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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________

Form 10-Q

____________________________________________________________________________________

(Mark One)

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

For the quarterly period ended March 31, 2021

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

For the transition period from to

 

Commission File Number 1-35746

________________________________________________________________________________________

Bryn Mawr Bank Corporation

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________

Pennsylvania			23-2434506
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
801 Lancaster Avenue, Bryn Mawr, Pennsylvania			19010
(Address of principal executive offices)			(Zip Code)

(610) 525-1700

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

 ________________________________________________________________________________

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

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

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

Large accelerated filer  ☐    Accelerated filer  ☒

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

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

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

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

Classes						Outstanding at May 4, 2021
Common Stock, par value $1						19,878,993

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Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

 

FORM 10-Q

 

QUARTER ENDED March 31, 2021

Index 

 

PART I -			FINANCIAL INFORMATION
ITEM 1.			Financial Statements (unaudited)
			Consolidated Financial Statements (unaudited)			Page 3
			Notes to Consolidated Financial Statements (unaudited)			Page 9
ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			Page 46
ITEM 3.			Quantitative and Qualitative Disclosures About Market Risk			Page 67
ITEM 4.			Controls and Procedures			Page 67
PART II -			OTHER INFORMATION			Page 68
ITEM 1.			Legal Proceedings			Page 68
ITEM 1A.			Risk Factors			Page 68
ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds			Page 69
ITEM 3.			Defaults Upon Senior Securities			Page 70
ITEM 4.			Mine Safety Disclosures			Page 70
ITEM 5.			Other Information			Page 70
ITEM 6.			Exhibits			Page 71

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited

(dollars in thousands)						March 31, 2021						December 31, 2020
Assets
Cash and due from banks						$	10,311					$	11,287
Interest bearing deposits with banks						37,089						85,026
Cash and cash equivalents						47,400						96,313
Investment securities available for sale, at fair value (amortized cost of $731,349 and $1,161,098 as of March 31, 2021 and December 31, 2020, respectively)						738,974						1,174,964
Investment securities held to maturity, at amortized cost (fair value of $14,371 and $15,186 as of March 31, 2021 and December 31, 2020, respectively)						14,126						14,759
Investment securities, trading						8,777						8,623
Loans held for sale						3,210						6,000
Portfolio loans and leases, originated						3,405,128						3,380,727
Portfolio loans and leases, acquired						228,107						247,684
Total portfolio loans and leases						3,633,235						3,628,411
Less: Allowance for credit losses on originated loans and leases						(45,285)						(50,783)
Less: Allowance for credit losses on acquired loans and leases						(2,277)						(2,926)
Total allowance for credit losses on loans and leases						(47,562)						(53,709)
Net portfolio loans and leases						3,585,673						3,574,702
Premises and equipment, net						55,510						56,662
Operating lease right-of-use assets						33,848						34,601
Accrued interest receivable						15,058						15,440
Mortgage servicing rights						2,493						2,626
Bank owned life insurance						60,721						60,393
Federal Home Loan Bank stock						5,986						12,666
Goodwill						184,012						184,012
Intangible assets						14,726						15,564
Other investments						17,811						17,742
Other assets						126,183						156,955
Total assets						$	4,914,508					$	5,432,022
Liabilities
Deposits:
Noninterest-bearing						$	1,364,716					$	1,401,843
Interest-bearing						2,537,534						2,974,411
Total deposits						3,902,250						4,376,254
Short-term borrowings						60,027						72,161
Long-term FHLB advances						39,941						39,906
Subordinated notes						98,928						98,883
Junior subordinated debentures						21,983						21,935
Operating lease liabilities						39,543						40,284
Accrued interest payable						6,358						6,277
Other liabilities						122,382						154,000
Total liabilities						4,291,412						4,809,700
Shareholders' equity
Common stock, par value $1; authorized 100,000,000 shares; issued 24,714,768 and 24,713,968 shares as of March 31, 2021 and December 31, 2020, respectively and outstanding of 19,878,993 and 19,960,294 as of March 31, 2021 and December 31, 2020, respectively						24,715						24,714
Paid-in capital in excess of par value						382,202						381,653
Less: Common stock in treasury at cost - 4,835,775 and 4,753,674 shares as of March 31, 2021 and December 31, 2020, respectively						(91,774)						(89,164)
Accumulated other comprehensive income, net of tax						154						8,948
Retained earnings						308,569						296,941
Total Bryn Mawr Bank Corporation shareholders' equity						623,866						623,092
Noncontrolling interest						(770)						(770)
Total shareholders' equity						623,096						622,322
Total liabilities and shareholders' equity						$	4,914,508					$	5,432,022

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

Page 3

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Table of Contents

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited

			Three Months Ended March 31,
(dollars in thousands, except share and per share data)			2021						2020
Interest income:
Interest and fees on loans and leases			$	34,578					$	42,795
Interest on cash and cash equivalents			22						111
Interest on investment securities:
Taxable			3,038						3,176
Non-taxable			11						24
Dividends			1						1
Total interest income			37,650						46,107
Interest expense:
Interest on deposits			1,424						7,637
Interest on short-term borrowings			10						453
Interest on FHLB advances and other borrowings			203						244
Interest on subordinated notes			1,034						1,145
Interest on junior subordinated debentures			198						295
Total interest expense			2,869						9,774
Net interest income			34,781						36,333
(Recovery of) provision for credit losses			(5,246)						35,350
Net interest income after (recovery of) provision for credit losses			40,027						983
Noninterest income:
Fees for wealth management services			12,836						11,168
Insurance commissions			1,464						1,533
Capital markets revenue			1,596						2,361
Service charges on deposits			696						846
Loan servicing and other fees			304						461
Net gain on sale of loans			250						782
Net gain on sale of other real estate owned ("OREO")			—						148
Dividends on FHLB and FRB stock			222						444
Other operating income			2,473						557
Total noninterest income			19,841						18,300
Noninterest expenses:
Salaries and wages			16,830						16,989
Employee benefits			3,687						3,500
Occupancy and bank premises			2,892						3,015
Furniture, fixtures, and equipment			2,242						2,431
Advertising			176						401
Amortization of intangible assets			838						918
Due diligence, merger-related and merger integration expenses			1,646						—
Professional fees			1,433						1,368
Pennsylvania bank shares tax			749						116
Data processing			1,404						1,394
Other operating expenses			5,806						3,271
Total noninterest expenses			37,703						33,403
Income (loss) before income taxes			22,165						(14,120)
Income tax expense (benefit)			5,082						(2,957)
Net income (loss)			17,083						(11,163)
Net loss attributable to noncontrolling interest			—						—
Net income (loss) attributable to Bryn Mawr Bank Corporation			$	17,083					$	(11,163)
Basic earnings per common share			$	0.86					$	(0.56)
Diluted earnings per common share			0.85						(0.56)
Dividends paid or accrued per common share			0.27						0.26
Weighted-average basic shares outstanding			19,907,873						20,053,159
Dilutive shares			142,863						—
Adjusted weighted-average diluted shares			20,050,736						20,053,159

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

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited

 

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Net income (loss) attributable to Bryn Mawr Bank Corporation			$	17,083					$	(11,163)
Other comprehensive income:
Net change in unrealized (losses) gains on investment securities available for sale:
Unrealized investment (losses) gains, net of tax (benefit) expense of $(1,311) and $1,770, respectively			(4,930)						6,659
Net change in unrealized losses on interest rate swaps used in cash flow hedges:
Net unrealized losses arising during the period, net of tax benefit of $1,003 and $0, respectively			(3,769)						—
Reclassification adjustment for gains included in net income, net of tax expense of $39 and $0, respectively			(147)						—
Net unrealized losses on interest rate swaps used in cash flow hedges, net of tax benefit of $1,042 and $0, respectively			(3,916)						—
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 $14 and $6, respectively			52						23
Total other comprehensive (loss) income			(8,794)						6,682
Total comprehensive income (loss)			$	8,289					$	(4,481)

 

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

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Operating activities:
Net income (loss) attributable to Bryn Mawr Bank Corporation			$	17,083					$	(11,163)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(Recovery of) provision for credit losses			(5,246)						35,350
Depreciation of fixed assets			1,601						2,008
Non-cash operating lease expense			753						804
Net amortization of investment premiums and discounts			1,806						807
Net gain on sale of loans			(250)						(782)
Stock based compensation			550						889
Amortization and net impairment of mortgage servicing rights			133						335
Net accretion of fair value adjustments			(515)						(949)
Amortization of intangible assets			838						918
Net gain on sale of OREO			—						(148)
Net increase in cash surrender value of bank owned life insurance ("BOLI")			(328)						(320)
Other, net			375						1,031
Loans originated for sale			(12,882)						(13,435)
Proceeds from loans sold			15,922						17,112
Provision for deferred income taxes			2						42
Change in income taxes payable/receivable, net			4,776						(3,322)
Change in accrued interest receivable			382						465
Change in accrued interest payable			81						982
Change in operating lease liabilities			(741)						(776)
Change in other assets			32,528						(88,149)
Change in other liabilities			(41,509)						77,422
Net cash provided by operating activities			15,359						19,121
Investing activities:
Purchases of investment securities available for sale			(127,795)						(58,214)
Purchases of investment securities held to maturity			—						(1,103)
Proceeds from maturity and paydowns of investment securities available for sale			538,338						526,881
Proceeds from maturity and paydowns of investment securities held to maturity			599						284
Net change in FHLB stock			6,680						11,816
Proceeds from calls of investment securities			17,434						28,500
Net change in other investments			(69)						(103)
Net portfolio loan and lease originations			(4,927)						(82,421)
Purchases of premises and equipment			(456)						(187)
Proceeds from sale of OREO			—						534
Net cash provided by investing activities			429,804						425,987
Financing activities:
Change in deposits			(473,945)						(63,219)
Change in short-term borrowings			(12,134)						(331,174)
Dividends paid			(5,387)						(5,243)
Change in long-term FHLB advances and other borrowings			—						(5,000)
Cash payments to taxing authorities on employees' behalf from shares withheld from stock-based compensation			(12)						(81)
Net purchase of treasury stock for deferred compensation plans			(31)						(36)
Net purchase of treasury stock through publicly announced plans			(2,567)						(7,249)
Proceeds from exercise of stock options			—						5
Net cash used in financing activities			(494,076)						(411,997)
Change in cash and cash equivalents			(48,913)						33,111
Cash and cash equivalents at beginning of period			96,313						53,931
Cash and cash equivalents at end of period			$	47,400					$	87,042
Supplemental cash flow information:
Cash paid during the year for:
Income taxes			$	298					$	323
Interest			$	2,788					$	8,792
Non-cash information:
Change in other comprehensive income			$	(8,794)					$	6,682
Change in deferred tax due to change in comprehensive income			$	(2,339)					$	1,776
Transfer of loans to OREO and repossessed assets			$	—					$	386

 

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

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited

			For the Three Months Ended March 31, 2021
(dollars in thousands, except share and per share data)			Shares of Common Stock Issued						Common Stock						Paid-in Capital						Treasury Stock						Accumulated Other Comprehensive Income						Retained Earnings						Noncontrolling Interest						Total Shareholders' Equity
Balance December 31, 2020			24,713,968						$	24,714					$	381,653					$	(89,164)					$	8,948					$	296,941					$	(770)					$	622,322
Net income attributable to Bryn Mawr Bank Corporation			—						—						—						—						—						17,083						—						17,083
Dividends paid or accrued, $0.27 per share			—						—						—						—						—						(5,455)						—						(5,455)
Other comprehensive loss, net of tax benefit of $2,339			—						—						—						—						(8,794)						—						—						(8,794)
Stock based compensation			—						—						550						—						—						—						—						550
Net purchase of treasury stock from stock awards for statutory tax withholdings			—						—						—						(12)						—						—						—						(12)
Net treasury stock activity for deferred compensation trusts			—						—						—						(31)						—						—						—						(31)
Purchase of treasury stock through publicly announced plans			—						—						—						(2,567)						—						—						—						(2,567)
Common stock issued:
Common stock issued through share-based awards and options exercises			800						1						(1)						—						—						—						—						—
Balance March 31, 2021			24,714,768						$	24,715					$	382,202					$	(91,774)					$	154					$	308,569					$	(770)					$	623,096

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BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited

			For the Three Months Ended March 31, 2020
			Shares of Common Stock Issued						Common Stock						Paid-in Capital						Treasury Stock						Accumulated Other Comprehensive Income						Retained Earnings						Noncontrolling Interest						Total Shareholders' Equity
Balance December 31, 2019			24,650,051						$	24,650					$	378,606					$	(81,174)					$	2,187					$	288,653					$	(695)					$	612,227
Net loss attributable to Bryn Mawr Bank Corporation			—						—						—						—						—						(11,163)						—						(11,163)
Cumulative-effect adjustment due to the adoption of ASU No. 2016-13			—						—						—						—						—						(2,801)						—						(2,801)
Dividends paid or accrued, $0.26 per share			—						—						—						—						—						(5,294)						—						(5,294)
Other comprehensive income, net of tax expense of $1,776			—						—						—						—						6,682						—						—						6,682
Stock based compensation			—						—						889						—						—						—						—						889
Net purchase of treasury stock from stock awards for statutory tax withholdings			—						—						—						(81)						—						—						—						(81)
Net treasury stock activity for deferred compensation trusts			—						—						—						(36)						—						—						—						(36)
Purchase of treasury stock through publicly announced plans			—						—						—						(7,249)						—						—						—						(7,249)
Common stock issued:
Common stock issued through share-based awards and options exercises			5,311						5						—						—						—						—						—						5
Balance March 31, 2020			24,655,362						$	24,655					$	379,495					$	(88,540)					$	8,869					$	269,395					$	(695)					$	593,179

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

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 BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 – Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies

 

The Unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

The Unaudited Consolidated Financial Statements include the accounts of Bryn Mawr Bank Corporation (“BMBC,” and together with its subsidiaries, the “Corporation”) and its consolidated subsidiaries; BMBC's primary subsidiary is The Bryn Mawr Trust Company (the “Bank”). In connection with the merger of Royal Bancshares of Pennsylvania, Inc. (“RBPI”) with and into BMBC, and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), the Corporation acquired two 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 are eliminated in consolidation and certain prior-period amounts have been reclassified when necessary in order to conform to the current period presentation.

In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

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

These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto in BMBC’s Annual Report on Form 10-K for the twelve months ended December 31, 2020 (the “2020 Annual Report”). Except as described below, the accounting policies applied in these Unaudited Consolidated Financial Statements are the same as those applied in the 2020 Annual Report.

Note 2 – Recent Accounting Pronouncements

 

The following FASB Accounting Standards Updates (“ASUs”) are divided into pronouncements which have been adopted by the Corporation since January 1, 2021, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of March 31, 2021.

 

Adopted Pronouncements:

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

Issued in August 2018, ASU 2018-14, modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements to financial statement users. The guidance became effective for the Corporation on January 1, 2021 and the adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance became effective for the Corporation on January 1, 2021 and 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 No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

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

Note 3 - Business Combinations

Pending Business Combination – WSFS Financial Corporation

On March 10, 2021, WSFS Financial Corporation (“WSFS”) and BMBC, jointly announced the signing of a definitive Agreement and Plan of Merger, dated as of March 9, 2021, between WSFS and BMBC whereby BMBC will merge with WSFS, in a 100% stock-consideration transaction with a fixed exchange ratio of 0.90 shares of WSFS common stock for each share of BMBC common stock outstanding. Simultaneously with the merger, the Bank will merge into WSFS Bank, a wholly-owned subsidiary of WSFS. Closing of the transaction is subject to customary approvals by regulators and stockholders of both companies.

The Corporation recorded $1.6 million of due diligence and merger-related expenses for the three months ended March 31, 2021 related to the pending merger with WSFS. These expenses primarily consisted of legal fees, investment banker fees and board of director fees.

Note 4 – Investment Securities

 

The amortized cost and fair value of investment securities available for sale as of March 31, 2021 and December 31, 2020 are as follows:

 

As of March 31, 2021

(dollars in thousands)			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
U.S. Treasury securities			$	100					$	—					$	—					$	100
Obligations of the U.S. government and agencies			113,010						450						(3,047)						110,413
Obligations of state and political subdivisions			2,152						16						—						2,168
Mortgage-backed securities			488,371						11,478						(2,521)						497,328
Collateralized mortgage obligations			16,551						522						—						17,073
Collateralized loan obligations			99,515						204						(53)						99,666
Corporate bonds			11,000						576						—						11,576
Other investment securities			650						—						—						650
Total			$	731,349					$	13,246					$	(5,621)					$	738,974

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As of December 31, 2020

(dollars in thousands)			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
U.S. Treasury securities			$	500,095					$	5					$	—					$	500,100
Obligations of the U.S. government and agencies			92,449						868						(219)						93,098
Obligations of state and political subdivisions			2,149						22						—						2,171
Mortgage-backed securities			441,575						12,739						(457)						453,857
Collateralized mortgage obligations			18,680						583						—						19,263
Collateralized loan obligations			94,500						1						(97)						94,404
Corporate bonds			11,000						421						—						11,421
Other investment securities			650						—						—						650
Total			$	1,161,098					$	14,639					$	(773)					$	1,174,964

The following tables present the aggregate amount of gross unrealized losses as of March 31, 2021 and December 31, 2020 on available for sale investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

 

As of March 31, 2021

			Less than 12 Months												12 Months or Longer												Total
(dollars in thousands)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Obligations of the U.S. government and agencies			$	86,926					$	(3,047)					$	—					$	—					$	86,926					$	(3,047)
Mortgage-backed securities			194,674						(2,521)						—						—						194,674						(2,521)
Collateralized loan obligations			25,947						(53)						—						—						25,947						(53)
Total			$	307,547					$	(5,621)					$	—					$	—					$	307,547					$	(5,621)

 

As of December 31, 2020

			Less than 12 Months												12 Months or Longer												Total
(dollars in thousands)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Obligations of the U.S. government and agencies			$	19,777					$	(219)					$	—					$	—					$	19,777					$	(219)
Mortgage-backed securities			79,990						(457)						—						—						79,990						(457)
Collateralized loan obligations			31,903						(97)						—						—						31,903						(97)
Total			$	131,670					$	(773)					$	—					$	—					$	131,670					$	(773)

 

As of March 31, 2021, the Corporation’s available for sale investment securities consisted of 448 securities, 86 of which were in an unrealized loss position.

As of March 31, 2021, management had not made a decision to sell any of the Corporation’s available for sale investment securities in an unrealized loss position, nor did management consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis. Management has evaluated available for sale debt securities that are in an unrealized loss position and has determined that the decline in value is unrelated to credit loss and is related to the change in market interest rates since purchase. Factors considered in this evaluation included the extent to which fair value is less than amortized cost, any explicit or implicit guarantees by the U.S. government, any changes to the rating of the security by the rating agency, and adverse conditions specifically related to the security, among other factors. As of March 31, 2021, approximately 84.6% of the Corporation’s available for sale investment securities were U.S. Treasuries or mortgage-backed securities or collateral mortgage obligations which were issued or guaranteed by U.S. government-sponsored entities and agencies. In addition, none of the available for sale debt securities held by the Corporation are past due as of March 31, 2021. Accrued interest receivable on available for sale debt securities, which is reported in Accrued interest receivable on the Consolidated Balance Sheet, totaled $2.5 million at March 31, 2021 and is excluded from the estimate of credit losses.

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As of March 31, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

As of March 31, 2021 and December 31, 2020, securities having a fair value of $184.2 million and $282.3 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia (the “FRB”) discount window program, Federal Home Loan Bank (“FHLB”) borrowings, collateral requirements in derivative contracts, and other purposes. Advances by the FHLB are collateralized by a blanket lien on non-pledged, mortgage-related loans as part of the Corporation’s borrowing agreement with the FHLB as well as certain securities individually pledged by the Corporation.

 

The amortized cost and fair value of available for sale investment and mortgage-related securities available for sale as of March 31, 2021 and December 31, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

			March 31, 2021												December 31, 2020
(dollars in thousands)			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Investment securities:
Due in one year or less			$	2,618					$	2,631					$	502,465					$	502,489
Due after one year through five years			20,642						21,190						18,679						19,167
Due after five years through ten years			98,804						96,050						77,433						77,681
Due after ten years			104,363						104,702						102,266						102,507
Subtotal			226,427						224,573						700,843						701,844
Mortgage-related securities(1)			504,922						514,401						460,255						473,120
Total			$	731,349					$	738,974					$	1,161,098					$	1,174,964

 

(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 March 31, 2021 and December 31, 2020 are as follows:

 

As of March 31, 2021

(dollars in thousands)			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Mortgage-backed securities			$	14,126					$	428					$	(183)					$	14,371

 

As of December 31, 2020

(dollars in thousands)			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Mortgage-backed securities			$	14,759					$	451					$	(24)					$	15,186

 

The following table presents the aggregate amount of gross unrealized losses as of March 31, 2021 and December 31, 2020 on held to maturity securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

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As of March 31, 2021

			Less than 12 Months												12 Months or Longer												Total
(dollars in thousands)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Mortgage-backed securities			$	4,034					$	(183)					$	—					$	—					$	4,034					$	(183)

As of December 31, 2020

			Less than 12 Months												12 Months or Longer												Total
(dollars in thousands)			Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Mortgage-backed securities			$	4,224					$	(24)					$	—					$	—					$	4,224					$	(24)

As of March 31, 2021, none of the Corporation’s held to maturity investment securities were in an unrealized loss position. The Corporation’s held to maturity debt securities consist of mortgage-backed securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. With respect to these securities, the bank considers the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S. government were to default. The bank does not record expected credit losses for these securities. Accrued interest receivable on held to maturity debt securities totaled $36 thousand at March 31, 2021 and is excluded from the estimate of credit losses.

The amortized cost and fair value of held to maturity investment securities as of March 31, 2021 and December 31, 2020, by contractual maturity, are shown below:

			March 31, 2021												December 31, 2020
(dollars in thousands)			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Mortgage-backed securities(1)			$	14,126					$	14,371					$	14,759					$	15,186

 

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

As of March 31, 2021 and December 31, 2020, the Corporation’s investment securities held in trading accounts totaled $8.8 million and $8.6 million, respectively, and primarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification is at the discretion of the deferred compensation plan participants and rabbi trust accounts established to fund certain unqualified pension obligations. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported through income. Changes in the fair value of investments held in the deferred compensation trust accounts create corresponding changes in the liability to the deferred compensation plan participants.

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Note 5 – Loans and Leases

 

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

 

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

 

Loans and Leases
			March 31, 2021																		December 31, 2020
(dollars in thousands)			Originated						Acquired						Total Loans and Leases						Originated						Acquired						Total Loans and Leases
Loans held for sale			$	3,210					$	—					$	3,210					$	6,000					$	—					$	6,000
Real estate loans:
Commercial real estate (CRE) - nonowner-occupied			1,309,797						98,443						1,408,240						1,330,947						104,628						1,435,575
Commercial real estate (CRE) - owner-occupied			550,451						28,296						578,747						544,782						33,727						578,509
Home equity lines of credit			146,287						11,131						157,418						157,385						11,952						169,337
Residential mortgage - 1st liens			527,948						74,636						602,584						540,307						81,062						621,369
Residential mortgage - junior liens			26,220						1,180						27,400						22,375						1,420						23,795
Construction			178,411						9,061						187,472						153,131						8,177						161,308
Total real estate loans			2,739,114						222,747						2,961,861						2,748,927						240,966						2,989,893
Commercial & Industrial			483,265						3,559						486,824						442,283						4,155						446,438
Consumer			39,195						31						39,226						39,603						80						39,683
Leases			143,554						1,770						145,324						149,914						2,483						152,397
Total portfolio loans and leases			3,405,128						228,107						3,633,235						3,380,727						247,684						3,628,411
Total loans and leases			$	3,408,338					$	228,107					$	3,636,445					$	3,386,727					$	247,684					$	3,634,411
Loans with fixed rates			$	1,161,527					$	123,199					$	1,284,726					$	1,198,908					$	134,084					$	1,332,992
Loans with adjustable or floating rates			2,246,811						104,908						2,351,719						2,187,819						113,600						2,301,419
Total loans and leases			$	3,408,338					$	228,107					$	3,636,445					$	3,386,727					$	247,684					$	3,634,411
Net deferred loan origination fees (costs) included in the above loan table			$	836					$	—					$	836					$	673					$	—					$	673

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

 

Components of Net Investment in Leases
			March 31, 2021																		December 31, 2020
(dollars in thousands)			Originated						Acquired						Total Leases						Originated						Acquired						Total Leases
Minimum lease payments receivable			$	157,245					$	1,834					$	159,079					$	164,556					$	2,583					$	167,139
Unearned lease income			(19,664)						(91)						(19,755)						(20,746)						(138)						(20,884)
Initial direct costs and deferred fees			5,973						27						6,000						6,104						38						6,142
Total Leases			$	143,554					$	1,770					$	145,324					$	149,914					$	2,483					$	152,397

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

   

Nonperforming Loans and Leases
			March 31, 2021																		December 31, 2020
(dollars in thousands)			Originated						Acquired						Total Loans and Leases						Originated						Acquired						Total Loans and Leases
CRE - nonowner-occupied			$	56					$	—					$	56					$	57					$	—					$	57
CRE - owner-occupied			610						745						1,355						823						836						1,659
Home equity lines of credit			420						112						532						515						214						729
Residential mortgage - 1st liens			573						72						645						26						73						99
Residential mortgage - junior liens			151						33						184						50						35						85
Commercial & Industrial			1,490						—						1,490						1,657						118						1,775
Consumer			40						—						40						30						—						30
Leases			777						118						895						791						81						872
Total non-performing loans and leases			$	4,117					$	1,080					$	5,197					$	3,949					$	1,357					$	5,306

D. Age Analysis of Past Due Loans and Leases

 

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

Payment Status of All Portfolio Loans and Leases
			Accruing Loans and Leases
As of March 31, 2021			30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due						Total Past Due						Current						Total Accruing Loans and Leases						Nonaccrual Loans and Leases						Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied			$	653					$	—					$	—					$	653					$	1,407,531					$	1,408,184					$	56					$	1,408,240
CRE - owner-occupied			249						—						—						249						577,143						577,392						1,355						578,747
Home equity lines of credit			17						—						—						17						156,869						156,886						532						157,418
Residential mortgage - 1st liens			2,595						295						—						2,890						599,049						601,939						645						602,584
Residential mortgage - junior liens			163						—						—						163						27,053						27,216						184						27,400
Construction			—						—						—						—						187,472						187,472						—						187,472
Commercial & Industrial			157						8						—						165						485,169						485,334						1,490						486,824
Consumer			23						24						—						47						39,139						39,186						40						39,226
Leases			863						348						—						1,211						143,218						144,429						895						145,324
Total portfolio loans and leases			$	4,720					$	675					$	—					$	5,395					$	3,622,643					$	3,628,038					$	5,197					$	3,633,235

 

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Payment Status of All Portfolio Loans and Leases
			Accruing Loans and Leases
As of December 31, 2020			30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due						Total Past Due						Current						Total Accruing Loans and Leases						Nonaccrual Loans and Leases						Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied			$	—					$	—					$	—					$	—					$	1,435,518					$	1,435,518					$	57					$	1,435,575
CRE - owner-occupied			1,907						416						—						2,323						574,527						576,850						1,659						578,509
Home equity lines of credit			87						—						—						87						168,521						168,608						729						169,337
Residential mortgage - 1st liens			6,020						217						—						6,237						615,033						621,270						99						621,369
Residential mortgage - junior liens			88						58						—						146						23,564						23,710						85						23,795
Construction			—						—						—						—						161,308						161,308						—						161,308
Commercial & Industrial			—						—						—						—						444,663						444,663						1,775						446,438
Consumer			32						16						—						48						39,605						39,653						30						39,683
Leases			1,196						810						—						2,006						149,519						151,525						872						152,397
Total portfolio loans and leases			$	9,330					$	1,517					$	—					$	10,847					$	3,612,258					$	3,623,105					$	5,306					$	3,628,411

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

Payment Status of Originated Portfolio Loans and Leases
			Accruing Loans and Leases
As of March 31, 2021			30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due						Total Past Due						Current						Total Accruing Loans and Leases						Nonaccrual Loans and Leases						Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied			$	653					$	—					$	—					$	653					$	1,309,088					$	1,309,741					$	56					$	1,309,797
CRE - owner-occupied			249						—						—						249						549,592						549,841						610						550,451
Home equity lines of credit			17						—						—						17						145,850						145,867						420						146,287
Residential mortgage - 1st liens			1,317						244						—						1,561						525,814						527,375						573						527,948
Residential mortgage - junior liens			141						—						—						141						25,928						26,069						151						26,220
Construction			—						—						—						—						178,411						178,411						—						178,411
Commercial & Industrial			157						8						—						165						481,610						481,775						1,490						483,265
Consumer			22						24						—						46						39,109						39,155						40						39,195
Leases			774						331						—						1,105						141,672						142,777						777						143,554
Total portfolio loans and leases			$	3,330					$	607					$	—					$	3,937					$	3,397,074					$	3,401,011					$	4,117					$	3,405,128

Payment Status of Originated Portfolio Loans and Leases
			Accruing Loans and Leases
As of December 31, 2020			30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due						Total Past Due						Current						Total Accruing Loans and Leases						Nonaccrual Loans and Leases						Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied			$	—					$	—					$	—					$	—					$	1,330,890					$	1,330,890					$	57					$	1,330,947
CRE - owner-occupied			1,907						416						—						2,323						541,636						543,959						823						544,782
Home equity lines of credit			87						—						—						87						156,783						156,870						515						157,385
Residential mortgage - 1st liens			4,109						217						—						4,326						535,955						540,281						26						540,307
Residential mortgage - junior liens			84						56						—						140						22,185						22,325						50						22,375
Construction			—						—						—						—						153,131						153,131						—						153,131
Commercial & Industrial			—						—						—						—						440,626						440,626						1,657						442,283
Consumer			32						16						—						48						39,525						39,573						30						39,603
Leases			1,196						735						—						1,931						147,192						149,123						791						149,914
Total portfolio loans and leases			$	7,415					$	1,440					$	—					$	8,855					$	3,367,923					$	3,376,778					$	3,949					$	3,380,727

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

Payment Status of Acquired Portfolio Loans and Leases
			Accruing Loans and Leases
As of March 31, 2021			30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due						Total Past Due						Current						Total Accruing Loans and Leases						Nonaccrual Loans and Leases						Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied			$	—					$	—					$	—					$	—					$	98,443					$	98,443					$	—					$	98,443
CRE - owner-occupied			—						—						—						—						27,551						27,551						745						28,296
Home equity lines of credit			—						—						—						—						11,019						11,019						112						11,131
Residential mortgage - 1st liens			1,278						51						—						1,329						73,235						74,564						72						74,636
Residential mortgage - junior liens			22						—						—						22						1,125						1,147						33						1,180
Construction			—						—						—						—						9,061						9,061						—						9,061
Commercial & Industrial			—						—						—						—						3,559						3,559						—						3,559
Consumer			1						—						—						1						30						31						—						31
Leases			89						17						—						106						1,546						1,652						118						1,770
Total portfolio loans and leases			$	1,390					$	68					$	—					$	1,458					$	225,569					$	227,027					$	1,080					$	228,107

Payment Status of Acquired Portfolio Loans and Leases
			Accruing Loans and Leases
As of December 31, 2020			30 – 59 Days Past Due						60 – 89 Days Past Due						Over 89 Days Past Due						Total Past Due						Current						Total Accruing Loans and Leases						Nonaccrual Loans and Leases						Total Loans and Leases
(dollars in thousands)
CRE - nonowner-occupied			$	—					$	—					$	—					$	—					$	104,628					$	104,628					$	—					$	104,628
CRE - owner-occupied			—						—						—						—						32,891						32,891						836						33,727
Home equity lines of credit			—						—						—						—						11,738						11,738						214						11,952
Residential mortgage - 1st liens			1,911						—						—						1,911						79,078						80,989						73						81,062
Residential mortgage - junior liens			4						2						—						6						1,379						1,385						35						1,420
Construction			—						—						—						—						8,177						8,177						—						8,177
Commercial & Industrial			—						—						—						—						4,037						4,037						118						4,155
Consumer			—						—						—						—						80						80						—						80
Leases			—						75						—						75						2,327						2,402						81						2,483
Total portfolio loans and leases			$	1,915					$	77					$	—					$	1,992					$	244,335					$	246,327					$	1,357					$	247,684

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

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

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

Management employs a disciplined process and methodology to establish the ACL on loans and leases that has two basic components: first, an asset-specific component involving individual loans and leases that do not share risk characteristics with other loans and leases

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and the measurement of expected credit losses for such individual loans; and second, a collective (pooled) component for estimated expected credit losses for pools of loans and leases that share similar risk characteristics.

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

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

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

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

The DCF methodology uses inputs of current and forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicator utilized by the bank is the Pennsylvania unemployment rate. In building the Current Expected Credit Loss (“CECL”) model utilized in the DCF methodology, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Pennsylvania unemployment rates. The portfolio segments utilizing the DCF methodology as of March 31, 2021 included: CRE - owner-occupied and nonowner-occupied loans, home equity lines of credit, residential mortgages (first and junior liens), construction loans and consumer loans.

The WARM methodology uses combined historic loss rates for the Bank and peer institutions, if necessary, gathered from Call Report filings. The selected period for which historic loss rates are used is dependent on management's evaluation of current conditions and expectations of future loss conditions. The portfolio segments utilizing the WARM methodology as of March 31, 2021 included commercial and industrial loans and leases.

For the three months ended March 31, 2021, there was a favorable change in the economic outlook impacting the ACL on loans and leases. Our CECL model, which had included a sharp deterioration in the Pennsylvania unemployment rate during the first and second quarters of 2020, began forecasting a declining rate of Pennsylvania unemployment as of the third quarter of 2020 and as of March 31, 2021, is forecasting a continued decrease in the rate through the first quarter of 2022, followed by a reversion to the long-term 15-year average.

In addition to these assumptions, management applied additional qualitative factors related to the continued stress, brought on by the COVID-19 pandemic, on certain segments of the loan portfolio. In particular, the retail and hospitality sectors of the nonowner-occupied CRE segment were directly impacted by the many shutdowns and curtailments of consumer activity during most of 2020.

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The following tables present the activity in the ACL on loans and leases, by portfolio segment, for the three months ended March 31, 2021 and 2020:

Roll-Forward of ACL on Loans and Leases
(dollars in thousands)			CRE - nonowner-occupied						CRE - owner-occupied						Home equity lines of credit						Residential mortgage - 1st liens						Residential mortgage - junior liens						Construction						Commercial & Industrial						Consumer						Leases						Total
Balance, December 31, 2020			$	19,382					$	6,982					$	1,406					$	7,782					$	382					$	2,707					$	8,087					$	325					$	6,656					$	53,709
Loans and leases charged-off			—						(189)						—						(1)						—						—						(128)						(122)						(649)						(1,089)
Recoveries collected			—						—						—						—						—						1						182						15						249						447
PCL on loans and leases			(3,605)						(948)						(126)						(2,143)						57						416						470						163						211						(5,505)
Balance, March 31, 2021			$	15,777					$	5,845					$	1,280					$	5,638					$	439					$	3,124					$	8,611					$	381					$	6,467					$	47,562

Roll-Forward of ACL on Loans and Leases

(dollars in thousands)			CRE - nonowner-occupied						CRE - owner-occupied						Home equity lines of credit						Residential mortgage - 1st liens						Residential mortgage - junior liens						Construction						Commercial & Industrial						Consumer						Leases						Total
Balance, December 31, 2019 Prior to Adoption of ASC 326			$	7,960					$	2,825					$	1,114					$	2,501					$	338					$	1,230					$	3,835					$	438					$	2,361					$	22,602
Impact of Adopting ASC 326			(467)						16						(46)						2,408						79						(359)						(159)						140						1,594						3,206
Loans and leases charged-off			—						—						(114)						(728)						—						—						(627)						(294)						(2,626)						(4,389)
Recoveries collected			2						—						—						1						—						1						15						33						264						316
PCL on loans and leases			5,834						1,351						1,794						4,134						100						6,112						5,670						24						7,316						32,335
Balance, March 31, 2020			$	13,329					$	4,192					$	2,748					$	8,316					$	517					$	6,984					$	8,734					$	341					$	8,909					$	54,070

As part of the process of determining the ACL for the different segments of the loan and lease portfolio, management considers certain credit quality indicators. Periodic reviews of loans are conducted by both in-house staff as well as external loan reviewers. The result of these reviews is reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

 

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

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

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

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

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

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The following table details the amortized cost of portfolio loans and leases, by year of origination (for term loans) and by risk grade within each portfolio segment as of March 31, 2021:

									Term Loans																																				Revolving Loans
									Amortized Cost Basis by Origination Year(1)																																				Amortized Cost Basis
(dollars in thousands)			Risk Rating						2021						2020						2019						2018						2017						2016 and Prior						Revolving Lines of Credit						Revolving Lines of Credit Converted to Term Loans						Total
CRE - nonowner-occupied			Pass						$	28,765					$	312,096					$	400,014					$	150,184					$	104,760					$	177,812					$	42,377					$	—					$	1,216,008
			Pass-Watch						—						5,992						31,370						17,225						4,207						18,738						—						—						77,532
			Special Mention						—						—						—						8,889						4,971						26,044						—						—						39,904
			Substandard						56						7,878						29,370						11,812						1,417						24,263						—						—						74,796
			Total						$	28,821					$	325,966					$	460,754					$	188,110					$	115,355					$	246,857					$	42,377					$	—					$	1,408,240
CRE - owner-occupied			Pass						$	27,001					$	124,814					$	114,717					$	103,666					$	63,359					$	73,387					$	9,987					$	—					$	516,931
			Pass-Watch						—						10,169						2,335						4,746						7,122						4,529						—						—						28,901
			Special Mention						—						4,685						270						3,886						—						833						50						—						9,724
			Substandard						—						3,702						6,190						6,601						666						5,933						99						—						23,191
			Total						$	27,001					$	143,370					$	123,512					$	118,899					$	71,147					$	84,682					$	10,136					$	—					$	578,747
Home equity lines of credit			Pass						$	897					$	580					$	844					$	—					$	73					$	2,057					$	151,143					$	800					$	156,394
			Special Mention						—						—						—						—						—						—						491						—						491
			Substandard						—						—						59						25						99						348						2						—						533
			Total						$	897					$	580					$	903					$	25					$	172					$	2,405					$	151,636					$	800					$	157,418
Residential mortgage - 1st liens			Pass						$	24,617					$	113,345					$	104,791					$	61,416					$	70,906					$	208,048					$	1,062					$	—					$	584,185
			Pass-Watch						—						—						12,714						2,117						—						627						—						—						15,458
			Special Mention						—						—						—						341						—						—						—						—						341
			Substandard						—						877						338						69						249						1,067						—						—						2,600
			Total						$	24,617					$	114,222					$	117,843					$	63,943					$	71,155					$	209,742					$	1,062					$	—					$	602,584
Residential mortgage - junior liens			Pass						$	5,945					$	2,804					$	4,126					$	3,152					$	2,896					$	8,078					$	177					$	—					$	27,178
			Special Mention						—						—						—						37						—						—						—						—						37
			Substandard						103						—						—						—						—						82						—						—						185
			Total						$	6,048					$	2,804					$	4,126					$	3,189					$	2,896					$	8,160					$	177					$	—					$	27,400
Construction			Pass						$	31,459					$	75,001					$	44,426					$	3,225					$	824					$	5,792					$	12,916					$	—					$	173,643
			Pass-Watch						—						7,921						—						2,394						—						—						—						—						10,315
			Substandard						1,000						2,182						332						—						—						—						—						—						3,514
			Total						$	32,459					$	85,104					$	44,758					$	5,619					$	824					$	5,792					$	12,916					$	—					$	187,472
Commercial & Industrial			Pass						$	49,793					$	111,966					$	32,051					$	59,606					$	8,993					$	33,876					$	102,563					$	—					$	398,848
			Pass-Watch						—						18,142						4,979						2,279						4,494						305						10,719						—						40,918
			Special Mention						1,147						11,380						7,561						—						206						—						4,296						—						24,590
			Substandard						449						2,611						5,570						8,075						1,355						1,505						2,903						—						22,468
			Total						$	51,389					$	144,099					$	50,161					$	69,960					$	15,048					$	35,686					$	120,481					$	—					$	486,824
Consumer			Pass						$	316					$	1,137					$	2,998					$	1,305					$	164					$	151					$	32,216					$	—					$	38,287
			Substandard						—						903						21						15						—						—						—						—						939
			Total						$	316					$	2,040					$	3,019					$	1,320					$	164					$	151					$	32,216					$	—					$	39,226
Leases			Pass						$	10,679					$	47,412					$	50,707					$	29,030					$	6,012					$	589					$	—					$	—					$	144,429
			Substandard						—						147						361						230						148						9						—						—						895
			Total						$	10,679					$	47,559					$	51,068					$	29,260					$	6,160					$	598					$	—					$	—					$	145,324
Total portfolio loans and leases									$	182,227					$	865,744					$	856,144					$	480,325					$	282,921					$	594,073					$	371,001					$	800					$	3,633,235

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

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The following tables present the amortized cost basis of loans and leases on nonaccrual status and loans and leases past due over 89 days still accruing as of the dates indicated:

As of March 31, 2021
(dollars in thousands)			Nonaccrual with No ACL						Nonaccrual with ACL						Loans Past Due Over 89 Days Still Accruing
CRE - nonowner-occupied			$	56					$	—					$	—
CRE - owner-occupied			1,335						—						—
Home equity lines of credit			532						—						—
Residential mortgage - 1st liens			645						—						—
Residential mortgage - junior liens			184						—						—
Construction			—						—						—
Commercial & Industrial			1,490						—						—
Consumer			—						40						—
Leases			—						895						—
Total non-performing loans and leases			$	4,242					$	935					$	—

As of December 31, 2020
(dollars in thousands)			Nonaccrual with No ACL						Nonaccrual with ACL						Loans Past Due Over 89 Days Still Accruing
CRE - nonowner-occupied			$	57					$	—					$	—
CRE - owner-occupied			1,659						—						—
Home equity lines of credit			729						—						—
Residential mortgage - 1st liens			99						—						—
Residential mortgage - junior liens			85						—						—
Construction			—						—						—
Commercial & Industrial			1,775						—						—
Consumer			—						30						—
Leases			—						872						—
Total non-performing loans and leases			$	4,404					$	902					$	—

For the three ended March 31, 2021, no interest income was recognized on nonaccrual loans and leases.

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

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The following tables present the amortized cost basis of collateral-dependent loans and leases, indicating the type of collateral and the ACL determined through individual evaluation for credit loss, as of the dates indicated:

As of March 31, 2021
(dollars in thousands)			Real Estate Collateral						Non-Real Estate Collateral						Individually Evaluated ACL
CRE - nonowner-occupied			$	56					$	—					$	—
CRE - owner-occupied			1,335						—						—
Home equity lines of credit			532						—						—
Residential mortgage - 1st liens			645						—						—
Residential mortgage - junior liens			184						—						—
Construction			—						—						—
Commercial & Industrial			—						1,490						—
Consumer			—						40						40
Leases			—						895						733
Total collateral-dependent loans and leases			$	2,752					$	2,425					$	773

As of December 31, 2020
(dollars in thousands)			Real Estate Collateral						Non-Real Estate Collateral						Individually Evaluated ACL
CRE - nonowner-occupied			$	57					$	—					$	—
CRE - owner-occupied			1,659						—						—
Home equity lines of credit			729						—						—
Residential mortgage - 1st liens			99						—						—
Residential mortgage - junior liens			85						—						—
Construction			—						—						—
Commercial & Industrial			—						1,775						—
Consumer			—						30						30
Leases			—						872						814
Total collateral-dependent loans and leases			$	2,629					$	2,677					$	844

F. Troubled Debt Restructurings (“TDRs”)

 

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

 

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

The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), loans to borrowers experiencing financial difficulty related to the COVID-19 pandemic which were granted short-term modifications after March 1, 2020 and which were not more than 30 days past due as of December 31, 2019 are exempt from TDR classification. In addition, for loans modified in response to the COVID-19 pandemic that do not meet the above delinquency criteria (e.g., not more than 30 days past due as of December 31, 2019), the Corporation applies the guidance included in an interagency statement issued by the bank

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regulatory agencies. This guidance states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were less than 30 days past due as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are also exempt from TDR classification. For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and nonaccrual status will not be impacted during the deferral period. Interest income will continue to be recognized over the contractual life of the loan. As of March 31, 2021, 31 consumer loans and leases in the amount of $4.5 million and 42 commercial loans in the amount of $61.5 million are within a deferral period under the Bank's modification programs, the total comprising 1.8% of the Bank’s portfolio loans and leases. As of December 31, 2020, 66 consumer loans and leases in the amount of $7.3 million and 37 commercial loans in the amount of $67.7 million are within a deferral period under the Bank's COVID-19 modification programs, the total comprising 2.1% of the Bank’s portfolio loans and leases.

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

Troubled Debt Restructurings
(dollars in thousands)			March 31, 2021						December 31, 2020
TDRs included in nonperforming loans and leases			$	1,480					$	1,737
TDRs in compliance with modified terms			6,967						7,046
Total TDRs			$	8,447					$	8,783

The following tables present information regarding loan and lease modifications categorized as TDRs for the three months ended March 31, 2021: 

Troubled Debt Restructurings
			For the Three Months Ended March 31, 2021
(dollars in thousands)			Number of Contracts						Pre-Modification Outstanding Recorded Investment						Post-Modification Outstanding Recorded Investment
Residential mortgage - 1st liens			1						103						103
Leases			7						361						361
Total			8						$	464					$	464

The following table presents information regarding the types of loan and lease modifications made for the three months ended March 31, 2021:

Troubled Debt Restructurings
			Number of Contracts for the Three Months Ended March 31, 2021
			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
Residential mortgage - 1st liens			—						1						—						—						—
Leases			—						—						—						7						—
Total			—						1						—						7						—

For the three months ended March 31, 2021, two commercial & industrial loans, in the aggregate amount of $128 thousand, one lease in the amount of $27 thousand and two owner-occupied commercial real estate loans in the aggregate amount of $194 thousand, that were modified as TDRs during the past 12 months defaulted and were charged off.

G. ACL on Off-Balance Sheet ("OBS") Credit Exposures

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

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

The ACL on OBS credit exposure as of March 31, 2021 and December 31, 2020 was $3.2 million and $2.9 million, respectively. The Corporation recorded a provision for credit losses on OBS credit exposures of $259 thousand and $3.0 million for the three months ended March 31, 2021 and 2020 respectively.

H. ACL on Accrued Interest Receivable

Accrued interest receivable on loans and leases, which is reported in Accrued interest receivable on the Consolidated Balance Sheet, totaled $11.2 million and $12.1 million as of March 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses due to our charge-off policy to reverse accrued interest in a timely manner on loans and leases that are 90-days past due and deemed nonperforming. However, the Corporation continued to accrue interest on loans and leases for which payment deferrals have been extended to borrowers affected by the COVID-19 pandemic. Deferrals under the Corporation's modification program may be for durations which exceed the Corporation’s 90-day write-off policy for accrued interest. Therefore, these interest deferrals do not qualify for the Corporation’s election to not recognize a credit loss allowance for credit losses on accrued interest receivable. Accordingly, the Corporation has estimated credit losses for COVID-19 interest deferrals of $62 thousand and $64 thousand as of March 31, 2021 and December 31, 2020, respectively, which is included as a reduction to Accrued interest receivable on the Consolidated Balance Sheet.

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Note 6 – Mortgage Servicing Rights

 

The following table summarizes the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three months ended March 31, 2021 and 2020:

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Balance, beginning of period			$	2,626					$	4,450
Additions			—						—
Amortization			(133)						(104)
Impairment			—						(231)
Balance, end of period			$	2,493					$	4,115
Fair value			$	2,493					$	4,115
Residential mortgage loans serviced for others			$	335,106					$	482,911

 

As of March 31, 2021, and December 31, 2020, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10% and 20% adverse changes in those assumptions are as follows:

(dollars in thousands)			March 31, 2021						December 31, 2020
Fair value amount of MSRs			$	2,493					$	2,632
Weighted average life (in years)			4.6						4.9
Prepayment speeds (constant prepayment rate)(1)			14.2		%				13.1		%
Impact on fair value:
10% adverse change			$	(130)					$	(141)
20% adverse change			(252)						(273)
Discount rate			9.56		%				9.56		%
Impact on fair value:
10% adverse change			$	(74)					$	(81)
20% adverse change			(143)						(156)

 

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

At March 31, 2021 and December 31, 2020, the fair value of the MSRs was $2.5 million and $2.6 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.

Note 7 – Goodwill and Intangible Assets

 

The following table presents activity in the Corporation's goodwill by its reporting units and finite-lived and indefinite-lived intangible assets, other than MSRs, for the three months ended March 31, 2021:

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(dollars in thousands)			Balance December 31, 2020																		Amortization						Balance March 31, 2021						Amortization Period
Goodwill – Wealth			$	20,412																	$	—					$	20,412					Indefinite
Goodwill – Banking			156,991																		—						156,991						Indefinite
Goodwill – Insurance			6,609																		—						6,609						Indefinite
Total Goodwill			184,012																		—						184,012
Core deposit intangible			3,488																		(231)						3,257						10 years
Customer relationships			10,012																		(451)						9,561						5 to 20 years
Non-compete agreements			722																		(48)						674						5 to 10 years
Trade name			1,191																		(108)						1,083						3 to 5 years
Domain name			151																		—						151						Indefinite
Total Intangible Assets			15,564																		(838)						14,726
Total Goodwill and Intangible Assets			$	199,576																	$	(838)					$	198,738

Management conducted its annual impairment tests for goodwill and indefinite-lived intangible assets as of October 31, 2020 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 five months ended March 31, 2021, 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:

(dollars in thousands)			March 31, 2021						December 31, 2020
Interest-bearing demand			$	671,854					$	885,802
Money market			1,201,115						1,163,620
Savings			286,124						282,406
Retail time deposits			301,702						331,527
Wholesale non-maturity deposits			70,605						275,011
Wholesale time deposits			6,134						36,045
Total interest-bearing deposits			2,537,534						2,974,411
Noninterest-bearing deposits			1,364,716						1,401,843
Total deposits			$	3,902,250					$	4,376,254

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)			March 31, 2021						December 31, 2020
Repurchase agreements(1) – commercial customers			$	18,027					$	38,836
Short-term FHLB advances			42,000						33,325
Total short-term borrowings			$	60,027					$	72,161

(1) Overnight repurchase agreements with no expiration date

 

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

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Balance at period-end			$	60,027					$	162,045
Maximum amount outstanding at any month end			60,027						162,045
Average balance outstanding during the period			32,020						140,585
Weighted-average interest rate:
As of the period-end			0.25		%				0.86		%
Paid during the period			0.13		%				1.30		%

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 March 31, 2021 and December 31, 2020, the Corporation had $39.9 million and $39.9 million, respectively, of long-term FHLB advances (original maturities exceeding one year).

 

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

(dollars in thousands)			March 31, 2021						December 31, 2020
Within one year			$	39,941					$	39,906
Over one year through five years			—						—
Total			$	39,941					$	39,906

 

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
Description			From						To												From						To						March 31, 2021						December 31, 2020
Bullet maturity – fixed rate			8/24/2021						11/12/2021						1.68		%				1.40		%				1.85		%				$	39,941					$	39,906

 

(1) Maturity range, weighted average rate and coupon rate range refers to March 31, 2021 balances.

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 $6.0 million at March 31, 2021, and $12.7 million at December 31, 2020. 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 $1.78 billion as of March 31, 2021 of which the unused capacity was $1.70 billion. In addition, there were $74.0 million in the overnight federal funds line available and $121.4 million of FRB discount window capacity.

 

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Note 10 – Subordinated Notes

 

On December 13, 2017, BMBC completed the issuance of $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027 (the “2027 Notes”) in an underwritten public offering. On August 6, 2015, BMBC completed the issuance of $30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2025 (the “2025 Notes”) in a private placement transaction to institutional accredited investors. The subordinated notes qualify as Tier 2 capital

for regulatory capital purposes, subject to applicable limitations.

The following tables detail the subordinated notes, including debt issuance costs, as of March 31, 2021, and December 31, 2020:

			March 31, 2021												December 31, 2020
(dollars in thousands)			Balance						Rate(1)(2)						Balance						Rate(1)(2)
Subordinated notes – due 2027			$	69,164					4.25		%				$	69,133					4.25		%
Subordinated notes – due 2025			29,764						3.27						29,750						3.29
Total subordinated notes			$	98,928											$	98,883

 

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

Note 11 – Junior Subordinated Debentures

 

In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”), which were utilized for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although BMBC 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 BMBC assumed as a result of the RBPI Merger, junior subordinated debentures to the Trusts of $10.7 million each, totaling $21.4 million. The junior subordinated debentures incur interest at a coupon rate of 2.33% as of March 31, 2021. 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 BMBC. As a result of the RBPI Merger, BMBC 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 BMBC any time. 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

The Corporation’s operating leases consist of various retail branch locations and corporate offices. As of March 31, 2021, the Corporation’s leases have remaining lease terms ranging from three months to 21 years including extension options that the Corporation is reasonably certain will be exercised.

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The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize right-of-use assets (“ROU assets”) 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, 2021, the Corporation’s ROU assets and related lease liabilities were $33.8 million and $39.5 million, respectively.

The components of lease expense were as follows:

			Three Months Ended March 31,
			2021						2020
(dollars in thousands)
Operating lease expense			$	1,103					$	1,198
Short term lease expense			15						15
Variable lease expense			324						357
Sublease income			(5)						(9)
Total lease expense			$	1,437					$	1,561

Supplemental cash flow information related to leases was as follows:

			Three Months Ended March 31,
			2021						2020
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	1,091					$	1,171
ROU assets obtained in exchange for lease liabilities			—						—

Maturities of operating lease liabilities under FASB ASC 842 “Leases” as of March 31, 2021 are as follows:

			March 31, 2021
(dollars in thousands)
2021			$	3,085
2022			3,924
2023			3,771
2024			3,793
2025			3,859
2026 and thereafter			32,548
Total lease payments			50,980
Less: imputed interest			11,437
Present value of operating lease liabilities			$	39,543

As of March 31, 2021, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised, for all operating leases is 13.79 years.

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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, 2021 is 3.60%.

As of March 31, 2021, the Corporation had not entered into any material leases that have not yet commenced.

Note 13 – Derivative Instruments and Hedging Activities

 

A.Derivatives not designated as hedging instruments

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 Corporation enters into derivative transactions as an economic hedge of derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.

 

Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps with commercial loan customers and correspondent banks wishing to manage interest rate risk. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge the exposure arising from these contracts. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of March 31, 2021, 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, 2021, there were no fair value adjustments related to credit quality.

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

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The following table details the derivatives not designated as hedging instruments as of March 31, 2021 and December 31, 2020:

			Asset Derivatives												Liability Derivatives
(dollars in thousands)			Notional Amount						Fair Value(1)						Notional Amount						Fair Value(2)
Derivatives not designated as hedging instruments
As of March 31, 2021:
Customer derivatives – interest rate swaps			$	1,150,756					$	75,837					$	1,150,756					$	75,837
FX forwards			4,647						40						2,136						21
RPAs sold			—						—						44,284						16
RPAs purchased			59,280						154						—						—
Total derivatives			$	1,214,683					$	76,031					$	1,197,176					$	75,874
As of December 31, 2020:
Customer derivatives – interest rate swaps			$	1,102,753					$	113,848					$	1,102,753					$	113,848
FX forwards			9,146						52						9,856						70
RPAs sold			—						—						33,111						30
RPAs purchased			55,415						342						—						—
Total derivatives			$	1,167,314					$	114,242					$	1,145,720					$	113,948

(1) Included within Other Assets on the Unaudited Consolidated Balance Sheet.

(2) Included within Other Liabilities on the Unaudited Consolidated Balance Sheet.

 

B.Derivatives designated as hedging instruments

Management's objectives in using interest rate derivative financial instruments are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Corporation has entered into interest rate swaps designated as cash flow hedges that involve the receipt of fixed rate amounts from a counterparty in exchange for the Corporation making variable rate payments. As of March 31, 2021, the Corporation had entered into three interest rate swaps with an aggregate notional value of $150.0 million. The Corporation will pay a floating rate component of interest equal to the one-month LIBOR rate for up to ten years while receiving a fixed rate of interest. The interest paid on the variable rate component is intended to offset the interest received on variable rate commercial mortgages within the Corporation's loan portfolio. The notional amount of the interest rate swap does not represent the amount exchanged by the parties. The exchange of cash flows is determined by reference to the notional amount and the other terms of the interest rate swap agreement.

The following table summarizes information about the interest rate swaps designated as cash flow hedges as of March 31, 2021:

(dollars in thousands)
Notional Amount			$	150,000
Weighted average fixed-receive rate			1.19		%
Weighted average pay-float rate			0.11		%
Weighted average maturity in years			9.24

The following table details the derivatives designated as hedging instruments as of March 31, 2021. The Corporation did not have derivatives designated as hedging instruments as of December 31, 2020:

			Asset Derivatives												Liability Derivatives
(dollars in thousands)			Notional Amount						Fair Value						Notional Amount						Fair Value(1)
Derivatives designated as hedging instruments
As of March 31, 2021:
Interest rate swaps			$	—					$	—					$	150,000					$	4,958

(1) Included within Other Liabilities on the Unaudited Consolidated Balance Sheet.

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The following table presents the effect of cash flow hedge accounting on accumulated other comprehensive income for the three months ended March 31, 2021:

(dollars in thousands)			Amount of Gain (Loss) Recognized in OCI on Derivative						Location of Gain (Loss) Reclassified from OCI into Income						Amount of Gain (Loss) Reclassified from OCI into Income
Interest rate swaps			$	(4,772)					Interest Income						$	186

During the next twelve months, the Corporation estimates that $1.1 million will be reclassified as an increase to interest income.

Gains and losses on interest rate swaps related to funding liabilities are recorded in interest income. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value will not be included in current earnings but are reported as a component of OCI in the Unaudited Consolidated Statement of Changes in Shareholders’ Equity. These changes in fair value will be included in earnings of future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values are immediately included in other income or expense.

C.Pledged Collateral

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 March 31, 2021 and December 31, 2020 was $63.8 million and $124.8 million, respectively, and is comprised of a combination of cash and investment securities. The amount of collateral posted with third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $57.7 million and $113.2 million as of March 31, 2021 and December 31, 2020, respectively.

Note 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 2017.

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 months ended March 31, 2021 or 2020.

Note 15 – Shareholders’ Equity

 

Dividend

 

On April 22, 2021, BMBC’s Board of Directors declared a regular quarterly dividend of $0.27 per share payable June 1, 2021 to shareholders of record as of May 4, 2021. During the first quarter of 2021, the Corporation paid or accrued, as applicable, a regular quarterly dividend of $0.27 per share. This dividend totaled $5.5 million, based on outstanding shares and restricted stock units as of February 1, 2021 of 20,207,124 shares.

S-3 Shelf Registration Statement and Offerings Thereunder

In May 2018, BMBC filed a shelf registration statement on Form S-3, SEC File No. 333-224849 (the “Shelf Registration Statement”). The Shelf Registration Statement allows BMBC to raise additional capital from time to time through offers and sales of registered securities consisting of common stock, debt securities, warrants, purchase contracts, rights and units or units

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consisting of any combination of the foregoing securities. BMBC may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, from time to time, in one or more offerings.

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

For the three months ended March 31, 2021, 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 months ended March 31, 2021. No other sales of equity securities were executed under the Shelf Registration Statement during the three months ended March 31, 2021.

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

In addition to shares that may be issued through the Plan, the Corporation also issues shares through the exercise of stock options and the vesting of RSUs and PSUs. During the three months ended March 31, 2021, no shares were issued pursuant to the exercise of stock options. The increase in shareholders’ equity related to the vesting of RSUs and PSUs, which is recognized over the vesting period through stock based compensation expense, was $551 thousand for the three months ended March 31, 2021, respectively.

 

Stock Repurchases

 

On April 18, 2019, BMBC announced a stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. The 2019 Program became effective in the second quarter of 2019. During the three months ended March 31, 2021, 80,788 shares were repurchased under the 2019 Program at an average price of $31.77. During the three months ended March 31, 2020, 207,201 shares were repurchased under the 2019 Program at an average price of $34.99. All share repurchases were accomplished in open market transactions. As of March 31, 2021, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 629,244, at an aggregate purchase price not to exceed $32.2 million.

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

Note 16 – Accumulated Other Comprehensive Income (Loss)

The following table details the components of accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020:

(dollars in thousands)			Net Change in Unrealized Gains on Available-for- Sale Investment Securities						Net Change in Fair Value of Derivative Used for Cash Flow Hedge						Net Change in Unfunded Pension Liability						Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2020			$	10,954					$	—					$	(2,006)					$	8,948
Other comprehensive income			(4,930)						(3,916)						52						(8,794)
Balance, March 31, 2021			$	6,024					$	(3,916)					$	(1,954)					$	154
Balance, December 31, 2019			$	3,910					$	—					$	(1,723)					$	2,187
Other comprehensive income			6,659						—						23						6,682
Balance, March 31, 2020			$	10,569					$	—					$	(1,700)					$	8,869

The following table details the amounts reclassified from each component of accumulated other comprehensive income (loss) to each component’s applicable income statement line, for the three months ended March 31, 2021 and 2020:

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						Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Description of Accumulated Other Comprehensive Income (Loss) Component						Three Months Ended March 31,												Affected Income Statement Category
						2021						2020
Net unrealized losses on interest rate swaps used in cash flow hedges:
Reclassification adjustment for gains included in net income						$	(186)					$	—					Interest income
Income tax effect						39						—						Income tax expense
Net of income tax						$	(147)					$	—					Net income
Unfunded pension liability:
Amortization of net loss included in net periodic pension costs(1)						$	35					$	18					Other operating expenses
Income tax effect						(7)						(4)						Income tax expense
Net of income tax						$	28					$	14					Net income

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

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

			Three Months Ended March 31,
(dollars in thousands except share and per share data)			2021						2020
Numerator:
Net income available to common shareholders			$	17,083					$	(11,163)
Denominator for basic earnings per share – weighted average shares outstanding			19,907,873						20,053,159
Effect of dilutive common shares			142,863						—
Denominator for diluted earnings per share – adjusted weighted average shares outstanding			20,050,736						20,053,159
Basic earnings per share			$	0.86					$	(0.56)
Diluted earnings per share			0.85						(0.56)
Antidilutive shares excluded from computation of average dilutive earnings per share			—						25,117

 

Note 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 months ended March 31, 2021 and 2020. Items outside the scope of ASC 606 are noted as such.

 

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			Three Months Ended March 31, 2021																		Three Months Ended March 31, 2020
(dollars in thousands)			Banking						Wealth Management						Consolidated						Banking						Wealth Management						Consolidated
Fees for wealth management services			$	—					$	12,836					$	12,836					$	—					$	11,168					$	11,168
Insurance commissions			—						1,464						1,464						—						1,533						1,533
Capital markets revenue(1)			1,596						—						1,596						2,361						—						2,361
Service charges on deposit accounts			696						—						696						846						—						846
Loan servicing and other fees(1)			304						—						304						461						—						461
Net gain on sale of loans(1)			250						—						250						782						—						782
Dividends on FHLB and FRB stock(1)			222						—						222						444						—						444
Other operating income(2)			2,461						12						2,473						544						13						557
Total noninterest income			$	5,529					$	14,312					$	19,841					$	5,586					$	12,714					$	18,300

 

(1) Not within the scope of ASC 606.

 

(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling $721 thousand and $620 thousand for the three months ended March 31, 2021 and 2020, 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.

 

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

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

 

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

 

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Note 19 – Stock-Based Compensation

 

A. General Information

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

 

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

 

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

 

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

 

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

 

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

B. Other Stock Option Information

No options were forfeited, expired, or exercised the three months ended March 31, 2021. The following table provides information about options outstanding as of March 31, 2021:

			Shares						Weighted Average Exercise Price						Weighted Average Grant Date Fair Value
Options outstanding, March 31, 2021			225						18.33						12.93

As of March 31, 2021 there were no unvested options.

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

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Proceeds from exercise of stock options			$	—					$	5
Related tax benefit recognized			—						2
Net proceeds of options exercised			$	—					$	7
Intrinsic value of options exercised			$	—					$	8

 

The following table provides information about options outstanding and exercisable at March 31, 2021:

(dollars in thousands, except share data and exercise price)			Outstanding						Exercisable
Number of shares			225						225
Weighted average exercise price			$	18.33					$	18.33
Aggregate intrinsic value			$	3					$	3
Weighted average remaining contractual term in years			2.8						2.8

C. Restricted Stock Units and Performance Stock Units

 

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

RSUs

 

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

For the three months ended March 31, 2021, the Corporation recognized $448 thousand of expense related to the Corporation’s RSUs. As of March 31, 2021, there was $2.8 million of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of 1.9 years.

 

The following table details the RSUs for the three months ended March 31, 2021:

			Three Months Ended March 31, 2021
			Number of Shares						Weighted Average Grant Date Fair Value
Beginning balance			114,846						$	38.00
Granted			36,791						35.09
Vested			(800)						43.95
Forfeited			—						—
Ending balance			150,837						37.26

PSUs

For the three months ended March 31, 2021, the Corporation recognized $103 thousand of expense related to the PSUs. As of March 31, 2021, there was $3.8 million of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 2.2 years.

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The following table details the PSUs for the three months ended March 31, 2021:

			Three Months Ended March 31, 2021
			Number of Shares						Weighted Average Grant Date Fair Value
Beginning balance			149,911						$	37.60
Granted			56,144						34.99
Vested			—						—
Forfeited			—						—
Ending balance			206,055						36.89

 

Note 20 – 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.

 

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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 March 31, 2021 and December 31, 2020:

As of March 31, 2021
(dollars in thousands)			Total						Level 1						Level 2						Level 3
Investment securities available for sale:
U.S. Treasury securities			$	100					$	100					$	—					$	—
Obligations of U.S. government & agencies			110,413						—						110,413						—
Obligations of state & political subdivisions			2,168						—						2,168						—
Mortgage-backed securities			497,328						—						497,328						—
Collateralized mortgage obligations			17,073						—						17,073						—
Collateralized loan obligations			99,666						—						99,666						—
Corporate bonds			11,576						—						11,576						—
Other investment securities			650						—						650						—
Total investment securities available for sale			738,974						100						738,874						—
Investment securities trading:
Mutual funds			8,777						8,777						—						—
Derivatives:
Interest rate swaps			75,837						—						75,837						—
RPAs purchased			154						—						154						—
FX forwards			40						—						40						—
Total derivatives			76,031						—						76,031						—
Total recurring fair value measurements			$	823,782					$	8,877					$	814,905					$	—

 

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As of December 31, 2020
(dollars in thousands)			Total						Level 1						Level 2						Level 3
Investment securities available for sale:
U.S. Treasury securities			$	500,100					$	500,100					$	—					$	—
Obligations of U.S. government & agencies			93,098						—						93,098						—
Obligations of state & political subdivisions			2,171						—						2,171						—
Mortgage-backed securities			453,857						—						453,857						—
Collateralized mortgage obligations			19,263						—						19,263						—
Collateralized loan obligations			94,404						—						94,404						—
Corporate bonds			11,421						—						11,421						—
Other investment securities			650						—						650						—
Total investment securities available for sale			1,174,964						500,100						674,864						—
Investment securities trading:
Mutual funds			8,623						8,623						—						—
Derivatives:
Interest rate swaps			113,848						—						113,848						—
RPAs purchased			342						—						342						—
FX forwards			52						—						52						—
Total derivatives			114,242						—						114,242						—
Total recurring fair value measurements			$	1,297,829					$	508,723					$	789,106					$	—

 

There have been no transfers between levels during the three months ended March 31, 2021.

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.

 

Loans and Leases Individually Evaluated for Credit Losses

Collateral-dependent loans and leases for which the repayment is expected to be provided substantially through the sale of the collateral and the borrower is experiencing financial difficulty are, in general, individually evaluated for credit losses. Management evaluates and values collateral-dependent loans and leases when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, and the fair values of such loans and leases are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each loan or lease. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business. For loans and leases that are not collateral-dependent, management measures expected credit loss as the difference between the amortized cost basis of the loan and the present value of expected future cash flows discounted at the loan’s effective interest rate.

 

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Other Real Estate Owned (“OREO”)

 

OREO consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties classified as OREO are reported at the lower of cost or fair value less cost to sell, and are classified as Level 3 in the fair value hierarchy. The Corporation did not have any OREO at March 31, 2021 or December 31, 2020.

 

Mortgage Servicing Rights

 

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

The following tables present the Corporation’s assets measured at fair value on a non-recurring basis as of March 31, 2021 and December 31, 2020:

As of March 31, 2021
(dollars in thousands)			Total						Level 1						Level 2						Level 3
MSRs			$	2,493					$	—					$	—					$	2,493
Loans and leases individually evaluated for credit losses			11,323						—						—						11,323
Total non-recurring fair value measurements			$	13,816					$	—					$	—					$	13,816

As of December 31, 2020
(dollars in thousands)			Total						Level 1						Level 2						Level 3
MSRs			$	2,632					$	—					$	—					$	2,632
Loans and leases individually evaluated for credit losses			11,142						—						—						11,142
Total non-recurring fair value measurements			$	13,774					$	—					$	—					$	13,774

During the three months ended March 31, 2021, a net increase of $139 thousand was recorded in the ACL on loans and leases as a result of adjusting the carrying value and estimated fair value of loans and leases individually evaluated for credit losses in the above tables.

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Note 21 – Fair Value of Financial Instruments

 

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

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

									March 31, 2021												December 31, 2020
(dollars in thousands)			Fair Value Hierarchy Level(1)						Carrying Amount						Fair Value						Carrying Amount						Fair Value
Financial assets:
Cash and cash equivalents			Level 1						$	47,400					$	47,400					$	96,313					$	96,313
Investment securities - available for sale			See Note 20						738,974						738,974						1,174,964						1,174,964
Investment securities - trading			See Note 20						8,777						8,777						8,623						8,623
Investment securities – held to maturity			Level 2						14,126						14,371						14,759						15,186
Loans held for sale			Level 2						3,210						3,210						6,000						6,000
Net portfolio loans and leases			Level 3						3,585,673						3,483,821						3,574,702						3,489,322
MSRs			Level 3						2,493						2,493						2,626						2,632
Interest rate swaps			Level 2						75,837						75,837						113,848						113,848
FX forwards			Level 2						40						40						52						52
RPAs purchased			Level 2						154						154						342						342
Other assets			Level 3						38,855						38,855						45,847						45,847
Total financial assets									$	4,515,539					$	4,413,932					$	5,038,076					$	4,953,129
Financial liabilities:
Deposits			Level 2						$	3,902,250					$	4,379,021					$	4,376,254					$	4,379,021
Short-term borrowings			Level 2						60,027						60,027						72,161						72,161
Long-term FHLB advances			Level 2						39,941						40,346						39,906						40,441
Subordinated notes			Level 2						98,928						91,331						98,883						90,735
Junior subordinated debentures			Level 2						21,983						19,607						21,935						27,812
Interest rate swaps			Level 2						80,795						80,795						113,848						113,848
FX forwards			Level 2						21						21						70						70
RPAs sold			Level 2						16						16						30						30
Other liabilities			Level 3						47,909						47,909						45,734						45,734
Total financial liabilities									$	4,251,870					$	4,719,073					$	4,768,821					$	4,769,852

 

(1) See Note 20 in the Notes to Unaudited Consolidated Financial Statements above for a description of hierarchy levels.

 

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Note 22 – 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 March 31, 2021 and December 31, 2020 were $987.0 million and $924.5 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 March 31, 2021 and December 31, 2020 were $20.1 million and $21.1 million, respectively.

Contingencies

Legal Matters

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

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

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Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. 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. The matter was appealed, and on March 18, 2020, the Superior Court of the Commonwealth of Pennsylvania returned an opinion reversing in part and affirming in part the trial court's judgment. The effect of this was to vacate the initial judgment awarded by the trial court, and instead to require an appraisal process in accordance with Crusader's Shareholders' Agreement to determine the value of Mr. Snyder's shares. The parties anticipate the appraisal to commence within the coming months. 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 was one such repurchase of approximately $200 thousand during the three months ended March 31, 2021.

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 4 – “Loans and Leases” for additional information.

Note 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, bank owned life insurance (“BOLI”) income and revenue associated with its Visa Check Card offering. Also included in the Banking segment are two subsidiaries of the Bank, KCMI Capital, Inc. and Bryn Mawr Equipment Financing, Inc., both of which provide specialized lending solutions to our customers.

 

The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related fiduciary services, custody, investment management and advisory services, employee benefits and IRA administration, estate settlement, tax services and brokerage. Bryn Mawr Trust of Delaware is included in the Wealth Management segment of the Corporation since it has similar economic characteristics, products and services to those of the Wealth Management Division of the Bank. BMT Investment Advisers, formed in May 2017, which served as investment adviser to BMT Investment Funds, a Delaware statutory trust, prior to its wind-down in the second quarter of 2020, was also reported under the Wealth Management segment. In addition, the Wealth Management Division oversees all insurance services of the Corporation, which are conducted through the Bank’s insurance subsidiary, BMT Insurance Advisors, Inc., and are reported in the Wealth Management segment.

 

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

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The following tables detail the Corporation’s segments for the three months ended March 31, 2021 and 2020:

			Three Months Ended March 31, 2021																		Three Months Ended March 31, 2020
(dollars in thousands)			Banking						Wealth Management						Consolidated						Banking						Wealth Management						Consolidated
Net interest income			$	34,781					$	—					$	34,781					$	36,332					$	1					$	36,333
(Recovery of) provision for credit losses			(5,246)						—						(5,246)						35,350						—						35,350
Net interest income after PCL			40,027						—						40,027						982						1						983
Noninterest income:
Fees for wealth management services			—						12,836						12,836						—						11,168						11,168
Insurance commissions			—						1,464						1,464						—						1,533						1,533
Capital markets revenue			1,596						—						1,596						2,361						—						2,361
Service charges on deposit accounts			696						—						696						846						—						846
Loan servicing and other fees			304						—						304						461						—						461
Net gain on sale of loans			250						—						250						782						—						782
Net gain on sale of OREO			—						—						—						148						—						148
Other operating income			2,683						12						2,695						988						13						1,001
Total noninterest income			5,529						14,312						19,841						5,586						12,714						18,300
Noninterest expenses:
Salaries & wages			11,428						5,402						16,830						11,859						5,130						16,989
Employee benefits			2,598						1,089						3,687						2,597						903						3,500
Occupancy and bank premises			2,371						521						2,892						2,516						499						3,015
Amortization of intangible assets			231						607						838						292						626						918
Professional fees			1,252						181						1,433						1,097						271						1,368
Other operating expenses			10,748						1,275						12,023						6,221						1,392						7,613
Total noninterest expenses			28,628						9,075						37,703						24,582						8,821						33,403
Segment profit (loss)			16,928						5,237						22,165						(18,014)						3,894						(14,120)
Intersegment (revenues) expenses(1)			(160)						160						—						(178)						178						—
Pre-tax segment profit after eliminations			$	16,768					$	5,397					$	22,165					$	(18,192)					$	4,072					$	(14,120)
% of segment pre-tax profit after eliminations			75.7		%				24.3		%				100.0		%				128.8		%				(28.8)		%				100.0		%
Segment assets (dollars in millions)			$	4,867.1					$	47.4					$	4,914.5					$	4,871.8					$	51.2					$	4,923.0

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

Wealth Management Segment Information

(dollars in millions)			March 31, 2021						December 31, 2020
Assets under management, administration, supervision and brokerage			$	20,059.4					$	18,976.5

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

 

The following discussion describes the significant changes to the financial condition of the Corporation that have occurred during the first three months of 2021 compared to the financial condition as of December 31, 2020. In addition, this discussion summarizes the significant factors affecting the results of operations, liquidity and cash flows of the Corporation for the three months ended March 31, 2021, compared to the same periods in 2020. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”). Certain financial condition comparisons to the prior year and results of operations comparisons for the linked quarter are included for additional trend analysis.

 

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

 

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

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

•the possibility that the proposed merger with WSFS does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all;

•the delay in or failure to close the proposed merger for any other reason;

•changes in WSFS’s share price before closing of the proposed merger;

•the outcome of any legal proceedings that have, or may in the future, be instituted against WSFS or BMBC;

•the occurrence of any event, change or other circumstance that could give rise to the right of one or both of WSFS and BMBC to terminate the merger agreement providing for the merger;

•the risk that the businesses of WSFS and the Corporation will not be integrated successfully;

•the possibility that the cost savings and any synergies or other anticipated benefits from the proposed merger may not be fully realized or may take longer to realize than expected;

•disruption from the proposed merger making it more difficult to maintain relationships with employees, customers or other parties with whom WSFS or the Corporation have business relationships;

•diversion of management time on merger-related issues;

•risks relating to the potential dilutive effect of the shares of WSFS common stock to be issued in the proposed transaction;

•the reaction to the proposed transaction of the companies’ customers, employees and counterparties;

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•uncertainty as to the extent of the duration, scope, and impacts of the COVID-19 pandemic on WSFS, BMBC and the proposed merger;

•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;

•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;

•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;

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

•the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the SEC, the Public Company Accounting Oversight Board, the FASB or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and may result in further increases in the required level of our allowance for credit losses;

•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;

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

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

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

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

•risks related to our past or future, if any, mergers and acquisitions, such as our pending transaction with WSFS, including, but not limited to: reputational risks; client and customer retention risks; diversion of management’s time for integration-related issues; risk that the transaction may be delayed, including as a result of regulatory action or failure for either party's shareholders to approve the transaction; 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; litigation risk;

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

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

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

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

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

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

•other material adverse changes in operations or earnings; and

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

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks, and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled “Risk Factors” beginning on page 14 of the Corporation's 2020 Annual Report, as supplemented by those set forth under the caption titled “Risk Factors” beginning on page 68 of this Quarterly Report on Form 10-Q. All forward-looking statements included in this Quarterly Report and the documents incorporated by reference herein are based upon the Corporation’s beliefs and assumptions as of the date of this Quarterly Report. The Corporation assumes no obligation to update any forward-looking statement, whether the result of new information, future events, uncertainties or otherwise, as of any future date. In light of these risks, uncertainties and assumptions, you should not put undue reliance on any forward-looking statements discussed in this Quarterly Report or incorporated documents. For a complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review our filings with the SEC, including our 2020 Annual Report, as updated by our quarterly or other reports subsequently filed with the SEC.

 

Brief History of the Corporation

 

The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (“BMBC”, and together with its subsidiaries, the “Corporation”) was formed and the Bank became a wholly-owned subsidiary of BMBC. The Bank and BMBC are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation offers a full range of personal and business banking services,

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consumer and commercial loans, equipment finance, mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax planning and preparation from, as of March 31, 2021, 41 banking locations, seven wealth management offices and two insurance and risk management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden Counties in New Jersey. The common stock of BMBC trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

 

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

Critical Accounting Policies, Judgments and Estimates

 

The accounting and reporting policies of the Corporation conform to U.S. generally accepted accounting principles (“GAAP”). All significant intercompany balances and transactions are eliminated in consolidation and certain prior-period amounts have been reclassified when necessary in order to conform to current period presentation. In preparing the Consolidated Financial Statements, management 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 credit losses (“ACL”) on loans and leases, the ACL on Off-Balance Sheet (“OBS”) Credit Exposures, the valuation of goodwill and intangible assets, the fair value of investment securities, the fair value of derivative financial instruments, and the valuation of mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation. 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.

As a result, management has identified the accounting policies and estimates related to the ACL on loans and leases that, due to the inherent judgments and assumptions and the potential sensitivity of the financial statements to those judgments and assumptions, are critical to an understanding of our financial statements. We believe that the judgments, estimates and assumptions used in the preparation of the Company’s financial statements are appropriate. For a further description of our accounting policies, see Note 1, “Summary of Significant Accounting Policies,” in the Notes to the audited Consolidated Financial Statements in the 2020 Annual Report, as well as Note 1, “Basis of Presentation, Principles of Consolidation, and Significant Accounting Policies,” in the accompanying Notes to Unaudited Consolidated Financial Statements.

Impact of COVID-19

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

To address the economic impact in the U.S., in March and April 2020, President Trump signed into law four economic stimulus packages to provide relief to businesses and individuals, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among other measures, the CARES Act created funding for the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), which provided forgivable loans to small businesses to help them keep their employees on payroll and to make other eligible payments. The first round of PPP funding allocated $349 billion to small businesses. This first round was followed by two subsequent rounds of PPP funding of $310 billion, expiring in August 2020 and $284 billion expiring March 31, 2021 or until funds are exhausted.

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

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

The Corporation’s modification program for consumer credit products includes a six-month deferral of principal and interest, with interest continuing to accrue on unpaid principal. Upon completion of the deferral period, resumed payments will be applied to the interest accrued during the deferral period, followed by principal and interest payments through the extended maturity date. As of March 31, 2021, 31 consumer loans in the amount of $4.5 million were within a deferral period under the program. Management is taking proactive measures and is working prudently with borrowers who may be unable to meet their obligations due to continuing financial challenges caused by COVID-19. As a result, an additional deferral period may be extended to a borrower who is continuing to experience financial difficulties associated with the COVID-19 pandemic.

The Corporation’s modification programs for commercial loan and lease products include a three- or six-month deferral of principal and interest or a three- or six-month period of interest-only payments, with interest continuing to accrue on unpaid principal. Upon completion of the deferral period, resumed payments will be applied to the interest accrued during the deferral period, followed by principal and interest payments through the contractual maturity date. As of March 31, 2021 42 commercial loans and leases in the amount of $61.5 million were within a deferral period under the program. Management is taking proactive measures and is working prudently with borrowers who may be unable to meet their obligations due to continuing financial challenges caused by COVID-19. As a result, the Bank may enter into an additional modification in an effort to mitigate losses for the Bank and the borrower.

Based on the provisions of the CARES Act, COVID-19 related modifications to consumer and commercial loans that were not more than 30 days past due as of December 31, 2019 are exempt from TDR classification under GAAP. In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to consumer or commercial loans that were less than 30 days past due as of the loan modification program implementation date are not considered TDRs. For more information, see Section F - Troubled Debt Restructurings of Note 5 – Loans and Leases, in the Notes to the Unaudited Consolidated Financial Statements.

As discussed in more detail below, we recorded a recovery of PCL on loans and leases during the first quarter of 2021,driven by the current and forward-looking easing of the economic impacts of the COVID-19 pandemic. Due to the high degree of uncertainty surrounding the COVID-19 pandemic, the full extent of COVID-19’s effects on our business, operations or the economy as a whole are not yet known and may adversely affect our business, results of operations and financial condition in future fiscal periods. For more information on how the risks related to COVID-19, see the section titled Risk Factors in Part I, Item 1A of our 2020 Annual Report.

Executive Overview 

The following items highlight the Corporation’s results of operations for the three months ended March 31, 2021, as compared to the same period in 2020, and the changes in its financial condition as of March 31, 2021 as compared to December 31, 2020. More detailed information related to these highlights can be found in the sections that follow.

Three Month Results of Operations

•Net income attributable to the Corporation was $17.1 million, or $0.85 diluted earnings per share, for the three months ended March 31, 2021 as compared to a net loss of $(11.2) million, or $(0.56) diluted earnings per share for the same period in 2020.

•Return on average equity (“ROAE”) and return on average assets (“ROAA”) for the three months ended March 31, 2021 were 11.09% and 1.39%, respectively, as compared to ROAE and ROAA of (7.30)% and (0.93)%, respectively, for the same period in 2020.

•Tax-equivalent net interest income decreased $1.5 million, or 4.3%, to $34.9 million for the three months ended March 31, 2021, as compared to $36.4 million for the same period in 2020.

•The provision for credit losses (“PCL”), which includes the provision for credit losses on loans and leases, off-balance sheet credit exposures, and accrued interest receivable on COVID-19 deferrals, for the three months ended March 31, 2021 was a recovery of $5.2 million, a decrease of $40.6 million from the $35.4 million PCL recorded for the same period in 2020.

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•Noninterest income of $19.8 million for the three months ended March 31, 2021 increased $1.5 million as compared to $18.3 million for the same period in 2020. Fees for wealth management services of $12.8 million for the three months ended March 31, 2021 increased $1.7 million as compared to the same period in 2020. Capital markets revenue and insurance commissions of $1.6 million and of $1.5 million, respectively, for the three months ended March 31, 2021 decreased $765 thousand and $69 thousand, respectively, as compared to the same period in 2020.

•Noninterest expense of $37.7 million for the three months ended March 31, 2021 increased $4.3 million, from $33.4 million for the same period in 2020. Included in noninterest expense for the three months ended March 31, 2021 are $1.6 million of due diligence and merger-related expenses related to the pending merger with WSFS. These expenses primarily consisted of legal fees, investment banker fees and board of director fees.

Changes in Financial Condition

•Total assets of $4.91 billion as of March 31, 2021 decreased $517.5 million from $5.43 billion as of December 31, 2020.

•Total shareholders’ equity of $623.1 million as of March 31, 2021 increased $774 thousand from $622.3 million as of December 31, 2020.

•Total portfolio loans and leases as of March 31, 2021 were $3.63 billion, an increase of $4.8 million from $3.63 billion as of December 31, 2020.

•Total non-performing loans and leases of $5.2 million represented 0.14% of portfolio loans and leases as of March 31, 2021 as compared to $5.3 million, or 0.15% of portfolio loans and leases as of December 31, 2020.

•The $47.6 million ACL on loans and leases, as of March 31, 2021, represented 1.31% of portfolio loans and leases, as compared to $53.7 million or 1.48% of portfolio loans and leases as of December 31, 2020.

•Total deposits of $3.90 billion as of March 31, 2021 decreased $474.0 million from $4.38 billion as of December 31, 2020.

•Wealth assets under management, administration, supervision and brokerage as of March 31, 2021 were $20.06 billion, an increase of $1.08 billion from $18.98 billion as of December 31, 2020.

Key Performance Ratios

 

Key financial performance ratios for the three months ended March 31, 2021 and 2020 are shown in the table below:

			Three Months Ended March 31,
			2021						2020
Return on average equity			11.09		%				(7.30)		%
Return on average assets			1.39						(0.93)
Tax-equivalent net interest margin			3.16						3.38
Equity to assets ratio			12.58						12.69
Basic earnings per share			$	0.86					$	(0.56)
Diluted earnings per share			0.85						(0.56)
Dividends paid or accrued per share			0.27						0.26
Dividends paid or accrued per share to net income per basic common share			31.4		%				(46.4)		%

 

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The following table presents certain key period-end balances and ratios as of March 31, 2021 and December 31, 2020:

(dollars in millions, except per share amounts)			March 31, 2021						December 31, 2020
Book value per share			$	31.34					$	31.18
ACL on loans and leases as a percentage of portfolio loans and leases			1.31		%				1.48		%
Tier I capital to risk weighted assets			12.08						11.86
Loan to deposit ratio			93.1						82.9
Wealth assets under management, administration, supervision and brokerage			$	20,059.4					$	18,976.5
Portfolio loans and leases			3,633.2						3,628.4
Total assets			4,914.5						5,432.0
Total shareholders’ equity			623.1						622.3

 

The following sections discuss, in greater detail, the Corporation’s results of operations for the three months ended March 31, 2021, as compared to the same period in 2020, and the changes in its financial condition as of March 31, 2021 as compared to December 31, 2020.

Other Matters

Crusader Servicing Corporation (“Crusader”), which was an 80% owned subsidiary of Royal Bank America that was acquired by the Bank in the RBPI Merger, along with the Bank as successor-in-interest to Royal Bank America, are defendants in the case captioned Snyder v. Crusader Servicing Corporation et al., Case No. 2007-01027, in the Court of Common Pleas of Montgomery County, Pennsylvania. The case involves claims brought by a former Crusader shareholder in 2007 against Crusader, its former directors and remaining shareholders related, among other things, to a purported failure to pay amounts allegedly due to Snyder for his shares of Crusader stock. On May 1, 2019, the Court rendered a decision in favor of Snyder and ordered Crusader to pay Snyder the amount of $2,190,000 plus interest at the rate of 6% from December 1, 2006. The matter was appealed, and on March 18, 2020, the Superior Court of the Commonwealth of Pennsylvania returned an opinion reversing in part and affirming in part the trial court's judgment. The effect of this was to vacate the initial judgment awarded by the trial court, and instead to require an appraisal process in accordance with Crusader's Shareholders' Agreement to determine the value of Mr. Snyder's shares. The parties anticipate the appraisal to commence within the coming months. We do not believe that this ruling and any monetary award 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 Credit Losses, or changes in the ACL on loans and leases, off-balance sheet credit exposures, and other financial assets measured at amortized cost;

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

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

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

TAX-EQUIVALENT NET INTEREST INCOME

 

Net interest income is the primary source of the Corporation’s revenue. The tables within "Management’s Discussion and Analysis of Results of Operation and Financial Condition – Analyses of Interest Rates and Interest Differential” beginning at page 54 below present a summary, for the three months ended March 31, 2021 and 2020, 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

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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 March 31, 2021 Compared to the Same Period in 2020

For the three months ended March 31, 2021, tax-equivalent net interest income decreased $1.5 million, or 4.3%, to $34.9 million, as compared to $36.4 million for the same period in 2020.

The change in tax-equivalent net interest income adjusted for purchase accounting included decreases of $7.8 million, $6.3 million, $443 thousand, and $132 thousand in tax-equivalent interest and fees earned on loans and leases, interest paid on deposits, interest expense on short-term borrowings, and tax-equivalent interest income on available for sale investment securities, respectively, for the three months ended March 31, 2021 as compared to the same period in 2020.

Tax-equivalent interest and fees earned on loans and leases for the three months ended March 31, 2021 decreased $8.2 million as compared to the same period in 2020. The tax-equivalent yield on average loans and leases for the three months ended March 31, 2021 was 3.90%, a 72 basis point decrease as compared to the same period in 2020. Average loans and leases decreased $131.2 million for the three months ended March 31, 2021 as compared to same period in 2020.

Tax-equivalent interest income on available for sale investment securities for the three months ended March 31, 2021 decreased $132 thousand as compared to the same period in 2020. The tax-equivalent yield on average available for sale investment securities for the three months ended March 31, 2021 was 1.63%, a 76 basis point decrease as compared to the same period in 2020. Average available for sale investment securities increased $216.5 million for the three months ended March 31, 2021 as compared to the same period in 2020.

Interest expense on deposits for the three months ended March 31, 2021 decreased $6.2 million as compared to the same period in 2020. The rate paid on average interest-bearing deposits for the three months ended March 31, 2021 was 0.22%, an 86 basis point decrease as compared to the same period in 2020. Average interest-bearing deposits for the three months ended March 31, 2021 decreased $240.7 million as compared to the same period in 2020.

Interest expense on short-term borrowings for the three months ended March 31, 2021 decreased $443 thousand as compared to the same period in 2020. The decrease was primarily due to a $108.6 million decrease in average short-term borrowings for the three months ended March 31, 2021 as compared to the same period in 2020 coupled with a 117 basis point decrease in the rate paid for the three months ended March 31, 2021 as compared to the same period in 2020.

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Analyses of Interest Rates and Interest Differential

 

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

 

			Three Months Ended March 31,
			2021																					2020
(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			$	110,972					$	22					0.08		%							$	50,330					$	111					0.89		%
Investment securities - available for sale:
Taxable			735,508						2,947						1.62									516,244						3,065						2.39
Tax-exempt(4)			2,170						14						2.62									4,909						28						2.29
Total investment securities – available for sale			737,678						2,961						1.63									521,153						3,093						2.39
Investment securities – held to maturity			14,329						73						2.07									13,195						87						2.65
Investment securities – trading			8,618						19						0.89									8,528						25						1.18
Loans and leases(1)(2)(3)(4)			3,607,214						34,674						3.90									3,738,386						42,898						4.62
Total interest-earning assets			4,478,811						37,749						3.42									4,331,592						46,214						4.29
Cash and due from banks			10,824																					12,479
ACL on loans and leases			(53,582)																					(25,786)
Other assets			532,489																					526,633
Total assets			$	4,968,542																				$	4,844,918
Liabilities:
Savings, NOW, and market rate accounts			$	2,178,730					$	374					0.07									$	2,197,279					$	4,981					0.91
Wholesale deposits			117,710						257						0.89									253,322						977						1.55
Retail time deposits			316,564						793						1.02									403,111						1,679						1.68
Total interest-bearing deposits			2,613,004						1,424						0.22									2,853,712						7,637						1.08
Short-term borrowings			32,020						10						0.13									140,585						453						1.30
Long-term FHLB advances			39,921						203						2.06									47,335						244						2.07
Subordinated notes			98,904						1,034						4.24									98,725						1,145						4.66
Junior subordinated debt			21,955						198						3.66									21,768						295						5.45
Total interest-bearing liabilities			2,805,804						2,869						0.41									3,162,125						9,774						1.24
Noninterest-bearing deposits			1,345,253																					894,264
Other liabilities			192,495																					173,519
Total noninterest-bearing liabilities			1,537,748																					1,067,783
Total liabilities			4,343,552																					4,229,908
Shareholders’ equity			624,990																					615,010
Total liabilities and shareholders’ equity			$	4,968,542																				$	4,844,918
Net interest spread															3.01																					3.05
Effect of noninterest-bearing sources															0.15																					0.33
Net interest income/margin on earning assets(4)									$	34,880					3.16															$	36,440					3.38
Tax-equivalent adjustment(4)									$	99					0.01		%													$	107					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 net accretion of deferred fees of $560 thousand and $362 thousand for the three months ended March 31, 2021 and 2020, respectively.

(4)Tax rate used for tax-equivalent calculations is 21% for 2021 and 2020.

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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 months ended March 31, 2021 as compared to the same period in 2020, 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.

			2021 Compared to 2020
(dollars in thousands)			Three Months Ended March 31,
increase/(decrease)			Volume						Rate						Total
Interest Income:
Interest-bearing deposits with banks			$	641					$	(730)					$	(89)
Investment securities - taxable			5,429						(5,567)						(138)
Investment securities -nontaxable			(25)						11						(14)
Loans and leases			(1,556)						(6,668)						(8,224)
Total interest income			4,489						(12,954)						(8,465)
Interest expense:
Savings, NOW and market rate accounts			(42)						(4,565)						(4,607)
Wholesale deposits			(526)						(194)						(720)
Retail time deposits			(364)						(522)						(886)
Short-term borrowings			(350)						(93)						(443)
Long-term FHLB advances			(40)						(1)						(41)
Subordinated notes			14						(125)						(111)
Junior subordinated debt			17						(114)						(97)
Total interest expense			(1,291)						(5,614)						(6,905)
Interest differential			$	5,780					$	(7,340)					$	(1,560)

(1) The tax rate used in the calculation of the tax-equivalent income is 21% for 2021 and 2020.

 

Tax-Equivalent Net Interest Margin

 

The tax-equivalent net interest margin of 3.16% for the three months ended March 31, 2021 was a 22 basis point decrease from 3.38% for the same period in 2020. The decrease in the tax-equivalent net interest margin was primarily due to the reduced interest rates during the three months ended March 31, 2021 as compared to the same period in 2020.

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
1st Quarter 2021						3.42%						0.41%						3.01%						0.15%						3.16%
4th Quarter 2020						3.33						0.45						2.88						0.16						3.04
3rd Quarter 2020						3.42						0.58						2.84						0.19						3.03
2nd Quarter 2020						3.76						0.77						2.99						0.23						3.22
1st Quarter 2020						4.29						1.24						3.05						0.33						3.38

Interest Rate Sensitivity

Management actively manages the Corporation’s interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income changes associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies approved by

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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, and Insured Cash Sweep (“ICS”).

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

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

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

Summary of Interest Rate Simulation

			Change in Net Interest Income Over the Twelve Months Beginning After March 31, 2021												Change in Net Interest Income Over the Twelve Months Beginning After December 31, 2020
			Amount						Percentage						Amount						Percentage
+300 basis points			$	24,388					16.96		%				$	24,525					17.35		%
+200 basis points			15,720						10.93						15,172						10.73
+100 basis points			7,411						5.15						6,298						4.46
-100 basis points			(2,033)						1.41						(2,262)						(1.60)

 

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of March 31, 2021 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 slightly more asset sensitive in the +100 basis point scenario as of March 31, 2021 than it was as of December 31, 2020. This is primarily due to the addition of interest-bearing assets at a higher yield combined with a decline in yields on interest-bearing liabilities.

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

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Gap Analysis

 

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

 

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

The following table presents the Corporation’s gap analysis as of March 31, 2021:

(dollars in millions)			0 to 90 Days						91 to 365 Days						1 - 5 Years						Over 5 Years						Non-Rate Sensitive						Total
Assets:
Interest-bearing deposits with banks			$	37.1					$	—					$	—					$	—					$	—					$	37.1
Investment securities(1)			117.6						118.8						359.8						165.6						—						761.8
Loans and leases(2)			1,853.3						332.3						1,121.9						329.0						—						3,636.5
ACL on loans and leases			—						—						—						—						(47.6)						(47.6)
Cash and due from banks			—						—						—						—						10.3						10.3
Operating lease right-of-use assets			0.4						1.3						9.2						22.9						—						33.8
Other assets			—						—						—						—						482.6						482.6
Total assets			2,008.4						452.4						1,490.9						517.5						445.3						4,914.5
Liabilities and shareholders’ equity:
Demand, noninterest-bearing			38.7						116.2						402.0						807.8						—						1,364.7
Savings, NOW and market rate			107.9						323.8						937.4						790.0						—						2,159.1
Time deposits			55.9						204.3						40.5						1.0						—						301.7
Wholesale non-maturity deposits			70.6						—						—						—						—						70.6
Wholesale time deposits			—						0.5						5.6						—						—						6.1
Short-term borrowings			60.0						—						—						—						—						60.0
Long-term FHLB advances			—						39.9						—						—						—						39.9
Subordinated notes			30.0						—						68.9						—						—						98.9
Junior subordinated debentures			22.0						—						—						—						—						22.0
Operating lease liabilities			0.5						1.5						10.7						26.8						—						39.5
Other liabilities			—						—						—						—						128.9						128.9
Shareholders’ equity			22.3						66.8						356.1						177.9						—						623.1
Total liabilities and shareholders’ equity			407.9						753.0						1,821.2						1,803.5						128.9						4,914.5
Interest-earning assets			2,008.0						451.1						1,481.7						494.6						—						4,435.4
Interest-bearing liabilities			346.4						568.5						1,052.4						791.0						—						2,758.3
Difference between interest-earning assets and interest-bearing liabilities			1,661.6						(117.4)						429.3						(296.4)						—						1,677.1
Cumulative difference between interest earning assets and interest-bearing liabilities			$	1,661.6					$	1,544.2					$	1,973.5					$	1,677.1					$	—					$	1,677.1
Cumulative earning assets as a % of cumulative interest-bearing liabilities			580		%				269		%				200		%				161		%

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

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

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The table above indicates that the Corporation is asset-sensitive in the immediate 90-day time frame and may experience an increase in net interest income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is only one tool used to measure interest rate sensitivity and should be used in conjunction with other measures such as the interest rate simulation discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the Corporation’s balance sheet. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at December 31, 2020.

PROVISION FOR CREDIT LOSSES ON LOANS AND LEASES

For the three months ended March 31, 2021, the Corporation recorded a recovery of PCL on loans and leases of $5.2 million as compared to a PCL of $35.4 million for the same period in 2020. As of March 31, 2021 the ACL on loans and leases of $47.6 million was 1.31% of portfolio loans and leases, as compared to an ACL of $53.7 million, or 1.48% of portfolio loans and leases, as of December 31, 2020. The difference in ACL on loans and leases between the two periods was driven by the current and forward-looking economic impacts of the COVID-19 pandemic, as well as projected prepayments, included in the estimation of expected credit losses on loans and leases as of March 31, 2021 as compared to December 31, 2020. Net charge-offs for the three months ended March 31, 2021 were $642 thousand as compared to $4.1 million for the same period in 2020.

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

Allocation of ACL
			March 31, 2021												December 31, 2020
(dollars in thousands)			ACL						% Loans and Leases to Total Loans and Leases						ACL						% Loans and Leases to Total Loans and Leases
CRE - nonowner-occupied			$	15,777					38.8		%				$	19,382					39.6		%
CRE - owner-occupied			5,845						15.9						6,982						15.9
Home equity lines of credit			1,280						4.3						1,406						4.7
Residential mortgage - 1st liens			5,638						16.6						7,782						17.1
Residential mortgage - junior liens			439						0.8						382						0.7
Construction			3,124						5.2						2,707						4.4
Commercial & Industrial			8,611						13.4						8,087						12.3
Consumer			381						1.1						325						1.1
Leases			6,467						4.0						6,656						4.2
Total ACL on loans and leases			$	47,562					100.0		%				$	53,709					100.0		%

Asset Quality and Analysis of Credit Risk

 

As of March 31, 2021, total nonperforming loans and leases decreased by $109 thousand to $5.2 million, representing 0.14% of portfolio loans and leases, as compared to $5.3 million, or 0.15% of portfolio loans and leases, as of December 31, 2020. The decrease in nonperforming loans and leases was related to pay-offs and pay-downs of $798 thousand, charge-offs of $349 thousand and return to accrual status of $174 thousand. These decreases in nonperforming loans and leases was partially offset by the addition of $1.2 million of new nonperforming loans and leases during the three months ended March 31, 2021. All nonperforming loans are evaluated for impairment and charged-off to net realizable value, when necessary.

As of March 31, 2021, the ACL on loans and leases of $47.6 million represented 1.31% of portfolio loans and leases, a decrease of 17 basis points from December 31, 2020. The decrease in coverage was driven by improving current and forecasted economic conditions, which determine the level of ACL required to absorb expected credit losses.

As of March 31, 2021, the Corporation had $8.4 million of TDRs, of which $7.0 million were in compliance with modified terms and excluded from non-performing loans and leases. As of December 31, 2020, the Corporation had $8.8 million of TDRs, of which $7.0 million were in compliance with modified terms, and were excluded from non-performing loans and leases. As of March 31, 2021, 73 loans and leases in the amount of $66.0 million, comprising 1.8% of the Bank's portfolio loans and leases, are within a deferral period under the Bank's consumer and commercial loan and lease modification programs, as compared to 102 loans and leases in the amount of $75.0 million, comprising 2.1% of the Bank's portfolio loans and leases, as of December 31, 2020. For more information on our loan modification programs offered in response to the COVID-19

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pandemic, which are not classified as TDRs, see Section F - Troubled Debt Restructurings of Note 5 – Loans and Leases, in the Notes to the Unaudited Consolidated Financial Statements.

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

Nonperforming Assets and Related Ratios

Nonperforming assets and related ratios as of March 31, 2021 and December 31, 2020 were as follows:

(dollars in thousands)			March 31, 2021						December 31, 2020
Nonperforming Assets:
Nonperforming loans and leases			$	5,197					$	5,306
Other real estate owned			—						—
Total nonperforming assets			$	5,197					$	5,306
Troubled Debt Restructurings:
TDRs included in non-performing loans			$	1,480					$	1,737
TDRs in compliance with modified terms			6,967						7,046
Total TDRs			$	8,447					$	8,783
Loan and Lease quality indicators:
Allowance for credit losses on loans and leases to nonperforming loans and leases			915.2		%				1,012.2		%
Nonperforming loans and leases to total portfolio loans and leases			0.14						0.15
Allowance for credit losses on loans and leases to total portfolio loans and leases			1.31						1.48
Nonperforming assets to total loans and leases and OREO			0.14						0.15
Nonperforming assets to total assets			0.11						0.10
Total portfolio loans and leases			$	3,633,235					$	3,628,411
Allowance for credit losses on loans and leases			47,562						53,709

NONINTEREST INCOME

 

Three Months Ended March 31, 2021 Compared to the Same Period in 2020

 

Noninterest income of $19.8 million for the three months ended March 31, 2021 increased $1.5 million as compared to $18.3 million for the same period in 2020. The increase was driven by increases of $1.9 million and $1.7 million in other operating income and fees for wealth management services, respectively, partially offset by decreases of $765 thousand and $532 thousand in capital markets revenue and net gain on sale of loans, respectively. The $1.9 million increase in other operating income was primarily due to a $978 thousand loss on trading securities recorded in the first quarter of 2020 due to market fluctuations affecting the Corporation's executive and director supplemental retirement plan assets, as compared to a $137 thousand gain on trading securities recorded in the first quarter of 2021.

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The following table provides details of other operating income for the three months ended March 31, 2021 and 2020:

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Visa debit card income			$	643					$	531
BOLI income			328						320
Commissions and fees			355						304
Safe deposit box rentals			73						80
Other investment income			230						19
Rental income			5						9
Gain (loss) on trading investments			137						(978)
Miscellaneous other income			702						272
Other operating income			$	2,473					$	557

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

			As of or for the Three Months Ended March 31,
(dollars in thousands)			2021						2020
Mortgage originations			$	34,880					$	29,363
Mortgage loans sold:
Servicing retained			—						—
Servicing released			15,672						14,899
Total mortgage loans sold			$	15,672					$	14,899
Percentage of originated mortgage loans sold			44.9		%				50.7		%
Servicing retained %			—						—
Servicing released %			100.0						100.0
Residential mortgage loans serviced for others			$	335,106					$	482,911
Mortgage servicing rights			2,493						4,115
Gain on sale of mortgage loans			250						598
Loan servicing and other fees			304						461
Amortization of MSRs			133						104
(Impairment) recovery of MSRs			—						(231)

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

 

Wealth Asset accounts are categorized into two groups. The first account group consists predominantly of clients whose fees are determined based on the market value of the assets held in their accounts (“Market Value” basis). The second account group consists predominantly of clients whose fees are set at fixed amounts (“Fixed Fee” basis), and, as such, are not affected by market value changes.

 

The following tables detail the composition of Wealth Assets as it relates to the calculation of fees for wealth management services:

(dollars in thousands)			Wealth Assets as of:
Fee Basis			March 31, 2021						December 31, 2020						September 30, 2020						June 30, 2020						March 31, 2020
Market value			$	7,258,019					$	7,121,474					$	6,557,898					$	6,661,996					$	6,001,999
Fixed fee			12,801,352						11,855,070						10,686,409						10,350,908						9,591,733
Total			$	20,059,371					$	18,976,544					$	17,244,307					$	17,012,904					$	15,593,732

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			Percentage of Wealth Assets as of:
Fee Basis			March 31, 2021						December 31, 2020						September 30, 2020						June 30, 2020						March 31, 2020
Market value			36.2		%				37.5		%				38.0		%				39.2		%				38.5		%
Fixed fee			63.8		%				62.5		%				62.0		%				60.8		%				61.5		%
Total			100.0		%				100.0		%				100.0		%				100.0		%				100.0		%

 

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

(dollars in thousands)			For the Three Months Ended:
Fee Basis			March 31, 2021						December 31, 2020						September 30, 2020						June 30, 2020						March 31, 2020
Market value			$	9,232					$	8,572					$	8,344					$	5,525					$	8,131
Fixed fee			3,604						4,016						3,363						3,544						3,037
Total			$	12,836					$	12,588					$	11,707					$	9,069					$	11,168

			Percentage of Fees for Wealth Management for the Three Months Ended:
Fee Basis			March 31, 2021						December 31, 2020						September 30, 2020						June 30, 2020						March 31, 2020
Market value			71.9		%				68.1		%				71.3		%				60.9		%				72.8		%
Fixed fee			28.1		%				31.9		%				28.7		%				39.1		%				27.2		%
Total			100.0		%				100.0		%				100.0		%				100.0		%				100.0		%

Customer Derivatives

 

To accommodate the risk management needs of qualified commercial customers, the Bank enters into financial derivative transactions consisting of interest rate swaps, options, risk participation agreements and foreign exchange contracts. Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Market risk exposure from customer derivative positions is managed by simultaneously entering into matching transactions with institutional dealer counterparties that offset customer contracts in notional amount and term. Derivative contracts create counterparty credit risk with both the Bank’s customers and with institutional dealer counterparties. The Corporation manages customer counterparty credit risk through its credit policy, approval processes, monitoring procedures and by obtaining adequate collateral, when appropriate. The Bank seeks to minimize dealer counterparty credit risk by establishing credit limits and collateral agreements through industry standard agreements published by the International Swaps and Derivatives Association (ISDA) and associated credit support annex (CSA) agreements. None of the Bank’s outstanding derivative contracts associated with the customer derivative program is designated as a hedge and none is entered into for speculative purposes. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of March 31, 2021, there were no fair value adjustments related to credit quality.

NONINTEREST EXPENSE

Three Months Ended March 31, 2021 Compared to the Same Period in 2020

 

Noninterest expense of $37.7 million for the three months ended March 31, 2021 increased $4.3 million as compared to $33.4 million for the same period in 2020. Increases of $2.5 million, $1.6 million, and $633 thousand in other operating expenses, merger related expenses, and Pennsylvania bank shares tax expense, respectively, were partially offset by decreases of $225 thousand, $189 thousand, $159 thousand, and $123 thousand in advertising expense, furniture, fixtures and equipment expense, salaries and wages, and occupancy and bank premises expense, respectively. The $2.5 million increase in other operating expenses was driven by a $1.9 million increase in deferred compensation expense as market fluctuations resulted in a $1.1 million reduction in expense in the first quarter of 2020 as compared to $801 thousand of expense in the first quarter of 2021.

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The following table provides details of other operating expenses for the three months ended March 31, 2021 and 2020:

			Three Months Ended March 31,
(dollars in thousands)			2021						2020
Amortization expense of capitalized costs for cloud computing arrangements			$	413					$	90
Contributions			122						447
Deferred compensation expense			807						(1,095)
Director fees			151						153
Dues and subscriptions			418						361
FDIC insurance			429						150
Insurance			305						239
Loan processing			196						143
Miscellaneous other expenses			1,837						1,230
MSR amortization and impairment			133						335
Other taxes			5						22
Outsourced services			46						62
Wealth custodian fees			117						113
Postage			124						156
Stationary and supplies			70						145
Telephone and data lines			409						428
Temporary help and recruiting			198						67
Travel and entertainment			26						225
Other operating expenses			$	5,806					$	3,271

INCOME TAXES

Income tax expense for the three months ended March 31, 2021 was $5.1 million as compared to an income tax benefit of $3.0 million for the same period in 2020. The difference was primarily due to the $14.1 million pre-tax loss for the three months ended March 31, 2020. The effective tax rate for the first quarter of 2021 increased to 22.93% as compared to 20.94% for the first quarter of 2020. The increase in effective tax rate was primarily due to a $323 thousand discrete tax item related to non-deductible merger-related expenses recognized in the first quarter of 2021.

BALANCE SHEET ANALYSIS

 

Total assets of $4.91 billion as of March 31, 2021 decreased $517.5 million from $5.43 billion as of December 31, 2020. The following sections detail the balance sheet changes:

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Loans and Leases

 

The table below compares the portfolio loans and leases outstanding at March 31, 2021 to December 31, 2020:

			March 31, 2021												December 31, 2020												Change
(dollars in thousands)			Balance						Percent of Portfolio						Balance						Percent of Portfolio						Amount						Percent
CRE - nonowner-occupied			$	1,408,240					38.8		%				$	1,435,575					39.6		%				$	(27,335)					(1.9)		%
CRE - owner-occupied			578,747						15.9						578,509						15.9						238						—
Home equity lines of credit			157,418						4.3						169,337						4.7						(11,919)						(7.0)
Residential mortgage - 1st liens			602,584						16.6						621,369						17.1						(18,785)						(3.0)
Residential mortgage - jr. liens			27,400						0.8						23,795						0.7						3,605						15.2
Construction			187,472						5.2						161,308						4.4						26,164						16.2
Commercial & Industrial			486,824						13.4						446,438						12.3						40,386						9.0
Consumer			39,226						1.1						39,683						1.1						(457)						(1.2)
Leases			145,324						4.0						152,397						4.2						(7,073)						(4.6)
Total portfolio loans and leases			3,633,235						100.0		%				3,628,411						100.0		%				4,824						0.1
Loans held for sale			3,210												6,000												(2,790)						(46.5)
Total loans and leases			$	3,636,445											$	3,634,411											$	2,034					0.1		%

Investment Securities

Investment securities available for sale as of March 31, 2021 totaled $739.0 million, a decrease of $436.0 million as compared to $1.17 billion as of December 31, 2020. The decrease was primarily related to the maturing of $500.0 million of short-term U.S. Treasury securities in the first quarter of 2021, partially offset by increases of $43.5 million and $17.3 million of mortgage-backed securities and U.S. Government and agency securities, respectively.

Deposits

Deposits of $3.90 billion as of March 31, 2021 decreased $474.0 million from December 31, 2020. The decrease was primarily driven by decreases of $213.9 million, $204.4 million, and $37.1 million in interest-bearing demand accounts, wholesale non-maturity deposits, and noninterest bearing deposits, respectively, partially offset by an increase of $37.5 million in money market accounts. The decrease in wholesale non-maturity deposits was primarily due to a decrease of approximately $200.0 million of wholesale deposits in the first quarter of 2021, which was used to partially fund the purchase of $500.0 million of short-term U.S. Treasury securities included on the balance sheet as of December 31, 2020. The decrease in interest-bearing demand deposits was primarily driven by management's active management of excess liquidity in this current interest rate environment.

 

Deposits as of March 31, 2021 and December 31, 2020 were as follows:

			March 31, 2021												December 31, 2020												Change
(dollars in thousands)			Balance						Percent of Deposits						Balance						Percent of Deposits						Amount						Percent
Interest-bearing demand			$	671,854					17.2		%				$	885,802					20.2		%				$	(213,948)					(24.2)		%
Money market			1,201,115						30.8						1,163,620						26.6						37,495						3.2
Savings			286,124						7.3						282,406						6.5						3,718						1.3
Retail time deposits			301,702						7.7						331,527						7.6						(29,825)						(9.0)
Wholesale non-maturity deposits			70,605						1.8						275,011						6.3						(204,406)						(74.3)
Wholesale time deposits			6,134						0.2						36,045						0.8						(29,911)						(83.0)
Interest-bearing deposits			2,537,534						65.0						2,974,411						68.0						(436,877)						(14.7)
Noninterest-bearing deposits			1,364,716						35.0						1,401,843						32.0						(37,127)						(2.6)
Total deposits			$	3,902,250					100.0		%				$	4,376,254					100.0		%				$	(474,004)					(10.8)		%

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Borrowings

 

Borrowings as of March 31, 2021 and December 31, 2020 were as follows:

			March 31, 2021												December 31, 2020												Change
(dollars in thousands)			Balance						Percent of Borrowings						Balance						Percent of Borrowings						Amount						Percent
Short-term borrowings			$	60,027					27.1		%				$	72,161					31.0		%				$	(12,134)					(16.8)		%
Long-term FHLB advances			39,941						18.1						39,906						17.1						35						0.1
Subordinated notes			98,928						44.8						98,883						42.5						45						—
Junior subordinated debentures			21,983						10.0						21,935						9.4						48						0.2
Total borrowed funds			$	220,879					100.0		%				$	232,885					100.0		%				$	(12,006)					(5.2)		%

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Capital

 

Consolidated shareholders' equity of the Corporation was $623.1 million, or 12.7% of total assets, as of March 31, 2021, as compared to $622.3 million, or 11.5% of total assets, as of December 31, 2020. The following table presents BMBC’s and Bank’s regulatory capital ratios and the minimum capital requirements for the Bank to be considered “Well Capitalized” by regulators as of March 31, 2021 and December 31, 2020:

			Actual												Minimum to be Well Capitalized
(dollars in thousands)			Amount						Ratio						Amount						Ratio
March 31, 2021
Total capital to risk weighted assets:
BMBC			$	588,099					15.65		%				$	375,834					10.00		%
Bank			492,129						13.11						375,513						10.00
Tier I capital to risk weighted assets:
BMBC			454,052						12.08						300,667						8.00
Bank			451,010						12.01						300,411						8.00
Common equity Tier I risk weighted assets:
BMBC			432,839						11.52						244,292						6.50
Bank			451,010						12.01						244,084						6.50
Tier I leverage ratio (Tier I capital to total quarterly average assets):
BMBC			454,052						9.53						238,233						5.00
Bank			451,010						9.47						238,097						5.00
December 31, 2020
Total capital to risk weighted assets:
BMBC			583,057						15.55						375,045						10.00
Bank			477,792						12.75						374,758						10.00
Tier I capital to risk weighted assets:
BMBC			444,640						11.86						300,036						8.00
Bank			432,258						11.53						299,807						8.00
Common equity Tier I risk weighted assets:
BMBC			423,475						11.29						243,779						6.50
Bank			432,258						11.53						243,593						6.50
Tier I leverage ratio (Tier I capital to total quarterly average assets):
BMBC			444,640						9.04						246,002						5.00
Bank			432,258						8.79						245,837						5.00

 

In September 2020, the U.S. banking agencies issued a final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. This final rule is consistent with the interim final rule issued by the U.S. banking agencies in March 2020. The March 31, 2021 and December 31, 2020 ratios reflect the Corporation's election of the five-year transition provision.

Liquidity

 

BMBC’s liquidity position is managed on a daily basis as part of the daily settlement function and continuously as part of the formal asset liability management process. The Bank’s liquidity is maintained by managing its core deposits as the primary source, purchasing federal funds, selling loans in the secondary market, borrowing from the FHLB and the FRB, maintaining a highly liquid investment portfolio, and issuing wholesale certificates of deposit as its secondary sources.

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Unused availability is detailed on the following table:

(dollars in millions)			Available Funds as of March 31, 2021						Percent of Total Borrowing Capacity						Available Funds as of December 31, 2020						Percent of Total Borrowing Capacity						Dollar Change						Percent Change
FHLB of Pittsburgh			$	1,700.1					95.4		%				$	1,696.9					95.9		%				$	3.2					0.2		%
FRB of Philadelphia			121.4						100.0						127.7						100.0						(6.3)						(4.9)
Fed Funds Lines (six banks)			74.0						100.0						74.0						100.0						—						—
Total			$	1,895.5					95.9						$	1,898.6					96.3						$	(3.1)					(0.2)

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

The Corporation has an agreement with Insured Network Deposits to provide up to $175 million, excluding accrued interest, of money market and NOW funds at an agreed upon interest rate equal to the current Fed Funds rate plus 20 basis points. The Corporation had $70.6 million in balances as of March 31, 2021 under this program.

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

Discussion of Segments

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

The Wealth Management segment recorded a pre-tax segment profit (“PTSP”) of $5.4 million for the three months ended March 31, 2021, as compared to a PTSP of $4.1 million for the same period in 2020. Fees for wealth management services increased $1.7 million for the three months ended March 31, 2021 as compared to the same period in 2020. Insurance commissions decreased $69 thousand for the three months ended March 31, 2021 as compared to the same periods in 2020.

The Banking segment recorded a PTSP of $16.8 million for the three months ended March 31, 2021, as compared to a pre-tax segment loss of $18.2 million for the same period in 2020. Net interest income for the three months ended March 31, 2021 was $34.8 million, a decrease of $1.6 million as compared to the same period in 2020. A recovery of PCL of $5.2 million was recorded for the three months ended March 31, 2021 as compared to a PCL of $35.4 million for the three months ended March 31, 2020, a difference of $40.6 million. The difference in PCL between the two periods was driven by the current and forward-looking economic impacts of the COVID-19 pandemic included in the estimation of expected credit losses on loans and leases as of March 31, 2021 as compared to March 31, 2020. Total noninterest income for the Banking segment decreased $57 thousand and total noninterest expense for the Banking segment increased $4.0 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

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 March 31, 2021 were $987.0 million, as compared to $924.5 million at December 31, 2020.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Bank’s obligation under standby letters of credit at March 31, 2021 amounted to $20.1 million, as compared to $21.1 million at December 31, 2020.

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Estimated fair values of the Corporation’s off-balance sheet arrangements are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet arrangements.

Contractual Cash Obligations of the Corporation as of March 31, 2021:

(dollars in thousands)			Total						Less Than 1 Year						1 - 3 Years						3 - 5 Years						More Than 5 Years
Deposits without a stated maturity			$	3,594,414					$	3,594,414					$	—					$	—					$	—
Wholesale and retail time deposit			307,836						260,705						34,287						11,860						984
Short-term borrowings			60,027						60,027						—						—						—
Long-term FHLB Advances			39,941						39,941						—						—						—
Subordinated Notes			100,000						—						—						30,000						70,000
Junior subordinated debentures			25,800						—						—						—						25,800
Operating lease liabilities			50,980						3,085						7,695						7,652						32,548
Purchase obligations			18,369						4,904						6,231						3,521						3,713
Total			$	4,197,367					$	3,963,076					$	48,213					$	53,033					$	133,045

Other Information

Effects of Inflation

 

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

 

Effects of Government Monetary Policies

 

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

 

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

See the discussion of quantitative and qualitative disclosures about market risks in the Corporation’s 2020 Annual Report, as updated by the disclosure in “Management’s Discussion and Analysis of Results of Operations – Impact of COVID-19,” “–Interest Rate Sensitivity,” “– Summary of Interest Rate Simulation,” “Customer Derivatives” and “– Gap Analysis” in this Quarterly Report on Form 10-Q.

ITEM 4. Controls and Procedures

 

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer, Francis J. Leto, and Chief Financial Officer, Michael W. Harrington, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of March 31, 2021.

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There were no changes during the period covered by this Quarterly Report on Form 10-Q in the Corporation’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls.

PART II OTHER INFORMATION.

 

ITEM 1. Legal Proceedings.

 

The information required by this Item is set forth in the “Legal Matters” discussion in Note 22 “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.

On April 21, 2021, a purported BMBC shareholder filed a lawsuit against BMBC, the members of the BMBC board of directors, and WSFS in the United States District Court for the District of Delaware, captioned Stein v. Bryn Mawr Corp., et al. (Case No. 1:99-mc-09999-UNA) (the “Stein Action”). The plaintiff generally alleges that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by disclosing materially incomplete and misleading information concerning the merger and related matters to BMBC shareholders. The plaintiff seeks injunctive relief, rescissory and compensatory damages and an award of attorneys’ fees and expenses.

On April 27, 2021, another purported BMBC shareholder filed a lawsuit against BMBC, the members of the BMBC board of directors, and WSFS in the United States District Court for the District of Delaware, captioned Artis v. Bryn Mawr Corp., et al. (Case No. 1:21-cv-00588-UNA) (the “Artis Action”). The plaintiff generally alleges that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by disclosing materially incomplete and misleading information concerning the merger and related matters to BMBC shareholders. The plaintiff seeks injunctive relief, declaratory relief, rescissory damages and an award of attorneys’ and experts’ fees and expenses.

Management believes that the lawsuits described above are without merit and that neither lawsuit, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Corporation.

 

ITEM 1A. Risk Factors

In addition to the other information set forth below and elsewhere in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2020 Annual Report and the risk factors and other cautionary statements contained in our other SEC filings, including our joint proxy statement/prospectus that was filed on May 6, 2021 pursuant to Rule 424(b)(3), which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The outcomes of lawsuits filed by shareholders of BMBC against BMBC, its board of directors and WSFS in April 2021 are uncertain and could result in significant costs, management distraction, and/or a delay of or injunction against the Merger.

The outcomes of the Stein Action and the Artis Action, as well as other similar litigation that has been brought against WSFS and its directors by purported WSFS shareholders, are uncertain and could result in significant costs to BMBC and/or WSFS, including costs associated with the indemnification of BMBC’s directors and officers. Other plaintiffs may also file lawsuits against BMBC, WSFS and/or their directors and officers in connection with the merger. The defense or settlement of any lawsuits or claims relating to the merger may have an adverse effect on the business, financial condition and results of operations of WSFS, BMBC and/or the combined company.

If the actions remain unresolved, they could prevent or delay the completion of the mergers. One of the conditions to the consummation of the mergers is the absence of any law or order (whether temporary, preliminary or permanent) by any court or regulatory authority of competent jurisdiction prohibiting, restricting or making illegal the consummation of the transactions contemplated by the merger agreement (including the mergers). Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a regulatory authority issues an order or other directive prohibiting, restricting or making illegal the consummation of the transactions contemplated by the merger agreement (including the mergers), then such injunctive or other relief may prevent the mergers from becoming effective in a timely manner or at all.

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

 

Share Repurchase

 

The following table presents the shares repurchased by the Corporation during the first quarter of 2021:

Period			Total Number of Shares Purchased(1)(2)						Average Price Paid Per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)						Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
January 1, 2021 – January 31, 2021			18,676						$	31.45					18,676						691,356
February 1, 2021 – February 28, 2021			62,496						$	31.88					62,112						629,244
March 1, 2021 – March 31, 2021			929						$	33.35					—						629,244
Total			82,101						$	31.80					80,788

(1)929 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.

(2)Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of BMBC or the Bank as follows: 384 shares on February 7, 2021.

(3)On April 18, 2019, BMBC announced a stock repurchase program (the “2019 Program”) pursuant to which the Corporation may repurchase up to 1,000,000 shares of BMBC's common stock. Under the 2019 Program, the Corporation may repurchase BMBC's common stock at any price, but the aggregate purchase price is not to exceed $45 million. All share repurchases during the period presented under the 2019 Program were accomplished in open market transactions. As of March 31, 2021, the maximum number of shares remaining authorized for repurchase under the 2019 Program was 629,244, at an aggregate purchase price not to exceed $32.2 million.

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ITEM 3. Defaults Upon Senior Securities

None.

 

ITEM 4. Mine Safety Disclosures.

Not applicable.

 

ITEM 5. Other Information

None.

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ITEM 6. Exhibits

 

Exhibit No.						Description and References
2.1						Agreement and Plan of Merger, dated March 9, 2021, by and between WSFS Financial Corporation and Bryn Mawr Bank Corporation, incorporated by reference to Exhibit 2.1 to the Corporation’s Form 8-K filed on March 10, 2021**
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						Form of Voting Agreement, dated March 9, 2021, by and between WSFS Financial Corporation, Bryn Mawr Bank Corporation and certain shareholders of Bryn Mawr Bank Corporation, , incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed on March 10, 2021
10.2						Form of 2021 Restricted Stock Unit Agreement for Executives (Service/Performance Based), incorporated by reference to Exhibit 10.50 to the Corporation’s Form 10-K filed on March 1, 2021
10.3						Standard Form of 2021 Restricted Stock Unit Agreement for Non-Employee Directors (Time-Based Vesting), incorporated by reference to Exhibit 10.10 to the Corporation’s Form 10-K filed on March 1, 2021
10.4						Bryn Mawr Bank Corporation Retainer Stock Plan for Outside Directors, incorporated by reference to Annex E to the Corporation’s Form S-4 filed on June 20, 2014
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 Inline XBRL						Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL Document
101.SCH Inline XBRL						Taxonomy Extension Schema Document, filed herewith
101.CAL Inline XBRL						Taxonomy Extension Calculation Linkbase Document, filed herewith
101.DEF Inline XBRL						Taxonomy Extension Definition Linkbase Document, filed herewith
101.LAB Inline XBRL						Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE Inline XBRL						Taxonomy Extension Presentation Linkbase Document, filed herewith
104						The cover page of Bryn Mawr Bank Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (contained in Exhibit 101)
*Furnished herewith. Notwithstanding any incorporation of this Quarterly Statement on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with one (*) shall not be deemed incorporated by reference to any other filing unless specifically otherwise set forth herein or therein.
**Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished.

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Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

BRYN MAWR BANK CORPORATION

Date: May 7, 2021

By:

/s/ Francis J. Leto

Francis J. Leto

Chief Executive Officer

(Principal Executive Officer)

Date: May 7, 2021

By:

/s/ Michael W. Harrington

Michael W. Harrington

Chief Financial Officer

(Principal Financial Officer)

 

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