Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

 Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
 
For Quarter ended June 30, 2018March 31, 2019
 
Commission File Number 1-35746


Bryn Mawr Bank Corporation
(Exact name of registrant as specified in its charter)

Pennsylvania23-2434506
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
identification No.)
  
801 Lancaster Avenue, Bryn Mawr, Pennsylvania19010
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code (610) 525-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of classTrading SymbolName of exchange on which registered
Common Stock, $1 par valueBMTCThe NASDAQ Stock Market
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 Outstanding at AugustMay 1, 20182019
Common Stock, par value $1 20,245,48120,147,151
 

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
 
FORM 10-Q
 
QUARTER ENDED JUNE 30, 2018MARCH 31, 2019

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 5554
   
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
Page 7774
   
ITEM 4.
Controls and Procedures
Page 7774
   
PART II -
OTHER INFORMATION
Page 7775
   
ITEM 1.
Legal Proceedings
Page 7775
   
ITEM 1A.
Risk Factors
Page 7775
   
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Page 7776
   
ITEM 3.
Defaults Upon Senior Securities
Page 7977
   
ITEM 4.
Mine Safety Disclosures
Page 7977
   
ITEM 5.
Other Information
Page 7977
   
ITEM 6.
Exhibits
Page 8078


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets - Unaudited
(dollars in thousands) June 30,
2018		 December 31,
2017		 March 31,
2019		 December 31,
2018
Assets        
Cash and due from banks $7,318
 $11,657
 $13,656
 $14,099
Interest bearing deposits with banks 39,924
 48,367
 29,449
 34,357
Cash and cash equivalents 47,242
 60,024
 43,105
 48,456
Investment securities available for sale, at fair value (amortized cost of $543,314 and $692,824 as of June 30, 2018 and December 31, 2017, respectively) 531,075
 689,202
Investment securities held to maturity, at amortized cost (fair value of $7,547 and $7,851 as of June 30, 2018 and December 31, 2017, respectively) 7,838
 7,932
Investment securities available for sale, at fair value (amortized cost of $562,528 and $745,328 as of March 31, 2019 and December 31, 2018, respectively) 559,983
 737,442
Investment securities held to maturity, at amortized cost (fair value of $10,324 and $8,438 as of March 31, 2019 and December 31, 2018, respectively) 10,457
 8,684
Investment securities, trading 8,175
 4,610
 8,189
 7,502
Loans held for sale 4,204
 3,794
 2,884
 1,749
Portfolio loans and leases, originated 2,700,815
 2,487,296
 3,032,270
 2,885,251
Portfolio loans and leases, acquired 688,686
 798,562
 491,244
 541,903
Total portfolio loans and leases 3,389,501
 3,285,858
 3,523,514
 3,427,154
Less: Allowance for originated loan and lease losses (19,181) (17,475) (20,519) (19,329)
Less: Allowance for acquired loan and lease losses (217) (50) (97) (97)
Total allowance for loans and lease losses (19,398)
(17,525) (20,616)
(19,426)
Net portfolio loans and leases 3,370,103
 3,268,333
 3,502,898
 3,407,728
Premises and equipment, net 54,185
 54,458
 67,279
 65,648
Operating lease right-of-use assets 43,985
 —
Accrued interest receivable 13,115
 14,246
 13,123
 12,585
Mortgage servicing rights 5,511
 5,861
 4,910
 5,047
Bank owned life insurance 57,243
 56,667
 58,138
 57,844
Federal Home Loan Bank stock 16,678
 20,083
 10,526
 14,530
Goodwill 183,162
 179,889
 184,012
 184,012
Intangible assets 24,977
 25,966
 21,994
 23,455
Other investments 16,774
 12,470
 16,526
 16,526
Other assets 53,921
 46,185
 83,984
 61,277
Total assets $4,394,203
 $4,449,720
 $4,631,993
 $4,652,485
Liabilities        
Deposits:        
Noninterest-bearing $892,386
 $924,844
 $882,310
 $901,619
Interest-bearing 2,466,529
 2,448,954
 2,755,307
 2,697,468
Total deposits 3,358,915
 3,373,798
 3,637,617
 3,599,087
    
Short-term borrowings 227,059
 237,865
 124,214
 252,367
Long-term FHLB advances 87,808
 139,140
 55,407
 55,374
Subordinated notes 98,491
 98,416
 98,571
 98,526
Junior subordinated debentures 21,497
 21,416
 21,622
 21,580
Operating lease liabilities 48,224
 —
Accrued interest payable 5,230
 3,527
 8,674
 6,652
Other liabilities 52,700
 47,439
 62,557
 54,195
Total liabilities 3,851,700
 3,921,601
 4,056,886
 4,087,781
Shareholders' equity        
Common stock, par value $1; authorized 100,000,000 shares; issued 24,453,417 and 24,360,049 shares as of June 30, 2018 and December 31, 2017, respectively and outstanding of 20,242,893 and 20,161,395 as of June 30, 2018 and December 31, 2017, respectively 24,453
 24,360
Common stock, par value $1; authorized 100,000,000 shares; issued 24,577,248 and 24,545,348 shares as of March 31, 2019 and December 31, 2018, respectively and outstanding of 20,167,729 and 20,163,816 as of March 31, 2019 and December 31, 2018, respectively 24,577
 24,545
Paid-in capital in excess of par value 372,227
 371,486
 375,655
 374,010
Less: Common stock in treasury at cost - 4,210,524 and 4,198,654 shares as of June 30, 2018 and December 31, 2017, respectively (68,943) (68,179)
Less: Common stock in treasury at cost - 4,409,519 and 4,381,532 shares as of March 31, 2019 and December 31, 2018, respectively (76,974) (75,883)
Accumulated other comprehensive loss, net of tax (11,191) (4,414) (3,278) (7,513)
Retained earnings 226,634
 205,549
 255,813
 250,230
Total Bryn Mawr Bank Corporation shareholders' equity 543,180
 528,802
 575,793
 565,389
Noncontrolling interest (677) (683) (686) (685)
Total shareholders' equity 542,503
 528,119
 575,107
 564,704
Total liabilities and shareholders' equity $4,394,203
 $4,449,720
 $4,631,993
 $4,652,485

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income - Unaudited
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017Three Months Ended
March 31,
(dollars in thousands, except share and per share data)       2019 2018
Interest income:          
Interest and fees on loans and leases$41,689
 $29,143
 $82,378
 $57,625
$44,837
 $40,689
Interest on cash and cash equivalents64
 35
 117
 101
132
 53
Interest on investment securities:          
Taxable2,922
 1,906
 5,628
 3,529
3,450
 2,706
Non-taxable78
 101
 162
 211
47
 84
Dividends1
 52
 3
 97
2
 2
Total interest income44,754
 31,237
 88,288
 61,563
48,468
 43,534
Interest expense:          
Interest on deposits4,499
 1,983
 7,971
 3,811
8,097
 3,472
Interest on short-term borrowings985
 237
 1,615
 264
943
 630
Interest on FHLB advances and other borrowings490
 682
 1,052
 1,380
278
 562
Interest on subordinated notes1,143
 370
 2,286
 740
1,145
 1,143
Interest on junior subordinated debentures321
 —
 609
 —
358
 288
Total interest expense7,438
 3,272
 13,533
 6,195
10,821
 6,095
Net interest income37,316
 27,965
 74,755
 55,368
37,647
 37,439
Provision for loan and lease losses3,137
 (83) 4,167
 208
3,736
 1,030
Net interest income after provision for loan and lease losses34,179
 28,048
 70,588
 55,160
33,911
 36,409
Noninterest income:          
Fees for wealth management services10,658
 9,807
 20,966
 19,110
10,392
 10,308
Insurance commissions1,902
 943
 3,595
 1,706
1,672
 1,693
Capital markets revenue2,105
 953
 2,771
 953
2,219
 666
Service charges on deposits752
 630
 1,465
 1,277
808
 713
Loan servicing and other fees475
 519
 1,161
 1,022
609
 686
Net gain on sale of loans528
 520
 1,046
 1,149
319
 518
Net gain on sale of investment securities available for sale—
 —
 7
 1
—
 7
Net gain (loss) on sale of other real estate owned ("OREO")111
 (12) 287
 (12)(24) 176
Dividends on FHLB and FRB stock510
 218
 941
 432
411
 431
Other operating income3,034
 1,207
 7,372
 2,374
2,847
 4,338
Total noninterest income20,075
 14,785
 39,611
 28,012
19,253
 19,536
Noninterest expenses:          
Salaries and wages16,240
 13,580
 32,222
 26,030
20,901
 15,982
Employee benefits2,877
 2,404
 6,585
 4,893
4,166
 3,708
Occupancy and bank premises2,697
 2,247
 5,747
 4,773
3,252
 3,050
Furniture, fixtures, and equipment2,069
 1,869
 3,967
 3,843
2,389
 1,898
Advertising369
 405
 830
 791
415
 461
Amortization of intangible assets889
 687
 1,768
 1,380
938
 879
Due diligence, merger-related and merger integration expenses3,053
 1,236
 7,372
 1,747
—
 4,319
Professional fees932
 1,049
 1,680
 1,760
1,320
 748
Pennsylvania bank shares tax473
 297
 946
 961
409
 473
Information technology1,252
 821
 2,447
 1,695
Data processing1,320
 1,195
Other operating expenses4,985
 3,900
 8,302
 7,282
4,614
 3,317
Total noninterest expenses35,836
 28,495
 71,866
 55,155
39,724
 36,030
Income before income taxes18,418
 14,338
 38,333
 28,017
13,440
 19,915
Income tax expense3,723
 4,905
 8,353
 9,540
2,764
 4,630
Net income$14,695
 $9,433
 $29,980
 $18,477
$10,676
 $15,285
Net income attributable to noncontrolling interest7
 —
 6
 —
Net (loss) attributable to noncontrolling interest(1) (1)
Net income attributable to Bryn Mawr Bank Corporation$14,688
 $9,433
 $29,974
 $18,477
$10,677
 $15,286
Basic earnings per common share$0.73
 $0.56
 $1.48
 $1.09
$0.53
 $0.76
Diluted earnings per common share$0.72
 $0.55
 $1.47
 $1.07
$0.53
 $0.75
Dividends paid or accrued per share$0.22
 $0.21
 $0.44
 $0.42
Dividends paid or accrued per common share$0.25
 $0.22
Weighted-average basic shares outstanding20,238,852
 16,984,563
 20,221,010
 16,969,431
20,168,498
 20,202,969
Dilutive shares174,726
 248,204
 206,782
 238,381
103,163
 247,525
Adjusted weighted-average diluted shares20,413,578
 17,232,767
 20,427,792
 17,207,812
20,271,661
 20,450,494
 
The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.


BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income - Unaudited
 
(dollars in thousands)Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017
Net income attributable to Bryn Mawr Bank Corporation$14,688
 $9,433
 $29,974
 $18,477
        
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 $(402), $221, $(1,721), and $430, respectively(1,512) 411
 (6,473) 799
Reclassification adjustment for net gain on sale realized in net income, net of tax expense of $0, $0, $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 of $0, $0, $88, and $0, respectively—
 —
 (329) —
Unrealized investment (losses) gains, net of tax (benefit) expense of $(402), $221, $(1,810), and $430, respectively(1,512) 411
 (6,808) 798
Net change in unfunded pension liability:       
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax (benefit) expense of $(4), $9, $9, and $25, respectively(15) 15
 31
 47
        
Total other comprehensive (loss) income(1,527) 426
 (6,777) 845
        
Total comprehensive income$13,161
 $9,859
 $23,197
 $19,322
 Three Months Ended
March 31,
(dollars in thousands)2019 2018
Net income attributable to Bryn Mawr Bank Corporation$10,677
 $15,286
    
Other comprehensive income (loss):   
Net change in unrealized gains (losses) on investment securities available for sale:   
Net unrealized gains (losses) arising during the period, net of tax expense (benefit) of $1,121 and $(1,319), respectively4,219
 (4,961)
Reclassification adjustment for net (gain) on sale realized in net income, net of tax expense of $0 and $1, respectively—
 (6)
Reclassification adjustment for net (gain) realized on transfer of investment securities available for sale to trading, net of tax expense of $0 and $88, respectively—
 (329)
Unrealized investment gains (losses), net of tax expense (benefit) of $1,121 and $(1,408), respectively4,219
 (5,296)
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 $4 and $12, respectively16
 46
    
Total other comprehensive income (loss)4,235
 (5,250)
    
Total comprehensive income$14,912
 $10,036
 
The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.


BRYN MAWR BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Unaudited

Three Months Ended March 31,
(dollars in thousands)
Six Months Ended June 30,2019 2018
2018 2017
Operating activities:      
Net income attributable to Bryn Mawr Bank Corporation$29,974
 $18,477
$10,677
 $15,286
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for loan and lease losses4,167
 208
3,736
 1,030
Depreciation of fixed assets3,033
 2,792
1,908
 1,493
Amortization of operating lease right-of-use assets914
 —
Net amortization of investment premiums and discounts1,509
 1,352
543
 761
Net gain on sale of investment securities available for sale(7) (1)—
 (7)
Net gain on sale of loans(1,046) (1,149)(319) (518)
Stock based compensation1,235
 915
1,137
 620
Amortization and net impairment of mortgage servicing rights366
 387
137
 171
Net accretion of fair value adjustments(5,316) (1,264)(1,018) (3,004)
Amortization of intangible assets1,768
 1,380
938
 879
Impairment of OREO and other repossessed assets—
 200
Net (gain) loss on sale of OREO(287) 12
Net loss (gain) on sale of OREO24
 (176)
Net increase in cash surrender value of bank owned life insurance ("BOLI")(576) (401)(294) (279)
Other, net(7,131) (1,809)(642) (107)
Loans originated for resale(44,108) (57,248)(10,353) (19,534)
Proceeds from loans sold44,663
 58,940
9,484
 18,265
Provision for deferred income taxes640
 614
43
 656
Change in income taxes payable/receivable, net6,277
 (3,580)7,067
 3,819
Change in accrued interest receivable1,131
 (184)(538) 1,725
Change in accrued interest payable1,703
 96
2,022
 1,287
Change in operating lease liabilities(850) —
Change in other assets(28,612) (11,342)
Change in other liabilities10,814
 (5,987)
Net cash provided by operating activities37,995
 19,737
6,818
 5,038
      
Investing activities:      
Purchases of investment securities available for sale(94,824) (115,841)(61,225) (74,029)
Purchases of investment securities held to maturity—
 (2,335)(1,827) —
Proceeds from maturity and paydowns of investment securities available for sale239,318
 234,043
217,990
 218,393
Proceeds from maturity and paydowns of investment securities held to maturity77
 42
45
 39
Proceeds from sale of investment securities available for sale7
 130
—
 7
Net change in FHLB stock3,405
 2,137
4,004
 4,584
Proceeds from calls of investment securities310
 4,864
25,500
 65
Net change in other investments(4,304) (55)—
 500
Purchase of domain name—
 (152)
Purchase of customer relationships(18) —
Net portfolio loan and lease originations(104,700) (131,702)(97,976) (21,230)
Purchases of premises and equipment(2,843) (3,731)(3,540) (2,063)
Acquisitions, net of cash acquired(380) (4,792)
Capitalize costs to OREO(15) —
Proceeds from sale of OREO420
 68
309
 217
Net cash provided by (used in) investing activities36,471
 (17,324)
Net cash provided by investing activities83,262
 126,483
      
Financing activities:      
Change in deposits(14,164) 102,125
38,752
 (57,879)
Change in short-term borrowings(10,806) (73,856)(128,153) (64,161)
Dividends paid(8,994) (7,127)(5,041) (4,523)
Change in long-term FHLB advances and other borrowings(51,372) (25,000)—
 (31,371)
Payment of contingent consideration for business combinations(631) —
(438) —
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation(732) (98)(34) (626)
Net proceeds from sale of (purchase of) treasury stock for deferred compensation plans99
 (69)
Net proceeds from sale of treasury stock for deferred compensation plans—
 171
Repurchase of warrants from U.S. Treasury(1,755) —
—
 (1,755)
Net purchase of treasury stock through publicly announced plans(1,057) —
Proceeds from exercise of stock options1,107
 1,005
540
 992
Net cash used in financing activities(87,248) (3,020)(95,431) (159,152)
      
Change in cash and cash equivalents(12,782) (607)(5,351) (27,631)
Cash and cash equivalents at beginning of period60,024
 50,765
48,456
 60,024
Cash and cash equivalents at end of period$47,242
 $50,158
$43,105
 $32,393
   
      
Supplemental cash flow information:      
Cash paid during the year for:      
Income taxes$1,606
 $12,481
$199
 $146
Interest$11,830
 $6,099
$8,799
 $4,808
      
Non-cash information:      
Change in other comprehensive loss$(6,777) $845
$4,235
 $(5,250)
Change in deferred tax due to change in comprehensive income$(1,801) $455
$1,125
 $(1,396)
Transfer of loans to OREO and repossessed assets$345
 $309
$—
 $37
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.


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, 2019
(dollars in thousands, except share and per share data)Shares of Common Stock Issued 
Common
Stock
 Paid-in Capital 
Treasury
Stock
 Accumulated Other Comprehensive Loss 
Retained
Earnings
 
Noncontrolling
Interest
 Total Shareholders' Equity
Balance December 31, 201824,545,348
 $24,545
 $374,010
 $(75,883) $(7,513) $250,230
 $(685) $564,704
Net income attributable to Bryn Mawr Bank Corporation—
 —
 —
 —
 —
 10,677
 —
 10,677
Net loss attributable to noncontrolling interest—
 —
 —
 —
 —
 —
 (1) (1)
Dividends paid or accrued, $0.25 per share—
 —
 —
 —
 —
 (5,094) —
 (5,094)
Other comprehensive income, net of tax expense of $1,125—
 —
 —
 —
 4,235
 —
 —
 4,235
Stock based compensation—
 —
 1,137
 —
 —
 —
 —
 1,137
Net purchase of treasury stock from stock awards for statutory tax withholdings—
 —
 —
 (34) —
 —
 —
 (34)
Purchase of treasury stock through publicly announced plans—
 —
 —
 (1,057) —
 —
 —
 (1,057)
Common stock issued:              

Common stock issued through share-based awards and options exercises31,900
 32
 508
 —
 —
 —
 —
 540
Balance March 31, 201924,577,248
 $24,577
 $375,655
 $(76,974) $(3,278) $255,813
 $(686) $575,107

 For the Six Months Ended June 30, 2018
 Shares of Common Stock Issued 
Common
Stock
 Paid-in Capital 
Treasury
Stock
 Accumulated Other Comprehensive Loss 
Retained
Earnings
 
Noncontrolling
Interest
 Total Shareholders' Equity
Balance December 31, 201724,360,049
 $24,360
 $371,486
 $(68,179) $(4,414) $205,549
 $(683) $528,119
Net income attributable to Bryn Mawr Bank Corporation—
 —
 —
 —
 —
 29,974
 —
 29,974
Net income attributable to noncontrolling interest—
 —
 —
 —
 —
 —
 6
 6
Dividends paid or accrued, $0.44 per share—
 —
 —
 —
 —
 (8,987) —
 (8,987)
Other comprehensive loss, net of tax benefit of $1,801—
 —
 —
 —
 (6,777) —
 —
 (6,777)
Stock based compensation—
 —
 1,235
 —
 —
 —
 —
 1,235
Retirement of treasury stock(2,253) (2) (20) 22
 —
 —
 —
 —
Net purchase of treasury stock from stock awards for statutory tax withholdings—
 —
 —
 (732) —
 —
 —
 (732)
Net treasury stock activity for deferred compensation trusts—
 —
 153
 (54) —
 —
 —
 99
Repurchase of warrants from U.S. Treasury—
 —
 (1,853) —
 —
 98
 —
 (1,755)
Common stock issued:              

Common stock issued through share-based awards and options exercises93,059
 92
 1,116
 —
 —
 —
 —
 1,208
Shares issued in acquisitions(1)
2,562
 3
 110
 —
 —
 —
 —
 113
                
Balance June 30, 201824,453,417
 $24,453
 $372,227
 $(68,943) $(11,191) $226,634
 $(677) $542,503
(1) Restricted shares relating to the RBPI Merger (defined in Note 3 – Business Combinations below) recorded during the three months ended June 30, 2018.
 For the Three Months Ended March 31, 2018
(dollars in thousands, except share and per share data)Shares of Common Stock Issued 
Common
Stock
 Paid-in Capital 
Treasury
Stock
 Accumulated Other Comprehensive Loss 
Retained
Earnings
 
Noncontrolling
Interest
 Total Shareholders' Equity
Balance December 31, 201724,360,049
 $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 paid or accrued, $0.22 per share—
 —
 —
 —
 —
 (4,495) —
 (4,495)
Other comprehensive income, 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 treasury stock activity 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 exercises78,709
 79
 913
 —
 —
 —
 —
 992
Balance March 31, 201824,438,758
 $24,439
 $371,319
 $(68,787) $(9,664) $216,438
 $(684) $533,061

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


 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("BMBC," and together with its direct and indirect subsidiaries, the “Corporation”) management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto in the Corporation’s Annual Report on Form 10-K for the twelve months ended December 31, 20172018 (the “2017“2018 Annual Report”).
 
The results of operations for the three and six months ended June 30, 2018March 31, 2019 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 CorporationBMBC and its wholly ownedconsolidated subsidiaries; the Corporation’sBMBC's primary subsidiary is 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 not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). All significant intercompany balances and transactions have been 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, 2018,2019, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of June 30, 2018.March 31, 2019.
 
Adopted Pronouncements:

FASB ASU 2014-92016-02 (Topic 606)842), “Revenue from Contracts with Customers”“Leases”
 
In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements. The Corporation adopted ASU 2014-9 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), which (i) createsnew standard establishes a single framework for recognizing revenue from contracts with customersright-of-use ("ROU") model that fall within its scope and (ii) revises when it is appropriaterequires a lessee to recognize a gain (loss) fromROU asset and lease liability on the transferbalance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of nonfinancial assets, suchexpense recognition in the income statement.

The new standard became effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Management has elected to use the effective date as OREO. The majorityits date 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, interchange income, wealth management fees, investment brokerage fees,initial application. Consequently, financial information was not be updated, and the net gaindisclosures required under the new standard are not be provided for dates and periods before January 1, 2019.

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

This standard had a material effect on sale of OREO. Refer to Note 17 Revenuefrom 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.
FASB ASU 2017-1 (Topic 805), “Business Combinations”
The Corporation adopted ASU 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,Balance Sheet and consolidation. The adoption of this ASUrelated disclosures but did not have a material impact on our Consolidated Financial StatementsStatement of Income. The additional assets recorded as a result of adoption had a negative impact on the Corporation and related disclosures.Bank capital ratios under current regulatory guidance. On adoption, we had:


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

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

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

FASB ASU 2016-15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”
The Corporation adopted ASU 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-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.
FASB ASU 2016-1 (Subtopic 825-10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”
The Corporation adopted ASU 2016-1 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 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.
FASB ASU 2017-7 – Compensation – Retirement Benefits (Topic 715): “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”
On January 1, 2018, the Corporation adopted ASU 2017-7 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 within “Noninterest expenses”, there was no impact to total “Noninterest 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 2018-07: Compensation - Stock Compensation (Topic 718),2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”

Issued in June 2018, the FASB issued ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting.” The amendments in this update expandexpands 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 arebecame effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.us January 1, 2019. The adoption did not have an impact on our Consolidated Financial Statements and related disclosures as the Corporation has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting. As
Pronouncements Not Yet Effective:
FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016-13 (Topic 326 -Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”), eliminates the Provision for Loan and Lease Losses ("PLLL") and Allowance for Loan and Lease Losses ("ALLL") line items and establishes the Provision for Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.

Under the legacy “Incurred Loss” notion, management presents an ALLL intended to represent “probable and estimable” incurred but not yet realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific reserve is calculated under ASC 310-10. Management further calculates a general reserve for performing assets under ASC 450-20, using historical loss experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not allow for projections beyond the likely ‘emergence period’ of losses, or for forward-looking economic conditions; for example, loss contingencies in 2022 are not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.

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

The Corporation has engaged with a leading vendor to assist in computing and establishing the ACL, and management has completed the data gathering and model selection efforts, with continued effort through 2019 to operationalize the practice for establishing the ACL and preparing its presentation. Significant additional quantitative analysis is included in management’s contemplated measurement regime, including examination of loss experience at representative peer institutions when the Corporation’s first-party loss history does not result in estimations that are meaningful to users of the Corporation’s

Consolidated Financial Statements. Preliminary evaluations were performed by discounting instrument-level cashflows adjusted for timing (e.g. prepayment) and credit (default and loss) expectations. Management will continue to evaluate other estimation methodologies and disaggregation approaches through the 2019 year.

The Corporation will comply with the new disclosure and presentation requirements enumerated in ASU 2016-13, including presentation of the vintage disclosure organizing certain credit performance data by year of origination/renewal (“policy year”).

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

Increases / decreases to the time period management deems reasonably and supportably forecastable
Inclusion / exclusion of forecast factors
Adverse changes to reasonable and supportable forecasts
Detectable increases / decreases in the Corporation’s or comparable industry credit loss parameters
Deterioration / improvement in the risk profile of the Corporation’s loan and lease portfolio
Decreased / increased prepayment behavior or other factors impacting loan and lease portfolio duration
Changes in credit risk through the ordinary course of operations, such as launch or expansion of higher risk-bearing products
Interest rate fluctuations impacting effective yield on certain instruments.

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

Ongoing financial statement behavior will be impacted by the standard, regardless of any cumulative-effect adjustment at adoption. Under our currently-contemplated cashflow projection model, assets will originate with a specific allocation for the contract life of that instrument, adjusted for prepayment behavior and probabilistic credit performance expectations to arrive at an expected cashflow projection. All else being equal, as that continues toward its contract maturity, estimates of lifetime credit loss at the instrument level will decrease. Under steady-state conditions, portfolio-segment-level aggregation of management’s expected loss estimates should be stable or track with portfolio-segment growth (contraction and runoff). When management’s expectations of the likely future economic environment change based on reasonable and supportable forecasts, portfolio allocation may increase (decrease) rapidly between periods. The establishment of the ACL will be more responsive to deteriorating (improving) economic conditions than prior establishment of the ALLL, which is based on historical experience and agnostic to future conditions. In dynamic economic environments, users of financial statements should expect expense (income) in the PCL to be concentrated in fewer quarters than was typical for the PLLL. Users of financial statements should be aware that this accounting treatment does not determine the ultimate, realized loss or recovery for assets in scope; ASU 2016-13 impacts timing and possibly the magnitude of the impact on our financial condition and results of operations in dynamic economic environments.

Criteria for establishment of specific reserves are still under evaluation. Specific reserve impact to instruments meeting the legacy “impairment” criteria are not anticipated to change, though the volume of such credits may change before the adoption date due to deterioration (improvement) of portfolio credit quality. Management is evaluating additional criteria to identify instruments for specific evaluation under the future standard’s broader allowable criteria.

Management does not expectcurrently plan to implement an accounting election to recognize changes in the adoption of this ASUACL valuation account due to have an impact on our Consolidated Financial Statements and related disclosures.timing (prepayment) behavior as interest income (expense).

FASB ASU 2017-42017-04 (Topic 350), “Intangibles – Goodwill and Others”
 
Issued in January 2017, ASU 2017-42017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-42017-04 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 2016-132018-12 (Topic 326)944), “Measurement of Credit Losses on Financial Instruments”“Targeted Improvements to the Accounting for Long-Duration Contracts”

Issued in June 2016,August 2018, ASU 2016-13 significantly2018-12 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 how companies measurein the liability for future policy benefits and recognize credit impairmentmodify the rate used to discount future cash flows, (2) simplify and improve the accounting for many financial assets. The new current expected credit loss (“CECL”) model will require companies to immediately recognize an estimatecertain market-based options or guarantees associated with deposit (or account balance) contracts, (3) simplify the amortization of credit losses expected to occur overdeferred acquisition costs, and (4) improve the remaining lifeeffectiveness of the financial assets that are in the scope of the standard. Therequired disclosures. ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities. ASU 2016-132018-12 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.

FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"

Issued in August 2018, ASU No. 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019, with early2019. Early adoption is permitted. Adoption of this new guidance can be applied onlyis required on both a prospective and retrospective basis as a cumulative-effect adjustment to retained earnings.
It is expected thatdepending on the new model will include different assumptions used in calculating credit losses, such as estimating losses overamendment. Management does not expect 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 naturehave a material impact on our Consolidated Financial Statements 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-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 validating historical data uploaded within the third-party software. 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.related disclosures.

FASB ASU 2016-22018-14 (Topic 842)715), “Leases”"Compensation-Retirement Benefits - Defined Benefit Plans-General"

Issued in February 2016,August 2018, the ASU 2016-2 revises2018-14, modifies, adds and removes certain disclosures aimed to improve the accounting relatedoverall usefulness of the disclosure requirements to lessee accounting. Under the newfinancial statement users. The 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 2016-2 is effective for the first interim period within annual periods beginning after December 15, 2018, with early2020. Early adoption is permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginningUse of the earliest comparative period presented in the financial statements.retrospective method is required. Management is in-process of refining and reviewing the key assumptions needed to finalize the calculation of the lease liability and a right-of-use asset for all existing leases of the Corporation. Management is aware thatdoes not expect 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 willto have a negativematerial impact on the Corporationour Consolidated Financial Statements and Bank capital ratios under current regulatory guidance.related disclosures.

FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"

Issued in August 2018, ASU No. 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. Management is currently evaluating the potential impact of ASU 2018-15 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
$750
Contingent payment liability (present value)706
706
Value of consideration$1,456
1,456
  
Assets acquired:  
Cash and due from banks370
370
Intangible assets - customer relationships779
779
Premises and equipment1
1
Other assets316
316
Total assets1,466
1,466
  
Liabilities assumed:  
Accounts payable657
657
Other liabilities30
30
Total liabilities$687
687
  
Net assets acquired$779
779
  
Goodwill resulting from acquisition of Domenick$677
$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 CorporationBMBC (the “RBPI Merger”“Effective Date”), and the merger of Royal Bank America with and into the Bank as contemplated by(collectively, the "RBPI Merger"), pursuant to the Agreement and Plan of Merger, by and between RBPI and the Corporation,BMBC, dated as of January 30, 2017 (the “Agreement”) werewas completed. In accordance with the Agreement, the aggregate share consideration paid to RBPI shareholders consisted of 3,101,316 shares of the Corporation’sBMBC’s common stock. Shareholders of RBPI received 0.1025 shares of CorporationBMBC common stock for each share of RBPI Class A common stock and 0.1179 shares of CorporationBMBC 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 thousand. Holders of in-the-money options to purchase RBPI Class A common stock received cash totaling $112 thousand. In addition, 1,368,040 warrants to purchase Class A common stock of RBPI, valued at $1.9 million were converted to 140,224 warrants to purchase CorporationBMBC 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 (3,101,316)$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
Loans567,308
Premises and equipment8,264
Deferred income taxes34,208
Bank-owned life insurance16,550
Core deposit intangible4,670
Favorable lease asset566
Other assets13,996
Total assets$784,241
  
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$63,382
  
Goodwill resulting from acquisition of RBPI$75,358
Provisional Estimates of Fair Value of Certain Assets Acquired in the RBPI Merger
As of June 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. 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 date is obtained and reviewed.

During the six months ended June 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, 2017 from the amounts originally reported in the Corporation’s 2017 Annual Report for the year ended December 31, 2017:

(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: 
Loans3,065
Other assets491
Deferred income taxes(1,073)
Total Fair Value Adjustments2,483
  
Goodwill from the acquisition of RBPI as of June 30, 2018$75,358
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 2017 Annual Report.
Loans held for investment
During the first quarter of 2018, new information became available related to certain loans acquired from RBPI, which resulted in an adjustment to the fair value mark applied to acquired loans with evidence of credit quality deterioration. There were no adjustments to the fair value mark applied to the acquired loan portfolio during the second quarter of 2018. 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 $3.0 million increase in nonaccretable difference in the first quarter of 2018. The adjustment to the aggregate expected cash flows less the acquisition date fair value resulted in an increase in accretable yield of $207 thousand.
The following table provides an updated summary of the acquired impaired loans and leases as of December 15, 2017, 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 collected22,379
Interest component of expected cash flows (accretable yield)(2,526)
Fair value of loans acquired with deterioration of credit quality$19,853
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”). The consideration paid by the Bank was $7.5 million, of which $5.8 million was paid at closing, with three contingent cash payments, not to exceed $575 thousand each, to be payable on each of May 24, 2018, May 24, 2019, and May 24, 2020, subject to the attainment of certain targets during the related periods. The acquisition enhanced the Bank’s ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted areas.

In connection with the Hirshorn acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:
(dollars in thousands)  
Consideration paid:  
Cash paid at closing$5,770
Contingent payment liability (present value)1,690
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 consideration7,460
138,740
  
Assets acquired:  
Cash operating accounts978
Intangible assets – trade name195
Intangible assets – customer relationships2,672
Intangible assets – non-competition agreements41
Cash and due from banks17,092
Investment securities available for sale121,587
Loans566,228
Premises and equipment1,795
8,264
Accounts receivable192
Deferred income taxes34,823
Bank-owned life insurance16,550
Core deposit intangible4,670
Favorable lease asset566
Other assets27
13,611
Total assets5,900
783,391
  
Liabilities assumed:  
Accounts payable800
Deposits593,172
FHLB and other long-term borrowings59,568
Short-term borrowings15,000
Junior subordinated debentures21,416
Unfavorable lease liability322
Other liabilities2
31,381
Total liabilities802
720,859
  
Net assets acquired5,098
62,532
  
Goodwill resulting from acquisition of Hirshorn$2,362
Goodwill resulting from acquisition of RBPI$76,208
 
As of December 31, 2017,2018, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the Hirshorn acquisitionRBPI merger 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 six months ended June 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.

(dollars in thousands)Three Months Ended
June 30, 2017		 Six Months Ended
June 30, 2017
Total interest income$42,337
 $83,564
Total interest expense4,971
 9,533
Net interest income37,366
 74,031
Provision for loan and lease losses(26) 562
Net interest income after provision for loan and lease losses37,392
 73,469
Total noninterest income15,728
 29,466
Total noninterest expenses*34,040
 66,335
Income before income taxes19,080
 36,600
Income tax expense6,526
 12,463
Net income$12,554
 $24,137
Per share data**:   
Weighted-average basic shares outstanding20,083,317
 20,068,185
Dilutive shares278,199
 267,210
Adjusted weighted-average diluted shares20,361,516
 20,335,395
Basic earnings per common share$0.63
 $1.20
Diluted earnings per common share$0.62
 $1.19
*Total noninterest 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 six month periods ended June 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 June 30, Six Months Ended June 30,Three Months Ended March 31,
(dollars in thousands)2018 2017 2018 20172019 2018
Advertising$2
 $19
 $61
 $19
$—
 $59
Employee Benefits68
 5
 271
 5
—
 203
Occupancy and bank premises289
 —
 2,145
 —
—
 1,856
Furniture, fixtures, and equipment186
 6
 365
 6
—
 179
Information technology142
 259
 254
 259
Data processing—
 112
Professional fees510
 542
 1,257
 938
—
 747
Salaries and wages477
 320
 823
 400
—
 346
Other1,378
 85
 2,195
 120
—
 817
Total due diligence, merger-related and merger integration expenses$3,052
 $1,236
 $7,371
 $1,747
$—
 $4,319









Note 4 -– Investment Securities
 
The amortized cost and fair value of investment securities available for sale as of June 30, 2018March 31, 2019 and December 31, 20172018 are as follows:
 
As of June 30, 2018March 31, 2019
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
U.S. Treasury securities$100
 $—
 $—
 $100
$100
 $—
 $—
 $100
Obligations of the U.S. government and agencies187,850
 21
 (4,615) 183,256
188,079
 103
 (1,436) 186,746
Obligations of state and political subdivisions17,483
 11
 (69) 17,425
8,644
 5
 (11) 8,638
Mortgage-backed securities298,704
 416
 (6,557) 292,563
323,610
 1,365
 (2,062) 322,913
Collateralized mortgage obligations38,077
 16
 (1,459) 36,634
40,995
 182
 (691) 40,486
Other investment securities1,100
 —
 (3) 1,097
1,100
 —
 —
 1,100
Total$543,314
 $464
 $(12,703) $531,075
$562,528
 $1,655
 $(4,200) $559,983
 
As of December 31, 20172018
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
U.S. Treasury securities$200,077
 $11
 $—
 $200,088
$200,026
 $—
 $(13) $200,013
Obligations of the U.S. government and agencies153,028
 75
 (2,059) 151,044
198,604
 107
 (2,856) 195,855
Obligations of state and political subdivisions21,352
 11
 (53) 21,310
11,372
 3
 (43) 11,332
Mortgage-backed securities275,958
 887
 (1,855) 274,990
294,076
 554
 (4,740) 289,890
Collateralized mortgage obligations37,596
 14
 (948) 36,662
40,150
 141
 (1,039) 39,252
Other investment securities4,813
 318
 (23) 5,108
1,100
 —
 —
 1,100
Total$692,824
 $1,316
 $(4,938) $689,202
$745,328
 $805
 $(8,691) $737,442
 












The following tables present the aggregate amount of gross unrealized losses as of June 30, 2018March 31, 2019 and December 31, 20172018 on available for sale investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:
 
As of June 30, 2018March 31, 2019
Less than 12
Months
 
12 Months
or Longer
 Total
Less than 12
Months
 
12 Months
or Longer
 Total
(dollars in thousands)
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses
Obligations of the U.S. government and agencies$154,255
 $(3,361) $28,237
 $(1,254) $182,492
 $(4,615)$—
 $—
 $141,114
 $(1,436) $141,114
 $(1,436)
Obligations of state and political subdivisions5,907
 (16) 1,563
 (53) 7,470
 (69)—
 —
 3,200
 (11) 3,200
 (11)
Mortgage-backed securities228,831
 (5,183) 37,068
 (1,374) 265,899
 (6,557)18,237
 (183) 193,339
 (1,879) 211,576
 (2,062)
Collateralized mortgage obligations6,800
 (130) 23,815
 (1,329) 30,615
 (1,459)—
 —
 25,944
 (691) 25,944
 (691)
Other investment securities797
 (3) —
 —
 797
 (3)
Total$396,590
 $(8,693) $90,683
 $(4,010) $487,273
 $(12,703)$18,237
 $(183) $363,597
 $(4,017) $381,834
 $(4,200)
 

As of December 31, 20172018
Less than 12
Months
 
12 Months
or Longer
 Total
Less than 12
Months
 
12 Months
or Longer
 Total
(dollars in thousands)
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses 
Fair
Value
 Unrealized Losses
U.S. Treasury securities$199,912
 $(13) $—
 $—
 $199,912
 $(13)
Obligations of the U.S. government and agencies$114,120
 $(1,294) $26,726
 $(765) $140,846
 $(2,059)12,916
 (62) 140,506
 (2,794) 153,422
 (2,856)
Obligations of state and political subdivisions11,144
 (29) 2,709
 (24) 13,853
 (53)—
 —
 3,989
 (43) 3,989
 (43)
Mortgage-backed securities177,919
 (1,293) 31,787
 (562) 209,706
 (1,855)43,276
 (352) 195,697
 (4,388) 238,973
 (4,740)
Collateralized mortgage obligations5,166
 (47) 26,686
 (901) 31,852
 (948)540
 (1) 27,077
 (1,038) 27,617
 (1,039)
Other investment securities1,805
 (23) —
 —
 1,805
 (23)
Total$310,154
 $(2,686) $87,908
 $(2,252) $398,062
 $(4,938)$256,644
 $(428) $367,269
 $(8,263) $623,913
 $(8,691)
 
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 June 30, 2018March 31, 2019 and December 31, 2017,2018, securities having a fair value of $127.2$120.4 million and $126.2$123.5 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the FRBFederal Reserve Board discount window program, FHLBFederal Home Loan Bank ("FHLB") borrowings and other purposes. Advances by the FHLB are collateralized by a blanket lien on non-pledged, mortgage-related loans as part of the Corporation’s borrowing agreement with the FHLB as well as certain securities individually pledged by the Corporation.
 
The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of June 30, 2018March 31, 2019 and December 31, 2017,2018, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(dollars in thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Investment securities:              
Due in one year or less$10,137
 $10,132
 $211,019
 $211,019
$9,055
 $9,041
 $209,129
 $209,099
Due after one year through five years165,647
 161,611
 126,452
 124,797
166,223
 165,027
 180,657
 177,972
Due after five years through ten years16,539
 16,099
 23,147
 22,804
10,098
 10,126
 7,258
 7,268
Due after ten years14,210
 14,036
 15,439
 15,421
12,547
 12,390
 14,058
 13,961
Subtotal206,533
 201,878
 376,057
 374,041
197,923
 196,584
 411,102
 408,300
Mortgage-related securities(1)
336,781
 329,197
 313,554
 311,652
364,605
 363,399
 334,226
 329,142
Mutual funds with no stated maturity—
 —
 3,213
 3,509
Total$543,314
 $531,075
 $692,824
 $689,202
$562,528
 $559,983
 $745,328
 $737,442
 
(1) Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 



The amortized cost and fair value of investment securities held to maturity as of June 30, 2018March 31, 2019 and December 31, 20172018 are as follows:
 
As of June 30, 2018March 31, 2019
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Mortgage-backed securities$7,838
 $—
 $(291) $7,547
$10,457
 $10
 $(143) $10,324
 
As of December 31, 20172018
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Mortgage-backed securities$7,932
 $5
 $(86) $7,851
$8,684
 $—
 $(246) $8,438
 
The following tables present the aggregate amount of gross unrealized losses as of June 30, 2018March 31, 2019 and December 31, 20172018 on held to maturity securities classified according to the amount of time those securities have been in a continuous unrealized loss position:
 
As of June 30, 2018March 31, 2019
Less than 12
Months
 
12 Months
or Longer
 Total
Less than 12
Months
 
12 Months
or Longer
 Total
(dollars in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Mortgage-backed securities$4,900
 $(167) $2,647
 $(124) $7,547
 $(291)$1,814
 $(13) $7,187
 $(130) $9,001
 $(143)
 
As of December 31, 20172018
Less than 12
Months
 
12 Months
or Longer
 Total
Less than 12
Months
 
12 Months
or Longer
 Total
(dollars in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Mortgage-backed securities$2,756
 $(25) $3,866
 $(61) $6,622
 $(86)$1,315
 $(4) $7,123
 $(242) $8,438
 $(246)
 





The amortized cost and fair value of held to maturity investment securities as of June 30, 2018March 31, 2019 and December 31, 2017,2018, by contractual maturity, are shown below:
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(dollars in thousands)
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
Mortgage-backed securities(1)
$7,838
 $7,547
 $7,932
 $7,851
$10,457
 $10,324
 $8,684
 $8,438
 
(1) Expected maturities of mortgage-related securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the Corporation’s investment securities held in trading accounts totaled $8.2 million and $4.6$7.5 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 the first quarter of 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.






Note5-– Loans and Leases
 
The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers andprior 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 details portfolio loans and leases as of the dates indicated:
 
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(dollars in thousands)Originated Acquired Total Loans and Leases Originated Acquired Total Loans and LeasesOriginated Acquired Total Loans and Leases Originated Acquired Total Loans and Leases
Loans held for sale$4,204
 $—
 $4,204
 $3,794
 $—
 $3,794
$2,884
 $—
 $2,884
 $1,749
 $—
 $1,749
Real Estate Loans:                      
Commercial mortgage$1,237,885
 $375,836
 $1,613,721
 $1,122,327
 $401,050
 $1,523,377
$1,436,611
 $310,084
 $1,746,695
 $1,327,822
 $329,614
 $1,657,436
Home equity lines and loans176,771
 29,658
 206,429
 183,283
 34,992
 218,275
180,075
 24,716
 204,791
 181,506
 25,845
 207,351
Residential mortgage358,271
 90,789
 449,060
 360,935
 97,951
 458,886
423,638
 78,741
 502,379
 411,022
 83,333
 494,355
Construction147,636
 43,238
 190,874
 128,266
 84,188
 212,454
157,572
 2,189
 159,761
 174,592
 6,486
 181,078
Total real estate loans$1,920,563
 $539,521
 $2,460,084
 $1,794,811
 $618,181
 $2,412,992
$2,197,896
 $415,730
 $2,613,626
 $2,094,942
 $445,278
 $2,540,220
Commercial and industrial632,917
 112,389
 745,306
 589,304
 130,008
 719,312
651,204
 54,497
 705,701
 624,643
 70,941
 695,584
Consumer49,828
 1,634
 51,462
 35,146
 3,007
 38,153
45,229
 2,592
 47,821
 44,099
 2,715
 46,814
Leases97,506
 35,143
 132,649
 68,035
 47,366
 115,401
137,941
 18,425
 156,366
 121,567
 22,969
 144,536
Total portfolio loans and leases$2,700,814
 $688,687
 $3,389,501
 $2,487,296
 $798,562
 $3,285,858
$3,032,270
 $491,244
 $3,523,514
 $2,885,251
 $541,903
 $3,427,154
Total loans and leases$2,705,018
 $688,687
 $3,393,705
 $2,491,090
 $798,562
 $3,289,652
$3,035,154
 $491,244
 $3,526,398
 $2,887,000
 $541,903
 $3,428,903
Loans with fixed rates$1,127,713
 $412,461
 $1,540,174
 $1,034,542
 $538,510
 $1,573,052
$1,252,613
 $288,679
 $1,541,292
 $1,204,070
 $323,604
 $1,527,674
Loans with adjustable or floating rates1,577,305
 276,226
 1,853,531
 1,456,548
 260,052
 1,716,600
1,782,541
 202,565
 1,985,106
 1,682,930
 218,299
 1,901,229
Total loans and leases$2,705,018
 $688,687
 $3,393,705
 $2,491,090
 $798,562
 $3,289,652
$3,035,154
 $491,244
 $3,526,398
 $2,887,000
 $541,903
 $3,428,903
Net deferred loan origination fees included in the above loan table$1,200
 $—
 $1,200
 $887
 $—
 $887
$750
 $—
 $750
 $2,226
 $—
 $2,226
 
B. Components of the net investment in leases are detailed as follows:
 
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(dollars in thousands)Originated Acquired Total Leases Originated Acquired Total LeasesOriginated Acquired Total Leases Originated Acquired Total Leases
Minimum lease payments receivable$108,718
 $39,656
 $148,374
 $75,592
 $55,219
 $130,811
$153,559
 $20,244
 $173,803
 $135,313
 $25,372
 $160,685
Unearned lease income(15,735) (5,534) (21,269) (10,338) (9,523) (19,861)(21,737) (2,270) (24,007) (19,388) (3,005) (22,393)
Initial direct costs and deferred fees4,523
 1,021
 5,544
 2,781
 1,670
 4,451
6,119
 451
 6,570
 5,642
 602
 6,244
Total Leases$97,506
 $35,143
 $132,649
 $68,035
 $47,366
 $115,401
$137,941
 $18,425
 $156,366
 $121,567
 $22,969
 $144,536
 

















C. Non-Performing Loans and Leases(1)  
 
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(dollars in thousands)Originated Acquired Total Loans and Leases Originated Acquired Total Loans and LeasesOriginated Acquired Total Loans and Leases Originated Acquired Total Loans and Leases
Commercial mortgage$—
 $1,011
 $1,011
 $90
 $782
 $872
$3,458
 $2,100
 $5,558
 $435
 $2,133
 $2,568
Home equity lines and loans1,833
 490
 2,323
 1,221
 260
 1,481
6,878
 26
 6,904
 3,590
 26
 3,616
Residential mortgage1,615
 1,032
 2,647
 1,505
 2,912
 4,417
2,293
 570
 2,863
 2,813
 639
 3,452
Commercial and industrial1,011
 574
 1,585
 826
 880
 1,706
2,657
 308
 2,965
 1,786
 315
 2,101
Consumer36
 44
 80
 45
 63
 108
Leases575
 1,307
 1,882
 103
 —
 103
429
 484
 913
 392
 583
 975
Total non-performing loans and leases$5,034
 $4,414
 $9,448
 $3,745
 $4,834
 $8,579
$15,751
 $3,532
 $19,283
 $9,061
 $3,759
 $12,820
 
(1) Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with theexception of$87 thousandand $167 thousand of purchased credit-impaired loans as of June 30, 2018 and December 31, 2017,respectively, which became non-performing subsequent to acquisition.

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, 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)June 30,
2018		 December 31,
2017
Outstanding principal balance$38,791
 $46,543
Carrying amount(1)
$27,601
 $30,849
(1) Includes $88 thousand and $173 thousand of purchased credit-impaired loans as of June 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 $87 thousand and $167 thousand of purchased credit-impaired loans as of June 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.
(dollars in thousands)March 31,
2019		 December 31,
2018
Outstanding principal balance$15,845
 $17,904
Carrying amount$11,553
 $12,304
 
The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Corporation applies ASC 310-30, for the sixthree months ended June 30, 2018:March 31, 2019: 
(dollars in thousands)
Accretable
Discount
Accretable
Discount
Balance, December 31, 2017$4,083
Balance, December 31, 2018$2,697
Accretion(1,361)(247)
Reclassifications from nonaccretable difference110
76
Additions/adjustments211
—
Disposals—
(108)
Balance, June 30, 2018$3,043
Balance, March 31, 2019$2,418
 










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    Accruing Loans and Leases    
As of June 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
As of March 31, 2019
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands)
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current* 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
 
Commercial mortgage $1,106
 $—
 $—
 $1,106
 $1,740,031
 $1,741,137
 $5,558
 $1,746,695
Home equity lines and loans—
 —
 —
 —
 204,106
 204,106
 2,323
 206,429
376
 144
 —
 520
 197,367
 197,887
 6,904
 204,791
Residential mortgage891
 127
 —
 1,018
 445,395
 446,413
 2,647
 449,060
2,357
 320
 —
 2,677
 496,839
 499,516
 2,863
 502,379
Construction2,854
 1,083
 —
 3,937
 186,937
 190,874
 —
 190,874
—
 —
 —
 —
 159,761
 159,761
 —
 159,761
Commercial and industrial832
 163
 —
 995
 742,726
 743,721
 1,585
 745,306
749
 15
 —
 764
 701,972
 702,736
 2,965
 705,701
Consumer19
 —
 —
 19
 51,443
 51,462
 —
 51,462
64
 64
 —
 128
 47,613
 47,741
 80
 47,821
Leases786
 829
 —
 1,615
 129,152
 130,767
 1,882
 132,649
971
 265
 —
 1,236
 154,217
 155,453
 913
 156,366
Total portfolio loans and leases$8,027
 $2,352
 $—
 $10,379
 $3,369,674
 $3,380,053
 $9,448
 $3,389,501
$5,623
 $808
 $—
 $6,431
 $3,497,800
 $3,504,231
 $19,283
 $3,523,514
  

Accruing Loans and Leases    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
As of December 31, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 
Current(1)
 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands)
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 $821
 $251
 $—
 $1,072
 $1,653,796
 $1,654,868
 $2,568
 $1,657,436
Home equity lines and loans338
 10
 —
 348
 216,446
 216,794
 1,481
 218,275
92
 —
 —
 92
 203,643
 203,735
 3,616
 207,351
Residential mortgage1,386
 79
 —
 1,465
 453,004
 454,469
 4,417
 458,886
2,330
 218
 —
 2,548
 488,355
 490,903
 3,452
 494,355
Construction—
 —
 —
 —
 212,454
 212,454
 —
 212,454
—
 —
 —
 —
 181,078
 181,078
 —
 181,078
Commercial and industrial658
 286
 —
 944
 716,662
 717,606
 1,706
 719,312
280
 332
 —
 612
 692,871
 693,483
 2,101
 695,584
Consumer1,106
 —
 —
 1,106
 37,047
 38,153
 —
 38,153
35
 5
 —
 40
 46,666
 46,706
 108
 46,814
Leases125
 177
 —
 302
 114,996
 115,298
 103
 115,401
641
 460
 —
 1,101
 142,460
 143,561
 975
 144,536
Total portfolio loans and leases$4,979
 $2,980
 $—
 $7,959
 $3,269,320
 $3,277,279
 $8,579
 $3,285,858
$4,199
 $1,266
 $—
 $5,465
 $3,408,869
 $3,414,334
 $12,820
 $3,427,154
 
*(1) Included as “current” are $6.5 million and $4.1$3.2 million of loans and leases as of June 30, 2018 and December 31, 2017, respectively,2018 which arewere classified as administratively delinquent. An administratively delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. Management does not consider these loans to be delinquent.

The following tables present an aging of originated portfolio loans and leases as of the dates indicated:
Accruing Loans and Leases    Accruing Loans and Leases    
As of June 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
As of March 31, 2019
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands)
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current* 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
 
Commercial mortgage $1,106
 $—
 $—
 $1,106
 $1,432,047
 $1,433,153
 $3,458
 $1,436,611
Home equity lines and loans—
 —
 —
 —
 174,938
 174,938
 1,833
 176,771
231
 144
 —
 375
 172,822
 173,197
 6,878
 180,075
Residential mortgage626
 64
 —
 690
 355,966
 356,656
 1,615
 358,271
1,735
 233
 —
 1,968
 419,377
 421,345
 2,293
 423,638
Construction2,854
 1,083
 —
 3,937
 143,699
 147,636
 —
 147,636
—
 —
 —
 —
 157,572
 157,572
 —
 157,572
Commercial and industrial766
 —
 —
 766
 631,140
 631,906
 1,011
 632,917
520
 15
 —
 535
 648,012
 648,547
 2,657
 651,204
Consumer19
 —
 —
 19
 49,809
 49,828
 —
 49,828
25
 64
 —
 89
 45,104
 45,193
 36
 45,229
Leases311
 508
 —
 819
 96,112
 96,931
 575
 97,506
695
 206
 —
 901
 136,611
 137,512
 429
 137,941
Total originated portfolio loans and leases$6,683
 $1,732
 $—
 $8,415
 $2,687,365
 $2,695,780
 $5,034
 $2,700,814
$4,312
 $662
 $—
 $4,974
 $3,011,545
 $3,016,519
 $15,751
 $3,032,270
 

Accruing Loans and Leases    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
As of December 31, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 
Current(1)
 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands)
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 $816
 $251
 $—
 $1,067
 $1,326,320
 $1,327,387
 $435
 $1,327,822
Home equity lines and loans26
 —
 —
 26
 182,036
 182,062
 1,221
 183,283
25
 —
 —
 25
 177,891
 177,916
 3,590
 181,506
Residential mortgage721
 —
 —
 721
 358,709
 359,430
 1,505
 360,935
1,545
 —
 —
 1,545
 406,664
 408,209
 2,813
 411,022
Construction—
 —
 —
 —
 128,266
 128,266
 —
 128,266
—
 —
 —
 —
 174,592
 174,592
 —
 174,592
Commercial and industrial439
 236
 —
 675
 587,803
 588,478
 826
 589,304
280
 332
 —
 612
 622,245
 622,857
 1,786
 624,643
Consumer21
 —
 —
 21
 35,125
 35,146
 —
 35,146
35
 5
 —
 40
 44,014
 44,054
 45
 44,099
Leases125
 177
 —
 302
 67,630
 67,932
 103
 68,035
350
 233
 —
 583
 120,592
 121,175
 392
 121,567
Total originated portfolio loans and leases$2,587
 $494
 $—
 $3,081
 $2,480,470
 $2,483,551
 $3,745
 $2,487,296
$3,051
 $821
 $—
 $3,872
 $2,872,318
 $2,876,190
 $9,061
 $2,885,251
 
*(1) Included as “current” are $6.2 million and $4.0$2.0 million of loans and leases as of June 30, 2018 and December 31, 2017, respectively,2018 which arewere classified as administratively delinquent. An administratively delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. Management does not consider these loans to be delinquent.
 



The following tables present an aging of acquired portfolio loans and leases as of the dates indicated:
Accruing Loans and Leases    Accruing Loans and Leases    
As of June 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
As of March 31, 2019
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands)
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 Current* 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
 
Commercial mortgage $—
 $—
 $—
 $—
 $307,984
 $307,984
 $2,100
 $310,084
Home equity lines and loans—
 —
 —
 —
 29,168
 29,168
 490
 29,658
145
 —
 —
 145
 24,545
 24,690
 26
 24,716
Residential mortgage265
 63
 —
 328
 89,429
 89,757
 1,032
 90,789
622
 87
 —
 709
 77,462
 78,171
 570
 78,741
Construction—
 —
 —
 —
 43,238
 43,238
 —
 43,238
—
 —
 —
 —
 2,189
 2,189
 —
 2,189
Commercial and industrial66
 163
 —
 229
 111,586
 111,815
 574
 112,389
229
 —
 —
 229
 53,960
 54,189
 308
 54,497
Consumer—
 —
 —
 —
 1,634
 1,634
 —
 1,634
39
 —
 —
 39
 2,509
 2,548
 44
 2,592
Leases475
 321
 —
 796
 33,040
 33,836
 1,307
 35,143
276
 59
 —
 335
 17,606
 17,941
 484
 18,425
Total acquired portfolio loans and leases$1,344
 $620
 $—
 $1,964
 $682,309
 $684,273
 $4,414
 $688,687
$1,311
 $146
 $—
 $1,457
 $486,255
 $487,712
 $3,532
 $491,244
 
Accruing Loans and Leases    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
As of December 31, 2018
30 – 59
Days
Past Due
 
60 – 89
Days
Past Due
 
Over 89
Days
Past Due
 
Total Past
Due
 
Current(1)
 
Total Accruing
Loans and Leases
 
Nonaccrual
Loans and Leases
 
Total
Loans and Leases
(dollars in thousands)
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 $5
 $—
 $—
 $5
 $327,476
 $327,481
 $2,133
 $329,614
Home equity lines and loans312
 10
 —
 322
 34,410
 34,732
 260
 34,992
67
 —
 —
 67
 25,752
 25,819
 26
 25,845
Residential mortgage665
 79
 —
 744
 94,295
 95,039
 2,912
 97,951
785
 218
 —
 1,003
 81,691
 82,694
 639
 83,333
Construction—
 —
 —
 —
 84,188
 84,188
 —
 84,188
—
 —
 —
 —
 6,486
 6,486
 —
 6,486
Commercial and industrial219
 50
 —
 269
 128,859
 129,128
 880
 130,008
—
 —
 —
 —
 70,626
 70,626
 315
 70,941
Consumer1,085
 —
 —
 1,085
 1,922
 3,007
 —
 3,007
—
 —
 —
 —
 2,652
 2,652
 63
 2,715
Leases—
 —
 —
 —
 47,366
 47,366
 —
 47,366
291
 227
 —
 518
 21,868
 22,386
 583
 22,969
Total acquired portfolio loans and leases$2,392
 $2,486
 $—
 $4,878
 $788,850
 $793,728
 $4,834
 $798,562
$1,148
 $445
 $—
 $1,593
 $536,551
 $538,144
 $3,759
 $541,903
 
*(1) Included as “current” are $297 thousand and $102 thousand$1.2 million of loans and leases as of June 30, 2018 and December 31, 2017, respectively,2018 which arewere classified as administratively delinquent. An administratively delinquent loan is one which has been approved for a renewal or extension but has not had all the required documents fully executed as of the reporting date. Management does not consider these loans to be delinquent.


F. Allowance for Loan and Lease Losses (the “Allowance”)
 
The following tables detail the roll-forward of the Allowance for the three and six months ended June 30, 2018March 31, 2019 and 2017:2018:
(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,
2017		$7,550
 $1,086
 $1,926
 $937
 $5,038
 $246
 $742
 $—
 $17,525
Balance,
December 31, 2018		$7,567
 $1,003
 $1,813
 $1,485
 $5,461
 $229
 $1,868
 $—
 $19,426
Charge-offs(16) (225) —
 —
 (750) (92) (1,348) —
 (2,431)(1,388) (47) (331) —
 (405) (105) (568) —
 (2,844)
Recoveries6
 1
 1
 2
 1
 3
 123
 —
 137
15
 1
 1
 1
 15
 11
 254
 —
 298
Provision for loan and lease losses493
 71
 6
 219
 1,383
 132
 1,863
 —
 4,167
2,047
 81
 408
 (300) 817
 193
 490
 —
 3,736
Balance,
June 30, 2018		$8,033
 $933
 $1,933
 $1,158
 $5,672
 $289
 $1,380
 $—
 $19,398
Balance,
March 31, 2019		$8,241
 $1,038
 $1,891
 $1,186
 $5,888
 $328
 $2,044
 $—
 $20,616


(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,
March 31, 2018		$7,174
 $1,045
 $1,898
 $844
 $5,361
 $291
 $1,049
 $—
 $17,662
Balance,
December 31, 2017		$7,550
 $1,086
 $1,926
 $937
 $5,038
 $246
 $742
 $—
 $17,525
Charge-offs(16) (200) —
 —
 (467) (43) (751) —
 (1,477)—
 (25) —
 —
 (283) (49) (596) —
 (953)
Recoveries3
 1
 1
 1
 —
 2
 68
 —
 76
3
 —
 —
 1
 —
 1
 55
 —
 60
Provision for loan and lease losses872
 87
 34
 313
 778
 39
 1,014
 —
 3,137
(379) (16) (28) (94) 606
 93
 848
 —
 1,030
Balance,
June 30, 2018		$8,033
 $933
 $1,933
 $1,158
 $5,672
 $289
 $1,380
 $—
 $19,398
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
Balance,
December 31,
2016		$6,227
 $1,255
 $1,917
 $2,233
 $5,142
 $153
 $559
 $—
 $17,486
Charge-offs—
 (606) (70) —
 (259) (59) (513) —
 (1,507)
Recoveries6
 —
 —
 2
 15
 4
 185
 —
 212
Provision for loan and lease losses375
 565
 (71) (1,124) (85) 79
 469
 —
 208
Balance,
June 30, 2017		$6,608
 $1,214
 $1,776
 $1,111
 $4,813
 $177
 $700
 $—
 $16,399

(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
Balance,
March 31, 2017		$6,410
 $1,243
 $1,798
 $2,195
 $4,747
 $135
 $579
 $—
 $17,107
Charge-offs—
 (169) (43) —
 (200) (18) (307) —
 (737)
Recoveries3
 —
 —
 1
 15
 2
 91
 —
 112
Provision for loan and lease losses195
 140
 21
 (1,085) 251
 58
 337
 —
 (83)
Balance,
June 30, 2017		$6,608
 $1,214
 $1,776
 $1,111
 $4,813
 $177
 $700
 $—
 $16,399


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 June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
As of
March 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total 
Allowance on loans and leases:                  
Individually evaluated for impairment$—
 $19
 $299
 $—
 $104
 $4
 $—
 $—
 $426
$—
 $149
 $259
 $—
 $160
 $37
 $—
 $—
 $605
Collectively evaluated for impairment8,033
 914
 1,634
 1,158
 5,568
 285
 1,380
 —
 18,972
8,241
 889
 1,632
 1,186
 5,728
 291
 2,044
 —
 20,011
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
 —
Total$8,033
 $933
 $1,933
 $1,158
 $5,672
 $289
 $1,380
 $—
 $19,398
$8,241
 $1,038
 $1,891
 $1,186
 $5,888
 $328
 $2,044
 $—
 $20,616
 
(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
As of
December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Unallocated Total 
Allowance on loans and leases:                  
Individually evaluated for impairment$—
 $19
 $230
 $—
 $5
 $4
 $—
 $—
 $258
$—
 $162
 $272
 $—
 $—
 $28
 $—
 $—
 $462
Collectively evaluated for impairment7,550
 1,067
 1,696
 937
 5,033
 242
 742
 —
 17,267
7,567
 841
 1,541
 1,485
 5,461
 201
 1,868
 —
 18,964
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
 —
Total$7,550
 $1,086
 $1,926
 $937
 $5,038
 $246
 $742
 $—
 $17,525
$7,567
 $1,003
 $1,813
 $1,485
 $5,461
 $229
 $1,868
 $—
 $19,426

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




The following tables detail the carrying value for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
As of
March 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Carrying value of loans and leases:                
Individually evaluated for impairment$1,011
 $2,995
 $5,603
 $—
 $1,864
 $27
 $—
 $11,500
$5,558
 $8,291
 $6,106
 $—
 $3,358
 $106
 $—
 $23,419
Collectively evaluated for impairment1,603,381
 202,923
 443,457
 188,474
 728,081
 51,435
 132,649
 3,350,400
1,731,170
 195,986
 496,271
 159,761
 701,293
 47,715
 156,366
 3,488,562
Purchased credit-impaired(1)
9,329
 511
 —
 2,400
 15,361
 —
 —
 27,601
9,967
 514
 2
 —
 1,050
 —
 —
 11,533
Total$1,613,721
 $206,429
 $449,060
 $190,874
 $745,306
 $51,462
 $132,649
 $3,389,501
$1,746,695
 $204,791
 $502,379
 $159,761
 $705,701
 $47,821
 $156,366
 $3,523,514

(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
 
As of December 31, 2017Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
As of
December 31, 2018		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
(dollars in thousands)Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total 
Carrying value of loans and leases:                
Individually evaluated for impairment$2,128
 $2,162
 $7,726
 $—
 $1,897
 $27
 $—
 $13,940
$7,008
 $4,998
 $6,608
 $—
 $2,629
 $134
 $—
 $21,377
Collectively evaluated for impairment1,503,825
 215,604
 451,160
 204,088
 712,865
 38,126
 115,401
 3,241,069
1,642,117
 201,841
 487,747
 178,673
 691,879
 46,680
 144,536
 3,393,473
Purchased credit-impaired(1)
17,424
 509
 —
 8,366
 4,550
 —
 —
 30,849
8,311
 512
 —
 2,405
 1,076
 —
 —
 12,304
Total$1,523,377
 $218,275
 $458,886
 $212,454
 $719,312
 $38,153
 $115,401
 $3,285,858
$1,657,436
 $207,351
 $494,355
 $181,078
 $695,584
 $46,814
 $144,536
 $3,427,154
 

(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
 
 
The following tables detail the allocation of the Allowance for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
As of
March 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Allowance on loans and leases:                
Individually evaluated for impairment$—
 $19
 $182
 $—
 $4
 $4
 $—
 $209
$—
 $149
 $170
 $—
 $160
 $37
 $—
 $516
Collectively evaluated for impairment8,033
 914
 1,634
 1,158
 5,568
 285
 1,380
 18,972
8,241
 889
 1,632
 1,186
 5,728
 291
 2,036
 20,003
Total$8,033
 $933
 $1,816
 $1,158
 $5,572
 $289
 $1,380
 $19,181
$8,241
 $1,038
 $1,802
 $1,186
 $5,888
 $328
 $2,036
 $20,519
 

As of December 31, 2017
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
As of
December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Allowance on loans and leases:                
Individually evaluated for impairment$—
 $19
 $180
 $—
 $5
 $4
 $—
 $208
$—
 $162
 $175
 $—
 $—
 $28
 $—
 $365
Collectively evaluated for impairment7,550
 1,067
 1,696
 937
 5,033
 242
 742
 17,267
7,567
 841
 1,541
 1,485
 5,461
 201
 1,868
 18,964
Total$7,550
 $1,086
 $1,876
 $937
 $5,038
 $246
 $742
 $17,475
$7,567
 $1,003
 $1,716
 $1,485
 $5,461
 $229
 $1,868
 $19,329
 

The following tables detail the carrying value for originated portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
As of
March 31, 2019		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
(dollars in thousands)Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total 
Carrying value of loans and leases:                
Individually evaluated for impairment$—
 $2,505
 $3,974
 $—
 $1,377
 $27
 $—
 $7,883
$3,458
 $8,265
 $4,719
 $—
 $3,050
 $62
 $—
 $19,554
Collectively evaluated for impairment1,237,885
 174,266
 354,297
 147,636
 631,540
 49,801
 97,506
 2,692,931
1,433,153
 171,810
 418,919
 157,572
 648,154
 45,167
 137,941
 3,012,716
Total$1,237,885
 $176,771
 $358,271
 $147,636
 $632,917
 $49,828
 $97,506
 $2,700,814
$1,436,611
 $180,075
 $423,638
 $157,572
 $651,204
 $45,229
 $137,941
 $3,032,270
 
As of December 31, 2017Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
As of
December 31, 2018		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total
(dollars in thousands)Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction Commercial
and
Industrial		 Consumer Leases Total 
Carrying value of loans and leases:                
Individually evaluated for impairment$1,345
 $1,902
 $4,418
 $—
 $1,186
 $27
 $—
 $8,878
$4,874
 $4,972
 $5,106
 $—
 $2,314
 $71
 $—
 $17,337
Collectively evaluated for impairment1,120,982
 181,381
 356,517
 128,266
 588,118
 35,119
 68,035
 2,478,418
1,322,948
 176,534
 405,916
 174,592
 622,329
 44,028
 121,567
 2,867,914
Total$1,122,327
 $183,283
 $360,935
 $128,266
 $589,304
 $35,146
 $68,035
 $2,487,296
$1,327,822
 $181,506
 $411,022
 $174,592
 $624,643
 $44,099
 $121,567
 $2,885,251
 

The following tables detail the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total
As of
March 31, 2019		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Allowance on loans and leases:                
Individually evaluated for impairment$—
 $—
 $117
 $—
 $100
 $—
 $—
 $217
$—
 $—
 $89
 $—
 $—
 $—
 $—
 $89
Collectively evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 8
 8
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
Total$—
 $—
 $117
 $—
 $100
 $—
 $—
 $217
$—
 $—
 $89
 $—
 $—
 $—
 $8
 $97

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

As of December 31, 2017Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total
As of
December 31, 2018		Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)Commercial
Mortgage		 Home Equity
Lines and
Loans		 Residential
Mortgage		 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Allowance on loans and leases:                
Individually evaluated for impairment$—
 $—
 $50
 $—
 $—
 $—
 $—
 $50
$—
 $—
 $97
 $—
 $—
 $—
 $—
 $97
Collectively evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
Purchased credit-impaired(1)
—
 —
 —
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
 —
Total$—
 $—
 $50
 $—
 $—
 $—
 $—
 $50
$—
 $—
 $97
 $—
 $—
 $—
 $—
 $97

(1) Purchased credit-impaired loans are evaluated for impairment on an individual basis.
 
The following tables detail the carrying value for acquired portfolio loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
As of
March 31, 2019
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Carrying value of loans and leases:                
Individually evaluated for impairment$1,011
 $490
 $1,629
 $—
 $487
 $—
 $—
 $3,617
$2,100
 $26
 $1,387
 $—
 $308
 $44
 $—
 $3,865
Collectively evaluated for impairment365,496
 28,657
 89,160
 40,838
 96,541
 1,634
 35,143
 657,469
298,017
 24,176
 77,352
 2,189
 53,139
 2,548
 18,425
 475,846
Purchased credit-impaired(1)
9,329
 511
 —
 2,400
 15,361
 —
 —
 27,601
9,967
 514
 2
 —
 1,050
 —
 —
 11,533
Total$375,836
 $29,658
 $90,789
 $43,238
 $112,389
 $1,634
 $35,143
 $688,687
$310,084
 $24,716
 $78,741
 $2,189
 $54,497
 $2,592
 $18,425
 $491,244

(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
As of
December 31, 2018
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total
(dollars in thousands)
Commercial
Mortgage
 
Home Equity
Lines and
Loans
 
Residential
Mortgage
 Construction 
Commercial
and
Industrial
 Consumer Leases Total 
Carrying value of loans and leases:                
Individually evaluated for impairment$783
 $260
 $3,308
 $—
 $711
 $—
 $—
 $5,062
$2,134
 $26
 $1,502
 $—
 $315
 $63
 $—
 $4,040
Collectively evaluated for impairment382,843
 34,223
 94,643
 75,822
 124,747
 3,007
 47,366
 762,651
319,169
 25,307
 81,831
 4,081
 69,550
 2,652
 22,969
 525,559
Purchased credit-impaired(1)
17,424
 509
 —
 8,366
 4,550
 —
 —
 30,849
8,311
 512
 —
 2,405
 1,076
 —
 —
 12,304
Total$401,050
 $34,992
 $97,951
 $84,188
 $130,008
 $3,007
 $47,366
 $798,562
$329,614
 $25,845
 $83,333
 $6,486
 $70,941
 $2,715
 $22,969
 $541,903

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

As part of the process of determining the Allowance 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.
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 June 30, 2018March 31, 2019 and December 31, 2017:2018:
Credit Risk Profile by Internally Assigned Grade
 Commercial Mortgage Construction Commercial and Industrial Total
(dollars in thousands)June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Pass$1,585,083
 $1,490,862
 $180,805
 $193,227
 $726,009
 $711,145
 $2,491,897
 $2,395,234
Special Mention2,357
 13,448
 2,208
 3,902
 230
 889
 4,795
 18,239
Substandard25,717
 18,194
 7,861
 15,325
 18,797
 6,013
 52,375
 39,532
Doubtful564
 873
 —
 —
 270
 1,265
 834
 2,138
Total$1,613,721
 $1,523,377
 $190,874
 $212,454
 $745,306
 $719,312
 $2,549,901
 $2,455,143
  Credit Risk Profile by Internally Assigned Grade - All Loans and Leases
As of March 31, 2019  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $1,714,426
 $10,571
 $21,292
 $406
 $1,746,695
Home equity loans and lines 197,373
 —
 7,418
 —
 204,791
Residential 499,339
 —
 3,040
 —
 502,379
Construction 152,120
 937
 6,704
 —
 159,761
Commercial & Industrial 691,708
 2,581
 11,412
 —
 705,701
Consumer 47,195
 —
 626
 —
 47,821
Leases 155,453
 —
 913
 —
 156,366
Total $3,457,614
 $14,089
 $51,405
 $406
 $3,523,514
Credit Risk Profile by Payment Activity
Residential Mortgage Home Equity Lines
and Loans		 Consumer Leases Total Credit Risk Profile by Internally Assigned Grade - All Loans and Leases
As of December 31, 2018  
(dollars in thousands)
June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 Pass Special Mention Substandard Doubtful Total
Performing$446,413
 $454,469
 $204,106
 $216,794
 $51,462
 $38,153
 $130,767
 $115,298
 $832,748
 $824,714
Non-performing2,647
 4,417
 2,323
 1,481
 —
 —
 1,882
 103
 6,852
 6,001
Commercial mortgage $1,635,068
 $631
 $20,639
 $1,098
 $1,657,436
Home equity loans and lines 203,037
 —
 4,314
 —
 207,351
Residential 490,789
 —
 3,566
 —
 494,355
Construction 171,353
 938
 8,787
 —
 181,078
Commercial & Industrial 684,444
 2,737
 8,402
 1
 695,584
Consumer 46,588
 —
 226
 —
 46,814
Leases 143,561
 —
 975
 —
 144,536
Total$449,060
 $458,886
 $206,429
 $218,275
 $51,462
 $38,153
 $132,649
 $115,401
 $839,600
 $830,715
 $3,374,840
 $4,306
 $46,909
 $1,099
 $3,427,154







The following tables detail the carrying value of originated portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
Credit Risk Profile by Internally Assigned Grade
 Commercial Mortgage Construction Commercial and Industrial Total
(dollars in thousands)June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Pass$1,228,319
 $1,114,171
 $140,896
 $126,260
 $630,227
 $586,896
 $1,999,442
 $1,827,327
Special Mention990
 —
 1,279
 —
 —
 664
 2,269
 664
Substandard8,576
 8,156
 5,461
 2,006
 2,420
 1,389
 16,457
 11,551
Doubtful—
 —
 —
 —
 270
 355
 270
 355
Total$1,237,885
 $1,122,327
 $147,636
 $128,266
 $632,917
 $589,304
 $2,018,438
 $1,839,897
  Credit Risk Profile by Internally Assigned Grade - Originated Loans and Leases
As of March 31, 2019  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $1,428,214
 $4,325
 $4,072
 $—
 $1,436,611
Home equity loans and lines 173,197
 —
 6,878
 —
 180,075
Residential 421,168
 —
 2,470
 —
 423,638
Construction 149,931
 937
 6,704
 —
 157,572
Commercial & Industrial 639,463
 2,352
 9,389
 —
 651,204
Consumer 44,647
 —
 582
 —
 45,229
Leases 137,513
 —
 428
 —
 137,941
Total $2,994,133
 $7,614
 $30,523
 $—
 $3,032,270

Credit Risk Profile by Payment Activity
Residential Mortgage Home Equity Lines
and Loans		 Consumer Leases Total Credit Risk Profile by Internally Assigned Grade - Originated Loans and Leases
As of December 31, 2018  
(dollars in thousands)June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 Pass Special Mention Substandard Doubtful Total
Performing$356,656
 $359,430
 $174,938
 $182,062
 $49,828
 $35,146
 $96,931
 $67,932
 $678,353
 $644,570
Non-performing1,615
 1,505
 1,833
 1,221
 —
 —
 575
 103
 4,023
 2,829
Commercial mortgage $1,321,973
 $631
 $5,218
 $—
 $1,327,822
Home equity loans and lines 177,916
 —
 3,590
 —
 181,506
Residential 408,095
 —
 2,927
 —
 411,022
Construction 167,272
 938
 6,382
 —
 174,592
Commercial & Industrial 615,817
 2,511
 6,314
 1
 624,643
Consumer 43,936
 —
 163
 —
 44,099
Leases 121,175
 —
 392
 —
 121,567
Total$358,271
 $360,935
 $176,771
 $183,283
 $49,828
 $35,146
 $97,506
 $68,035
 $682,376
 $647,399
 $2,856,184
 $4,080
 $24,986
 $1
 $2,885,251


The following tables detail the carrying value of acquired portfolio loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
  Credit Risk Profile by Internally Assigned Grade - Acquired Loans and Leases
As of March 31, 2019  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $286,212
 $6,246
 $17,220
 $406
 $310,084
Home equity loans and lines 24,176
 —
 540
 —
 24,716
Residential 78,171
 —
 570
 —
 78,741
Construction 2,189
 —
 —
 —
 2,189
Commercial & Industrial 52,245
 229
 2,023
 —
 54,497
Consumer 2,548
 —
 44
 —
 2,592
Leases 17,940
 —
 485
 —
 18,425
Total $463,481
 $6,475
 $20,882
 $406
 $491,244
Credit Risk Profile by Internally Assigned Grade
 Commercial Mortgage Construction Commercial and Industrial Total
(dollars in thousands)June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Pass$356,764
 $376,691
 $39,909
 $66,967
 $95,782
 $124,249
 $492,455
 $567,907
Special Mention1,367
 13,448
 929
 3,902
 230
 225
 2,526
 17,575
Substandard17,141
 10,038
 2,400
 13,319
 16,377
 4,624
 35,918
 27,981
Doubtful564
 873
 —
 —
 —
 910
 564
 1,783
Total$375,836
 $401,050
 $43,238
 $84,188
 $112,389
 $130,008
 $531,463
 $615,246
  Credit Risk Profile by Internally Assigned Grade - Acquired Loans and Leases
As of December 31, 2018  
(dollars in thousands) Pass Special Mention Substandard Doubtful Total
Commercial mortgage $313,095
 $—
 $15,421
 $1,098
 $329,614
Home equity loans and lines 25,121
 —
 724
 —
 25,845
Residential 82,694
 —
 639
 —
 83,333
Construction 4,081
 —
 2,405
 —
 6,486
Commercial & Industrial 68,627
 226
 2,088
 —
 70,941
Consumer 2,652
 —
 63
 —
 2,715
Leases 22,386
 —
 583
 —
 22,969
Total $518,656
 $226
 $21,923
 $1,098
 $541,903
 Credit Risk Profile by Payment Activity
 Residential Mortgage Home Equity Lines
and Loans		 Consumer Leases Total
(dollars in thousands)
June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Performing$89,757
 $95,039
 $29,168
 $34,732
 $1,634
 $3,007
 $33,836
 $47,366
 $154,395
 $180,144
Non-performing1,032
 2,912
 490
 260
 —
 —
 1,307
 —
 2,829
 3,172
Total$90,789
 $97,951
 $29,658
 $34,992
 $1,634
 $3,007
 $35,143
 $47,366
 $157,224
 $183,316

G. Troubled Debt Restructurings (“TDRs”)
 
The restructuring of a loan is considered a “troubled debt restructuring” if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.
 
The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted. Similarly, the determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.
 



The following table presents the balance of TDRs as of the indicated dates:
(dollars in thousands)June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
TDRs included in nonperforming loans and leases$1,044
 $3,289
$4,057
 $1,217
TDRs in compliance with modified terms4,117
 5,800
5,149
 9,745
Total TDRs$5,161
 $9,089
$9,206
 $10,962
 

The following table presents information regarding loan and lease modifications categorized as TDRs for the three months ended June 30, 2018:March 31, 2019:
For the Three Months Ended June 30, 2018For the Three Months Ended March 31, 2019
(dollars in thousands)Number of Contracts Pre-Modification Outstanding
Recorded Investment		 Post-Modification Outstanding
Recorded Investment		Number of Contracts Pre-Modification Outstanding
Recorded Investment		 Post-Modification Outstanding
Recorded Investment
Home equity loans and lines1 $8
 $8
— $—
 $—
Residential mortgages2 219
 219
— —
 —
Leases2 33
 33
2 38
 38
Total5 $260
 $260
2 $38
 $38
 
The following table presents information regarding the types of loan and lease modifications made for the three months ended June 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 mortgages1 1 — — —
Leases— — — 2 —
    Total1 2 — 2 —

The following table presents information regarding loan and lease modifications categorized as TDRs for the six months ended June 30, 2018: 
 For the Six Months Ended June 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 mortgages2 219
 219
Commercial and industrial1 18
 18
Leases2 33
 33
    Total6 $278
 $278













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

March 31, 2019:
 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 mortgages1 1 — — —
Commercial and industrial— 1 — — —
Leases— — — 2 —
    Total1 3 — 2 —

During the six months ended June 30, 2018, one home equity line of credit with a principal balance of $25 thousand and one lease with a principal balance of $50 thousand, which had been previously modified to troubled debt restructurings defaulted and were charged off.
 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 mortgages— — — — —
Leases1 — — 1 —
    Total1 — — 1 —

H. Impaired Loans
 
The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related Allowance and interest income recognized for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 (purchased credit-impaired loans are not included in the tables):
As of and for the Three Months Ended
June 30, 2018
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
As of and for the Three Months Ended
March 31, 2019
Recorded
Investment(2)
 
Contractual
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(dollars in thousands)
Recorded
Investment**
 
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$570
 $570
 $19
 $572
 $6
 $—
$1,178
 $1,178
 $149
 $1,182
 $10
 $—
Residential mortgage2,379
 2,379
 299
 2,383
 22
 —
1,917
 1,917
 259
 1,921
 23
 —
Commercial and industrial267
 362
 104
 314
 —
 —
334
 339
 160
 335
 —
 —
Consumer27
 27
 4
 27
 —
 —
59
 59
 37
 59
 —
 —
Total$3,243
 $3,338
 $426
 $3,296
 $28
 $—
$3,488
 $3,493
 $605
 $3,497
 $33
 $—
                      
Impaired loans without related allowance*:           
Impaired loans without related allowance(1):
           
Commercial mortgage$1,011
 $1,010
 $—
 $1,022
 $—
 $—
$5,558
 $7,191
 $—
 $6,982
 $—
 $—
Home equity lines and loans2,425
 2,487
 —
 2,450
 2
 —
7,113
 7,167
 —
 7,180
 2
 —
Residential mortgage3,223
 3,265
 —
 3,236
 19
 —
4,191
 4,294
 —
 4,239
 21
 —
Commercial and industrial1,598
 2,300
 —
 1,620
 5
 —
3,023
 3,653
 —
 3,030
 5
 —
Consumer47
 62
 —
 47
 —
 —
Total$8,257
 $9,062
 $—
 $8,328
 $26
 $—
$19,932
 $22,367
 $—
 $21,478
 $28
 $—
Grand total$11,500
 $12,400
 $426
 $11,624
 $54
 $—
$23,420
��$25,860
 $605
 $24,975
 $61
 $—
 
*(1) The table above does not include the recorded investment of $2.0$1.0 million of impaired leases without a related Allowance.
 
**(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.


As of and for the Six Months Ended
June 30, 2018
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
As of and for the Three Months Ended
March 31, 2018
Recorded
Investment(2)
 
Contractual
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(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$570
 $570
 $19
 $574
 $11
 $—
$574
 $574
 $19
 $575
 $6
 $—
Residential mortgage2,379
 2,379
 299
 2,387
 45
 —
1,796
 1,796
 224
 1,801
 21
 —
Commercial and industrial267
 362
 104
 391
 —
 —
54
 110
 40
 97
 —
 —
Consumer27
 27
 4
 27
 1
 —
27
 27
 4
 27
 —
 —
Total$3,243
 $3,338
 $426
 $3,379
 $57
 $—
$2,451
 $2,507
 $287
 $2,500
 $27
 $—
                      
Impaired loans without related allowance*:           
Impaired loans without related allowance(1):
           
Commercial mortgage$1,011
 $1,010
 $—
 $771
 $6
 $—
$1,394
 $1,483
 $—
 $1,394
 $23
 $—
Home equity lines and loans2,425
 2,487
 —
 2,473
 8
 —
2,052
 2,114
 —
 2,094
 2
 —
Residential mortgage3,223
 3,265
 —
 3,105
 41
 —
3,554
 3,758
 —
 154
 —
 —
Commercial and industrial1,598
 2,300
 —
 1,569
 12
 —
2,700
 3,498
 —
 2,872
 5
 —
Total$8,257
 $9,062
 $—
 $7,918
 $67
 $—
$9,700
 $10,853
 $—
 $6,514
 $30
 $—
Grand total$11,500
 $12,400
 $426
 $11,297
 $124
 $—
$12,151
 $13,360
 $287
 $9,014
 $57
 $—

*(1) The table above does not include the recorded investment of $2.0 million$510 thousand of impaired leases without a related Allowance.
 
**(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

As of and for the Three Months Ended
June 30, 2017
Recorded
Investment**
 
Principal
Balance
 
Related
Allowance
 
Average
Principal Balance
 
Interest Income
Recognized
 
Cash-Basis
Interest Income
Recognized
(dollars in thousands) 
Recorded
Investment (2)
 
Principal
Balance
 
Related
Allowance
As of
December 31, 2018		 
Impaired loans with related allowance:                
Home equity lines and loans$21
 $21
 $3
 $21
 $—
 $—
$1,280
 $1,280
 $162
Residential mortgage1,578
 1,578
 112
 1,581
 20
 —
1,966
 1,966
 272
Consumer38
 38
 14
 38
 —
 —
50
 50
 28
Total1,637
 1,637
 129
 1,640
 20
 —
$3,296
 $3,296
 $462
           
Impaired loans without related allowance*:           
Impaired loans without related allowance(1):
     
Commercial mortgage$2,071
 $2,106
 $—
 $2,113
 $15
 $—
$7,007
 $7,264
 $—
Home equity lines and loans1,514
 2,054
 —
 1,536
 1
 —
3,718
 3,724
 —
Residential mortgage5,371
 5,712
 —
 5,496
 36
 —
4,641
 4,728
 —
Commercial and industrial2,140
 2,796
 —
 2,338
 3
 —
2,629
 3,803
 —
Consumer83
 86
  
Total$11,096
 $12,668
 $—
 $11,483
 $55
 $—
$18,078
 $19,605
 $—
Grand total$12,733
 $14,305
 $129
 $13,123
 $75
 $—
$21,374
 $22,901
 $462
 
*(1) The table above does not include the recorded investment of $380 thousand $1.2 millionof impaired leases without a related Allowance.
 
**(2) Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.




As of and for the Six Months Ended
June 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 mortgage1,578
 1,578
 112
 1,585
 41
 —
Consumer38
 38
 14
 39
 1
 —
Total$1,637
 $1,637
 $129
 $1,645
 $43
 $—
            
Impaired loans without related allowance*:           
Commercial mortgage$2,071
 $2,106
 $—
 $2,117
 $39
 $—
Home equity lines and loans1,514
 2,054
 —
 1,579
 3
 —
Residential mortgage5,371
 5,712
 —
 5,521
 76
 —
Commercial and industrial2,140
 2,796
 —
 2,367
 6
 —
Total$11,096
 $12,668
 $—
 $11,584
 $124
 $—
Grand total$12,733
 $14,305
 $129
 $13,229
 $167
 $—
*The table above does not include the recorded investment of $380 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
Total3,058
 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)
The table above does not include the recorded investment of$272 thousandof impaired leases without a related Allowance.
(2)
Recorded investment equals principal balance less partial charge-offs and interest payments on non-performing loans that have been applied to principal.

I. Loan Mark
 
Loans acquired in mergers and acquisitions are recorded at fair value as of the date of the transaction. This adjustment to the acquired principal amount is referred to as the “Loan Mark”.Mark.” With the exception of purchased credit impaired loans, for which the Loan Mark is accounted under ASC 310-30, the Loan Mark is amortized or accreted as an adjustment to yield over the lives of the loans.
 
The following tables detail, for acquired loans, the outstanding principal, remaining loan mark,Loan Mark, and recorded investment, by portfolio segment, as of the dates indicated:

As of June 30, 2018As of March 31, 2019
(dollars in thousands)Outstanding
Principal		 Remaining
Loan Mark		 Recorded
Investment		Outstanding
Principal		 Remaining
Loan Mark		 Recorded
Investment
Commercial mortgage$385,801
 $(9,965) $375,836
$318,488
 $(8,404) $310,084
Home equity lines and loans32,271
 (2,613) 29,658
26,981
 (2,265) 24,716
Residential mortgage93,916
 (3,127) 90,789
81,372
 (2,631) 78,741
Construction43,676
 (438) 43,238
2,190
 (1) 2,189
Commercial and industrial121,265
 (8,876) 112,389
56,400
 (1,903) 54,497
Consumer1,669
 (35) 1,634
2,680
 (88) 2,592
Leases36,792
 (1,649) 35,143
18,974
 (549) 18,425
Total$715,390
 $(26,703) $688,687
$507,085
 $(15,841) $491,244
 
As of December 31, 2017As of December 31, 2018
(dollars in thousands)Outstanding
Principal		 Remaining
Loan Mark		 Recorded
Investment		Outstanding
Principal		 Remaining
Loan Mark		 Recorded
Investment
Commercial mortgage$412,263
 $(11,213) $401,050
$339,241
 $(9,627) $329,614
Home equity lines and loans37,944
 (2,952) 34,992
28,212
 (2,367) 25,845
Residential mortgage101,523
 (3,572) 97,951
86,111
 (2,778) 83,333
Construction86,081
 (1,893) 84,188
6,780
 (294) 6,486
Commercial and industrial141,960
 (11,952) 130,008
72,948
 (2,007) 70,941
Consumer3,051
 (44) 3,007
2,828
 (113) 2,715
Leases50,530
 (3,164) 47,366
23,695
 (726) 22,969
Total$833,352
 $(34,790) $798,562
$559,815
 $(17,912) $541,903
 
Note 6 -– Mortgage Servicing Rights
 
The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and six months ended June 30, 2018March 31, 2019 and 2017:2018:
 Three Months Ended June 30,
(dollars in thousands)2018 2017
Balance, beginning of period$5,706
 $5,686
Additions—
 213
Amortization(196) (173)
Recovery / (Impairment)1
 (43)
Balance, end of period$5,511
 $5,683
Fair value$6,695
 $6,057
Six Months Ended June 30,Three Months Ended March 31,
(dollars in thousands)2018 20172019 2018
Balance, beginning of period$5,861
 $5,582
$5,047
 $5,861
Additions16
 489
—
 16
Amortization(417) (342)(120) (221)
Recovery / (Impairment)51
 (46)
(Impairment) / Recovery(17) 50
Balance, end of period$5,511
 $5,683
$4,910
 $5,706
   
Fair value$6,695
 $6,057
$5,754
 $6,791
Residential mortgage loans serviced for others$614,259
 $631,888
$564,884
 $634,970
 
As of June 30, 2018,March 31, 2019, and December 31, 2017,2018, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10% and 20% percent adverse changes in those assumptions are as follows:

(dollars in thousands)June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Fair value amount of MSRs$6,695
 $6,397
$5,754
 $6,277
Weighted average life (in years)6.6
 6.1
6.3
 6.7
Prepayment speeds (constant prepayment rate)*9.0% 10.3%
Prepayment speeds (constant prepayment rate)(1)
10.2% 9.1%
Impact on fair value:      
10% adverse change$(112) $(194)$(161) $(124)
20% adverse change$(242) $(394)$(324) $(257)
Discount rate9.55% 9.55%9.55% 9.55%
Impact on fair value:      
10% adverse change$(247) $(225)$(207) $(234)
20% adverse change$(477) $(434)$(400) $(451)
 
*(1) Represents the weighted average prepayment rate for the life of the MSR asset.

At June 30, 2018March 31, 2019 and December 31, 20172018 the fair value of the MSRs was $6.7$5.8 million and $6.4$6.3 million, respectively. The fair value of the MSRs for these dates was determined using values obtained from a third party which utilizes a valuation model which calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process utilized by its independent third-party valuation experts.
 
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 IntangiblesIntangible 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 three months ended June 30, 2018:March 31, 2019:
(dollars in thousands)Balance
December 31, 2017		 Additions Adjustments Amortization Balance
June 30, 2018		 Amortization
Period		Balance
December 31, 2018		 Additions Adjustments Amortization Balance
March 31, 2019		 Amortization
Period
Goodwill – Wealth$20,412
 $—
 $—
 $—
 $20,412
 Indefinite$20,412
 $—
 $—
 $—
 $20,412
 Indefinite
Goodwill – Banking153,545
 —
 2,596
 —
 156,141
 Indefinite156,991
 —
 —
 —
 156,991
 Indefinite
Goodwill – Insurance5,932
 677
 —
 —
 6,609
 Indefinite6,609
 —
 —
 —
 6,609
 Indefinite
Total Goodwill$179,889
 $677
 $2,596
 $—
 $183,162
 $184,012
 $—
 $—
 $—
 $184,012
 
Core deposit intangible$7,380
 $—
 $—
 $(742) $6,638
 10 years$5,906
 $—
 $—
 $(327) $5,579
 10 years
Customer relationships14,173
 779
 —
 (833) 14,119
 10 to 20 years13,607
 18
 —
 (438) 13,187
 10 to 20 years
Non-compete agreements1,319
 —
 —
 (121) 1,198
 5 to 10 years1,101
 —
 —
 (48) 1,053
 5 to 10 years
Trade name2,322
 —
 —
 (32) 2,290
 3 years to Indefinite2,149
 —
 —
 (125) 2,024
 3 to 5 years
Domain name151
 —
 —
 —
 151
 Indefinite151
 —
 —
 —
 151
 Indefinite
Favorable lease assets621
 —
 —
 (40) 581
 1 to 16 years541
 —
 (541) —
 —
 
Total Intangible Assets$25,966
 $779
 $—
 $(1,768) $24,977
 $23,455
 $18
 $(541) $(938) $21,994
 
Total Goodwill and Intangible Assets$205,855
 $1,456
 $2,596
 $(1,768) $208,139
 $207,467
 $18
 $(541) $(938) $206,006
 
 


Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31, 20172018 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 eightfive months ended June 30, 2018,March 31, 2019, management determined there were no events that would necessitate impairment testing of goodwill or indefinite-lived intangible assets.


Note 8 -– Deposits
 
The following table details the components of deposits:
June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
(dollars in thousands)      
Interest-bearing demand$617,258
 $481,336
$664,683
 $664,749
Money market814,530
 862,639
961,348
 862,644
Savings291,858
 338,572
265,613
 247,081
Retail time deposits536,287
 532,202
531,522
 542,702
Wholesale non-maturity deposits36,826
 62,276
47,744
 55,031
Wholesale time deposits169,770
 171,929
284,397
 325,261
Total interest-bearing deposits2,466,529
 2,448,954
$2,755,307
 $2,697,468
Noninterest-bearing deposits892,386
 924,844
882,310
 901,619
Total deposits$3,358,915
 $3,373,798
$3,637,617
 $3,599,087


Note 9 -– Short-Term Borrowings and Long-Term FHLB Advances
 
A. Short-term borrowings 
 
The Corporation’s short-term borrowings (original maturity of one year or less), which consist of funds obtained from overnight repurchase agreements with commercial customers, FHLB advances with original maturities of one year or less and overnight fed funds, are detailed below.
 
A summary of short-term borrowings is as follows:
(dollars in thousands)June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Repurchase agreements* – commercial customers$17,159
 $25,865
Repurchase agreements(1) – commercial customers
$11,304
 $22,717
Short-term FHLB advances209,900
 212,000
104,910
 229,650
Overnight federal funds8,000
 —
Total short-term borrowings$227,059
 $237,865
$124,214
 $252,367
*(1) Overnight repurchase agreements with no expiration date
 

The following table sets forth information concerning short-term borrowings:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended
March 31,
(dollars in thousands)2018 2017 2018 20172019 2018
Balance at period-end$227,059
 $130,295
 $227,059
 $130,295
$124,214
 $173,704
Maximum amount outstanding at any month end$279,525
 $130,295
 $279,525
 $130,295
$184,257
 $173,704
Average balance outstanding during the period$218,566
 $98,869
 $198,079
 $73,378
$179,754
 $172,532
          
Weighted-average interest rate:          
As of the period-end1.89% 1.11% 1.89% 1.11%2.47% 1.76%
Paid during the period1.92% 0.96% 1.72% 0.72%2.43% 1.48%

Average balances outstanding during the year represent daily average balances and average interest rates represent interest expense divided by the related average balance.
 
B. Long-term FHLB Advances
 
As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the Corporation had $87.8$55.4 million and $139.1$55.4 million, respectively, of long-term FHLB advances (original maturities exceeding one year).
 
The following table presents the remaining periods until maturity of long-term FHLB advances:
(dollars in thousands)June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Within one year$39,867
 $83,766
$33,105
 $28,105
Over one year through five years47,941
 55,374
22,302
 27,269
Total$87,808
 $139,140
$55,407
 $55,374
 
The following table presents rate and maturity information on FHLB advances and other borrowings: 
Maturity Range(1)
 
Weighted Average Rate(1)
 
Coupon Rate(1)
 Balance at
Maturity Range(1)
 
Weighted Average Rate(1)
 
Coupon Rate(1)
 Balance at
DescriptionFrom   To From To June 30,
2018		 December 31,
2017		From   To From To March 31,
2019		 December 31,
2018
Bullet maturity – fixed rate7/30/2018 8/24/2021 1.70% 1.31% 2.13% $77,808
 $118,131
5/20/2019 8/24/2021 1.76% 1.40% 2.13% $55,407
 $55,374
Convertible-fixed(2)
8/20/2018 8/20/2018 2.58% 2.58% 2.58% 10,000
 21,009
Total     
  
  
 $87,808
 $139,140
 
(1)Maturity range, weighted average rate and coupon rate range refers to June 30, 2018March 31, 2019 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 June 30, 2018, substantially all 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.

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 $16.7$10.5 million at June 30, 2018,March 31, 2019, and $20.1$14.5 million at December 31, 2017.2018. 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 $1.49$1.56 billion as of June 30, 2018March 31, 2019 of which the unused capacity was $1.19$1.40 billion. In addition, there were $79.0$71.0 million in the overnight federal funds line available and $145.5 million of Federal Reserve Discount Window capacity.
 
Note 10 – Subordinated Notes
 
On December 13, 2017, the CorporationBMBC completed the issuance of $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the "2027 Notes") in an underwritten public offering. On August 6, 2015, the CorporationBMBC completed the issuance of $30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the "2025 Notes") in a private placement transaction to institutional accredited investors. The net proceeds of both offerings increased Tier II regulatory capital at the Corporation level.BMBC.
 



The following tables detail the subordinated notes, including debt issuance costs, as of June 30, 2018,March 31, 2019, and December 31, 2017:2018:
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(dollars in thousands)Balance 
Rate(1)(2)
 Balance 
Rate(1)(2)
Balance 
Rate(1)(2)
 Balance 
Rate(1)(2)
Subordinated notes – due 2027$68,877
 4.25% $68,829
 4.25%$68,916
 4.25% $68,885
 4.25%
Subordinated notes – due 202529,614
 4.75% 29,587
 4.75%29,655
 4.75% 29,641
 4.75%
Total subordinated notes$98,491
   $98,416
  $98,571
   $98,526
  
 
(1)The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until and including December 14, 2022, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 2.050% until December 15, 2027, or any early redemption date.
 
(2)The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until and including August 14, 2020, and will thereafter bear interest at a variable rate that will reset quarterly to a level equal to the then-current three-month LIBOR rate plus 3.068% until August 15, 2025, or any early redemption date.


Note 11 – Junior Subordinated Debentures
 
In connection with the RBPI Merger, the CorporationBMBC 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 CorporationBMBC owns $774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated into the Corporation’s Consolidated Financial Statements as the Corporation is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, RBPI issued, and the Corporation assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7 million each, totaling $21.4 million representing the Corporation’s maximum exposure to loss. The junior subordinated debentures incur interest at a coupon rate of 4.49%4.76% as of June 30, 2018.March 31, 2019. The rate resets quarterly based on 3-month LIBOR plus 2.15%.
 
Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the Corporation. As a result of the RBPI Merger, the Corporation has 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 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

Note 12 – Operating Leases

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

The Corporation’s operating leases consist of various retail branch locations and corporate offices. As of March 31, 2019, the Corporation’s leases have remaining lease terms ranging from nine months to 23 years, including extension options that the Corporation is reasonably certain will be exercised.

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

As of March 31, 2019 the Corporation’s ROU assets and related lease liabilities were $44.0 million and $48.2 million, respectively.

The components of lease expense were as follows:
 Three Months Ended
March 31, 2019
(dollars in thousands) 
Operating lease expense$1,330
Short term lease expense15
Variable lease expense418
Sublease income(9)
Total lease expense$1,754

Supplemental cash flow information related to leases was as follows:
 Three Months Ended
March 31, 2019
(dollars in thousands) 
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from operating leases$1,266
ROU assets obtained in exchange for lease liabilities$44,899

Maturities of operating lease liabilities under FASB ASC 842 "Leases" as of March 31, 2019 are as follows:
 March 31, 2019
(dollars in thousands) 
2019$3,904
20204,700
20214,478
20224,203
20234,051
2024 and thereafter41,845
Total lease payments$63,181
Less: imputed interest14,957
Present value of operating lease liabilities$48,224

As of March 31, 2019, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised, for all operating leases is 14.65 years.

Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of March 31, 2019 is 3.55%.

As of March 31, 2019, the Corporation had not entered into any material leases that have not yet commenced.

Future minimum cash rent commitments from various operating leases under FASB ASC 840 "Leases" as of December 31, 2018 are as follows:
(dollars in thousands)
December 31,
2018
2019$5,211
20204,700
20214,478
20224,203
20234,051
2024 and thereafter41,845
Total$64,488


Note 1213 – Derivative Instruments and Hedging Activities
 
Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Management manages these risks as part of its asset and liability management process and through credit policies and procedures. Management seeks to minimize counterparty credit risk by establishing credit limits and collateral agreements and utilizes certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The derivative transactions entered into by the Corporation are an economic hedge of a derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.

 
Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps 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 June 30, 2018,March 31, 2019, there were no fair value adjustments related to credit quality.

Foreign Exchange Forward Contracts. The Corporation enters into foreign exchange forward contracts (“FX forwards”) with customers to exchange one currency for another on an agreed date in the future at an agreed exchange rate. The Corporation then enters into corresponding FX forwards with swap dealer counterparties to economically hedge its exposure on the exchange rate component of the customer agreements. The FX forwards with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. As the FX forwards are structured to offset each other, changes to the underlying term structure of currency exchange rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of March 31, 2019, 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 an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased”.purchased.”

The following tables detail the derivative instruments as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
Asset Derivatives Liability DerivativesAsset Derivatives Liability Derivatives
(dollars in thousands)
Notional
Amount
 
Fair
Value
 
Notional
Amount
 
Fair
Value
Notional
Amount
 
Fair
Value
 
Notional
Amount
 
Fair
Value
Derivatives not designated as hedging instruments              
As of June 30, 2018:       
As of March 31, 2019:       
Customer derivatives – interest rate swaps$452,558
 $23,405
 $452,558
 $23,404
FX forwards3,754
 7
 —
 —
RPAs sold—
 —
 848
 2
RPAs purchased35,141
 87
 —
 —
Total derivatives$491,453
 $23,499
 $453,406
 $23,406
As of December 31, 2018:       
Customer derivatives – interest rate swaps$274,541
 $6,318
 $274,541
 $6,269
$369,623
 $12,550
 $369,623
 $12,549
RPAs sold—
 —
 553
 1
—
 —
 854
 2
RPAs purchased35,636
 65
 —
 —
35,305
 71
 —
 —
Total derivatives$310,177
 $6,383
 $275,094
 $6,270
$404,928
 $12,621
 $370,477
 $12,551
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 third parties at June 30, 2018March 31, 2019 and December 31, 20172018 was $1.8$24.5 million and $1.3$8.8 million, respectively. The amount of collateral posted with third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $3.4$23.1 million and $1.6$11.5 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

Note 13 -14 – Accounting for Uncertainty in Income Taxes

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

The Corporation is subject to income taxes in the United States federal jurisdiction and multiple state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examination by taxing authorities for years before 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 six months ended June 30, 2018March 31, 2019 or 2017.2018.




Note 1415 -– Shareholders’ Equity
 
Dividend
 
On July 19, 2018, the Corporation’sApril 18, 2019, BMBC’s Board of Directors declared a regular quarterly dividend of $0.25 per share payable SeptemberJune 1, 20182019 to shareholders of record as of AugustMay 1, 2018.2019. During the secondfirst quarter of 2018,2019, 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 MayFebruary 1, 20182019 of 20,446,22120,381,859 shares.
 
S-3 Shelf Registration Statement and Offerings Thereunder

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

In addition, the CorporationBMBC 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’sBMBC’s current and projected capital needs, prevailing market prices of the Corporation’sBMBC’s common stock and general economic and market conditions.

For the three and six months ended June 30, 2018, the CorporationMarch 31, 2019, BMBC did not issue any shares under the Plan. The Plan administrator conducted dividend reinvestments for Plan participants through open market purchases. No RFWs were approved during the three and six months ended June 30, 2018.March 31, 2019. No other sales of equity securities were executed under the Shelf Registration Statement during the three and six months ended June 30, 2018.March 31, 2019.

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

In addition to shares that may be issued through the Plan, the CorporationBMBC also issues shares through the exercise of stock options and the vesting of RSUs and PSUs. During the three and six months ended June 30, 2018, 4,750March 31, 2019, 29,600 shares and 48,675 shares, respectively, were issued pursuant to the exercise of stock options, increasing shareholders’ equity by $115 thousand and $1.1 million, respectively.$540 thousand. The increase in shareholders’ equity related to the vesting of restricted stock unitsRSUs and performance stock units,PSUs, which is recognized over the vesting period through stock based compensation expense, was $615 thousand and $1.2$1.1 million for the three and six months ended June 30, 2018, respectively.March 31, 2019.
 
Stock Repurchases
 
On August 6, 2015, the CorporationBMBC announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’sBMBC’s common stock, at an aggregate purchase price not to exceed $40 million. During the three months ended June 30, 2018, noMarch 31, 2019, 12,702 shares were repurchased under the 2015 Program. As of June 30, 2018,March 31, 2019, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.27,314. In addition to the 2015 Program, it is the Corporation’sBMBC’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.


On April 18, 2019, BMBC announced a new stock repurchase program (the "2019 Program") under which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program will become effective upon the completion of BMBC’s existing 2015 Program.


Note 1516 – Accumulated Other Comprehensive (Loss) Income

The following table details the components of accumulated other comprehensive (loss) income for the three months ended March 31, 2019 and six month periods ended June 30, 2018 and 2017:2018:

(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, March 31, 2018$(8,157) $(1,507) $(9,664)
Other comprehensive (loss)(1,512) (15) (1,527)
Balance, June 30, 2018$(9,669) $(1,522) $(11,191)
      
Balance, March 31, 2017$(844) $(1,146) $(1,990)
Other comprehensive income411
 15
 426
Balance, June 30, 2017$(433) $(1,131) $(1,564)
(dollars in thousands)
Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities
 
Net Change in
Unfunded
Pension Liability
 
Accumulated
Other
Comprehensive
Loss
Net Change in
Unrealized Gains
on Available-for-
Sale Investment
Securities
 
Net Change in
Unfunded
Pension Liability
 
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2018$(6,229) $(1,284) $(7,513)
Other comprehensive income4,219
 16
 4,235
Balance, March 31, 2019$(2,010) $(1,268) $(3,278)
     
Balance, December 31, 2017$(2,861) $(1,553) $(4,414)$(2,861) $(1,553) $(4,414)
Other comprehensive (loss) income(6,808) 31
 (6,777)(5,296) 46
 (5,250)
Balance, June 30, 2018$(9,669) $(1,522) $(11,191)
     
Balance, December 31, 2016$(1,231) $(1,178) $(2,409)
Other comprehensive income798
 47
 845
Balance, June 30, 2017$(433) $(1,131) $(1,564)
Balance, March 31, 2018$(8,157) $(1,507) $(9,664)

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 ended March 31, 2019 and six month periods ended June 30, 2018 and 2017:2018:
Description of Accumulated Other 
Amount Reclassified from Accumulated
Other Comprehensive Loss
  
Comprehensive Loss Component Three Months Ended June 30, Affected Income Statement Category
 Amount Reclassified from Accumulated Other Comprehensive Loss  
Description of Accumulated Other
Comprehensive Loss Component
 Three Months Ended
March 31,		 Affected Income Statement Category
 2019 2018  
Net unrealized gain on investment securities available for sale:     
Realization of gain on sale of investment securities available for sale $—
 $(7) Net gain on sale of available for sale investment securities
Realization of gain on transfer of investment securities available for sale to trading —
 (417) Other operating income
Total $—
 $(424) 
Income tax effect —
 89
 Income tax expense
Net of income tax $—
 $(335) Net income
 2018 2017       
Unfunded pension liability:          
Amortization of net loss included in net periodic pension costs* $25
 $24
 Other operating expenses
Amortization of net loss included in net periodic pension costs(1)
 $11
 $25
 Other operating expenses
Income tax effect 5
 8
 Income tax expense (2) (5) Income tax expense
Net of income tax $20
 $16
 Net income $9
 $20
 Net income

Description of Accumulated Other 
Amount Reclassified from Accumulated
Other Comprehensive Loss
  
Comprehensive Loss Component Six Months Ended June 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
 $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* $50
 $47
 Other operating expenses
Income tax effect 10
 16
 Income tax expense
Net of income tax $40
 $31
 Net income

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

Note 16 -17 – 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’sBMBC’s common stock at the average market price during the period, as required by the treasury stock method of accounting. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
(dollars in thousands except share and per share data)2018 2017 2018 20172019 2018
Numerator:    
 
   
Net income available to common shareholders$14,688
 $9,433
 $29,974
 $18,477
$10,677
 $15,286
Denominator for basic earnings per share – weighted average shares outstanding
20,238,852
 16,984,563
 20,221,010
 16,969,431
20,168,498
 20,202,969
Effect of dilutive common shares174,726
 248,204
 206,782
 238,381
103,163
 247,525
Denominator for diluted earnings per share – adjusted weighted average shares outstanding
20,413,578
 17,232,767
 20,427,792
 17,207,812
20,271,661
 20,450,494
Basic earnings per share$0.73
 $0.56
 $1.48
 $1.09
$0.53
 $0.76
Diluted earnings per share$0.72
 $0.55
 $1.47
 $1.07
$0.53
 $0.75
Antidilutive shares excluded from computation of average dilutive earnings per share1,422
 —
 2,495
 —
63,765
 870
 
Note 17 -18 – Revenue from Contracts with Customers
 
All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income.  The following table presents the Corporation’s noninterest income by revenue stream and reportable segment for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018.  Items outside the scope of ASC 606 are noted as such.
 

Three Months Ended June 30, 2018 Three Months Ended June 30, 2017Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(dollars in thousands)Banking Wealth
Management		 Consolidated Banking Wealth
Management		 ConsolidatedBanking Wealth
Management		 Consolidated Banking Wealth
Management		 Consolidated
Fees for wealth management services$—
 $10,658
 $10,658
 $—
 $9,807
 $9,807
$—
 $10,392
 $10,392
 $—
 $10,308
 $10,308
Insurance commissions(1)
—
 1,902
 1,902
 —
 943
 943
—
 1,672
 1,672
 —
 1,693
 1,693
Capital markets revenue(1)
2,105
 —
 2,105
 953
 —
 953
2,219
 —
 2,219
 666
 —
 666
Service charges on deposit accounts752
 —
 752
 630
 —
 630
808
 —
 808
 713
 —
 713
Loan servicing and other fees(1)
475
 —
 475
 519
 —
 519
609
 —
 609
 686
 —
 686
Net gain on sale of loans(1)
528
 —
 528
 520
 —
 520
319
 —
 319
 518
 —
 518
Net gain on sale of investment securities available for sale(1)
—
 —
 —
 —
 —
 —
—
 —
 —
 7
 —
 7
Net gain on sale of other real estate owned111
 —
 111
 (12) —
 (12)
Net (loss) / gain on sale of other real estate owned(24) —
 (24) 176
 —
 176
Dividends on FHLB and FRB stock(1)
510
 —
 510
 218
 —
 218
411
 —
 411
 431
 —
 431
Other operating income(2)
2,976
 58
 3,034
 1,158
 49
 1,207
2,826
 21
 2,847
 4,294
 44
 4,338
Total noninterest income$7,457
 $12,618
 $20,075
 $3,986
 $10,799
 $14,785
$7,168
 $12,085
 $19,253
 $7,491
 $12,045
 $19,536
 
(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 $610$512 thousand and $501$521 thousand for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively, which are within the scope of ASC 606.
 
 Six Months Ended June 30, 2018 Six Months Ended June 30, 2017
(dollars in thousands)Banking Wealth
Management		 Consolidated Banking Wealth
Management		 Consolidated
Fees for wealth management services$—
 $20,966
 $20,966
 $—
 $19,110
 $19,110
Insurance commissions(1)
—
 3,595
 3,595
 —
 1,706
 1,706
Capital markets revenue(1)
2,771
 —
 2,771
 953
 —
 953
Service charges on deposit accounts1,465
 —
 1,465
 1,277
 —
 1,277
Loan servicing and other fees(1)
1,161
 —
 1,161
 1,022
 —
 1,022
Net gain on sale of loans(1)
1,046
 —
 1,046
 1,149
 —
 1,149
Net gain on sale of investment securities available for sale(1)
7
 —
 7
 1
 —
 1
Net gain on sale of other real estate owned287
 —
 287
 (12) —
 (12)
Dividends on FHLB and FRB stock(1)
941
 —
 941
 432
 —
 432
Other operating income(2)
7,270
 102
 7,372
 2,277
 97
 2,374
Total noninterest income$14,948
 $24,663
 $39,611
 $7,099
 $20,913
 $28,012

(1) Not within the scope of ASC 606.
(2) Other operating income includes merchant interchange fees, safe deposit box rentals, and rent income totaling $1.1 million and $980 thousand for the six months ended June 30, 2018 and 2017, respectively, which are within the scope of ASC 606.






A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:
 
Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

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

 
Fees that are determined based on the market value of the assets held in their accounts are generally billed monthly or quarterly, in arrears, based on the market value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date.
 
Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.
 
InterchangeInsurance Commissions: The Corporation earns commissions from the sale of insurance policies, which are generally calculated as a percentage of the policy premium, and contingent income, which is calculated based on the volume and performance of the policies held by each carrier. Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point in time in which the amounts are 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 interchange 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.
 
Note 1819 – Stock-Based Compensation
 
A. General Information 
 
The CorporationBMBC 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’sBMBC’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’sBMBC’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’sBMBC’s “2010 Long Term Incentive Plan” under which a total of 445,002 shares of the Corporation’sBMBC’s common stock were made available for award grants, and on April 30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “2010 LTIP”) to, among other things, increase the number of shares available for award grants by 500,000 to 945,002.
 
In addition to the shareholder-approved plans mentioned in the preceding paragraph, the CorporationBMBC periodically authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)(4) of the NASDAQ listing rules.
 
The equity awards are authorized to be in the form of, among others, options to purchase the Corporation’sBMBC’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 restrictions based on performance criteria and the passage of time. The performance criteria may be a market-based criteria measured by the Corporation’sBMBC’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’sBMBC’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’sBMBC’s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to 150%.

B. Other Stock Option Information
 
The following table provides information about options outstanding for the three months ended June 30, 2018:March 31, 2019:
 Shares Weighted
Average
Exercise
Price		 Weighted
Average
Grant Date
Fair Value
Options outstanding, March 31, 201871,321
 $19.59
 $4.75
Forfeited—
 —
 —
Expired—
 —
 —
Exercised(4,750) $24.26
 $5.27
Options outstanding, June 30, 201866,571
 $19.26
 $4.71
The following table provides information about options outstanding for the six months ended June 30, 2018:
Shares Weighted
Average
Exercise
Price		 Weighted
Average
Grant Date
Fair Value		Shares Weighted
Average
Exercise
Price		 Weighted
Average
Grant Date
Fair Value
Options outstanding, December 31, 2017115,246
 $20.73
 $4.86
Options outstanding, December 31, 201850,601
 $18.28
 $4.68
Forfeited—
 —
 —
—
 —
 —
Expired—
 —
 —
—
 —
 —
Exercised(48,675) $22.74
 $5.05
(29,600) $18.25
 $4.48
Options outstanding, June 30, 201866,571
 $19.26
 $4.71
Options outstanding, March 31, 201921,001
 $18.32
 $4.95

As of June 30, 2018March 31, 2019 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 June 30, Six Months Ended June 30,Three Months Ended
March 31,
(dollars in thousands)2018 2017 2018 20172019 2018
Proceeds from exercise of stock options$115
 $355
 $1,107
 $1,005
$540
 $992
Related tax benefit recognized21
 86
 231
 227
137
 210
Net proceeds of options exercised$136
 $441
 $1,338
 $1,232
$677
 $1,202
          
Intrinsic value of options exercised$99
 $326
 $1,098
 $874
$652
 $999
 
The following table provides information about options outstanding and exercisable at June 30, 2018:March 31, 2019:
(dollars in thousands, except share data and exercise price)Outstanding ExercisableOutstanding Exercisable
Number of shares66,571
 66,571
21,001
 21,001
Weighted average exercise price$19.26
 $19.26
$18.32
 $18.32
Aggregate intrinsic value$1,800
 $1,800
$374
 $374
Weighted average remaining contractual term in years1.0
 1.0
0.5
 0.5
 



C. Restricted Stock Units and Performance Stock and Units
 
The Corporation has granted RSUs and PSUs under the 2007 LTIP and 2010 LTIP and in accordance with Rule 5635(c)(4) of the NASDAQ listing standards.
 
RSUs
 
The compensation expense for the RSUs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight-line basis over the vesting period.
 
For the three and six months ended June 30, 2018,March 31, 2019, the Corporation recognized $267$476 thousand and $555 thousand, respectively, of expense related to the Corporation’s RSUs. As of June 30, 2018,March 31, 2019, there was $1.5$3.1 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 2.02.5 years.

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


The following table details the RSUs for the three and six months ended June 30, 2018:March 31, 2019:
Three Months Ended June 30, 2018 Six Months Ended June 30, 2018Three Months Ended
March 31, 2019
Number of Shares Weighted
Average
Grant Date
Fair Value		 Number of Shares Weighted
Average
Grant Date
Fair Value		Number of Shares Weighted
Average
Grant Date
Fair Value
Beginning balance77,107
 $36.13
 75,707
 $35.80
76,746
 $39.71
Granted—
 $—
 2,400
 $43.95
36,690
 $34.75
Vested(7,347) $29.17
 (8,347) $29.28
(2,300) $31.68
Forfeited(1,165) $35.36
 (1,165) $35.36
(3,501) $41.13
Ending balance68,595
 $36.89
 68,595
 $36.89
107,635
 $38.14
 
PSUs
 
For the three and six months ended June 30, 2018,March 31, 2019, the Corporation recognized $348$661 thousand and $680 thousand, respectively, of expense related to the Corporation's PSUs. As of June 30, 2018,March 31, 2019, there was $1.8$3.5 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 1.22.2 years.
 
As part of the Incentive Program, the Corporation elected to remove the service requirement as a PSU vesting condition for employees who held PSUs and chose to participate in the Incentive Program. As a result, 8,208 PSUs were modified which resulted in $250 thousand of incremental expense recognized during the three months ended March 31, 2019.

The following table details the PSUs for the three and six months ended June 30, 2018:March 31, 2019:
Three Months Ended June 30, 2018 Six Months Ended June 30, 2018Three Months Ended
March 31, 2019
Number of Shares Weighted
Average
Grant Date
Fair Value		 Number of Shares Weighted
Average
Grant Date
Fair Value		Number of Shares Weighted
Average
Grant Date
Fair Value
Beginning balance168,453
 $24.76
 168,453
 $24.76
121,656
 $36.82
Granted—
 $—
 —
 $—
46,395
 $33.00
Vested(33,784) $16.91
 (33,784) $16.91
—
 $—
Forfeited(4,409) $26.57
 (4,409) $26.57
(8,254) $39.28
Ending balance130,260
 $26.73
 130,260
 $26.73
159,797
 $35.58
 
Note 1920 -– 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 quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

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

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

A. Assets and liabilities measured on a recurring basis

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

Investment Securities

The value of the Corporation’s available for sale investment securities, which include obligations of the U.S. government and its agencies, mortgage-backed securities issued by U.S. government- and U.S. government sponsored agencies, obligations of state and political subdivisions, corporate bonds and other debt securities are determined by the Corporation, taking into account the input of an independent third party valuation service provider. The third party’s evaluations are based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions. Management reviews, annually, the process utilized by its independent third-party valuation service provider. On a quarterly basis, management tests the validity of the prices provided by the third party by selecting a representative sample of the portfolio and obtaining actual trade results, or if actual trade results are not available, competitive broker pricing. On an annual basis, management evaluates, for appropriateness, the methodology utilized by the independent third-party valuation service provider.
 
U.S. Government agencies are evaluated and priced using multi-dimensional relational models and option adjusted spreads. State and municipal securities are evaluated on a series of matrices including reported trades and material event notices. Mortgage-backed securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available-for-sale investments are evaluated using a broker-quote based application, including quotes from issuers.
 
Interest Rate Swaps, FX Forwards, and Risk Participation Agreements 
 
The Corporation’s interest rate swaps, FX forwards, and RPAs are reported at fair value utilizing Level 2 inputs. Prices of these instruments are obtained through an independent pricing source utilizing pricing information which may include market observed quotations for swaps, LIBOR rates, forward rates and rate volatility. When entering into a derivative contract, the Corporation is exposed to fair value changes due to interest rate movements, and the potential non-performance of our contract counterparty. The Corporation has developed a methodology to value the non-performance risk based on internal credit risk metrics and the unique characteristics of derivative instruments, which include notional exposure rather than principle at risk and interest payment netting. The results of this methodology are used to adjust the base fair value of the instrument for the potential counterparty credit risk.
 




















The following tables present the Corporation’s assets measured at fair value on a recurring basis as of June 30, 2018March 31, 2019 and December 31, 2017:2018:

As of June 30, 2018       
(dollars in millions)Total Level 1 Level 2 Level 3
As of March 31, 2019       
(dollars in thousands)Total Level 1 Level 2 Level 3
Investment securities available for sale:              
U.S. Treasury securities$0.1
 $0.1
 $—
 $—
$100
 $100
 $—
 $—
Obligations of U.S. government & agencies183.3
 —
 183.3
 —
186,746
 —
 186,746
 —
Obligations of state & political subdivisions17.4
 —
 17.4
 —
8,638
 —
 8,638
 —
Mortgage-backed securities292.6
 —
 292.6
 —
322,913
 —
 322,913
 —
Collateralized mortgage obligations36.6
 —
 36.6
 —
40,486
 —
 40,486
 —
Other debt securities1.1
 —
 1.1
 —
Other investment securities1,100
 —
 1,100
 —
Total investment securities available for sale$531.1
 $0.1
 $531.0
 $—
$559,983
 $100
 $559,883
 $—
              
Investment securities trading:              
Mutual funds$8.2
 $8.2
 $—
 $—
$8,189
 $8,189
 $—
 $—
              
Derivatives:              
Interest rate swaps$6.3
 $—
 $6.3
 $—
$23,405
 $—
 $23,405
 $—
RPAs purchased87
 —
 87
 —
FX forwards7
 —
 7
 —
Total derivatives$23,499
 $—
 $23,499
 $—
       
Total recurring fair value measurements$545.6
 $8.3
 $537.3
 $—
$591,671
 $8,289
 $583,382
 $—
 
As of December 31, 2017       
(dollars in millions)Total Level 1 Level 2 Level 3
As of December 31, 2018       
(dollars in thousands)Total Level 1 Level 2 Level 3
Investment securities available for sale:              
U.S. Treasury securities$200.1
 $200.1
 $—
 $—
$200,013
 $200,013
 $—
 $—
Obligations of U.S. government & agencies151.0
 —
 151.0
 —
195,855
 —
 195,855
 —
Obligations of state & political subdivisions21.3
 —
 21.3
 —
11,332
 —
 11,332
 —
Mortgage-backed securities275.0
 —
 275.0
 —
289,890
 —
 289,890
 —
Collateralized mortgage obligations36.7
 —
 36.7
 —
39,252
 —
 39,252
 —
Mutual funds3.5
 3.5
 —
 —
Other debt securities1.6
 —
 1.6
 —
Other investment securities1,100
 —
 1,100
 —
Total investment securities available for sale$689.2
 $203.6
 $485.6
 $—
$737,442
 $200,013
 $537,429
 $—
              
Investment securities trading:              
Mutual funds$4.6
 $4.6
 $—
 $—
$7,502
 $7,502
 $—
 $—
              
Derivatives:              
Interest rate swaps$1.9
 $—
 $1.9
 $—
$12,550
 $—
 $12,550
 $—
RPAs purchased71
 —
 71
 —
Total derivatives$12,621
 $—
 $12,621
 $—
       
Total recurring fair value measurements$695.7
 $208.2
 $487.5
 $—
$757,565
 $207,515
 $550,050
 $—
 
There have been no transfers between levels during the three and six months ended June 30, 2018.March 31, 2019.
  



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





Impaired Loans
 
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, management obtains updated appraisals when a loan becomes 90 days past due or when it receives other information that may indicate possible impairment. Based on the appraisals obtained by the Corporation, a partial or full charge-off may be necessary. 
 
Other Real Estate Owned ("OREO")
 
OREO consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties classified as OREO are reported at the lower of cost or fair value less cost to sell, and are classified as Level 3 in the fair value hierarchy.
 
Mortgage Servicing Rights
 
The model to value MSRs do not trade in an active, open market with readily observable prices. Accordingly, management obtainsestimates 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 management considersfactors. All of these assumptions are considered to be significant unobservable inputs. The fair value of MSRs is mostly affected by changes in mortgage interest rates since rate changes cause the loan prepayment acceleration factors to increase or decrease. All assumptions are market driven. Management has a sufficient understanding of the third party service’s valuation models, assumptions, and inputs used in determining the fair value of MSRs, enabling management to maintain an appropriate system of internal control.Accordingly, MSRs 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 June 30, 2018March 31, 2019 and December 31, 2017:2018:
As of June 30, 2018       
(dollars in millions)Total Level 1 Level 2 Level 3
As of March 31, 2019       
(dollars in thousands)Total Level 1 Level 2 Level 3
MSRs$6.7
 $—
 $—
 $6.7
$5,754
 $—
 $—
 $5,754
Impaired loans and leases13.1
 —
 —
 13.1
23,815
 —
 —
 23,815
OREO0.5
 —
 —
 0.5
84
 —
 —
 84
Total non-recurring fair value measurements$20.3
 $—
 $—
 $20.3
$29,653
 $—
 $—
 $29,653
 
As of December 31, 2017       
(dollars in millions)Total Level 1 Level 2 Level 3
As of December 31, 2018       
(dollars in thousands)Total Level 1 Level 2 Level 3
MSRs$6.4
 $—
 $—
 $6.4
$6,277
 $—
 $—
 $6,277
Impaired loans and leases14.0
 —
 —
 14.0
22,112
 —
 —
 22,112
OREO0.3
 —
 —
 0.3
417
 —
 —
 417
Total non-recurring fair value measurements$20.7
 $—
 $—
 $20.7
$28,806
 $—
 $—
 $28,806

 
During the three and six months ended June 30, 2018, increasesMarch 31, 2019, an increase of $138$143 thousand and $167 thousand, respectively, werewas 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 2021 -– Fair Value of Financial Instruments
 
FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair value of financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies, are based on the exit price notion set forth by ASU 2016-1 effective January 1, 2018, and are applied to this disclosure on a prospective basis. Estimated fair value of assets and liabilities carried at cost 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.

The carrying amount and fair value of the Corporation’s financial instruments are as follows:
 As of June 30, 2018 As of December 31, 2017 As of March 31, 2019 As of December 31, 2018
(dollars in thousands)Fair Value
Hierarchy
Level*		 Carrying
Amount		 Fair Value Carrying
Amount		 Fair Value
Fair Value
Hierarchy
Level(1)
 Carrying
Amount		 Fair Value Carrying
Amount		 Fair Value
Financial assets:                
Cash and cash equivalentsLevel 1 $47,242
 $47,242
 $60,024
 $60,024
Level 1 $43,105
 $43,105
 $48,456
 $48,456
Investment securities - available for saleSee Note 19 531,075
 531,075
 689,202
 689,202
See Note 19 559,983
 559,983
 737,442
 737,442
Investment securities - tradingSee Note 19 8,175
 8,175
 4,610
 4,610
See Note 19 8,189
 8,189
 7,502
 7,502
Investment securities – held to maturityLevel 2 7,838
 7,547
 7,932
 7,851
Level 2 10,457
 10,324
 8,684
 8,438
Loans held for saleLevel 2 4,204
 4,204
 3,794
 3,794
Level 2 2,884
 2,884
 1,749
 1,749
Net portfolio loans and leasesLevel 3 3,370,103
 3,304,479
 3,268,333
 3,293,802
Level 3 3,502,898
 3,473,442
 3,407,728
 3,414,921
MSRsLevel 3 5,511
 6,695
 5,861
 6,397
Level 3 4,910
 5,754
 5,047
 6,277
Interest rate swapsLevel 2 6,318
 6,318
 1,895
 1,895
Level 2 23,405
 23,405
 12,550
 12,550
FX forwardsLevel 2 7
 7
 —
 —
RPAs purchasedLevel 2 65
 65
 21
 21
Level 2 87
 87
 71
 71
Other assetsLevel 3 46,567
 46,567
 46,799
 46,799
Level 3 40,175
 40,175
 43,641
 43,641
Total financial assets $4,027,098
 $3,962,367
 $4,088,471
 $4,114,395
 $4,196,100
 $4,167,355
 $4,272,870
 $4,281,047
Financial liabilities:                
DepositsLevel 2 $3,358,915
 $3,340,565
 $3,373,798
 $3,368,276
Level 2 $3,637,617
 $3,634,820
 $3,599,087
 $3,594,123
Short-term borrowingsLevel 2 227,059
 227,059
 237,865
 237,865
Level 2 124,214
 124,214
 252,367
 252,367
Long-term FHLB advancesLevel 2 87,808
 86,963
 139,140
 138,685
Level 2 55,407
 55,120
 55,374
 54,803
Subordinated notesLevel 2 98,491
 97,629
 98,416
 95,044
Level 2 98,571
 99,472
 98,526
 100,120
Junior subordinated debenturesLevel 2 21,497
 23,675
 21,416
 19,366
Level 2 21,622
 26,427
 21,580
 31,176
Interest rate swapsLevel 2 6,269
 6,269
 1,895
 1,895
Level 2 23,404
 23,404
 12,549
 12,549
RPAs soldLevel 2 1
 1
 3
 3
Level 2 2
 2
 2
 2
Other liabilitiesLevel 3 57,928
 57,928
 49,071
 49,071
Level 3 47,824
 47,824
 60,847
 60,847
Total financial liabilities $3,857,968
 $3,840,089
 $3,921,604
 $3,910,205
 $4,008,661
 $4,011,283
 $4,100,332
 $4,105,987
 
*(1) See Note 1920 in the Notes to Unaudited Consolidated Financial Statements above for a description of hierarchy levels.
 







Note 2122 -– Financial Instruments with Off-Balance Sheet Risk, Contingencies and Concentration of Credit Risk

Off-Balance Sheet Arrangements

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

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

Commitments to extend credit, which include unused lines of credit and unfunded commitments to originate loans, are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Some of the commitments are expected to expire without being drawn upon, and the total commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at June 30, 2018March 31, 2019 and December 31, 20172018 were $829.1$823.8 million and $748.3$867.2 million, respectively. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on a credit evaluation of the counterparty. Collateral varies but may include accounts receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in extending loan facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, and residential real estate for those commitments for which collateral is deemed necessary. The Corporation’s obligations under standby letters of credit as of June 30, 2018March 31, 2019 and December 31, 20172018 were $21.8$27.4 million and $17.7$21.2 million, respectively.

Contingencies

Legal Matters

In the ordinary course of its operations, the CorporationBMBC 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, management believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders.

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




Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania.  The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock.  Subsequent to the end of the first quarter of 2019, on May 1, 2019, the Court rendered a decision against Crusader.  Crusader is vigorously exploring its strategic options including post-trial motions and potential appeal of this matter.   We do not believe that this ruling and the monetary award, if any, ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Indemnifications

In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan-sale contract provisions. These provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These indemnifications may include the repurchase of loans by the Corporation, and are considered customary provisions in the secondary market for conforming mortgage loan sales. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such repurchases for the three or six months ended June 30, 2018.March 31, 2019.

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 -23 – 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, BOLIbank owned life insurance ("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.
 
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 six months ended June 30, 2018 or 2017:



March 31, 2019 and 2018:
Three Months Ended June 30, 2018 Three Months Ended June 30, 2017Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(dollars in thousands)Banking 
Wealth
Management
 Consolidated Banking 
Wealth
Management
 ConsolidatedBanking 
Wealth
Management
 Consolidated Banking 
Wealth
Management
 Consolidated
Net interest income$37,315
 $1
 $37,316
 $27,964
 $1
 $27,965
$37,645
 $2
 $37,647
 $37,438
 $1
 $37,439
Provision for loan and lease losses3,137
 —
 3,137
 (83) —
 (83)3,736
 —
 3,736
 1,030
 —
 1,030
Net interest income after loan loss provision34,178
 1
 34,179
 28,047
 1
 28,048
33,909
 2
 33,911
 36,408
 1
 36,409
Noninterest income:                      
Fees for wealth management services—
 10,658
 10,658
 —
 9,807
 9,807
—
 10,392
 10,392
 —
 10,308
 10,308
Insurance commissions—
 1,902
 1,902
 —
 943
 943
—
 1,672
 1,672
 —
 1,693
 1,693
Capital markets revenue2,105
 —
 2,105
 953
 —
 953
2,219
 —
 2,219
 666
 —
 666
Service charges on deposit accounts752
 —
 752
 630
 —
 630
808
 —
 808
 713
 —
 713
Loan servicing and other fees475
 —
 475
 519
 —
 519
609
 —
 609
 686
 —
 686
Net gain on sale of loans528
 —
 528
 520
 —
 520
319
 —
 319
 518
 —
 518
Net gain (loss) on sale of OREO111
 —
 111
 (12) —
 (12)
Net gain on sale of investment securities available for sale—
 —
 —
 7
 —
 7
Net gain on sale of OREO(24) —
 (24) 176
 —
 176
Other operating income3,486
 58
 3,544
 1,376
 49
 1,425
3,237
 21
 3,258
 4,725
 44
 4,769
Total noninterest income7,457
 12,618
 20,075
 3,986
 10,799
 14,785
7,168
 12,085
 19,253
 7,491
 12,045
 19,536
                      
Noninterest expenses:                      
Salaries & wages11,184
 5,056
 16,240
 9,284
 4,296
 13,580
15,775
 5,126
 20,901
 11,156
 4,826
 15,982
Employee benefits1,922
 955
 2,877
 1,421
 983
 2,404
3,172
 994
 4,166
 2,676
 1,032
 3,708
Occupancy and bank premise2,235
 462
 2,697
 1,849
 398
 2,247
Occupancy and bank premises2,732
 520
 3,252
 2,576
 474
 3,050
Amortization of intangible assets385
 504
 889
 196
 491
 687
327
 611
 938
 398
 481
 879
Professional fees879
 53
 932
 1,031
 18
 1,049
1,163
 157
 1,320
 729
 19
 748
Other operating expenses10,875
 1,326
 12,201
 7,489
 1,039
 8,528
7,269
 1,878
 9,147
 10,431
 1,232
 11,663
Total noninterest expenses27,480
 8,356
 35,836
 21,270
 7,225
 28,495
30,438
 9,286
 39,724
 27,966
 8,064
 36,030
Segment profit14,155
 4,263
 18,418
 10,763
 3,575
 14,338
10,639
 2,801
 13,440
 15,933
 3,982
 19,915
Intersegment (revenues) expenses*(150) 150
 —
 (112) 112
 —
Intersegment (revenues) expenses(1)
(123) 123
 —
 (149) 149
 —
Pre-tax segment profit after eliminations$14,005
 $4,413
 $18,418
 $10,651
 $3,687
 $14,338
$10,516
 $2,924
 $13,440
 $15,784
 $4,131
 $19,915
% of segment pre-tax profit after eliminations76.0% 24.0% 100.0% 74.3% 25.7% 100.0%78.2% 21.8% 100.0% 79.3% 20.7% 100.0%
Segment assets (dollars in millions)
$4,339.3
 $54.9
 $4,394.2
 $3,387.0
 $51.0
 $3,438.0
$4,577.7
 $54.3
 $4,632.0
 $4,248.4
 $52.0
 $4,300.4
 

 Six Months Ended June 30, 2018 Six Months Ended June 30, 2017
(dollars in thousands)Banking 
Wealth
Management
 Consolidated Banking 
Wealth
Management
 Consolidated
Net interest income$74,753
 $2
 $74,755
 $55,366
 $2
 $55,368
Provision for loan and lease losses4,167
 —
 4,167
 208
 —
 208
Net interest income after loan loss provision70,586
 2
 70,588
 55,158
 2
 55,160
Noninterest income:          —
Fees for wealth management services—
 20,966
 20,966
 —
 19,110
 19,110
Insurance commissions—
 3,595
 3,595
 —
 1,706
 1,706
Capital markets revenue2,771
 —
 2,771
 953
 —
 953
Service charges on deposit accounts1,465
 —
 1,465
 1,277
 —
 1,277
Loan servicing and other fees1,161
 —
 1,161
 1,022
 —
 1,022
Net gain on sale of loans1,046
 —
 1,046
 1,149
 —
 1,149
Net gain on sale of investment securities available for sale7
 —
 7
 1
 —
 1
Net gain (loss) gain on sale of OREO287
 —
 287
 (12) —
 (12)
Other operating income8,211
 102
 8,313
 2,709
 97
 2,806
Total noninterest income14,948
 24,663
 39,611
 7,099
 20,913
 28,012
            
Noninterest expenses:           
Salaries & wages22,340
 9,882
 32,222
 17,915
 8,115
 26,030
Employee benefits4,598
 1,987
 6,585
 2,978
 1,915
 4,893
Occupancy and bank premise4,811
 936
 5,747
 3,976
 797
 4,773
Amortization of intangible assets783
 985
 1,768
 392
 988
 1,380
Professional fees1,608
 72
 1,680
 1,712
 48
 1,760
Other operating expenses21,306
 2,558
 23,864
 14,254
 2,065
 16,319
Total noninterest expenses55,446
 16,420
 71,866
 41,227
 13,928
 55,155
Segment profit30,088
 8,245
 38,333
 21,030
 6,987
 28,017
Intersegment (revenues) expenses*(299) 299
 —
 (224) 224
 —
Pre-tax segment profit after eliminations$29,789
 $8,544
 $38,333
 $20,806
 $7,211
 $28,017
% of segment pre-tax profit after eliminations77.7% 22.3% 100.0% 74.3% 25.7% 100.0%
Segment assets (dollars in millions)
$4,339.3
 $54.9
 $4,394.2
 $3,387.0
 $51.0
 $3,438.0

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

Wealth Management Segment Information
(dollars in millions)June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Assets under management, administration, supervision and brokerage$13,404.7
 $12,968.7
$14,736.5
 $13,429.5


ITEM 2. 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.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report and the documents incorporated by reference herein may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). As such, they are only predictionsand 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 statements that constitute forward-looking statements. The Corporation’s actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:
local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;
our need for capital;
reduced demand for our products and services, and lower revenues and earnings due to an economic recession;
lower earnings due to other-than-temporary impairment charges related to our investment securities portfolios or other assets;
changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions, including those concerning banking, securities. insurance or taxes, that adversely affect our business, the financial services industry as a whole, the Corporation, or our subsidiaries individually or collectively;
changes in the level of non-performing assets and charge-offs;
effectiveness of capital management strategies and activities;
changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
other changes in accounting requirements or interpretations;
the accuracy of assumptions underlying the establishment of provisions for loan and lease losses, estimates in the value of collateral, and various financial assets and liabilities;
inflation, securities market and monetary fluctuations, including changes in the market values of financial assets and the stability of particular securities markets;
changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, and interest rate sensitivity;
prepayment speeds, loan originations and credit losses;
changes in the value of our mortgage servicing rights;
sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;
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;
variances in common stock outstanding and/or volatility in common stock price;
fair value of and number of stock-based compensation awards to be issued in future periods;
risks related to our mergers and acquisitions, including, but not limited to: reputational risks; client and customer retention risks; diversion of management’s time for integration-related issues; integration may take longer than anticipated or cost more than expected; anticipated benefits of the merger or acquisition, including any anticipated cost savings or strategic gains, may take longer or be significantly harder to achieve, or may not be realized;
deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without limitation, difficulties in maintaining relationships with employees, customers, and/or suppliers may be greater than expected;
the credit risks of lending activities and overall quality of the composition of acquired loan, lease and securities portfolio;
our success in continuing to generate new business in our existing markets, as well as identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;
our ability to continue to generate investment results for customers or introduce competitive new products and services on a timely, cost-effective basis, including investment and banking products that meet customers’ needs;
changes in consumer and business spending, borrowing and savings habits and demand for financial services in the relevant market areas;
extent to which products or services previously offered (including but not limited to mortgages and asset back securities) require us to incur liabilities or absorb losses not contemplated at their initiation or origination;
rapid technological developments and changes;
technological systems failures, interruptions and security breaches, internally or through a third-party provider, could negatively impact our operations, customers and/or reputation;
competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in our market areas and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
protection and validity of intellectual property rights;
reliance on large customers;
technological, implementation and cost/financial risks in contracts;
the outcome of pending and future litigation and governmental proceedings;
any extraordinary events (such as natural disasters, acts of terrorism, wars or political conflicts);
ability to retain key employees and members of senior management;
changes in relationships with employees, customers, and/or suppliers;
the ability of key third-party providers to perform their obligations to us and our subsidiaries;
our need for capital, or our ability to control operating costs and expenses or manage loan and lease delinquency rates;
other material adverse changes in operations or earnings; and
our success in managing the risks involved in the foregoing.

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning on page 12 of the 2018 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.
 
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("BMBC", together with its direct and indirect subsidiaries, the “Corporation”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation.BMBC. The Bank and CorporationBMBC are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries offeroffers 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 36 branches, eight limited-hour retirement community offices,43 banking locations, six wealth management offices and a full-servicetwo insurance agency located throughoutand risk management locations in the following counties: Montgomery, Chester, Delaware, Chester, Philadelphia, Berks, and Dauphin countiesCounties in Pennsylvania,Pennsylvania; New Castle County in Delaware; and Mercer and Camden counties ofCounties in New Jersey, and New Castle county in Delaware.Jersey. The common stock of the CorporationBMBC 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 CorporationBMBC 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 2017 Annual Report.Report on Form 10-K for the year ended December 31, 2018 (the "2018 Annual Report").
 
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 BMBC (collectively, the Corporation (the “RBPI Merger”), and the merger of Royal Bank America with and into the Bank, were completed. Consideration totaled $138.7 million, comprised of 3,101,316 shares of the Corporation’sBMBC’s common stock, the assumption of 140,224 warrants to purchase CorporationBMBC 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.


Executive Overview 
 
The following items highlight the Corporation’s results of operations for the three and six months ended June 30, 2018,March 31, 2019, as compared to the same period in 2017,2018, and the changes in its financial condition as of June 30, 2018March 31, 2019 as compared to December 31, 2017.2018. 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 Bankthe Corporation for the three months ended June 30, 2018March 31, 2019 was $14.7$10.7 million, an increasea decrease of $5.3$4.6 million as compared to net income of $9.4$15.3 million for the same period in 2017.2018. Diluted earnings per share was $0.72$0.53 for the three months ended June 30, 2018March 31, 2019 as compared to $0.55$0.75 for the same period in 2017.2018.

Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended June 30, 2018March 31, 2019 were 11.03%7.57% and 1.36%0.95%, respectively, as compared to ROE and ROA of 9.71%11.78% and 1.14%1.46% respectively, for the same period in 2017.2018.

Tax-equivalent net interest income increased $9.2 million,$256 thousand, or 32.8%0.7%, to $37.4$37.8 million for the three months ended June 30, 2018,March 31, 2019, as compared to $28.2$37.5 million for the same period in 2017.2018.

Provision for loan and lease losses (the “Provision”) of $3.1$3.7 million for the three months ended June 30, 2018March 31, 2019 was an increase of $3.2$2.7 million from the $(83) thousand recovery of$1.0 million Provision recorded for the same period in 2017.2018.

Noninterest income of $20.1$19.3 million for the three months ended June 30, 2018 increased $5.3 millionMarch 31, 2019 decreased $283 thousand as compared to $14.8$19.5 million for the same period in 2017.2018.

Fees for wealth management services and capital markets revenue and insurance commissions of $10.7 million, $2.1$10.4 million and $1.9$2.2 million, respectively, for the three months ended June 30, 2018March 31, 2019 increased $851$84 thousand $1.2 million, and $959 thousand, respectively, as compared to the same period in 2017.

Noninterest expense of $35.8 million for the three months ended June 30, 2018 increased $7.3 million, from $28.5 million for the same period in 2017.





Six Month Results of Operations

Net income attributable to Bryn Mawr Bank Corporation for the six months ended June 30, 2018 was $30.0 million, an increase of $11.5 million as compared to net income of $18.5 million for the same period in 2017. Diluted earnings per share was $1.47 for the six months ended June 30, 2018 as compared to $1.07 for the same period in 2017.

Return on average equity (“ROE”) and return on average assets (“ROA”) for the six months ended June 30, 2018 were 11.49% and 1.41%, respectively, as compared to ROE and ROA of 9.65% and 1.13% respectively, for the same period in 2017.

Tax-equivalent net interest income increased $19.2 million, or 34.4%, to $74.9 million for the six months ended June 30, 2018, as compared to $55.8 million for the same period in 2017.

The Provision of $4.2 million for the six months ended June 30, 2018 was an increase of $4.0 million from the $208 thousand Provision recorded for the same period in 2017.

Noninterest income of $39.6 million for the six months ended June 30, 2018 increased $11.6 million as compared to $28.0 million for the same period in 2017.

Fees for wealth management services, insurance commissions, and capital markets revenue of $21.0 million, $3.6 million, and $2.8 million for the six months ended June 30, 2018 increased of $1.9 million, $1.9 million, and $1.8$1.6 million, respectively, as compared to the same period in 2017.2018. Insurance commissions of $1.7 million for the three months ended March 31, 2019 decreased $21 thousand as compared to the same period in 2018.

Noninterest expense of $71.9$39.7 million for the sixthree months ended June 30, 2018March 31, 2019 increased $16.7$3.7 million, from $55.2$36.0 million for the same period in 2017.2018.



Changes in Financial Condition


Total assets of $4.39$4.63 billion as of June 30, 2018March 31, 2019 decreased $55.5$20.5 million from $4.45$4.65 billion as of December 31, 2017.2018.

Total shareholders’ equity of $542.5$575.1 million as of June 30, 2018March 31, 2019 increased $14.4$10.4 million from $528.1$564.7 million as of December 31, 2017.2018.

Total portfolio loans and leases as of June 30, 2018March 31, 2019 were $3.39$3.52 billion, an increase of $103.6$96.4 million from $3.29$3.43 billion as of December 31, 2017.2018.

Total non-performing loans and leases of $9.4$19.3 million represented 0.28%0.55% of portfolio loans and leases as of June 30, 2018March 31, 2019 as compared to $8.6$12.8 million, or 0.26%0.37% of portfolio loans and leases as of December 31, 2017.2018.

The $19.4$20.6 million Allowance, as of June 30, 2018,March 31, 2019, represented 0.57%0.59% of portfolio loans and leases, as compared to $17.5$19.4 million or 0.53%0.57% of portfolio loans and leases as of December 31, 2017.2018.

Total deposits of $3.36$3.64 billion as of June 30, 2018 decreased $14.9March 31, 2019 increased $38.5 million from $3.37$3.60 billion as of December 31, 2017.2018.

Wealth assets under management, administration, supervision and brokerage as of June 30, 2018March 31, 2019 were $13.40$14.74 billion, an increase of $436.0 million$1.31 billion from $12.97$13.43 billion December 31, 2017.









2018.


Key Performance Ratios
 
Key financial performance ratios for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 are shown in the table below:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2018 2017 2018 20172019 2018
Return on average equity11.03% 9.71% 11.49% 9.65%7.57% 11.78%
Return on average assets1.36% 1.14% 1.41% 1.13%0.95% 1.46%
Tax-equivalent net interest margin3.81% 3.68% 3.87% 3.71%3.75% 3.94%
Basic earnings per share$0.73
 $0.56
 $1.48
 $1.09
$0.53
 $0.76
Diluted earnings per share$0.72
 $0.55
 $1.47
 $1.07
$0.53
 $0.75
Dividends paid or accrued per share$0.22
 $0.21
 $0.44
 $0.42
$0.25
 $0.22
Dividends paid or accrued per share to net income per basic common share30.1% 37.5% 29.7% 38.5%47.2% 28.9%
 
The following table presents certain key period-end balances and ratios as of June 30, 2018March 31, 2019 and December 31, 2017:2018:
(dollars in millions, except per share amounts)June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Book value per share$26.80
 $26.19
$28.52
 $28.01
Tangible book value per share$16.55
 $16.02
Allowance as a percentage of portfolio loans and leases0.57% 0.53%0.59% 0.57%
Tier I capital to risk weighted assets10.46% 10.42%10.72% 10.92%
Tangible common equity ratio8.00% 7.61%
Loan to deposit ratio100.9% 97.4%96.9% 95.2%
Wealth assets under management, administration, supervision and brokerage$13,404.7
 $12,968.7
$14,736.5
 $13,429.5
Portfolio loans and leases$3,389.5
 $3,285.9
$3,523.5
 $3,427.2
Total assets$4,394.2
 $4,449.7
$4,632.0
 $4,652.5
Total shareholders’ equity$542.5
 $528.1
$575.1
 $564.7
 
The following sections discuss, in greater detail, the Corporation’s results of operations for the three and six months ended June 30, 2018,March 31, 2019, as compared to the same periodsperiod in 2017,2018, and the changes in its financial condition as of June 30, 2018March 31, 2019 as compared to December 31, 2017.2018.


Recent Developments

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania.  The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock.  On May 1, 2019, the Court rendered a decision in favor of Snyder and ordered Crusader to pay Snyder the amount of $2,190,000 plus interest at the rate of 6% from December 1, 2006.  Crusader is vigorously exploring its strategic options including post-trial motions and potential appeal of this matter.  We do not believe that this ruling and the monetary award, if any, ultimately payable by Crusader will be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

Components of Net Income
 
Net income is comprised of five major elements:

Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;
Provision for Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;
Noninterest Income, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit services;
Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional fees, due diligence, merger-related and merger integration expenses, and other operating expenses; and
Income Tax Expense, which includeincludes 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 sixthree months ended June 30,March 31, 2019 and 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.
 
Three Months Ended June 30, 2018March 31, 2019 Compared to the Same Period in 20172018

For the three months ended June 30, 2018,March 31, 2019, tax-equivalent net interest income increased $9.2 million,$256 thousand, or 32.8%0.7%, to $37.4$37.8 million, as compared to $28.2$37.5 million for the same period in 2017.2018. Tax-equivalent interest income and fees on loans and leases increased $12.5$4.2 million for the three months ended June 30, 2018March 31, 2019 as compared to the same period in 2017.2018. The increase in tax-equivalent interest and fees on loans and leases was primarily related to the $737.7$186.5 million increase in average loans to $3.35$3.48 billion for the three months ended June 30, 2018March 31, 2019 from $2.62$3.29 billion for the three months ended June 30, 2017March 31, 2018 coupled with a 5122 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 initially increased loans and leases by $567.3 million, as well as organic loan growth. Tax-equivalent interest income on available for sale investment securities increased by $891$699 thousand for the three months ended June 30, 2018March 31, 2019 as compared to the same period in 2017.2018. Average available for sale investment securities increased by $113.1$34.3 million for the secondfirst quarter of 20182019 as compared to the secondfirst quarter of 20172018 coupled with a 2438 basis point increase in the yield on available for sale investment securities over the same period.

InterestPartially offsetting the effect on net interest income associated with the increase in average loans and leases and available for sale investment securities was a $4.6 million increase in interest expense on interest-bearing deposits subordinated notes, short-term borrowings, and junior subordinated debentures increased $2.5 million, $773 thousand, $748 thousand, and $321 thousand, respectively, for the three months ended June 30, 2018March 31, 2019 as compared to the same period in 2017. The increases in interest expense were primarily related to increases in the average balances of interest-bearing deposits and junior subordinated debentures as a result of the RBPI Merger, and the December 13, 2017 issuance of $70 million, ten-year, 4.25% fixed-to-floating subordinated notes. The rate on2018. Average interest-bearing deposits increased 29by $238.7 million, coupled with a 65 basis points over the same period.

Six Months Ended June 30, 2018 Compared to the Same Periodpoint increase in 2017

For the six months ended June 30, 2018, tax-equivalent net interest income increased $19.2 million, or 34.4%, to $74.9 million, as compared to $55.8 millionrate paid for the same period in 2017. Tax-equivalent interest and fees on loans and leases increased $24.6 million for the six months ended June 30, 2018first quarter of 2019 as compared to the same period in 2017.first quarter of 2018. The increase in tax-equivalent interest and feesexpense on loans and leasesdeposits was primarily related to the $736.6 million increase in average loans to $3.32 billion for the six months ended June 30, 2018 from $2.59 billion as of June 30, 2017 coupled with a 49 basis point increasecompetitive dynamics in the yield on loansmarkets in which we operate and leases overcertain promotional interest rates offered during the same period. The increase in average loans was largely related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by $567.3 million, as well as organic loan growth. Tax-equivalent interest income on available for sale investment securities increased by $1.8 million for the six months ended June 30, 2018 as compared to the same period in 2017. Average available for sale investment securities increased by $123.5 million for the six months ended June 30, 2018 as compared to the same period in 2017 coupled with a 24 basis point increase in the yield on available for sale investment securities over the same period.first quarter of 2019.

Interest expense on interest-bearing deposits, subordinated notes, short-term borrowings, and junior subordinated debentures increased $4.2 million, $1.5 million, $1.4 million, and $609 thousand, respectively, for the six months ended June 30, 2018 as compared to the same period in 2017. The increases in interest expense were primarily related to increases in the average balances of interest-bearing deposits and junior subordinated debentures as a result of the RBPI Merger, and the December 13, 2017 issuance of $70 million, ten-year, 4.25% fixed-to-floating subordinated notes. The rate on interest-bearing deposits increased 24 basis points over the same period.

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

For the Three Months Ended June 30,For the Three Months Ended March 31,
2018  20172019  2018
(dollars in thousands)Average
Balance		 Interest
Income/
Expense		 Average
Rates
Earned/
Paid		  Average
Balance		 Interest
Income/
Expense		 Average
Rates
Earned/
Paid		Average
Balance		 Interest
Income/
Expense		 Average
Rates
Earned/
Paid		  Average
Balance		 Interest
Income/
Expense		 Average
Rates
Earned/
Paid
Assets:                        
Interest-bearing deposits with banks$37,215
 $64
 0.69%  $26,266
 $35
 0.53%$32,742
 $132
 1.64%  $38,044
 $53
 0.56%
Investment securities - available for sale:     ��                  
Taxable514,966
 2,888
 2.25%  391,112
 1,940
 1.99%543,687
 3,419
 2.55%  498,718
 2,675
 2.18%
Tax-exempt(4)
18,215
 93
 2.05%  28,970
 150
 2.08%9,795
 55
 2.28%  20,501
 100
 1.98%
Total investment securities – available for sale533,181
 2,981
 2.24%  420,082
 2,090
 2.00%553,482
 3,474
 2.63%  519,219
 2,775
 2.17%
Investment securities – held to maturity7,866
 13
 0.66%  5,181
 5
 0.39%8,804
 11
 0.51%  7,913
 12
 0.62%
Investment securities – trading8,202
 22
 1.08%  4,137
 13
 1.26%7,629
 22
 1.17%  8,339
 21
 1.02%
Loans and leases(1)(2)(3)(4)
3,353,339
 41,782
 5.00%  2,615,610
 29,309
 4.49%3,477,739
 44,958
 5.24%  3,291,212
 40,754
 5.02%
Total interest-earning assets3,939,803
 44,862
 4.57%  3,071,276
 31,452
 4.11%4,080,396
 48,597
 4.83%  3,864,727
 43,615
 4.58%
Cash and due from banks7,153
      15,727
    14,414
      10,698
    
Allowance for loan and lease losses(18,043)      (17,549)    (19,887)      (17,628)    
Other assets415,628
      263,853
    470,206
      388,383
    
Total assets$4,344,541
      $3,333,307
    $4,545,129
      $4,246,180
    
Liabilities:                        
Savings, NOW, and market rate accounts$1,722,328
 $2,073
 0.48%  $1,375,949
 $813
 0.24%$1,798,103
 $3,764
 0.85%  $1,676,733
 $1,479
 0.36%
Wholesale deposits233,714
 973
 1.67%  154,424
 378
 0.98%342,696
 2,012
 2.38%  231,289
 733
 1.29%
Retail time deposits533,254
 1,453
 1.09%  323,287
 792
 0.98%533,395
 2,321
 1.76%  527,469
 1,260
 0.97%
Total interest-bearing deposits2,489,296
 4,499
 0.72%  1,853,660
 1,983
 0.43%2,674,194
 8,097
 1.23%  2,435,491
 3,472
 0.58%
Short-term borrowings205,323
 985
 1.92%  98,869
 237
 0.96%157,652
 943
 2.43%  172,534
 630
 1.48%
Long-term FHLB advances102,023
 490
 1.93%  171,567
 682
 1.59%55,385
 278
 2.04%  123,920
 562
 1.84%
Subordinated notes98,463
 1,143
 4.66%  29,550
 370
 5.02%98,542
 1,145
 4.71%  98,430
 1,143
 4.71%
Junior subordinated debt21,470
 321
 6.00%  —
 —
 —
21,595
 358
 6.72%  21,430
 288
 5.45%
Total interest-bearing liabilities2,916,575
 7,438
 1.02%  2,153,646
 3,272
 0.61%3,007,368
 10,821
 1.46%  2,851,805
 6,095
 0.87%
Noninterest-bearing deposits841,676
      755,597
    871,726
      835,476
    
Other liabilities52,389
      34,348
    93,949
      32,465
    
Total noninterest-bearing liabilities894,065
      789,945
    965,675
      867,941
    
Total liabilities3,810,640
      2,943,591
    3,973,043
      3,719,746
    
Shareholders’ equity533,901
      389,716
    572,086
      526,434
    
Total liabilities and shareholders’ equity$4,344,541
      $3,333,307
    $4,545,129
      $4,246,180
    
Net interest spread    3.55%      3.50%    3.37%      3.71%
Effect of noninterest-bearing sources    0.26%      0.18%    0.38%      0.23%
Net interest income/margin on earning assets(4)
  $37,424
 3.81%    $28,180
 3.68%  $37,776
 3.75%    $37,520
 3.94%
Tax-equivalent adjustment(4)
  $108
 0.01%    $215
 0.03%  $129
 0.01%    $81
 0.01%
 
(1)Non-accrual loans have been included in average loan balances, but interest on non-accrual loans has not been included for purposes of determining interest income.
(2)Includes portfolio loans and leases and loans held for sale.
(3)Interest on loans and leases includes deferred fees of $421 thousand and $112 thousand for the three months ended June 30, 2018 and 2017, respectively.
(4)
Tax rate used for tax-equivalent calculations is 21% for 2018 and 35% for 2017

 For the Six Months Ended June 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$37,627
 $117
 0.63%  $32,931
 $101
 0.62%
Investment securities - available for sale:            
Taxable506,887
 5,563
 2.21%  372,772
 3,620
 1.96%
Tax-exempt(4)
19,352
 193
 2.01%  30,221
 314
 2.10%
Total investment securities – available for sale526,239
 5,756
 2.21%  402,993
 3,934
 1.97%
Investment securities – held to maturity7,889
 25
 0.64%  4,446
 4
 0.18%
Investment securities – trading8,270
 43
 1.05%  4,014
 2
 0.10%
Loans and leases(1)(2)(3)(4)
3,322,447
 82,536
 5.01%  2,585,809
 57,931
 4.52%
Total interest-earning assets3,902,472
 88,477
 4.57%  3,030,193
 61,972
 4.12%
Cash and due from banks8,916
      15,336
    
Allowance for loan and lease losses(17,837)      (17,564)    
Other assets402,086
      260,963
    
Total assets$4,295,637
      $3,288,928
    
Liabilities:            
Savings, NOW, and market rate accounts$1,701,732
 $3,552
 0.42%  $1,382,220
 $1,569
 0.23%
Wholesale deposits232,508
 1,706
 1.48%  148,973
 695
 0.94%
Retail time deposits530,378
 2,713
 1.03%  321,738
 1,547
 0.97%
Total interest-bearing deposits2,464,618
 7,971
 0.65%  1,852,931
 3,811
 0.41%
Short-term borrowings189,019
 1,615
 1.72%  73,378
 264
 0.73%
Long-term FHLB advances112,911
 1,052
 1.88%  177,006
 1,380
 1.57%
Subordinated notes98,447
 2,286
 4.68%  29,544
 740
 5.05%
Junior subordinated debt21,450
 609
 5.73%  —
 —
 —
Total interest-bearing liabilities2,886,445
 13,533
 0.95%  2,132,859
 6,195
 0.59%
Noninterest-bearing deposits840,571
      733,817
    
Other liabilities42,482
      36,266
    
Total noninterest-bearing liabilities883,053
      770,083
    
Total liabilities3,769,498
      2,902,942
    
Shareholders’ equity526,139
      385,986
    
Total liabilities and shareholders’ equity$4,295,637
      $3,288,928
    
Net interest spread    3.62%      3.53%
Effect of noninterest-bearing sources    0.25%      0.18%
Net interest income/margin on earning assets(4)
  $74,944
 3.87%    $55,777
 3.71%
Tax-equivalent adjustment(4)
  $189
 0.01%    $409
 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 $699$285 thousand and $350$278 thousand for the sixthree months ended June 30,March 31, 2019 and 2018, and 2017, respectively.
(4)Tax rate used for tax-equivalent calculations is 21% for 20182019 and 35% for 20172018.

Rate/Volume Analysis (tax-equivalent basis)*(1)
 
The rate/volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and six months ended June 30, 2018March 31, 2019 as compared to the same period in 2017,2018, 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.
2018 Compared to 20172019 Compared to 2018
(dollars in thousands)Three Months Ended June 30, Six Months Ended June 30,Three Months Ended
March 31,
increase/(decrease)Volume Rate Total Volume Rate TotalVolume Rate Total
Interest Income:                
Interest-bearing deposits with banks$14
 $15
 $29
 $14
 $2
 $16
$(49) $128
 $79
Investment securities - taxable647
 318
 965
 1,316
 689
 2,005
243
 501
 744
Investment securities -nontaxable(56) (1) (57) (112) (9) (121)(91) 46
 (45)
Loans and leases8,226
 4,247
 12,473
 16,525
 8,080
 24,605
2,314
 1,890
 4,204
Total interest income8,831
 4,579
 13,410
 17,743
 8,762
 26,505
2,417
 2,565
 4,982
Interest expense:
 
 
 
 
 

 
 
Savings, NOW and market rate accounts211
 1,049
 1,260
 367
 1,616
 1,983
108
 2,177
 2,285
Wholesale deposits193
 402
 595
 389
 622
 1,011
355
 924
 1,279
Retail time deposits514
 147
 661
 1,008
 158
 1,166
14
 1,047
 1,061
Short-term borrowings255
 493
 748
 420
 931
 1,351
(344) 657
 313
Long-term FHLB advances(674) 482
 (192) (763) 435
 (328)(465) 181
 (284)
Subordinated notes1,344
 (571) 773
 2,059
 (513) 1,546
2
 —
 2
Junior subordinated debt321
 —
 321
 609
 —
 609
2
 68
 70
Total interest expense2,164
 2,002
 4,166
 4,089
 3,249
 7,338
(328) 5,054
 4,726
Interest differential$6,667
 $2,577
 $9,244
 $13,654
 $5,513
 $19,167
$2,745
 $(2,489) $256

*(1) The tax rate used in the calculation of the tax-equivalent income is 21% for 20182019 and 35% for 20172018.
 

Tax-Equivalent Net Interest Margin
 
The tax-equivalent net interest margin of 3.81%3.75% for the three months ended June 30, 2018March 31, 2019 was a 1319 basis point increasedecrease from 3.68%3.94% 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 decreased four basis point to 3.58% from 3.62% for three months ended June 30, 2018 and 2017, respectively. The contribution to the tax-equivalent net interest margin from the accretion of purchase accounting adjustments was 23 basis points for three months ended June 30, 2018 as compared to six basis points for three months ended June 30, 2017.2018.

The tax-equivalent net interest margin and related components for the past five consecutive quarters are shown in the table below:
 
Quarter Interest-
Earning
Asset Yield		 Interest-
Bearing
Liability Cost		 Net Interest
Spread		 Effect of Noninterest Bearing Sources Net Interest
Margin		 Interest-
Earning
Asset Yield		 Interest-
Bearing
Liability Cost		 Net Interest
Spread		 Effect of Noninterest Bearing Sources Net Interest
Margin
1st Quarter 2019 4.83% 1.46% 3.37% 0.38% 3.75%
4th Quarter 2018 4.74% 1.30% 3.44% 0.35% 3.79%
3rd Quarter 2018 4.54% 1.16% 3.38% 0.31% 3.69%
2nd Quarter 2018 4.57% 1.02% 3.55% 0.26% 3.81% 4.57% 1.02% 3.55% 0.26% 3.81%
1st Quarter 2018 4.58% 0.87% 3.71% 0.23% 3.94% 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%





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 riskschanges 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”)),and Insured Cash Sweep (“ICS”) and Pennsylvania Local Government Investment Trust (“PLGIT”).

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 June 30, 2018 Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2017Change in Net Interest Income Over the Twelve Months Beginning After March 31, 2019 Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2018
Amount Percentage Amount PercentageAmount Percentage Amount Percentage
+300 basis points$7,360
 4.82 % $15,953
 10.66%$7,243
 4.90 % $5,644
 3.74 %
+200 basis points$4,987
 3.26 % $10,644
 7.11%$4,840
 3.28 % $3,734
 2.47 %
+100 basis points$2,551
 1.67 % $5,316
 3.55%$2,451
 1.66 % $1,860
 1.23 %
-100 basis points$(4,716) (3.09)% $(6,913) (4.62)$(6,774) (4.58)% $(6,546) (4.34)%
 
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of June 30, 2018March 31, 2019 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 lessmore asset sensitive in a rising-rate environment as of June 30, 2018March 31, 2019 than it was as of December 31, 2017.2018. The decreaseincrease in sensitivity is related to a decline in interest-bearing cash and an increase in interest-bearing deposits and borrowings at higher rates.variable rate loans that increase with the index. The magnitude of the change in the 100 basis point decrease in rate is related to the Bank's ability to decreasevariable rate loans that do not have a floor and floor rates on deposits.

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.liquidity. Non-rate-sensitive assets and liabilities are spread over time periods to reflect management’s view of the maturity of these funds.
 
Non-maturity deposits (demand deposits in particular) are recognized by the Bank’s regulatory agenciesindustry 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 haveindustry practice has suggested distribution limits for non-maturity deposits. However, management has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity. These assumptions are also reflected in the above interest rate simulation. The following table presents the Corporation’s gap analysis as of June 30, 2018:

March 31, 2019:
(dollars in millions)
0 to 90
Days
 
91 to 365
Days
 
1 - 5
Years
 
Over
5 Years
 
Non-Rate
Sensitive
 Total
0 to 90
Days
 
91 to 365
Days
 
1 - 5
Years
 
Over
5 Years
 
Non-Rate
Sensitive
 Total
Assets:                      
Interest-bearing deposits with banks39.9
 —
 —
 —
 —
 39.9
$29.5
 $—
 $—
 $—
 $—
 $29.5
Investment securities(1)
24.7
 54.8
 332.3
 135.3
 —
 547.1
28.5
 62.2
 340.6
 147.3
 —
 578.6
Loans and leases(2)
1,360.3
 379.0
 1,269.1
 385.3
 —
 3,393.7
1,441.2
 381.4
 1,345.4
 358.3
 —
 3,526.3
Allowance—
 —
 —
 —
 (19.4) (19.4)—
 —
 —
 —
 (20.6) (20.6)
Cash and due from banks—
 —
 —
 —
 7.3
 7.3
—
 —
 —
 —
 13.6
 13.6
Operating lease right-of-use assets0.8
 2.3
 10.7
 30.2
 —
 44.0
Other assets—
 —
 —
 —
 425.6
 425.6
—
 —
 —
 —
 460.5
 460.5
Total assets1,424.9
 433.8
 1,601.4
 520.6
 413.5
 4,394.2
1,500.0
 445.9
 1,696.7
 535.8
 453.5
 4,631.9
Liabilities and shareholders’ equity:                      
Demand, noninterest-bearing64.2
 162.2
 226.6
 439.4
 —
 892.4
24.8
 74.5
 258.6
 524.4
 —
 882.3
Savings, NOW and market rate114.7
 344.1
 808.0
 456.8
 —
 1,723.6
85.0
 255.0
 758.3
 793.4
 —
 1,891.7
Time deposits93.6
 310.8
 131.1
 2.8
 —
 538.3
90.6
 303.0
 136.1
 1.8
 —
 531.5
Wholesale non-maturity deposits36.9
 —
 —
 —
 —
 36.9
47.7
 —
 —
 —
 —
 47.7
Wholesale time deposits53.2
 114.6
 —
 —
 —
 167.8
226.9
 57.5
 —
 —
 —
 284.4
Short-term borrowings227.1
 —
 —
 —
 —
 227.1
124.2
 —
 —
 —
 —
 124.2
Long-term FHLB advances15.0
 25.0
 47.8
 —
 —
 87.8
7.5
 25.7
 22.2
 —
 —
 55.4
Subordinated notes—
 —
 98.5
 —
 —
 98.5
—
 —
 98.6
 —
 —
 98.6
Junior subordinated debentures21.5
 —
 —
 —
 —
 21.5
21.6
 —
 —
 —
 —
 21.6
Operating lease liabilities0.9
 2.6
 11.7
 33.0
 —
 48.2
Other liabilities—
 —
 —
 —
 57.8
 57.8
—
 —
 —
 —
 71.2
 71.2
Shareholders’ equity19.4
 58.1
 310.0
 155.0
 —
 542.5
20.5
 61.6
 328.6
 164.4
 —
 575.1
Total liabilities and shareholders’ equity645.6
 1,014.8
 1,622.0
 1,054.0
 57.8
 4,394.2
649.7
 779.9
 1,614.1
 1,517.0
 71.2
 4,631.9
Interest-earning assets1,424.9
 433.8
 1,601.4
 520.6
 —
 3,980.7
1,499.2
 443.6
 1,686.0
 505.6
 —
 4,134.4
Interest-bearing liabilities562.0
 794.5
 1,085.4
 459.6
 —
 2,901.5
603.5
 641.2
 1,015.2
 795.2
 —
 3,055.1
Difference between interest-earning assets and interest-bearing liabilities862.9
 (360.7) 516.0
 61.0
 —
 1,079.2
895.7
 (197.6) 670.8
 (289.6) —
 1,079.3
Cumulative difference between interest earning assets and interest-bearing liabilities$862.9
 $502.2
 $1,018.2
 $1,079.2
 $—
 $1,079.2
$895.7
 $698.1
 $1,368.9
 $1,079.3
 $—
 $1,079.3
Cumulative earning assets as a % of cumulative interest-bearing liabilities254% 137% 142% 137%    248% 156% 161% 135%    

(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, 2017.2018.

PROVISION FOR LOAN AND LEASE LOSSES
 
For the three months ended June 30, 2018,March 31, 2019, the Corporation recorded a Provision of $3.1$3.7 million which was a $3.2$2.7 million increase as compared to the same period in 2017, when2018. During the Corporation experienced an $(83) thousand recoveryfirst quarter of Provision. Net originated loan growth of $136.0 million2019, portfolio loans and changes in certain qualitative factors used to determine the required level of Allowance were key drivers in the increase in the Provision.leases increased by $96.4 million. Net charge-offs for the secondfirst quarter of 20182019 were $1.4$2.5 million as compared to $625$893 thousand for the same period in 2017.2018. The increase in net charge-offs was largely related to the partial charge-off of a commercial mortgage loan to a borrower experiencing financial difficulty whose loan was modified to a TDR during the fourth quarter of 2018. A subsequent impairment analysis, based on updated appraisals, indicated that a charge-off of $1.5 million was necessary.

For the six months ended June 30, 2018, the Corporation recorded a Provision of $4.2 million which was a $4.0 million increase as compared to the same period in 2017. During the six months ended June 30, 2018, net originated loan growth of $213.5 million and changes in certain qualitative factors utilized in determining the required level of Allowance were key drivers in the increase in the Provision. Net charge-offs for the six months ended June 30, 2018 were $2.3 million as compared to $1.3 million for the same period in 2017.

Asset Quality and Analysis of Credit Risk
 
As of June 30, 2018,March 31, 2019, total nonperforming loans and leases increased by $0.9$6.5 million to $9.419.3 million, representing 0.28%0.55% of portfolio loans and leases, as compared to $8.6$12.8 million, or 0.26%0.37% of portfolio loans and leases as of December 31, 2017.2018. The increase in nonperforming loans and leases was related to the addition of $5.1$9.1 million of new nonperforming loans and leases as of June 30, 2018,during the three months ended March 31, 2019, partially offset by pay-offs and pay-downs of $2.7$1.4 million, charge-offs of $328$821 thousand, and upgrades to performing status of $968$392 thousand of loans and leases classified as nonperforming as of December 31, 2017,2018. The majority of the $9.1 million of new nonperforming loans and leases was related to the recording in OREOaddition of $234 thousand of loans forecloseda $3.0 million commercial mortgage loan which had been modified to a TDR during the period.fourth quarter, as discussed in the Provision for Loan and Lease Losses section above, and a $4.0 million home equity line of credit. All nonperforming loans are evaluated for impairment and charged-off to net realizable value, when necessary. There were no additions to OREO as the result of foreclosures during the three months ended March 31, 2019.

As of June 30, 2018,March 31, 2019, the Allowance of $19.4$20.6 million represented 0.57%0.59% of portfolio loans and leases, an increase of 42 basis points from December 31, 2017.2018. The Allowance on originated (non-acquired) portfolio loans, as a percentage of originated (non-acquired) portfolio loans, was 0.71%0.68% as of June 30, 2018March 31, 2019 as compared to 0.70%0.67% as of December 31, 2017.2018. Loans acquired in mergers are recorded at fair value as of the date of acquisition. This fair value estimate takes into account an estimate of the expected lifetime losses of the acquired loans. As such, an acquired loan will not generally become subject to additional Allowance unless it becomes impaired.

As of June 30, 2018,March 31, 2019, the Corporation had $5.2$9.2 million of troubled debt restructurings (“TDRs”),TDRs, of which $4.1$5.1 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2017,2018, the Corporation had $9.1$11.0 million of TDRs, of which $5.8$9.7 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. The decrease in TDRs during the sixthree months ended June 30, 2018March 31, 2019 was primarily the result of the payoffs$1.7 million of two residential mortgagecharge-offs, to net realizable value, of loans totaling $2.5 million and one $1.3 million commercial mortgage loan, all of which had been previously modified todesignated as TDRs.

As of June 30, 2018,March 31, 2019, the Corporation had a recorded investment of $13.5$24.4 million of impaired loans and leases which included $5.2$9.2 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, 20172018 totaled $14.2$22.6 million which included $9.1$11.0 million of TDRs. Refer to Note 5H in the Notes to Unaudited Consolidated Financial Statements for more information regarding the Corporation’s impaired loans and leases.
 
Management continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. Management believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.


Nonperforming Assets and Related Ratios

Nonperforming assets and related ratios as of March 31, 2019 and December 31, 2018 were as follows:
(dollars in thousands)June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Nonperforming Assets:      
Nonperforming loans and leases$9,448
 $8,579
$19,283
 $12,820
Other real estate owned531
 304
84
 417
Total nonperforming assets$9,979
 $8,883
$19,367
 $13,237
      
Troubled Debt Restructurings:      
TDRs included in non-performing loans$1,044
 $3,289
$4,057
 $1,217
TDRs in compliance with modified terms4,117
 5,800
5,149
 9,745
Total TDRs$5,161
 $9,089
$9,206
 $10,962
      
Loan and Lease quality indicators:      
Allowance for loan and lease losses to nonperforming loans and leases205.3% 204.3%106.9% 151.5%
Nonperforming loans and leases to total portfolio loans and leases0.28% 0.26%0.55% 0.37%
Allowance for loan and lease losses to total portfolio loans and leases0.57% 0.53%0.59% 0.57%
Nonperforming assets to total loans and leases and OREO0.29% 0.27%0.55% 0.39%
Nonperforming assets to total assets0.23% 0.20%0.42% 0.28%
Total portfolio loans and leases$3,389,501
 $3,285,858
$3,523,514
 $3,427,154
Allowance for loan and lease losses$19,398
 $17,525
$20,616
 $19,426

NONINTEREST INCOME
 
Three Months Ended June 30, 2018March 31, 2019 Compared to the Same Period in 20172018
 
Noninterest income of $20.1$19.3 million for the three months ended June 30, 2018 increased $5.3 millionMarch 31, 2019 decreased $283 thousand as compared to $14.8$19.5 million for the same period in 2017, primarily due to increases in other operating income, capital markets revenue, insurance commissions, and fees for wealth management services, respectively. Other operating income increased $1.8 million for the three months ended June 30, 2018 as compared to the same period in 2017,2018. The decrease was primarily due to a $710 thousand recovery of a purchase accounting fair value mark resulting from the pay off,$2.2 million decrease in full, of a purchased credit impaired loan acquired in the RBPI merger and a $310 thousand recovery during the second quarter of 2018 of loans and leases charged-off by Royal Bank pre-merger. Capital markets revenues increased $1.2 million, primarily due to the formation of our Capital Markets group, which began operations in the second quarter of 2017. Insurance commissions increased $959 thousand, primarily due to to the May 2017 acquisition of Hirshorn Boothby which expanded our insurance division into the city of Philadelphia and, to a lesser extent, the May 2018 acquisition of Domenick. Fees for wealth management services increased $851 thousand primarily due to the $1.35 billion increase in wealth assets under management, administration, supervision and brokerage between June 30, 2017 and June 30, 2018.

Six Months Ended June 30, 2018 Compared to the Same Period in 2017

Noninterest income of $39.6 million for the six months ended June 30, 2018 increased $11.6 million as compared to $28.0 million for the same period in 2017, primarily due to increases in other operating income, insurance commissions, fees for wealth management services, and capital markets revenue. Other operating income increased $5.0 million primarily due to $3.0 million of recoveries of purchase accounting fair value marks resulting from pay-offs of previously acquired credit-impaired loans for the pay offs,three months ended March 31, 2019 as compared to the same period in full,2018. Partially offsetting the decrease in noninterest income was an increase of purchased credit impaired loans acquired$1.6 million in the RBPI merger and $704 thousand of recoveries of loans and leases charged-off by RBPI pre-merger. Insurance commissions increased $1.9 million,capital markets revenue which was primarily due to the May 2017 acquisitionincreased volume of Hirshorn Boothby which expanded our insurance division into the citycapital market transactions, and an increase of Philadelphia and, to a lesser extent, the May 2018 acquisition of Domenick. Fees for wealth management services increased $1.9 million, primarily due to the $1.35 billion increase$397 thousand in wealth assets under management, administration, supervision and brokerage between June 30, 2017 and June 30, 2018. Capital markets revenues increased $1.8 million primarily due to the formation of our Capital Markets group, which began operations in the second quarter of 2017.gain on trading investments.

The following table provides details of other operating income for the three months ended March 31, 2019 and 2018:
 Three Months Ended
March 31,
(dollars in thousands)2019 2018
Visa debit card income$419
 $387
BOLI income294
 278
Commissions and fees355
 255
Safe deposit box rentals84
 91
Other investment income36
 22
Rental income9
 43
Gain on trading investments732
 335
Recovery of purchase accounting fair value loan mark12
 2,294
Miscellaneous other income906
 633
Other operating income$2,847
 $4,338


The following table provides supplemental information regarding mortgage loan originations and sales:
As of and for the
Three Months Ended June 30,		 As of and for the
Six Months Ended June 30,		As of or for the
Three Months Ended
March 31,
(dollars in thousands)2018 2017 2018 20172019 2018
Mortgage originations$35,763
 $46,848
 $61,818
 $95,398
$34,441
 $26,055
Mortgage loans sold:    
 
   
Servicing retained$—
 $21,793
 $1,850
 $49,479
$—
 $1,850
Servicing released25,892
 3,816
 41,848
 8,800
9,218
 15,956
Total mortgage loans sold$25,892
 $25,609
 $43,698
 $58,279
$9,218
 $17,806
Percentage of originated mortgage loans sold72.4% 54.7% 70.7% 61.1%26.8% 68.3%
Servicing retained %—% 85.1% 4.2% 84.9%—% 10.4%
Servicing released %100.0% 14.9% 95.8% 15.1%100.0% 89.6%
Residential mortgage loans serviced for others$614,259
 $631,888
 $614,259
 $631,888
$564,884
 $634,970
Mortgage servicing rights$5,511
 $5,683
 $5,511
 $5,683
$4,910
 $5,706
Gain on sale of mortgage loans$419
 $519
 $764
 $1,097
$261
 $345
Loan servicing and other fees$475
 $519
 $1,161
 $1,022
$609
 $686
Amortization of MSRs$196
 $173
 $417
 $342
$120
 $221
(Recovery) / Impairment of MSRs$(1) $43
 $(51) $46
(Impairment) / Recovery of MSRs$(17) $50
The following table provides details of other operating income for the three and six months ended June 30, 2018 and 2017:
 Three Months Ended
June 30,		 Six Months Ended
June 30,
(dollars in thousands)2018 2017 2018 2017
Merchant interchange fees$469
 $361
 $856
 $701
Bank-owned life insurance (“BOLI”) income298
 201
 576
 401
Commissions and fees470
 142
 725
 273
Safe deposit box rentals96
 94
 187
 184
Other investment income125
 9
 147
 9
Rental income45
 46
 88
 95
Gain on trading investments84
 108
 419
 318
Recovery of purchase accounting fair value loan mark710
 —
 3,004
 18
Miscellaneous other income737
 246
 1,370
 375
Other operating income$3,034
 $1,207
 $7,372
 $2,374
 

Wealth Assets Under Management, Administration, Supervision and Brokerage (“Wealth Assets”)
 
Wealth Asset accounts are categorized into two groups; thegroups. The first account group consists predominantly of clients whose fees are determined based on the market value of the assets held in their accounts (“Market Value” fee basis). The second account group consists predominantly of clients whose fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are not affected by market value changes.
 
The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management services:
(dollars in thousands)Wealth Assets as of:Wealth Assets as of:
Fee BasisJune 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
Market value$5,779,774
 $5,693,146
 $5,884,692
 $5,759,375
 $5,593,936
$6,232,651
 $5,764,189
 $6,032,831
 $5,779,774
 $5,693,146
Fixed fee7,624,949
 7,453,780
 7,084,046
 6,671,995
 6,456,619
8,503,861
 7,665,355
 7,880,433
 7,624,949
 7,453,780
Total$13,404,723
 $13,146,926
 $12,968,738
 $12,431,370
 $12,050,555
$14,736,512
 $13,429,544
 $13,913,264
 $13,404,723
 $13,146,926

Percentage of Wealth Assets as of:Percentage of Wealth Assets as of:
Fee BasisJune 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
Market value43.1% 43.3% 45.4% 46.3% 46.4%42.3% 42.9% 43.4% 43.1% 43.3%
Fixed fee56.9% 56.7% 54.6% 53.7% 53.6%57.7% 57.1% 56.6% 56.9% 56.7%
Total100.0% 100.0% 100.0% 100.0% 100.0%100.0% 100.0% 100.0% 100.0% 100.0%
 





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

(dollars in thousands)For the Three Months Ended:For the Three Months Ended:
Fee BasisJune 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
Market value$7,620
 $7,880
 $7,618
 $7,522
 $7,382
$7,618
 $7,801
 $7,841
 $7,620
 $7,880
Fixed fee3,038
 2,428
 2,356
 2,129
 2,425
2,774
 3,217
 2,501
 3,038
 2,428
Total$10,658
 $10,308
 $9,974
 $9,651
 $9,807
$10,392
 $11,018
 $10,342
 $10,658
 $10,308

Percentage of Fees for Wealth Management for the Three Months Ended:Percentage of Fees for Wealth Management for the Three Months Ended:
Fee BasisJune 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
Market value71.5% 76.4% 76.4% 77.9% 75.3%73.3% 70.8% 75.8% 71.5% 76.4%
Fixed fee28.5% 23.6% 23.6% 22.1% 24.7%26.7% 29.2% 24.2% 28.5% 23.6%
Total100.0% 100.0% 100.0% 100.0% 100.0%100.0% 100.0% 100.0% 100.0% 100.0%

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

NONINTEREST EXPENSE

Three Months Ended June 30, 2018March 31, 2019 Compared to the Same Period in 20172018
 
Noninterest expense for the three months ended June 30, 2018March 31, 2019 increased $7.3$3.7 million, to $35.8$39.7 million, as compared to the same period in 2017.2018. Contributing to the $3.7 million increase were increases of $4.9 million, $1.2 million, $572 thousand, $491 thousand, and $458 thousand in salaries and wages, other operating expenses, professional fees, furniture, fixtures and equipment expenses, and employee benefits, respectively.

During the first quarter of 2019, the Corporation adopted a voluntary Years of Service Incentive Program (the “Incentive Program”) which offers certain benefits to eligible employees who meet the Incentive Program requirements and voluntarily exit from service with the Corporation, the Bank or one of their subsidiaries. The increase was primarilyincreases in salaries and wages and employee benefits were largely driven by a pre-tax, non-recurring, charge of $4.5 million related to the additional expenses associated withIncentive Program recognized during the staff and facilities assumed in the RBPI Merger. In addition, the May 2017 acquisition of Hirshorn Boothby, the formation of our Capital Markets group in the secondfirst quarter of 2017 and, to a lesser extent, the May 2018 acquisition of Domenick contributed to the increase2019. Partially offsetting these increases in noninterest expense. Dueexpense was a decrease of $4.3 million in due diligence, merger-related and merger integration expenses increased $1.8 million for the three months ended June 30, 2018March 31, 2019 as compared to the same period in 2017, primarily related to the RBPI merger.2018.







Six Months Ended June 30, 2018 Compared to the Same Period in 2017
Noninterest expense for the six months ended June 30, 2018 increased $16.7 million, to $71.9 million, as compared to the same period in 2017. The increase was primarily 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 $5.6 million for the six months ended June 30, 2018 as compared to the same period in 2017, primarily related to the RBPI merger.

The following table provides details of other operating expenses for the three and six months ended June 30, 2018March 31, 2019 and 2017:2018:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended
March 31,
(dollars in thousands)2018 2017 2018 20172019 2018
Contributions$441
 $289
 $629
 $410
$344
 $188
Deferred compensation trust expense171
 242
 252
 367
Deferred compensation expense543
 81
Director fees177
 179
 338
 336
145
 161
Dues and subscriptions250
 263
 507
 417
295
 257
FDIC insurance552
 369
 752
 743
401
 200
Impairment of OREO and other repossessed assets—
 200
 —
 200
—
 —
Insurance214
 211
 441
 418
214
 227
Loan processing599
 527
 869
 1,050
252
 24
Miscellaneous other expenses992
 252
 1,555
 357
869
 809
MSR amortization and impairment / (recovery)195
 216
 366
 388
MSR amortization and impairment137
 171
Other taxes24
 4
 37
 13
90
 13
Outsourced services67
 20
 133
 119
65
 66
Portfolio maintenance113
 130
 236
 229
Wealth custodian fees118
 123
Postage192
 156
 355
 304
202
 163
Stationary and supplies111
 109
 263
 226
136
 152
Telephone and data lines531
 394
 936
 794
424
 405
Temporary help and recruiting58
 117
 157
 514
206
 99
Travel and entertainment298
 222
 476
 397
173
 178
Other operating expenses$4,985
 $3,900
 $8,302
 $7,282
$4,614
 $3,317

INCOME TAXES
 
Although incomeIncome before income taxes increased $4.1 million and $10.3decreased $6.5 million for the three and six months ended June 30, 2018March 31, 2019 as compared for the same periodsperiod in 2017,2018, which resulted in a reduction of income tax expense decreased $1.2of $1.9 million for both the three and six months ended June 30, 2018March 31, 2019 as compared for the same periodsperiod in 2017.2018. The effective tax ratesrate for the three and six months ended June 30, 2018March 31, 2019 decreased to 20.2% and 21.8% as compared to 34.2% and 34.1% as compared20.6% from 23.2% for the same periodsperiod in 2017.2018. The decreasesdecrease in income tax expense andthe effective tax rate werewas primarily due to the reductionre-measurement of certain deferred tax assets from the RBPI merger in the federal corporatethree months ended March 31, 2018 which resulted in $590 thousand of income tax rate as a result of the Tax Cuts and Jobs Act (“Tax Reform”).expense.

Income tax expense for the three and six months ended June 30, 2018March 31, 2019 included a net discrete tax benefit of $111$114 thousand andas compared to a net discrete tax expense of $118$229 thousand respectively, as compared to net discrete tax benefits of $113 thousand and $259 thousand as compared for the same periodsperiod in 2017.2018. These discrete items were the result of excess tax benefits from stock-based compensation as well as the re-measurement ofincome tax expense discussed above related to the deferred tax items related to Tax Reform.asset re-measurement.

BALANCE SHEET ANALYSIS
 
Total assets of $4.39$4.63 billion as of June 30, 2018March 31, 2019 decreased $55.5$20.5 million from $4.45$4.65 billion as of December 31, 2017.2018. The following sections detail the balance sheet changes:













Loans and Leases
 
The table below compares the portfolio loans and leases outstanding at June 30, 2018March 31, 2019 to December 31, 2017:2018:
June 30, 2018 December 31, 2017 ChangeMarch 31, 2019 December 31, 2018 Change
(dollars in thousands)Balance 
Percent of
Portfolio
 Balance 
Percent of
Portfolio
 Amount PercentBalance 
Percent of
Portfolio
 Balance 
Percent of
Portfolio
 Amount Percent
Commercial mortgage$1,613,721
 47.6% $1,523,377
 46.4% $90,344
 5.9 %$1,746,695
 49.6% $1,657,436
 48.4% $89,259
 5.4 %
Home equity lines & loans206,429
 6.1% 218,275
 6.6% (11,846) (5.4)%204,791
 5.8% 207,351
 6.1% (2,560) (1.2)%
Residential mortgage449,060
 13.2% 458,886
 14.0% (9,826) (2.1)%502,379
 14.3% 494,355
 14.4% 8,024
 1.6 %
Construction190,874
 5.6% 212,454
 6.5% (21,580) (10.2)%159,761
 4.5% 181,078
 5.3% (21,317) (11.8)%
Commercial and industrial745,306
 22.0% 719,312
 21.9% 25,994
 3.6 %705,701
 20.0% 695,584
 20.3% 10,117
 1.5 %
Consumer51,462
 1.5% 38,153
 1.2% 13,309
 34.9 %47,821
 1.4% 46,814
 1.4% 1,007
 2.2 %
Leases132,649
 3.9% 115,401
 3.5% 17,248
 14.9 %156,366
 4.4% 144,536
 4.2% 11,830
 8.2 %
Total portfolio loans and leases3,389,501
 100.0% 3,285,858
 100.0% 103,643
 3.2 %3,523,514
 100.0% 3,427,154
 100.0% 96,360
 2.8 %
Loans held for sale4,204
   3,794
   410
 10.8 %2,884
   1,749
   1,135
 64.9 %
Total loans and leases$3,393,705
   $3,289,652
   $104,053
 3.2 %$3,526,398
   $3,428,903
   $97,495
 2.8 %

Cash and Investment Securities
As of June 30, 2018, liquidity remained strong as the Corporation had $36.2 million of cash balances at the Federal Reserve and $11.0 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 June 30, 2018March 31, 2019 totaled $531.1$560.0 million, as compared to $689.2$737.4 million as of December 31, 2017.2018. The decrease was primarily related to the maturing, in January 2018,2019, of $200.0 million of short-term U.S. Treasury securities.

Deposits
 
Deposits as of June 30, 2018March 31, 2019 and December 31, 20172018 were as follows:
June 30, 2018 December 31, 2017 ChangeMarch 31, 2019 December 31, 2018 Change
(dollars in thousands)Balance 
Percent of
Deposits
 Balance 
Percent of
Deposits
 Amount PercentBalance 
Percent of
Deposits
 Balance 
Percent of
Deposits
 Amount Percent
Interest-bearing demand$617,258
 18.4% $481,336
 14.3% $135,922
 28.2 %$664,683
 18.3% $664,749
 18.5% $(66) — %
Money market814,530
 24.2% 862,639
 25.6% (48,109) (5.6)%961,348
 26.4% 862,644
 24.0% 98,704
 11.4 %
Savings291,858
 8.7% 338,572
 10.0% (46,714) (13.8)%265,613
 7.3% 247,081
 6.9% 18,532
 7.5 %
Retail time deposits536,287
 16.0% 532,202
 15.8% 4,085
 0.8 %531,522
 14.6% 542,702
 15.1% (11,180) (2.1)%
Wholesale non-maturity deposits36,826
 1.1% 62,276
 1.8% (25,450) (40.9)%47,744
 1.3% 55,031
 1.5% (7,287) (13.2)%
Wholesale time deposits169,770
 5.1% 171,929
 5.1% (2,159) (1.3)%284,397
 7.8% 325,261
 9.0% (40,864) (12.6)%
Interest-bearing deposits2,466,529
 73.4% 2,448,954
 72.6% 17,575
 0.7 %2,755,307
 75.7% 2,697,468
 74.9% 57,839
 2.1 %
Noninterest-bearing deposits892,386
 26.6% 924,844
 27.4% (32,458) (3.5)%882,310
 24.3% 901,619
 25.1% (19,309) (2.1)%
Total deposits$3,358,915
 100.0% $3,373,798
 100.0% $(14,883) (0.4)%$3,637,617
 100.0% $3,599,087
 100.0% $38,530
 1.1 %















Borrowings
 
Borrowings as of June 30, 2018March 31, 2019 and December 31, 20172018 were as follows:
June 30, 2018 December 31, 2017 ChangeMarch 31, 2019 December 31, 2018 Change
(dollars in thousands)Balance 
Percent of
Borrowings
 Balance 
Percent of
Borrowings
 Amount PercentBalance 
Percent of
Borrowings
 Balance 
Percent of
Borrowings
 Amount Percent
Short-term borrowings$227,059
 52.2% $237,865
 47.9% $(10,806) (4.5)%$124,214
 41.4% $252,367
 59.0% $(128,153) (50.8)%
Long-term FHLB advances87,808
 20.2% 139,140
 28.0% (51,332) (36.9)%55,407
 18.5% 55,374
 12.9% 33
 0.1 %
Subordinated notes98,491
 22.6% 98,416
 19.8% 75
 0.1 %98,571
 32.9% 98,526
 23.0% 45
 — %
Junior subordinated debentures21,497
 4.9% 21,416
 4.3% 81
 0.4 %21,622
 7.2% 21,580
 5.0% 42
 0.2 %
Total borrowed funds$434,855
 100.0% $496,837
 100.0% $(61,982) (12.5)%$299,814
 100.0% $427,847
 100.0% $(128,033) (29.9)%


Capital
 
Consolidated shareholder’sshareholders' equity of the Corporation was $542.5$575.1 million, or 12.3%12.4% of total assets, as of June 30, 2018,March 31, 2019, as compared to $528.1$564.7 million, or 11.9%12.1% of total assets, as of December 31, 2017.2018. The following table presents the Corporation’sBMBC’s and Bank’s regulatory capital ratios and the minimum capital requirements to be considered “Well Capitalized” by regulators as of June 30, 2018March 31, 2019 and December 31, 2017:

2018:
 Actual 
Minimum to be Well
Capitalized
(dollars in thousands)Amount Ratio Amount Ratio
June 30, 2018       
        
Total capital to risk weighted assets:       
Corporation$480,659
 13.87% $346,524
 10.00%
Bank$412,626
 11.91% $346,376
 10.00%
Tier I capital to risk weighted assets:       
Corporation$362,504
 10.46% $277,219
 8.00%
Bank$392,962
 11.34% $277,101
 8.00%
Common equity Tier I risk weighted assets:       
Corporation$341,685
 9.86% $225,240
 6.50%
Bank$392,962
 11.34% $225,145
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
Corporation$362,504
 8.75% $207,189
 5.00%
Bank$392,962
 9.49% $207,120
 5.00%
Tangible common equity to tangible assets(1)
       
Corporation$335,042
 8.00% —
 —
Bank$387,787
 9.27% —
 —
        
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) There is no official regulatory guideline for the tangible common equity to tangible asset ratio.
 Actual 
Minimum to be Well
Capitalized
(dollars in thousands)Amount Ratio Amount Ratio
March 31, 2019       
        
Total capital to risk weighted assets:       
BMBC$509,527
 14.00% $364,042
 10.00%
Bank$431,976
 11.87% $363,783
 10.00%
Tier I capital to risk weighted assets:       
BMBC$390,189
 10.72% $291,234
 8.00%
Bank$411,209
 11.30% $291,026
 8.00%
Common equity Tier I risk weighted assets:       
BMBC$369,253
 10.14% $236,627
 6.50%
Bank$411,209
 11.30% $236,459
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
BMBC$390,189
 8.99% $217,116
 5.00%
Bank$411,209
 9.48% $216,909
 5.00%
        
December 31, 2018       
        
Total capital to risk weighted assets:       
BMBC$500,375
 14.30% $349,918
 10.00%
Bank$419,136
 11.99% $349,692
 10.00%
Tier I capital to risk weighted assets:       
BMBC$382,151
 10.92% $279,934
 8.00%
Bank$399,438
 11.42% $279,754
 8.00%
Common equity Tier I risk weighted assets:       
BMBC$361,256
 10.32% $227,446
 6.50%
Bank$399,438
 11.42% $227,300
 6.50%
Tier I leverage ratio (Tier I capital to total quarterly average assets):       
BMBC$382,151
 9.06% $210,830
 5.00%
Bank$399,438
 9.48% $216,615
 5.00%
 
The capital ratios for the Bank and the Corporation,BMBC, as of June 30, 2018,March 31, 2019, 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, allAll regulatory capital ratios increased or are relatively unchangeddecreased from their December 31, 2017 levels. The Tier I leverage ratio,2018 levels primarily due to the adoption of ASU 2016-02 (Topic 842), “Leases”, which is the ratioresulted in $44.0 million of Tier I capital to average quarterlyoperating lease right-of-use assets for both the Bank and Corporation decreased from Decemberbeing risk weighted at 100% as of March 31, 2017, as the average assets acquired in the December 15, 2017 RBPI Merger were present for a full quarter.







2019.

Liquidity
 
The Corporation’sBMBC’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
June 30,
2018		 Percent of
Total
Borrowing
Capacity		 Available
Funds as of
December 31, 2017
 Percent of Total
Borrowing
Capacity		 Dollar
Change		 Percent
Change		Available
Funds as of
March 31,
2019		 Percent of
Total
Borrowing
Capacity		 Available
Funds as of
December 31, 2018
 Percent of Total
Borrowing
Capacity		 Dollar
Change		 Percent
Change
Federal Home Loan Bank of Pittsburgh$1,192.1
 80.0% $1,020.0
 74.4% $172.1
 16.9%$1,397.5
 89.7% $1,245.4
 74.4% $152.1
 12.2 %
Federal Reserve Bank of Philadelphia145.5
 100.0% 121.3
 100.0% 24.2
 20.0%145.5
 100.0% 140.4
 100.0% 5.1
 3.6 %
Fed Funds Lines (seven banks)79.0
 100.0% 79.0
 100.0% —
 —
71.0
 89.9% 79.0
 100.0% (8.0) (10.1)%
Total$1,416.6
 82.6% $1,220.3
 77.6% $196.3
 16.1%$1,614.0
 90.5% $1,464.8
 77.6% $149.2
 10.2 %

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

The Corporation has an agreement with IND to provide up to $40$55 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 $23.5$47.7 million in balances as of June 30, 2018March 31, 2019 under this program.

The CorporationManagement 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 of liquidity. Management currently believes that it has sufficient capacity available to fund expected earning-asset growth.short- and long-term earning asset growth with wholesale sources, along with deposit growth from its internal branch and wealth products.

Discussion of Segments
 
The Corporation has two principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking and Wealth Management (see Note 2223 in the accompanying Notes to Unaudited Consolidated Financial Statements).
 
The Wealth Management segment recorded a pre-tax segment profit (“PTSP”) of $4.4 million and $8.5$2.9 million for the three and six months ended June 30, 2018,March 31, 2019, as compared to PTSP of $3.7 million and $7.2$4.1 million for the same periodsperiod in 2017.2018. The Wealth Management segment provided 24.0% and 22.3%21.8% of the Corporation’s pre-tax profit for the three and six months ended June 30, 2018,March 31, 2019, as compared to 25.7% and 25.7%20.7% for the same periodsperiod in 2017.2018. For the three and six month periodsmonths ended June 30, 2018,March 31, 2019, both fees for wealth management services and insurance commissions increasedwere relatively unchanged as compared to the same periodsperiod in 2017.2018.
 
The Banking segment recorded a PTSP of $14.0 million and $29.8$10.5 million for the three and six months ended June 30, 2018,March 31, 2019, as compared to PTSP of $10.7 million and $20.8$15.8 million for the same periodsperiod in 2017.2018. The Banking segment provided 76.0% and 77.7%78.2% of the Corporation’s pre-tax profit for the three and six month periodsmonths ended June 30, 2018,March 31, 2019, as compared to 74.3% and 74.3%79.3% for the same periodsperiod in 2017.2018.

Off Balance Sheet Arrangements
 
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.
 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at June 30, 2018March 31, 2019 were $829.1$823.8 million, as compared to $748.3$867.2 million at December 31, 2017.2018.
 
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 June 30, 2018March 31, 2019 amounted to $21.8$27.4 million, as compared to $17.7$21.2 million at December 31, 2017.2018.
 
Estimated fair values of the Corporation’s off-balance sheet arrangements are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet arrangements.

Contractual Cash Obligations of the Corporation as of June 30, 2018March 31, 2019:
(dollars in millions)Total 
Within
1 Year
 
2 - 3
Years
 
4 - 5
Years
 
After
5 Years
(dollars in thousands)Total 
Within
1 Year
 
2 - 3
Years
 
4 - 5
Years
 
After
5 Years
Deposits without a stated maturity$2,652.9
 $2,652.9
 $—
 $—
 $—
$2,821,698
 $2,821,698
 $—
 $—
 $—
Wholesale and retail time deposit706.0
 572.4
 113.6
 19.0
 1.0
815,919
 677,867
 126,756
 10,474
 822
Short-term borrowings227.1
 227.1
 —
 —
 —
124,214
 124,214
 —
 —
 —
Long-term FHLB Advances87.8
 39.9
 47.9
 —
 —
55,407
 33,105
 22,302
 —
 —
Subordinated Notes100.0
 —
 —
 —
 100.0
100,000
 —
 —
 —
 100,000
Junior subordinated debentures25.8
 —
 —
 —
 25.8
25,800
 —
 —
 —
 25,800
Operating leases29.1
 5.3
 8.1
 5.9
 9.8
Operating lease liabilities63,181
 5,074
 9,095
 8,180
 40,832
Purchase obligations5.1
 3.4
 1.7
 —
 —
11,104
 7,236
 3,868
 —
 —
Total$3,833.8
 $3,501.0
 $171.3
 $24.9
 $136.6
$4,017,323
 $3,669,194
 $162,021
 $18,654
 $167,454

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 variety of factors, including without limitation:
local, regional, national and international economic conditions, their impact on us and our customers, and our ability to assess those impacts;
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;
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.

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning on page 12 of the 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 20172018 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.

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 June 30, 2018.March 31, 2019.
 
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.

PART II OTHER INFORMATION.
 
ITEM 1. Legal Proceedings.
 
The information required by this Item is set forth in the “Legal Matters” discussion in Note 2122 “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.
 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
Share Repurchase(3)
 
The following table presents the shares repurchased by the Corporation during the secondfirst quarter of 2018:2019:
Period
Total Number of
Shares Purchased(1)(2)
 
Average Price
Paid
Per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs(3)
 
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
April 1, 2018 – April 30, 2018268
 $44.45
 —
 189,300
May 1, 2018 – May 31, 20182,030
 $46.43
 —
 189,300
June 1, 2018 – June 30, 20181,617
 $45.02
 —
 189,300
Total3,915
 $45.71
 —
 189,300


Period
Total Number of Shares Purchased(1)
 Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the Plan
or Programs
January 1, 2019 – January 31, 2019—
 $—
 —
 40,016
February 1, 2019 – February 28, 20193,605
 $37.95
 3,222
 36,794
March 1, 2019 – March 31, 20199,962
 $39.35
 9,480
 27,314
Total13,567
 $38.98
 12,702
  

(1)On June 30, 2018, 1,617 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.
(2)Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the CorporationBMBC or Bank as follows: 268383 shares on April 4, 2018; 1,045February 7, 2019; and 482 shares on May 8, 2018; and 985 shares on May 21, 2018.March 1, 2019.
(3)(2)On August 6, 2015, the CorporationBMBC announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000 shares of the Corporation’sBMBC'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, 2018,2019, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 189,300.27,314.
(3)On April 18, 2019, BMBC announced a new stock repurchase program (the "2019 Program") under which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program will become effective upon the completion of BMBC's existing 2015 Program.

ITEM 3. Defaults Upon Senior Securities
None.
 
ITEM 4. Mine Safety Disclosures.
Not applicable.
 
ITEM 5. Other Information
None.

ITEM 6. Exhibits
 
Exhibit No. Description and References
   
3.1 
Amended and Restated By-Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
3.2 
Amended and Restated Articles of Incorporation, effective November 21, 2007, incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on November 21, 2007
10.1 
Third Amended and Restated Dividend Reinvestment and2019 Standard Form of Restricted Stock Purchase Plan, effective May 25, 2018, incorporated by referenceUnit Agreement for Executives (Service/Performance Based) Subject to the Corporation’s Prospectus (Form 424B2)2010 Long Term Incentive Plan, filed withherewith
10.2
2019 Standard Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based) Subject to the SEC on May 25, 2018.2010 Long Term Incentive Plan, filed herewith
10.3
2019 Voluntary Years of Service Incentive Program - Executive Tier - Plan Document, filed herewith
10.4
2019 Voluntary Years of Service Incentive Program - Executive Tier - Form of Separation Agreement, filed herewith
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

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 CorporationBRYN MAWR BANK CORPORATION
    
Date: August 3, 2018May 8, 2019 By:/s/ Francis J. Leto
    Francis J. Leto
    President & Chief Executive Officer
   (Principal Executive Officer)
    
    
Date: August 3, 2018May 8, 2019 By:/s/ Michael W. Harrington
    Michael W. Harrington
    Chief Financial Officer
    (Principal Financial Officer)
 



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