  (42,842)

Purchases of investment securities held to maturity

  -   (2,335)

Proceeds from maturity and paydowns of investment securities available for sale

  218,393   217,539 

Proceeds from maturity and paydowns of investment securities held to maturity

  39   15 

Proceeds from sale of investment securities available for sale

  7   65 

Net change in FHLB stock

  4,584   8,800 

Proceeds from calls of investment securities

  65   1,134 

Net change in other investments

  500   (89)

Purchase of domain name

  -   (152)

Net portfolio loan and lease originations

  (21,230)  (20,108)

Purchases of premises and equipment

  (2,063)  (162)

Proceeds from sale of OREO

  217   39 

Net cash provided by investing activities

  126,483   161,904 
         

Financing activities:

        

Change in deposits

  (57,879)  56,909 

Change in short-term borrowings

  (64,161)  (180,538)

Dividends paid

  (4,523)  (3,559)

Change in long-term FHLB advances

  (31,371)  (15,000)

Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation

  (626)  (19)

Net sale of treasury stock for deferred compensation plans

  171   - 

Repurchase of warrants from U.S. Treasury

  (1,755)  - 

Proceeds from exercise of stock options

  992   650 

Net cash used in financing activities

  (159,152)  (141,557)
         

Change in cash and cash equivalents

  (27,631)  36,670 

Cash and cash equivalents at beginning of period

  60,024   50,765 

Cash and cash equivalents at end of period

 $32,393  $87,435 
         

Supplemental cash flow information:

        

Cash paid during the year for:

        

Income taxes

 $146  $117 

Interest

 $4,808  $2,935 
         

Non-cash information:

        

Change in other comprehensive loss

 $(5,250) $419 

Change in deferred tax due to change in comprehensive income

 $(1,396) $225 

Transfer of loans to other real estate owned and repossessed assets

 $37  $- 

 Nine Months Ended September 30,
(dollars in thousands)
2018 2017
Operating activities:   
Net income attributable to Bryn Mawr Bank Corporation$46,656
 $29,216
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for loan and lease losses4,831
 1,541
Depreciation of fixed assets4,584
 4,181
Net amortization of investment premiums and discounts2,373
 2,189
Net gain on sale of investment securities available for sale(7) (73)
Net gain on sale of loans(1,677) (1,948)
Stock based compensation1,944
 1,476
Amortization and net impairment of mortgage servicing rights549
��619
Net accretion of fair value adjustments(7,023) (2,038)
Amortization of intangible assets2,659
 2,057
Impairment of OREO and other repossessed assets6
 200
Net (gain) loss on sale of OREO(292) 12
Net increase in cash surrender value of bank owned life insurance ("BOLI")(876) (602)
Other, net(7,387) 2,130
Loans originated for resale(72,545) (91,214)
Proceeds from loans sold73,650
 95,599
Provision for deferred income taxes4,768
 325
Change in income taxes payable/receivable, net6,033
 (2,576)
Change in accrued interest receivable1,014
 (754)
Change in accrued interest payable3,666
 (467)
Net cash provided by operating activities62,926
 39,873
    
Investing activities:   
Purchases of investment securities available for sale(115,381) (200,292)
Purchases of investment securities held to maturity(1,328) (3,466)
Proceeds from maturity and paydowns of investment securities available for sale259,102
 259,765
Proceeds from maturity and paydowns of investment securities held to maturity312
 71
Proceeds from sale of investment securities available for sale7
 12,982
Net change in FHLB stock5,405
 1,057
Proceeds from calls of investment securities310
 22,180
Net change in other investments(4,059) (314)
Purchase of domain name—
 (151)
Purchase of customer relationships(215) —
Purchase of portfolio loans and leases(14,974) —
Net portfolio loan and lease originations(82,695) (142,416)
Purchases of premises and equipment(13,532) (5,251)
Acquisitions, net of cash acquired(380) (4,792)
Capitalize costs to OREO(24) (50)
Proceeds from sale of OREO430
 375
Net cash provided by (used in) investing activities32,978
 (60,302)
    
Financing activities:   
Change in deposits(15,542) 104,558
Change in short-term borrowings(11,367) (23,277)
Dividends paid(14,208) (11,043)
Change in long-term FHLB advances and other borrowings(66,371) (55,000)
Payment of contingent consideration for business combinations(660) (100)
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation(1,489) (1,112)
Net proceeds from sale of (purchase of) treasury stock for deferred compensation plans52
 (98)
Repurchase of warrants from U.S. Treasury(1,755) —
Net purchase of treasury stock through publicly announced plans(690) —
Proceeds from exercise of stock options1,456
 1,288
Net cash (used in) provided by financing activities(110,574) 15,216
    
Change in cash and cash equivalents(14,670) (5,213)
Cash and cash equivalents at beginning of period60,024
 50,765
Cash and cash equivalents at end of period$45,354
 $45,552
    
Supplemental cash flow information:   
Cash paid during the year for:   
Income taxes$1,821
 $16,537
Interest$18,371
 $10,422
    
Non-cash information:   
Change in other comprehensive loss$(8,988) $1,009
Change in deferred tax due to change in comprehensive income$(2,389) $544
Transfer of loans to OREO and repossessed assets$345
 $309
Acquisition of noncash assets and liabilities:   
Assets acquired$1,466
 $7,284
Liabilities assumed$687
 $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 share and per share data)

  

For the Three Months Ended March 31, 2018

 
  

Shares of Common Stock Issued

  

Common

Stock

  

Paid-in Capital

  

Treasury

Stock

  

Accumulated Other Comprehensive Loss

  

Retained

Earnings

  

Noncontrolling

Interest

  

Total Shareholders' Equity

 
                                 

Balance December 31, 2017

  24,360,049  $24,360  $371,486  $(68,179) $(4,414) $205,549  $(683) $528,119 

Net income attributable to Bryn Mawr Bank Corporation

  -   -   -   -   -   15,286   -   15,286 

Net loss attributable to noncontrolling interest

  -   -   -   -   -   -   (1)  (1)

Dividends declared, $0.22 per share

  -   -   -   -   -   (4,495)  -   (4,495)

Other comprehensive loss, net of tax expense of $1,396

  -   -   -   -   (5,250)  -   -   (5,250)

Stock based compensation

  -   -   620   -   -   -   -   620 

Net purchase of treasury stock from stock awards for statutory tax withholdings

  -   -   -   (626)  -   -   -   (626)

Net sale of treasury stock for deferred compensation trusts

  -   -   153   18   -   -   -   171 

Repurchase of warrants from U.S. Treasury

  -   -   (1,853)  -   -   98   -   (1,755)

Common stock issued:

                                

Common stock issued through share-based awards and options exercises

  78,709   79   913   -   -   -   -   992 
                                 

Balance March 31, 2018

  24,438,758  $24,439  $371,319  $(68,787) $(9,664) $216,438  $(684) $533,061 

 For the Nine Months Ended September 30, 2018
 Shares of Common Stock Issued 
Common
Stock
 Paid-in Capital 
Treasury
Stock
 Accumulated Other Comprehensive Loss 
Retained
Earnings
 
Noncontrolling
Interest
 Total Shareholders' Equity
Balance December 31, 201724,360,049
 $24,360
 $371,486
 $(68,179) $(4,414) $205,549
 $(683) $528,119
Net income attributable to Bryn Mawr Bank Corporation—
 —
 —
 —
 —
 46,656
 —
 46,656
Net income attributable to noncontrolling interest—
 —
 —
 —
 —
 —
 5
 5
Dividends paid or accrued, $0.69 per share—
 —
 —
 —
 —
 (14,099) —
 (14,099)
Other comprehensive loss, net of tax benefit of $2,389—
 —
 —
 —
 (8,988) —
 —
 (8,988)
Stock based compensation—
 —
 1,944
 —
 —
 —
 —
 1,944
Retirement of treasury stock(2,253) (2) (20) 22
 —
 —
 —
 —
Net purchase of treasury stock from stock awards for statutory tax withholdings—
 —
 —
 (1,489) —
 —
 —
 (1,489)
Net treasury stock activity for deferred compensation trusts—
 —
 153
 (101) —
 —
 —
 52
Purchase of treasury stock through publicly announced plans—
 —
 —
 (690) —
 —
 —
 (690)
Repurchase of warrants from U.S. Treasury—
 —
 (1,853) —
 —
 98
 —
 (1,755)
Common stock issued:              

Common stock issued through share-based awards and options exercises172,387
 172
 1,385
 —
 —
 —
 —
 1,557
Shares issued in acquisitions(1)
2,562
 3
 110
 —
 —
 —
 —
 113
                
Balance September 30, 201824,532,745
 $24,533
 $373,205
 $(70,437) $(13,402) $238,204
 $(678) $551,425
(1) Shares relating to the RBPI Merger (defined in Note 3 – Business Combinations below) recorded in April 2018.

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


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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 - Basis of Presentation

The Unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto in the Corporation’s Annual Report on Form 10-K10-K for the twelve months ended December 31, 2017 (the “2017(the “2017 Annual Report”).

The results of operations for the three and nine months ended March 31,September 30, 2018 are not necessarily indicative of the results to be expected for the full year.

Principles of Consolidation

The Unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries; the Corporation’s primary subsidiary is the Bank.The Bryn Mawr Trust Company (the “Bank”). In connection with the RBPI Merger (defined in Note 3 – Business Combinations below), the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II. These two entities are notconsolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current-year presentation.

 

Note 2 - Recent Accounting Pronouncements

The following Financial Accounting Standards Board ("FASB")FASB Accounting Standards Updates ("ASUs") are divided into pronouncements which have been adopted by the Corporation since January 1, 2018, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of March 31,September 30, 2018.

Adopted Pronouncements:

FASB ASU 2014-092014-9 (Topic 606)606), “Revenue from Contracts with Customers”

The Corporation adopted ASU 2014-092014-9 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as other real estate owned (“OREO”).OREO. The majority of the Corporation’s revenues come from interest income and other sources, including loans, leases, investment securities and derivatives, that are outside the scope of ASC 606. The Corporation’s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, interchangeVisa debit card income, wealth management fees, investment brokerage fees, and the net gain on sale of OREO. Refer to Note 17Revenuefrom Contracts with Customers for further discussion on the Corporation’s accounting policies for revenue sources within the scope of ASC 606. The adoption of this ASU did not have an impact to our Consolidated Financial Statements.

Statements and related disclosures.

FASB ASU 2017-012017-1 (Topic 805)805), “Business Combinations”

The Corporation adopted ASU 2017-01,2017-1, which 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. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2016-152016-15 (Topic 320)320), “Classification of Certain Cash Receipts and Cash Payments”

The Corporation adopted ASU 2016-15,2016-15, which 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-couponzero-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. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

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FASB ASU 2016-012016-1 (Subtopic 825-10)825-10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”

The Corporation adopted ASU 2016-012016-1 which requires that equity investments be measured at fair value with changes in fair value recognized in net income. The Corporation’s equity investments with a readily determinable fair value are currently included within trading securities and are measured at fair value with changes in fair value recognized in net income. In connection with the adoption of this ASU, the Corporation elected the practicability exception to fair value measurement for investments in equity securities without a readily determinable fair value (other than our FHLB, FRB,Federal Home Loan Bank (“FHLB”), Federal Reserve Bank ("FRB"), and Atlantic Central Bankers Bank stock, which are outside of the scope of this ASU). Under the practicability exception, the investments are measured at cost, less impairment, plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements.

Statements and related disclosures.

FASB ASU 2017-07 – Compensation – Retirement Benefits2017-7 (Topic 715):715), “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”

On January 1, 2018, the Corporation adopted ASU 2017-072017-7 and all subsequent amendments to the ASU, which requires 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).

Upon adoption, the components of net periodic benefit cost other than the service cost component were reclassified retrospectively from “Employee benefits”to “Other operating expenses” in the Consolidated Statements of Income. Since both “Employee benefits”and “Other operating expenses” line items of these income statement line items are withinunder “Non-interestNoninterest expenses”, there was no impact to total “Non-interestNoninterest expenses” or “Net income.” The components of net periodic benefit cost are currently disclosed in Note 17 – “Pension and Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements found in our 2017 Annual Report. Additionally, the Corporation does not currently capitalize any components of its net periodic benefit costs. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

Pronouncements Not Yet Effective:

FASB ASU 20172018-07, “Improvements to Nonemployee Share-Based Payment Accounting”

Issued in June 2018, ASU 2018-07: Compensation -04 Stock Compensation (Topic 350)718), “Improvements to Nonemployee Share-Based Payment Accounting” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Corporation has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting. As a result, management does not expect the adoption of this ASU to have an impact on our Consolidated Financial Statements and related disclosures.



FASB ASU 2017-4 (Topic 350), “Intangibles – Goodwill and Others”

Issued in January 2017, ASU 2017-042017-4 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-042017-4 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2016-132016-13 (Topic 326)326), “Measurement of Credit Losses on Financial Instruments”

Issued in June 2016, ASU 2016-132016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss (“CECL”) 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 2016-132016-13 is effective for the annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. Adoption of this new guidance can be applied only on a prospective basis as a cumulative-effect adjustment to retained earnings.

It is expected that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset, and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to the Corporation’s allowance for credit losses, which will depend upon the nature and characteristics of the Corporation 's portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at the adoption date. The Corporation has engaged the services of a third-partythird-party consultant as well as invested in software designed to assist management in the development and implementation of the new CECL model. Management is currently in the process of validatinghas validated historical data uploaded within the third-partythird-party software and is beginning to replicatedevelop the current ALLL model.CECL model, including evaluating key assumptions such as portfolio segmentation, life of loan assumptions, and financial forecasts. The adoption of this ASU will also require the addition of an allowance for held-to-maturity debt securities. The Corporation currently does not intend to early adopt this new guidance.

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FASB ASU 2016-022016-2 (Topic 842)842), “Leases”

Issued in February 2016, ASU 2016-022016-2 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 2016-022016-2 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. Management has begunis in-process of migrating data and key assumptions into a third-party lease accounting software to inventory the Corporation’s various leases and is currently computingcalculate the lease liability and a right-of-use asset for all leases.existing leases of the Corporation. Management is aware that the adoption of this ASU will impact the Corporation’s balance sheet for the recording of assets and liabilities for operating leases. Any additional assets recorded as a result of implementation will have a negative impact on the Corporation and Bank capital ratios under current regulatory guidance.


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


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



Note 3 - Business Combinations


Domenick & Associates (“Domenick”)

The Bank’s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was $1.5 million, of which $750 thousand was paid at closing, with three contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and May 1, 2021, subject to the attainment of certain targets during the related periods.

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

(dollars in thousands) 
Consideration paid: 
Cash paid at closing$750
Contingent payment liability (present value)706
Value of consideration$1,456
  
Assets acquired: 
Cash and due from banks370
Intangible assets - customer relationships779
Premises and equipment1
Other assets316
Total assets1,466
  
Liabilities assumed: 
Accounts payable657
Other liabilities30
Total liabilities$687
  
Net assets acquired$779
  
Goodwill resulting from acquisition of Domenick$677

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

Royal Bancshares of Pennsylvania, Inc.

On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation (the “RBPI Merger”“Effective Date”), and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), as contemplated by the Agreement and Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the(the “Agreement”) werewas completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,098,7543,101,316 shares of the Corporation’s common stock. Shareholders of RBPI received 0.1025 shares of Corporation common stock for each share of RBPI Class A common stock and 0.1179 shares of Corporation common stock for each share of RBPI Class B common stock owned as of the effective dateEffective Date of the RBPI Merger, with cash-in-lieu of fractional shares totaling $7$7 thousand. Holders of in-the-money options to purchase RBPI Class A common stock received cash totaling $112$112 thousand. In addition, 1,368,040 warrants to purchase Class A common stock of RBPI, valued at $1.9$1.9 million were converted to 140,224 warrants to purchase Corporation common stock. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were preliminarily adjusted to their fair values as of the date of the RBPI Merger.Effective Date. The excess of consideration paid above the fair value of net assets acquired was recorded as goodwill. This goodwill is not amortizable nor is it deductible for income tax purposes.


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

(dollars in thousands)

    

Consideration paid:

    

Common shares issued (3,098,754)

 $136,655 

Cash in lieu of fractional shares

  7 

Cash-out of certain options

  112 

Fair value of warrants assumed

  1,853 

Value of consideration

 $138,627 
     

Assets acquired:

    

Cash and due from banks

 $17,092 

Investment securities available for sale

  121,587 

Loans

  567,308 

Premises and equipment

  8,264 

Deferred income taxes

  34,380 

Bank-owned life insurance

  16,550 

Core deposit intangible

  4,670 

Favorable lease asset

  566 

Other assets

  13,996 

Total assets

 $784,413 
     

Liabilities assumed:

    

Deposits

 $593,172 

FHLB and other long-term borrowings

  59,568 

Short-term borrowings

  15,000 

Junior subordinated debentures

  21,416 

Unfavorable lease liability

  322 

Other liabilities

  31,381 

Total liabilities

 $720,859 
     

Net assets acquired

 $63,554 
     

Goodwill resulting from acquisition of RBPI

 $75,073 

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(dollars in thousands) 
Consideration paid: 
Common shares issued (3,101,316)$136,768
Cash in lieu of fractional shares7
Cash-out of certain options112
Fair value of warrants assumed1,853
Value of consideration$138,740
  
Assets acquired: 
Cash and due from banks17,092
Investment securities available for sale121,587
Loans566,228
Premises and equipment8,264
Deferred income taxes34,586
Bank-owned life insurance16,550
Core deposit intangible4,670
Favorable lease asset566
Other assets13,996
Total assets$783,539
  
Liabilities assumed: 
Deposits593,172
FHLB and other long-term borrowings59,568
Short-term borrowings15,000
Junior subordinated debentures21,416
Unfavorable lease liability322
Other liabilities31,381
Total liabilities$720,859
  
Net assets acquired$62,680
  
Goodwill resulting from acquisition of RBPI$76,060
Provisional Estimates of Fair Value of Certain Assets Acquired in the RBPI Merger

As of March 31,September 30, 2018, the accounting for the estimates of fair value for certain loans acquired in the RBPI Merger is incomplete. The Corporation is in the process of obtaining new information that will allow management to better estimate fair values that existed as of December 15, 2017.the Effective Date. When this information is obtained, management anticipates an adjustment to the provisional fair value assigned to certain acquired loans. These adjustments will result in corresponding adjustments to goodwill and net deferred tax asset. In accordance with ASC 805-10, the adjustments will be recorded in the period in which the new information about facts and circumstances that existed as of the acquisition dateEffective Date is obtained and reviewed.


During the threenine months ended March 31,September 30, 2018, the Corporation adjusted certain provisional fair value estimates related to the RBPI Merger. The following table details the changes in fair value of the net assets acquired and liabilities assumed as of December 15, 2017the Effective Date from the amounts originally reported in the Corporation’s Form 10-K for the year ended December 31, 2017:

2017 Annual Report:

(dollars in thousands)

    

Goodwill resulting from the acquisition of RBPI reported as of December 31, 2017

 $72,762 
     

Fair Value Adjustments:

    

Loans

  3,065 

Other assets

  491 

Deferred income taxes

  (1,245

)

Total Fair Value Adjustments

  2,311 
     

Goodwill from the acquisition of RBPI as of March 31, 2018

 $75,073 


(dollars in thousands) 
Goodwill resulting from the acquisition of RBPI reported as of December 31, 2017$72,762
  
Value of Consideration Adjustment: 
Common shares issued (2,562)113
  
Fair Value Adjustments: 
Loans4,145
Other assets491
Deferred income taxes(1,451)
Total Fair Value Adjustments3,185
  
Goodwill from the acquisition of RBPI as of September 30, 2018$76,060
Methods Used to Fair Value Assets and Liabilities

For information regarding the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed, refer to Note 2 in the Notes to Consolidated Financial Statements in our the 2017 Annual Report.

Loans heldHeld for investment

Investment

During the three months ended March 31,first and third quarters of 2018, new information became available related to certain loans acquired from RBPI. This new informationRBPI which resulted in an adjustment to the fair value mark applied to the acquired loan portfolio. Adjustments were made to the fair value of loans acquired with evidence of credit quality deterioration. Loans meeting this definition were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans or over the recovery period of the underlying collateral on a level yield basis as an adjustment to yield. As a result of the adjustments, the Corporation recorded a $3.0increases of $3.0 million increaseand $1.6 million in nonaccretable difference.difference in the first and third quarters of 2018, respectively. The adjustment to the aggregate expected cash flows less the acquisition dateEffective Date fair value resulted in an increase in accretable yield of $207$325 thousand.

There were no adjustments to the fair value mark applied to the acquired loan portfolio during the second quarter of 2018.


The following table provides an updated summary of the acquired impaired loans and leases as of December 15, 2017,the Effective Date, which include the effects of any measurement period adjustments in accordance with ASC 805-10, resulting from the RBPI Merger:

(dollars in thousands)

    

Contractually required principal and interest payments

 $38,404 

Contractual cash flows not expected to be collected (nonaccretable difference)

  (16,025

)

Cash flows expected to be collected

  22,379 

Interest component of expected cash flows (accretable yield)

  (2,526

)

Fair value of loans acquired with deterioration of credit quality

 $19,853 

Page 11
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Harry

(dollars in thousands) 
Contractually required principal and interest payments$40,741
Contractual cash flows not expected to be collected (nonaccretable difference)(17,637)
Cash flows expected to be collected23,104
Interest component of expected cash flows (accretable yield)(2,644)
Fair value of loans acquired with deterioration of credit quality$20,460
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, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc (“PCPB”).Inc. The consideration paid by the Bank was $7.5$7.5 million, of which $5.8$5.8 million was paid at closing, with threeone contingent cash payment of $575 thousand was paid during the second quarter of 2018, and two contingent cash payments, not to exceed $575$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 consideration7,460
  
Assets acquired: 
Cash operating accounts978
Intangible assets – trade name195
Intangible assets – customer relationships2,672
Intangible assets – non-competition agreements41
Premises and equipment1,795
Accounts receivable192
Other assets27
Total assets5,900
  
Liabilities assumed: 
Accounts payable800
Other liabilities2
Total liabilities802
  
Net assets acquired5,098
  
Goodwill resulting from acquisition of Hirshorn$2,362

As of December 31, 2017, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Hirshorn acquisition were final.

Pro Forma Income Statements (unaudited)

The following table presents the pro forma income statement of the combined institution (RBPI and the Corporation) for the three and nine months ended March 31,September 30, 2017 as if the RBPI Merger had occurred on January 1,2017. The pro forma income statement adjustments are limited to the effects of purchase accounting fair value mark amortization and accretion and intangible asset amortization. No cost savings or additional merger expenses have been included in the pro forma income statement. Due to the immaterial contribution to net income of the Hirshorn acquisition, which occurred during the year shown in the table, the pro forma effects of the Hirshorn acquisition have been excluded.


Page 12
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(dollars in thousands)

 

Three Months Ended

March 31, 2017

 Three Months Ended
September 30, 2017		 Nine Months Ended
September 30, 2017

Total interest income

 $41,227 $43,412
 $126,976

Total interest expense

  4,562 5,480
 15,013

Net interest income

  36,665 37,932
 111,963

Provision for loan and lease losses

  588 1,492
 2,054

Net interest income after provision for loan and lease losses

  36,077 36,440
 109,909

Total non-interest income

  13,738 

Total non-interest expenses*

  32,295 
Total noninterest income16,015
 45,481
Total noninterest expenses*33,364
 99,699

Income before income taxes

  17,520 19,091
 55,691

Income tax expense

  5,936 5,843
 18,306

Net income

 $11,584 $13,248
 $37,385

Per share data**:

       

Weighted-average basic shares outstanding

  20,052,886 20,121,800
 20,086,253

Dilutive shares

  256,176 261,935
 284,294

Adjusted weighted-average diluted shares

  20,309,062 20,383,735
 20,370,547

Basic earnings per common share

 $0.58 $0.66
 $1.86

Diluted earnings per common share

 $0.57 $0.65
 $1.84

*Total non-interestnoninterest expense includes RBPI Net Income Attributable to Noncontrolling Interest and Preferred Stock Series A Accumulated Dividend and Accretion for pro forma presentation.

**Assumes that the shares of RBPI common stock outstanding as of December 31, 2017 were outstanding for the full three and nine month periodperiods ended March 31,September 30, 2017.

Due Diligence, Merger-Related and Merger Integration Expenses

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

  

Three Months Ended March 31,

 

(dollars in thousands)

 

2018

  

2017(1)

 

Advertising

 $59  $— 

Employee Benefits

  203   — 

Occupancy and bank premises

  1,856   — 

Furniture, fixtures, and equipment

  179   — 

Information technology

  112   — 

Professional fees

  747   396 

Salaries and wages

  346   80 

Other

  817   35 

Total due diligence, merger-related and merger integration expenses

 $4,319  $511 

(1) Total due diligence, merger-related and merger integration expenses for the three months ended March 31, 2017 were primarily related to the acquisition of Hirshorn.

Page 13

 Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands)2018 2017 2018 2017
Advertising$—
 $89
 $61
 $108
Employee Benefits—
 5
 271
 10
Occupancy and bank premises—
 —
 2,145
 —
Furniture, fixtures, and equipment—
 31
 365
 37
Information technology167
 41
 421
 300
Professional fees193
 632
 1,450
 1,570
Salaries and wages29
 28
 852
 428
Other—
 24
 2,196
 144
Total due diligence, merger-related and merger integration expenses$389
 $850
 $7,761
 $2,597
 



Note 4 - Investment Securities

The amortized cost and fair value of investment securities available for sale as of March 31,September 30, 2018 and December 31, 2017 are as follows:

As of March 31,September 30, 2018

(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

  178,863   34   (3,790

)

  175,107 

Obligations of state and political subdivisions

  19,992   8   (83

)

  19,917 

Mortgage-backed securities

  309,071   511   (5,680

)

  303,902 

Collateralized mortgage obligations

  35,302   2   (1,324

)

  33,980 

Other investment securities

  1,100   —   (3

)

  1,097 

Total

 $544,428  $555  $(10,880

)

 $534,103 

(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 agencies196,334
 17
 (5,898) 190,453
Obligations of state and political subdivisions15,890
 1
 (92) 15,799
Mortgage-backed securities292,005
 344
 (7,928) 284,421
Collateralized mortgage obligations37,811
 —
 (1,618) 36,193
Other investment securities1,100
 —
 (2) 1,098
Total$543,240
 $362
 $(15,538) $528,064
As of December 31, 2017

(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
U.S. Treasury securities$200,077
 $11
 $—
 $200,088
Obligations of the U.S. government and agencies153,028
 75
 (2,059) 151,044
Obligations of state and political subdivisions21,352
 11
 (53) 21,310
Mortgage-backed securities275,958
 887
 (1,855) 274,990
Collateralized mortgage obligations37,596
 14
 (948) 36,662
Other investment securities4,813
 318
 (23) 5,108
Total$692,824
 $1,316
 $(4,938) $689,202

The following tables present the aggregate amount of gross unrealized losses as of March 31,September 30, 2018 and December 31, 2017 on available for sale investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of March 31,September 30, 2018

  

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

 $128,699  $(2,688

)

 $26,389  $(1,102

)

 $155,088  $(3,790

)

Obligations of state and political subdivisions

  9,758   (26

)

  2,122   (57

)

  11,880   (83

)

Mortgage-backed securities

  236,886   (4,620

)

  29,840   (1,060

)

  266,726   (5,680

)

Collateralized mortgage obligations

  7,726   (112

)

  25,143   (1,212

)

  32,869   (1,324

)

Other investment securities

  797   (3

)

  —   —   797   (3

)

Total

 $383,866  $(7,449

)

 $83,494  $(3,431

)

 $467,360  $(10,880

)

 
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$82,187
 $(1,634) $107,601
 $(4,264) $189,788
 $(5,898)
Obligations of state and political subdivisions11,009
 (21) 2,303
 (71) 13,312
 (92)
Mortgage-backed securities136,170
 (3,037) 130,269
 (4,891) 266,439
 (7,928)
Collateralized mortgage obligations10,939
 (86) 24,945
 (1,532) 35,884
 (1,618)
Other investment securities549
 (1) 249
 (1) 798
 (2)
Total$240,854
 $(4,779) $265,367
 $(10,759) $506,221
 $(15,538)

As of December 31, 2017

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$114,120
 $(1,294) $26,726
 $(765) $140,846
 $(2,059)
Obligations of state and political subdivisions11,144
 (29) 2,709
 (24) 13,853
 (53)
Mortgage-backed securities177,919
 (1,293) 31,787
 (562) 209,706
 (1,855)
Collateralized mortgage obligations5,166
 (47) 26,686
 (901) 31,852
 (948)
Other investment securities1,805
 (23) —
 —
 1,805
 (23)
Total$310,154
 $(2,686) $87,908
 $(2,252) $398,062
 $(4,938)

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Table of Contents

Management evaluates the Corporation’s investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. The investment portfolio includes debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state and local municipalities and other issuers. All fixed income investment securities in the Corporation’s investment portfolio are rated as investment-grade or higher. 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 or collateral. Management does not believe that these unrealized losses are other-than-temporary. Management 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, 2018 and December 31, 2017, securities having a fair value of $121.6$121.1 million and $126.2 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the FRB discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”)FHLB borrowings and other purposes. TheAdvances by the FHLB hasare collateralized by a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

FHLB as well as certain securities individually pledged by the Corporation.

The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of March 31,September 30, 2018 and December 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

  

March 31, 2018

  

December 31, 2017

 

(dollars in thousands)

 

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

 

Investment securities:

                

Due in one year or less

 $11,932  $11,922  $211,019  $211,019 

Due after one year through five years

  149,967   146,773   126,452   124,797 

Due after five years through ten years

  23,413   22,910   23,147   22,804 

Due after ten years

  14,743   14,616   15,439   15,421 

Subtotal

  200,055   196,221   376,057   374,041 

Mortgage-related securities(1)

  344,373   337,882   313,554   311,652 

Mutual funds with no stated maturity

  —   —   3,213   3,509 

Total

 $544,428  $534,103  $692,824  $689,202 

(1)

 September 30, 2018 December 31, 2017
(dollars in thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Investment securities:       
Due in one year or less$12,265
 $12,237
 $211,019
 $211,019
Due after one year through five years176,700
 171,374
 126,452
 124,797
Due after five years through ten years24,459
 23,839
 23,147
 22,804
Due after ten years—
 —
 15,439
 15,421
Subtotal213,424
 207,450
 376,057
 374,041
Mortgage-related securities(1)
329,816
 320,614
 313,554
 311,652
Mutual funds with no stated maturity—
 —
 3,213
 3,509
Total$543,240
 $528,064
 $692,824
 $689,202
(1) Expected maturities of mortgage-related securities maydiffer from contractual maturities as borrowers mayhave the right to call or prepay obligations with or without call or prepayment penalties.




The amortized cost and fair value of investment securities held to maturity as of March 31,September 30, 2018 and December 31, 2017 are as follows:

As of March 31, 2018

(dollars in thousands)

 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

 

Fair Value

 

Mortgage-backed securities

 $7,885  $—  $(256

)

 $7,629 

As of September 30, 2018
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Mortgage-backed securities$8,916
 $—
 $(372) $8,544
As of December 31, 2017

2017
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Mortgage-backed securities$7,932
 $5
 $(86) $7,851

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Table of Contents

The following tables present the aggregate amount of gross unrealized losses as of March 31,September 30, 2018 and December 31, 2017 on held to maturitysecurities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of March 31,September 30, 2018

  

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

 $4,953  $(143

)

 $2,676  $(113

)

 $7,629  $(256

)

 
Less than 12
Months
 
12 Months
or Longer
 Total
(dollars in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Mortgage-backed securities$3,882
 $(132) $4,662
 $(240) $8,544
 $(372)
As of December 31, 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$2,756
 $(25) $3,866
 $(61) $6,622
 $(86)

The amortized cost and fair value of held to maturity investment securities as of March 31,September 30, 2018 and December 31, 2017, by contractual maturity, are shown below:

  

March 31, 2018

  

December 31, 2017

 

(dollars in thousands)

 

Amortized

Cost

  

Fair Value

  

Amortized

Cost

  

Fair Value

 

Mortgage-backed securities(1)

 $7,885  $7,629  $7,932  $7,851 

(1)

 September 30, 2018 December 31, 2017
(dollars in thousands)
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
Mortgage-backed securities(1)
$8,916
 $8,544
 $7,932
 $7,851
(1) Expected maturities of mortgage-related securities maydiffer from contractual maturities as borrowers mayhave the right to call or prepay obligations with or without call or prepayment penalties.

As of March 31,September 30, 2018 and December 31, 2017, the Corporation’s investment securities held in trading accounts totaled $8.2$8.3 million and $4.6 million, respectively, and consistedprimarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants and as of March 31, 2018, a rabbi trust account established to fund certain unqualified pension obligations. During the first quarter of 2018, $3.2 million of investment securities included within the rabbi trust account were reclassified from available for sale to trading. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income.


Page 16
Table of Contents

Note 5 -Loans and Leases
 

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 December 2017 RBPI Merger, the January 2015 Continental Bank Holdings, Inc. Merger, the November 2012 transaction with First Bank of Delaware, and the July 2010 acquisition of First Keystone Financial, Inc. Certain tables in this footnote are presented with a breakdown between originated and acquired loans and leases.

A. The table below detailsportfolio loans and leases as of the dates indicated:

  

March 31, 2018

  

December 31, 2017

 

(dollars in thousands)

 

Originated

  

Acquired

  

Total Loans and

Leases

  

Originated

  

Acquired

  

Total Loans and

Leases

 

Loans held for sale

 $5,522  $—  $5,522  $3,794  $—  $3,794 

Real Estate Loans:

                        

Commercial mortgage

 $1,151,578  $389,879  $1,541,457  $1,122,327  $401,050  $1,523,377 

Home equity lines and loans

  178,624   32,845   211,469   183,283   34,992   218,275 

Residential mortgage

  360,242   93,413   453,655   360,935   97,951   458,886 

Construction

  135,480   66,688   202,168   128,266   84,188   212,454 

Total real estate loans

 $1,825,924  $582,825  $2,408,749  $1,794,811  $618,181  $2,412,992 

Commercial and industrial

  613,315   113,916   727,231   589,304   130,008   719,312 

Consumer

  45,731   2,692   48,423   35,146   3,007   38,153 

Leases

  79,857   41,535   121,392   68,035   47,366   115,401 

Total portfolio loans and leases

 $2,564,827  $740,968  $3,305,795  $2,487,296  $798,562  $3,285,858 

Total loans and leases

 $2,570,349  $740,968  $3,311,317  $2,491,090  $798,562  $3,289,652 

Loans with fixed rates

 $1,081,414  $473,855  $1,555,269  $1,034,542  $538,510  $1,573,052 

Loans with adjustable or floating rates

  1,488,935   267,113   1,756,048   1,456,548   260,052   1,716,600 

Total loans and leases

 $2,570,349  $740,968  $3,311,317  $2,491,090  $798,562  $3,289,652 

Net deferred loan origination fees included in the above loan table

 $1,226  $—  $1,226  $887  $—  $887 

 September 30, 2018 December 31, 2017
(dollars in thousands)Originated Acquired Total Loans and Leases Originated Acquired Total Loans and Leases
Loans held for sale$4,111
 $—
 $4,111
 $3,794
 $—
 $3,794
Real Estate Loans:           
Commercial mortgage$1,259,397
 $359,096
 $1,618,493
 $1,122,327
 $401,050
 $1,523,377
Home equity lines and loans180,068
 27,738
 207,806
 183,283
 34,992
 218,275
Residential mortgage381,037
 86,365
 467,402
 360,935
 97,951
 458,886
Construction158,691
 19,802
 178,493
 128,266
 84,188
 212,454
Total real estate loans$1,979,193
 $493,001
 $2,472,194
 $1,794,811
 $618,181
 $2,412,992
Commercial and industrial618,200
 104,799
 722,999
 589,304
 130,008
 719,312
Consumer44,833
 2,976
 47,809
 35,146
 3,007
 38,153
Leases109,934
 28,539
 138,473
 68,035
 47,366
 115,401
Total portfolio loans and leases$2,752,160
 $629,315
 $3,381,475
 $2,487,296
 $798,562
 $3,285,858
Total loans and leases$2,756,271
 $629,315
 $3,385,586
 $2,491,090
 $798,562
 $3,289,652
Loans with fixed rates$1,167,097
 $375,326
 $1,542,423
 $1,034,542
 $538,510
 $1,573,052
Loans with adjustable or floating rates1,589,174
 253,989
 1,843,163
 1,456,548
 260,052
 1,716,600
Total loans and leases$2,756,271
 $629,315
 $3,385,586
 $2,491,090
 $798,562
 $3,289,652
Net deferred loan origination fees included in the above loan table$1,220
 $—
 $1,220
 $887
 $—
 $887
B. Components of the net investment in leases are detailed as follows:

  

March 31, 2018

  

December 31, 2017

 

(dollars in thousands)

 

Originated

  

Acquired

  

Total Leases

  

Originated

  

Acquired

  

Total Leases

 

Minimum lease payments receivable

 $88,752  $47,549  $136,301  $75,592  $55,219  $130,811 

Unearned lease income

  (12,523

)

  (7,336

)

  (19,859

)

  (10,338

)

  (9,523

)

  (19,861

)

Initial direct costs and deferred fees

  3,628   1,322   4,950   2,781   1,670   4,451 

Total Leases

 $79,857  $41,535  $121,392  $68,035  $47,366  $115,401 

 September 30, 2018 December 31, 2017
(dollars in thousands)Originated Acquired Total Leases Originated Acquired Total Leases
Minimum lease payments receivable$122,596
 $32,039
 $154,635
 $75,592
 $55,219
 $130,811
Unearned lease income(17,717) (4,293) (22,010) (10,338) (9,523) (19,861)
Initial direct costs and deferred fees5,055
 793
 5,848
 2,781
 1,670
 4,451
Total Leases$109,934
 $28,539
 $138,473
 $68,035
 $47,366
 $115,401















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

  

March 31, 2018

  

December 31, 2017

 

(dollars in thousands)

 

Originated

  

Acquired

  

Total Loans and Leases

  

Originated

  

Acquired

  

Total Loans and Leases

 

Commercial mortgage

 $89  $49  $138  $90  $782  $872 

Home equity lines and loans

  1,693   256   1,949   1,221   260   1,481 

Residential mortgage

  1,491   1,113   2,604   1,505   2,912   4,417 

Commercial and industrial

  1,926   573   2,499   826   880   1,706 

Leases

  189   154   343   103   —   103 

Total non-performing loans and leases

 $5,388   2,145  $7,533  $3,745  $4,834  $8,579 

(1)

 September 30, 2018 December 31, 2017
(dollars in thousands)Originated Acquired Total Loans and Leases Originated Acquired Total Loans and Leases
Commercial mortgage$—
 $735
 $735
 $90
 $782
 $872
Home equity lines and loans1,692
 241
 1,933
 1,221
 260
 1,481
Residential mortgage1,968
 802
 2,770
 1,505
 2,912
 4,417
Construction291
 —
 291
 —
 —
 —
Commercial and industrial925
 857
 1,782
 826
 880
 1,706
Consumer42
 75
 117
 —
 —
 —
Leases479
 883
 1,362
 103
 —
 103
Total non-performing loans and leases$5,397
 $3,593
 $8,990
 $3,745
 $4,834
 $8,579
(1) Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excludedexcluded from this table, with theexception of$107393 thousandandand $167 thousand of purchased credit-impaired loans as of March 31,September 30, 2018and December 31, 2017,respectively, which became non-performing subsequent to acquisition.


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Table of Contents

D.D. Purchased Credit-Impaired Loans

The outstanding principal balance and related carrying amount of purchased credit-impaired loans, for which the Corporation applies ASC 310-30,310-30, 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, 2018

  

December 31, 2017

 

Outstanding principal balance

 $48,720  $46,543 

Carrying amount(1)

 $33,228  $30,849 

(dollars in thousands)September 30,
2018		 December 31,
2017
Outstanding principal balance$38,062
 $46,543
Carrying amount(1)
$27,519
 $30,849
(1) Includes $109$393 thousand and $173 thousand of purchased credit-impaired loans as of March 31,September 30, 2018 and December 31, 2017, 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 $107$393 thousand and $167 thousand of purchased credit-impaired loans as of March 31,September 30, 2018 and December 31, 2017, respectively, which became non-performing subsequent to acquisition, which are disclosed in Note 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 310-30,310-30, for the threenine months ended March 31,September 30, 2018:

(dollars in thousands)

 

Accretable
Discount

 

Balance, December 31, 2017

 $4,083 

Accretion

  (685

)

Reclassifications from nonaccretable difference

  5 

Additions/adjustments

  212 

Disposals

  — 

Balance, March 31, 2018

 $3,615 

E.

(dollars in thousands)
Accretable
Discount
Balance, December 31, 2017$4,083
Accretion(1,819)
Reclassifications from nonaccretable difference609
Additions/adjustments329
Balance, September 30, 2018$3,202









E. Age Analysis of Past Due Loans and Leases

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

  

Accruing Loans and Leases

         

As of March 31, 2018

(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

 

Commercial mortgage

 $533  $391  $—  $924  $1,540,395  $1,541,319  $138  $1,541,457 

Home equity lines and loans

  150   —   —   150   209,370   209,520   1,949   211,469 

Residential mortgage

  1,119   —   —   1,119   449,932   451,051   2,604   453,655 

Construction

  333   —   —   333   201,835   202,168   —   202,168 

Commercial and industrial

  499   —   —   499   724,233   724,732   2,499   727,231 

Consumer

  —   —   —   —   48,423   48,423   —   48,423 

Leases

  2,640   881   —   3,521   117,528   121,049   343   121,392 

Total portfolio loans and leases

 $5,274  $1,272  $—  $6,546  $3,291,716  $3,298,262  $7,533  $3,305,795 

 

Accruing Loans and Leases

         

As of December 31, 2017

(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

 
Accruing Loans and Leases    
As of September 30, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current* 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands) 

Commercial mortgage

 $1,366  $2,428  $—  $3,794  $1,518,711  $1,522,505  $872  $1,523,377 $—
 $2,468
 $—
 $2,468
 $1,615,290
 $1,617,758
 $735
 $1,618,493

Home equity lines and loans

  338   10   —   348   216,446   216,794   1,481   218,275 324
 —
 —
 324
 205,549
 205,873
 1,933
 207,806

Residential mortgage

  1,386   79   —   1,465   453,004   454,469   4,417   458,886 2,218
 179
 —
 2,397
 462,235
 464,632
 2,770
 467,402

Construction

  —   —   —   —   212,454   212,454   —   212,454 488
 —
 —
 488
 177,714
 178,202
 291
 178,493

Commercial and industrial

  658   286   —   944   716,662   717,606   1,706   719,312 1,115
 1,255
 —
 2,370
 718,847
 721,217
 1,782
 722,999

Consumer

  1,106   —   —   1,106   37,047   38,153   —   38,153 46
 23
 —
 69
 47,623
 47,692
 117
 47,809

Leases

  125   177   —   302   114,996   115,298   103   115,401 751
 252
 —
 1,003
 136,108
 137,111
 1,362
 138,473

Total portfolio loans and leases

 $4,979  $2,980  $—  $7,959  $3,269,320  $3,277,279  $8,579  $3,285,858 $4,942
 $4,177
 $—
 $9,119
 $3,363,366
 $3,372,485
 $8,990
 $3,381,475

 Accruing Loans and Leases    
As of December 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)       
Commercial mortgage$1,366
 $2,428
 $—
 $3,794
 $1,518,711
 $1,522,505
 $872
 $1,523,377
Home equity lines and loans338
 10
 —
 348
 216,446
 216,794
 1,481
 218,275
Residential mortgage1,386
 79
 —
 1,465
 453,004
 454,469
 4,417
 458,886
Construction—
 —
 —
 —
 212,454
 212,454
 —
 212,454
Commercial and industrial658
 286
 —
 944
 716,662
 717,606
 1,706
 719,312
Consumer1,106
 —
 —
 1,106
 37,047
 38,153
 —
 38,153
Leases125
 177
 —
 302
 114,996
 115,298
 103
 115,401
Total portfolio loans and leases$4,979
 $2,980
 $—
 $7,959
 $3,269,320
 $3,277,279
 $8,579
 $3,285,858
*Included as “current” are $1.8 million$720 thousand and $4.1 million of loans and leases as of March 31,September 30, 2018 and December 31, 2017, 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 CorporationManagement does not consider these loans to be delinquent.


Page 18
Table of Contents

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

  

Accruing Loans and Leases

         

As of March 31, 2018

(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

 

Commercial mortgage

 $425  $391  $—  $816  $1,150,673  $1,151,489  $89  $1,151,578 

Home equity lines and loans

  150   —   —   150   176,781   176,931   1,693   178,624 

Residential mortgage

  647   —   —   647   358,104   358,751   1,491   360,242 

Construction

  —   —   —   —   135,480   135,480   —   135,480 

Commercial and industrial

  99   —   —   99   611,290   611,389   1,926   613,315 

Consumer

  —   —   —   —   45,731   45,731   —   45,731 

Leases

  788   503   —   1,291   78,377   79,668   189   79,857 

Total originated portfolio loans and leases

 $2,109  $894  $—  $3,003  $2,556,436  $2,559,439  $5,388  $2,564,827 

 

Accruing Loans and Leases

         

As of December 31, 2017

(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

 
Accruing Loans and Leases    
As of September 30, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current* 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands) 

Commercial mortgage

 $1,255  $81  $—  $1,336  $1,120,901  $1,122,237  $90  $1,122,327 $—
 $76
 $—
 $76
 $1,259,321
 $1,259,397
 $—
 $1,259,397

Home equity lines and loans

  26   —   —   26   182,036   182,062   1,221   183,283 250
 —
 —
 250
 178,126
 178,376
 1,692
 180,068

Residential mortgage

  721   —   —   721   358,709   359,430   1,505   360,935 1,475
 —
 —
 1,475
 377,594
 379,069
 1,968
 381,037

Construction

  —   —   —   —   128,266   128,266   —   128,266 488
 —
 —
 488
 157,912
 158,400
 291
 158,691

Commercial and industrial

  439   236   —   675   587,803   588,478   826   589,304 1,051
 1,255
 —
 2,306
 614,969
 617,275
 925
 618,200

Consumer

  21   —   —   21   35,125   35,146   —   35,146 46
 23
 —
 69
 44,722
 44,791
 42
 44,833

Leases

  125   177   —   302   67,630   67,932   103   68,035 407
 115
 —
 522
 108,933
 109,455
 479
 109,934

Total originated portfolio loans and leases

 $2,587  $494  $—  $3,081  $2,480,470  $2,483,551  $3,745  $2,487,296 $3,717
 $1,469
 $—
 $5,186
 $2,741,577
 $2,746,763
 $5,397
 $2,752,160


 Accruing Loans and Leases    
As of December 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)       
Commercial mortgage$1,255
 $81
 $—
 $1,336
 $1,120,901
 $1,122,237
 $90
 $1,122,327
Home equity lines and loans26
 —
 —
 26
 182,036
 182,062
 1,221
 183,283
Residential mortgage721
 —
 —
 721
 358,709
 359,430
 1,505
 360,935
Construction—
 —
 —
 —
 128,266
 128,266
 —
 128,266
Commercial and industrial439
 236
 —
 675
 587,803
 588,478
 826
 589,304
Consumer21
 —
 —
 21
 35,125
 35,146
 —
 35,146
Leases125
 177
 —
 302
 67,630
 67,932
 103
 68,035
Total originated portfolio loans and leases$2,587
 $494
 $—
 $3,081
 $2,480,470
 $2,483,551
 $3,745
 $2,487,296
*Included as “current” are $1.8 million$720 thousand and $4.0 million of loans and leases as of March 31,September 30, 2018 and December 31, 2017, 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 CorporationManagement does not consider these loans to be delinquent.

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

  

Accruing Loans and Leases

         

As of March 31, 2018

(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

 

Commercial mortgage

 $108  $—  $—  $108  $389,722  $389,830  $49  $389,879 

Home equity lines and loans

  —   —   —   —   32,589   32,589   256   32,845 

Residential mortgage

  472   —   —   472   91,828   92,300   1,113   93,413 

Construction

  333   —   —   333   66,355   66,688   —   66,688 

Commercial and industrial

  400   —   —   400   112,943   113,343   573   113,916 

Consumer

  —   —   —   —   2,692   2,692   —   2,692 

Leases

  1,852   378   —   2,230   39,151   41,381   154   41,535 

Total acquired portfolio loans and leases

 $3,165  $378  $—  $3,543  $735,280  $738,823  $2,145  $740,968 

 

Accruing Loans and Leases

         

As of December 31, 2017

(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

 
Accruing Loans and Leases    
As of September 30, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current* 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands) 

Commercial mortgage

 $111  $2,347  $—  $2,458  $397,810  $400,268  $782  $401,050 $—
 $2,392
 $—
 $2,392
 $355,969
 $358,361
 $735
 $359,096

Home equity lines and loans

  312   10   —   322   34,410   34,732   260   34,992 74
 —
 —
 74
 27,423
 27,497
 241
 27,738

Residential mortgage

  665   79   —   744   94,295   95,039   2,912   97,951 743
 179
 —
 922
 84,641
 85,563
 802
 86,365

Construction

  —   —   —   —   84,188   84,188   —   84,188 —
 —
 —
 —
 19,802
 19,802
 —
 19,802

Commercial and industrial

  219   50   —   269   128,859   129,128   880   130,008 64
 —
 —
 64
 103,878
 103,942
 857
 104,799

Consumer

  1,085   —   —   1,085   1,922   3,007   —   3,007 —
 —
 —
 —
 2,901
 2,901
 75
 2,976

Leases

  —   —   —   —   47,366   47,366   —   47,366 344
 137
 —
 481
 27,175
 27,656
 883
 28,539

Total acquired portfolio loans and leases

 $2,392  $2,486  $—  $4,878  $788,850  $793,728  $4,834  $798,562 $1,225
 $2,708
 $—
 $3,933
 $621,789
 $625,722
 $3,593
 $629,315

 Accruing Loans and Leases    
As of December 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)       
Commercial mortgage$111
 $2,347
 $—
 $2,458
 $397,810
 $400,268
 $782
 $401,050
Home equity lines and loans312
 10
 —
 322
 34,410
 34,732
 260
 34,992
Residential mortgage665
 79
 —
 744
 94,295
 95,039
 2,912
 97,951
Construction—
 —
 —
 —
 84,188
 84,188
 —
 84,188
Commercial and industrial219
 50
 —
 269
 128,859
 129,128
 880
 130,008
Consumer1,085
 —
 —
 1,085
 1,922
 3,007
 —
 3,007
Leases—
 —
 —
 —
 47,366
 47,366
 —
 47,366
Total acquired portfolio loans and leases$2,392
 $2,486
 $—
 $4,878
 $788,850
 $793,728
 $4,834
 $798,562
*Included as “current” are $0 and $102 thousand of loans and leases as of March 31,September 30, 2018 and December 31, 2017, 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 CorporationManagement does not consider these loans to be delinquent.


Page 19
Table of Contents

F.F. 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, 2018 and 2017:

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 

Balance, December 31, 2017

 $7,550  $1,086  $1,926  $937  $5,038  $246  $742  $—  $17,525 

Charge-offs

  —   (25

)

  —   —   (283

)

  (49

)

  (596

)

  —   (953

)

Recoveries

  3   —   —   1   —   1   55   —   60 

Provision for loan and lease losses

  (379

)

  (16

)

  (28

)

  (94

)

  606   93   848   —   1,030 

Balance, March 31, 2018

 $7,174  $1,045  $1,898  $844  $5,361  $291  $1,049  $—  $17,662 

(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,
December 31, 2017		$7,550
 $1,086
 $1,926
 $937
 $5,038
 $246
 $742
 $—
 $17,525

Charge-offs

  —   (438

)

  (27

)

  —   (59

)

  (41

)

  (206

)

  —   (771

)

(74) (225) (42) —
 (1,069) (165) (2,416) —
 (3,991)

Recoveries

  3   —   —   1   —   2   95   —   101 8
 1
 55
 1
 17
 5
 232
 —
 319

Provision for loan and lease losses

  180   426   (92

)

  (39

)

  (336

)

  21   131   —   291 60
 30
 (121) 303
 1,319
 232
 3,008
 —
 4,831

Balance, March 31, 2017

 $6,410  $1,243  $1,798  $2,195  $4,747  $135  $579  $—  $17,107 
Balance,
September 30, 2018		$7,544
 $892
 $1,818
 $1,241
 $5,305
 $318
 $1,566
 $—
 $18,684


(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
Balance,
June 30, 2018		$8,033
 $933
 $1,933
 $1,158
 $5,672
 $289
 $1,380
 $—
 $19,398
Charge-offs(58) —
 (42) —
 (319) (73) (1,068) —
 (1,560)
Recoveries2
 —
 54
 —
 16
 2
 108
 —
 182
Provision for loan and lease losses(433) (41) (127) 83
 (64) 100
 1,146
 —
 664
Balance,
September 30, 2018		$7,544
 $892
 $1,818
 $1,241
 $5,305
 $318
 $1,566
 $—
 $18,684
(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)
Recoveries9
 —
 85
 3
 18
 5
 271
 —
 391
Provision for loan and lease losses1,096
 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

(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
Balance,
June 30, 2017		$6,608
 $1,214
 $1,776
 $1,111
 $4,813
 $177
 $700
 $—
 $16,399
Charge-offs—
 (69) (88) —
 (301) (37) (411) —
 (906)
Recoveries3
 —
 85
 1
 2
 1
 86
 —
 178
Provision for loan and lease losses721
 (53) 48
 (182) 366
 69
 364
 —
 1,333
Balance,
September 30, 2017		$7,332
 $1,092
 $1,821
 $930
 $4,880
 $210
 $739
 $—
 $17,004


The following tables detail the allocation of the Allowance for all 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, 2018 and December 31, 2017:

As of March 31, 2018

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 

Allowance on loans and leases:

                                    

Individually evaluated for impairment

 $—  $19  $224  $—  $41  $4  $—  $—  $288 

Collectively evaluated for impairment

  7,174   1,026   1,674   844   5,320   287   1,049   —   17,374 

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   —   — 

Total

 $7,174  $1,045  $1,898  $844  $5,361  $291  $1,049  $—  $17,662 

As of December 31, 2017

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Unallocated

  

Total

 
As of
September 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
(dollars in thousands) 

Allowance on loans and leases:

                                                     

Individually evaluated for impairment

 $—  $19  $230  $—  $5  $4  $—  $—  $258 $—
 $19
 $228
 $—
 $11
 $20
 $—
 $—
 $278

Collectively evaluated for impairment

  7,550   1,067   1,696   937   5,033   242   742   —   17,267 7,544
 873
 1,590
 1,241
 5,294
 298
 1,566
 —
 18,406

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   —   — —
 —
 —
 —
 —
 —
 —
 —
 —

Total

 $7,550  $1,086  $1,926  $937  $5,038  $246  $742  $—  $17,525 $7,544
 $892
 $1,818
 $1,241
 $5,305
 $318
 $1,566
 $—
 $18,684

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


As of
December 31, 2017
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
(dollars in thousands)        
Allowance on loans and leases:                 
Individually evaluated for impairment$—
 $19
 $230
 $—
 $5
 $4
 $—
 $—
 $258
Collectively evaluated for impairment7,550
 1,067
 1,696
 937
 5,033
 242
 742
 —
 17,267
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
 —
Total$7,550
 $1,086
 $1,926
 $937
 $5,038
 $246
 $742
 $—
 $17,525

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


The following tables detail the carrying value for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

(dollars in thousands)

 

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

 $1,394  $2,626  $5,350  $—  $2,754  $27  $—  $12,151 

Collectively evaluated for impairment

  1,525,887   208,333   448,305   186,559   721,545   48,396   121,392   3,260,417 

Purchased credit-impaired(1)

  14,176   510   —   15,609   2,932   —   —   33,227 

Total

 $1,541,457  $211,469  $453,655  $202,168  $727,231  $48,423  $121,392  $3,305,795 

As of
September 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$736
 $2,602
 $5,940
 $291
 $1,757
 $144
 $—
 $11,470
Collectively evaluated for impairment1,609,375
 204,694
 461,462
 175,802
 705,015
 47,665
 138,473
 3,342,486
Purchased credit-impaired(1)
8,382
 510
 —
 2,400
 16,227
 —
 —
 27,519
Total$1,618,493
 $207,806
 $467,402
 $178,493
 $722,999
 $47,809
 $138,473
 $3,381,475

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

Page 20
As of
December 31, 2017		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$2,128
 $2,162
 $7,726
 $—
 $1,897
 $27
 $—
 $13,940
Collectively evaluated for impairment1,503,825
 215,604
 451,160
 204,088
 712,865
 38,126
 115,401
 3,241,069
Purchased credit-impaired(1)
17,424
 509
 —
 8,366
 4,550
 —
 —
 30,849
Total$1,523,377
 $218,275
 $458,886
 $212,454
 $719,312
 $38,153
 $115,401
 $3,285,858
Table of Contents

As of December 31, 2017

(dollars in thousands)

 

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

 $2,128  $2,162  $7,726  $—  $1,897  $27  $—  $13,940 

Collectively evaluated for impairment

  1,503,825   215,604   451,160   204,088   712,865   38,126   115,401   3,241,069 

Purchased credit-impaired(1)

  17,424   509   —   8,366   4,550   —   —   30,849 

Total

 $1,523,377  $218,275  $458,886  $212,454  $719,312  $38,153  $115,401  $3,285,858 

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

The following tables detail the allocation of the Allowance for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

Allowance on loans and leases:

                                

Individually evaluated for impairment

 $—  $19  $168  $—  $5  $4  $—  $196 

Collectively evaluated for impairment

  7,174   1,026   1,674   844   5,320   287   1,049   17,374 

Total

 $7,174  $1,045  $1,842  $844  $5,325  $291  $1,049  $17,570 

As of December 31, 2017

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 
As of
September 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands) 

Allowance on loans and leases:

                                               

Individually evaluated for impairment

 $—  $19  $180  $—  $5  $4  $—  $208 $—
 $19
 $179
 $—
 $4
 $4
 $—
 $206

Collectively evaluated for impairment

  7,550   1,067   1,696   937   5,033   242   742   17,267 7,544
 873
 1,590
 1,241
 5,294
 298
 1,566
 18,406

Total

 $7,550  $1,086  $1,876  $937  $5,038  $246  $742  $17,475 $7,544
 $892
 $1,769
 $1,241
 $5,298
 $302
 $1,566
 $18,612


As of
December 31, 2017
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $19
 $180
 $—
 $5
 $4
 $—
 $208
Collectively evaluated for impairment7,550
 1,067
 1,696
 937
 5,033
 242
 742
 17,267
Total$7,550
 $1,086
 $1,876
 $937
 $5,038
 $246
 $742
 $17,475

The following tables detail the carrying value for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

(dollars in thousands)

 

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

 $1,345  $2,370  $3,637  $—  $2,288  $27  $—  $9,667 

Collectively evaluated for impairment

  1,150,233   176,254   356,605   135,480   611,027   45,704   79,857   2,555,160 

Total

 $1,151,578  $178,624  $360,242  $135,480  $613,315  $45,731  $79,857  $2,564,827 

As of December 31, 2017

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

(dollars in thousands)

                                

Carrying value of loans and leases:

                                

Individually evaluated for impairment

 $1,345  $1,902  $4,418  $—  $1,186  $27  $—  $8,878 

Collectively evaluated for impairment

  1,120,982   181,381   356,517   128,266   588,118   35,119   68,035   2,478,418 

Total

 $1,122,327  $183,283  $360,935  $128,266  $589,304  $35,146  $68,035  $2,487,296 

Page 21

As of
September 30, 2018		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$—
 $2,361
 $4,268
 $291
 $1,294
 $68
 $—
 $8,282
Collectively evaluated for impairment1,259,397
 177,707
 376,769
 158,400
 616,906
 44,765
 109,934
 2,743,878
Total$1,259,397
 $180,068
 $381,037
 $158,691
 $618,200
 $44,833
 $109,934
 $2,752,160
As of
December 31, 2017		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$1,345
 $1,902
 $4,418
 $—
 $1,186
 $27
 $—
 $8,878
Collectively evaluated for impairment1,120,982
 181,381
 356,517
 128,266
 588,118
 35,119
 68,035
 2,478,418
Total$1,122,327
 $183,283
 $360,935
 $128,266
 $589,304
 $35,146
 $68,035
 $2,487,296

The following tables detail the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

(dollars in thousands)

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 
Allowance on loans and leases:                                

Individually evaluated for impairment

 $—  $—  $56  $—  $36  $—  $—  $92 

Collectively evaluated for impairment

  —   —   —   —   —   —   —   — 

Purchased credit-impaired(1)

  —   —   —   —   —   —   —   — 

Total

 $—  $—  $56  $—  $36  $—  $—  $92 

As of
September 30, 2018		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $—
 $49
 $—
 $7
 $16
 $—
 $72
Collectively evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
Total$—
 $—
 $49
 $—
 $7
 $16
 $—
 $72

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

As of December 31, 2017

(dollars in thousands)

Commercial
Mortgage

Home Equity
Lines and
Loans

Residential
Mortgage

Construction

Commercial
and
Industrial

Consumer

Leases

Total

Allowance on loans and leases:

Individually evaluated for impairment

$—$—$50$—$—$—$—$50

Collectively evaluated for impairment

————————

Purchased credit-impaired(1)

————————

Total

$—$—$50$—$—$—$—$50


As of
December 31, 2017		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Allowance on loans and leases:               
Individually evaluated for impairment$—
 $—
 $50
 $—
 $—
 $—
 $—
 $50
Collectively evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
Total$—
 $—
 $50
 $—
 $—
 $—
 $—
 $50

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

The following tables detail the carrying value for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

(dollars in thousands)

 

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

 $49  $256  $1,713  $—  $466  $—  $—  $2,484 

Collectively evaluated for impairment

  375,654   32,079   91,700   51,079   110,518   2,692   41,535   705,257 

Purchased credit-impaired(1)

  14,176   510   —   15,609   2,932   —   —   33,227 

Total

 $389,879  $32,845  $93,413  $66,688  $113,916  $2,692  $41,535  $740,968 

(1)

As of
September 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)       
Carrying value of loans and leases:               
Individually evaluated for impairment$736
 $241
 $1,672
 $—
 $463
 $76
 $—
 $3,188
Collectively evaluated for impairment349,978
 26,987
 84,693
 17,402
 88,109
 2,900
 28,539
 598,608
Purchased credit-impaired(1)
8,382
 510
 —
 2,400
 16,227
 —
 —
 27,519
Total$359,096
 $27,738
 $86,365
 $19,802
 $104,799
 $2,976
 $28,539
 $629,315

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

As of December 31, 2017

 

Commercial
Mortgage

  

Home Equity
Lines and
Loans

  

Residential
Mortgage

  

Construction

  

Commercial
and
Industrial

  

Consumer

  

Leases

  

Total

 

(dollars in thousands)

                                

Carrying value of loans and leases:

                                

Individually evaluated for impairment

 $783  $260  $3,308  $—  $711  $—  $—  $5,062 

Collectively evaluated for impairment

  382,843   34,223   94,643   75,822   124,747   3,007   47,366   762,651 

Purchased credit-impaired(1)

  17,424   509   —   8,366   4,550   —   —   30,849 

Total

 $401,050  $34,992  $97,951  $84,188  $130,008  $3,007  $47,366  $798,562 

(1)

As of
December 31, 2017
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)      
Carrying value of loans and leases:               
Individually evaluated for impairment$783
 $260
 $3,308
 $—
 $711
 $—
 $—
 $5,062
Collectively evaluated for impairment382,843
 34,223
 94,643
 75,822
 124,747
 3,007
 47,366
 762,651
Purchased credit-impaired(1)
17,424
 509
 —
 8,366
 4,550
 —
 —
 30,849
Total$401,050
 $34,992
 $97,951
 $84,188
 $130,008
 $3,007
 $47,366
 $798,562

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

Page 22
Table of Contents

As part of the process of determining the Allowance for the different segments of the loan and lease portfolio, Managementmanagement 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.

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.

The following tables detail the carrying value of all portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31,September 30, 2018 and December 31, 2017:

Credit Risk Profile by Internally Assigned Grade

  

Commercial Mortgage

  

Construction

  

Commercial and Industrial

  

Total

 

(dollars in thousands)

 

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

 

Pass

 $1,502,268  $1,490,862  $179,047  $193,227  $717,447  $711,145  $2,398,762  $2,395,234 

Special Mention

  11,403   13,448   2,528   3,902   1,705   889   15,636   18,239 

Substandard

  27,221   18,194   20,593   15,325   7,015   6,013   54,829   39,532 

Doubtful

  565   873   —   —   1,063   1,265   1,628   2,138 

Total

 $1,541,457  $1,523,377  $202,168  $212,454  $727,230  $719,312  $2,470,855  $2,455,143 

 Commercial Mortgage Construction Commercial and Industrial Total
(dollars in thousands)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Pass$1,592,174
 $1,490,862
 $168,897
 $193,227
 $697,913
 $711,145
 $2,458,984
 $2,395,234
Special Mention2,321
 13,448
 934
 3,902
 2,425
 889
 5,680
 18,239
Substandard23,447
 18,194
 8,662
 15,325
 22,660
 6,013
 54,769
 39,532
Doubtful551
 873
 —
 —
 1
 1,265
 552
 2,138
Total$1,618,493
 $1,523,377
 $178,493
 $212,454
 $722,999
 $719,312
 $2,519,985
 $2,455,143
Credit Risk Profile by Payment Activity

  

Residential Mortgage

  

Home Equity Lines

and Loans

  

Consumer

  

Leases

  

Total

 

(dollars in thousands)

 

March

31, 2018

  

December 31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

 

Performing

 $451,051  $454,469  $209,520  $216,794  $48,423  $38,153  $121,049  $115,298  $830,043  $824,714 

Non-performing

  2,604   4,417   1,949   1,481   —   —   343   103   4,896   6,001 

Total

 $453,655  $458,886  $211,469  $218,275  $48,423  $38,153  $121,392  $115,401  $834,939  $830,715 

 Residential Mortgage Home Equity Lines
and Loans		 Consumer Leases Total
(dollars in thousands)
September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Performing$464,632
 $454,469
 $205,873
 $216,794
 $47,692
 $38,153
 $137,111
 $115,298
 $855,308
 $824,714
Non-performing2,770
 4,417
 1,933
 1,481
 117
 —
 1,362
 103
 6,182
 6,001
Total$467,402
 $458,886
 $207,806
 $218,275
 $47,809
 $38,153
 $138,473
 $115,401
 $861,490
 $830,715
The following tables detail the carrying value of originatedportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31,September 30, 2018 and December 31, 2017:

Credit Risk Profile by Internally Assigned Grade

  

Commercial Mortgage

  

Construction

  

Commercial and Industrial

  

Total

 

(dollars in thousands)

 

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

 

Pass

 $1,140,584  $1,114,171  $131,797  $126,260  $607,758  $586,896  $1,880,139  $1,827,327 

Special Mention

  994   —   1,253   —   1,254   664   3,501   664 

Substandard

  10,000   8,156   2,430   2,006   4,033   1,389   16,463   11,551 

Doubtful

  —   —   —   —   270   355   270   355 

Total

 $1,151,578  $1,122,327  $135,480  $128,266  $613,315  $589,304  $1,900,373  $1,839,897 

Page 23

 Commercial Mortgage Construction Commercial and Industrial Total
(dollars in thousands)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Pass$1,252,916
 $1,114,171
 $152,429
 $126,260
 $610,730
 $586,896
 $2,016,075
 $1,827,327
Special Mention—
 —
 —
 —
 2,198
 664
 2,198
 664
Substandard6,481
 8,156
 6,262
 2,006
 5,271
 1,389
 18,014
 11,551
Doubtful—
 —
 —
 —
 1
 355
 1
 355
Total$1,259,397
 $1,122,327
 $158,691
 $128,266
 $618,200
 $589,304
 $2,036,288
 $1,839,897

Credit Risk Profile by Payment Activity

  

Residential Mortgage

  

Home Equity Lines

and Loans

  

Consumer

  

Leases

  

Total

 

(dollars in thousands)

 

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

 

Performing

 $358,751  $359,430  $176,931  $182,062  $45,731  $35,146  $79,668  $67,932  $661,081  $644,570 

Non-performing

  1,491   1,505   1,693   1,221   —   —   189   103   3,373   2,829 

Total

 $360,242  $360,935  $178,624  $183,283  $45,731  $35,146  $79,857  $68,035  $664,454  $647,399 

 Residential Mortgage Home Equity Lines
and Loans		 Consumer Leases Total
(dollars in thousands)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Performing$379,069
 $359,430
 $178,376
 $182,062
 $44,791
 $35,146
 $109,455
 $67,932
 $711,691
 $644,570
Non-performing1,968
 1,505
 1,692
 1,221
 42
 —
 479
 103
 4,181
 2,829
Total$381,037
 $360,935
 $180,068
 $183,283
 $44,833
 $35,146
 $109,934
 $68,035
 $715,872
 $647,399
The following tables detail the carrying value of acquiredportfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of March 31,September 30, 2018 and December 31, 2017:

Credit Risk Profile by Internally Assigned Grade

  

Commercial Mortgage

  

Construction

  

Commercial and Industrial

  

Total

 

(dollars in thousands)

 

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

  

March 31,

2018

  

December 31,

2017

 

Pass

 $361,684  $376,691  $47,250  $66,967  $109,690  $124,249  $518,624  $567,907 

Special Mention

  10,409   13,448   1,275   3,902   451   225   12,135   17,575 

Substandard

  17,221   10,038   18,163   13,319   2,982   4,624   38,366   27,981 

Doubtful

  565   873   —   —   793   910   1,358   1,783 

Total

 $389,879  $401,050  $66,688  $84,188  $113,916  $130,008  $570,483  $615,246 

 Commercial Mortgage Construction Commercial and Industrial Total
(dollars in thousands)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Pass$339,258
 $376,691
 $16,468
 $66,967
 $87,183
 $124,249
 $442,909
 $567,907
Special Mention2,321
 13,448
 934
 3,902
 227
 225
 3,482
 17,575
Substandard16,966
 10,038
 2,400
 13,319
 17,389
 4,624
 36,755
 27,981
Doubtful551
 873
 —
 —
 —
 910
 551
 1,783
Total$359,096
 $401,050
 $19,802
 $84,188
 $104,799
 $130,008
 $483,697
 $615,246
Credit Risk Profile by Payment Activity

  

Residential Mortgage

  

Home Equity Lines

and Loans

  

Consumer

  

Leases

  

Total

 

(dollars in thousands)

 

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

  

March

31, 2018

  

December

31, 2017

 

Performing

 $92,300  $95,039  $32,589  $34,732  $2,692  $3,007  $41,381  $47,366  $168,962  $180,144 

Non-performing

  1,113   2,912   256   260   —   —   154   —   1,523   3,172 

Total

 $93,413  $97,951  $32,845  $34,992  $2,692  $3,007  $41,535  $47,366  $170,485  $183,316 

 Residential Mortgage Home Equity Lines
and Loans		 Consumer Leases Total
(dollars in thousands)
September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Performing$85,563
 $95,039
 $27,497
 $34,732
 $2,901
 $3,007
 $27,656
 $47,366
 $143,617
 $180,144
Non-performing802
 2,912
 241
 260
 75
 —
 883
 —
 2,001
 3,172
Total$86,365
 $97,951
 $27,738
 $34,992
 $2,976
 $3,007
 $28,539
 $47,366
 $145,618
 $183,316
G. TroubledTroubled 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, 2018

  

December 31, 2017

 

TDRs included in nonperforming loans and leases

 $1,125  $3,289 

TDRs in compliance with modified terms

  5,235   5,800 

Total TDRs

 $6,360  $9,089 

Page 24

(dollars in thousands)September 30, 2018 December 31, 2017
TDRs included in nonperforming loans and leases$1,208
 $3,289
TDRs in compliance with modified terms4,316
 5,800
Total TDRs$5,524
 $9,089

The following table presents information regarding loan and lease modifications categorized as TDRs for the three months ended March 31,September 30, 2018:

  

For the Three Months Ended March 31, 2018

 

(dollars in thousands)

 

Number of Contracts

  

Pre-Modification Outstanding

Recorded Investment

  

Post-Modification Outstanding

Recorded Investment

 

Commercial and industrial

  1  $18  $18 

 For the Three Months Ended September 30, 2018
(dollars in thousands)Number of Contracts Pre-Modification Outstanding
Recorded Investment		 Post-Modification Outstanding
Recorded Investment
Home equity loans and lines— $—
 $—
Residential mortgages4 406
 430
Leases— —
 —
    Total4 $406
 $430
The following table presents information regarding the types of loan and lease modifications made for the three months ended March 31,September 30, 2018:

Number of Contracts

Loan Term Extension

Interest Rate Change and Term Extension

Interest Rate Change and/or Interest-Only Period

Contractual

Payment Reduction

(Leases only)

Temporary Payment Deferral

Commercial and industrial

—1———

 Number of Contracts
 Loan Term Extension Interest Rate Change and Term Extension Interest Rate Change and/or Interest-Only Period 
Contractual
Payment Reduction
(Leases only)
 Temporary Payment Deferral
Home equity loans and lines— — — — —
Residential mortgages1 — — — 3
Leases— — — — —
    Total1 — — — 3

The following table presents information regarding loan and lease modifications categorized as TDRs for the nine months ended September 30, 2018: 
 For the Nine Months Ended September 30, 2018
(dollars in thousands)Number of Contracts Pre-Modification Outstanding
Recorded Investment		 Post-Modification Outstanding
Recorded Investment
Home equity loans and lines1 $8
 $8
Residential mortgages6 625
 649
Commercial and industrial1 18
 18
Leases2 33
 33
    Total10 $684
 $708













The following table presents information regarding the types of loan and lease modifications made for the nine months ended September 30, 2018:

 Number of Contracts
 Loan Term Extension Interest Rate Change and Term Extension Interest Rate Change and/or Interest-Only Period 
Contractual
Payment Reduction
(Leases only)
 Temporary Payment Deferral
Home equity loans and lines— 1 — — —
Residential mortgages2 1 — — 3
Commercial and industrial— 1 — — —
Leases— — — 2 —
    Total2 3 — 2 3

During the threenine months ended March 31,September 30, 2018, one home equity line of credit with a principal balance of $25$25 thousand and one lease with a principal balance of $50 thousand, which had been previously modified to a troubled debt restructuringrestructurings defaulted and waswere charged off.


H. Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related allowance for loan and lease lossesAllowance and interest income recognized for the three and nine months ended March 31,September 30, 2018 and 2017 (purchased credit-impaired loans are not included in the tables):

As of or for the Three Months Ended

March 31, 2018

(dollars in thousands)

 

Recorded

Investment**

  

Principal

Balance

  

Related

Allowance

  

Average

Principal Balance

  

Interest Income

Recognized

  

Cash-Basis

Interest Income

Recognized

 

Impaired loans with related allowance:

                        

Home equity lines and loans

 $574  $574  $19  $575  $6  $— 

Residential mortgage

  1,796   1,796   224   1,801   21   — 

Commercial and industrial

  54   110   40   97   —   — 

Consumer

  27   27   4   27   —   — 

Total

 $2,451  $2,507  $287  $2,500  $27  $— 
                         

Impaired loans without related allowance*:

                        

Commercial mortgage

 $1,394  $1,483  $—  $1,394  $23  $— 

Home equity lines and loans

  2,052   2,114   —   2,094   2   — 

Residential mortgage

  3,554   3,758   —   154   —   — 

Commercial and industrial

  2,700   3,498   —   2,872   5   — 

Total

 $9,700  $10,853  $—  $6,514  $30  $— 

Grand total

 $12,151  $13,360  $287  $9,014  $57  $— 

As of and for the Three Months Ended
September 30, 2018
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(dollars in thousands)     
Impaired loans with related allowance:           
Home equity lines and loans$567
 $567
 $19
 $569
 $6
 $—
Residential mortgage1,699
 1,699
 228
 1,702
 20
 —
Commercial and industrial25
 25
 12
 25
 —
 —
Consumer58
 58
 19
 58
 —
 —
Total$2,349
 $2,349
 $278
 $2,354
 $26
 $—
            
Impaired loans without related allowance*:           
Commercial mortgage$735
 $793
 $—
 $930
 $—
 $—
Home equity lines and loans2,035
 2,096
 —
 2,064
 2
 —
Residential mortgage4,242
 4,328
 —
 4,299
 24
 —
Construction291
 291
 —
 294
 —
 —
Commercial and industrial1,733
 2,665
 —
 2,138
 5
 —
Consumer86
 86
 —
 87
 —
 —
Total$9,122
 $10,259
 $—
 $9,812
 $31
 $—
Grand total$11,471
 $12,608
 $278
 $12,166
 $57
 $—
*The table above does not include the recorded investment of $510 thousand$1.4 million of impaired leases without a related allowance for loan and lease losses.

Allowance.

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



Page 25

As of or for the Three Months Ended

March 31, 2017

(dollars in thousands)

 

Recorded

Investment**

  

Principal

Balance

  

Related

Allowance

  

Average

Principal Balance

  

Interest Income

Recognized

  

Cash-Basis

Interest Income

Recognized

 
As of and for the Nine Months Ended
September 30, 2018
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(dollars in thousands) 

Impaired loans with related allowance:

                                   
Home equity lines and loans$567
 $567
 $19
 $572
 $17
 $—

Residential mortgage

 $620  $619  $73  $621  $7  $— 1,699
 1,699
 228
 1,709
 60
 —

Commercial and industrial

  88   121   11   110   1   — 25
 25
 12
 29
 1
 —

Consumer

  29   29   5   29   —   — 58
 58
 19
 58
 1
 —

Total

 $737  $769  $89  $760  $8  $— $2,349
 $2,349
 $278
 $2,368
 $79
 $—
                                   

Impaired loans without related allowance*:

                                   

Commercial mortgage

 $1,570  $1,570  $—  $1,573  $15  $— $735
 $793
 $—
 $825
 $6
 $—

Home equity lines and loans

  1,945   2,806   —   2,358   2   — 2,035
 2,096
 —
 2,086
 10
 —

Residential mortgage

  6,637   6,623   —   6,755   53   — 4,242
 4,328
 —
 4,228
 91
 —
Construction291
 291
   239
 5
 —

Commercial and industrial

  2,357   3,156   —   2,456   2   — 1,733
 2,665
 —
 2,236
 56
 —
Consumer86
 86
   88
 3
 —

Total

 $12,509  $14,155  $—  $13,142  $72  $— $9,122
 $10,259
 $—
 $9,702
 $171
 $—

Grand total

 $13,246  $14,924  $89  $13,902  $80  $— $11,471
 $12,608
 $278
 $12,070
 $250
 $—


*The table above does not include the recorded investment of $232 thousand$1.4 million of impaired leases without a related allowance for loan and lease losses.

Allowance.

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

(dollars in thousands)

As of December 31, 2017

 

Recorded

Investment (2)

  

Principal

Balance

  

Related

Allowance

 

Impaired loans with related allowance:

            

Home equity lines and loans

 $577   577   19 

Residential mortgage

  2,436  $2,435  $230 

Commercial and industrial

  18   19   5 

Consumer

  27   27   4 

Total

 $3,058  $3,058  $258 
             

Impaired loans without related allowance(1):

            

Home equity lines and loans

 $1,585  $1,645  $— 

Residential mortgage

  5,290   5,529   — 

Commercial and industrial

  1,879   3,613   — 

Commercial mortgage

  2,128   2,218   — 

Total

 $10,882  $13,005  $— 

Grand total

 $13,940  $16,063  $258 

As of and for the Three Months Ended
September 30, 2017
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(dollars in thousands)     
Impaired loans with related allowance:           
Home equity lines and loans$21
 $21
 $3
 $21
 $—
 $—
Residential mortgage1,770
 1,770
 116
 1,776
 23
 —
Consumer27
 27
 4
 28
 —
 —
Total$1,818
 $1,818
 $123
 $1,825
 $23
 $—
            
Impaired loans without related allowance*:           
Commercial mortgage$1,449
 $1,485
 $—
 $1,451
 $15
 $—
Home equity lines and loans633
 694
 —
 655
 1
 —
Residential mortgage4,688
 5,015
 —
 4,243
 43
 —
Commercial and industrial1,940
 2,796
 —
 2,605
 2
 —
Total$8,710
 $9,990
 $—
 $8,954
 $61
 $—
Grand total$10,528
 $11,808
 $123
 $10,779
 $84
 $—
*The table above does not include the recorded investment of $270 thousand of impaired leases without a related Allowance.
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.




As of and for the Nine Months Ended
September 30, 2017
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(dollars in thousands)     
Impaired loans with related allowance:           
Home equity lines and loans$21
 $21
 $3
 $21
 $1
 $—
Residential mortgage1,770
 1,770
 116
 1,797
 67
 —
Consumer27
 27
 4
 28
 1
 —
Total$1,818
 $1,818
 $123
 $1,846
 $69
 $—
            
Impaired loans without related allowance*:           
Commercial mortgage$1,449
 $1,485
 $—
 $1,475
 $45
 $—
Home equity lines and loans633
 694
 —
 669
 5
 —
Residential mortgage4,688
 5,015
 —
 4,288
 118
 —
Commercial and industrial1,940
 2,796
 —
 2,746
 34
 —
Total$8,710
 $9,990
 $—
 $9,178
 $202
 $—
Grand total$10,528
 $11,808
 $123
 $11,024
 $271
 $—
*The table above does not include the recorded investment of $270 thousand of impaired leases without a related Allowance.
**Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.


(dollars in thousands)
Recorded
Investment (2)
 
Principal
Balance
 
Related
Allowance
As of
December 31, 2017		  
Impaired loans with related allowance:     
Home equity lines and loans$577
 $577
 $19
Residential mortgage2,436
 2,435
 230
Commercial and industrial18
 19
 5
Consumer27
 27
 4
Total$3,058
 $3,058
 $258
Impaired loans without related allowance(1):
     
Home equity lines and loans$1,585
 $1,645
 $—
Residential mortgage5,290
 5,529
 —
Commercial and industrial1,879
 3,613
 —
Commercial mortgage2,128
 2,218
 —
Total$10,882
 $13,005
 $—
Grand total$13,940
 $16,063
 $258

(1)(1) 

The table above does not include the recorded investment of$272 thousandof impaired leases without a related Allowance.

(2)(2) 

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


Page 26
Table of Contents

I.I. Loan Mark

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


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

  

As of March 31, 2018

 

(dollars in thousands)

 

Outstanding

Principal

  

Remaining

Loan Mark

  

Recorded

Investment

 

Commercial mortgage

 $403,196  $(13,317) $389,879 

Home equity lines and loans

  35,697   (2,852)  32,845 

Residential mortgage

  96,609   (3,196)  93,413 

Construction

  67,926   (1,238)  66,688 

Commercial and industrial

  123,250   (9,334)  113,916 

Consumer

  2,729   (37)  2,692 

Leases

  43,820   (2,285)  41,535 

Total

 $773,227  $(32,259) $740,968 

  

As of December 31, 2017

 

(dollars in thousands)

 

Outstanding

Principal

  

Remaining

Loan Mark

  

Recorded

Investment

 

Commercial mortgage

 $412,263  $(11,213

)

 $401,050 

Home equity lines and loans

  37,944   (2,952

)

  34,992 

Residential mortgage

  101,523   (3,572

)

  97,951 

Construction

  86,081   (1,893

)

  84,188 

Commercial and industrial

  141,960   (11,952

)

  130,008 

Consumer

  3,051   (44

)

  3,007 

Leases

  50,530   (3,164

)

  47,366 

Total

 $833,352  $(34,790

)

 $798,562 

 As of September 30, 2018
(dollars in thousands)Outstanding
Principal		 Remaining
Loan Mark		 Recorded
Investment
Commercial mortgage$369,894
 $(10,798) $359,096
Home equity lines and loans30,240
 (2,502) 27,738
Residential mortgage89,302
 (2,937) 86,365
Construction20,142
 (340) 19,802
Commercial and industrial111,799
 (7,000) 104,799
Consumer3,094
 (118) 2,976
Leases29,793
 (1,254) 28,539
Total$654,264
 $(24,949) $629,315
 

 As of December 31, 2017
(dollars in thousands)Outstanding
Principal		 Remaining
Loan Mark		 Recorded
Investment
Commercial mortgage$412,263
 $(11,213) $401,050
Home equity lines and loans37,944
 (2,952) 34,992
Residential mortgage101,523
 (3,572) 97,951
Construction86,081
 (1,893) 84,188
Commercial and industrial141,960
 (11,952) 130,008
Consumer3,051
 (44) 3,007
Leases50,530
 (3,164) 47,366
Total$833,352
 $(34,790) $798,562
Note6- Mortgage Servicing Rights

The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and nine months ended March 31,September 30, 2018 and 2017:

  

Three Months Ended March 31,

 

(dollars in thousands)

 

2018

  

2017

 

Balance, beginning of period

 $5,861  $5,582 

Additions

  16   276 

Amortization

  (221

)

  (169

)

Recovery / (Impairment)

  50   (3

)

Balance, end of period

 $5,706  $5,686 

Fair value

 $6,791  $6,394 

Residential mortgage loans serviced for others

  634,970   638,553 

 Three Months Ended September 30,
(dollars in thousands)2018 2017
Balance, beginning of period$5,511
 $5,682
Additions—
 282
Amortization(206) (229)
Recovery / (Impairment)23
 (3)
Balance, end of period$5,328
 $5,732
Fair value$6,586
 $6,146
 Nine Months Ended September 30,
(dollars in thousands)2018 2017
Balance, beginning of period$5,861
 $5,582
Additions16
 770
Amortization(623) (571)
Recovery / (Impairment)74
 (49)
Balance, end of period$5,328
 $5,732
Fair value$6,586
 $6,146
Residential mortgage loans serviced for others$596,162
 $647,997

As of March 31,September 30, 2018, and December 31, 2017, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 1010% and 20 percent20% adverse changes in those assumptions are as follows:

(dollars in thousands)

 

March 31, 2018

  

December 31, 2017

 

Fair value amount of MSRs

 $6,791  $6,397 

Weighted average life (in years)

  6.5   6.1 

Prepayment speeds (constant prepayment rate)*

  9.2

%

  10.3

%

Impact on fair value:

        

10% adverse change

 $(135

)

 $(194

)

20% adverse change

 $(288

)

 $(394

)

Discount rate

  9.55

%

  9.55

%

Impact on fair value:

        

10% adverse change

 $(249

)

 $(225

)

20% adverse change

 $(480

)

 $(434

)

(dollars in thousands)September 30,
2018		 December 31,
2017
Fair value amount of MSRs$6,586
 $6,397
Weighted average life (in years)6.6
 6.1
Prepayment speeds (constant prepayment rate)*8.7% 10.3%
Impact on fair value:   
10% adverse change$(85) $(194)
20% adverse change$(190) $(394)
Discount rate9.55% 9.55%
Impact on fair value:   
10% adverse change$(245) $(225)
20% adverse change$(472) $(434)
*Represents the weighted average prepayment rate for the life of the MSR asset.


Page 27
Table of Contents

At March 31,September 30, 2018 and December 31, 2017 the fair value of the MSRs was $6.8$6.6 million and $6.4$6.4 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party which utilizes a valuation model which calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent third-partythird-party valuation experts.

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


Note7- Goodwill and Other Intangibles

Intangible Assets

The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other than MSRs, for the threenine months ended March 31,September 30, 2018:

(dollars in thousands)

 

Balance

December 31,

2017

  

Adjustments

  

Amortization

  

Balance

March 31,

2018

 

Amortization
Period

Goodwill – Wealth

 $20,412  $—  $—  $20,412  

Indefinite

 

Goodwill – Banking

  153,545   2,311   —   155,856  

Indefinite

 

Goodwill – Insurance

  5,932   —   —   5,932  

Indefinite

 

Total Goodwill

 $179,889  $2,311  $—  $182,200    

Core deposit intangible

 $7,380  $—  $(377

)

 $7,003  

10 Years

 

Customer relationships

  14,173   —   (404

)

  13,769 10

to

20 Years

Non-compete agreements

  1,319   —   (61

)

  1,258 5

to

10 Years

Trade name

  2,322   —   (16

)

  2,306 3 Years

to

Indefinite

Domain name

  151   —   —   151  

Indefinite

 

Favorable lease assets

  621   —   (21

)

  600 1

to

16 Years

Total Intangible Assets

 $25,966  $—  $(879

)

 $25,087    

Grand Total

 $205,855  $2,311  $(879

)

 $207,287    

(dollars in thousands)Balance
December 31, 2017		 Additions Adjustments Amortization Balance
September 30, 2018		 Amortization
Period
Goodwill – Wealth$20,412
 $—
 $—
 $—
 $20,412
 Indefinite
Goodwill – Banking153,545
 —
 3,298
 —
 156,843
 Indefinite
Goodwill – Insurance5,932
 677
 —
 —
 6,609
 Indefinite
Total Goodwill$179,889
 $677
 $3,298
 $—
 $183,864
  
Core deposit intangible$7,380
 $—
 $—
 $(1,108) $6,272
 10 years
Customer relationships14,173
 994
 —
 (1,271) 13,896
 10 to 20 years
Non-compete agreements1,319
 —
 —
 (171) 1,148
 5 to 10 years
Trade name2,322
 —
 —
 (49) 2,273
 3 years to Indefinite
Domain name151
 —
 —
 —
 151
 Indefinite
Favorable lease assets621
 —
 —
 (60) 561
 1 to 16 years
Total Intangible Assets$25,966
 $994
 $—
 $(2,659) $24,301
  
Total Goodwill and Intangible Assets$205,855
 $1,671
 $3,298
 $(2,659) $208,165
  

Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31,2017 using generally accepted valuation methods. Management determined that no impairment of goodwill or indefinite-lived intangible assets was identified as a result of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the fiveeleven months ended March 31,September 30, 2018, management determined there were no events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.


Note8-Deposits
 

Note 8 - Deposits

The following table details the components of deposits:

  

March 31,

2018

  

December 31,

2017

 

(dollars in thousands)

        

Interest-bearing demand

 $529,478  $481,336 

Money market

  856,072   862,639 

Savings

  308,925   338,572 

Retail time deposits

  523,138   532,202 

Wholesale non-maturity deposits

  63,449   62,276 

Wholesale time deposits

  171,359   171,929 

Total interest-bearing deposits

  2,452,421   2,448,954 

Non-interest-bearing deposits

  863,118   924,844 

Total deposits

 $3,315,539  $3,373,798 

Page 28

 September 30,
2018		 December 31,
2017
(dollars in thousands)   
Interest-bearing demand$578,243
 $481,336
Money market812,027
 862,639
Savings286,266
 338,572
Retail time deposits561,123
 532,202
Wholesale non-maturity deposits24,040
 62,276
Wholesale time deposits261,164
 171,929
Total interest-bearing deposits$2,522,863
 $2,448,954
Noninterest-bearing deposits834,363
 924,844
Total deposits$3,357,226
 $3,373,798


Note9-Short-Term Borrowings and Long-Term FHLB Advances

A. Short-term borrowings

The Corporation’s short-term borrowings (original maturity of one year or less), which consist of funds obtained from overnight repurchase agreements with commercial customers, FHLB advances with original maturities of one year or less and overnight fed funds, are detailed below.

A summary of short-term borrowings is as follows:

(dollars in thousands)

 

March 31,

2018

  

December 31,

2017

 

Repurchase agreements* – commercial customers

 $13,804  $25,865 

Short-term FHLB advances

  159,900   212,000 

Total short-term borrowings

 $173,704  $237,865 

(dollars in thousands)September 30,
2018		 December 31,
2017
Repurchase agreements* – commercial customers$21,548
 $25,865
Short-term FHLB advances204,950
 212,000
Total short-term borrowings$226,498
 $237,865
* Overnight repurchase agreements with no expiration date


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

  

Three Months Ended March 31,

 

(dollars in thousands)

 

2018

  

2017

 

Balance at period-end

 $173,704  $23,613 

Maximum amount outstanding at any month end

 $173,704  $39,378 

Average balance outstanding during the period

 $172,532  $47,603 

Weighted-average interest rate:

        

As of the period-end

  1.76

%

  0.10

%

Paid during the period

  1.48

%

  0.23

%


 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(dollars in thousands)2018 2017 2018 2017
Balance at period-end$226,498
 $180,874
 $226,498
 $180,874
Maximum amount outstanding at any month end$302,932
 $184,578
 $302,932
 $184,578
Average balance outstanding during the period$218,551
 $182,845
 $205,046
 $110,268
        
Weighted-average interest rate:       
As of the period-end2.18% 1.17% 2.18% 1.17%
Paid during the period2.09% 1.19% 1.85% 0.98%

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

B.Long-termFHLB Advances

As of March 31,September 30, 2018 and December 31, 2017, the Corporation had $107.8$72.8 million and $139.1$139.1 million, respectively, of long-term FHLB advances (original maturities exceeding one year).

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

(dollars in thousands)

 

March 31,

2018

  

December 31,

2017

 

Within one year

 $52,377  $83,766 

Over one year through five years

  55,407   55,374 

Total

 $107,784  $139,140 

(dollars in thousands)September 30,
2018		 December 31,
2017
Within one year$28,106
 $83,766
Over one year through five years44,735
 55,374
Total$72,841
 $139,140









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

  

Maturity Range(1)

 

Weighted

  

Coupon Rate(1)

  

Balance at

 

Description

 

From

   To 

Average

Rate(1)

  

From

    To  

March

31, 2018

  

December

31, 2017

 

Bullet maturity – fixed rate

 

4/30/2018

 

8/24/2021

  1.79

%

  1.18

%

  2.13

%

  97,784   118,131 

Convertible-fixed(2)

 

8/20/2018

 

8/20/2018

  2.58

%

  2.58

%

  2.58

%

  10,000   21,009 

Total

                 $107,784  $139,140 

(1)

 
Maturity Range(1)
 
Weighted Average Rate(1)
 
Coupon Rate(1)
 Balance at
DescriptionFrom   To  From To September 30,
2018		 December 31,
2017
Bullet maturity – fixed rate10/1/2018 1/2/2020 1.32% 1.31% 2.45% $72,841
 $118,131
Convertible-fixed(2)
N/A N/A N/A
 N/A
 N/A
 —
 21,009
Total     
  
  
 $72,841
 $139,140
(1)Maturity range, weighted average rate and coupon rate range refers to March 31,September 30, 2018 balances.
balances.
(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, 2018, substantially allthe Corporation held no FHLB advances with this convertible feature are subject to conversion in fiscal 2018. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to conversion.

feature.

Page 29
Table of Contents

C. Other Borrowings Information

In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of capital stock held was $15.5$14.7 million at March 31,September 30, 2018, and $20.1$20.1 million at December 31, 2017. The carrying amount of the FHLB stock approximates its redemption value.

The level of required investment in FHLB stock is based on the balance of outstanding borrowings the Corporation has from the FHLB.  Although FHLB stock is a financial instrument that represents an equity interest in the FHLB, it does not have a readily determinable fair value. FHLB stock is generally viewed as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, its value should be determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.


The Corporation had a maximum borrowing capacity with the FHLB of $1.67$1.50 billion as of March 31,September 30, 2018 of which the unused capacity was $1.40$1.20 billion. In addition, there were $79.0$79.0 million in the overnight federal funds line available and $138.2$139.6 million of Federal Reserve Discount Window capacity.

 

Note10– Subordinated Notes

On December 13, 2017, the Corporation completed the issuance of $70.0$70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the "2027"2027 Notes") in an underwritten public offering. On August 6, 2015, the Corporation completed the issuance of $30$30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the "2025"2025 Notes") in a private placement transaction to institutional accredited investors. The net proceeds of both offerings increased Tier II regulatory capital at the Corporation level.

The following tables detail the subordinated notes, including debt issuance costs, as of March 31,September 30, 2018, and December 31, 2017:

  

March 31, 2018

  

December 31, 2017

 

(dollars in thousands)

 

Balance

  

Rate(1)(2)

  

Balance

  

Rate(1)(2)

 

Subordinated Notes – due 2027

 $68,848   4.25

%

 $68,829   4.25

%

Subordinated Notes – due 2025

  29,600   4.75

%

  29,587   4.75

%

Total Subordinated Notes

 $98,448      $98,416     

 September 30, 2018 December 31, 2017
(dollars in thousands)Balance 
Rate(1)(2)
 Balance 
Rate(1)(2)
Subordinated notes – due 2027$68,855
 4.25% $68,829
 4.25%
Subordinated notes – due 202529,627
 4.75% 29,587
 4.75%
Total subordinated notes$98,482
   $98,416
  
(1)The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until December 14, 2022, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 2.050% until December 15, 2027, or any early redemption date.

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



Note 11 – Junior Subordinated Debentures

In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although the Corporation owns $774,000$774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation’s Consolidated Financial Statements as the Corporation is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, RBPI issued, and the Corporation assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7$10.7 million each, totaling $21.4$21.4 million representing the Corporation’s maximum exposure to loss. The junior subordinated debentures incur interest at a coupon rate of 3.74%4.48% as of December 31, 2017. September 30, 2018. The rate resets quarterly based on 3-month3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5$12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387$387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the Corporation. As a result of the RBPI Merger, the Corporation has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15, 2034, and may be called at par by the Corporation any time after December 15, 2009. The Corporation records its investments in the Trusts’ common securities of $387,000$387 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

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Table of Contents

Note 1212– Derivative Instruments and Hedging Activities

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

Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps 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 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 March 31,September 30, 2018, 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”.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 agreementan RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased”.

purchased.”



The following tables detail the derivative instruments as of March 31,September 30, 2018 and December 31, 2017:

  

Asset Derivatives

  

Liability Derivatives

 

(dollars in thousands)

 

Notional

Amount

  

Fair

Value

  

Notional

Amount

  

Fair

Value

 

Derivatives not designated as hedging instruments

                

As of March 31, 2018:

                

Customer derivatives – interest rate swaps

 $158,973  $2,847  $158,973  $2,846 

Risk participation agreements sold

  —   —   892   2 

Risk participation agreements purchased

  14,672   13   —   — 

Total derivatives

 $173,645  $2,860  $159,865  $2,848 
                 

As of December 31, 2017:

                

Customer derivatives – interest rate swaps

 $124,627  $1,895  $124,627  $1,895 

Risk participation agreements sold

  —   —   899   3 

Risk participation agreements purchased

  14,710   21   —   — 

Total derivatives

 $139,337  $1,916  $125,526  $1,898 

 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, 2018:       
Customer derivatives – interest rate swaps$295,566
 $5,843
 $295,566
 $5,843
RPAs sold—
 —
 865
 1
RPAs purchased35,464
 43
 —
 —
Total derivatives$331,030
 $5,886
 $296,431
 $5,844
As of December 31, 2017:       
Customer derivatives – interest rate swaps$124,627
 $1,895
 $124,627
 $1,895
RPAs sold—
 —
 899
 3
RPAs purchased14,710
 21
 —
 —
Total derivatives$139,337
 $1,916
 $125,526
 $1,898
The Corporation has International Swaps and Derivatives Association agreements with third parties that requires a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with the third party parties at March 31,September 30, 2018 and December 31, 2017 was $0$420 thousand and $1.3$1.3 million, respectively. The amount of collateral posted with the third party parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with the third party parties was $1.1$1.8 million and $1.6$1.6 million as of March 31,September 30, 2018 and December 31, 2017, respectively.

Page 31

 

Note 13 - 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-notmore-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 2014.


The 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 or nine months ended March 31,September 30, 2018 or 2017.



Note 14- Shareholders’ Equity
 

Note 14 - Shareholders’ Equity

Dividend

On April 19,October 17, 2018, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.22$0.25 per share payable JuneDecember 1, 2018 to shareholders of record as of MayNovember 1, 2018. During the firstthird quarter of 2018, the Corporation paid or accrued, as applicable, a regular quarterly dividend of $0.22$0.25 per share. This dividend totaled $4.5$5.1 million, based on outstanding shares and restricted stock units as of February 9,August 1, 2018 of 20,414,04620,443,918 shares.

S-3

S-3 Shelf Registration Statement and Offerings Thereunder


In March 2015,May 2018, the Corporation filed a shelf registration statement on Form S-3, SEC File No. 333-202805333-224849 (the “Shelf Registration Statement”). The Shelf Registration Statement expired in April 2018 and is expected to be replaced by a new shelf registration soon.  As of March 31, 2018, the Shelf Registration Statement allowedallows the Corporation to raise additional capital from time to time through offers and sales of registered securities consisting of common stock, debt securities, warrants, to purchase common stock, stock purchase contracts, rights and units or units consisting of any combination of the foregoing securities. UsingThe Corporation may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation could sell, from time to time, in one or more offerings, such securities in a dollar amount up to $200 million, in the aggregate.

offerings.



In addition, the Corporation has in place a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which allows it to issue up to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year. AnA 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.


For the three and nine months ended March 31,September 30, 2018, the Corporation did not issue any shares throughunder the Plan. No RFWs were approved during the three and nine months ended March 31,September 30, 2018. No other sales of equity securities were executed under the Shelf Registration Statement during the three and nine months ended March 31,September 30, 2018.

Option


Option Exercises and Vesting of Restricted Stock Awards
Units ("RSUs") and Performance Stock Units ("PSUs")

In addition to shares that may be issued through the Plan, the Corporation also issues shares through the exercise of stock options and the vesting of RSUs and PSUs. During the three and nine months ended March 31,September 30, 2018, 43,92515,150 shares and 63,825 shares, respectively, were issued pursuant to the exercise of stock options, increasing shareholders’ equity by $992 thousand.$349 thousand and $1.5 million, respectively. The increase in shareholders’ equity related to the vesting of the RSUs and PSUs, which is recognized over the vesting period through stock based compensation expense, was $620 thousand.

$708 thousand and $1.9 million for the three and nine months ended September 30, 2018, respectively.

Stock Repurchases

On August 6, 2015, the Corporation announced a stock repurchase program (the “2015“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$40 million. During the three months ended March 31,September 30, 2018, no14,263 shares were repurchased under the 2015 Program. As of March 31,September 30, 2018, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.175,037. 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.

Page 32



Note 15 – Accumulated Other Comprehensive (Loss) Income (Loss)


The following table details the components of accumulated other comprehensive (loss) income for the three and nine month period March 31,periods ended September 30, 2018 and 2017:

(dollars in thousands)

 

Net Change in

Unrealized Gains

on Available-for-

Sale Investment

Securities

  

Net Change in

Unfunded

Pension Liability

  

Accumulated

Other

Comprehensive

Loss

 

Balance, December 31, 2017

 $(2,861

)

 $(1,553

)

 $(4,414

)

Other comprehensive (loss) income

  (5,296

)

  46   (5,250

)

Balance, March 31, 2018

 $(8,157

)

 $(1,507

)

 $(9,664

)

             

Balance, December 31, 2016

 $(1,231

)

 $(1,178

)

 $(2,409

)

Other comprehensive income

  387   32   419 

Balance, March 31, 2017

 $(844

)

 $(1,193

)

 $(1,990

)

(dollars in thousands)
Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities
 
Net Change in
Unfunded
Pension Liability
 
Accumulated
Other
Comprehensive
Loss
Balance, June 30, 2018$(9,669) $(1,522) $(11,191)
Other comprehensive (loss) income(2,319) 108
 (2,211)
Balance, September 30, 2018$(11,988) $(1,414) $(13,402)
      
Balance, June 30, 2017$(433) $(1,131) $(1,564)
Other comprehensive income149
 15
 164
Balance, September 30, 2017$(284) $(1,116) $(1,400)
(dollars in thousands)
Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities
 
Net Change in
Unfunded
Pension Liability
 
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2017$(2,861) $(1,553) $(4,414)
Other comprehensive (loss) income(9,127) 139
 (8,988)
Balance, September 30, 2018$(11,988) $(1,414) $(13,402)
      
Balance, December 31, 2016$(1,231) $(1,178) $(2,409)
Other comprehensive income947
 62
 1,009
Balance, September 30, 2017$(284) $(1,116) $(1,400)


The following table details the amounts reclassified from each component of accumulated other comprehensive loss to each component’s applicable income statement line, for the three months and nine month periods ended March 31,September 30, 2018 and 2017:

Description of Accumulated Other

 

Amount Reclassified from Accumulated

Other Comprehensive Loss

 

 

Comprehensive Loss Component 

Three Months Ended March 31,

 Affected Income Statement Category
  

2018

  

2017

  

Net unrealized gain on investment securities available for sale:

         

Realization of gain on sale of investment securities available for sale

 $(7) $(1

)

Net gain on sale of available for sale investment securities

Realization of gain on transfer of investment securities available for sale to trading

  (417

)

  — 

Other operating income

Total

 $(424

)

 $(1

)

 

Income tax effect

  89   — 

Income tax expense

Net of income tax

 $(335

)

 $(1

)

Net income

          

Unfunded pension liability:

         

Amortization of net loss included in net periodic pension costs*

 $25  $23 

Other operating expenses

Income tax effect

  (5

)

  (8

)

Income tax expense

Net of income tax

 $20  $15 

Net income

  Amount Reclassified from Accumulated Other Comprehensive Loss  
Description of Accumulated Other
Comprehensive Loss Component
 Three Months Ended
September 30,		 Affected Income Statement Category
  2018 2017  
Net unrealized gain on investment securities available for sale:      
Realization of gain on sale of investment securities available for sale $—
 $72
 Net gain on sale of available for sale investment securities
Realization of gain on transfer of investment securities available for sale to trading —
 —
 Other operating income
Total $—
 $72
  
Income tax effect —
 25
 Income tax expense
Net of income tax $—
 $47
 Net income
       
Unfunded pension liability:      
Amortization of net loss included in net periodic pension costs* $25
 $24
 Other operating expenses
Income tax effect 5
 8
 Income tax expense
Net of income tax $20
 $16
 Net income

  Amount Reclassified from Accumulated Other Comprehensive Loss  
Description of Accumulated Other
Comprehensive Loss Component
 Nine Months Ended
September 30,		 Affected Income Statement Category
  2018 2017  
Net unrealized gain on investment securities available for sale:      
Realization of gain on sale of investment securities available for sale $7
 $73
 Net gain on sale of available for sale investment securities
Realization of gain on transfer of investment securities available for sale to trading 417
 —
 Other operating income
Total $424
 $73
  
Income tax effect 89
 27
 Income tax expense
Net of income tax $335
 $46
 Net income
       
Unfunded pension liability:      
Amortization of net loss included in net periodic pension costs* $75
 $71
 Other operating expenses
Income tax effect 15
 25
 Income tax expense
Net of income tax $60
 $46
 Net income

*Accumulated other comprehensive loss components are included in the computation of net periodic pension cost.

cost.
Page 33
Table of Contents

Note 16 - Earnings per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share takes into account the potential dilution that would occur if in-the-money stock options were exercised and converted into common shares and restricted stock awardsRSUs and performance-based stock awardsPSUs were vested. Proceeds assumed to have been received on option exercises are assumed to be used to purchase shares of the Corporation’s common stock at the average market price during the period, as required by the treasury stock method of accounting. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

  

Three Months Ended

March 31,

 

(dollars in thousands except per share data)

 

2018

  

2017

 

Numerator:

        

Net income available to common shareholders

 $15,286  $9,044 

Denominator for basic earnings per share – weighted average shares outstanding

  20,202,969   16,954,132 

Effect of dilutive common shares

  247,525   228,557 

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

  20,450,494   17,182,689 

Basic earnings per share

 $0.76  $0.53 

Diluted earnings per share

 $0.75  $0.53 

Antidilutive shares excluded from computation of average dilutive earnings per share

  870   — 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(dollars in thousands except share and per share data)2018 2017 2018 2017
Numerator:    
 
Net income available to common shareholders$16,682
 $10,739
 $46,656
 $29,216
Denominator for basic earnings per share – weighted average shares outstanding
20,270,706
 17,023,046
 20,237,757
 16,987,499
Effect of dilutive common shares167,670
 230,936
 206,318
 254,728
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
20,438,376
 17,253,982
 20,444,075
 17,242,227
Basic earnings per share$0.82
 $0.63
 $2.31
 $1.72
Diluted earnings per share$0.82
 $0.62
 $2.28
 $1.69
Antidilutive shares excluded from computation of average dilutive earnings per share22,232
 21,621
 48,807
 47,268
 


Note 17 -Revenue from Contracts with Customers

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income.  The following table presents the Corporation’s noninterest income by revenue stream and reportable segment for the three and nine months ended March 31,September 30, 2018 and 2017.  Items outside the scope of ASC 606 are noted as such.

  

Three Months Ended March 31, 2018

  

Three Months Ended March 31, 2017

 

(dollars in thousands)

 

Banking

  

Wealth

Management

  

Consolidated

  

Banking

  

Wealth

Management

  

Consolidated

 
                         

Fees for wealth management services

 $—  $10,308  $10,308  $—  $9,303  $9,303 

Insurance commissions(1)

  —   1,693   1,693   —   763   763 

Capital markets revenue(1)

  666   —   666   —   —   — 

Service charges on deposit accounts

  713   —   713   647   —   647 

Loan servicing and other fees(1)

  686   —   686   503   —   503 

Net gain on sale of loans(1)

  518   —   518   629   —   629 

Net gain on sale of investment securities available for sale(1)

  7   —   7   1   —   1 

Net gain on sale of other real estate owned

  176   —   176   —   —   — 

Dividends on FHLB and FRB stock(1)

  431   —   431   214   —   214 

Other operating income(2)

  4,294   44   4,338   1,119   48   1,167 

Total noninterest income

 $7,491  $12,045  $19,536  $3,113  $10,114  $13,227 

 Three Months Ended September 30, 2018 Three Months Ended September 30, 2017
(dollars in thousands)Banking Wealth
Management		 Consolidated Banking Wealth
Management		 Consolidated
Fees for wealth management services$—
 $10,343
 $10,343
 $—
 $9,651
 $9,651
Insurance commissions—
 1,754
 1,754
 —
 1,373
 1,373
Capital markets revenue(1)
710
 —
 710
 843
 —
 843
Service charges on deposit accounts726
 —
 726
 676
 —
 676
Loan servicing and other fees(1)
559
 —
 559
 548
 —
 548
Net gain on sale of loans(1)
631
 —
 631
 799
 —
 799
Net gain on sale of investment securities available for sale(1)
—
 —
 —
 72
 —
 72
Net gain on sale of other real estate owned5
 —
 5
 —
 —
 —
Dividends on FHLB and FRB stock(1)
375
 —
 375
 217
 —
 217
Other operating income(2)
3,123
 48
 3,171
 1,364
 41
 1,405
Total noninterest income$6,129
 $12,145
 $18,274
 $4,519
 $11,065
 $15,584
(1) Not within the scope of ASC 606.

(2) Other operating income includes merchant interchange fees,Visa debit card income, safe deposit box rentals, and rent income totaling $521$595 thousand and $479$520 thousand for the three-monthsthree months ended March 31,September 30, 2018 and 2017, respectively, which are within the scope of ASC 606.

 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
(dollars in thousands)Banking Wealth
Management		 Consolidated Banking Wealth
Management		 Consolidated
Fees for wealth management services$—
 $31,309
 $31,309
 $—
 $28,761
 $28,761
Insurance commissions—
 5,349
 5,349
 —
 3,079
 3,079
Capital markets revenue(1)
3,481
 —
 3,481
 1,796
 —
 1,796
Service charges on deposit accounts2,191
 —
 2,191
 1,953
 —
 1,953
Loan servicing and other fees(1)
1,720
 —
 1,720
 1,570
 —
 1,570
Net gain on sale of loans(1)
1,677
 —
 1,677
 1,948
 —
 1,948
Net gain on sale of investment securities available for sale(1)
7
 —
 7
 73
 —
 73
Net gain (loss) on sale of other real estate owned292
 —
 292
 (12) —
 (12)
Dividends on FHLB and FRB stock(1)
1,316
 —
 1,316
 649
 —
 649
Other operating income(2)
10,393
 150
 10,543
 3,641
 138
 3,779
Total noninterest income$21,077
 $36,808
 $57,885
 $11,618
 $31,978
 $43,596

(1) Not within the scope of ASC 606.
(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling $1.7 million and $1.5 million for the nine months ended September 30, 2018 and 2017, respectively, which are within the scope of ASC 606.





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

Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.


Page 34
Table of Contents

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

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

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

Interchange Income:

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

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

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

 

Note1818– Stock-BasedStock-Based Compensation

A. General Information

The Corporation permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation rights and restricted stock units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is identical. The terms and conditions of awards under the plans are determined by the Corporation’s Management Development and Compensation Committee.

Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25,2007, the shareholders approved the Corporation’s “2007“2007 Long-Term Incentive Plan” (the “2007“2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’s “2010“2010 Long Term Incentive Plan” under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants and on April 30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010“2010 LTIP”) to, among other things, increase the number of shares available for award grants by 500,000 to 945,002.

In addition to the shareholder-approved plans mentioned in the preceding paragraph, 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)5635(c)(4) of the NasdaqNASDAQ listing rules.


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

PSUs.

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

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

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B.B. Other Stock Option Information

The following table provides information about options outstanding for the three months ended March 31,September 30, 2018:

  

Shares

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Grant Date

Fair Value

 

Options outstanding, December 31, 2017

  115,246  $20.73  $4.86 

Forfeited

  —  $—  $— 

Expired

  —  $—  $— 

Exercised

  (43,925

)

 $22.57  $5.03 

Options outstanding, March 31, 2018

  71,321  $19.59  $4.75 

 Shares Weighted
Average
Exercise
Price		 Weighted
Average
Grant Date
Fair Value
Options outstanding, June 30, 201866,571
 $19.26
 $4.71
Forfeited—
 —
 —
Expired—
 —
 —
Exercised(15,150) $23.02
 $5.09
Options outstanding, September 30, 201851,421
 $18.15
 $4.60
The following table provides information about options outstanding for the nine months ended September 30, 2018:
 Shares Weighted
Average
Exercise
Price		 Weighted
Average
Grant Date
Fair Value
Options outstanding, December 31, 2017115,246
 $20.73
 $4.86
Forfeited—
 —
 —
Expired—
 —
 —
Exercised(63,825) $22.81
 $5.06
Options outstanding, September 30, 201851,421
 $18.15
 $4.60

As of March 31,September 30, 2018 there were no unvested options.

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

 

 

Three Months Ended March 31,

 
(dollars in thousands) 

2018

  

2017

 

Proceeds from exercise of stock options

 $992  $650 

Related tax benefit recognized

  210   141 

Net proceeds of options exercised

 $1,202  $791 

Intrinsic value of options exercised

 $999  $548 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(dollars in thousands)2018 2017 2018 2017
Proceeds from exercise of stock options$349
 $283
 $1,456
 $1,288
Related tax benefit recognized81
 96
 312
 402
Net proceeds of options exercised$430
 $379
 $1,768
 $1,690
        
Intrinsic value of options exercised$386
 $273
 $1,484
 $1,147





The following table provides information about options outstanding and exercisable at March 31,September 30, 2018:

(dollars in thousands, except exercise price)

 

Outstanding

  

Exercisable

 

Number of shares

  71,321   71,321 

Weighted average exercise price

 $19.59  $19.59 

Aggregate intrinsic value

 $1,737,209  $1,737,209 

Weighted average contractual term in years

  1.2   1.2 

C.

(dollars in thousands, except share data and exercise price)Outstanding Exercisable
Number of shares51,421
 51,421
Weighted average exercise price$18.15
 $18.15
Aggregate intrinsic value$1,478
 $1,478
Weighted average remaining contractual term in years0.9
 0.9
C. Restricted StockStock Units and Performance Stockand Units

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

RSUs

The compensation expense for the RSUs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight-line basis over the vesting period.

For the three and nine months ended March 31,September 30, 2018, the Corporation recognized $288$318 thousand and $873 thousand, respectively, of expense related to the Corporation’s RSUs. As of March 31,September 30, 2018, there was $1.8$2.3 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 2.12.3 years.

The following table details the RSUs for the three and nine months ended March 31,September 30, 2018:

  

Three Months Ended March 31, 2018

 
  

Number of Shares

  

Weighted

Average

Grant Date

Fair Value

 

Beginning balance

  75,707  $35.80 

Granted

  2,400  $43.95 

Vested

  (1,000

)

 $30.04 

Forfeited

  —  $— 

Ending balance

  77,107  $36.13 

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PSUs

The

 Three Months Ended
September 30, 2018		 Nine Months Ended
September 30, 2018
 Number of Shares Weighted
Average
Grant Date
Fair Value		 Number of Shares Weighted
Average
Grant Date
Fair Value
Beginning balance68,595
 $36.89
 75,707
 $35.80
Granted23,843
 $46.29
 26,243
 $46.07
Vested(16,122) $33.65
 (24,469) $32.16
Forfeited—
 $—
 (1,165) $35.36
Ending balance76,316
 $40.51
 76,316
 $40.51
PSUs
For the three and nine months ended September 30, 2018, the Corporation recognized $332$390 thousand and $1.1 million, respectively, of expense related to the PSUs for the three months ended March 31, 2018. PSUs. As of March 31,September 30, 2018, there was $2.1$3.3 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 1.52.2 years.

The following table details the PSUs for the three and nine months ended March 31,September 30, 2018:

  

Three Months Ended March 31, 2018

 
  

Number of Shares

  

Weighted

Average

Grant Date

Fair Value

 

Beginning balance

  168,453  $24.76 

Granted

  —  $— 

Vested

  —  $— 

Forfeited

  —  $— 

Ending balance

  168,453  $24.76 

 Three Months Ended
September 30, 2018		 Nine Months Ended
September 30, 2018
 Number of Shares Weighted
Average
Grant Date
Fair Value		 Number of Shares Weighted
Average
Grant Date
Fair Value
Beginning balance130,260
 $26.73
 168,453
 $24.76
Granted40,722
 $44.56
 40,722
 $44.56
Vested(48,056) $16.04
 (81,840) $16.40
Forfeited—
 $—
 (4,409) $26.57
Ending balance122,926
 $36.82
 122,926
 $36.82
 



Note1919-Fair Value Measurement

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


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


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


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


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

A.

A.Assets and liabilities measured on a recurring basis


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


Investment Securities


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

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

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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.


The following tables present the Corporation’s assets measured at fair value on a recurring basis as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

                

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Investment securities available for sale:

                

U.S. Treasury securities

 $0.1  $0.1  $—  $— 

Obligations of U.S. government & agencies

  175.1   —   175.1   — 

Obligations of state & political subdivisions

 

 

19.9   —   19.9   — 

Mortgage-backed securities

  303.9   —   303.9   — 

Collateralized mortgage obligations

  34.0   —   34.0   — 

Other debt securities

  1.1   —   1.1   — 

Total investment securities available for sale

 $534.1  $0.1  $534.0  $— 
                 

Investment securities trading:

                

Mutual funds

  8.2   8.2   —   — 
                 

Derivatives:

                

Interest rate swaps

  2.8   —   2.8   — 

Total recurring fair value measurements

 $545.1  $8.3  $536.8  $— 

As of December 31, 2017

                

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 
As of September 30, 2018       
(dollars in thousands)Total Level 1 Level 2 Level 3

Investment securities available for sale:

                       

U.S. Treasury securities

 $200.1  $200.1  $—  $— $100
 $100
 $—
 $—

Obligations of U.S. government & agencies

  151.0   —   151.0   — 190,453
 —
 190,453
 —

Obligations of state & political subdivisions

  21.3   —   21.3   — 15,799
 —
 15,799
 —

Mortgage-backed securities

  275.0   —   275.0   — 284,421
 —
 284,421
 —

Collateralized mortgage obligations

  36.7   —   36.7   — 36,193
 —
 36,193
 —

Mutual funds

  3.5   3.5   —   — 

Other debt securities

  1.6   —   1.6   — 
Other investment securities1,098
 —
 1,098
 —

Total investment securities available for sale

 $689.2  $203.6  $485.6  $— $528,064
 $100
 $527,964
 $—
                       

Investment securities trading:

                       

Mutual funds

  4.6   4.6   —   — $8,340
 $8,340
 $—
 $—
                       

Derivatives:

                       

Interest rate swaps

  1.9   —   1.9   — $5,886
 $—
 $5,886
 $—

Total recurring fair value measurements

 $695.7  $208.2  $487.5  $— $542,290
 $8,440
 $533,850
 $—

As of December 31, 2017       
(dollars in thousands)Total Level 1 Level 2 Level 3
Investment securities available for sale:       
U.S. Treasury securities$200,088
 $200,088
 $—
 $—
Obligations of U.S. government & agencies151,044
 —
 151,044
 —
Obligations of state & political subdivisions21,310
 —
 21,310
 —
Mortgage-backed securities274,990
 —
 274,990
 —
Collateralized mortgage obligations36,662
 —
 36,662
 —
Mutual funds3,509
 3,509
 —
 —
Other investment securities1,599
 —
 1,599
 —
Total investment securities available for sale$689,202
 $203,597
 $485,605
 $—
        
Investment securities trading:       
Mutual funds$4,610
 $4,610
 $—
 $—
        
Derivatives:       
Interest rate swaps$1,898
 $—
 $1,898
 $—
     Total recurring fair value measurements$695,710
 $208,207
 $487,503
 $—
There have been no transfers between levels during the three and nine months ended March 31,September 30, 2018.

B.

B.Assets and liabilities measured on anon-recurringnon-recurring basis

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

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Impaired Loans

The Corporation

Management 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 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 Corporationmanagement obtains updated appraisals when a loan becomes 90 days past due or when it receives other information that may indicate possible impairment. Based on the appraisals obtained by the Corporation, a partial or full charge-off may be necessary. 

Other Real Estate Owned

Other real estate owned

OREO 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

The model to value MSRs do not trade in an active, open market with readily observable prices. Accordingly,estimates the Corporation obtains the fairpresent 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 marketportfolio based on various assumptions, including changes in anticipated loan prepayment predictionsrates, the discount rate, reflective of a market participant's required return on an investment for similar assets, and other market-based economic factors which the Corporation considersfactors. All of these assumptions are considered to be significant unobservable inputs. The fair value ofAccordingly, 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 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.

hierarchy.

The following tables present the Corporation’s assets measured at fair value on a non-recurring basis as of March 31,September 30, 2018 and December 31, 2017:

As of March 31, 2018

                

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Mortgage servicing rights

 $6.8  $—  $—  $6.8 

Impaired loans and leases

  11.9   —   —   11.9 

OREO

  0.3   —   —   0.3 

Total non-recurring fair value measurements

 $19.0  $—  $—  $19.0 

Fair value of assets measured on a non-recurring basis as of December 31, 2017:

As of December 31, 2017

                

(dollars in millions)

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Mortgage servicing rights

 $6.4  $—  $—  $6.4 
As of September 30, 2018       
(dollars in thousands)Total Level 1 Level 2 Level 3
MSRs$6,586
 $—
 $—
 $6,586

Impaired loans and leases

  14.0   —   —   14.0 12,593
 —
 —
 12,593

OREO

  0.3   —   —   0.3 529
 —
 —
 529

Total non-recurring fair value measurements

 $20.7  $—  $—  $20.7 $19,708
 $—
 $—
 $19,708

As of December 31, 2017       
(dollars in thousands)Total Level 1 Level 2 Level 3
MSRs$6,397
 $—
 $—
 $6,397
Impaired loans and leases13,954
 —
 —
 13,954
OREO304
 —
 —
 304
   Total non-recurring fair value measurements$20,655
 $—
 $—
 $20,655
During the three and nine months ended March 31,September 30, 2018, a decrease of $148 thousand and an increase of $29$20 thousand, wasrespectively, 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.



Note 20- Fair Value of Financial Instruments

FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by the Corporationmanagement using available market information and appropriate valuation methodologies, and are based on the exit price notion set forth by ASU 2016-012016-1 effective January 1, 2018, and are applied to this disclosure on a prospective basis. Estimated fair value of assets and liabilities carried at cost at as of December 31, 2017 were based on an entry price notion. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.


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

    

As of March 31, 2018

  

As of December 31, 2017

 

(dollars in thousands)

 

Fair Value

Hierarchy

Level*

 

Carrying

Amount

  

Fair Value

  

Carrying

Amount

  

Fair Value

 

Financial assets:

                  

Cash and cash equivalents

 

Level 1

 $32,393  $32,393  $60,024  $60,024 

Investment securities - available for sale

 

See Note 19

  534,103   534,103   689,202   689,202 

Investment securities - trading

 

See Note 19

  8,211   8,211   4,610   4,610 

Investment securities – held to maturity

 

Level 2

  7,885   7,629   7,932   7,851 

Loans held for sale

 

Level 2

  5,522   5,522   3,794   3,794 

Net portfolio loans and leases

 

Level 3

  3,288,133   3,249,948   3,268,333   3,293,802 

Mortgage servicing rights

 

Level 3

  5,706   6,791   5,861   6,397 

Interest rate swaps

 

Level 2

  2,847   2,847   1,895   1,895 

Risk participation agreements purchased

 

Level 2

  13   13   21   21 

Other assets

 

Level 3

  39,740   39,740   46,799   46,799 

Total financial assets

   $3,924,553  $3,887,197  $4,088,471  $4,114,395 

Financial liabilities:

                  

Deposits

 

Level 2

 $3,315,539  $3,309,113  $3,373,798  $3,368,276 

Short-term borrowings

 

Level 2

  173,704   173,704   237,865   237,865 

Long-term FHLB advances

 

Level 2

  107,784   106,857   139,140   138,685 

Subordinated notes

 

Level 2

  98,448   97,074   98,416   95,044 

Junior subordinated debentures

 

Level 2

  21,456   22,901   21,416   19,366 

Interest rate swaps

 

Level 2

  2,846   2,846   1,895   1,895 

Risk participation agreements sold

 

Level 2

  2   2   3   3 

Other liabilities

 

Level 3

  47,535   47,535   49,071   49,071 

Total financial liabilities

   $3,767,314  $3,760,032  $3,921,604  $3,910,205 

   As of September 30, 2018 As of December 31, 2017
(dollars in thousands)Fair Value
Hierarchy
Level*		 Carrying
Amount		 Fair Value Carrying
Amount		 Fair Value
Financial assets:         
Cash and cash equivalentsLevel 1 $45,354
 $45,354
 $60,024
 $60,024
Investment securities - available for saleSee Note 19 528,064
 528,064
 689,202
 689,202
Investment securities - tradingSee Note 19 8,340
 8,340
 4,610
 4,610
Investment securities – held to maturityLevel 2 8,916
 8,544
 7,932
 7,851
Loans held for saleLevel 2 4,111
 4,111
 3,794
 3,794
Net portfolio loans and leasesLevel 3 3,362,791
 3,362,757
 3,268,333
 3,293,802
MSRsLevel 3 5,328
 6,586
 5,861
 6,397
Interest rate swapsLevel 2 5,843
 5,843
 1,895
 1,895
RPAs purchasedLevel 2 43
 43
 21
 21
Other assetsLevel 3 44,439
 44,439
 46,799
 46,799
Total financial assets  $4,013,229
 $4,014,081
 $4,088,471
 $4,114,395
Financial liabilities:         
DepositsLevel 2 $3,357,226
 $3,351,183
 $3,373,798
 $3,368,276
Short-term borrowingsLevel 2 226,498
 226,498
 237,865
 237,865
Long-term FHLB advancesLevel 2 72,841
 71,978
 139,140
 138,685
Subordinated notesLevel 2 98,482
 97,892
 98,416
 95,044
Junior subordinated debenturesLevel 2 21,538
 23,564
 21,416
 19,366
Interest rate swapsLevel 2 5,843
 5,843
 1,895
 1,895
RPAs soldLevel 2 1
 1
 3
 3
Other liabilitiesLevel 3 60,432
 60,432
 49,071
 49,071
Total financial liabilities  $3,842,861
 $3,837,391
 $3,921,604
 $3,910,205
* See Note 19 in the Notes to Unaudited Consolidated Financial Statements above for a description of hierarchy levels.

 


Note 2121- Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk


Off-Balance Sheet Risk

Arrangements


The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.


The Corporation’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument of commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments.


Commitments to extend credit, which include unused lines of credit and unfunded commitments to originate loans, are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Some of the commitments are expected to expire without being drawn upon, and the total commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at March 31,September 30, 2018 and December 31, 2017 were $766.4$764.7 million and $748.3$748.3 million, respectively. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on a credit evaluation of the counterparty. Collateral varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income-producing commercial properties.


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Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in extending loan facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and residential real estate for those commitments for which collateral is deemed necessary. The Corporation’s obligationobligations under standby letters of credit as of March 31,September 30, 2018 and December 31, 2017 were $15.5$21.2 million and $17.0$17.7 million, respectively. There were no outstanding bankers’ acceptances as of March 31, 2018 and December 31, 2017.


Contingencies


Legal Matters


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


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





Indemnifications


In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These indemnifications may include the repurchase of loans by the Corporation, and are considered customary provisions in the secondary market for conforming mortgage loan sales. AsRepurchases and losses have been rare and no provision is made for losses at the time of March 31, 2018, there are sale. There were no pending make-whole requests. As of March 31, 2018,  such repurchases for the Corporation had no loans sold with recourse outstanding.

three or nine months ended September 30, 2018.


Concentrations of Credit Risk


The Corporation has a material portion of its loans in real estate-related loans. A predominant percentage of the Corporation’s real estate exposure, both commercial and residential, is in the Corporation’s primary trade area which includes portions of Delaware, Chester, Montgomery and Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and attempts to mitigate this risk to the extent possible in many ways, including the underwriting and assessment of borrower’s capacity to repay. See Note 5 – “Loans and Leases” for additional information.


Note 22 - Segment Information
 

Note 22 - Segment Information

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

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

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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. BMT Investment Advisers, formed in May 2017, which serves as investment adviser to BMT Investment Funds, a Delaware statutory trust, is also reported under the Wealth Management segment. In addition, the Wealth Management Division oversees all insurance services of the Corporation, which are conducted through the Bank’s insurance subsidiary, BMT Insurance Advisors, Inc., and are reported in the Wealth Management segment.

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

The following table detailstables detail the Corporation’s segments for the three and nine months ended March 31,September 30, 2018 and 2017:

  

Three Months Ended March 31, 2018

  

Three Months Ended March 31, 2017

 

(dollars in thousands)

 

Banking

  

Wealth

Management

  

Consolidated

  

Banking

  

Wealth

Management

  

Consolidated

 
                         

Net interest income

 $37,438  $1  $37,439  $27,402  $1  $27,403 

Less: loan loss provision

  1,030   —   1,030   291   —   291 

Net interest income after loan loss provision

  36,408   1   36,409   27,111   1   27,112 

Other income:

                        

Fees for wealth management services

  —   10,308   10,308   —   9,303   9,303 

Insurance commissions

  —   1,693   1,693   —   763   763 

Capital markets revenue

  666   —   666   —   —   — 

Service charges on deposit accounts

  713   —   713   647   —   647 

Loan servicing and other fees

  686   —   686   503   —   503 

Net gain on sale of loans

  518   —   518   629   —   629 

Net gain (loss) on sale of investment securities available for sale

  7   —   7   1   —   1 

Net (loss) gain on sale of OREO

  176   —   176   —   —   — 

Other operating income

  4,725   44   4,769   1,333   48   1,381 

Total noninterest income

  7,491   12,045   19,536   3,113   10,114   13,227 
                         

Noninterest expenses:

                        

Salaries & wages

  11,156   4,826   15,982   8,630   3,820   12,450 

Employee benefits

  2,676   1,032   3,708   1,557   932   2,489 

Occupancy and bank premise

  2,576   474   3,050   2,127   399   2,526 

Amortization of intangible assets

  398   481   879   353   340   693 

Professional fees

  729   19   748   681   30   711 

Other operating expenses

  10,431   1,232   11,663   6,765   1,026   7,791 

Total noninterest expenses

  27,966   8,064   36,030   20,113   6,547   26,660 

Segment profit

  15,933   3,982   19,915   10,111   3,568   13,679 

Intersegment (revenues) expenses*

  (149

)

  149   —   (112

)

  112   — 

Pre-tax segment profit after eliminations

 $15,784  $4,131  $19,915  $9,999  $3,680  $13,679 

% of segment pre-tax profit after eliminations

  79.3

%

  20.7

%

  100.0

%

  73.1

%

  26.9

%

  100.0

%

Segment assets (dollars in millions)

 $4,248.4  $52.0  $4,300.4  $3,247  $46  $3,293 



 Three Months Ended September 30, 2018 Three Months Ended September 30, 2017
(dollars in thousands)Banking 
Wealth
Management
 Consolidated Banking 
Wealth
Management
 Consolidated
Net interest income$36,726
 $3
 $36,729
 $29,437
 $1
 $29,438
Provision for loan and lease losses664
 —
 664
 1,333
 —
 1,333
Net interest income after loan loss provision36,062
 3
 36,065
 28,104
 1
 28,105
Noninterest income:           
Fees for wealth management services—
 10,343
 10,343
 —
 9,651
 9,651
Insurance commissions—
 1,754
 1,754
 —
 1,373
 1,373
Capital markets revenue710
 —
 710
 843
 —
 843
Service charges on deposit accounts726
 —
 726
 676
 —
 676
Loan servicing and other fees559
 —
 559
 548
 —
 548
Net gain on sale of loans631
 —
 631
 799
 —
 799
Net gain on sale of investment securities available for sale—
 —
 —
 72
 —
 72
Net gain on sale of OREO5
 —
 5
 —
 —
 —
Other operating income3,498
 48
 3,546
 1,581
 41
 1,622
Total noninterest income6,129
 12,145
 18,274
 4,519
 11,065
 15,584
            
Noninterest expenses:           
Salaries & wages11,737
 4,791
 16,528
 9,130
 4,472
 13,602
Employee benefits2,394
 962
 3,356
 1,587
 973
 2,560
Occupancy and bank premises2,224
 493
 2,717
 2,049
 436
 2,485
Amortization of intangible assets386
 505
 891
 197
 480
 677
Professional fees889
 108
 997
 681
 58
 739
Other operating expenses7,770
 1,333
 9,103
 6,970
 1,151
 8,121
Total noninterest expenses25,400
 8,192
 33,592
 20,614
 7,570
 28,184
Segment profit16,791
 3,956
 20,747
 12,009
 3,496
 15,505
Intersegment (revenues) expenses*(186) 186
 —
 (112) 112
 —
Pre-tax segment profit after eliminations$16,605
 $4,142
 $20,747
 $11,897
 $3,608
 $15,505
% of segment pre-tax profit after eliminations80.0% 20.0% 100.0% 76.7% 23.3% 100.0%
Segment assets (dollars in millions)
$4,335.8
 $52.6
 $4,388.4
 $3,424.8
 $52.0
 $3,476.8

 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
(dollars in thousands)Banking 
Wealth
Management
 Consolidated Banking 
Wealth
Management
 Consolidated
Net interest income$111,479
 $5
 $111,484
 $84,804
 $2
 $84,806
Provision for loan and lease losses4,831
 —
 4,831
 1,541
 —
 1,541
Net interest income after loan loss provision106,648
 5
 106,653
 83,263
 2
 83,265
Noninterest income:           
Fees for wealth management services—
 31,309
 31,309
 —
 28,761
 28,761
Insurance commissions—
 5,349
 5,349
 —
 3,079
 3,079
Capital markets revenue3,481
 —
 3,481
 1,796
 —
 1,796
Service charges on deposit accounts2,191
 —
 2,191
 1,953
 —
 1,953
Loan servicing and other fees1,720
 —
 1,720
 1,570
 —
 1,570
Net gain on sale of loans1,677
 —
 1,677
 1,948
 —
 1,948
Net gain on sale of investment securities available for sale7
 —
 7
 73
 —
 73
Net gain (loss) gain on sale of OREO292
 —
 292
 (12) —
 (12)
Other operating income11,709
 150
 11,859
 4,290
 138
 4,428
Total noninterest income21,077
 36,808
 57,885
 11,618
 31,978
 43,596
            
Noninterest expenses:           
Salaries & wages34,077
 14,673
 48,750
 27,044
 12,588
 39,632
Employee benefits6,992
 2,949
 9,941
 4,565
 2,888
 7,453
Occupancy and bank premises7,035
 1,429
 8,464
 6,025
 1,233
 7,258
Amortization of intangible assets1,169
 1,490
 2,659
 588
 1,469
 2,057
Professional fees2,497
 180
 2,677
 2,318
 181
 2,499
Other operating expenses29,076
 3,891
 32,967
 21,200
 3,240
 24,440
Total noninterest expenses80,846
 24,612
 105,458
 61,740
 21,599
 83,339
Segment profit46,879
 12,201
 59,080
 33,141
 10,381
 43,522
Intersegment (revenues) expenses*(485) 485
 —
 (336) 336
 —
Pre-tax segment profit after eliminations$46,394
 $12,686
 $59,080
 $32,805
 $10,717
 $43,522
% of segment pre-tax profit after eliminations78.5% 21.5% 100.0% 75.4% 24.6% 100.0%
Segment assets (dollars in millions)
$4,335.8
 $52.6
 $4,388.4
 $3,424.8
 $52.0
 $3,476.8

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


Wealth Management Segment Information

(dollars in millions)

 

March 31,

2018

  

December 31,

2017

 

Assets under management, administration, supervision and brokerage

 $13,146.9  $12,968.7 

Page 42

(dollars in millions)September 30,
2018		 December 31,
2017
Assets under management, administration, supervision and brokerage$13,913.3
 $12,968.7


ITEM 22. Management’s Discussion and Analysis of Results of Operation and Financial Condition

The following is the Corporation’s discussion and analysis of the significant changes in the financial condition, results of operations, capital resources and liquidity presented in the accompanying Unaudited 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 37 full-service36 branches, eight limited-hour retirement community offices, two limited-service branches, six wealth management offices and a full-service insurance agency located throughout Montgomery, Delaware, Chester, Philadelphia, Berks, and Dauphin counties in Pennsylvania, Mercer and Camden counties of New Jersey, 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 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”),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 the audited Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the twelve months ended December 31, 2017 (the "2017 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 March 31, 2018, the Corporation’s derivative financial instruments are not designated as hedges and gains or losses are recognized in current earnings.

Report").
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Recent Acquisitions and Expansions

On May 1, 2018, BMT Insurance Advisors, Inc. acquired Domenick & Associates, a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia. Domenick & Associates has a specialty niche with nonprofit and social service organizations which aligns well with our banking and wealth management solutions in these specialty service areas. This acquisition furthers our objective of pursuing strategic growth opportunities to enhance, broaden, and diversify our revenue streams.

On December 15, 2017 (the "Effective Date"), the merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into the Corporation (the(collectively, the “RBPI Merger”), and the merger of Royal Bank America with and into the Bank, were completed. Consideration totaled $138.6$138.7 million, comprised of 3,098,7543,101,316 shares of the Corporation’s common stock, the assumption of 140,224 warrants to purchase Corporation common stock, valued at $1.9 million, $112 thousand for the cash-out

of certain options and $7 thousand cash in lieu of fractional shares. TheIncluding the effects of any measurement period adjustments in accordance with ASC 805-10, the RBPI Merger initially added $567.3$566.2 million of loans, $121.6 million of investments, $593.2 million of deposits, twelve new branches and a loan production office. The acquisition of RBPI expanded the Corporation’s footprint within Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as well as Camden and Mercer Counties in New Jersey.

In addition to the RBPI Merger, 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 products and services. On May 24, 2017, the Bank completed its acquisition of Hirshorn Boothby, a full-service insurance agency established in 1931 and headquartered in the Chestnut Hill section of Philadelphia. Hirshorn Boothby was immediately merged into the Bank’s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc., expanding the footprint of this growing segment.

On May 12, 2017, the Corporation established a wealth management-focused office in Princeton, New Jersey which complements the already-established presence in central New Jersey that was acquired in the RBPI Merger.

Beginning in the second quarter of 2017, the Bank’s newly established Capital Markets department commenced operations focusing on providing risk management services to address the needs of its commercial customer base. These capital markets capabilities 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 allows the Bank to participate and lead in larger and longer-dated credits without incurring additional interest rate risk. Additional services will focus on assisting qualified customers in hedging their foreign exchange risk and meeting their trade finance needs through enhanced international services capabilities.

On May 1, 2018, BMT Insurance Advisors, Inc. acquired Domenick & Associates, a full-service insurance agency established in 1993 and headquartered in the Old City section of Philadelphia. Domenick & Associates has a specialty niche with nonprofit and social service organizations which aligns well with our banking and wealth management solutions in these specialty service areas. This acquisition furthers our objective of pursuing strategic growth opportunities to enhance, broaden, and diversify our revenue streams.


Executive Overview

The following items highlight the Corporation’s results of operations for the three and nine months ended March 31,September 30, 2018, as compared to the same periodperiods in 2017, and the changes in its financial condition as of March 31,September 30, 2018 as compared to December 31, 2017. More detailed information related to these highlights can be found in the sections that follow.


Three Month Results of Operations

●

Net income attributable to Bryn Mawr Bank Corporation for the three months ended March 31, 2018 was $15.3 million, an increase of $6.3 million as compared to net income of $9.0 million for the same period in 2017. Diluted earnings per share was $0.75 for the three months ended March 31, 2018 as compared to $0.53 for the same period in 2017.

●

Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended March 31, 2018 were 11.78% and 1.46%, respectively, as compared to ROE and ROA of 9.60% and 1.13% respectively, for the same period in 2017.

●

Tax-equivalent net interest income increased $9.9 million, or 36.0%, to $37.5 million for the three months ended March 31, 2018, as compared to $27.6 million for the same period in 2017.

●

Provision for loan and lease losses (the “Provision”) of $1.0 million for the three months ended March 31, 2018 was an increase of $739 thousand from the $291 thousand Provision recorded for the same period in 2017.

●

Noninterest income of $19.5 million for the three months ended March 31, 2018 increased $6.3 million as compared to $13.2 million for the same period in 2017.

●

Fees for wealth management services and insurance revenue of $10.3 million and $1.7 million, respectively, for the three months ended March 31, 2018 were increases of $1.0 million and $930 thousand, respectively, from the same period in 2017.


Page 44Net income attributable to Bryn Mawr Bank Corporation for the three months ended September 30, 2018 was $16.7 million, an increase of $6.0 million as compared to $10.7 million for the same period in 2017. Diluted earnings per share was $0.82 for the three months ended September 30, 2018 as compared to $0.62 for the same period in 2017.

Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended September 30, 2018 were 12.08% and 1.51%, respectively, as compared to ROE and ROA of 10.72% and 1.24% respectively, for the same period in 2017.

Tax-equivalent net interest income increased $7.3 million, or 24.3%, to $36.9 million for the three months ended September 30, 2018, as compared to $29.6 million for the same period in 2017.

Provision for loan and lease losses (the “Provision”) of $664 thousand for the three months ended September 30, 2018 was a decrease of $669 thousand from the $1.3 million Provision recorded for the same period in 2017.

Noninterest income of $18.3 million for the three months ended September 30, 2018 increased $2.7 million as compared to $15.6 million for the same period in 2017.

Fees for wealth management services and insurance commissions of $10.3 million and $1.8 million, respectively, for the three months ended September 30, 2018 increased $692 thousand and $381 thousand, respectively, as compared to the same period in 2017. Capital markets revenue of $710 thousand for the three months ended September 30, 2018 decreased $133 thousand as compared to the same period in 2017.

Noninterest expense of $33.6 million for the three months ended September 30, 2018 increased $5.4 million, from $28.2 million for the same period in 2017.

Table



Nine Month Results of ContentsOperations

Net income attributable to Bryn Mawr Bank Corporation for the nine months ended September 30, 2018 was $46.7 million, an increase of $17.5 million as compared to $29.2 million for the same period in 2017. Diluted earnings per share was $2.28 for the nine months ended September 30, 2018 as compared to $1.69 for the same period in 2017.

Return on average equity and return on average assets for the nine months ended September 30, 2018 were 11.62% and 1.44%, respectively, as compared to ROE and ROA of 10.02% and 1.17% respectively, for the same period in 2017.

Tax-equivalent net interest income increased $26.4 million, or 30.9%, to $111.8 million for the nine months ended September 30, 2018, as compared to $85.4 million for the same period in 2017.

The Provision of $4.8 million for the nine months ended September 30, 2018 was an increase of $3.3 million from the $1.5 million Provision recorded for the same period in 2017.

Noninterest income of $57.9 million for the nine months ended September 30, 2018 increased $14.3 million as compared to $43.6 million for the same period in 2017.

Fees for wealth management services, insurance commissions, and capital markets revenue of $31.3 million, $5.3 million, and $3.5 million, respectively, for the nine months ended September 30, 2018 increased of $2.5 million, $2.3 million, and $1.7 million, respectively, as compared to the same period in 2017.

Noninterest expense of $105.5 million for the nine months ended September 30, 2018 increased $22.2 million, from $83.3 million for the same period in 2017.

●

Noninterest expense of $36.0 million for the three months ended March 31, 2018 increased $9.3 million, from $26.7 million for the same period in 2017.

Changes in Financial Condition

●

Total assets of $4.30 billion as of March 31, 2018 decreased $149.3 million from $4.45 billion as of December 31, 2017.

●

Shareholders’ equity of $533.1 million as of March 31, 2018 increased $5.0 million from $528.1 million as of December 31, 2017.

●

Total portfolio loans and leases as of March 31, 2018 were $3.31 billion, an increase of $19.9 million from $3.29 billion as of December 31, 2017.

●

Total non-performing loans and leases of $7.5 million represented 0.23% of portfolio loans and leases as of March 31, 2018 as compared to $7.3 million, or 0.29% of portfolio loans and leases as of December 31, 2017.

●

The $17.7 million Allowance, as of March 31, 2018, represented 0.53% of portfolio loans and leases, as compared to $17.5 million, or 0.53% of portfolio loans and leases as of December 31, 2017.

●

Total deposits of $3.32 billion as of March 31, 2018 decreased $58.3 million from $3.37 billion as of December 31, 2017.

●

Wealth assets under management, administration, supervision and brokerage as of March 31, 2018 were $13.15 billion, an increase of $178.2 million from $12.97 billion December 31, 2017.


Total assets of $4.39 billion as of September 30, 2018 decreased $61.3 million from $4.45 billion as of December 31, 2017.

Total shareholders’ equity of $551.4 million as of September 30, 2018 increased $23.3 million from $528.1 million as of December 31, 2017.

Total portfolio loans and leases as of September 30, 2018 were $3.38 billion, an increase of $95.6 million from $3.29 billion as of December 31, 2017.

Total non-performing loans and leases of $9.0 million represented 0.27% of portfolio loans and leases as of September 30, 2018 as compared to $8.6 million, or 0.26% of portfolio loans and leases as of December 31, 2017.

The $18.7 million Allowance, as of September 30, 2018, represented 0.55% of portfolio loans and leases, as compared to $17.5 million or 0.53% of portfolio loans and leases as of December 31, 2017.

Total deposits of $3.36 billion as of September 30, 2018 decreased $16.6 million from $3.37 billion as of December 31, 2017.

Wealth assets under management, administration, supervision and brokerage as of September 30, 2018 were $13.91 billion, an increase of $944.5 million from $12.97 billion December 31, 2017.


Key Performance Ratios

Key financial performance ratios for the three and nine months ended March 31,September 30, 2018 and 2017 are shown in the table below:

  

Three Months Ended

March 31,

 
  

2018

  

2017

 

Return on average equity

  11.78

%

  9.60

%

Return on average assets

  1.46

%

  1.13

%

Tax-equivalent net interest margin

  3.94

%

  3.74

%

Basic earnings per share

 $0.76  $0.53 

Diluted earnings per share

 $0.75  $0.53 

Dividend per share

 $0.22  $0.21 

Dividend declared per share to net income per basic common share

  28.9

%

  39.4

%

 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Return on average equity12.08% 10.72% 11.62% 10.02%
Return on average assets1.51% 1.24% 1.44% 1.17%
Tax-equivalent net interest margin3.69% 3.71% 3.81% 3.71%
Basic earnings per share$0.82
 $0.63
 $2.31
 $1.72
Diluted earnings per share$0.82
 $0.62
 $2.28
 $1.69
Dividends paid or accrued per share$0.25
 $0.22
 $0.69
 $0.64
Dividends paid or accrued per share to net income per basic common share30.5% 34.9% 29.9% 37.2%
The following table presents certain key period-end balances and ratios as of March 31,September 30, 2018 and December 31, 2017:

(dollars in millions, except per share amounts)

 

March 31, 2018

  

December 31, 2017

 

Book value per share

 $26.35  $26.19 

Tangible book value per share

 $16.10  $15.98 

Allowance as a percentage of portfolio loans and leases

  0.53

%

  0.53

%

Tier I capital to risk weighted assets

  10.46

%

  10.36

%

Tangible common equity ratio

  9.19

%

  8.67

%

Loan to deposit ratio

  99.7

%

  97.4

%

Wealth assets under management, administration, supervision and brokerage

 $13,146.9  $12,968.7 

Portfolio loans and leases

 $3,305.8  $3,285.9 

Total assets

 $4,300.4  $4,449.7 

Shareholders’ equity

 $533.1  $528.1 

Page 45
Table of Contents

(dollars in millions, except per share amounts)September 30,
2018		 December 31,
2017
Book value per share$27.18
 $26.19
Tangible book value per share$16.95
 $16.02
Allowance as a percentage of portfolio loans and leases0.55% 0.53%
Tier I capital to risk weighted assets10.90% 10.42%
Tangible common equity ratio8.23% 7.61%
Loan to deposit ratio100.7% 97.4%
Wealth assets under management, administration, supervision and brokerage$13,913.3
 $12,968.7
Portfolio loans and leases$3,381.5
 $3,285.9
Total assets$4,388.4
 $4,449.7
Total shareholders’ equity$551.4
 $528.1
The following sections discuss, in greater detail, the Corporation’s results of operations for the three and nine months ended March 31,September 30, 2018, as compared to the same periods in 2017, and the changes in its financial condition as of March 31,September 30, 2018 as compared to December 31, 2017.


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

●

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

●

Income Tax Expense, which include state and federal jurisdictions.


Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;
Provision for Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;
Noninterest Income, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;
Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and
Income Tax Expense, which include state and federal jurisdictions.


TAX-EQUIVALENT NET INTEREST INCOME

Net interest income is the primary source of the Corporation’s revenue. The below tables present a summary, for the three and nine months ended March 31,September 30, 2018 and 2017, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The tax-equivalent net interest margin is the tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread is the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of noninterest-bearing liabilities represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

Tax-equivalent

Three Months Ended September 30, 2018 Compared to the Same Period in 2017

For the three months ended September 30, 2018, tax-equivalent net interest income increased $9.9$7.3 million, or 36.0%24.3%, to $37.5$36.9 million, for the three months ended March 31, 2018, as compared to $27.6$29.6 million for the same period in 2017. The increase in tax-equivalent netTax-equivalent interest income between the periods was largely related to the increase in tax-equivalent interest and fees on loans and leases which increased $12.1$11.2 million for the three months ended March 31,September 30, 2018 as compared to the same period in 2017. The increase in tax-equivalent interest and fees on loans and leases was primarily related to the $735.5$699.4 million increase in average loans to $3.29$3.38 billion as of March 31,for the three months ended September 30, 2018 from $2.56$2.68 billion as of March 31, 2017.for the three months ended September 30, 2017 coupled with a 36 basis point increase on the yield on loans and leases over the same period. The increase in average loans was largely related to the loans and leases acquired in the RBPI Merger which, including the effects of any measurement period adjustments in accordance with ASC 805-10, initially increased loans and leases by $567.3$566.2 million, as well as organic loan growth. In addition to the increase in tax-equivalentTax-equivalent interest income on loans and leases, interest on available for sale investment securities increased by $958$749 thousand for the three months ended March 31,September 30, 2018 as compared to the same period in 2017. Average available for sale investment securities increased by $133.5$78.0 million for the firstthird quarter of 2018 as compared to the firstthird quarter of 2017.

Partially offsetting the effect on tax-equivalent interest income associated2017 coupled with thea 27 basis point increase in average loans and leases andthe yield on available for sale investment securities were increases of $1.6over the same period.


Interest expense on interest-bearing deposits, subordinated notes, short-term borrowings, and junior subordinated debentures increased $3.3 million, $603$774 thousand, $288$549 thousand, and $773$337 thousand, ofrespectively, for the three months ended September 30, 2018 as compared to the same period in 2017. The increase in interest expense on interest-bearing deposits short-term borrowings, junior subordinated debtentures and subordinated notes, respectively.was primarily related to the $621.7 million increase in the average balance coupled with a 41 basis point increase in the yield on interest-bearing deposits over the same period. The increasesincrease in average interest-bearing deposits was largely related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million. The increase in interest expense wereon subordinated notes was primarily related to increasesthe $68.9 million increase in the average balances of interest-bearing deposits and juniorbalance. The volume increase in subordinated debentures as anotes was the result of the RBPI Merger, and the December 13, 2017 issuance of $70 million ten-year, 4.25% fixed-to-floating subordinated notes.

The increase in interest expense on short-term borrowings was primarily attributed to a 90 basis point increase in rate paid for the third quarter of 2018 as compared to the same period in 2017. The increase in interest expense on junior subordinated debentures was related to the $21.5 million of junior subordinated debentures assumed in the RBPI Merger.

Page 46Nine Months Ended September 30, 2018 Compared to the Same Period in 2017

For the nine months ended September 30, 2018, tax-equivalent net interest income increased $26.4 million, or 30.9%, to $111.8 million, as compared to $85.4 million for the same period in 2017. Tax-equivalent interest and fees on loans and leases increased $35.8 million for the nine months ended September 30, 2018 as compared to the same period in 2017. The increase in tax-equivalent interest and fees on loans and leases was primarily related to the $724.1 million increase in average loans to $3.34 billion for the nine months ended September 30, 2018 from $2.62 billion as of September 30, 2017 coupled with a 44 basis point increase in the yield on loans and leases over the same period. The increase in average loans was largely related to the loans and leases acquired in the RBPI Merger which, including the effects of any measurement period adjustments in accordance with ASC 805-10, initially increased loans and leases by $566.2 million, as well as organic loan growth. Tax-equivalent interest income on available for sale investment securities increased by $2.6 million for the nine months ended September 30, 2018 as compared to the same period in 2017. Average available for sale investment securities increased by $108.0 million for the nine months ended September 30, 2018 as compared to the same period in 2017 coupled with a 25 basis point increase in the yield on available for sale investment securities over the same period.

Interest expense on interest-bearing deposits, subordinated notes, short-term borrowings, and junior subordinated debentures increased $7.5 million, $2.3 million, $1.9 million, and $946 thousand, respectively, for the nine months ended September 30, 2018 as compared to the same period in 2017. The increase in interest expense on interest-bearing deposits was primarily related to the $615.1 million increase in the average balance coupled with a 30 basis point increase in the yield on interest-bearing deposits over the same period. The increase in average interest-bearing deposits was largely related to the interest-bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million. The increase in interest expense on subordinated notes was primarily related to the $68.9 million increase in the average balance. The volume increase in

subordinated notes was the result of the December 13, 2017 issuance of $70 million ten-year, 4.25% fixed-to-floating subordinated notes. The increase in interest expense on short-term borrowings was primarily attributed to the $85.2 million increase in the average balance coupled with a 90 basis point increase in rate paid for the nine months ended September 30, 2018 as compared to the same period in 2017. The increase in interest expense on junior subordinated debentures was related to the $21.5 million of junior subordinated debentures assumed in the RBPI Merger.

Table of Contents

Analyses of Interest Rates and Interest Differential

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

  

For the Three Months Ended March 31,

 
  

2018

  

2017

 

(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

 $38,044  $53   0.56

%

 $39,669  $66   0.67

%

Investment securities - available for sale:

                        

Taxable

  498,718   2,675   2.18

%

  354,229   1,653   1.89

%

Tax-exempt(4)

  25,501   100   1.98

%

  31,485   164   2.11

%

Total investment securities – available for sale

  519,219   2,775   2.17

%

  385,714   1,817   1.91

%

Investment securities – held to maturity

  7,913   12   0.62

%

  3,708   7   0.77

%

Investment securities – trading

  8,339   21   1.02

%

  3,890   8   0.83

%

Loans and leases(1)(2)(3)(4)

  3,291,212   40,754   5.02

%

  2,555,677   28,622   4.54

%

Total interest-earning assets

  3,864,727   43,615   4.58

%

  2,988,652   30,520   4.14

%

Cash and due from banks

  10,698           14,942         

Allowance for loan and lease losses

  (17,628

)

          (17,580

)

        

Other assets

  388,383           258,046         

Total assets

 $4,246,180          $3,244,060         

Liabilities:

                        

Savings, NOW, and market rate accounts

 $1,676,733  $1,479   0.36

%

 $1,388,561  $756   0.22

%

Wholesale deposits

  231,289   733   1.29

%

  143,461   317   0.90

%

Retail time deposits

  527,469   1,260   0.97

%

  320,172   755   0.96

%

Total interest-bearing deposits

  2,435,491   3,472   0.58

%

  1,852,194   1,828   0.40

%

Short-term borrowings

  172,534   630   1.48

%

  47,603   27   0.23

%

Long-term FHLB advances

  123,920   562   1.84

%

  182,507   698   1.55

%

Subordinated notes

  98,430   1,143   4.71

%

  29,537   370   5.08

%

Junior subordinated debt

  21,430   288   5.45

%

  —   —   — 

Total interest-bearing liabilities

  2,851,805   6,095   0.87

%

  2,111,841   2,923   0.56

%

Non-interest-bearing deposits

  835,476           711,794         

Other liabilities

  32,465           38,211         

Total non-interest-bearing liabilities

  867,941           750,005         

Total liabilities

  3,719,746           2,861,846         

Shareholders’ equity

  526,434           382,214         

Total liabilities and shareholders’ equity

 $4,246,180          $3,244,060         

Net interest spread

          3.71

%

          3.58

%

Effect of non-interest-bearing sources

          0.23

%

          0.16

%

Net interest income/margin on earning assets(4)

     $37,520   3.94

%

     $27,597   3.74

%

Tax-equivalent adjustment(4)

     $81   0.01

%

     $194   0.02

%


 For the Three Months Ended September 30,
 2018  2017
(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$37,467
 $64
 0.68%  $26,628
 $36
 0.54%
Investment securities - available for sale:            
Taxable514,360
 2,960
 2.28%  427,106
 2,160
 2.01%
Tax-exempt(4)
16,056
 83
 2.05%  25,268
 134
 2.10%
Total investment securities – available for sale530,416
 3,043
 2.28%  452,374
 2,294
 2.01%
Investment securities – held to maturity8,378
 5
 0.24%  6,044
 11
 0.72%
Investment securities – trading8,204
 30
 1.45%  4,282
 8
 0.74%
Loans and leases(1)(2)(3)(4)
3,379,699
 42,214
 4.96%  2,680,317
 31,058
 4.60%
Total interest-earning assets3,964,164
 45,356
 4.54%  3,169,645
 33,407
 4.18%
Cash and due from banks7,587
      15,709
    
Allowance for loan and lease losses(19,467)      (16,564)    
Other assets423,864
      273,116
    
Total assets$4,376,148
      $3,441,906
    
Liabilities:            
Savings, NOW, and market rate accounts$1,695,214
 $2,425
 0.57%  $1,359,293
 $823
 0.24%
Wholesale deposits256,347
 1,329
 2.06%  190,849
 548
 1.14%
Retail time deposits541,652
 1,779
 1.30%  321,352
 827
 1.02%
Total interest-bearing deposits2,493,213
 5,533
 0.88%  1,871,494
 2,198
 0.47%
Short-term borrowings208,201
 1,096
 2.09%  182,845
 547
 1.19%
Long-term FHLB advances81,460
 394
 1.92%  155,918
 645
 1.64%
Subordinated notes98,457
 1,144
 4.61%  29,564
 370
 4.97%
Junior subordinated debt21,511
 337
 6.22%  —
 —
 —
Total interest-bearing liabilities2,902,842
 8,504
 1.16%  2,239,821
 3,760
 0.67%
Noninterest-bearing deposits866,314
      764,562
    
Other liabilities59,085
      40,166
    
Total noninterest-bearing liabilities925,399
      804,728
    
Total liabilities3,828,241
      3,044,549
    
Shareholders’ equity547,907
      397,357
    
Total liabilities and shareholders’ equity$4,376,148
      $3,441,906
    
Net interest spread    3.38%      3.51%
Effect of noninterest-bearing sources    0.31%      0.20%
Net interest income/margin on earning assets(4)
  $36,852
 3.69%    $29,647
 3.71%
Tax-equivalent adjustment(4)
  $123
 0.01%    $209
 0.03%

(1)

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

(2)

IncludesIncludes portfolio loans and leases and loans held for sale.

(3)

Interest on loans and leases includes deferred feesof $278$453 thousand and $238$231 thousand for the three months ended March 31,September 30, 2018 and 2017, respectively.

(4)

Tax rate used for tax-equivalent calculations is 21% for 2018 and 35% for 2017


Page 47
Table of Contents

Rate/

 For the Nine Months Ended September 30,
 2018  2017
(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$37,573
 $181
 0.64%  $30,807
 $137
 0.59%
Investment securities - available for sale:            
Taxable509,405
 8,523
 2.24%  391,082
 5,753
 1.97%
Tax-exempt(4)
18,241
 276
 2.02%  28,552
 448
 2.10%
Total investment securities – available for sale527,646
 8,799
 2.23%  419,634
 6,201
 1.98%
Investment securities – held to maturity8,054
 30
 0.50%  4,984
 23
 0.62%
Investment securities – trading8,248
 73
 1.18%  4,105
 29
 0.94%
Loans and leases(1)(2)(3)(4)
3,341,741
 124,750
 4.99%  2,617,658
 88,989
 4.55%
Total interest-earning assets3,923,262
 133,833
 4.56%  3,077,188
 95,379
 4.14%
Cash and due from banks8,468
      15,462
    
Allowance for loan and lease losses(18,386)      (17,227)    
Other assets418,261
      265,061
    
Total assets$4,331,605
      $3,340,484
    
Liabilities:            
Savings, NOW, and market rate accounts$1,719,004
 $5,977
 0.46%  $1,374,494
 $2,392
 0.23%
Wholesale deposits221,073
 3,035
 1.84%  163,086
 1,243
 1.02%
Retail time deposits534,177
 4,492
 1.12%  321,608
 2,374
 0.99%
Total interest-bearing deposits2,474,254
 13,504
 0.73%  1,859,188
 6,009
 0.43%
Short-term borrowings195,483
 2,711
 1.85%  110,268
 811
 98.00%
Long-term FHLB advances102,312
 1,446
 1.89%  169,900
 2,025
 1.59%
Subordinated notes98,450
 3,430
 4.66%  29,550
 1,110
 5.02%
Junior subordinated debt21,470
 946
 5.89%  —
 —
 —
Total interest-bearing liabilities2,891,969
 22,037
 1.02%  2,168,906
 9,955
 0.61%
Noninterest-bearing deposits849,247
      744,178
    
Other liabilities53,763
      37,582
    
Total noninterest-bearing liabilities903,010
      781,760
    
Total liabilities3,794,979
      2,950,666
    
Shareholders’ equity536,626
      389,818
    
Total liabilities and shareholders’ equity$4,331,605
      $3,340,484
    
Net interest spread    3.54%      3.53%
Effect of noninterest-bearing sources    0.27%      0.18%
Net interest income/margin on earning assets(4)
  $111,796
 3.81%    $85,424
 3.71%
Tax-equivalent adjustment(4)
  $312
 0.01%    $618
 0.03%

(1)Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.
(2)Includes portfolio loans and leases and loans held for sale.
(3)Interest on loans and leases includes deferred fees of $1.2 million and $581 thousand for the nine months ended September 30, 2018 and 2017, respectively.
(4)Tax rate used for tax-equivalent calculations is 21% for 2018 and 35% for 2017

Rate/Volume Analysis (tax-equivalent basis)(tax-equivalentbasis)*

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 and nine months ended March 31,September 30, 2018 as compared to the same period in 2017, 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.

  

Three Months Ended March 31,

 

(dollars in thousands)

 

2018 Compared to 2017

 

increase/(decrease)

 

Volume

  

Rate

  

Total

 

Interest Income:

            

Interest-bearing deposits with banks

 $(3

)

 $(10

)

 $(13

)

Investment securities - taxable

  698   342   1,040 

Investment securities -nontaxable

  (57

)

  (7

)

  (64

)

Loans and leases

  8,236   3,896   12,132 

Total interest income

  8,874   4,221   13,095 

Interest expense:

            

Savings, NOW and market rate accounts

  154   569   723 

Wholesale deposits

  194   222   416 

Retail time deposits

  492   13   505 

Borrowed funds – short-term

  71   532   603 

Borrowed funds – long-term

  (612

)

  476   (136

)

Subordinated notes

  1,360   (587

)

  773 

Junior subordinated debentures

  288   —   288 

Total interest expense

  1,947   1,225   3,172 

Interest differential

 $6,927  $2,996  $9,923 

 2018 Compared to 2017
(dollars in thousands)Three Months Ended
September 30,		 Nine Months Ended
September 30,
increase/(decrease)Volume Rate Total Volume Rate Total
Interest Income:           
Interest-bearing deposits with banks$15
 $13
 $28
 $30
 $14
 $44
Investment securities - taxable475
 341
 816
 1,788
 1,033
 2,821
Investment securities -nontaxable(49) (2) (51) (161) (11) (172)
Loans and leases8,095
 3,061
 11,156
 24,726
 11,035
 35,761
Total interest income8,536
 3,413
 11,949
 26,383
 12,071
 38,454
Interest expense:
 
 
 
 
 
Savings, NOW and market rate accounts202
 1,400
 1,602
 599
 2,986
 3,585
Wholesale deposits188
 593
 781
 441
 1,351
 1,792
Retail time deposits568
 384
 952
 1,592
 526
 2,118
Short-term borrowings76
 473
 549
 626
 1,274
 1,900
Long-term FHLB advances(596) 345
 (251) (928) 349
 (579)
Subordinated notes1,344
 (570) 774
 2,747
 (427) 2,320
Junior subordinated debt337
 —
 337
 946
 —
 946
Total interest expense2,119
 2,625
 4,744
 6,023
 6,059
 12,082
Interest differential$6,417
 $788
 $7,205
 $20,360
 $6,012
 $26,372
* The tax rate used in the calculation of thetax-equivalentincome is 21% for 2018 and 35% for 2017


Tax-EquivalentNet Interest Margin

The tax-equivalent net interest margin of 3.94%3.69% for the three months ended March 31,September 30, 2018 was a 20two basis point increasedecrease from 3.74%3.71% for the same period in 2017. Adjusting for the impact of the accretion of purchase accounting fair value marks, the adjusted tax-equivalent net interest margin remained relatively unchanged atdecreased ten basis points to 3.52% from 3.62% and 3.63% for the three months ended March 31,September 30, 2018 and 2017, respectively. The contribution to the tax-equivalent net interest margin from the accretion of purchase accounting adjustments was 3217 basis points infor the three months ended September 30, 2018 as compared to 11nine basis points infor the three months ended September 30, 2017.


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

Quarter

 

Interest-

Earning

Asset Yield

  

Interest-

Bearing

Liability Cost

  

Net Interest

Spread

  

Effect of

Non-Interest

Bearing

Sources

  

Net Interest

Margin

 

1st Quarter 2018

  4.58%

 

  0.87%

 

  3.71%

 

  0.23%

 

  3.94%

 

4th Quarter 2017

  4.15%

 

  0.74%

 

  3.41%

 

  0.21%

 

  3.62%

 

3rd Quarter 2017

  4.18%

 

  0.67%

 

  3.51%

 

  0.20%

 

  3.71%

 

2nd Quarter 2017

  4.11%

 

  0.61%

 

  3.50%

 

  0.18%

 

  3.68%

 

1st Quarter 2017

  4.14%

 

  0.56%

 

  3.58%

 

  0.16%

 

  3.74%

 

Quarter Interest-
Earning
Asset Yield		 Interest-
Bearing
Liability Cost		 Net Interest
Spread		 Effect of Noninterest Bearing Sources Net Interest
Margin
3rd Quarter 2018 4.54% 1.16% 3.38% 0.31% 3.69%
2nd Quarter 2018 4.57% 1.02% 3.55% 0.26% 3.81%
1st Quarter 2018 4.58% 0.87% 3.71% 0.23% 3.94%
4th Quarter 2017 4.15% 0.74% 3.41% 0.21% 3.62%
3rd Quarter 2017 4.18% 0.67% 3.51% 0.20% 3.71%




Interest Rate Sensitivity

Management actively manages the Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The 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. This is accomplished through the management of the investment portfolio, the pricings of loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, federal funds from correspondent banks, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, Charity Deposits Corporation (“CDC”) (formerly known as Institutional Deposit Corporation (“IDC”)), Insured Cash Sweep (“ICS”) and Pennsylvania Local Government Investment Trust (“PLGIT”).

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Table of Contents

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

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

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


Summary of Interest Rate Simulation

  

Change in Net Interest

Income Over the Twelve

Months Beginning After

March 31, 2018

  

Change in Net Interest

Income Over the Twelve

Months Beginning After

December 31, 2017

 
  

Amount

  

Percentage

  

Amount

  

Percentage

 

+300 basis points

 $7,448   4.86

%

 $15,953   10.66

%

+200 basis points

 $5,001   3.26

%

 $10,644   7.11

%

+100 basis points

 $2,523   1.65

%

 $5,316   3.55

%

-100 basis points

 $(4,722

)

  (3.08

) %

 $(6,913

)

  (4.62

) 

 Change in Net Interest Income Over the Twelve Months Beginning After September 30, 2018 Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2017
 Amount Percentage Amount Percentage
+300 basis points$4,125
 2.82 % $15,953
 10.66 %
+200 basis points$2,839
 1.94 % $10,644
 7.11 %
+100 basis points$1,478
 1.01 % $5,316
 3.55 %
-100 basis points$(3,503) (2.39)% $(6,913) (4.62)%
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of March 31,September 30, 2018 in the +100 basis point scenario, demonstrating that a 100 basis point increase in interest rates would have a positive impact on net interest income over the next 12 months. The balance sheet is less asset sensitive in a rising-rate environment as of March 31,September 30, 2018 than it was as of December 31, 2017. ThisThe decrease in sensitivity is related to an increasea decline in non-maturity market priced deposit balances, a decrease in cash balancesnoninterest-bearing deposits and an increase in short term borrowings.interest-bearing wholesale deposits and borrowings balances at higher rates. The magnitudeimprovement of the change in net interest income resulting from athe 100 basis point decrease in rates as comparedrate is related to the magnitude of the increase in net income accompanying a 100 basis point increase inBank's ability to decrease rates is the result of asset yields repricing more quickly in response to market changes compared to depositon deposits should rates in a down 100 basis point rate shift.

decline.


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



Gap Analysis

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

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Non-maturity deposits (demand deposits in particular) are recognized by the Bank’s regulatory agencies to have different sensitivities to interest rate environments. Consequently, it is an accepted practice to spread non-maturity deposits over defined time periods to capture that sensitivity. Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of these deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the Bank’s regulatory agencies have suggested distribution limits for non-maturity deposits. However, management has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity. The following table presents the Corporation’s gap analysis as of March 31,September 30, 2018:

(dollars in millions)

 

0 to 90

Days

  

91 to 365

Days

  

1 - 5

Years

  

Over

5 Years

  

Non-Rate

Sensitive

  

Total

 

Assets:

                        

Interest-bearing deposits with banks

 $24.6  $—  $—  $—  $—  $24.6 

Investment securities(1)

  28.1   58.5   321.7   141.9   —   550.2 

Loans and leases(2)

  1,281.7   397.2   1,220.9   411.5   —   3,311.3 

Allowance

  —   —   —   —   (17.7)  (17.7)

Cash and due from banks

  —   —   —   —   7.8   7.8 

Other assets

  —   —   —   —   424.1   424.1 

Total assets

 $1,334.4  $455.7  $1,542.6  $553.4  $414.2  $4,300.3 

Liabilities and shareholders’ equity:

                        

Demand, non-interest-bearing

 $53.5  $160.4  $225.7  $423.5  $—  $863.1 

Savings, NOW and market rate

  114.8   344.5   818.7   416.4   —   1,694.4 

Time deposits

  102.6   309.1   110.6   3.1   —   525.4 

Wholesale non-maturity deposits

  63.4   —   —   —   —   63.4 

Wholesale time deposits

  138.3   30.8   —   —   —   169.1 

Short-term borrowings

  173.7   —   —   —   —   173.7 

Long-term FHLB advances

 

20.0

   32.5   55.3   —   —   107.8 

Subordinated notes

  —   —   98.4   —   —   98.4 

Junior subordinated debentures

  21.5   —   —   —   —   21.5 

Other liabilities

  —   —   —   —   50.4   50.4 

Shareholders’ equity

 

19.0

   57.1   304.6   152.4   —   533.1 

Total liabilities and shareholders’ equity

 $706.8  $934.4  $1,613.3  $995.4  $50.4  $4,300.3 

Interest-earning assets

 $1,334.4  $455.7  $1,542.6  $553.4  $—  $3,886.1 

Interest-bearing liabilities

  634.3   716.9   1,083.0   419.5   —   2,853.7 

Difference between interest-earning assets and interest-bearing liabilities

 $700.1  $(261.2) $459.6  $133.9  $—  $1,032.4 

Cumulative difference between interest earning assets and interest-bearing liabilities

 $700.1  $438.9  $898.5  $1,032.4  $—  $1,032.4 

Cumulative earning assets as a % of cumulative interest-bearing liabilities

  210

%

  132

%

  137

%

  136

%

        


(dollars in millions)
0 to 90
Days
 
91 to 365
Days
 
1 - 5
Years
 
Over
5 Years
 
Non-Rate
Sensitive
 Total
Assets:           
Interest-bearing deposits with banks$35.2
 $—
 $—
 $—
 $—
 $35.2
Investment securities(1)
29.1
 51.6
 337.5
 127.1
 —
 545.3
Loans and leases(2)
1,332.9
 385.4
 1,277.6
 389.7
 —
 3,385.6
Allowance—
 —
 —
 —
 (18.7) (18.7)
Cash and due from banks—
 —
 —
 —
 10.1
 10.1
Other assets—
 —
 —
 —
 430.9
 430.9
Total assets1,397.2
 437.0
 1,615.1
 516.8
 422.3
 4,388.4
Liabilities and shareholders’ equity:           
Demand, noninterest-bearing63.0
 152.5
 213.4
 405.5
 —
 834.4
Savings, NOW and market rate112.0
 335.9
 796.6
 432.0
 —
 1,676.5
Time deposits146.3
 251.6
 162.3
 2.4
 —
 562.6
Wholesale non-maturity deposits24.1
 —
 —
 —
 —
 24.1
Wholesale time deposits81.9
 177.7
 —
 —
 —
 259.6
Short-term borrowings226.5
 —
 —
 —
 —
 226.5
Long-term FHLB advances17.5
 10.7
 44.6
 —
 —
 72.8
Subordinated notes—
 —
 98.5
 —
 —
 98.5
Junior subordinated debentures21.5
 —
 —
 —
 —
 21.5
Other liabilities—
 —
 —
 —
 60.4
 60.4
Shareholders’ equity19.7
 59.1
 315.1
 157.6
 —
 551.5
Total liabilities and shareholders’ equity712.5
 987.5
 1,630.5
 997.5
 60.4
 4,388.4
Interest-earning assets1,397.2
 437.0
 1,615.1
 516.8
 —
 3,966.1
Interest-bearing liabilities629.8
 775.9
 1,102.0
 434.4
 —
 2,942.1
Difference between interest-earning assets and interest-bearing liabilities767.4
 (338.9) 513.1
 82.4
 —
 1,024.0
Cumulative difference between interest earning assets and interest-bearing liabilities$767.4
 $428.5
 $941.6
 $1,024.0
 $—
 $1,024.0
Cumulative earning assets as a % of cumulative interest-bearing liabilities222% 130% 138% 135%    
(1)

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

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


The table above indicates that the Corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is only one tool used to measure interest rate sensitivity and should be used in conjunction with other measures such as the interest rate simulation discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the Corporation’s balance sheet. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at December 31, 2017.


PROVISION FOR LOAN AND LEASE LOSSES

For the three months ended March 31,September 30, 2018, the Corporation recorded a Provision of $1.0 million$664 thousand which was a $739$669 thousand increase fromdecrease as compared to the same period in 2017. The decrease in the Provision was primarily related to improvements in qualitative factors related to the current economic environment. Net charge-offs for the firstthird quarter of 2018 were $893 thousand$1.4 million as compared to $670$728 thousand for the same period in 2017.

For the nine months ended September 30, 2018, the Corporation recorded a Provision of $4.8 million which was a $3.3 million increase as compared to the same period in 2017. For the nine months ended September 30, 2018, originated loans increased by $264.9 million as compared to a $192.1 million increase for the same period in 2017. In addition, during the second quarter of 2017, an $83 thousand release from Allowance was recorded. The loan and lease portfolio experiencedrelease from Allowance was driven by improvements in certainthe historic charge-off rates during the lookback period and in certain credit quality and economic indicators used in the calculation of the Allowance calculation. The increase inrequirement during the Provision between the periods reflects the increase in net charge-offs, partially offset by the improvementsecond quarter of certain historic charge-off rates and credit quality indicators.

2017.


Asset Quality and Analysis of Credit Risk

As of March 31,September 30, 2018, total nonperforming loans and leases decreasedincreased by $1.0$411 thousand to $9.0 million to $7.5 million,, representing 0.23%0.27% of portfolio loans and leases, as compared to $8.6 million, or 0.26% of portfolio loans and leases as of December 31, 2017. The decreaseincrease in nonperforming loans and leases was comprisedrelated to the addition of $5.0 million of new nonperforming loans and leases during the nine months ended September 30, 2018, partially offset by pay-offs and pay-downs of $2.2$2.7 million, charge-offs of $317$653 thousand, and upgrades to performing status of $942 thousand$1.2 million of loans and leases classified as nonperforming as of December 31, 2017. These decreases were partially offset byThe Corporation recorded $234 thousand of loans foreclosed and transferred to OREO during the addition of $2.9 million of new nonperforming loans and leases as of March 31, 2018.

period.


As of March 31,September 30, 2018, the Allowance of $17.7$18.7 million represented 0.53%0.55% of portfolio loans and leases, relatively unchangedan increase of 4 basis points from December 31, 2017. The Allowance on originated (non-acquired) portfolio loans, as a percentage of originated (non-acquired) portfolio loans, was 0.69%0.68% as of March 31,September 30, 2018 as compared to 0.70% as of December 31, 2017. 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.


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As of March 31,September 30, 2018, the Corporation had $6.4$5.5 million of troubled debt restructurings (“TDRs”), of which $5.2$4.3 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2017, the Corporation had $9.1 million of TDRs, of which $5.8 million were in compliance with the modified terms, and were excluded from non-performing loans and leases.

The decrease in TDRs during the nine months ended September 30, 2018 was primarily the result of the payoffs of two residential mortgage loans totaling $2.5 million and one $1.3 million commercial mortgage loan, all of which had been previously modified to TDRs.


As of March 31,September 30, 2018, the Corporation had a recorded investment of $12.2$12.9 million of impaired loans and leases which included $6.4$5.5 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, 2017 totaled $13.9$14.2 million which included $9.1 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

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



Nonperforming Assets and Related Ratios

(dollars in thousands)

 

March 31,

2018

  

December 31,

2017

 

Nonperforming Assets:

        

Nonperforming loans and leases

 $7,533  $8,579 

Other real estate owned

  300   304 

Total nonperforming assets

 $7,833  $8,883 
         

Troubled Debt Restructurings:

        

TDRs included in non-performing loans

 $1,125  $3,289 

TDRs in compliance with modified terms

  5,235   5,800 

Total TDRs

 $6,360  $9,089 
         

Loan and Lease quality indicators:

        

Allowance for loan and lease losses to nonperforming loans and leases

  234.5

%

  204.3

%

Nonperforming loans and leases to total portfolio loans and leases

  0.23

%

  0.26

%

Allowance for loan and lease losses to total portfolio loans and leases

  0.53

%

  0.53

%

Nonperforming assets to total loans and leases and OREO

  0.24

%

  0.27

%

Nonperforming assets to total assets

  0.18

%

  0.21

%

Total portfolio loans and leases

 $3,305,795  $3,285,858 

Allowance for loan and lease losses

 $17,662  $17,525 

(dollars in thousands)September 30,
2018		 December 31,
2017
Nonperforming Assets:   
Nonperforming loans and leases$8,990
 $8,579
Other real estate owned529
 304
Total nonperforming assets$9,519
 $8,883
    
Troubled Debt Restructurings:   
TDRs included in non-performing loans$1,208
 $3,289
TDRs in compliance with modified terms4,316
 5,800
Total TDRs$5,524
 $9,089
    
Loan and Lease quality indicators:   
Allowance for loan and lease losses to nonperforming loans and leases207.8% 204.3%
Nonperforming loans and leases to total portfolio loans and leases0.27% 0.26%
Allowance for loan and lease losses to total portfolio loans and leases0.55% 0.53%
Nonperforming assets to total loans and leases and OREO0.28% 0.27%
Nonperforming assets to total assets0.22% 0.20%
Total portfolio loans and leases$3,381,475
 $3,285,858
Allowance for loan and lease losses$18,684
 $17,525

NONINTEREST INCOME

Three Months Ended March 31,September 30, 2018 Compared to the Same Period in 2017

Non-interest

Noninterest income of $19.5$18.3 million for the three months ended March 31,September 30, 2018 increased $6.3$2.7 million as compared to $13.2$15.6 million for the same period in 2017. Increases of $1.0 million, $930 thousand, $666 thousand,2017, primarily due to increases in other operating income and $3.2 million in fees for wealth management services, insurance commissions, capital markets revenues and otherservices. Other operating income respectively, were recorded. The increase in fees for wealth management services was related to the $1.42 billion increase in wealth assets under management, administration, supervision and brokerage between March 31, 2017 and March 31, 2018. The increase in insurance commissions wasincreased $1.8 million primarily related to the May 2017 acquisition of Hirshorn Boothby which expanded our insurance division into the city of Philadelphia. The increase in capital markets revenues was related to the formation of our Capital Markets group, which began operations in the second quarter of 2017. The $3.2 million increase in other operating income was primarily relateddue to a $2.3$1.2 million recovery of a purchase accounting fair value mark resulting from the pay off, in full, of a purchased credit impaired loan acquired in the RBPI Merger.

merger. Fees for wealth management services increased $692 thousand primarily due to the $1.48 billion increase in wealth assets under management, administration, supervision and brokerage between September 30, 2017 and September 30, 2018.

Page 51Nine Months Ended September 30, 2018 Compared to the Same Period in 2017
Table
Noninterest income of Contents$57.9 million for the nine months ended September 30, 2018 increased $14.3 million as compared to $43.6 million for the same period in 2017, primarily due to increases in other operating income, fees for wealth management services, insurance commissions, and capital markets revenue. Other operating income increased $6.8 million primarily due to $4.2 million of recoveries of purchase accounting fair value marks resulting from the pay offs, in full, of purchased credit impaired loans acquired in the RBPI merger and $754 thousand of recoveries of loans and leases charged-off by RBPI pre-merger. Fees for wealth management services increased $2.5 million, primarily due to the $1.48 billion increase in wealth assets under management, administration, supervision and brokerage between September 30, 2017 and September 30, 2018. Insurance commissions increased $2.3 million, primarily due to the May 2017 acquisition of Hirshorn Boothby and, to a lesser extent, the May 2018 acquisition of Domenick & Associates. Capital markets revenues increased $1.7 million primarily due to the formation of our Capital Markets group, which began operations in the second quarter of 2017.



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

  

For the Three Months Ended or as of

March 31,

 

(dollars in thousands)

 

2018

  

2017

 

Mortgage originations

 $26,055  $48,550 

Mortgage loans sold:

        

Servicing retained

 $1,850  $27,705 

Servicing released

  15,956   4,966 

Total mortgage loans sold

 $17,806  $32,671 

Percentage of originated mortgage loans sold

  68.3

%

  67.3

%

Servicing retained %

  10.4

%

  84.8

%

Servicing released %

  89.6

%

  15.2

%

Residential mortgage loans serviced for others

 $634,970  $638,553 

Mortgage servicing rights

 $5,706  $5,686 

Gain on sale of mortgage loans

 $345  $578 

Loan servicing and other fees

 $686  $503 

Amortization of MSRs

 $221  $169 

(Recovery) / Impairment of MSRs

 $(50

)

 $3 

 As of and for the
Three Months Ended September 30,		 As of and for the
Nine Months Ended September 30,
(dollars in thousands)2018 2017 2018 2017
Mortgage originations$47,786
 $48,159
 $109,604
 $143,557
Mortgage loans sold:    
 
Servicing retained$—
 $28,222
 $1,850
 $77,686
Servicing released28,530
 8,007
 70,378
 16,822
Total mortgage loans sold$28,530
 $36,229
 $72,228
 $94,508
Percentage of originated mortgage loans sold59.7% 75.2% 65.9% 65.8%
Servicing retained %—% 77.9% 2.6% 82.2%
Servicing released %100.0% 22.1% 97.4% 17.8%
Residential mortgage loans serviced for others$596,162
 $647,997
 $596,162
 $647,997
Mortgage servicing rights$5,328
 $5,732
 $5,328
 $5,732
Gain on sale of mortgage loans$228
 $448
 $992
 $1,545
Loan servicing and other fees$559
 $548
 $1,720
 $1,570
Amortization of MSRs$206
 $229
 $623
 $571
(Recovery) / Impairment of MSRs$(23) $3
 $(74) $49
The following table provides details of other operating income for the three and nine months ended March 31,September 30, 2018 and 2017:

 

 

Three Months Ended

March 31,

 
(dollars in thousands) 

2018

  

2017

 

Merchant interchange fees

 $387  $341 

Bank-owned life insurance (“BOLI”) income

  278   201 

Commissions and fees

  255   131 

Safe deposit box rentals

  91   90 

Other investment income

  22   — 

Rent income

  43   48 

Gain on trading investments

  335   210 

Recovery of purchase accounting fair value loan mark

  2,294   18 

Miscellaneous other income

  633   128 

Other operating income

 $4,338  $1,167 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
(dollars in thousands)2018 2017 2018 2017
Visa debit card income$441
 $378
 $1,297
 $1,079
Bank-owned life insurance (“BOLI”) income300
 201
 876
 602
Commissions and fees201
 161
 926
 434
Safe deposit box rentals113
 98
 300
 282
Other investment income62
 10
 209
 19
Rental income41
 44
 129
 139
Gain on trading investments287
 155
 706
 473
Recovery of purchase accounting fair value loan mark1,191
 153
 4,195
 171
Miscellaneous other income559
 205
 1,929
 580
Other operating income$3,195
 $1,405
 $10,567
 $3,779

Wealth Assets Under Management, Administration, Supervision and Brokerage (“Wealth Assets”)

Wealth Asset accounts are categorized into two groups; the first account group consists predominantly of clients whose fees are determined based on the market value of the assets held in their accounts (“Market Value” 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:

 

Fee Basis

 

March 31,

2018

  

December 31,

2017

  

September 30, 2017

  

June 30,

2017

  

March 31,

2017

 

Market value

 $5,693,146  $5,884,692  $5,759,375  $5,593,936  $5,483,237 

Fixed fee

  7,453,780   7,084,046   6,671,995   6,456,619   6,242,223 

Total

 $13,146,926  $12,968,738  $12,431,370  $12,050,555  $11,725,460 

Page 52
Table of Contents

  

Percentage of Wealth Assets as of:

 

Fee Basis

 

March 31,

2018

  

December 31,

2017

  

September 30,

2017

  

June 30,

2017

  

March 31,

2017

 

Market value

  43.3%  45.4%  46.3%  46.4%  46.8%

Fixed fee

  56.7%  54.6%  53.7%  53.6%  53.2%

Total

  100.0%  100.0%  100.0%  100.0%  100.0%

(dollars in thousands)Wealth Assets as of:
Fee BasisSeptember 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017
Market value$6,032,831
 $5,779,774
 $5,693,146
 $5,884,692
 $5,759,375
Fixed fee7,880,433
 7,624,949
 7,453,780
 7,084,046
 6,671,995
Total$13,913,264
 $13,404,723
 $13,146,926
 $12,968,738
 $12,431,370
 Percentage of Wealth Assets as of:
Fee BasisSeptember 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017
Market value43.4% 43.1% 43.3% 45.4% 46.3%
Fixed fee56.6% 56.9% 56.7% 54.6% 53.7%
Total100.0% 100.0% 100.0% 100.0% 100.0%
The following tables detail the composition of fees for wealth management services for the periods indicated:

(dollars in thousands)

 

For the Three Months Ended:

 
Fee Basis 

March 31,

2018

  

December 31,

2017

  

September 30,

2017

  

June 30,

2017

  

March 31,

2017

 

Market value

 $7,880  $7,618  $7,522  $7,382  $7,230 

Fixed fee

  2,428   2,356   2,129   2,425   2,073 

Total

 $10,308  $9,974  $9,651  $9,807  $9,303 

  

Percentage of Fees for Wealth Management for the Three Months Ended:

 

Fee Basis

 

March 31,

2018

  

December 31,

2017

  

September 30,

2017

  

June 30,

2017

  

March 31,

2017

 

Market value

  76.4%  76.4%  77.9%  75.3%  77.7%

Fixed fee

  23.6%  23.6%  22.1%  24.7%  22.3%

Total

  100.0%  100.0%  100.0%  100.0%  100.0%

(dollars in thousands)For the Three Months Ended:
Fee BasisSeptember 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017
Market value$7,841
 $7,620
 $7,880
 $7,618
 $7,522
Fixed fee2,501
 3,038
 2,428
 2,356
 2,129
Total$10,342
 $10,658
 $10,308
 $9,974
 $9,651
 Percentage of Fees for Wealth Management for the Three Months Ended:
Fee BasisSeptember 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017
Market value75.8% 71.5% 76.4% 76.4% 77.9%
Fixed fee24.2% 28.5% 23.6% 23.6% 22.1%
Total100.0% 100.0% 100.0% 100.0% 100.0%

Customer Derivatives

To accommodate the risk management needs of qualified commercial customers, the Bank enters into financial derivative transactions consisting of interest rate swaps, options, risk participation agreements and foreign exchange contracts. Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Market risk exposure from customer derivative positions is managed by simultaneously entering into matching transactions with institutional dealer counterparties that offset customer contracts in notional amount and term. Derivative contracts create counterparty credit risk with both the Bank’s customers and with institutional dealer counterparties. The Corporation manages customer counterparty credit risk through its credit policy, approval processes, monitoring procedures and by obtaining adequate collateral, when appropriate. The Bank seeks to minimize dealer counterparty credit risk by establishing credit limits and collateral agreements through industry standard agreements published by the International Swaps and Derivatives Association (ISDA) and associated credit support annex (CSA) agreements. None of the Bank’s outstanding derivative contracts associated with the customer derivative program is designated as a hedge and none is entered into for speculative purposes. Derivative instruments are recorded at fair value, with changes in fair values recognized in earnings as components of noninterest income and noninterest expense on the consolidated statements of income.







NONINTEREST EXPENSE


Three Months Ended March 31,September 30, 2018 Compared to the Same Period in 2017

Noninterest expense for the three months ended March 31,September 30, 2018 increased $9.4$5.4 million, to $36.0$33.6 million, fromas compared to the same period in 2017. Contributing to the increase were increases of $2.9 million, $796 thousand, $623 thousand, $344 thousand, and $232 thousand in salaries and wages, employee benefits, other operating expenses, furniture, fixtures and equipment and occupancy and bank premises expenses, respectively. A majority of the increase wasthese increases were related to the additional expenses associated with the staff and facilities assumed in the RBPI Merger.merger. Partially offsetting the increase in noninterest expense was a decrease of $461 thousand of due diligence, merger-related and merger integration expenses for the three months ended September 30, 2018 as compared to the same period in 2017.

Nine Months Ended September 30, 2018 Compared to the Same Period in 2017
Noninterest expense for the nine months ended September 30, 2018 increased $22.1 million, to $105.5 million, as compared to the same period in 2017. Contributing to the increase were increases of $9.1 million, $2.5 million, $1.7 million, and $1.2 million in salaries and wages, employee benefits, other operating expenses, and occupancy and bank premises expenses, respectively. A majority of these increases were related to the additional expenses associated with the staff and facilities assumed in the RBPI merger. In addition, the May 2017 acquisition of Hirshorn Boothby and the formation of our Capital Markets group in the second quarter of 2017 contributed to the increase in noninterest expense. Due diligence, merger-related and merger integration expenses increased $3.8$5.2 million betweenfor the quarters,nine months ended September 30, 2018 as compared to the same period in 2017, primarily related to the RBPI Merger.

merger.

Page 53
Table of Contents

The following table provides details of other operating expenses for the three and nine months ended March 31,September 30, 2018 and 2017:

 

 

Three Months Ended

March 31,

 
(dollars in thousands) 

2018

  

2017

 

Contributions

 $188  $121 

Deferred compensation trust expense

  81   125 

Director fees

  161   157 

Dues and subscriptions

  257   154 

FDIC insurance

  200   374 

Insurance

  227   207 

Loan processing

  270   523 

Miscellaneous other expenses

  563   105 

MSR amortization and impairment / (recovery)

  171   172 

Other taxes

  13   9 

Outsourced services

  66   99 

Portfolio maintenance

  123   99 

Postage

  163   148 

Stationary and supplies

  152   117 

Telephone and data lines

  405   400 

Temporary help and recruiting

  99   397 

Travel and entertainment

  178   175 

Other operating expenses

 $3,317  $3,382 

INCOME

 Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands)2018 2017 2018 2017
Contributions$361
 $368
 $990
 $779
Deferred compensation expense237
 222
 489
 590
Director fees169
 137
 507
 473
Dues and subscriptions274
 230
 781
 647
FDIC insurance493
 433
 1,245
 1,176
Impairment of OREO and other repossessed assets6
 —
 6
 200
Insurance214
 211
 655
 629
Loan processing969
 490
 1,838
 1,540
Miscellaneous other expenses407
 443
 1,962
 799
MSR amortization and impairment / (recovery)184
 232
 550
 620
Other taxes11
 21
 48
 34
Outsourced services78
 99
 211
 218
Portfolio maintenance88
 85
 324
 314
Postage202
 147
 557
 450
Stationary and supplies128
 149
 391
 375
Telephone and data lines500
 407
 1,436
 1,201
Temporary help and recruiting82
 158
 239
 672
Travel and entertainment265
 239
 741
 636
Other operating expenses$4,668
 $4,071
 $12,970
 $11,353








INCOME TAXES

Although income before income taxes increased $6.2$5.2 million and $15.6 million for the three and nine months ended March 31,September 30, 2018 as compared for the same periodperiods in 2017, income tax expense remained relatively unchanged at $4.6decreased $700 thousand and $1.9 million for the three and nine months ended March 31,September 30, 2018 as compared for the same periods in 2017. The effective tax rates for the three and 2017nine months ended September 30, 2018 decreased to 19.6% and 21.0%, respectively, as compared to 30.7% and 32.9% for the same respective periods in 2017. The decreases in income tax expense and effective tax rate were primarily due to the reduction in the federal corporate income tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act (“Tax Reform”). Included in the income

Income tax expense for the first quarter ofthree and nine months ended September 30, 2018 was a $590 thousandincluded net discrete tax charge relatedbenefits of $295 thousand and $177 thousand, respectively, as compared to net discrete tax benefits of $694 thousand and $953 thousand for the same respective periods in 2017. These discrete items were the result of excess tax benefits from stock-based compensation as well as the re-measurement of deferred tax assets and a $361 thousand excess tax benefititems related to Tax Reform. With the vestingfiling of stock based awards and exercise of stock options. The excessthe Corporation's 2017 income tax benefit for the first quarter of 2017 was $145 thousand. The tax expense for the first quarter of 2018 reflects a decreasereturns in the effectivefourth quarter, we expect there will be further discrete tax rate to 23.25% for the first quarter of 2018 from 33.88% for the first quarter of 2017.

In connection with the December 15, 2017 RBPI Merger, measurement period adjustments to the fair value of assets acquired gave rise to $1.2 millionbenefits recorded in additional deferred tax assets. These deferred tax assets were determined using the enacted tax rate in effect at the date of acquisition and subsequently re-measured at the new, lower corporate income tax rate due to Tax Reform.

2018.


BALANCE SHEET ANALYSIS

Total assets of $4.30$4.39 billion as of March 31,September 30, 2018 decreased $149.3$61.3 million from $4.45 billion as of December 31, 2017. The following sections detail the changes:


Loans and Leases

The table below compares the portfolio loans and leases outstanding at March 31,September 30, 2018 to December 31, 2017:

  

March 31, 2018

  

December 31, 2017

  

Change

 

(dollars in thousands)

 

Balance

  

Percent of

Portfolio

  

Balance

  

Percent of

Portfolio

  

Amount

  

Percent

 

Commercial mortgage

 $1,541,457   46.6

%

 $1,523,377   46.4

%

 $18,080   1.2

%

Home equity lines & loans

  211,469   6.4

%

  218,275   6.6

%

  (6,806

)

  (3.1

) %

Residential mortgage

  453,655   13.7

%

  458,886   14.0

%

  (5,231

)

  (1.1

) %

Construction

  202,168   6.1

%

  212,454   6.5

%

  (10,286

)

  (4.8

) %

Commercial and industrial

  727,231   22.0

%

  719,312   21.9

%

  7,919   1.1

%

Consumer

  48,423   1.5

%

  38,153   1.2

%

  10,270   26.9

%

Leases

  121,392   3.7

%

  115,401   3.5

%

  5,991   5.2

%

Total portfolio loans and leases

  3,305,795   100.0

%

  3,285,858   100.0

%

  19,937   0.6

%

Loans held for sale

  5,522       3,794       1,728   45.5

%

Total loans and leases

 $3,311,317      $3,289,652      $21,665   0.7

%

Page 54
 September 30, 2018 December 31, 2017 Change
(dollars in thousands)Balance 
Percent of
Portfolio
 Balance 
Percent of
Portfolio
 Amount Percent
Commercial mortgage$1,618,493
 47.9% $1,523,377
 46.4% $95,116
 6.2 %
Home equity lines & loans207,806
 6.1% 218,275
 6.6% (10,469) (4.8)%
Residential mortgage467,402
 13.8% 458,886
 14.0% 8,516
 1.9 %
Construction178,493
 5.3% 212,454
 6.5% (33,961) (16.0)%
Commercial and industrial722,999
 21.4% 719,312
 21.9% 3,687
 0.5 %
Consumer47,809
 1.4% 38,153
 1.2% 9,656
 25.3 %
Leases138,473
 4.1% 115,401
 3.5% 23,072
 20.0 %
Total portfolio loans and leases3,381,475
 100.0% 3,285,858
 100.0% 95,617
 2.9 %
Loans held for sale4,111
   3,794
   317
 8.4 %
Total loans and leases$3,385,586
   $3,289,652
   $95,934
 2.9 %

Table of Contents

Cash and

Investment Securities

As of March 31, 2018, liquidity remained strong as the Corporation had $23.4 million of cash balances at the Federal Reserve and $1.2 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, 2018 totaled $534.1$528.1 million, as compared to $689.2 million as of December 31, 2017. The decrease was primarily related to the maturing, in January 2018, of $200.0 million of short-term U.S. Treasury securities.



Deposits

Deposits as of March 31,September 30, 2018 and December 31, 2017 were as follows:

  

March 31, 2018

  

December 31, 2017

  

Change

 

(dollars in thousands)

 

Balance

  

Percent of

Deposits

  

Balance

  

Percent of

Deposits

  

Amount

  

Percent

 

Interest-bearing demand

 $529,478   16.0

%

 $481,336   14.3

%

 $48,142   10.0

%

Money market

  856,072   25.8

%

  862,639   25.6

%

  (6,567

)

  (0.8

) %

Savings

  308,925   9.3

%

  338,572   10.0

%

  (29,647

)

  (8.8

) %

Retail time deposits

  523,138   15.8

%

  532,202   15.8

%

  (9,064

)

  (1.7

) %

Wholesale non-maturity deposits

  63,449   1.9

%

  62,276   1.8

%

  1,173   1.9

%

Wholesale time deposits

  171,359   5.2

%

  171,929   5.1

%

  (570

)

  (0.3

) %

Interest-bearing deposits

  2,452,421   74.0

%

  2,448,954   72.6

%

  3,467   0.1

%

Non-interest-bearing deposits

  863,118   26.0

%

  924,844   27.4

%

  (61,726

)

  (6.7

) %

Total deposits

 $3,315,539   100.0

%

 $3,373,798   100.0

%

 $(58,259

)

  (1.7

) %

 September 30, 2018 December 31, 2017 Change
(dollars in thousands)Balance 
Percent of
Deposits
 Balance 
Percent of
Deposits
 Amount Percent
Interest-bearing demand$578,243
 17.2% $481,336
 14.3% $96,907
 20.1 %
Money market812,027
 24.2% 862,639
 25.6% (50,612) (5.9)%
Savings286,266
 8.5% 338,572
 10.0% (52,306) (15.4)%
Retail time deposits561,123
 16.7% 532,202
 15.8% 28,921
 5.4 %
Wholesale non-maturity deposits24,040
 0.7% 62,276
 1.8% (38,236) (61.4)%
Wholesale time deposits261,164
 7.8% 171,929
 5.1% 89,235
 51.9 %
Interest-bearing deposits2,522,863
 75.1% 2,448,954
 72.6% 73,909
 3.0 %
Noninterest-bearing deposits834,363
 24.9% 924,844
 27.4% (90,481) (9.8)%
Total deposits$3,357,226
 100.0% $3,373,798
 100.0% $(16,572) (0.5)%

Borrowings

Borrowings as of March 31,September 30, 2018 and December 31, 2017 were as follows:

  

March 31, 2018

  

December 31, 2017

  

Change

 

(dollars in thousands)

 

Balance

  

Percent of

Borrowings

  

Balance

  

Percent of

Borrowings

  

Amount

  

Percent

 

Short-term borrowings

 $173,704   43.3

%

 $237,865   47.9

%

 $(64,161

)

  (27.0

) %

Long-term FHLB advances

  107,784   26.9

%

  139,140   28.0

%

  (31,356

)

  (22.5

) %

Subordinated notes

  98,448   24.5

%

  98,416   19.8

%

  32   0.0

%

Junior subordinated debentures

  21,456   5.3

%

  21,416   4.3

%

  40   0.2

%

Total borrowed funds

 $401,392   100.0

%

 $496,837   100.0

%

 $(95,445

)

  (19.2

) %

Page 55
Table of Contents

 September 30, 2018 December 31, 2017 Change
(dollars in thousands)Balance 
Percent of
Borrowings
 Balance 
Percent of
Borrowings
 Amount Percent
Short-term borrowings$226,498
 54.0% $237,865
 47.9% $(11,367) (4.8)%
Long-term FHLB advances72,841
 17.4% 139,140
 28.0% (66,299) (47.6)%
Subordinated notes98,482
 23.5% 98,416
 19.8% 66
 0.1 %
Junior subordinated debentures21,538
 5.1% 21,416
 4.3% 122
 0.6��%
Total borrowed funds$419,359
 100.0% $496,837
 100.0% $(77,478) (15.6)%


Capital

Consolidated shareholder’sshareholders' equity of the Corporation was $533.1$551.4 million, or 12.4%12.6% of total assets as of March 31,September 30, 2018, as compared to $528.1 million, or 11.9% of total assets as of December 31, 2017. The following table presents the Corporation’s and Bank’s regulatory capital ratios and the minimum capital requirements to be considered “Well Capitalized” by regulators as of March 31,September 30, 2018 and December 31, 2017:

  

Actual

  

Minimum

to be Well

Capitalized

 

(dollars in thousands)

 

Amount

  

Ratio

  

Amount

  

Ratio

 

March 31, 2018

                
                 

Total capital to risk weighted assets:

                

Corporation

 $468,142   13.93% $336,154   10.00%

Bank

 $397,077   11.82% $335,856   10.00%

Tier I capital to risk weighted assets:

                

Corporation

 $351,781   10.46% $268,923   8.00%

Bank

 $379,164   11.29% $268,685   8.00%

Common equity Tier I risk weighted assets:

                

Corporation

 $331,009   9.85% $218,500   6.50%

Bank

 $379,164   11.29% $218,307   6.50%

Tier I leverage ratio (Tier I capital to total quarterly average assets):

                

Corporation

 $351,781   8.71% $202,050   5.00%

Bank

 $379,164   9.39% $201,868   5.00%

Tangible common equity to tangible assets(1)

                

Corporation

 $326,458   7.98%  —   — 

Bank

 $376,038   9.19%  —   — 
                 

December 31, 2017

                
                 

Total capital to risk weighted assets:

                

Corporation

 $463,637   13.92% $333,068   10.00%

Bank

 $387,067   11.65% $332,388   10.00%

Tier I capital to risk weighted assets:

                

Corporation

 $347,187   10.42% $266,454   8.00%

Bank

 $369,033   11.10% $265,910   8.00%

Common equity Tier I risk weighted assets:

                

Corporation

 $328,676   9.87% $216,494   6.50%

Bank

 $369,033   11.10% $216,052   6.50%

Tier I leverage ratio (Tier I capital to total quarterly average assets):

                

Corporation

 $347,187   10.10% $171,915   5.00%

Bank

 $369,033   10.76% $171,609   5.00%

Tangible common equity to tangible assets(1)

                

Corporation

 $322,964   7.61%  —   — 

Bank

 $367,457   8.67%  —   — 

 Actual 
Minimum to be Well
Capitalized
(dollars in thousands)Amount Ratio Amount Ratio
September 30, 2018       
        
Total capital to risk weighted assets:       
Corporation$491,062
 14.33% $342,754
 10.00%
Bank$414,306
 12.10% $342,460
 10.00%
Tier I capital to risk weighted assets:       
Corporation$373,624
 10.90% $274,203
 8.00%
Bank$395,350
 11.54% $273,968
 8.00%
Common equity Tier I risk weighted assets:       
Corporation$352,764
 10.29% $222,790
 6.50%
Bank$395,350
 11.54% $222,599
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
Corporation$373,624
 8.95% $208,814
 5.00%
Bank$395,350
 9.48% $208,596
 5.00%
Tangible common equity to tangible assets(1)
       
Corporation$343,939
 8.23% —
 —
Bank$388,039
 9.29% —
 —
        
December 31, 2017       
        
Total capital to risk weighted assets:       
Corporation$463,637
 13.92% $333,068
 10.00%
Bank$387,067
 11.65% $332,388
 10.00%
Tier I capital to risk weighted assets:       
Corporation$347,187
 10.42% $266,454
 8.00%
Bank$369,033
 11.10% $265,910
 8.00%
Common equity Tier I risk weighted assets:       
Corporation$328,676
 9.87% $216,494
 6.50%
Bank$369,033
 11.10% $216,052
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
Corporation$347,187
 10.10% $171,915
 5.00%
Bank$369,033
 10.76% $171,609
 5.00%
Tangible common equity to tangible assets(1)
       
Corporation$322,964
 7.61% —
 —
Bank$367,457
 8.67% —
 —
(1)

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

The capital ratios for the Bank and the Corporation, as of March 31,September 30, 2018, as shown in the above tables, indicate levels above the regulatory minimum to be considered “well capitalized.” Excluding the Bank’s and Corporation’s Tier I leverage ratio, all regulatory capital ratios increased or are relatively unchanged from their December 31, 2017 levels primarily as a result of the increase in retained earnings.levels. The Tier I leverage ratio, which is the ratio of Tier I capital to average quarterly assets, for both the Bank and Corporation decreased from December 31, 2017, as average quarterly assets for the averagethree months ending September 30, 2018 represent a full quarter of the assets acquired in the December 15, 2017 RBPI Merger were present for a full quarter.

Merger.

Page 56Liquidity
Table of Contents

Liquidity

The 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, maintaining a highly liquid investment portfolio, 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,

2018

  

Percent of

Total

Borrowing

Capacity

  

Available

Funds as of

December 31,

2017

  

Percent of Total

Borrowing

Capacity

  

Dollar

Change

  

Percent

Change

 

Federal Home Loan Bank of Pittsburgh

 $1,404.7   84.0

%

 $1,020.0   74.4

%

 $384.7   37.7

%

Federal Reserve Bank of Philadelphia

  138.2   100.0

%

  121.3   100.0

%

  16.9   13.9

%

Fed Funds Lines (seven banks)

  79.0   100.0

%

  79.0   100.0

%

  —   —

%

Total

 $1,621.9   85.8

%

 $1,220.3   77.6

%

 $401.6   32.9

%

(dollars in millions)Available
Funds as of
September 30,
2018		 Percent of
Total
Borrowing
Capacity		 Available
Funds as of
December 31, 2017
 Percent of Total
Borrowing
Capacity		 Dollar
Change		 Percent
Change
Federal Home Loan Bank of Pittsburgh$1,202.6
 80.4% $1,020.0
 74.4% $182.6
 17.9%
Federal Reserve Bank of Philadelphia139.6
 100.0% 121.3
 100.0% 18.3
 15.1%
Fed Funds Lines (seven banks)79.0
 100.0% 79.0
 100.0% —
 —
Total$1,421.2
 82.9% $1,220.3
 77.6% $200.9
 16.5%

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


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 $31.7$24.0 million in balances as of March 31,September 30, 2018 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

The Corporation has two principal segments as defined by FASB ASC 280, “Segment Reporting.”The segments are Banking and Wealth Management (see Note 22 in the accompanying Notes to Unaudited Consolidated Financial Statements).

The Wealth Management Segmentsegment recorded a pre-tax segment profit (“PTSP”) of $4.1 million and $12.7 million for the three and nine months ended March 31,September 30, 2018, as compared to PTSP of $3.7$3.6 million and $10.7 million for the same periodperiods in 2017. The Wealth Management Segmentsegment provided 20.7%20.0% and 21.5% of the Corporation’s pre-tax profit for the three month periodand nine months ended March 31,September 30, 2018, as compared to 26.9%23.3% and 24.6% for the same periodperiods in 2017. For the three and nine month periodperiods ended March 31,September 30, 2018, both fees for wealth management services and insurance commissions increased fromas compared to the same periodperiods in 2017.

The Banking Segmentsegment recorded a PTSP of $15.8$16.6 million and $46.4 million for the three and nine months ended March 31,September 30, 2018, as compared to PTSP of $10.0$11.9 million and $32.8 million for the same periodperiods in 2017. The Banking Segmentsegment provided 79.3%80.0% and 78.5% of the Corporation’s pre-tax profit for the three and nine month periodperiods ended March 31,September 30, 2018, as compared to 73.1%76.7% and 75.4% for the same periodperiods in 2017.


Off Balance Sheet Risk

Arrangements

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

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, 2018 were $766.4$764.7 million, as compared to $748.3 million at December 31, 2017.


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, 2018 amounted to $15.5$21.2 million, as compared to $17.0$17.7 million at December 31, 2017.

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

arrangements.
Page 57
Table of Contents

Contractual Cash Obligations of the Corporation as of March 31, 2018:

(dollars in millions)

 

Total

  

Within
1 Year

  

2 - 3
Years

  

4 - 5
Years

  

After
5 Years

 

Deposits without a stated maturity

 $2,621.0  $2,621.0  $—  $—  $— 

Wholesale and retail time deposit

  694.5   581.4   87.0   25.1   0.9 

Short-term borrowings

  173.7   173.7   —   —   — 

Long-term FHLB Advances

  107.8   52.5   40.4   14.9   — 

Subordinated Notes

  100.0   —   —   —   100.0 

Junior subordinated debentures

  25.8   —   —   —   25.8 

Operating leases

  30.5   5.6   8.4   6.1   10.4 

Purchase obligations

  5.1   3.4   1.7   —   — 

Total

 $3,758.4  $3,437.6  $137.5  $46.1  $137.1 

September 30, 2018:

(dollars in thousands)Total 
Within
1 Year
 
2 - 3
Years
 
4 - 5
Years
 
After
5 Years
Deposits without a stated maturity$2,534,939
 $2,534,939
 $—
 $—
 $—
Wholesale and retail time deposit822,287
 658,169
 150,178
 13,168
 772
Short-term borrowings226,498
 226,498
 —
 —
 —
Long-term FHLB Advances72,841
 28,106
 44,735
 —
 —
Subordinated Notes100,000
 —
 —
 —
 100,000
Junior subordinated debentures25,800
 —
 —
 —
 25,800
Operating leases31,782
 5,360
 9,320
 6,950
 10,152
Purchase obligations4,958
 3,304
 1,654
 —
 —
Total$3,819,105
 $3,456,376
 $205,887
 $20,118
 $136,724


Other Information


Effects of Inflation

Inflation has some impact on the Corporation’s operating costs. Unlike many industrial companies, however, substantially all of the Corporation’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.

Effects of Government Monetary Policies

The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits. 

The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Corporation’s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot be predicted.


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. As such, they are only predictions 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 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 “may,” “would,” “could,” “will,” “likely,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “forecast,” “project,” “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 varietyvariety of factors, including without limitation:

•

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

•

local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;
sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;

•

changes in policy, laws or existing statutes, regulatory guidance, legislation or judicial decisions that affect our the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;

Page 58
Table of Contentsliquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;
changes in policy, laws or existing statutes, regulatory guidance, legislation or judicial decisions that affect our the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;

•

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

•

effectiveness of our capital management strategies and activities;

•

changes in accounting requirements or interpretations;

•

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

•

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

•

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

•

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

•

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

•

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;

•

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

•

risks related to our mergers and acquisitions, including, but not limited to: reputational risks, client and customer retention risks; diversion of management time on integration-related issues; risk that integration may take longer than anticipated or cost more than expected; risk that the anticipated benefits of the merger or acquisition, including any anticipated cost savings or strategic gains, may take longer or be significantly harder to achieve or may fail to be achieved;

•

our ability to contain costs and expenses;

•

protection and validity of intellectual property rights;

•

reliance on large customers;

•

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;

•

other material adverse changes in operations or earnings; and

•

our success in managing the risks involved in the foregoing.

results of examinations by the Federal Reserve Board of the Corporation or its subsidiaries, including the possibility that such regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability to: engage in new products or services; engage in future mergers or acquisitions; open new branches; pay future dividends; or otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may violate applicable law or constitute an unsafe or unsound banking practice;
effectiveness of our capital management strategies and activities;
changes in accounting requirements or interpretations;
the accuracy of assumptions underlying the provisions for loan and lease losses and estimates in the value of collateral, and various financial assets and liabilities;
estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;
changes in relationships with employees, customers, and/or suppliers;
our success in continuing to generate new business in our existing markets, as well as identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;
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;

technological systems failures, interruptions and security breaches could negatively impact our operations and reputation;
competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
risks related to our mergers and acquisitions, including, but not limited to: reputational risks, client and customer retention risks; diversion of management time on integration-related issues; risk that integration may take longer than anticipated or cost more than expected; risk that the anticipated benefits of the merger or acquisition, including any anticipated cost savings or strategic gains, may take longer or be significantly harder to achieve or may fail to be achieved;
our ability to contain costs and expenses;
protection and validity of intellectual property rights;
reliance on large customers;
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;
other material adverse changes in operations or earnings; and
our success in managing the risks involved in the foregoing.

All written or oral forward-looking statementsstatements attributed to the Corporation are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning on page 1112 of thisthe 2017 Annual Report. All forward-looking statements included in this Report and the documents incorporated by reference herein are based upon the Corporation’s beliefs and assumptions as of the date of this Report. The Corporation assumes no obligation to update any forward-looking statement, whether the result of new information, future events, uncertainties or otherwise, as of any future date. In light of these risks, uncertainties and assumptions, you should not put undue reliance on any forward-looking statements discussed in this Report or incorporated documents.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

See the discussion of quantitative and qualitative disclosures about market risks in the Corporation’s 2017 Annual Report, as updated by the disclosure in “Management’s Discussion and Analysis of Results of Operations – Interest Rate Sensitivity,” “– Summary of Interest Rate Simulation,” “Customer Derivatives” and “– Gap Analysis” in this quarterly report on Form 10-Q.

Page 59
Table of Contents

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer, Francis J. Leto, and Chief Financial Officer, Michael W. Harrington, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31,September 30, 2018.

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 60
Table of Contents

PART II OTHER INFORMATION.

ITEM 1. Legal Proceedings.

The information required by this Item is set forth in the “Legal Matters” discussion in Note 21 “Contingencies” in the Notes to Unaudited Consolidated Financial Statements in Part I Item I of this Form 10-Q, which is incorporated herein by reference in response to this Item.

ITEM 1A. Risk Factors
None.

None.

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

Share Repurchase

The following table presents the shares repurchased by the Corporation during the firstthird quarter of 2018:

Period

 

Total Number of
Shares Purchased(1)(2)

  

Average Price

Paid
Per Share

  

Total Number of
Shares Purchased

as Part of Publicly
Announced Plans or
Programs(3)

  

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

 

January 1, 2018 – January 31, 2018

  —  $—   —   189,300 

February 1, 2018 – February 28, 2018

  16,635  $44.26   —   189,300 

March 1, 2018 – March 31, 2018

  712  $44.36   —   189,300 

Total

  17,347  $44.27   —   189,300 

Period
Total Number of Shares Purchased(1)(2)
 Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)
 
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
July 1, 2018 – July 31, 20182,787
 $48.15
 2,300
 187,000
August 1, 2018 – August 31, 201821,877
 $48.72
 7,269
 179,731
September 1, 2018 – September 30, 20186,141
 $47.89
 4,694
 175,037
Total30,805
 $48.51
 14,263
 175,037


(1)

(1)On MarchSeptember 30, 2018, 4371,004 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.

(2)

(2)Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation or Bank as follows: 13,835487 shares on February 9,July 2, 2018; 2,024 shares on August 11, 2018; 1,992 shares on August 12, 2018; 10,592 shares on August 15, 2018; and 275443 shares on March 2,September 21, 2018.

(3)

(3)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. There is no expiration date on the 2015 Program and the Corporation has no plans for an early termination of the 2015 Program. All share repurchases under the 2015 Program were accomplished in open market transactions. As of March 31,September 30, 2018, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.

175,037.


ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures.
Not applicable.

ITEM 5. Other Information

None.


Page 61

ITEM 6. Exhibits

Exhibit No.

 

Description and References

   

3.1

 

Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007

3.2

 

Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007

31.1

10.1		 

Third Amended and Restated Dividend Reinvestment and Stock Purchase Plan, effective May 25, 2018, incorporated by reference to the Corporation’s Prospectus (Form 424B2) filed with the SEC on May 25, 2018.
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 62Signatures
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

BRYN MAWR BANK CORPORATION
    

Date: May 4,November 2, 2018

By:

/s/ Francis J. Leto

Francis J. Leto

President & Chief Executive Officer

   

Francis J. Leto
President & Chief Executive Officer
(Principal Executive Officer)

    
    

Date: May 4,November 2, 2018

By:

/s/ Michael W. Harrington

Michael W. Harrington

Chief Financial Officer

    

Michael W. Harrington

Chief Financial Officer
(Principal Financial Officer)




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