Edgar Filing: BRYN MAWR BANK CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15 (d)

of the Securities and Exchange Act of 1934.

For Quarter ended September 30, 2013

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)

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

Not Applicable

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

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

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 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 x

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


Class		Outstanding at November 4, 2013
Common Stock, par value $1		16,586,437

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED September 30, 2013

Index


PART I -	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)

	Consolidated Financial Statements	Page 3

	Notes to Consolidated Financial Statements	Page 8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 37

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 54

ITEM 4.	Controls and Procedures	Page 54

PART II -	OTHER INFORMATION	Page 55

ITEM 1.	Legal Proceedings	Page 55

ITEM 1A.	Risk Factors	Page 55

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 55

ITEM 3.	Defaults Upon Senior Securities	Page 55

ITEM 4.	Mine Safety Disclosures	Page 55

ITEM 5.	Other Information	Page 55

ITEM 6.	Exhibits	Page 56

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited


	(unaudited)
	September 30, 2013			December 31, 2012
(dollars in thousands)	September 30, 2013			December 31, 2012
Assets
Cash and due from banks	$	24,958		$	16,203
Interest-bearing deposits with banks		71,203			159,483

Cash and cash equivalents		96,161			175,686
Investment securities available for sale, at fair value (amortized cost of $320,030 and $311,747 as of September 30, 2013 and December 31, 2012 respectively)		319,917			316,614
Investment securities, trading		2,357			1,447
Loans held for sale		1,284			3,412
Portfolio loans and leases		1,500,015			1,398,456
Less: Allowance for loan and lease losses		(15,027	)		(14,425	)

Net portfolio loans and leases		1,484,988			1,384,031

Premises and equipment, net		31,436			31,170
Accrued interest receivable		5,703			5,955
Deferred income taxes		11,955			12,303
Mortgage servicing rights		4,744			4,491
Bank owned life insurance		20,132			19,862
FHLB stock		12,590			10,761
Goodwill		32,843			32,897
Intangible assets		20,020			21,998
Other investments		4,337			4,346
Other assets		10,506			10,912

Total assets	$	2,058,973		$	2,035,885

Liabilities
Deposits:
Non-interest-bearing	$	394,947		$	399,673
Interest-bearing		1,155,709			1,235,009

Total deposits		1,550,656			1,634,682


Short-term borrowings		75,588			9,403
Long-term FHLB advances and other borrowings		191,645			161,315
Accrued interest payable		842			1,233
Other liabilities		22,481			25,688

Total liabilities		1,841,212			1,832,321

Shareholders’ equity
Common stock, par value $1; authorized 100,000,000 shares; issued 16,527,323 and 16,390,608 shares as of September 30, 2013 and December 31, 2012, respectively, and outstanding of 13,551,438 and 13,412,690 as of September 30, 2013 and December 31, 2012, respectively		16,527			16,390
Paid-in capital in excess of par value		93,129			89,137
Less: Common stock in treasury at cost - 2,975,885 and 2,977,918 shares as of September 30, 2013 and December 31, 2012, respectively		(31,042	)		(30,745	)
Accumulated other comprehensive loss, net of tax benefit		(10,809	)		(10,078	)
Retained earnings		149,956			138,860

Total shareholders’ equity		217,761			203,564

Total liabilities and shareholders’ equity	$	2,058,973		$	2,035,885

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
(dollars in thousands, except share and per share data)
Interest income:
Interest and fees on loans and leases	$	18,697		$	17,027		$	54,728		$	51,233
Interest on cash and cash equivalents		21			34			131			86
Interest on investment securities:
Taxable		967			937			2,653			3,088
Non-taxable		107			56			289			139
Dividends		28			27			91			95

Total interest income		19,820			18,081			57,892			54,641

Interest expense on:
Deposits		639			937			2,109			3,128
Short-term borrowings		5			5			12			16
Long-term FHLB advances and other borrowings		643			918			1,906			2,806
Subordinated debentures		—			270			—			852

Total interest expense		1,287			2,130			4,027			6,802

Net interest income		18,533			15,951			53,865			47,839
Provision for loan and lease losses		959			1,000			2,763			3,003

Net interest income after provision for loan and lease losses		17,574			14,951			51,102			44,836
Non-interest income:
Fees for wealth management services		8,635			7,993			26,078			21,433
Service charges on deposits		627			634			1,807			1,823
Loan servicing and other fees		481			432			1,380			1,303
Net gain on sale of residential mortgage loans		578			1,837			3,588			4,311
Net gain on sale of investment securities available for sale		—			416			2			1,132
Net loss on sale of other real estate owned (“OREO”)		(1	)		(45	)		(194	)		(86	)
Bank owned life insurance (“BOLI”) income		72			108			270			331
Other operating income		995			873			3,189			2,969

Total non-interest income		11,387			12,248			36,120			33,216
Non-interest expenses:
Salaries and wages		9,012			8,703			26,908			24,283
Employee benefits		1,896			1,903			6,433			6,086
Net gain on curtailment of nonqualified pension plan		—			—			(690	)		—
Occupancy and bank premises		1,646			1,488			5,124			4,258
Furniture, fixtures, and equipment		920			935			2,960			2,766
Advertising		302			267			1,095			946
Amortization of mortgage servicing rights		187			243			617			718
Net impairment of mortgage servicing rights		33			105			13			82
Amortization of intangible assets		658			669			1,978			1,738
FDIC insurance		271			262			804			715
Due diligence and merger-related expenses		328			316			1,730			1,439
Professional fees		636			609			1,875			1,837
Early extinguishment of debt - costs and premiums		—			—			347			—
Other operating expenses		3,434			3,389			10,888			8,944

Total non-interest expenses		19,323			18,889			60,082			53,812
Income before income taxes		9,638			8,310			27,140			24,240
Income tax expense		3,237			2,885			9,167			8,397

Net income	$	6,401		$	5,425		$	17,973		$	15,843


Basic earnings per common share	$	0.48		$	0.41		$	1.35		$	1.21
Diluted earnings per common share	$	0.47		$	0.41		$	1.33		$	1.20
Dividends declared per share	$	0.17		$	0.16		$	0.51		$	0.48

Weighted-average basic shares outstanding		13,336,799			13,149,050			13,274,801			13,067,551
Weighted average dilutive shares		275,343			146,377			244,302			133,799

Adjusted weighted-average diluted shares		13,612,142			13,295,427			13,519,103			13,201,350

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income - Unaudited


(dollars in thousands)	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013			2012

Net income	$	6,401	$	5,425		$	17,973		$	15,843

Other comprehensive income (loss):
Net change in unrealized (losses) gains on investment securities available for sale:
Net unrealized gains (losses) arising during the period, net of tax expense (benefit) of $26, $657, ($1,742) and $1,416, respectively		50		1,221			(3,236	)		2,630
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $0, $146, $1 and $396, respectively		—		(270	)		(1	)		(736	)

Unrealized investment gains (losses), net of tax expense (benefit) of $26, $166, ($1,743) and $1,020, respectively		50		951			(3,237	)		1,894
Net change in fair value of derivative used for cash flow hedge:
Change in fair value of hedging instruments, net of tax expense of $0, $0, $324 and $0, respectively		—		—			601			—
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 $133, $146, $399 and $438, respectively		246		272			741			816
Change in unfunded pension liability related to curtailment, net of tax expense of $0, $0, $627 and $0, respectively		—		—			1,164			—

Total change in unfunded pension liability, net of tax expense of $133, $146, $1,026 and $438, respectively		246		272			1,905			816

Total other comprehensive income (loss)		296		1,223			(731	)		2,710

Total comprehensive income	$	6,697	$	6,648		$	17,242		$	18,553

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited


(dollars in thousands)	Nine Months Ended September 30,
	2013			2012
Operating activities:
Net Income	$	17,973		$	15,843
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		2,763			3,003
Provision for depreciation and amortization		5,361			4,894
Net gain on sale of investment securities available for sale		(2	)		(1,132	)
Net gain on sale of residential mortgages		(3,588	)		(4,311	)
Stock based compensation cost		615			1,019
Amortization and net impairment of mortgage servicing rights		630			800
Net accretion of fair value adjustments		(2,560	)		(979	)
Amortization of intangible assets		1,978			1,738
Net loss on sale of OREO		194			86
Net increase in cash surrender value of bank owned life insurance		(270	)		(331	)
Other, net		798			(940	)
Loans originated for resale		(113,800	)		(132,642	)
Proceeds from loans sold		118,633			134,105
Provision (benefit) for deferred income taxes		795			(433	)
Change in income taxes payable/receivable		1,143			3,976
Change in accrued interest receivable		252			98
Change in accrued interest payable		(391	)		(610	)

Net cash provided by operating activities		30,524			24,184


Investing activities:
Purchases of investment securities available for sale		(91,977	)		(180,744	)
Proceeds from paydowns and maturities of investment securities available for sale		48,369			33,379
Proceeds from sale of investment securities available for sale		532			31,714
Net (purchase of) proceeds from redemptions of FHLB stock		(1,829	)		871
Proceeds from calls of investment securities available for sale		31,287			67,692
Net change in other investments		9			(331	)
Net portfolio loan and lease originations		(102,172	)		(19,809	)
Purchases of premises and equipment		(2,458	)		(1,890	)
Acquisitions, net of cash acquired		—			(7,845	)
Capitalize OREO costs		(485	)		(61	)
Proceeds from sale of OREO		581			565

Net cash used by investing activities		(118,143	)		(76,459	)


Financing activities:
Change in deposits		(83,726	)		16,440
Change in short-term borrowings		66,185			6,166
Dividends paid		(6,880	)		(6,384	)
Change in long-term FHLB advances and other borrowings		30,450			7,956
Repayment of subordinated debt		—			(7,500	)
Payment of contingent consideration for business combinations		(1,050	)		—
Tax benefit from exercise and vesting of stock awards		528			107
Net proceeds from sale of treasury stock from deferred compensation plans		329			—
Purchase of treasury stock		(453	)		—
Proceeds from issuance of common stock		161			2,072
Proceeds from exercise of stock options		2,550			1,363

Net cash provided by financing activities		8,094			20,220


Change in cash and cash equivalents		(79,525	)		(32,055	)
Cash and cash equivalents at beginning of period		175,686			69,140

Cash and cash equivalents at end of period	$	96,161		$	37,085


Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	6,703		$	4,758
Interest		4,418			7,412

Supplemental cash flow information:
Available for sale securities purchased, not settled	$	—			5,577
Change in other comprehensive income		(731	)		4,168
Change in deferred tax due to change in comprehensive income		(393	)		1,458
Transfer of loans to other real estate owned		637			453
Acquisition of noncash assets and liabilities:
Assets acquired		—			12,078
Liabilities assumed		—			6,161

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes In Shareholders’ Equity - Unaudited


(dollars in thousands, except share information)
	For the Nine Months Ended September 30, 2013
	Shares of Common Stock Issued			Common Stock			Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total Shareholders’ Equity

Balance December 31, 2012		16,390,608		$	16,390		$	89,137		$	(30,745	)	$	(10,078	)	$	138,860		$	203,564

Net income		—			—			—			—			—			17,973			17,973
Dividends declared, $0.51 per share		—			—			—			—			—			(6,877	)		(6,877	)
Other comprehensive loss, net of tax benefit of $393		—			—			—			—			(731	)		—			(731	)
Stock based compensation		—			—			615			—			—			—			615
Tax benefit from exercise and vesting of stock awards		—			—			528			—			—			—			528
Retirement of treasury stock		(4,517	)		(4	)		(41	)		45			—			—			—
Net sale of treasury stock from deferred compensation plans		—			—			218			111			—			—			329
Purchase of treasury stock					—			—			(453	)		—			—			(453	)
Common stock issued:
Dividend Reinvestment and Stock Purchase Plan		6,924			7			154			—			—			—			161
Share-based awards and options exercises		134,308			134			2,518			—			—			—			2,652

Balance September 30, 2013		16,527,323		$	16,527		$	93,129		$	(31,042	)	$	(10,809	)	$	149,956		$	217,761

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) Management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Corporation’s 2012 Annual Report on Form 10-K.

The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.

Note 2 - Business Combinations

First Bank of Delaware

The acquisition of certain loan and deposit accounts and a branch location from First Bank of Delaware (“FBD”) by the Corporation (the “FBD Transaction”) was completed on November 17, 2012.

First Bank of Delaware, established in June 1999, was a $250 million state-chartered commercial bank operating from one full-service branch location in Wilmington, Delaware. Subsequent to the transaction with the Corporation, FBD’s remaining assets were transferred to a liquidating trust and its charter was cancelled. The FBD Transaction enabled the Corporation to further expand its footprint in the State of Delaware by complementing its existing wealth management operations of Bryn Mawr Trust of Delaware and Lau Associates, both located in Greenville, Delaware.

The FBD Transaction was accounted for as a business combination, with assets acquired, liabilities assumed and consideration paid recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill, which will not be amortizable for book purposes, however will be deductible for tax purposes. The Corporation allocated the total balance of goodwill to its Banking segment. The Corporation also recorded a core deposit intangible which will be amortized over a ten-year period using a declining-balance method.

In connection with the FBD Transaction, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:


(dollars in thousands)
Consideration paid:
Cash	$	10,559

Value of consideration		10,559
Assets acquired:
Cash and due from banks		525
Loans		76,556
Premises and equipment		460
Core deposit intangible		320
Other assets		256

Total assets		78,117
Liabilities assumed:
Nonmaturity deposits		27,080
Time deposits		43,257
Unfavorable lease		140
Other liabilities		390

Total liabilities		70,867
Net assets acquired		7,250

Goodwill resulting from the FBD Transaction	$	3,309

As of March 31, 2013, the Corporation had finalized its fair value estimates related to the FBD Transaction. No adjustments were made to the original estimates.

Davidson Trust Company

The acquisition of the Davidson Trust Company (“DTC”) by the Corporation was completed on May 15, 2012. In addition to cash paid at closing, three separate contingent payments, each of which is not to exceed $1.05 million, were payable on each of November 14, 2012, May 14, 2013 and November 14, 2013. These contingent payments are subject to certain post-closing contingencies relating to the assets under management. The first two of the three contingent payments were made on November 14, 2012 and May 14, 2013, each in the amount of $1.05 million. The third, and final, contingent payment will be made on November 14, 2013 in the amount of $1.05 million.

The addition of DTC has allowed the Corporation to expand its range of services and bring deeper market penetration in its core market area. The structure of the Corporation’s existing Wealth Management segment allowed for the immediate integration of DTC and takes advantage of the various synergies that exist between the two companies. The acquisition of DTC initially increased the Corporation’s Wealth Management Division assets under management by $1.0 billion.

The acquisition of DTC was accounted for as a business combination, with assets acquired, liabilities assumed and consideration paid being recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill. The Corporation allocated the total balance of goodwill to its Wealth Management segment. The Corporation also recorded an intangible asset for customer relationships, which is being amortized over a ten-year period using a straight-line method, an intangible asset for restrictive covenant agreements, which is being amortized over a five-year period using a straight-line method and an intangible asset for trade name which will not be amortized.

In connection with the DTC acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:


(dollars in thousands)
Consideration paid:
Cash	$	9,450
Contingent payment liability		1,050

Value of consideration		10,500
Assets acquired:
Cash operating accounts		1,433
Other assets		201
Intangible asset - customer relationships		3,720
Intangible asset - noncompetition agreements		1,385
Intangible asset - brand		970
Premises and equipment		117
Deferred tax asset		839

Total assets		8,665
Liabilities assumed:
Deferred tax liability		2,125
Miscellaneous liabilities		885

Total liabilities		3,010
Net assets acquired		5,655

Goodwill resulting from acquisition of DTC	$	4,845

For the three months ended June 30, 2013, the Corporation increased its estimated value for the deferred tax asset acquired in the DTC acquisition by $54 thousand. This resulted in a corresponding decrease of $54 thousand in goodwill recorded in the transaction.

As of June 30, 2013, the Corporation had finalized its fair value estimates related to the acquisition of DTC.

Note 3 - 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 computed using the treasury stock method that could occur if stock options were exercised and converted into common stock, as well as the effect of restricted and performance shares becoming unrestricted common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive. All weighted-average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and stock splits.


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands except per share data)	2013		2012		2013		2012
Numerator:
Net income available to common shareholders	$	6,401	$	5,425	$	17,973	$	15,843
Denominator for basic earnings per share - weighted average shares outstanding		13,336,799		13,149,050		13,274,801		13,067,551
Effect of dilutive common shares		275,343		146,377		244,302		133,799

Denominator for diluted earnings per share - adjusted weighted average shares outstanding		13,612,142		13,295,427		13,519,103		13,201,350

Basic earnings per share	$	0.48	$	0.41	$	1.35	$	1.21
Diluted earnings per share	$	0.47	$	0.41	$	1.33	$	1.20
Antidilutive shares excluded from computation of average dilutive earnings per share		—		227,139		123,882		349,649

Note 4 - Investment Securities

The amortized cost and estimated fair value of investment securities available for sale are as follows:

As of September 30, 2013


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury securities	$	102	$	—	$	(1	)	$	101
Obligations of U.S. government agencies		92,128		247		(1431	)		90,944
Obligations of state & political subdivisions		40,273		115		(323	)		40,065
Mortgage-backed securities		123,161		1,909		(787	)		124,283
Collateralized mortgage obligations		47,412		268		(357	)		47,323
Other investments		16,954		248		(1	)		17,201

Total	$	320,030	$	2,787	$	(2,900	)	$	319,917

As of December 31, 2012


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Obligations of U.S. government agencies	$	73,183	$	796	$	(107	)	$	73,872
Obligations of state & political subdivisions		30,244		199		(59	)		30,384
Mortgage-backed securities		128,537		3,302		(13	)		131,826
Collateralized mortgage obligations		62,116		622		(35	)		62,703
Other investments		17,667		162		—			17,829

Total	$	311,747	$	5,081	$	(214	)	$	316,614

The following tables detail the amount of investment securities available for sale that were in an unrealized loss position as of the dates indicated:

As of September 30, 2013:


(dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities	$	101	$	(1	)	$	—	$	—		$	101	$	(1	)
Obligations of U.S. Government agencies		53,631		(1,431	)		—		—			53,631		(1,431	)
Obligations of state & political subdivisions		19,108		(310	)		515		(13	)		19,623		(323	)
Mortgage-backed securities		43,210		(787	)		—		—			43,210		(787	)
Collateralized mortgage obligations		20,853		(353	)		1,091		(4	)		21,944		(357	)
Other investments		1,899		(1	)		—		—			1,899		(1	)

Total	$	138,802	$	(2,883	)	$	1,606	$	(17	)	$	140,408	$	(2,900	)

As of December 31, 2012:


(dollars in thousands)	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of U.S. Government agencies	$	20,032	$	(107	)	$	—	$	—	$	20,032	$	(107	)
Obligations of state & political subdivisions		10,752		(59	)		—		—		10,752		(59	)
Mortgage-backed securities		12,602		(13	)		—		—		12,602		(13	)
Collateralized mortgage obligations		10,040		(35	)		—		—		10,040		(35	)

Total	$	53,426	$	(214	)	$	—	$	—	$	53,426	$	(214	)

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

As of September 30, 2013 and December 31, 2012, securities having market values of $97.4 million and $108.7 million, respectively, were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”) borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Bank’s borrowing agreement with the FHLB.

The amortized cost and fair value of investment securities available for sale as of September 30, 2013 and December 31, 2012, by contractual maturity, are shown below:


	September 30, 2013				December 31, 2012
*(dollars in thousands)*	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	9,046	$	9,049	$	10,571	$	10,590
Due after one year through five years		53,240		53,248		38,056		38,171
Due after five years through ten years		59,537		58,144		40,635		40,714
Due after ten years		14,291		14,281		18,415		19,044
Mortgage-related securities*		170,573		171,606		190,653		194,529

Total maturing investments		306,687		306,328		298,330		303,048
Bond mutual funds and other non-maturity investments		13,343		13,589		13,417		13,566

Total	$	320,030	$	319,917	$	311,747	$	316,614

*	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 September 30, 2013 and December 31, 2012, the Corporation’s investment securities held in trading accounts were comprised of a deferred compensation trust which is invested in marketable securities whose diversification is at the discretion of the deferred compensation plan participants.

Note 5 - Loans and Leases

A. Loans and leases outstanding are detailed by category as follows:


	September 30, 2013		December 31, 2012
Loans held for sale	$	1,284	$	3,412

Real estate loans:
Commercial mortgage	$	622,771	$	546,358
Home equity lines and loans		187,634		194,861
Residential mortgage		291,645		288,212
Construction		39,055		26,908

Total real estate loans		1,141,105		1,056,339
Commercial and industrial		303,259		291,620
Consumer		17,572		17,666
Leases		38,079		32,831

Total portfolio loans and leases		1,500,015		1,398,456

Total loans and leases	$	1,501,299	$	1,401,868

Loans with predetermined rates	$	814,781	$	723,417
Loans with adjustable or floating rates		686,518		678,451

Total loans and leases	$	1,501,299	$	1,401,868

Net deferred loan origination costs included in the above loan table	$	449	$	402

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


(dollars in thousands)	September 30, 2013			December 31, 2012
Minimum lease payments receivable	$	43,312		$	37,349
Unearned lease income		(7,068	)		(6,099	)
Initial direct costs and deferred fees		1,835			1,581

Total	$	38,079		$	32,831

C. Non-Performing Loans and Leases⁽¹⁾


(dollars in thousands)	September 30, 2013		December 31, 2012
Non-accrual loans and leases:
Commercial mortgage	$	511	$	631
Home equity lines and loans		1,544		2,792
Residential mortgage		3,838		3,748
Construction		1,661		3,314
Commercial and industrial		2,994		3,506
Consumer		49		7
Leases		16		42

Total	$	10,613	$	14,040

Loans and leases 90 days or more past due, still accruing:
Construction		—		728

Total nonperforming loans and leases	$	10,613	$	14,768

⁽¹⁾

Purchased credit-impaired loans, which have been recorded at their fair values at acquisition, and which are performing, are excluded from this table, with the exception of $90 thousand of purchased credit-impaired loans as of both September 30, 2013 and December 31, 2012, which became non-performing subsequent to acquisition.

D. Purchased Credit-Impaired Loans

The outstanding principal balance and related carrying amount of credit-impaired loans, for which the Bank applies ASC 310-30 to account for the interest earned, as of the dates indicated, are as follows:


(dollars in thousands)	September 30, 2013		December 31, 2012
Outstanding principal balance	$	15,975	$	19,527
Carrying amount⁽¹⁾	$	10,622	$	12,128

(1)

Includes $149 thousand and $319 thousand of purchased credit-impaired loans as of September 30, 2013 and December 31, 2012, respectively, for which the Bank could not estimate the timing or amount of expected cash flows to be collected at acquisition, and for which no accretable yield is recognized. Additionally, the table above includes $90 thousand of purchased credit-impaired loans as of both September 30, 2013 and December 31, 2012, which subsequently became non-performing, which are disclosed in Note 5C, above, and which also have no accretable yield.

The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Bank applies ASC 310-30, for the nine months ended September 30, 2013:


(dollars in thousands)	Accretable Discount
Balance, December 31, 2012	$	8,025
Accretion		(1,404	)
Reclassifications from nonaccretable difference		998
Additions/adjustments		(257	)
Disposals		(886	)

Balance, September 30, 2013	$	6,476

E. Age Analysis of Past Due Loans and Leases

The following tables present an aging of the Corporation’s loan and lease portfolio as of the dates indicated:


	Accruing Loans and Leases
(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
As of September 30, 2013
Commercial mortgage	$	—	$	147	$	—	$	147	$	622,113	$	622,260	$	511	$	622,771
Home equity lines and loans		—		—		—		—		186,090		186,090		1,544		187,634
Residential mortgage		849		105		—		954		286,853		287,807		3,838		291,645
Construction		—		—		—		—		37,394		37,394		1,661		39,055
Commercial and industrial		34		—		—		34		300,231		300,265		2,994		303,259
Consumer		4		—		—		4		17,519		17,523		49		17,572
Leases		27		62		—		89		37,974		38,063		16		38,079


	$	914	$	314	$	—	$	1,228	$	1,488,174	$	1,489,402	$	10,613	$	1,500,015


	Accruing Loans and Leases
(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Accruing Loans and Leases		Nonaccrual Loans and Leases		Total Loans and Leases
As of December 31, 2012
Commercial mortgage	$	704	$	130	$	—	$	834	$	544,893	$	545,727	$	631	$	546,358
Home equity lines and loans		107		84		—		191		191,878		192,069		2,792		194,861
Residential mortgage		399		141		—		540		283,924		284,464		3,748		288,212
Construction		—		—		728		728		22,866		23,594		3,314		26,908
Commercial and industrial		376		50		—		426		287,688		288,114		3,506		291,620
Consumer		8		7		—		15		17,644		17,659		7		17,666
Leases		33		13		—		46		32,743		32,789		42		32,831

	$	1,627	$	425	$	728	$	2,780	$	1,381,636	$	1,384,416	$	14,040	$	1,398,456

F. Allowance for Loan and Lease Losses (the “Allowance”)

The following tables detail the roll-forward of the Corporation’s allowance for loan and lease losses, by loan category, for the three and nine months ended September 30, 2013:


(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction		Commercial and Industrial			Consumer			Leases			Unallocated			Total
Balance, June 30, 2013	$	4,481		$	2,109		$	1,773		$	653	$	4,295		$	218		$	551		$	364		$	14,444
Charge-offs		(19	)		(105	)		(203	)		—		(19	)		(31	)		(124	)		—			(501	)
Recoveries		—			29			5			6		20			3			62			—			125
Provision for loan and lease losses		20			153			523			9		134			68			82			(30	)		959

Balance, September 30, 2013	$	4,482		$	2,186		$	2,098		$	668	$	4,430		$	258		$	571		$	334		$	15,027


(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total
Balance, December 31, 2012	$	3,907		$	1,857		$	2,024		$	1,019		$	4,637		$	189		$	493		$	299	$	14,425
Charge-offs		(19	)		(457	)		(203	)		(720	)		(737	)		(101	)		(258	)		—		(2,495	)
Recoveries		—			29			13			24			64			7			197			—		334
Provision for loan and lease losses		594			757			264			345			466			163			139			35		2,763

Balance, September 30, 2013	$	4,482		$	2,186		$	2,098		$	668		$	4,430		$	258		$	571		$	334	$	15,027

The following tables detail the roll-forward of the Corporation’s allowance for loan and lease losses, by loan category, for the three and nine months ended September 30, 2012:


(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial		Consumer			Leases			Unallocated			Total
Balance, June 30, 2012	$	3,384	$	1,749		$	1,636		$	1,112		$	3,789	$	180		$	535		$	755		$	13,140
Charge-offs		—		(315	)		(18	)		(197	)		—		(19	)		(69	)		—			(618	)
Recoveries		4		—			—			—			25		1			86			—			116
Provision for loan and lease losses		235		244			3			109			766		38			(85	)		(310	)		1,000

Balance, September 30, 2012	$	3,623	$	1,678		$	1,621		$	1,024		$	4,580	$	200		$	467		$	445		$	13,638


(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total
Balance, December 31, 2011	$	3,165		$	1,707		$	1,592		$	1,384		$	3,816		$	119		$	532		$	438	$	12,753
Charge-offs		(235	)		(328	)		(188	)		(896	)		(409	)		(61	)		(300	)		—		(2,417	)
Recoveries		4			—			—			—			91			5			199			—		299
Provision for loan and lease losses		689			299			217			536			1,082			137			36			7		3,003

Balance, September 30, 2012	$	3,623		$	1,678		$	1,621		$	1,024		$	4,580		$	200		$	467		$	445	$	13,638

The following table details the allocation of the Allowance by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of September 30, 2013 and December 31, 2012:


(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Unallocated		Total
As of September 30, 2013
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	119	$	628	$	—	$	544	$	56	$	—	$	—	$	1,347
Collectively evaluated for impairment		4,474		2,067		1,470		668		3,886		202		571		334		13,672
Purchased credit-impaired⁽¹⁾		8		—		—		—		—		—		—		—		8

Total	$	4,482	$	2,186	$	2,098	$	668	$	4,430	$	258	$	571	$	334	$	15,027


As of December 31, 2012
Allowance on loans and leases:
Individually evaluated for impairment	$	—	$	217	$	667	$	543	$	919	$	8	$	—	$	—	$	2,354
Collectively evaluated for impairment		3,894		1,640		1,357		451		3,718		181		493		299		12,033
Purchased credit-impaired⁽¹⁾		13		—		—		25		—		—		—		—		38

Total	$	3,907	$	1,857	$	2,024	$	1,019	$	4,637	$	189	$	493	$	299	$	14,425

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

The following table details the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of September 30, 2013 and December 31, 2012:


(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
As of September 30, 2013
Carrying value of loans and leases:
Individually evaluated for impairment	$	421	$	2,066	$	9,539	$	3,072	$	4,228	$	82	$	—	$	19,408
Collectively evaluated for impairment		612,393		185,552		282,065		35,655		298,751		17,490		38,079		1,469,985
Purchased credit-impaired⁽¹⁾		9,957		16		41		328		280		—		—		10,622

Total	$	622,771	$	187,634	$	291,645	$	39,055	$	303,259	$	17,572	$	38,079	$	1,500,015


As of December 31, 2012
Carrying value of loans and leases:
Individually evaluated for impairment	$	541	$	3,403	$	9,211	$	4,631	$	3,997	$	7	$	—	$	21,790
Collectively evaluated for impairment		535,506		191,439		278,951		20,785		287,367		17,659		32,831		1,364,538
Purchased credit-impaired⁽¹⁾		10,311		19		50		1,492		256		—		—		12,128

Total	$	546,358	$	194,861	$	288,212	$	26,908	$	291,620	$	17,666	$	32,831	$	1,398,456

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

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

•

Pass - Loans considered satisfactory with no indications of deterioration.

•

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

•

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

•

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

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

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of September 30, 2013 and December 31, 2012:


	Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)	Commercial Mortgage				Construction				Commercial and Industrial				Total
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Pass	$	615,742	$	538,470	$	35,518	$	16,504	$	294,194	$	278,167	$	945,454	$	833,141
Special Mention		3,771		2,215		—		1,317		2,265		6,256		6,036		9,788
Substandard		3,258		5,673		3,537		9,087		6,800		7,197		13,595		21,957

Total	$	622,771	$	546,358	$	39,055	$	26,908	$	303,259	$	291,620	$	965,085	$	864,886


	Credit Risk Profile by Payment Activity
(dollars in thousands)	Residential Mortgage				Home Equity Lines and Loans				Consumer				Leases				Total
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Performing	$	287,807	$	284,464	$	186,090	$	192,069	$	17,523	$	17,659	$	38,063	$	32,789	$	529,483	$	526,981
Non-performing		3,838		3,748		1,544		2,792		49		7		16		42		5,447		6,589

Total	$	291,645	$	288,212	$	187,634	$	194,861	$	17,572	$	17,666	$	38,079	$	32,831	$	534,930	$	533,570

G. Troubled Debt Restructurings (“TDRs”)

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

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

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


(dollars in thousands)	September 30, 2013		December 31, 2012
TDRs included in nonperforming loans and leases	$	2,628	$	3,106
TDRs in compliance with modified terms		8,947		8,008

Total TDRs	$	11,575	$	11,114

The following tables present information regarding loan and lease modifications categorized as TDRs for the three and nine months ended September 30, 2013:


	For the Three Months Ended September 30, 2013
(dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial		1	$	75	$	75
Consumer		1		33		33
Leases		2		18		18

Total		4	$	126	$	126


	For the Nine Months Ended September 30, 2013
(dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential mortgage		2	$	674	$	674
Home equity lines and loans		2		40		40
Commercial and industrial		2		930		930
Consumer		1		33		33
Leases		4		38		38

Total		11	$	1,715	$	1,715

The following tables presents information regarding the types of loan and lease modifications made for the three and nine months ended September 30, 2013:


	Number of Contracts for the Three Months Ended September 30, 2013
	Interest Rate Change		Loan Term Extension		Interest Rate Change and Term Extension		Interest-Only Period		Contractual Payment Reduction (Leases only)		Forgiveness of Interest
Commercial and industrial		—		—		—		1		—		—
Consumer		1		—		—		—		—		—
Leases		—		—		—		—		2		—

Total		1		—		—		1		2		—


	Number of Contracts for the Nine Months Ended September 30, 2013
	Interest Rate Change		Loan Term Extension		Interest Rate Change and Term Extension		Interest-Only Period		Contractual Payment Reduction (Leases only)		Forgiveness of Interest
Residential mortgage		—		—		1		—		—		1
Home equity lines and loans		1		—		—		1		—		—
Commercial and industrial		—		—		—		2		—		—
Consumer		1		—		—		—		—		—
Leases		—		—		—		—		4		—

Total		2		—		1		3		4		1

During the three and nine months ended September 30, 2013, there were no defaults of loans or leases that had been previously modified to troubled debt restructurings.

H. Impaired Loans

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


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
As of or for the three months ended September 30, 2013
Impaired loans with related Allowance:
Home equity lines and loans	$	544	$	589	$	119	$	619	$	5	$	—
Residential mortgage		4,448		4,419		628		4,485		28		—
Commercial and industrial		2,586		2,709		544		2,798		21		—
Consumer		82		82		56		84		1		—

Total	$	7,660	$	7,799	$	1,347	$	7,986	$	55	$	—

Impaired loans without related Allowance^{(1) (3)}:
Commercial mortgage	$	421	$	432	$	—	$	471	$	—	$	—
Home equity lines and loans		1,523		1,532		—		1,631		2		—
Residential mortgage		5,091		5,340		—		5,598		39		—
Construction		3,072		4,035		—		3,824		13		—
Commercial and industrial		1,641		1,812		—		1,817		1		—

Total	$	11,748	$	13,151	$	—	$	13,341	$	55	$	—


Grand total	$	19,408	$	20,950	$	1,347	$	21,327	$	110	$	—

⁽¹⁾	The table above does not include the recorded investment of $62 thousand of impaired leases without a related Allowance.

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

⁽³⁾	This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
As of or for the nine months ended September 30, 2013
Impaired loans with related Allowance:
Home equity lines and loans	$	544	$	589	$	119	$	617	$	15	$	—
Residential mortgage		4,448		4,419		628		4,408		83		—
Commercial and industrial		2,586		2,709		544		2,823		53		—
Consumer		82		82		56		86		4		—

Total	$	7,660	$	7,799	$	1,347	$	7,934	$	155	$	—

Impaired loans without related Allowance^{(1) (3)}:
Commercial mortgage	$	421	$	432	$	—	$	471	$	—	$	—
Home equity lines and loans		1,523		1,532		—		1,631		2		—
Residential mortgage		5,091		5,340		—		5,598		39		—
Construction		3,072		4,035		—		3,824		13		—
Commercial and industrial		1,641		1,812		—		1,817		1		—

Total	$	11,748	$	13,151	$	—	$	13,341	$	55	$	—


Grand total	$	19,408	$	20,950	$	1,347	$	21,275	$	210	$	—

⁽¹⁾	The table above does not include the recorded investment of $62 thousand of impaired leases without a related Allowance.

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

⁽³⁾	This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
As of or for the three months ended September 30, 2012
Impaired loans with related allowance:
Home equity lines and loans	$	1,152	$	1,210	$	203	$	1,211	$	—	$	—
Residential mortgage		1,708		1,716		229		1,716		7		—
Construction		3,678		3,694		698		5,313		—		—
Commercial and industrial		2,856		2,869		771		2,875		3		—
Consumer		19		21		19		21		—		—

Total	$	9,413	$	9,510	$	1,920	$	11,136	$	10	$	—

Impaired loans without related allowance^{(1) (3)}:
Commercial mortgage	$	343	$	364	$	—	$	364	$	—	$	—
Home equity lines and loans		1,727		1,795		—		2,050		1		—
Residential mortgage		7,992		8,311		—		8,324		68		—
Construction		1,317		1,317		—		1,446		15		—
Commercial and industrial		845		845		—		846		3		—

Total	$	12,224	$	12,632	$	—	$	13,030	$	87	$	—


Grand total	$	21,637	$	22,142	$	1,920	$	24,166	$	97	$	—

⁽¹⁾	The table above does not include the recorded investment of $223 thousand of impaired leases without a related allowance for loan and lease losses.

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

⁽³⁾	This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
As of or for the nine months ended September 30, 2012
Impaired loans with related allowance:
Home equity lines and loans	$	1,152	$	1,210	$	203	$	1,211	$	—	$	—
Residential mortgage		1,708		1,716		229		1,718		22		—
Construction		3,678		3,694		698		5,444		—		—
Commercial and industrial		2,856		2,869		771		2,877		12		—
Consumer		19		21		19		23		—		—

Total	$	9,413	$	9,510	$	1,920	$	11,273	$	34	$	—

Impaired loans without related allowance^{(1) (3)}:
Commercial mortgage	$	343	$	364	$	—	$	364	$	4	$	—
Home equity lines and loans		1,727		1,795		—		2,042		3		—
Residential mortgage		7,992		8,311		—		8,231		204		—
Construction		1,317		1,317		—		1,376		44		—
Commercial and industrial		845		845		—		846		10		—

Total	$	12,224	$	12,632	$	—	$	12,859	$	265	$	—


Grand total	$	21,637	$	22,142	$	1,920	$	24,132	$	299	$	—

⁽¹⁾	The table above does not include the recorded investment of $223 thousand of impaired leases without a related allowance for loan and lease losses.

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

⁽³⁾	This table excludes all purchased credit-impaired loans, which are discussed in Note 5D, above.


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance
As of December 31, 2012
Impaired loans with related Allowance:
Home equity lines and loans	$	1,261	$	1,321	$	217
Residential mortgage		4,778		4,793		667
Construction		2,564		2,564		543
Commercial and industrial		3,357		3,383		919
Consumer		7		8		8

Total	$	11,967	$	12,069	$	2,354

Impaired loans without related Allowance⁽¹⁾:
Commercial mortgage	$	541	$	574	$	—
Home equity lines and loans		2,142		2,223		—
Residential mortgage		4,433		4,741		—
Construction		2,067		2,317		—
Commercial and industrial		640		639		—

Total	$	9,823	$	10,494	$	—


Grand total	$	21,790	$	22,563	$	2,354

⁽¹⁾	The table above does not include the recorded investment of $168 thousand of impaired leases without a related Allowance.

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

Note 6 - Deposits

The following table details the components of deposits:


(dollars in thousands)	September 30, 2013		December 31, 2012

Savings accounts	$	137,431	$	129,091
Interest-bearing checking accounts		244,826		270,279
Market-rate accounts		548,011		559,470
Wholesale non-maturity deposits		57,195		45,162
Wholesale time deposits		23,127		12,421
Time deposits		145,119		218,586

Total interest-bearing deposits		1,155,709		1,235,009
Non-interest-bearing deposits		394,947		399,673

Total deposits	$	1,550,656	$	1,634,682

Note 7 - Borrowings

A. Short-term borrowings

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

A summary of short-term borrowings is as follows:


(dollars in thousands)	September 30, 2013		December 31, 2012
Overnight fed funds	$	25,000	$	—
Short-term FHLB advances		38,000		—
Repurchase agreements		12,588		9,403

Total short-term borrowings	$	75,588	$	9,403

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


(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Balance at period-end	$	75,588		$	19,029		$	75,588		$	19,029
Maximum amount outstanding at any month-end		75,588			19,029			75,588			19,029
Average balance outstanding during the period		14,995			13,695			13,455			13,621
Weighted-average interest rate:
As of period-end		0.33	%		0.44	%		0.34	%		0.44	%
Paid during the period		0.15	%		0.16	%		0.12	%		0.17	%

B. Long-term FHLB Advances and Other Borrowings

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

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


(dollars in thousands)	September 30, 2013		December 31, 2012
Within one year	$	3,903	$	35,458
Over one year through five years		172,742		104,244
Over five years through ten years		15,000		21,613

Total	$	191,645	$	161,315

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


(dollars in thousands)	Maturity Range⁽¹⁾				Weighted Average Rate			Interest Rate						Balance
Description	From		To		Weighted Average Rate			From			To			September 30, 2013		December 31, 2012
Fixed amortizing		04/08/15		04/08/15		3.61	%		3.61	%		3.61	%	$	2,485	$	4,285
Adjustable amortizing		12/31/16		12/31/16		3.25	%		3.25	%		3.25	%		7,637		9,400
Bullet maturity - fixed rate		03/23/15		12/19/19		1.40	%		0.58	%		2.44	%		135,000		90,000
Bullet maturity - variable rate		06/25/15		11/18/17		0.46	%		0.46	%		0.46	%		25,000		15,000
Convertible-fixed⁽²⁾		01/03/18		08/20/18		2.47	%		2.21	%		2.62	%		21,523		42,630

Total														$	191,645	$	161,315

⁽¹⁾

Maturity range refers to September 30, 2013 balances

⁽²⁾

FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of September 30, 2013, substantially all the FHLB advances with this convertible feature are subject to conversion in fiscal 2013. These advances are included in the maturity ranges in which they mature, rather than the period in which they are subject to conversion.

C. Other Borrowings Information

As of September 30, 2013 the Corporation had a maximum borrowing capacity with the FHLB of approximately $826.4 million, of which the unused capacity was $589.9 million. In addition, there were unused capacities of $39.0 million in overnight federal funds line, $88.5 million of Federal Reserve Discount Window borrowings and $3.0 million in a revolving line of credit from a correspondent bank as of September 30, 2013. In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of FHLB capital stock held was $12.6 million at September 30, 2013, and $10.8 million at December 31, 2012. The carrying amount of the FHLB capital stock approximates its redemption value.

Note 8 - Derivatives and Hedging Activities

In December 2012, the Corporation entered into a forward-starting interest rate swap to hedge the cash flows of a $15 million floating-rate FHLB borrowing. The interest rate swap involves the exchange of the Corporation’s floating rate interest payments on the underlying principal amount. This swap was designated, and qualified, for cash-flow hedge accounting. The term of the swap begins November 30, 2015 and ends November 28, 2022. For derivative instruments that are designated and qualify as hedging instruments, the effective portion of gains or losses is reported as a component of other comprehensive income, and is subsequently reclassified into earnings as an adjustment to interest expense in the periods in which the hedged forecasted transaction affects earnings.

The following table details the Corporation’s derivative positions as of the balance sheet dates indicated:

As of September 30, 2013:

(dollars in thousands)

Current

Fair Value of

Notional
Amount

Trade Date

Effective
Date

Maturity
Date

Receive (Variable)

Index

Projected
Receive Rate

Pay Fixed
Swap Rate

Derivative
Position

15,000

12/13/2012

11/30/2015

11/28/2022

US 3-Month LIBOR

3.301

2.376

889

As of December 31, 2012:

(dollars in thousands)

Current

Fair Value of

Notional
Amount

Trade Date

Effective
Date

Maturity
Date

Receive (Variable)

Index

Projected
Receive Rate

Pay Fixed
Swap Rate

Derivative
Position

15,000

12/13/2012

11/30/2015

11/28/2022

US 3-Month LIBOR

2.338

2.376

(36

)

For the three and nine months ended September 30, 2013, there have been no reclassifications of the interest-rate swap’s fair value from other comprehensive income to earnings. The Corporation held no derivatives during the three and nine months ended September 30, 2012.

Note 9 - Stock-Based Compensation

A. General Information

The Corporation permits the issuance of stock options, dividend equivalents, performance awards, stock appreciation rights, restricted stock and/or restricted stock units to employees and directors of the Corporation under several plans. The terms and conditions of awards under the plans are determined by the Corporation’s Compensation Committee.

Prior to April 25, 2007, all shares authorized for grant as stock-based compensation were limited to grants of stock options. On April 25, 2007, the shareholders approved the Corporation’s “2007 Long-Term Incentive Plan” (the “2007 LTIP”) under which a total of 428,996 shares of the Corporation’s common stock were made available for award grants. On April 28, 2010, the shareholders approved the Corporation’s “2010 Long Term Incentive Plan” (“2010 LTIP”) under which a total of 445,002 shares of the Corporation’s common stock were made available for award grants.

The equity awards granted under the 2007 and 2010 LTIPs were authorized to be in the form of, among others, options to purchase the Corporation’s common stock, restricted stock awards (“RSAs”) and performance stock awards (“PSAs”).

The fair value of an RSA, when granted, is based on the closing price on the day preceding the date of the grant.

The PSAs that have been granted to date vest based on the Corporation’s total shareholder return relative to the performance of the NASDAQ Community Bank Index for the respective period. The amount of PSAs earned will not exceed 100% of the PSAs awarded. The fair value of a PSA, when granted, is calculated using the Monte Carlo Simulation method.

B. Stock Options

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

The following table provides information about options outstanding for the three months ended September 30, 2013:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, June 30, 2013		688,476		$	20.69	$	4.69
Granted		11,475		$	21.24	$	4.83
Forfeited		—		$	—	$	—
Expired		(250	)	$	22.00	$	4.90
Exercised		(39,600	)	$	20.45	$	4.64

Options outstanding, September 30, 2013		660,101		$	20.72	$	4.70

The following table provides information about options outstanding for the nine months ended September 30, 2013:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding, December 31, 2012		784,226		$	20.40	$	4.62
Granted		11,475		$	21.24	$	4.83
Forfeited		(650	)	$	19.65	$	4.62
Expired		(250	)	$	22.00	$	4.90
Exercised		(134,700	)	$	18.93	$	4.22

Options outstanding, September 30, 2013		660,101		$	20.72	$	4.70

The following table provides information about unvested options for the three months ended September 30, 2013:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested options, June 30, 2013		80,106		$	19.89	$	4.65
Granted		11,475		$	21.24	$	4.83
Vested		(61,435	)	$	20.93	$	4.79
Forfeited		—		$	—	$	—

Unvested options, September 30, 2013		30,146		$	18.27	$	4.42

The following table provides information about unvested options for the nine months ended September 30, 2013:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested options, December 31, 2012		80,756		$	19.89	$	4.65
Granted		11,475		$	21.24	$	4.83
Vested		(61,435	)	$	20.93	$	4.79
Forfeited		(650	)	$	19.65	$	4.62

Unvested options, September 30, 2013		30,146		$	18.27	$	4.42

For the three and nine months ended September 30, 2013, the Corporation recognized $65 thousand and $153 thousand, respectively, of expense related to stock options. As of September 30, 2013, the total not-yet-recognized compensation expense of unvested stock options was $89 thousand. This expense will be recognized over a weighted average period of 0.9 years.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three months ended September 30, 2013 and 2012 are detailed below:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Proceeds from exercise of stock options	$	810	$	162	$	2,550	$	1,362
Related tax benefit recognized		75		27		231		107

Net proceeds of options exercised	$	885	$	189	$	2,781	$	1,469

Intrinsic value of options exercised	$	215	$	38	$	661	$	269

The following table provides information about options outstanding and exercisable at September 30, 2013:


(dollars in thousands, except exercise price)	Outstanding		Exercisable
Number of shares		660,101		629,955
Weighted average exercise price	$	20.72	$	20.83
Aggregate intrinsic value	$	4,127	$	3,865
Weighted average contractual term in years		3.3		3.1

C. Restricted Stock Awards and Performance Stock Awards

The Corporation has granted RSAs and PSAs under the 2007 LTIP and 2010 LTIP Plans.

The compensation expense for the RSAs 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. Stock restrictions are subject to alternate vesting for death and disability and retirement.

For the three and nine months ended September 30, 2013, the Corporation recognized $34 thousand and $163 thousand, respectively, of expense related to the Corporation’s RSAs. As of September 30, 2013, there was $570 thousand of unrecognized compensation cost related to RSAs. This cost will be recognized over a weighted average period of 1.8 years.

For the three and nine months ended September 30, 2013, the Corporation recorded excess tax benefits to additional paid in capital of $8 thousand and $12 thousand related to the vesting of restricted stock awards.

The following table details the unvested RSAs for the three and nine months ended September 30, 2013:


	Three Months Ended September 30, 2013					Nine Months Ended September 30, 2013
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning balance		46,815		$	18.89		56,631		$	19.15
Granted		6,665			22.50		6,665			22.50
Vested		(2,980	)		16.78		(9,115	)		19.20
Forfeited		—			—		(3,681	)		20.38

Ending balance		50,500		$	19.49		50,500		$	19.49

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

For the three and nine months ended September 30, 2013, the Corporation recognized $46 thousand and $299 thousand of expense related to the PSAs. As of September 30, 2013, there was $1.7 million of unrecognized compensation cost related to PSAs. This cost will be recognized over a weighted average period of 2.1 years.

For the three and nine months ended September 30, 2013, the Corporation recorded excess tax benefits to additional paid in capital of $320 thousand and $320 thousand related to the vesting of performance stock awards.

The following table details the unvested PSAs for the three and nine months ended September 30, 2013:


	Three Months Ended September 30, 2013					Nine Months Ended September 30, 2013
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning balance		184,191		$	10.62		185,766		$	10.62
Granted		75,714			13.36		75,714			13.36
Vested		(54,925	)		9.64		(54,925	)		9.64
Forfeited		—			—		(1,575	)		10.77

Ending balance		204,980		$	11.90		204,980		$	11.90

Note 10 - Pension and Other Post-Retirement Benefit Plans

The Corporation has three defined benefit pension plans: the qualified defined-benefit plan (the “QDBP”) which covers all employees over age 20 1/2 who meet certain service requirements, and two non-qualified defined-benefit pension plans (“SERP I” and “SERP II”) which are restricted to certain senior officers of the Corporation.

SERP I provides each participant with the equivalent pension benefit provided by the QDBP on any compensation and bonus deferrals that exceed the IRS limit applicable to the QDBP.

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

On April 1, 2008, the Corporation added SERP II, a non-qualified defined-benefit plan which was restricted to certain senior officers of the Corporation. Effective January 1, 2013, the Corporation has curtailed SERP II, as further increases to the defined-benefit amounts to over 20% of the participants have been frozen. As a result of the curtailment, the Corporation recorded a $690 thousand gain which represents the reversal of previous amounts that had been expensed in anticipation of future service of the curtailed participants. The benefit obligation related to the SERP I and SERP II plans as of March 31, 2013 decreased by $2.3 million from the balance at December 31, 2012 as a result of the curtailment.

On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (“SERP III”), a non-qualified defined-contribution plan which was restricted to certain senior officers of the Corporation. SERP III was retroactively effective January 1, 2013. The intended purpose of SERP III is to provide deferred compensation to a select group of employees.

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

The following tables provide details of the components of the net periodic benefits cost (benefit) for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended September 30,
	SERP I and SERP II				QDBP						PRBP
(dollars in thousands)	2013		2012		2013			2012			2013		2012
Service cost	$	18	$	67	$	—		$	—		$	—	$	—
Interest cost		40		61		371			394			8		9
Expected return on plan assets		—		—		(745	)		(701	)		—		—
Amortization of transition obligation		—		—		—			—			—		7
Amortization of prior service costs		3		21		—			—			—		—
Amortization of net loss		13		22		431			447			19		19
Gain on curtailment		—		—		—			—			—		—

Net periodic benefit cost	$	74	$	171	$	57		$	140		$	27	$	35


	Nine Months Ended September 30,
	SERP I and SERP II					QDBP						PRBP
(dollars in thousands)	2013			2012		2013			2012			2013		2012
Service cost	$	54		$	201	$	—		$	—		$	—	$	—
Interest cost		119			183		1,114			1,183			22		27
Expected return on plan assets		—			—		(2,236	)		(2,103	)		—		—
Amortization of transition obligation		—			—		—			—			—		20
Amortization of prior service costs		10			62		—			—			—		—
Amortization of net loss		39			68		1,293			1,340			58		58
Gain on curtailment		(690	)		—		—			—			—		—

Net periodic benefit cost	$	(468	)	$	514	$	171		$	420		$	80	$	105

QDBP: No contributions to the QDBP were made for the three and nine months ended September 30, 2013.

SERP I and SERP II: The Corporation accrued $36 thousand and $109 thousand during the three and nine months ended September 30, 2013, respectively, and is expected to accrue an additional $36 thousand to the SERP I and SERP II plans for the remaining three months of 2013.

SERP III: The Corporation accrued $22 thousand and $66 thousand during the three and nine months ended September 30, 2013, respectively, to SERP III and is expected to accrue an additional $ 22 thousand for the remaining three months of 2013.

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

Note 11 - Segment Information

The Corporation aggregates certain of its operations and has identified two segments as follows: Banking and Wealth Management.

The following tables detail segment information for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended September 30, 2013									Three Months Ended September 30, 2012
(dollars in thousands)	Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated

Net interest income	$	18,532		$	1		$	18,533		$	15,950		$	1		$	15,951
Less: loan loss provision		959			—			959			1,000			—			1,000

Net interest income after loan loss provision		17,573			1			17,574			14,950			1			14,951

Other income:
Fees for wealth management services		—			8,635			8,635			—			7,993			7,993
Service charges on deposit accounts		627			—			627			634			—			634
Loan servicing and other fees		481			—			481			432			—			432
Net gain on sale of loans		578			—			578			1,837			—			1,837
Net gain on sale of available for sale securities		—			—			—			416			—			416
Net loss on sale of other real estate owned		(1	)		—			(1	)		(45	)		—			(45	)
BOLI income		72			—			72			107			—			107
Other operating income		947			48			995			833			41			874

Total other income		2,704			8,683			11,387			4,214			8,034			12,248

Other expenses:
Salaries & wages		5,986			3,026			9,012			5,799			2,904			8,703
Employee benefits		1,196			700			1,896			1,243			660			1,903
Occupancy & equipment		1,267			379			1,646			1,124			364			1,488
Amortization of intangible assets		78			580			658			71			598			669
Professional fees		609			27			636			537			72			609
Other operating expenses		4,812			663			5,475			4,594			923			5,517

Total other expenses		13,948			5,375			19,323			13,368			5,521			18,889

Segment profit		6,329			3,309			9,638			5,796			2,514			8,310
Intersegment (revenues) expenses*		(19	)		19			—			(128	)		128			—

Pre-tax segment profit after eliminations	$	6,310		$	3,328		$	9,638		$	5,668		$	2,642		$	8,310

% of segment pre-tax profit after eliminations		65.5	%		34.5	%		100.0	%		68.2	%		31.8	%		100.0	%

Segment assets (dollars in millions)	$	2,017		$	42		$	2,059		$	1,769		$	46		$	1,815

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


	Nine Months Ended September 30, 2013									Nine Months Ended September 30, 2012
(dollars in thousands)	Banking			Wealth Management			Consolidated			Banking			Wealth Management			Consolidated

Net interest income	$	53,863		$	2		$	53,865		$	47,836		$	3		$	47,839
Less: loan loss provision		2,763			—			2,763			3,003			—			3,003

Net interest income after loan loss provision		51,100			2			51,102			44,833			3			44,836

Other income:
Fees for wealth management services		—			26,078			26,078			—			21,433			21,433
Service charges on deposit accounts		1,807			—			1,807			1,823			—			1,823
Loan servicing and other fees		1,380			—			1,380			1,303			—			1,303
Net gain on sale of loans		3,588			—			3,588			4,311			—			4,311
Net gain on sale of available for sale securities		2			—			2			1,132			—			1,132
Net loss on sale of other real estate owned		(194	)		—			(194	)		(86	)		—			(86	)
BOLI income		270			—			270			330			—			330
Other operating income		3,051			138			3,189			2,903			67			2,970

Total other income		9,904			26,216			36,120			11,716			21,500			33,216

Other expenses:
Salaries & wages		17,898			9,010			26,908			16,294			7,989			24,283
Employee benefits		4,235			2,198			6,433			4,239			1,847			6,086
Occupancy & equipment		3,994			1,130			5,124			3,001			1,257			4,258
Amortization of intangible assets		237			1,741			1,978			218			1,520			1,738
Professional fees		1,732			143			1,875			1,672			165			1,837
Other operating expenses		15,082			2,682			17,764			13,602			2,008			15,610

Total other expenses		43,178			16,904			60,082			39,026			14,786			53,812

Segment profit		17,826			9,314			27,140			17,523			6,717			24,240
Intersegment (revenues) expenses*		(323	)		323			—			(368	)		368			—

Pre-tax segment profit after eliminations	$	17,503		$	9,637		$	27,140		$	17,155		$	7,085		$	24,240

% of segment pre-tax profit after eliminations		64.5	%		35.5	%		100.0	%		70.8	%		29.2	%		100.0	%

Segment assets (dollars in millions)	$	2,017		$	42		$	2,059		$	1,769		$	46		$	1,815

Other segment information:

Wealth Management Segment Information


	*(dollars in millions)*
	September 30, 2013		December 31, 2012
Assets under management, administration, supervision and brokerage	$	7,082.9	$	6,663.2

Note 12 - Mortgage Servicing Rights

The following tables summarize the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended September 30,
(dollars in thousands)	2013			2012
Balance, beginning of period	$	4,790		$	4,220
Additions		174			385
Amortization		(187	)		(243	)
Recovery		—			—
Impairment		(33	)		(105	)

Balance, end of period	$	4,744		$	4,257

Fair value	$	5,622		$	4,279

Loans serviced for others	$	627,058		$	583,859


	Nine Months Ended September 30,
(dollars in thousands)	2013			2012
Balance, beginning of period	$	4,491		$	4,041
Additions		883			1,016
Amortization		(617	)		(718	)
Recovery		91			109
Impairment		(104	)		(191	)

Balance, end of period	$	4,744		$	4,257

Fair value	$	5,622		$	4,279

Loans serviced for others	$	627,058		$	583,859

As of September 30, 2013 and December 31, 2012, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:


(dollars in thousands)	September 30, 2013			December 31, 2012
Fair value amount of MSRs	$	5,622		$	4,638
Weighted average life (in years)		6.1			4.8
Prepayment speeds (constant prepayment rate)*		11.9			15.9
Impact on fair value:
10% adverse change	$	(220	)	$	(230	)
20% adverse change	$	(426	)	$	(442	)
Discount rate		10.50	%		10.50	%
Impact on fair value:
10% adverse change	$	(220	)	$	(158	)
20% adverse change	$	(424	)	$	(306	)

*	Represents the weighted average prepayment rate for the life of the MSR asset.

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

Note 13 - Goodwill and Other Intangibles

The Corporation’s goodwill and intangible assets related to the acquisitions of Lau Associates LLC (“Lau”) in July, 2008, First Keystone Financial, Inc. (“FKF”) in July, 2010, the Private Wealth Management Group of the Hershey Trust Company (“PWMG”) in May, 2011, DTC in May, 2012 and the FBD Transaction in November, 2012 are detailed below:


(dollars in thousands)	Balance December 31, 2012		Additions/ Adjustments			Amortization			Balance September 30, 2013		Amortization Period

Goodwill - Wealth segment	$	20,466	$	(54	)	$	—		$	20,412	Indefinite
Goodwill - Banking segment		12,431		—			—			12,431	Indefinite

Total	$	32,897	$	(54	)	$	—		$	32,843

Core deposit intangible	$	1,654	$	—		$	(237	)	$	1,417	10 Years
Customer relationships		14,890		—			(971	)		13,919	10 to 20 Years
Non compete agreements		4,244		—			(770	)		3,474	5 to 5¹/₂ Years
Trade name		1,210		—			—			1,210	Indefinite

Total	$	21,998	$	—		$	(1,978	)	$	20,020


Grand total	$	54,895	$	(54	)	$	(1,978	)	$	52,863

The Corporation performed its annual review of goodwill and identifiable intangible assets as of December 31, 2012 in accordance with ASC 350, “Intangibles Goodwill and Other.” For the three months ended September 30, 2013, the Corporation determined there were no events that would necessitate impairment testing of goodwill and other intangible assets.

Note 14 - Accumulated Other Comprehensive Loss

The following tables detail the components of accumulated other comprehensive (loss) income for the three and nine month periods ended September 30, 2013 and 2012:


(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 Loss
Balance, June 30, 2013	$	(123	)	$	577	$	(11,559	)	$	(11,105	)
Net change		50			—		246			296

Balance, September 30, 2013	$	(73	)	$	577	$	(11,313	)	$	(10,809	)


Balance, June 30, 2012	$	2,735		$	—	$	(12,613	)	$	(9,878	)
Net change		951			—		272			1,223

Balance, September 30, 2012	$	3,686		$	—	$	(12,341	)	$	(8,655	)


(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 Loss
Balance, December 31, 2012	$	3,164		$	(24	)	$	(13,218	)	$	(10,078	)
Net change		(3,237	)		601			1,905			(731	)

Balance, September 30, 2013	$	(73	)	$	577		$	(11,313	)	$	(10,809	)


Balance, December 31, 2011	$	1,792		$	—		$	(13,157	)	$	(11,365	)
Net change		1,894			—			816			2,710

Balance, September 30, 2012	$	3,686		$	—		$	(12,341	)	$	(8,655	)

The following tables detail the amounts reclassified from each component of accumulated other comprehensive loss for the three and nine month periods ended September 30, 2013 and 2012:


Description of Accumulated Other Comprehensive Loss Component	Amount Reclassified from Accumulated Other Comprehensive Loss					Affected Income Statement Category
	For The Three Months Ended September 30,					Affected Income Statement Category
	2013		2012
*Net unrealized gain on investment securities available for sale:*

Realization of gain on sale of investment securities available for sale	$	—	$	(416	)	Net gain on sale of available for sale investment securities
		—		(146	)	Less: income tax expense

	$	—	$	(270	)	Net of income tax


*Unfunded pension liability:*

Amortization of net loss included in net periodic pension costs*	$	463	$	488		Employee benefits

Amortization of prior service cost included in net periodic pension costs*		3		21		Employee benefits
Amortization of transition obligation included in net periodic pension costs*		—		7		Employee benefits

		466		516		Total expense before income tax benefit
		163		181		Less: income tax benefit

	$	303	$	335		Net of income tax


Description of Accumulated Other Comprehensive Loss Component	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Income Statement Category
	For The Nine Months Ended September 30,						Affected Income Statement Category
	2013			2012
*Net unrealized gain on investment securities available for sale:*

Realization of gain on sale of investment securities available for sale	$	(2	)	$	(1,132	)	Net gain on sale of available for sale investment securities
		(1	)		(396	)	Less: income tax expense

	$	(1	)	$	(736	)	Net of income tax


*Unfunded pension liability:*

Amortization of net loss included in net periodic pension costs*	$	1,390		$	1,466		Employee benefits

Amortization of prior service cost included in net periodic pension costs*		10			62		Employee benefits

Amortization of transition obligation included in net periodic pension costs*		—			20		Employee benefits
Gain on curtailment of SERP II		(690	)		—		Net gain on curtailment of nonqualified pension plan

		710			1,548		Total expense before income tax benefit
		249			703		Less: income tax benefit

	$	461		$	845		Net of income tax

*	Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 - Pension and Other Post-Retirement Benefit Plans

Note 15 - Shareholders’ Equity

Dividend

During the third quarter of 2013, the Corporation declared and paid a regular quarterly dividend of $0.17 per share. This payment totaled $2.3 million, based on outstanding shares at August 6, 2013 of 13,545,713. On October 24, 2013, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.18 per share payable December 1, 2013 to shareholders of record as of November 6, 2013.

S-3 Shelf Registration Statement and Offerings Thereunder

In April 2012, the Corporation filed a shelf registration statement (the “Shelf Registration Statement”) to replace its 2009 Shelf Registration Statement, which was set to expire in June 2012. This new Shelf Registration Statement allows the Corporation to raise additional capital through offers and sales of registered securities consisting of common stock, debt securities, warrants to purchase common stock, stock purchase contracts and units or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, such securities in a dollar amount up to $150,000,000, in the aggregate.

The Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which was amended and restated on April 27, 2012, primarily to increase the number of shares which can be issued by the Corporation from 850,000 to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’s common stock and general economic and market conditions.

The Plan is intended to allow both existing shareholders and new investors to easily and conveniently increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions. For the nine months ended September 30, 2013, the Corporation issued 6,924 shares and raised $161 thousand through the Plan.

Options

In addition to shares issued through the Plan, the Corporation also issues shares through the exercise of stock options. During the nine months ended September 30, 2013, 134,700 shares were issued pursuant to the exercise of stock options, increasing shareholders’ equity by $2.6 million.

Note 16 - 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 2010.

The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued in the three or nine month periods ended September 30, 2013 or 2012. There were no reserves for uncertain income tax positions recorded during the three or nine month periods ended September 30, 2013 or 2012.

Note 17 - Fair Value Measurement

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

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

The Corporation’s investment securities available for sale, which generally include state and municipal securities, U.S. government agencies and mortgage-related securities, are reported at fair value. These securities are valued by an independent third party. The third party’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Inputs are prioritized differently on any given day based on market conditions.

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-related securities are evaluated using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other available for sale investments are evaluated using a broker-quote based application, including quotes from issuers.

The value of the investment portfolio is determined using three broad levels of inputs:

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

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

Level 3 - Instruments whose significant value drivers are unobservable.

These levels are not necessarily an indication of the risks or liquidity associated with these investments. The following tables summarize the assets at September 30, 2013 and December 31, 2012 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input.

Fair value of assets measured on a recurring and non-recurring basis as of September 30, 2013:


(dollars in millions)	Total		Level 1		Level 2		Level 3
Assets Measured at Fair Value on a Recurring Basis:
Investment securities available for sale:
U.S. Treasury securities	$	0.1	$	0.1	$	—	$	—
Obligations of the U.S. government agencies		90.9		—		90.9		—
Obligations of state & political subdivisions		40.1		—		40.1		—
Mortgage-backed securities		124.3		—		124.3		—
Collateralized mortgage obligations		47.3		—		47.3		—
Mutual funds		11.5		11.5		—		—
Other investments		5.7		—		5.7		—

Total investment securities available for sale		319.9		11.6		308.3		—
Trading securities		2.4		—		2.4		—

Total assets measured on a recurring basis at fair value	$	322.3	$	11.6	$	310.7	$	—


Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage servicing rights	$	0.8	$	—	$	—	$	0.8
Impaired loans and leases		18.1		—		—		18.1
Other real estate owned (“OREO”)		1.3		—		—		1.3

Total assets measured on a non-recurring basis at fair value	$	20.2	$	—	$	—	$	20.2

Fair value of assets measured on a recurring and non-recurring basis as of December 31, 2012:


(dollars in millions)	Total		Level 1		Level 2		Level 3
Assets Measured at Fair Value on a Recurring Basis:
Investment securities available for sale:
Obligations of the U.S. government agencies	$	73.9	$	—	$	73.9	$	—
Obligations of state & political subdivisions		30.4		—		30.4		—
Mortgage-backed securities		131.8		—		131.8		—
Collateralized mortgage obligations		62.7		—		62.7		—
Mutual funds		13.6		13.6		—		—
Other investments		4.2		—		4.2		—

Total investment securities available for sale		316.6		13.6		303.0		—
Trading securities		1.4		—		1.4		—

Total assets measured on a recurring basis at fair value	$	318.0	$	13.6	$	304.4	$	—


Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage servicing rights	$	0.9	$	—	$	—	$	0.9
Impaired loans and leases		19.7		—		—		19.7
OREO		0.9		—		—		0.9

Total assets measured on a non-recurring basis at fair value	$	21.5	$	—	$	—	$	21.5

During the three and nine months ended September 30, 2013 a net increase of $256 thousand and a net decrease of $188 thousand, respectively, were recorded in the Allowance as a result of adjusting the carrying value and estimated fair value of the impaired loans in the above tables. As it relates to the fair values of assets measured on a recurring basis, there have been no transfers between levels during the nine months ended September 30, 2013.

Impaired Loans

The Corporation evaluates and values impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by the Corporation. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

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

Other Real Estate Owned

Other real estate owned consists of properties acquired as a result of foreclosures and deeds in-lieu-of foreclosure. Properties are classified as OREO and are reported at the lower of cost or fair value less cost to sell, and are classified as Level 3 in the fair value hierarchy.

Mortgage Servicing Rights

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

Note 18 - Fair Value of Financial Instruments

FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other 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 following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

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

Investment Securities

Estimated fair values for investment securities are generally valued by an independent third party based on market data, utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. Management reviews, annually, the process utilized by its independent third-party valuation experts. On a quarterly basis, Management tests the validity of the prices provided by the third party by selecting a representative sample of the portfolio and obtaining actual trade results, or if actual trade results are not available, competitive broker pricing. See Note 4 of the Notes to Consolidated Financial Statements for more information.

Loans Held for Sale

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

Net Portfolio Loans and Leases

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

Mortgage Servicing Rights

The fair value of the MSRs for these periods was determined using a proprietary third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates. Due to the proprietary nature of the valuation model used, the Corporation classifies the value of MSRs as using Level 3 inputs.

Other Assets

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

Deposits

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

Short-term borrowings

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

Long-term FHLB Advances and Other Borrowings

The fair value of long-term FHLB advances (with original maturities of greater than one year) and other borrowings, which include an $7.6 million term loan from a correspondent bank, is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.

Other Liabilities

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

Off-Balance Sheet Instruments

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

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


	Fair Value Hierarchy Level*	As of September 30, 2013				As of December 31 2012
(dollars in thousands)	Fair Value Hierarchy Level*	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Financial assets:
Cash and cash equivalents	Level 1	$	96,161	$	96,161	$	175,686	$	175,686
Investment securities, available for sale	See Note 17		319,917		319,917		316,614		316,614
Investment securities, trading	Level 2		2,357		2,357		1,447		1,447
Loans held for sale	Level 2		1,284		1,284		3,412		3,482
Net portfolio loans and leases	Level 3		1,484,988		1,473,844		1,384,031		1,412,619
Mortgage servicing rights	Level 3		4,744		5,622		4,491		4,638
Other assets	Level 3		22,629		22,629		21,735		21,735

Total financial assets		$	1,932,080	$	1,921,814	$	1,907,416	$	1,936,221

Financial liabilities:
Deposits	Level 2	$	1,550,656	$	1,550,683	$	1,634,682	$	1,635,374
Short-term borrowings	Level 2		75,588		75,588		9,403		9,403
Long-term FHLB advances and other borrowings	Level 2		191,645		191,190		161,315		164,273
Other liabilities	Level 2		23,323		23,323		26,921		26,921

Total financial liabilities		$	1,841,212	$	1,840,784	$	1,832,321	$	1,835,971

*	see Note 17 for a description of fair value hierarchy levels

Note 19 - New Accounting Pronouncements

FASB ASU No. 2013-02 - Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued ASU 2013-02 - Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income which requires entities to disclose, for items reclassified out of accumulated other comprehensive income (“AOCI”) and into net income in their entirety, the effect of the reclassification on each affected net income

line item and, for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2012; early adoption is allowed. The Corporation has adopted ASU 2013-02 with no impact on its financial condition and results of operations.

FASB ASU No. 2013-10 - Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes

In July 2013, the FASB issued ASU 2013-10 - Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes which permits the uses of this alternative benchmark interest rate, in addition to the U.S. government rate (UST) and London Interbank Offered Rate (LIBOR), as a U.S. benchmark interest rate for hedge accounting purposes under FASB ASC Topic 815, Derivatives and Hedging. The Corporation currently uses LIBOR as a benchmark for hedge accounting purposes. As such, Management does not expect ASU 2013-10 to have any impact on its financial condition and results of operations.

FASB ASU No. 2013-11 - Presentation of an Unrecognized Tax Benefit When a Net Operation Loss Carryforward , a Similar Tax Loss, or a Tax Credit Exists

In July 2013, the FASB issued ASU 2013-11 - Presentation of an Unrecognized Tax Benefit When a Net Operation Loss carryforward, a Similar Tax Loss, or a Tax Credit Exists which requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (NOL) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. The Corporation does not currently have an NOL carryforward. As such, Management does not expect ASU 2013-11 to have any impact on its financial condition and results of operations.

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

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

Brief History of the Corporation

The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries provide community banking, business banking, residential mortgage lending, consumer and commercial lending and insurance services to customers through its 19 full-service branches and seven limited-hour retirement community offices located throughout the Montgomery, Delaware and Chester counties of Pennsylvania and New Castle county in Delaware. The Corporation and its subsidiaries also provide wealth management services through their network of Wealth Management offices located in Bryn Mawr, Devon and Hershey, Pennsylvania as well as Greenville, Delaware. The Corporation’s stock trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC.

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

During 2012, the Corporation completed the following two transactions:

First Bank of Delaware Transaction

On November 17, 2012, the acquisition of $70.3 million of deposits, $76.6 million of loans and a branch location from First Bank of Delaware (“FBD”), by the Corporation was completed (the “FBD Transaction”). The consideration paid totaled $10.6 million. The FBD Transaction, which was accounted for as a business combination, enabled the Corporation to expand its banking arm into the Delaware market by opening its first full-service branch there, complementing its existing wealth management operations in the state.

Acquisition of the Davidson Trust Company

On May 15, 2012, the Corporation acquired the Davidson Trust Company (“DTC”) for $10.5 million, including $7.35 million cash paid at closing and $3.15 million of contingent cash payments that were to be paid November 14, 2012, May 14, 2013 and November 14, 2013, subject to certain post-closing contingencies relating to the assets under management. None of the three contingent cash payments was to exceed $1.05 million. Two of the three contingent payments were made on November 14, 2012 and May 14, 2013, each in the amount of $1.05 million. The third, and final, contingent payment will be made on November 14, 2013 in the amount of $1.05 million.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform with U.S. generally accepted accounting principles (“GAAP”). All inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous year’s financial statements to the current year’s presentation. In preparing the consolidated financial statements, the Corporation is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. However, there are uncertainties inherent in making these estimates and actual results could differ from these estimates. The Corporation has identified certain areas that require estimates and assumptions, which include the allowance for loan and lease losses (the “Allowance”), the valuation of goodwill and intangible assets, the fair value of investment securities, mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation.

These critical accounting policies, along with other significant accounting policies, are presented in Footnote 1 – Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in the Corporation’s 2012 Annual Report on Form 10-K.

Executive Overview

The following items highlight the Corporation’s results of operations for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, and the changes in its financial condition as of September 30, 2013 as compared to December 31, 2012. More detailed information related to these highlights can be found in the sections that follow.

Impact of Recent Acquisitions

In general, the results of operations for the three and nine months ended September 30, 2013, as compared to the same periods in 2012 were impacted by the November 2012 FBD Transaction and the May 2012 acquisition of DTC.

Three Month Results

•

Net income for the three months ended September 30, 2013 was $6.4 million, an increase of $976 thousand as compared to net income of $5.4 million for the same period in 2012. Diluted earnings per share of $0.47 for the three months ended September 30, 2013 was $0.06 increase from the same period in 2012.

•

Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended September 30, 2013 were 11.92% and 1.29%, respectively, as compared to ROE and ROA of 10.93% and 1.18%, respectively, for the same period in 2012.

•

Tax-equivalent net interest income increased $2.6 million, or 16.2%, to $18.6 million for the three months ended September 30, 2013, as compared to $16.0 million for the same period in 2012.

•

The provision for loan and lease losses (the “Provision”) for the three months ended September 30, 2013 was $959 thousand as compared to $1.0 million for the same period in 2012.

•

Non-interest income of $11.4 million for the three months ended September 30, 2013 decreased $861 thousand, or 7.0%, as compared to $12.2 million for the same period in 2012.

•

Included in non-interest income, fees for wealth management services of $8.6 million for the three months ended September 30, 2013 increased $642 thousand, or 8.0%, as compared to $8.0 million for the same period in 2012. Also, gains on sale of residential mortgage loans and investment securities available for sale declined by $1.3 million and $416 thousand, respectively, between the periods.

•

Non-interest expense of $19.3 million for the three months ended September 30, 2013 increased $434 thousand, or 2.3%, as compared to $18.9 million for the same period in 2012.

Nine Month Results

•

Net income for the nine months ended September 30, 2013 was $18.0 million, an increase of $2.1 million as compared to net income of $15.8 million for the same period in 2012. Diluted earnings per share of $1.33 for the nine months ended September 30, 2013 was a $0.13 increase from the same period in 2012.

•

ROE and ROA for the nine months ended September 30, 2013 were 11.48% and 1.21%, respectively, as compared to ROE and ROA of 11.06% and 1.17%, respectively, for the same period in 2012.

•

Tax-equivalent net interest income increased $6.1 million, or 12.7%, to $54.2 million for the nine months ended September 30, 2013, as compared to $48.1 million for the same period in 2012.

•

The Provision for the nine months ended September 30, 2013 was $2.8 million, a decrease of $240 thousand from the same period in 2012.

•

Non-interest income of $36.1 million for the nine months ended September 30, 2013 increased $2.9 million, or 8.7%, as compared to $33.2 million for the same period in 2012.

•

Included in non-interest income, fees for wealth management services of $26.1 million for the nine months ended September 30, 2013 increased $4.6 million, or 21.7%, as compared to $21.4 million for the same period in 2012. Also, gains on sale of residential mortgage loans and investment securities available for sale declined by $723 thousand and $1.1 million, respectively, between the periods.

•

Non-interest expense of $60.1 million for the nine months ended September 30, 2013 increased $6.3 million, or 11.7%, as compared to $53.8 million for the same period in 2012.

Changes in Financial Condition

•

Total assets of $2.06 billion as of September 30, 2013 decreased $23.1 million from $2.04 billion as of December 31, 2012.

•

Shareholders’ equity of $217.8 million as of September 30, 2013 increased $14.2 million from $203.6 million as of December 31, 2012.

•

Total portfolio loans and leases as of September 30, 2013 were $1.50 billion, an increase of $101.6 million from the December 31, 2012 balance.

•

Total non-performing loans and leases of $10.6 million represented 0.71% of portfolio loans and leases as of September 30, 2013 as compared to $14.8 million, or 1.06% of portfolio loans and leases as of December 31, 2012.

•

The $15.0 million Allowance, as of September 30, 2013, represented 1.00% of portfolio loans and leases, as compared to $14.4 million, or 1.03% of portfolio loans as of December 31, 2012.

•

Total deposits of $1.55 billion as of September 30, 2013 decreased $84.0 million, or 5.1%, from $1.63 billion as of December 31, 2012.

•

Wealth Management assets under management, administration, supervision and brokerage as of September 30, 2013 were $7.08 billion, an increase of $419.7 million from December 31, 2012.

Key Performance Indicators

Key financial performance indicators for the three and nine months ended September 30, 2013 and 2012 are shown in the table below:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Annualized return on average equity		11.92	%		10.93	%		11.48	%		11.06	%
Annualized return on average assets		1.29	%		1.18	%		1.21	%		1.17	%
Efficiency ratio¹		64.58	%		66.98	%		66.77	%		66.39	%
Efficiency ratio¹, excluding due diligence and merger-related expenses		63.49	%		65.86	%		64.85	%		64.61	%
Tax-equivalent net interest margin		4.05	%		3.78	%		3.96	%		3.84	%
Diluted earnings per share	$	0.47		$	0.41		$	1.33		$	1.20
Dividend per share	$	0.17		$	0.16		$	0.51		$	0.48
Dividend payout ratio²		36.00	%		39.52	%		38.27	%		40.30	%

¹	The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.

²	The dividend payout ratio is calculated by dividing dividends paid (or accrued) by net income.

The following table presents certain key period-end balances and ratios as of September 30, 2013 and December 31, 2012:


(dollars in millions, except per share amounts)	September 30, 2013			December 31, 2012
Book value per share	$	16.07		$	15.17
Tangible book value per share	$	12.17		$	11.08
Allowance as a percentage of loans and leases		1.00	%		1.03	%
Tier I capital to risk weighted assets		11.33	%		11.02	%
Tangible common equity ratio		8.30	%		7.60	%
Loan to deposit ratio		96.8	%		85.8	%
Wealth assets under management, administration, supervision and brokerage	$	7,082.9		$	6,663.2
Portfolio loans and leases	$	1,500.0		$	1,398.5
Total assets	$	2,059.0		$	2,035.9
Shareholders’ equity	$	217.8		$	203.6

The following sections discuss, in detail, the Corporation’s results of operations for the three and nine months ended September 30, 2013, as compared to the same period in 2012, and the changes in its financial condition as of September 30, 2013 as compared to December 31, 2012.

Components of Net Income

Net income is comprised of five major elements:

•

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

•

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

•

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

•

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

•

Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Tax-Equivalent Net Interest Income

Net interest income is the primary source of the Corporation’s revenue. The below tables present a summary, for the three and nine month periods ended September 30, 2013 and 2012, of the Corporation’s average balances and tax-equivalent yields earned on its interest-earning assets and the tax-equivalent rates paid on its interest-bearing liabilities. The tax-equivalent net interest margin is the tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread is the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of noninterest-bearing liabilities represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

Analyses of Interest Rates and Interest Differential

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


	For the Three Months Ended September 30,
	2013								2012
(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	$	35,589		$	21		0.23	%	$	53,767		$	34		0.25	%
Investment securities - available for sale:
Taxable		284,558			988		1.38	%		309,570			960		1.23	%
Non-taxable⁽³⁾		39,860			159		1.58	%		18,481			82		1.77	%

Total investment securities - available for sale		324,418			1,147		1.40	%		328,051			1,042		1.26	%
Investment securities - trading		2,182			7		1.27	%		1,343			5		1.48	%
Loans and leases^(1)(2)(3)		1,464,359			18,755		5.08	%		1,303,783			17,089		5.21	%

Total interest-earning assets		1,826,548			19,930		4.33	%		1,686,944			18,170		4.28	%
Cash and due from banks		12,497								12,922
Allowance for loan and lease losses		(14,653	)							(13,337	)
Other assets		151,204								146,274

Total assets	$	1,975,596							$	1,832,803

Liabilities:
Savings, NOW, and market rate accounts	$	944,963			419		0.18	%	$	849,966			567		0.27	%
Wholesale deposits		58,715			55		0.37	%		49,765			55		0.44	%
Time deposits		152,788			165		0.43	%		178,711			315		0.70	%

Total interest-bearing deposits		1,156,466			639		0.22	%		1,078,442			937		0.35	%
Subordinated debentures		—			—		—	%		21,114			270		5.09	%
Short-term borrowings		14,995			5		0.13	%		13,273			5		0.15	%
Long-term FHLB advances and other borrowings		163,818			643		1.56	%		167,251			918		2.18	%

Total borrowings		178,813			648		1.44	%		201,638			1,193		2.35	%

Total interest-bearing liabilities		1,335,279			1,287		0.38	%		1,280,080			2,130		0.66	%
Non-interest-bearing deposits		402,292								330,179
Other liabilities		24,904								25,100

Total non-interest-bearing liabilities		427,196								355,279

Total liabilities		1,762,475								1,635,359
Shareholders’ equity		213,121								197,444

Total liabilities and shareholders’ equity	$	1,975,596							$	1,832,803

Net interest spread							3.95	%							3.62	%
Effect of non-interest-bearing liabilities							0.10	%							0.16	%

Tax equivalent net interest income and margin on earning assets⁽³⁾				$	18,643		4.05	%				$	16,039		3.78	%

Tax-equivalent adjustment⁽³⁾				$	110		0.02	%				$	88		0.02	%

⁽¹⁾

Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.

⁽²⁾

Loans include portfolio loans and leases and loans held for sale.

⁽³⁾

Tax rate used for tax-equivalent calculations is 35%.

Tax-equivalent net interest income of $18.6 million for the three months ended September 30, 2013 increased $2.6 million, as compared to the same period in 2012. The increase in net interest income between the periods was largely related to a $160.6 million, or 12.3%, increase in average loans and leases. This increase was partially related to the acquisition of loans from FBD, which totaled $76.6 million at the time of the transaction, along with organic growth in the Corporation’s loan portfolio. This growth was concentrated in the commercial mortgage, commercial and industrial, and construction segments of the portfolio. In addition, the prepayments of $22.5 million of subordinated debt during the third and fourth quarters of 2012 and $20.0 million of Federal Home Loan Bank (“FHLB”) borrowings in January 2013, which resulted in a 91 basis point decline in rate paid on borrowings, coupled with the 13 basis point decline in rate paid on deposits, accounted for the $843 thousand decrease in interest expense for the three months ended September 30, 2013, as compared to the same period in 2012.


	For the Nine Months Ended September 30,
	2013								2012
(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	$	70,681		$	131		0.25	%	$	50,033		$	86		0.23	%
Investment securities - available for sale:
Taxable		286,964			2,721		1.27	%		303,865			3,166		1.39	%
Non-taxable⁽³⁾		37,505			429		1.53	%		14,067			198		1.88	%

Total investment securities - available for sale		324,469			3,150		1.30	%		317,932			3,364		1.41	%
Investment securities - trading		2,017			23		1.52	%		1,442			21		1.94	%
Loans and leases^(1)(2)(3)		1,432,260			54,902		5.13	%		1,299,135			51,419		5.27	%

Total interest-earning assets		1,829,427			58,206		4.25	%		1,668,542			54,890		4.38	%
Cash and due from banks		12,884								12,242
Allowance for loan and lease losses		(14,657	)							(13,270	)
Other assets		151,038								143,563

Total assets	$	1,978,692							$	1,811,077

Liabilities:
Savings, NOW, and market rate accounts	$	963,249			1,343		0.19	%	$	807,874			1,712		0.28	%
Wholesale deposits		50,575			153		0.40	%		68,922			199		0.38	%
Time deposits		169,184			613		0.48	%		197,607			1,217		0.82	%

Total interest-bearing deposits		1,183,008			2,109		0.24	%		1,074,403			3,128		0.39	%
Subordinated debentures		—			—		—	%		22,035			852		5.15	%
Short-term borrowings		13,455			12		0.12	%		13,244			14		0.14	%
Long-term FHLB advances and other borrowings		154,386			1,906		1.65	%		165,717			2,808		2.26	%

Total borrowings		167,841			1,918		1.53	%		200,996			3,674		2.43	%

Total interest-bearing liabilities		1,350,849			4,027		0.40	%		1,275,399			6,802		0.71	%
Non-interest-bearing deposits		393,576								319,767
Other liabilities		24,874								24,508

Total non-interest-bearing liabilities		418,450								344,275

Total liabilities		1,769,299								1,619,674
Shareholders’ equity		209,393								191,403

Total liabilities and shareholders’ equity	$	1,978,692							$	1,811,077

Net interest spread							3.85	%							3.67	%
Effect of non-interest-bearing liabilities							0.11	%							0.17	%

Tax equivalent net interest income and margin on earning assets⁽³⁾				$	54,179		3.96	%				$	48,088		3.84	%

Tax-equivalent adjustment⁽³⁾				$	314		0.02	%				$	248		0.02	%

⁽¹⁾

Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has been excluded for purposes of determining interest income.

⁽²⁾

Loans include portfolio loans and leases and loans held for sale.

⁽³⁾

Tax rate used for tax-equivalent calculations is 35%.

Tax-equivalent net interest income of $54.2 million for the nine months ended September 30, 2013 increased $6.1 million, as compared to the same period in 2012. The increase in net interest income between the periods was largely related to a $133.1 million, or 10.3%, increase in average loans and leases. This increase was partially related to the acquisition of loans from FBD, which totaled $76.6 million at the time of the transaction, along with organic growth in the Corporation’s loan portfolio. This growth was concentrated in the commercial mortgage, commercial and industrial, and construction segments of the portfolio. In addition, the prepayments of $22.5 million of subordinated debt during the third and fourth quarters of 2012 and $20.0 million of Federal Home Loan Bank (“FHLB”) borrowings in January 2013, which resulted in a 90 basis point decline in rate paid on borrowings, coupled with the 15 basis point decline in rate paid on deposits, accounted for the $2.8 million decrease in interest expense for the nine months ended September 30, 2013, as compared to the same period in 2012.

Tax-Equivalent Net Interest Margin

The Corporation’s tax-equivalent net interest margin increased 27 basis points to 4.05% for the three months ended September 30, 2013, from 3.78% for the same period in 2012. Average interest-earning assets increased $139.6 million, while average interest-bearing liabilities increased by $55.2 million. Largely accounting for the increase in average interest-earning assets was a $160.6 million increase in average loans and leases, partially offset by an $18.2 million decrease in average interest-bearing deposits with other banks. The acquisition of $76.6 million of loans from FBD in November 2012, along with strong loan originations in the commercial mortgage, commercial and industrial, and construction segments of the loan portfolio accounted for its significant growth. The increase in average interest-bearing liabilities for the three months ended September 30, 2013 as compared to the same period in 2012 was largely the result of a $78.0 million increase in interest-bearing deposits, whose average rate of interest fell from 35 basis points for the three months ended September 30, 2013 to 22 basis points for the same period in 2013. This decline in rate paid was the result of the Corporation’s continuing strategy of allowing higher-rate certificates of deposit to run off and be replaced with lower-costing market-rate, NOW and savings accounts.

The increase in interest-bearing deposits was partially offset by a $21.1 million decrease in average balances of subordinated debt that the Corporation elected to prepay during the last six months of 2012. In addition, $20.0 million of higher-rate FHLB advances were prepaid in January 2013, resulting in a 63 basis point decrease in rate paid on long-term FHLB advances and other borrowings between periods. The premiums and costs related to these prepayments totaled $873 thousand, which were recorded in the corresponding periods.

For the nine months ended September 30, 2013, the Corporation’s tax-equivalent net interest margin increased 12 basis points to 3.96% from 3.84% for the same period in 2012. Average interest-earning asset increases of $160.9 million outpaced average interest-bearing liabilities increases of only $75.5 million. The increase in interest-earning assets between the periods consisted primarily of a $133.1 million increase in average loans and leases and a $20.6 million increase in average interest-earning deposits with other banks. Due to the low yield earned on interest-bearing deposits with other banks and the 14 basis point decline in the tax-equivalent yield earned on the loans and leases, the tax-equivalent yield earned on interest-bearing assets declined by 13 basis points between periods.

The decline in tax-equivalent yield earned on interest-bearing assets was substantially offset by a 31 basis point decrease in rate paid on interest-bearing liabilities. The prepayment of subordinated debt and long-term FHLB advances in 2012 and January 2013, which resulted in a 90 basis point decrease in the rate paid on borrowings, along with the 16 basis point drop in rate paid on interest-bearing deposits, contributed to this overall reduction.

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


Quarter	Interest- Earning Asset Yield			Interest-Bearing Liability Cost			Net Interest Spread			Effect of Non- Interest Bearing Sources			Tax-Equivalent Net Interest Margin
3^rd Quarter 2013		4.33	%		0.38	%		3.95	%		0.10	%		4.05	%
2^nd Quarter 2013		4.27	%		0.39	%		3.88	%		0.10	%		3.98	%
1^st Quarter 2013		4.16	%		0.43	%		3.73	%		0.12	%		3.85	%
4^th Quarter 2012		4.27	%		0.54	%		3.73	%		0.13	%		3.86	%
3^rd Quarter 2012		4.28	%		0.66	%		3.62	%		0.16	%		3.78	%

Rate/Volume Analysis (tax equivalent basis*)

The rate/volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the nine months ended September 30, 2013 as compared to the same period in 2012, 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.


	2013 Compared to 2012
	Three Months Ended September 30,									Nine Months Ended September 30,
(dollars in thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest income
Interest-bearing deposits with other banks	$	(11	)	$	(2	)	$	(13	)	$	34		$	11		$	45
Investment securities		19			88			107			157			(369	)		(212	)
Loans and leases		2,122			(456	)		1,666			5,214			(1,731	)		3,483

Total interest income	$	2,130		$	(370	)	$	1,760		$	5,405		$	(2,089	)	$	3,316

Interest expense:
Savings, NOW and market rate accounts	$	63		$	(211	)	$	(148	)	$	310		$	(679	)	$	(369	)
Wholesale non-maturity deposits		11			(9	)		2			(27	)		(9	)		(36	)
Time deposits		(46	)		(105	)		(151	)		(174	)		(430	)		(604	)
Wholesale time deposits		(4	)		2			(2	)		(28	)		18			(10	)
Borrowed funds**		(153	)		(392	)		(545	)		(632	)		(1,122	)		(1,754	)

Total interest expense		(129	)		(715	)		(844	)		(551	)		(2,222	)		(2,773	)

Interest differential	$	2,259		$	345		$	2,604		$	5,956		$	133		$	6,089

*	The tax rate used in the calculation of the tax equivalent income is 35%.

**	Borrowed funds include subordinated debentures, short-term borrowings, long-term FHLB advances and other borrowings.

Interest Rate Sensitivity

The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to minimize exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures approved by the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities through the management of its investment portfolio, its offerings of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), Insured Network Deposit (“IND”) Program, and Institutional Deposit Corporation (“IDC”).

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

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

This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.

Summary of 12-Month Interest Rate Simulation


(dollars in thousands)	Change in Net Interest Income Over Next Twelve Months as of September 30, 2013
Change in Interest Rates:	Amount				Percentage
+300 basis points		$	3,859			5.18	%
+200 basis points		$	1,932			2.60	%
+100 basis points		$	373			0.50	%
-100 basis points		$	(1,373	)		(1.84	)%

The interest rate simulation above suggests that the Corporation’s balance sheet is asset sensitive as of September 30, 2013, suggesting that an increase in interest rates will have a positive impact on net interest income over the next 12 months, while a decrease in interest rates will negatively impact net interest income. In this simulation, net interest income will increase if rates increase 100, 200 or 300 basis points. However, the 100-basis point-increase scenario indicates a less significant increase in net interest income over the next 12 months, than the other scenarios, as the Corporation has interest rate floors on many of its portfolio loans, and as such, those loans would not experience the full 100 basis point increase. In addition, the Corporation’s internal prime loan rate is set, as of September 30, 2013, at 3.99%, or 74 basis points above the Wall Street Journal Prime Rate of 3.25%. The 100-basis point decrease scenario shows a $1.4 million, or 1.84%, decrease in net interest income over the next twelve months as some of the Corporation’s interest-bearing liabilities bear rates of interest below 1.00% and therefore would not be able to absorb the entire decrease. The four scenarios above are directionally consistent with the June 30, 2013 simulations.

The Corporation is evaluating the merits of offering interest rate swap products to its borrowers as a means to increase the volume of floating-rate loans in its portfolio, while remaining competitive in the marketplace.

The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along with expectations of their future behavior relative to interest rate changes and other factors. In today’s uncertain economic environment and the current extended period of very low interest rates, the reliability of the Corporation’s interest rate simulation model is more uncertain than in other periods. Actual customer behavior relative to the simulated interest rate changes may be significantly different than expected behavior, which could cause an unexpected outcome and may result in lower net interest income.

Gap Analysis

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

The following table presents the Corporation’s interest rate sensitivity position or gap analysis as of September 30, 2013:


(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	$	36.9		$	—		$	—		$	—		$	—		$	36.9
Money market funds		34.3			—			—			—			—			34.3
Investment securities - available for sale		53.1			52.9			151.9			62.0			—			319.9
Investment securities - trading		2.4			—			—			—			—			2.4
Loans and leases⁽¹⁾		430.2			169.1			644.8			257.1			—			1,501.2
Allowance for loan and lease losses		—			—			—			—			(15.0	)		(15.0	)
Cash and due from banks		—			—			—			—			25.0			25.0
Other assets		—			—			—			—			154.3			154.3

Total assets	$	556.9		$	222.0		$	796.7		$	319.1		$	164.3		$	2,059.0

Liabilities and shareholders’ equity:
Demand, non-interest-bearing	$	25.9		$	77.6		$	109.1		$	182.4		$	—		$	395.0
Savings, NOW and market rate		66.6			199.7			458.7			205.3			—			930.3
Time deposits		50.2			57.9			36.8			0.2			—			145.1
Wholesale non-maturity deposits		57.2			—			—			—			—			57.2
Wholesale time deposits		7.8			5.4			10.0			—			—			23.2
Short-term borrowings		75.6			—			—			—			—			75.6
Long-term FHLB advances and other borrowings		33.0			1.2			146.9			10.5			—			191.6
Other liabilities		—			—			—			—			23.3			23.3
Shareholders’ equity		7.8			23.3			124.4			62.2			—			217.7

Total liabilities and shareholders’ equity	$	324.1		$	365.1		$	885.9		$	460.6		$	23.3		$	2,059.0

Interest-earning assets	$	556.9		$	222.0		$	796.7		$	319.1		$	—		$	1,894.7
Interest-bearing liabilities		290.4			264.2			652.4			216.0			—			1,423.0

Difference between interest-earning assets and interest-bearing liabilities	$	266.5		$	(42.2	)	$	144.3		$	103.1		$	—		$	471.7

Cumulative difference between interest earning assets and interest-bearing liabilities	$	266.5		$	224.3		$	368.6		$	471.7		$	—		$	471.7

Cumulative earning assets as a % of cumulative interest bearing liabilities		192	%		140	%		131	%		133	%

(1)

Loans include portfolio loans and leases and loans held for sale.

The table above indicates that the Corporation is asset-sensitive in the immediate to 90-day time frame and may experience an increase in net interest income during that time period if rates rise. It should be noted that the gap analysis is one tool used to measure interest rate sensitivity and must 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. Conversely, if rates decline, net interest income may decline. The asset-sensitive position reflected in this gap analysis is similar to the Corporation’s position at June 30, 2013.

However, the Corporation is less asset-sensitive over the 12-month time horizon as of September 30, 2013 as compared to June 30, 2013, as there was a larger percentage of fixed rate loans in the portfolio as of September 30, 2013 than there was in the portfolio as of June 30, 2013.

PROVISION FOR LOAN AND LEASE LOSSES

For a general discussion of the allowance for loan and lease losses, and our policies related thereto, refer to page 39 of the Corporation’s 2012 Annual Report on Form 10-K.

Asset Quality and Analysis of Credit Risk

As of September 30, 2013, total non-performing loans and leases decreased by $4.2 million, to $10.6 million, representing 0.71% of portfolio loans and leases, as compared to $14.8 million, or 1.06% of portfolio loans and leases as of December 31, 2012. The decrease in the nonperforming loans and leases from December 31, 2012 to September 30, 2013 was primarily related to a $2.4 million decrease in nonperforming construction loans, a $1.2 million decrease in nonperforming home equity lines and loans and a $512 thousand decrease in nonperforming commercial and industrial loans. In addition to new loans and leases becoming nonperforming and other loans and leases returning to performing status during the period, the decrease in the nonperforming loans and leases was also the result of payoffs, charge-offs and foreclosures. In the construction loan segment of the portfolio, there were $720 thousand of charge-offs and $1.3 million of payoffs. Nonperforming home equity lines and loans declined as a result of charge-offs of $352 thousand, the addition to OREO through foreclosure of two properties totaling $495 thousand. Nonperforming commercial and industrial loans were also reduced as a result of charge-offs of $607 thousand.

The Provision for the three months ended September 30, 2013 was $959 thousand, a slight decrease from the $1.0 million recorded for the same period in 2012. Net charge-offs for the third quarter of 2013 were $376 thousand as compared to $502 thousand for the same period in 2012.

As of September 30, 2013, the Allowance of $15.0 million represented 1.00% of portfolio loans and leases, decreasing three basis points from the 1.03% of portfolio loans and leases as of December 31, 2012.

As of September 30, 2013, the Corporation had OREO valued at $1.3 million, as compared to $906 thousand as of December 31, 2012. The balance as of September 30, 2013 was comprised of three residential properties, a parcel of undeveloped land and one commercial property. All properties are recorded at the lower of cost or fair value less cost to sell.

As of September 30, 2013, the Corporation had $11.6 million of TDRs, of which $8.9 million were in compliance with the modified terms, and hence, excluded from non-performing loans and leases. As of December 31, 2012, the Corporation had $11.1 million of TDRs, of which $8.0 million were in compliance with the modified terms.

As of September 30, 2013, the Corporation had $19.4 million of impaired loans and leases which included $11.6 million of TDRs. Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest in accordance with the original terms of the loans and leases. Impaired loans and leases as of December 31, 2012 totaled $22.0 million, which included $11.1 million of TDRs. Refer to Note 5H in the Notes to Consolidated Financial Statements for more information regarding the Corporation’s impaired loans and leases.

The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. These proactive steps include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall losses. As the table below indicates, overall asset quality has improved since December 31, 2012.

Nonperforming Assets and Related Ratios


(dollars in thousands)	September 30, 2013			December 31, 2012
Non-Performing Assets:
Non-accrual loans and leases	$	10,613		$	14,040
Loans and leases 90 days or more past due - still accruing		—			728

Total non-performing loans and leases		10,613			14,768
Other real estate owned		1,253			906

Total non-performing assets	$	11,866		$	15,674

Troubled Debt Restructures (“TDRs”):
TDRs included in non-performing loans	$	2,628		$	3,106
TDRs in compliance with modified terms		8,947			8,008

Total TDRs	$	11,575		$	11,114

Loan and Lease quality indicators:
Allowance for loan and lease losses to non-performing loans and leases		141.6	%		97.7	%
Non-performing loans and leases to total portfolio loans and leases		0.71	%		1.06	%
Allowance for loan and lease losses to total portfolio loans and leases		1.00	%		1.03	%
Non-performing assets to total assets		0.58	%		0.77	%
Total portfolio loans and leases	$	1,500,015		$	1,295,392
Allowance for loan and lease losses	$	15,027		$	14,425

NON-INTEREST INCOME

Three Months Ended September 30, 2013 Compared to the Same Period in 2012

Non-interest income for the three months ended September 30, 2013 decreased $861 thousand as compared to the same period in 2012. Contributing factors to this decrease included a $1.3 million decrease in the gain on sale of residential mortgage loans and a $416 thousand decline in gain on sale of investment securities available for sale. During the three months ended September 30, 2013, the volume of residential mortgage loans sold to the secondary market dropped significantly, with residential mortgages sold totaling $17.8 million, as compared to $55.0 million during the same period in 2012. While new originations of residential mortgage loans for the 3rd quarter of 2013 totaled $40.4 million, $16.4 million of the originations were jumbo residential mortgage loans which were retained in the portfolio. Also, during the three months ended September 30, 2013, there were no sales of available for sale investment securities, which accounted for the $416 thousand decrease in gain on sale of investment securities available for sale between the periods. Partially offsetting these decreases was a $642 thousand increase in revenue from wealth management services for the three months ended September 30, 2013 as compared to the same period in 2012. Wealth Management Division assets under management, administration, supervision and brokerage as of September 30, 2013 were $7.1 billion, an increase of $600 million, or 9.3%, from September 30, 2012. This increase primarily resulted from organic growth due to the implementation of the division’s strategic initiatives, supplemented by market appreciation in the 3^rd quarter of 2013.

Nine Months Ended September 30, 2013 Compared to the Same Period in 2012

Non-interest income for the nine months ended September 30, 2013 was $36.1 million, an increase of $2.9 million from the same period in 2012. Revenue from wealth management services for the nine months ended September 30, 2013 was $26.1 million, a $4.6 million increase, or 21.7%, from the $21.4 million generated in the same period in 2012. The increase was partially the result of the May 2012 acquisition of DTC which initially added approximately $1.0 billion of assets under management, administration, supervision and brokerage, as well as organic growth related to strategic initiatives within the Wealth Division, and market appreciation.

Partially offsetting the increase in wealth management revenues were decreases of $1.1 million and $723 thousand in gains on the sale of investment securities available for sale and residential mortgage loans, respectively, between periods. As the table below indicates, the volume of residential mortgage loans sold for the nine months ended September 30, 2013 decreased $17.4 million, or 13.0%, as compared to the same period in 2012. This decrease was compounded by a 13 basis point decline in the yield earned on the loan sales. Also, during the nine months ended September 30, 2013, there was only an immaterial amount of investment securities sold.

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


	As of or For the Three Months Ended September 30,						As of or For the Nine Months Ended September 30,
(dollars in millions)	2013			2012			2013			2012
Residential loans held in portfolio	$	291.6		$	301.1		$	291.6		$	301.1
Mortgage originations		40.4			64.5			160.6			171.3
Mortgage loans sold:
Servicing retained		17.8			55.0			115.4			129.8
Servicing released		—			—			0.5			3.5

Total mortgage loans sold		17.8			55.0			115.9			133.3

Percent of originated loans sold		44.1	%		85.3	%		72.2	%		77.8	%
Percent servicing-retained		100.0	%		100.0	%		99.6	%		97.4	%
Percent servicing-released		—	%		—	%		0.4	%		2.6	%
Loans serviced for others	$	627.1		$	583.9		$	627.1		$	583.9
Mortgage servicing rights (“MSRs”)		4.7			4.3			4.7			4.3
Net gain on sale of loans		0.6			1.8			3.6			4.3
Loan servicing and other fees		0.5			0.4			1.4			1.3
Amortization of MSRs		0.2			0.2			0.6			0.7
Net impairment of MSRs		< 0.1			0.1			< 0.1			0.1
Yield on loans sold (includes MSR income)		3.25	%		3.34	%		3.10	%		3.23	%

The following table provides details of other operating income for the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Merchant interchange fees	$	211	$	174	$	606	$	490
Commissions and fees		171		113		374		369
Safe deposit box rentals		103		102		297		301
Insurance commissions		151		118		418		327
Other investment income		33		20		214		191
Title insurance income		33		141		227		274
Rental income		49		53		153		108
Miscellaneous other income		244		152		900		909

Other operating income	$	995	$	873	$	3,189	$	2,969

NON-INTEREST EXPENSE

Three Months Ended September 30, 2013 Compared to the Same Period in 2012

Non-interest expense for the three months ended September 30, 2013 increased $434 thousand, to $19.3 million, as compared to $18.9 million for the same period in 2012. Contributing to this increase were a $302 thousand increase in salaries and benefits, a $158 thousand increase in occupancy costs and a $45 thousand increase in other operating expenses between the periods. Salaries and benefits expense increased primarily as a result of the addition of the branch and lending staff from FBD and the new personnel for our newly-opened full-service branch in Bala Cynwyd, Pennsylvania, which opened at the end of 2012, as well as annual salary increases. Partially offsetting these costs was a decrease in variable compensation to the residential mortgage originators and other factors. The increased occupancy costs were also related to the additions of FBD and our new branch Bala Cynwyd branch. Decreases in impairment and amortization of mortgage servicing rights totaling $128 thousand, along with the absence of the $188 thousand of early extinguishment of debt expenses, partially offset the salary, benefits and occupancy cost increases between the periods.

Nine Months Ended September 30, 2013 Compared to the Same Period in 2012

Non-interest expense for the nine months ended September 30, 2013 increased $6.3 million, to $60.1 million, as compared to $53.8 million for the same period in 2012. Contributing to this increase were increases of $3.0 million in salaries and benefits and $866 thousand in occupancy and equipment expense between the periods, largely related to our recent acquisitions of DTC and FBD, and our new branch location. In addition, other operating expenses increased by $1.9 million between the periods partially related to increases in outsourced services, which included information technology support, as well as increases in computer processing and telecommunications expense.

Partially offsetting these increases was the $690 thousand gain recognized on the curtailment of a nonqualified defined-benefit pension plan which was curtailed, effective March 31, 2013.

Included in other operating expense is deferred compensation expense, which is related to the expense associated with two deferred compensation trust accounts which contain the Corporation’s common stock. As the market value of the stock changes, the liability to the participants in the deferred compensation plans changes, resulting in the recording of an increase or decrease in deferred compensation expense. However, because the stock is carried on the balance sheet as treasury stock, its market value is not adjusted in the treasury stock account. As a result, increases in the market value of the Corporation’s stock are reflected as increases in deferred compensation expense and vice versa.

The following table provides details of other operating expenses for the three and nine months ended September 30, 2013 and 2012:

Components of other operating expenses:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Information technology	$	587	$	638	$	2,099	$	1,542
Loan processing		161		398		764		1,139
Other taxes		154		248		721		889
Temporary help and recruiting		435		312		1,251		606
Telephone and data lines		266		171		1,050		486
Travel and entertainment		131		133		417		392
Stationary and supplies		102		120		373		392
Postage		121		108		382		322
Director fees		118		109		375		326
Investment portfolio maintenance		79		58		270		203
Dues and subscriptions		108		86		286		234
Insurance		171		72		540		214
Deferred compensation expense		328		120		563		256
Outsourced services		107		120		321		416
Miscellaneous other expense		566		696		1,476		1,527

Other operating expense	$	3,434	$	3,389	$	10,888	$	8,944

INCOME TAXES

Income tax expense for the three months ended September 30, 2013 was $3.2 million as compared to $2.9 million for the same period in 2012. The effective tax rate for the three months ended September 30, 2013 was 33.6% as compared to 34.7% for the same period in 2012. Income tax expense for the nine months ended September 30, 2013 was $9.2 million as compared to $8.4 million for the same period in 2012. The effective tax rate for the nine months ended September 30, 2013 was 33.8%, as compared to 34.6% for the same period in 2012. The 80 basis point reduction in effective rate between the nine-month periods was the result of a $152 thousand tax credit recorded in connection with a change-in-method election related to the Corporation’s deferred compensation plans, the tax benefit of $110 thousand related to the utilization of a capital loss carryforward, and other items.

BALANCE SHEET ANALYSIS

Total assets as of September 30, 2013 of $2.06 billion increased by $23.1 million from $2.04 billion as of December 31, 2012. Largely contributing to the increase in total assets was the $101.6 million increase in portfolio loans and leases, which was substantially offset by a decrease of $88.3 million in interest-bearing deposits with other banks. The decrease in deposits was related to the planned run-off of higher-rate certificates of deposit, many of which had been acquired from FBD.

Loans and Leases

The table below compares the portfolio loans and leases outstanding at September 30, 2013 to December 31, 2012:


	September 30, 2013					December 31, 2012					Change
(dollars in thousands)	Balance		Percent of Portfolio			Balance		Percent of Portfolio			Amount			Percent
Commercial mortgage	$	622,771		41.5	%	$	546,358		39.1	%	$	76,413			14.0	%
Home equity lines & loans		187,634		12.5	%		194,861		13.9	%		(7,227	)		(3.7	)%
Residential mortgage		291,645		19.5	%		288,212		20.6	%		3,433			1.2	%
Construction		39,055		2.6	%		26,908		1.9	%		12,147			45.1	%
Commercial and industrial		303,259		20.2	%		291,620		20.9	%		11,639			4.0	%
Consumer		17,572		1.2	%		17,666		1.3	%		(94	)		(0.5	)%
Leases		38,079		2.5	%		32,831		2.3	%		5,248			16.0	%

Total portfolio loans and leases		1,500,015		100.0	%		1,398,456		100.0	%		101,559			7.3	%
Loans held for sale		1,284					3,412					(2,128	)		(62.4	)%

Total loans and leases	$	1,501,299				$	1,401,868				$	99,431			7.1	%

Overall, portfolio loans and leases increased by $101.6 million, or 7.3%, as of September 30, 2013 as compared to December 31, 2012. As detailed in the table above, the most significant increases were seen in the commercial mortgage, commercial and industrial and construction segments of the portfolio, with construction loans increasing by 45.1%, as the housing market continues to recover. The $7.2 million decline in home equity products occurred as borrowers took advantage of the low rate environment to refinance variable-rate credits to lower, fixed rate mortgages which were then sold into the secondary market.

The Corporation continues to focus its business development efforts on building banking relationships with local businesses, not-for-profit companies and strong credit quality individuals. The Corporation believes there are opportunities for new business with credit-worthy borrowers who are not satisfied with their current lender in the commercial real estate market within our primary trading area.

Cash and Investment Securities

As of September 30, 2013, liquidity remained strong as the Corporation had $33.4 million of cash balances at the Federal Reserve and $37.7 million in other interest-bearing accounts, along with significant borrowing capacity as discussed in the “Liquidity” section below.

Investment securities available for sale as of September 30, 2013 totaled $319.9 million, as compared to $316.6 million as of December 31, 2012. The $3.3 million increase in investment securities available for sale during the nine months ended September 30, 2013 was comprised of increases of $17.1 million and $9.7 million in the U.S. Governmental agency and municipal segments of the portfolio, respectively, which were substantially offset by a reduction in the mortgage-related securities segment of the portfolio, which declined by $22.9 million between December 31, 2012 and September 30, 2013. In addition to the portfolio changes related to purchases and pay downs, the recent increase in market rates has eliminated substantially all of the $4.9 million in unrealized gains that were present as of December 31, 2012. The Corporation remains focused on investments that provide an attractive yield, have strong credit quality and limited extension risk. With the recent uptick in market interest rates, the Corporation’s strategy of keeping the average life of the investment portfolio relatively short has shielded the portfolio from the large unrealized losses that a longer portfolio would have experienced.

Deposits and Borrowings++

Deposits and borrowings as of September 30, 2013 and December 31, 2012 were as follows:


	September 30, 2013					December 31, 2012					Change
(dollars in thousands)	Balance		Percent of Deposits			Balance		Percent of Deposits			Amount			Percent
Interest bearing checking	$	244,826		15.8	%	$	270,279		16.5	%	$	(25,453	)		(9.4	)%
Money market		548,011		35.3	%		559,470		34.2	%		(11,459	)		(2.0	)%
Savings		137,431		8.9	%		129,091		7.9	%		8,340			6.5	%
Wholesale non-maturity deposits		57,195		3.7	%		45,162		2.8	%		12,033			26.6	%
Wholesale time deposits		23,127		1.5	%		12,421		0.8	%		10,706			86.2	%
Time deposits		145,119		9.3	%		218,586		13.4	%		(73,467	)		(33.6	)%

Interest-bearing deposits		1,155,709		74.5	%		1,235,009		75.6	%		(79,300	)		(6.4	)%
Non-interest-bearing deposits		394,947		25.5	%		399,673		24.4	%		(4,726	)		(1.2	)%

Total deposits	$	1,550,656		100.0	%	$	1,634,682		100.0	%	$	(84,026	)		(5.21	)%


	September 30, 2013					December 31, 2012					Change
(dollars in thousands)	Balance		Percent of Borrowings			Balance		Percent of Borrowings			Amount		Percent
Short-term borrowings	$	75,588		28.3	%	$	9,403		5.5	%	$	66,185		703.9	%
Long-term FHLB advances and other borrowings		191,645		71.7	%		161,315		94.5	%		30,330		18.8	%

Borrowed funds	$	267,233		100.0	%	$	170,718		100.0	%	$	96,515		56.5	%

Total deposits as of September 30, 2013 decreased $84.0 million from the levels present as of December 31, 2012. As detailed in the table above, the majority of the decrease was related to the higher-costing time deposits, which were allowed to run off. Non-interest-bearing deposits, as a percentage of total deposits, remained strong at 25.5% as of September 30, 2013.

In an effort to lock in longer-term, lower-rate FHLB advances, the Corporation prepaid, during the first quarter of 2013, $20.0 million of long-term FHLB advances with a weighted average rate and remaining maturity of 2.85% and 8.5 months, respectively, incurring a prepayment penalty of $347 thousand. The $20.0 million of prepaid borrowings were replaced with $20.0 million of borrowings with a weighted average rate and term of 1.14% and 59.3 months, respectively. Short-term borrowings increased as the Corporation borrowed $63 million in short-term FHLB advances and Federal Funds at the end of the third quarter of 2013 for liquidity purposes. The $30.3 million increase in long-term FHLB deposits and other borrowings from December 31, 2012 to September 30, 2013 was utilized for funding of loan originations.

The 96.8% loan-to-deposit ratio as of September 30, 2013 increased from 85.8% as of December 31, 2012, reflecting significant loan growth during the period, along with the planned reduction in higher-rate certificates of deposit. Although all of the jumbo residential mortgage loans originated during the three months ended September 30, 2013 were retained in the portfolio, the Corporation maintains the ability to sell future jumbo loan originations into the secondary market, as needed. The Corporation believes that the increase in the loan-to-deposit ratio is mitigated by its significant available borrowing capacity at the FHLB and other sources. The Corporation is currently evaluating potential modifications to certain deposit programs in order to increase overall deposit balances over the next few quarters, as loan growth is expected to remain steady.

Capital

Consolidated shareholder’s equity of the Corporation was $217.8 million, or 10.6% of total assets as of September 30, 2013, as compared to $203.6 million, or 10.0% of total assets as of December 31, 2012. The following table presents the Corporation’s and Bank’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators as of September 30, 2013 and December 31, 2012:


	Actual					Minimum to be Well Capitalized
(dollars in thousands)	Amount		Ratio			Amount		Ratio
September 30, 2013:
Total (Tier II) capital to risk weighted assets
Corporation	$	192,668		12.30	%	$	156,637		10.00	%
Bank		192,557		12.33	%		156,205		10.00	%
Tier I capital to risk weighted assets
Corporation		177,531		11.33	%		93,982		6.00	%
Bank		177,420		11.36	%		93,723		6.00	%
Tier I Leverage ratio (Tier I capital to total quarterly average assets)
Corporation		177,531		9.22	%		96,277		5.00	%
Bank		177,420		9.22	%		96,173		5.00	%
Tangible common equity to tangible assets
Corporation		166,722		8.30	%		N/A		N/A
Bank		166,610		8.32	%		N/A		N/A

December 31, 2012:
Total (Tier II) capital to risk weighted assets
Corporation	$	174,885		12.02	%	$	145,528		10.00	%
Bank		176,985		12.20	%		145,124		10.00	%
Tier I capital to risk weighted assets
Corporation		160,425		11.02	%		87,317		6.00	%
Bank		162,525		11.20	%		87,074		6.00	%
Tier I leverage ratio (Tier I capital to total quarterly average assets)
Corporation		160,425		8.72	%		91,989		5.00	%
Bank		162,525		8.84	%		91,940		5.00	%
Tangible common equity to tangible assets
Corporation		150,663		7.60	%		N/A		N/A
Bank		152,763		7.72	%		N/A		N/A

Both the Corporation and the Bank exceed the capital levels to be considered “well capitalized” that are required by their respective regulators at the end of each period presented. Additionally, the tangible common equity ratios for both the Bank and the Corporation have increased by 60 basis points and 70 basis points, respectively, from their December 31, 2012 levels. These increases were the result of increases in retained earnings and issuance of shares (primarily through the exercise of stock options). Neither the Corporation nor the Bank is under any agreement with regulatory authorities which would have a material effect on liquidity, capital resources or operations of the Corporation or the Bank. However, the final rules approved by the Federal Reserve on July 2, 2013, related to the Basel III regulatory capital reforms, which are discussed below under the heading, “Regulatory Measures and Pending Legislation,” may have a material effect on liquidity, capital resources or operations of the Corporation.

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

Shelf Registration Statement

Dividend Reinvestment and Stock Purchase Plan

The Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”), which was amended and restated on April 27, 2012 primarily to increase the number of shares which can be issued by the Corporation from 850,000 to 1,500,000 shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”) above the Plan’s maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’s common stock and general economic and market conditions.

The Plan is intended to allow both existing shareholders and new investors to easily and conveniently increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions. For the nine months ended September 30, 2013, the Corporation issued 4,765 shares and raised $107 thousand through the Plan.

Liquidity

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

Unused availability is detailed on the following table:


(dollars in millions)	Available Funds as of September 30, 2013		Percent of Total Borrowing Capacity			Available Funds as of December 31, 2012		Percent of Total Borrowing Capacity			Dollar Change			Percent Change
Federal Home Loan Bank of Pittsburgh	$	589.9		71.4	%	$	560.7		77.1	%	$	29.2			5.2	%
Federal Reserve Bank of Philadelphia		88.5		100.0	%		65.2		100.0	%		23.3			35.7	%
Fed Funds Lines (six banks)		39.0		60.9	%		64.0		100.0	%		(25.0	)		(39.1	)%
Revolving line of credit with correspondent bank		3.0		100.0	%		3.0		100.0	%		—			—	%

	$	720.4		73.4	%	$	692.9		80.7	%	$	27.5			4.0	%

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

The Corporation has an agreement with Promontory Interfinancial Network LLC to provide up to $50 million (plus accrued interest) of Insured Network Deposits from broker dealers priced at the effective Federal Funds rate plus 20 basis points. As of September 30, 2013 and December 31, 2012, the Corporation had deposit balances of $50.8 million and $40.0 million, respectively, from this source which are reported on the balance sheet as wholesale non-maturity deposits.

The Corporation has an agreement with IDC to provide up to $5 million (plus accrued interest) of money market deposits at an agreed upon rate currently 0.45%. The Corporation had balances of $5.2 million as of both September 30, 2013 and December 31, 2012 under this program which are reported on the balance sheet as wholesale non-maturity deposits.

The Corporation continually evaluates the cost and mix of its retail and wholesale funding sources relative to earning assets and expected future earning-asset growth. The Corporation believes that with its current branch network, along with the available borrowing capacity at FHLB and other sources, it has sufficient capacity available to fund expected earning-asset growth. Additionally, the Corporation periodically evaluates its liquidity position under various stress situations and develops appropriate contingency funding plans.

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 11 in the Notes to Consolidated Financial Statements).

The Wealth Management segment, as discussed in the Non-Interest Income section of this item, above, recorded pre-tax segment profit (“PTSP”) of $3.3 million and $9.6 million for the three and nine months ended September 30, 2013, respectively, as compared to PTSP of $2.6 million and $7.1 million for the same respective periods in 2012. The Wealth Management segment provided 34.5% and 35.5% of the Corporation’s pre-tax profit for the three and nine months ended September 30, 2013, respectively, as compared to 31.8% and 29.2% for the same respective periods in 2012. The increase in PTSP for the Wealth Management segment for the both the three month and nine month periods ended September 30, 2013, as compared to the same periods in 2012, is partially the result of the acquisition of DTC in addition to organic growth within the division, and market appreciation.

The Banking Segment recorded a PTSP of $6.3 million and $17.5 million for the three and nine months ended September 30, 2013, as compared to PTSP of $5.7 million and $17.2 million for the same respective periods in 2012. The Banking segment provided 65.5% and 64.5% of the Corporation’s pre-tax profit for the three and nine months ended September 30, 2013, respectively, as compared to 68.2% and 70.8% for the same respective periods in 2012.

Off Balance Sheet Risk

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, 2013 were $383.5 million, as compared to $366.6 million at December 31, 2012.

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 Corporation’s obligation under standby letters of credit at September 30, 2013 amounted to $25.3 million, as compared to $22.2 million at December 31, 2012.

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

Contractual Cash Obligations of the Corporation

The following table details the schedule of contractual outflows of cash from the Corporation as of September 30, 2013:


(dollars in millions)	Total		Within 1 Year		2 -3 Years		4 -5 Years		After 5 Years
Deposits without a stated maturity	$	1,382.4	$	1,382.4	$	—	$	—	$	—
Wholesale and time deposits		168.2		119.9		36.0		12.3		—
Short-term borrowings		75.6		75.6		—		—		—
Long-term FHLB advances and other borrowings		191.6		3.9		70.6		102.1		15.0
Operating leases		52.6		3.1		6.2		6.0		37.3
Purchase obligations		10.4		3.6		4.8		1.8		0.2

Total	$	1,880.8	$	1,588.5	$	117.6	$	122.2	$	52.5

Other Information

Regulatory Matters and Pending Legislation

On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Corporation and the Bank. The FDIC and the OCC have subsequently approved these rules. The final rules were adopted following the issuance of proposed rules by the Federal Reserve in June 2012 and implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Corporation and the Bank under the final rules would be:

(i)

a new common equity Tier 1 capital ratio of 4.5%;

(ii)

a Tier 1 capital ratio of 6% (increased from 4%);

(iii)

a total capital ratio of 8% (unchanged from current rules); and

(iv)

a Tier 1 leverage ratio of 4% for all institutions.

The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.

The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019:

(i)

a common equity Tier 1 capital ratio of 7.0%;

(ii)

a Tier 1 capital ratio of 8.5%; and

(iii)

a total capital ratio of 10.5%.

Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. , banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Corporation and the Bank. The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

In addition, the final rules provide for smaller banking institutions (less than $250 billion in consolidated assets) an opportunity to make a one-time election to opt out of including most elements of accumulated other comprehensive income in regulatory capital. Importantly, the opt-out excludes from regulatory capital not only unrealized gains and losses on available-for-sale debt securities, but also accumulated net gains and losses on cash-flow hedges and amounts attributable to defined benefit postretirement plans. The opt-out election must be elected on the first Call Report filed after January 1, 2015.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:”

(i)

a new common equity Tier 1 capital ratio of 6.5%;

(ii)

a Tier 1 capital ratio of 8% (increased from 6%);

(iii)

a total capital ratio of 10% (unchanged from current rules); and

(iv)

a Tier 1 leverage ratio of 5% (increased from 4%).

The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses:

(i)

an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act;

(ii)

revisions to recognition of credit risk mitigation;

(iii)

rules for risk weighting of equity exposures and past due loans;

(iv)

revised capital treatment for derivatives and repo-style transactions; and

(v)

disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.

The Dodd-Frank Act expanded the base for FDIC insurance assessments, requiring that assessments be based on the average consolidated total assets less tangible equity capital of a financial institution. On February 7, 2011, the FDIC approved a final rule to implement the foregoing provision of the Dodd-Frank Act and to make other changes to the deposit insurance assessment system applicable to insured depository institutions with over $10 billion in assets. Among other things, the final rule eliminated risk categories and the use of long-term debt issuer ratings in calculating risk-based assessments, and instead implemented a scorecard method, combining CAMELS ratings and certain forward-looking financial measures to assess the risk an institution poses to the Deposit Insurance Fund. The final rule also revised the assessment rate schedule for large institutions and highly complex institutions to provide assessments ranging from 2.5 to 45 basis points. Except as specifically provided, the final rule took effect for the quarter beginning April 1, 2011.

Effects of Inflation

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

Effects of Government Monetary Policies

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

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

Special Cautionary Notice Regarding Forward Looking Statements

Certain of the statements contained in this Quarterly Report on Form 10-Q, including, without limitation, this Item 2 of Part I. may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (the “Corporation”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to the Corporation’s financial goals, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights, the effect of changes in accounting standards, and market and pricing trends loss. The words “may”, “would”, “could”, “will”, “likely”, “expect,” “anticipate,” “intend”, “estimate”, “plan”, “forecast”, “project” and “believe” and similar expressions are intended to identify such forward-looking statements. The Corporation’s actual results may differ materially from the results anticipated by the forward-looking statements due to a variety of factors, including without limitation:

•

the effect of future economic conditions on the Corporation and its customers, including economic factors which affect consumer confidence in the securities markets, wealth creation, investment and savings patterns, the real estate market, and the Corporation’s interest rate risk exposure and credit risk;

•

changes in the securities markets with respect to the market values of financial assets and the stability of particular securities markets;

•

any future downgrades in the credit rating of the U.S. Government and federal agencies;

•

governmental monetary and fiscal policies, as well as legislation and regulatory changes;

•

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

•

changes in accounting requirements or interpretations;

•

changes in existing statutes, regulatory guidance, legislation or judicial decisions that adversely affect our business, including changes in federal income tax or other tax regulations;

•

the risks of changes in interest rates on the level and composition of deposits, loan demand, and the value of loan collateral and securities, as well as interest rate risk;

•

the effects of competition from other commercial banks, thrifts, mortgage companies, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money-market and mutual funds and other institutions operating in the Corporation’s trade market area and elsewhere including institutions operating locally, regionally, nationally and internationally and such competitors offering banking products and services by mail, telephone, computer and the Internet;

•

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

•

the Corporation’s need for capital;

•

the Corporation’s success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets and generating a profit in those markets in a reasonable time;

•

the Corporation’s ability to continue to generate investment results for customers and the ability to continue to develop investment products in a manner that meets customers needs;

•

differences in the actual financial results, cost savings, and revenue enhancements associated with our acquisitions;

•

changes in consumer and business spending, borrowing and savings habits and demand for financial services in our investment products in a manner that meets customers’ needs;

•

the Corporation’s timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers;

•

the Corporation’s ability to originate, sell and service residential mortgage loans;

•

the accuracy of assumptions underlying the establishment of reserves for loan losses and estimates in the value of collateral, the market value of mortgage servicing rights and various financial assets and liabilities;

•

the Corporation’s ability to retain key members of the senior management team;

•

the ability of key third-party providers to perform their obligations to the Corporation and the Bank;

•

technological changes being more difficult or expensive than anticipated; and

•

the Corporation’s 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 use of the foregoing cautionary statements. All forward-looking statements included in this Quarterly Report and incorporated documents 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. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this Quarterly Report or incorporated documents might not occur and you should not put undue reliance on any forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

See Item 2 – “Management’s Discussion and Analysis of Results of Operations – Interest Rate Summary,” “Summary of Interest Rate Simulation,” and “Gap Analysis” for a discussion of the Corporation’s and Bank’s exposure to market risk since December 31, 2012. For further discussion of quantitative and qualitative disclosures about market risks, please also refer to the Corporation’s 2012 Annual Report on Form 10-K.

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, Frederick C. Peters II, and Chief Financial Officer, J. Duncan Smith, 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 are effective.

There have not been any changes in the Corporation’s internal controls over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II OTHER INFORMATION.

ITEM 1. Legal Proceedings.

In the ordinary course of business, the Corporation is subject to litigation, claims, and assessments that involve claims for monetary relief. Some of these are covered by insurance. Based upon information presently available to the Corporation and its counsel, it is the Corporation’s opinion that any legal and financial responsibility arising from such claims will not have a material, adverse effect on its results of operations, financial condition or capital.

ITEM 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Risk Factors” included within the Corporation’s 2012 Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. The risks described in the 2012 Annual Report on Form 10-K are not the only risks facing us. 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 and/or operating results. See “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Special Cautionary Notice Regarding Forward Looking Statements.”

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

Share Repurchase

The following tables present the shares repurchased by the Corporation during the third quarter of 2013 :


Period	Total Number of Shares Purchased⁽²⁾⁽³⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
July 1, 2013 - July 31, 2013		1,489	$	23.81		—		195,705
August 1, 2013 - August 31, 2013		17,257	$	26.27		—		195,705
September 1, 2013 - September 30, 2013		—	$	—		—		195,705

Total		18,746	$	26.07		—		195,705

⁽¹⁾

On February 24, 2006, the Board of Directors of the Corporation adopted a stock repurchase program (the “2006 Program”) under which the Corporation may repurchase up to 450,000 shares of the Corporation’s common stock, not to exceed $10 million. The 2006 Program was publicly announced in a Press Release dated February 24, 2006. There is no expiration date on the 2006 Program and the Corporation has no plans for an early termination of the 2006 Program. All shares purchased through the 2006 Program were accomplished in open market transactions.

⁽²⁾

On July 1, 2013, 1,489 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.

⁽³⁾

On August 20, 2013, 17,257 shares were repurchased and retired to treasury to satisfy statutory tax withholding requirements in connection with the vesting of performance share awards for certain of the Bank’s officers.

As of September 30, 2013, the maximum number of shares that may yet be purchased under the 2006 Program was 195,705.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits


Exhibit No.		Description and References

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

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

10.1		Mutual Termination Agreement, dated as of August 8, 2013, by and between Bryn Mawr Bank Corporation and MidCoast Community Bancorp, Inc., incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on August 9, 2013

31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

101.INS XBRL		Instance Document

101.SCH XBRL		Taxonomy Extension Schema Document

101.CAL XBRL		Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL		Taxonomy Extension Definition Linkbase Document

101.LAB XBRL		Taxonomy Extension Label Linkbase Document

101.PRE XBRL		Taxonomy Extension Presentation Linkbase Document

*	Management contract or compensatory plan arrangement.

**	Shareholder approved compensatory plan pursuant to which the Registrant’s Common Stock may be issued to employees of the Corporation.

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: November 8, 2013	By:	/S/ FREDERICK C. PETERS II
		Frederick C. Peters II
		President & Chief Executive Officer

Date: November 8, 2013	By:	/S/ J. DUNCAN SMITH
		J. Duncan Smith CPA
		Treasurer & Chief Financial Officer

Form 10-Q

Index to Exhibits Furnished Herewith


Exhibit No.		Description and References

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

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

10.1		Mutual Termination Agreement, dated as of August 8, 2013, by and between Bryn Mawr Bank Corporation and MidCoast Community Bancorp, Inc., incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on August 9, 2013

31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

101.INS XBRL		Instance Document

101.SCH XBRL		Taxonomy Extension Schema Document

101.CAL XBRL		Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL		Taxonomy Extension Definition Linkbase Document

101.LAB XBRL		Taxonomy Extension Label Linkbase Document

101.PRE XBRL		Taxonomy Extension Presentation Linkbase Document