BRYN MAWR BANK CORPORATION

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

(Mark One)

For the fiscal year ended

December 31, 2018

for the transition period from

Commission file number 001

35746.

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well

known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

☒

☐

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes

☐

☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of

1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to

such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405

of Regulation S

T (§232.405 of this chapter)

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Section 1: 10-K (10-K)

Form 10-K

☒

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐

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

BRYN MAWR BANK

CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania

2434506

(State of other jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

801 Lancaster Avenue, Bryn Mawr, Pennsylvania

19010

(Address of principal executive offices)

(Zip Code)

(Registrant

’

s telephone number, including area code) (610) 525

1700

Title of each class

Name of each exchange on which registered

Common Stock ($1 par value)

The

Nasdaq

Stock

Market

LLC

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S

K (§229.405 of this chapter) is not contained herein,

and will not be contained, to the best of registrant

’

s knowledge, in definitive proxy or information statements incorporated by reference in Part III of

this Form 10

K or any amendment to this Form 10

☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non

accelerated filer, a smaller reporting company, or

an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging

growth company”

in Rule 12b

2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with

any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b

2 of the Act):

Yes

☐

☒

The aggregate market value of shares of common stock held by non

affiliates of the registrant (including fiduciary accounts administered by

affiliates) was

$924,061,719

June 30, 2018

and was based upon the last sales price at which our common stock was quoted on the NASDAQ

Stock Market on June 30, 2018.*

As of

February 19, 2019

, there were

20,163,136

shares of common stock outstanding.

Documents Incorporated by Reference: Portions of the Definitive Proxy Statement of registrant to be filed with the Commission pursuant to

Regulation 14A with respect to the registrant

’

s Annual Meeting of Shareholders to be held on

April 18, 2019

(

“

2019

Proxy Statement”

as indicated

in Parts II and III, are incorporated into this Form 10

K by reference.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non

Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging growth company

☐

The registrant does not admit by virtue of the foregoing that its officers and directors are “affiliates” as defined in Rule 405.

Table of Contents

Form 10

Bryn Mawr Bank Corporation

Index

Item No.

Page

Part I

Business

1A.

Risk Factors

1B.

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

Part II

Market for Registrant

’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Selected Financial Data

Management

’

s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”

)

7A.

Quantitative and Qualitative Disclosures about Market Risk

Financial Statements and Supplementary Data

Change in and Disagreements with Accountants on Accounting and Financial Disclosure

132

9A.

Controls and Procedures

132

9B.

Other Information

132

Part III

10.

Directors, Executive Officers and Corporate Governance

132

11.

Executive Compensation

132

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

132

13.

Certain Relationships and Related Transactions, Director Independence

132

14.

Principal Accounting Fees and Services

132

Part IV

15.

Exhibits and Financial Statement Schedules

133

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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements contained in this report and the documents incorporated by reference herein may constitute forward

looking

statements for the purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, and the Private

Securities Litigation Reform Act of 1995 (the

“

Reform Act

”

). As such, they are only predictions and may involve known and unknown risks,

uncertainties and other factors which may cause actual results, performance or achievements of the Bryn Mawr Bank Corporation (the

“

Corporation

”

) to be materially different from future results, performance or achievements expressed or implied by such forward

looking

statements. These forward

looking statements include statements with respect to the Corporation

’

s financial goals, business plans, business

prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, mortgage servicing rights,

the effect of changes in accounting standards, and market and pricing trends loss. The words

“

may,

”

“

would,

”

“

could,

”

“

will,

”

“

likely,

”

“

expect,

” “

anticipate,

” “

intend,

”

“

estimate,

”

“

plan,

”

“

forecast,

”

“

project,

”

“

believe

”

and similar expressions are intended to identify

statements that constitute forward

looking statements. The Corporation

’

s actual results may differ materially from the results anticipated by the

forward

looking statements due to a variety of factors, including without limitation:

•

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

impacts;

•

our need for capital;

•

reduced demand for our products and services, and lower revenues and earnings due to an economic recession;

•

lower earnings due to other

than

temporary impairment charges related to our investment securities portfolios or other assets;

•

changes in monetary or fiscal policy, or existing statutes, regulatory guidance, legislation or judicial decisions, including those

concerning banking, securities. insurance or taxes, that adversely affect our business, the financial services industry as a whole, the

Corporation, or our subsidiaries individually or collectively;

•

changes in the level of non

performing assets and charge

offs;

•

effectiveness of capital management strategies and activities;

•

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

requirements;

•

other changes in accounting requirements or interpretations;

•

the accuracy of assumptions underlying the establishment of provisions for loan and lease losses, estimates in the value of collateral,

and various financial assets and liabilities;

•

inflation, securities market and monetary fluctuations, including changes in the market values of financial assets and the stability of

particular securities markets;

•

changes in interest rates, spreads on interest

earning assets and interest

bearing liabilities, and interest rate sensitivity;

•

prepayment speeds, loan originations and credit losses;

•

changes in the value of our mortgage servicing rights;

•

sources of liquidity and financial resources in the amounts, at the times, and on the terms required to support our future business;

•

results of examinations by the Federal Reserve Board of the Corporation or its subsidiaries, including the possibility that such

regulator may, among other things, require us to increase our allowance for loan losses or to write down assets, or restrict our ability

to: engage in new products or services; engage in future mergers or acquisitions; open new branches; pay future dividends; or

otherwise take action, or refrain from taking action, in order to correct activities or practices that the Federal Reserve believes may

violate applicable law or constitute an unsafe or unsound banking practice;

•

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

•

fair value of and number of stock

based compensation awards to be issued in future periods;

•

risks related to our mergers and acquisitions, including, but not limited to: reputational risks; client and customer retention risks;

diversion of management

’

s time for integration

related issues; integration may take longer than

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anticipated or cost more than expected; anticipated benefits of the merger or acquisition, including any anticipated cost savings or

strategic gains, may take longer or be significantly harder to achieve, or may not be realized;

All written or oral forward

looking statements attributed to the Corporation are expressly qualified in their entirety by the factors, risks,

and uncertainties set forth in the foregoing cautionary statements, along with those set forth under the caption titled

“

Risk Factors

”

beginning

on page 12 of this Report. All forward

looking statements included in this Report and the documents incorporated by reference herein are based

upon the Corporation

’

s beliefs and assumptions as of the date of this Report. The Corporation assumes no obligation to update any forward

looking statement, whether the result of new information, future events, uncertainties or otherwise, as of any future date. In light of these risks,

uncertainties and assumptions, you should not put undue reliance on any forward

looking statements discussed in this Report or incorporated

documents.

•

deposit attrition, operating costs, customer loss and business disruption following a merger or acquisition, including, without

limitation, difficulties in maintaining relationships with employees, customers, and/or suppliers may be greater than expected;

•

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

•

our success in continuing to generate new business in our existing markets, as well as identifying and penetrating targeted markets and

generating a profit in those markets in a reasonable time;

•

our ability to continue to generate investment results for customers or introduce competitive new products and services on a timely,

cost

effective basis, including investment and banking products that meet customers

’

needs;

•

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

areas;

•

extent to which products or services previously offered (including but not limited to mortgages and asset back securities) require us to

incur liabilities or absorb losses not contemplated at their initiation or origination;

•

rapid technological developments and changes;

•

technological systems failures, interruptions and security breaches, internally or through a third

party provider, could negatively

impact our operations, customers and/or reputation;

•

competitive pressure and practices of other commercial banks, thrifts, mortgage companies, finance companies, credit unions, securities

brokerage firms, insurance companies, money

market and mutual funds and other institutions operating in our market areas and

elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering

banking products and services by mail, telephone, computer and the internet;

•

protection and validity of intellectual property rights;

•

reliance on large customers;

•

technological, implementation and cost/financial risks in contracts;

•

the outcome of pending and future litigation and governmental proceedings;

•

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

•

ability to retain key employees and members of senior management;

•

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

•

the ability of key third

party providers to perform their obligations to us and our subsidiaries;

•

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

•

other material adverse changes in operations or earnings; and

•

our success in managing the risks involved in the foregoing.

Table of Contents

PART I

ITEM 1.

BUSINESS

GENERAL

The Bryn Mawr Trust Company (the “Bank”

)

received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve

System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”

)

was formed and on January 2, 1987, the Bank became a wholly

owned subsidiary

of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation

and its subsidiaries offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages,

insurance and wealth management services, including investment management, trust and estate administration, retirement planning, custody

services, and tax planning and preparation from 43 banking locations, six wealth management offices and two insurance and risk management

locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in

Delaware; and Mercer and Camden Counties in New Jersey. The Corporation

’

s common stock trades on the NASDAQ Stock Market (“NASDAQ”

)

under the symbol BMTC.

The goal of the Corporation is to become the premier community bank and wealth management organization in the greater Philadelphia

area. The Corporation

’

s strategy to achieve this goal includes investing in people and technology to support its growth, leveraging the strength of

its brand, targeting high

potential markets for expansion, basing its sales strategy on relationships and concentrating on core product solutions.

The Corporation strives to strategically broaden the scope of its product offerings, engaging in inorganic growth by selectively acquiring small to

mid

sized banks, insurance brokerages, wealth management companies, and advisory and planning services firms, and hiring high

performing teams

where strategically advantageous.

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

”

the Federal Deposit Insurance

Corporation (“

FDIC

”

the Federal Reserve and the Pennsylvania and Delaware Departments of Banking.

WEBSITE DISCLOSURES

The Corporation files with the SEC and makes available, free of charge, through its website, its Annual Report on Form 10

K, Quarterly

Reports on Form 10

Q, Current Reports on Form 8

K, Proxy Statements on Schedule 14A, and all amendments to those reports as soon as

reasonably practicable after the reports are electronically filed with the SEC. These reports can be obtained on the Corporation

’

s website at

www.bmt.com by following the link, “About BMT,” followed by “Investor Relations.” The information contained on or connected to our website is

not incorporated by reference into this Annual Report on Form 10

OPERATIONS

•

Bryn Mawr Bank Corporation

The Corporation has no active staff as of

December 31, 2018

. The Corporation is the sole shareholder of the stock of the Bank.

Additionally, the Corporation performs several functions including shareholder communications, shareholder recordkeeping, the distribution of

dividends and the periodic filing of reports and payment of fees to NASDAQ, the SEC and other regulatory agencies.

As of

December 31, 2018

, the Corporation and its subsidiaries collectively had 631 full

time and 65 part

time employees, totaling 668 full

time equivalent staff.

ACTIVE

SUBSIDIARIES OF THE CORPORATION

The Corporation has four active subsidiaries which provide various services as described below. Additionally, the Corporation and the

Bank acquired certain subsidiaries in the merger of Royal Bancshares of Pennsylvania, Inc. (“

RBPI

”

)

with and into the Corporation on December 15,

2017 (the

“Effective Date”

and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the

Agreement and Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”

)

that are not included in

the below descriptions as they are not

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integral or significant to our business. Further, in connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal

Bancshares Capital Trust I and Royal Bancshares Capital Trust II, which are discussed in more detail in Note 1, “Summary of Significant

Accounting Policies,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

•

The Bryn Mawr Trust Company

The Bank is engaged in commercial and retail banking business, providing basic banking services, including the acceptance of demand,

time and savings deposits and the origination of commercial, real estate and consumer loans and other extensions of credit including leases. The

Bank also provides a full range of wealth management services including trust administration and other related fiduciary services, custody services,

investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax services, financial planning

and brokerage services. The Bank

’

s employees are included in the Corporation

’

s employment numbers above.

The Bank presently operates 43 banking locations (which include eight retirement home community locations), six wealth management

offices, and two insurance and risk management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin

Counties in Pennsylvania; New Castle County in Delaware; and Mercer and Camden Counties in New Jersey. See the section titled

“

COMPETITION

” later in this item for additional information.

•

Lau Associates

LLC

Lau Associates LLC, a SEC registered investment advisor, is an independent, family wealth office serving high net worth individuals and

families, with special expertise in planning intergenerational inherited wealth. Lau Associates LLC is headquartered in Greenville, Delaware, and is a

wholly

owned subsidiary of the Corporation.

•

The Bryn Mawr Trust Company of Delaware

The Bryn Mawr Trust Company of Delaware (“

BMTC

”

)

is a limited

purpose trust company located in Greenville, DE and has the ability

to be named and serve as a corporate fiduciary under Delaware law. Being able to serve as a corporate fiduciary under Delaware law is

advantageous as Delaware statutes are widely recognized as being favorable with respect to the creation of tax

advantaged trust structures, LLCs

and related wealth transfer vehicles for families and individuals throughout the United States. BMTC

DE is a wholly

owned subsidiary of the

Corporation.

•

BMT Investment Advisers

BMT Investment Advisers (“BMTIA”

a Delaware statutory trust and wholly

owned subsidiary of the Corporation, was established in

May 2017. BMTIA is an SEC

registered investment adviser which serves as investment adviser to BMT Investment Funds, a Delaware statutory

trust. There is an Investment Advisory Agreement between BMT Investment Advisers and BMT Investment Funds, on behalf of the BMT Multi

Cap Fund. The BMT Multi

Cap Fund is a broadly diversified mutual fund focused on equity investments.

ACTIVE SUBSIDIARIES OF THE BANK

The Bank has three active subsidiaries providing various services as described below:

•

KCMI Capital, Inc.

KCMI Capital, Inc. (“

KCMI

”

)

is a wholly

owned subsidiary of the Bank, located in Media, Pennsylvania, which was established on

October 1, 2015. KCMI specializes in providing non

traditional commercial mortgage loans to small businesses throughout the United States.

•

BMT Insurance Advisors, Inc. f/k/a

Powers Craft Parker and Beard, Inc.

BMT Insurance Advisors, Inc. (“BMT Insurance Advisors”

formerly known as Powers Craft Parker and Beard, Inc. (“

PCPB

”

)

is a wholly

owned subsidiary of the Bank, headquartered in Berwyn, Pennsylvania. BMT Insurance Advisors is a full

service insurance agency, through which

the Bank offers insurance and related products and services to its customer base. This includes casualty, property and allied insurance lines, as well

as life insurance, annuities, medical insurance and accident and health insurance for groups and individuals.

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•

Bryn

Mawr Equipment Finance, Inc.

Bryn Mawr Equipment Finance, Inc. (“

BMEF

”

a wholly

owned subsidiary of the Bank, is a Delaware corporation registered to do

business in Pennsylvania. BMEF is a small

ticket equipment financing company servicing customers nationwide from its Montgomery County,

Pennsylvania location.

BUSINESS COMBINATIONS

The Corporation and its subsidiaries engaged in the following business combinations since January 1, 2014:

•

Domenick & Associates (“Domenick”

)

The Bank

’

s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full

service insurance agency established in 1993

and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was

$1.5 million

, of which $750 thousand was

paid at closing, with three contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and

May 1, 2021, subject to the attainment of certain targets during the related periods.

•

Royal Bancshares of Pennsylvania, Inc.

On December 15, 2017, the RBPI Merger was completed. In accordance with the Agreement, the aggregate share consideration paid to

RBPI shareholders consisted of

3,101,316

shares of the Corporation

’

s common stock. Shareholders of RBPI received

0.1025

shares of Corporation

common stock for each share of RBPI Class A common stock and

0.1179

shares of Corporation common stock for each share of RBPI Class B

common stock owned as of the Effective Date of the RBPI Merger, with cash

lieu of fractional shares totaling $7 thousand. The RBPI Merger

initially added

$566.2 million

of loans,

$121.6 million

of investments,

$593.2 million

of deposits, twelve new branches and a loan production office.

The acquisition of RBPI expanded the Corporation

’

s footprint within Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as

well as Camden and Mercer Counties in New Jersey.

•

Harry R. Hirshorn & Company, Inc.

On May 24, 2017, the Bank acquired Harry R. Hirshorn & Company, Inc. (“Hirshorn”

an insurance agency headquartered in the Chestnut

Hill section of Philadelphia. Consideration totaled

$7.5 million

, of which

$5.8 million

was paid at closing, one contingent cash payment of

$575

thousand was paid during the second quarter of 2018, and two contingent cash payments, not to exceed $575 thousand each, to be payable in 2019

and 2020, subject to certain conditions. The acquisition of Hirshorn expanded the Bank

’

s footprint into this desirable northwest corner of

Philadelphia. Immediately after acquisition, Hirshorn was merged into PCPB (now BMT Insurance Advisors).

•

Robert J. McAllister Agency, Inc.

On April 1, 2015, the acquisition of Robert J. McAllister, Inc. (“RJM”

an insurance brokerage headquartered in Rosemont, Pennsylvania,

was completed. Consideration totaled $1.0 million, of which $500 thousand was paid at closing, two contingent payments of $85 thousand (out of a

maximum of $100 thousand) were paid during the second quarters of 2018 and 2016, one contingent payment of $100 thousand was paid during the

second quarter of 2017, and two remaining contingent cash payments, not to exceed $100 thousand each, will be payable in 2019 and 2020, subject

to certain conditions. Shortly after acquisition, RJM was merged into PCPB (now BMT Insurance Advisors).

•

Continental Bank Holdings, Inc.

On January 1, 2015, the merger of Continental Bank Holdings, Inc. (“

CBH

”

)

with and into the Corporation (the “CBH Merger”

and the

merger of Continental Bank with and into the Bank, were completed. Consideration totaled $125.1 million, comprised of 3,878,304 shares of the

Corporation

’

s common stock, the assumption of options to purchase Corporation common stock valued at $2.3 million, $1.3 million for the cash

out

of certain warrants, and $2 thousand cash in lieu of fractional shares. The CBH Merger initially added $424.7 million of loans, $181.8 million of

investments, $481.7 million of deposits and ten new branches. The acquisition of CBH enabled the Corporation to expand its footprint within

Montgomery County, Pennsylvania.

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•

BMT Insurance Advisors, Inc. f/k/a

Powers Craft Parker and Beard, Inc.

On October 1, 2014, the acquisition of PCPB, an insurance brokerage previously headquartered in Rosemont, Pennsylvania, was

completed. The consideration paid by the Corporation was $7.0 million, of which $5.4 million was paid at closing and three contingent payments, of

$542 thousand each, which were paid during the fourth quarters of 2015, 2016 and 2017. The addition enabled the Corporation to offer a full range of

insurance products to both individual and business clients. As described above, the subsequent acquisitions of RJM and Hirshorn were merged

into PCPB, which was renamed BMT Insurance Advisors. The resulting combined entity, operating from two locations, under the name BMT

Insurance Advisors, has enhanced the Bank

’

s ability to offer comprehensive insurance solutions to both individual and business clients.

SOURCES OF THE CORPORATION

’

S REVENUE

Continuing Operations

See Note 30, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form

K for additional information. The Corporation had no discontinued operations in

2016, 2017

2018.

DESCRIPTION OF BUSINESS AND

COMPETITION

The Corporation and its subsidiaries, including the Bank, compete for deposits, loans, wealth management and insurance services in

Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania, New Castle County in Delaware, and Mercer and Camden

Counties in New Jersey. The Corporation has 43 banking locations, six wealth management offices and two insurance and risk management

locations.

The markets in which the Corporation competes are highly competitive. The Corporation

’

s direct competition in attracting business is

mainly from commercial banks, investment management companies, savings and loan associations, trust companies and insurance agencies. The

Corporation also competes with credit unions, on

line banking enterprises, consumer finance companies, mortgage companies, insurance

companies, stock brokerage companies, investment advisory companies and other entities providing one or more of the services and products

offered by the Corporation.

The Corporation is able to compete with the other firms because of its consistent level of customer service, excellent reputation,

professional expertise, comprehensive product line, and its competitive rates and fees. However, there are several negative factors which can hinder

the Corporation

’

s ability to compete with larger institutions such as its limited number of locations, smaller advertising and technology budgets,

and a general inability to scale its operating platform, due to its size.

Mergers, acquisitions and organic growth through subsidiaries have contributed significantly to the growth and expansion of the

Corporation. The acquisition of Lau Associates LLC in July 2008 and the formation of BMTC

DE allowed the Corporation to establish a presence in

the State of Delaware, where it competes for wealth management business. The November 2012 acquisition of certain loan and deposit accounts and

a branch location from First Bank of Delaware enabled the Corporation to further expand its banking segment in the greater Wilmington, Delaware

area.

The Corporation

’

s first significant bank acquisition, the July 2010 merger with First Keystone Financial, Inc. expanded the Corporation

’

footprint significantly into Delaware County, Pennsylvania. This was followed by the January 2015 merger with CBH and the December 2017 merger

with RBPI. These bank mergers further expanded the Corporation

’

s reach well into the surrounding counties in Pennsylvania, including five

branches within the City of Philadelphia, and also expanded the Bank

’

s footprint into southern and central New Jersey.

The acquisition of the Private Wealth Management Group of the Hershey Trust Company (“PWMG”

)

in May 2011 enabled the Bank

’

Wealth Management Division to extend into central Pennsylvania by continuing to operate the former PWMG offices located in Hershey,

Pennsylvania. The May 2012 acquisition of the Davidson Trust Company allowed the Corporation to further expand its range of services and bring

deeper market penetration in our core market area.

The October 2014 acquisition of PCPB, April 2015 acquisition of RJM, the May 2017 acquisition of Hirshorn, and the May 2018 acquisition

of Domenick enabled the Bank to expand its range of insurance solutions to both individuals as well as business clients. The Hirshorn transaction,

in particular, established a key location in the desirable northwest corner of Philadelphia, affording the Bank greater opportunity to provide

insurance and other financial solutions to both existing and potential clients.

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In October 2015, KCMI was established which enabled the Corporation to compete, on a national level, for a specialized lending market

that focuses on non

traditional small business borrowers with well

established businesses. In addition to KCMI, BMEF, which specializes in

equipment leases for small

and mid

sized businesses, also competes on a national scale.

In May 2017, BMTIA was established. BMTIA is an SEC

registered investment adviser which serves as investment adviser to BMT

Investment Funds, a Delaware statutory trust. There is an Investment Advisory Agreement between BMT Investment Advisers and BMT

Investment Funds, on behalf of the BMT Multi

Cap Fund. The BMT Multi

Cap Fund is a broadly diversified mutual fund focused on equity

investments which the Corporation

’

s wealth management division is able to offer as an investment choice to its client base.

SUPERVISION AND REGULATION

The Corporation and its subsidiaries, including the Bank, are subject to extensive regulation under both federal and state law. To the extent

that the following information describes statutory provisions and regulations which apply to the Corporation and its subsidiaries, it is qualified in

its entirety by reference to those statutory provisions and regulations:

•

Bank Holding Company Regulation

The Corporation, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the “Act”

The Act

limits the business of bank holding companies to banking, managing or controlling banks, performing certain servicing activities for subsidiaries

and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. The Corporation and its non

bank subsidiaries are subject to the supervision of the Federal Reserve Board and the Corporation is required to file, with the Federal Reserve

Board, an annual report and such additional information as the Federal Reserve Board may require pursuant to the Act and the regulations which

implement the Act. The Federal Reserve Board also conducts inspections of the Corporation and each of its non

banking subsidiaries.

The Act requires each bank holding company to obtain prior approval by the Federal Reserve Board before it may acquire (i) direct or

indirect ownership or control of more than 5% of the voting shares of any company, including another bank holding company or a bank, unless it

already owns a majority of such voting shares, or (ii) all, or substantially all, of the assets of any company.

The Act also prohibits a bank holding company from engaging in, or from acquiring direct or indirect ownership or control of more than 5%

of the voting shares of any company engaged in non

banking activities unless the Federal Reserve Board, by order or regulation, has found such

activities to be so closely related to banking or to managing or controlling banks as to be appropriate. The Federal Reserve Board has, by

regulation, determined that certain activities are so closely related to banking or to managing or controlling banks, so as to permit bank holding

companies, such as the Corporation, and its subsidiaries formed for such purposes, to engage in such activities, subject to obtaining the Federal

Reserve Board

’

s approval in certain cases.

Under the Act, a bank holding company and its subsidiaries are prohibited from engaging in certain tie

in arrangements in connection with

any extension or provision of credit, lease or sale of property or furnishing any service to a customer on the condition that the customer provide

additional credit or service to the bank, to its bank holding company or any other subsidiaries of its bank holding company or on the condition that

the customer refrain from obtaining credit or service from a competitor of its bank holding company. Further, the Bank, as a subsidiary bank of a

bank holding company, such as the Corporation, is subject to certain restrictions on any extensions of credit it provides to the Corporation or any

of its non

bank subsidiaries, investments in the stock or securities thereof, and on the taking of such stock or securities as collateral for loans to

any borrower.

In addition, the Federal Reserve Board may issue cease

and

desist orders against bank holding companies and non

bank subsidiaries to

stop actions believed to present a serious threat to a subsidiary bank. The Federal Reserve Board also regulates certain debt obligations and

changes in control of bank holding companies.

Under the Federal Deposit Insurance Act, as amended by the Dodd

Frank Act, a bank holding company is required to serve as a source of

financial strength to each of its subsidiary banks and to commit resources, including capital funds during periods of financial stress, to support

each such bank. Consistent with this “source of strength” requirement for subsidiary banks, the Federal Reserve Board has stated that, as a matter

of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common

shareholders has been sufficient to fund fully the

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dividends, and the prospective rate of earnings retention appears to be consistent with the company

’

s capital needs, asset quality and overall

financial condition.

Federal law also grants to federal banking agencies the power to issue cease and desist orders when a depository institution or a bank

holding company or an officer or director thereof is engaged in or is about to engage in unsafe and unsound practices. The Federal Reserve Board

may require a bank holding company, such as the Corporation, to discontinue certain of its activities or activities of its other subsidiaries, other

than the Bank, or divest itself of such subsidiaries if such activities cause serious risk to the Bank and are inconsistent with the Act or other

applicable federal banking laws.

•

Federal Reserve Board and Pennsylvania Department of Banking and Securities Regulation

The Corporation

’

s Pennsylvania state chartered bank, The Bryn Mawr Trust Company, is regulated and supervised by the Pennsylvania

Department of Banking and Securities (the “Department of Banking”

)

and subject to regulation by the Federal Reserve Board and the FDIC. The

Department of Banking and the Federal Reserve Board regularly examine the Bank

’

s reserves, loans, investments, management practices and other

aspects of its operations and the Bank must furnish periodic reports to these agencies. The Bank is a member of the Federal Reserve System.

The Bank

’

s operations are subject to certain requirements and restrictions under federal and state laws, including requirements to maintain

reserves against deposits, limitations on the interest rates that may be paid on certain types of deposits, restrictions on the types and amounts of

loans that may be granted and the interest that may be charged thereon, limitations on the types of investments that may be made and the types of

services which may be offered. Various consumer laws and regulations also affect the operations of the Bank. These regulations and laws are

intended primarily for the protection of the Bank

’

s depositors and customers rather than holders of the Corporation

’

s stock.

The regulations of the Department of Banking restrict the amount of dividends that can be paid to the Corporation by the Bank. Payment

of dividends is restricted to the amount of the Bank's net income during the current calendar year and the retained net income of the prior two

calendar years, unless the dividend has been approved by the Board of Governors of the Federal Reserve System. Accordingly, the dividend

payable by the Bank to the Corporation beginning on January 1, 2019 is limited to net income not yet earned in 2019 plus the Bank

’

s total retained

net income for the combined two years ended December 31, 2017 and 2018 of $55.1 million. The amount of dividends paid by the Bank may not

exceed a level that reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized. The payment

of dividends by the Bank to the Corporation is the source on which the Corporation currently depends to pay dividends to its shareholders.

As a bank incorporated under and subject to Pennsylvania banking laws and insured by the FDIC, the Bank must obtain the prior approval

of the Department of Banking and the Federal Reserve Board before establishing a new branch banking office. Depending on the type of bank or

financial institution, a merger of the Bank with another institution is subject to the prior approval of one or more of the following: the Department of

Banking, the FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency and any other regulatory agencies having primary

supervisory authority over any other party to the merger. An approval of a merger by the appropriate bank regulatory agency would depend upon

several factors, including whether the merged institution is a federally insured state bank, a member of the Federal Reserve System, or a national

bank. Additionally, any new branch expansion or merger must comply with branching restrictions provided by state law. The Pennsylvania Banking

Code permits Pennsylvania banks to establish branches anywhere in the state.

On October 24, 2012, Pennsylvania enacted three new laws known as the “Banking Law Modernization Package,” all of which became

effective on December 24, 2012. The intended goal of the new law, which applies to the Bank, is to modernize Pennsylvania

’

s banking laws and to

reduce regulatory burden at the state level where possible, given the increased regulatory demands at the federal level as described below.

The law also permits banks as well as the Department of Banking to disclose formal enforcement actions initiated by the Department of

Banking, clarifies that the Department of Banking has examination and enforcement authority over subsidiaries as well as affiliates of regulated

banks and bolsters the Department of Banking

’

s enforcement authority over its regulated institutions by clarifying its ability to remove directors,

officers and employees from institutions for violations of laws or orders or for any unsafe or unsound practice or breach of fiduciary duty. Changes

to existing law also allow the Department of Banking to assess civil money penalties of up to $25,000 per violation.

The new law also sets a new standard of care for bank officers and directors, applying the same standard that exists for non

banking

corporations in Pennsylvania. The standard is one of performing duties in good faith, in a manner reasonably believed to be in the best interests of

the institutions and with such care, including reasonable inquiry, skill and diligence, as a

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person of ordinary prudence would use under similar circumstances. Directors may rely in good faith on information, opinions and reports provided

by officers, employees, attorneys, accountants, or committees of the board, and an officer may not be held liable simply because he or she served as

an officer of the institution.

• Deposit Insurance Assessments

The deposits of the Bank are insured by the FDIC up to the limits set forth under applicable law and are subject to deposit insurance

premium assessments. The FDIC imposes a risk based deposit premium assessment system, under which the amount of FDIC assessments paid by

an individual insured depository institution, such as the Bank, is based on the level of risk incurred in its activities.

In addition to deposit insurance assessments, banks are subject to assessments to pay the interest on Financing Corporation bonds. The

Financing Corporation was created by Congress to issue bonds to finance the resolution of failed thrift institutions. The FDIC sets the Financing

Corporation assessment rate every quarter. The Financing Corporation assessment for the fourth quarter of

2018

was an annualized rate of 0.14

basis points. Payments of the Financing Corporation assessment during the year ended

December 31, 2018

totaled $119 thousand.

•

Government Monetary Policies

The monetary and fiscal policies of the Federal Reserve Board and the other regulatory agencies have had, and will probably continue to

have, an important impact on the operating results of the Bank through their power to implement national monetary policy in order to, among other

things, curb inflation or combat a recession. The monetary policies of the Federal Reserve Board may have a major effect upon the levels of the

Bank

’

s loans, investments and deposits through the Federal Reserve Board

’

s open market operations in United States government securities,

through its regulation of, among other things, the discount rate on borrowing of depository institutions, and the reserve requirements against

depository institution deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

The earnings of the Bank and, therefore, of the Corporation are affected by domestic economic conditions, particularly those conditions in

the trade area as well as the monetary and fiscal policies of the United States government and its agencies.

• Safety and Soundness

The Federal Reserve Board also has authority to prohibit a bank holding company from engaging in any activity or transaction deemed by

the Federal Reserve Board to be an unsafe or unsound practice. The payment of dividends could, depending upon the financial condition of the

Bank or Corporation, be such an unsafe or unsound practice and the regulatory agencies have indicated their view that it generally would be an

unsafe and unsound practice to pay dividends except out of current operating earnings. The ability of the Bank to pay dividends in the future is

presently and could be further influenced, among other things, by applicable capital guidelines discussed below or by bank regulatory and

supervisory policies. The ability of the Bank to make funds available to the Corporation is also subject to restrictions imposed by federal law. The

amount of other payments by the Bank to the Corporation is subject to review by regulatory authorities having appropriate authority over the Bank

or Corporation and to certain legal limitations.

•

Capital Adequacy

Federal and state banking laws impose on banks certain minimum requirements for capital adequacy. Federal banking agencies have issued

certain “

risk

based capital” guidelines, and certain “leverage” requirements on member banks such as the Bank. By policy statement, the

Department of Banking also imposes those requirements on the Bank. Banking regulators have authority to require higher minimum capital ratios for

an individual bank or bank holding company in view of its circumstances.

Minimum Capital Ratios:

The risk

based guidelines require all banks to maintain three “

risk

weighted assets” ratios. The first is a minimum

ratio of total capital (“

Tier I

” and “

Tier II

” capital) to risk

weighted assets equal to 8.00%; the second is a minimum ratio of “

Tier I

” capital to risk

weighted assets equal to 6.00%; and the third is a minimum ratio of “Common Equity Tier I” capital to risk

weighted assets equal to 4.5%. Assets

are assigned to five risk categories, with higher levels of capital being required for the categories perceived as representing greater risk. In making

the calculation, certain intangible assets must be deducted from the capital base. The risk

based capital rules are designed to make regulatory

capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for

holding liquid assets.

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The risk

based capital rules also account for interest rate risk. Institutions with interest rate risk exposure above a normal level would be

required to hold extra capital in proportion to that risk. A bank

’

s exposure to declines in the economic value of its capital due to changes in interest

rates is a factor that the banking agencies will consider in evaluating a bank

’

s capital adequacy. The rule does not codify an explicit minimum capital

charge for interest rate risk. Management currently monitors and manages its assets and liabilities for interest rate risk, and believes its interest rate

risk practices are prudent and are in

line with industry standards. Management is not aware of any new or proposed rules or standards relating to

interest rate risk that would materially adversely affect our operations.

The “leverage” ratio rules require banks which are rated the highest in the composite areas of capital, asset quality, management, earnings,

liquidity and sensitivity to market risk to maintain a ratio of “

Tier I

” capital to “adjusted total assets”

(

equal to the bank

’

s average total assets as

stated in its most recent quarterly Call Report filed with its primary federal banking regulator, minus end

quarter intangible assets that are

deducted from Tier I capital) of not less than 4.00%.

For purposes of the capital requirements, “

Tier I

” or “core” capital is defined to include common stockholders

’

equity and certain

noncumulative perpetual preferred stock and related surplus. “

Tier II

” or “qualifying supplementary” capital is defined to include a bank

’

allowance for loan and lease losses up to 1.25% of risk

weighted assets, plus certain types of preferred stock and related surplus, certain “hybrid

capital instruments” and certain term subordinated debt instruments. “Common Equity Tier I” capital is defined as the sum of common stock

instruments and related surplus net of treasury stock, retained earnings, accumulated other comprehensive income, and qualifying minority

interests.

In addition to the capital requirements discussed above, banks are required to maintain a “capital conservation buffer” above the

regulatory minimum capital requirements, which must consist entirely of common equity Tier I capital.

The capital conservation buffer has been phased

in over a four

year period, which began on January 1, 2016, as follows: the maximum

buffer was 0.625% of risk

weighted assets for 2016, 1.25% for 2017 and 1.875% for 2018, and effective as of January 1, 2019, the capital conservation

buffer is fully phased in at 2.5%.

Institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their

capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for

such actions.

The capital requirement rules, which were finalized in July 2013, implement revisions and clarifications consistent with Basel III regarding

the various components of Tier I capital, including common equity, unrealized gains and losses, as well as certain instruments that no longer qualify

as Tier I capital, some of which are being phased out over time. However, 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 I or Tier II capital prior to May 19, 2010 in additional Tier I or Tier II capital until they redeem such instruments or until

the instruments mature.

The Basel III final framework provides for a number of deductions from and adjustments to Common Equity Tier 1. These include, for

example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in

non

consolidated financial entities be deducted from Common Equity Tier 1 to the extent that any one such category exceeds 10% of Common

Equity Tier 1 or all such categories in the aggregate exceed 15% of Common Equity Tier 1.

In addition, smaller banking institutions (less than $250 billion in consolidated assets) were granted 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 Corporation elected to opt

out, and indicated its election

on the Call Report filed after January 1, 2015.

In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards.

These proposals touched on a such areas as commercial real estate exposure, credit loss allowances under generally accepted accounting

principles, capital requirements for covered swap entities, among others. Public statements by key agency officials have also suggested a revisiting

of capital policy and supervisory approaches on a going

forward basis. We will be assessing the impact on us of these new regulations and

supervisory approaches as they are proposed and implemented.

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•

Prompt Corrective Action

Federal banking law mandates certain “prompt corrective actions,” which Federal banking agencies are required to take, and certain actions

which they have discretion to take, based upon the capital category into which a Federally regulated depository institution falls. Regulations have

been adopted by the Federal bank regulatory agencies setting forth detailed procedures and criteria for implementing prompt corrective action in the

case of any institution that is not adequately capitalized.

Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository

institutions are required to meet the following capital level requirements in order to qualify as “

well capitalized:

”

(

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

(ii)

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

(iii)

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

(iv)

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

An undercapitalized institution is required to file a written capital restoration plan, along with a performance guaranty by its holding

company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on the

payment of dividends, a limitation on asset growth and expansion, and in certain cases, a limitation on the payment of bonuses or raises to senior

executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person”

Institutions that are classified as

undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a

limitation on the institution

’

s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise

additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases,

bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an

institution is deemed to be “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly

limited exceptions, that the institution be placed in receivership. The Bank is currently regarded as “

well capitalized

” for regulatory capital purposes.

See Note 27, “Regulatory Capital Requirements,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on

Form 10

K for more information regarding the Bank

’

s and Corporation

’

s regulatory capital ratios.

•

Gramm

Leach

Bliley Act

The Gramm

Leach

Bliley Act (“

GLB Act

”

)

repealed provisions of the Glass

Steagall Act, which prohibited commercial banks and securities

firms from affiliating with each other and engaging in each other

’

s businesses. Thus, many of the barriers prohibiting affiliations between

commercial banks and securities firms have been eliminated.

The GLB Act amended the Glass

Steagall Act to allow new “financial holding companies”

(

“

FHC

”

)

to offer banking, insurance, securities

and other financial products to consumers. Specifically, the GLB Act amends section 4 of the Act in order to provide for a framework for the

engagement in new financial activities. A bank holding company may elect to become a financial holding company if all its subsidiary depository

institutions are well

capitalized and well

managed. If these requirements are met, a bank holding company may file a certification to that effect with

the Federal Reserve Board and declare that it elects to become an FHC. After the certification and declaration is filed, the FHC may engage either de

novo or through an acquisition in any activity that has been determined by the Federal Reserve Board to be financial in nature or incidental to such

financial activity. Bank holding companies may engage in financial activities without prior notice to the Federal Reserve Board if those activities

qualify under the new list in section 4(k) of the Act. However, notice must be given to the Federal Reserve Board, within 30 days after the FHC has

commenced one or more of the financial activities. The Corporation has not elected to become an FHC at this time.

Under the GLB Act, a bank subject to various requirements is permitted to engage through “financial subsidiaries” in certain financial

activities permissible for affiliates of FHC

’

s. However, to be able to engage in such activities a bank must continue to be “

well

capitalized” and well

managed and receive at least a “satisfactory” rating in its most recent Community Reinvestment Act examination.

•

Community Reinvestment Act and Fair Lending

The Community Reinvestment Act requires banks to help serve the credit needs of their communities, including providing credit to low

and moderate income individuals and areas. Should the Bank fail to serve adequately the communities it

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serves, potential penalties may include regulatory denials to expand branches, relocate, add subsidiaries and affiliates, expand into new financial

activities and merge with or purchase other financial institutions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations

impose nondiscriminatory lending requirements on financial institutions. The Consumer Financial Protection Bureau (“

CFPB

”

the U.S. Department

of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution

’

performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of sanctions, including

damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on

entering new business lines. Private parties may also have the ability to challenge an institution

’

s performance under fair lending laws in private

class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and future

prospects.

•

Privacy of Consumer Financial Information

The GLB Act also contains a provision designed to protect the privacy of each consumer

’

s financial information in a financial institution.

Pursuant to the requirements of the GLB Act, the Consumer Financial Protection Bureau has promulgated final regulations intended to better

protect the privacy of a consumer

’

s financial information maintained in financial institutions. The regulations are designed to prevent financial

institutions, such as the Bank, from disclosing a consumer

’

s nonpublic personal information to third parties that are not affiliated with the financial

institution.

However, financial institutions can share a customer

’

s personal information or information about business and corporations with their

affiliated companies. The regulations also provide that financial institutions can disclose nonpublic personal information to nonaffiliated third

parties for marketing purposes but the financial institution must provide a description of its privacy policies to the consumers and give the

consumers an opportunity to opt

out of such disclosure and, thus, prevent disclosure by the financial institution of the consumer

’

s nonpublic

personal information to nonaffiliated third parties.

These privacy regulations will affect how consumer

’

s information is transmitted through diversified financial companies and conveyed to

outside vendors. Management does not believe the privacy regulations will have a material adverse impact on its operations in the near term.

• Consumer Protection Rules – Sale of Insurance Products

In addition, as mandated by the GLB Act, the regulators have published consumer protection rules which apply to the retail sales

practices, solicitation, advertising or offers of insurance products, including annuities, by depository institutions such as banks and their

subsidiaries.

The rules provide that before the sale of insurance or annuity products can be completed, disclosures must be made that state (i) such

insurance products are not deposits or other obligations of or guaranteed by the FDIC or any other agency of the United States, the Bank or its

affiliates; and (ii) in the case of an insurance product that involves an investment risk, including an annuity, that there is an investment risk

involved with the product, including a possible loss of value.

The rules also provide that the Bank may not condition an extension of credit on the consumer

’

s purchase of an insurance product or

annuity from the Bank or its affiliates or on the consumer

’

s agreement not to obtain or a prohibition on the consumer obtaining an insurance

product or annuity from an unaffiliated entity.

The rules also require formal acknowledgement from the consumer that such disclosures have been received. In addition, to the extent

practical, the Bank must keep insurance and annuity sales activities physically separate from the areas where retail banking transactions are

routinely accepted from the general public.

• Sarbanes

Oxley Act

The Sarbanes

Oxley Act of 2002 (the “Sarbanes

Oxley Act”

)

addresses, among other matters, increased disclosures; audit committees;

certification of financial statements by the principal executive officer and the principal financial officer; evaluation by management of our disclosure

controls and procedures and our internal control over financial reporting; auditor reports on our internal control over financial reporting; forfeiture

of bonuses and profits made by directors and senior officers in the twelve (12) month period covered by restated financial statements; a prohibition

on insider trading during Corporation stock blackout periods; disclosure of off

balance sheet transactions; a prohibition applicable to companies,

other than federally

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insured financial institutions, on personal loans to their directors and officers; expedited filing of reports concerning stock transactions by a

company

’

s directors and executive officers; the formation of a public accounting oversight board; auditor independence; and increased criminal

penalties for violation of certain securities laws.

•

USA PATRIOT Act of 2001

The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes provisions designed to

combat international money laundering and advance the U.S. government

’

s war against terrorism. The USA PATRIOT Act and the regulations

which implement it contain many obligations which must be satisfied by financial institutions, including the Bank. Those regulations impose

obligations on financial institutions, such as the Bank, to maintain appropriate policies, procedures and controls to detect, prevent and report

money laundering and terrorist financing and to verify the identity of their customers. The failure of a financial institution to maintain and implement

adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the financial

institution.

• Government Policies and Future Legislation

As the enactment of the GLB Act and the Sarbanes

Oxley Act confirm, from time to time various laws are passed in the United States

Congress as well as the Pennsylvania legislature and by various bank regulatory authorities which would alter the powers of, and place restrictions

on, different types of banks and financial organizations. It is impossible to predict whether any potential legislation or regulations will be adopted

and the impact, if any, of such adoption on the business of the Corporation or its subsidiaries, especially the Bank.

The Trump Administration has indicated its intent to bring changes to the U.S. financial services industry that we cannot now predict.

Public comments by President Donald J. Trump, as well as his appointees at various federal agencies, may suggest the Administration

’

s intent to

change policies and regulations that implement current federal law, including those implementing the Dodd

Frank Act. At this point we are unable

to determine what impact the Trump Administration

’

s policy changes might have on the Corporation or its subsidiaries.

•

Dodd

Frank Wall Street Reform and Consumer Protection Act (the “

Dodd

Frank Act

”

)

The Dodd

Frank Act was passed by Congress on July 15, 2010, and was signed into law by President Obama on July 21, 2010. It is

intended to promote financial stability in the U.S., reduce the risk of bailouts and protect against abusive financial services practices by improving

accountability and transparency in the financial system and ending the concept of “too big to fail” institutions by giving regulators the ability to

liquidate large financial institutions. It is the broadest overhaul of the U.S. financial system since the Great Depression and the overall impact on the

Corporation and its subsidiaries is a general increase in costs related to compliance with the Dodd

Frank Act.

The Dodd

Frank Act has significantly changed the current bank regulatory structure and will affect into the immediate future the lending

and investment activities and general operations of depository institutions and their holding companies.

As discussed earlier, the Dodd

Frank Act requires the Federal Reserve Board to establish minimum consolidated capital requirements for

bank holding companies that are as stringent as those required for insured depository institutions; the components of Tier I capital are restricted to

capital instruments that are considered to be Tier I capital for insured depository institutions. In addition, the proceeds of trust preferred securities

are excluded from Tier I capital unless (i) such securities are issued by bank holding companies with assets of less than $500 million or (ii) such

securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets.

The Dodd

Frank Act also created a new Consumer Financial Protection Bureau with extensive powers to implement and enforce consumer

protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply

to all banks, among other things, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. However, institutions of less

than $10 billion in assets, such as the Bank, will continue to be examined for compliance with consumer protection and fair lending laws and

regulations by, and be subject to the enforcement authority of, their prudential regulators.

The Dodd

Frank Act made many other changes in banking regulation. These include allowing depository institutions, for the first time, to

pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans,

establishing regulatory rate

setting for certain debit card interchange fees and establishing a number of reforms for mortgage originations. Effective

October 1, 2011, the debit

card interchange fee was capped at $0.21 per

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transaction, plus an additional 5 basis point charge to cover fraud losses. These fees are much lower than the current market rates. The regulation

only impacts banks with assets above $10 billion.

The Dodd

Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to promulgate rules revising its

assessment system so that it is based on the average consolidated total assets less tangible equity capital of an insured institution instead of

deposits. That rule took effect April 1, 2011. The Dodd

Frank Act also permanently increased the maximum amount of deposit insurance for banks,

savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008.

Although many of the provisions of the Dodd

Frank Act are currently effective, there remain some regulations yet to be implemented. It is

therefore difficult to predict at this time what impact the Dodd

Frank Act and implementing regulations will have on the Corporation and the Bank.

The changes resulting from the Dodd

Frank Act could limit our business activities, require changes to certain of our business practices, impose

upon us more stringent capital, liquidity and leverage requirements or otherwise materially and adversely affect us. These changes may also require

us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and

regulatory requirements. Failure to comply with the new requirements could also materially and adversely affect us.

ITEM 1A.

RISK

FACTORS

Investment in the Corporation

’

s Common Stock involves risk. The following list, which contains certain risks that may be unique to the

Corporation and to the banking industry, is neither all

inclusive nor are the factors in any particular order.

Risks Related to Our Business

The Corporation

’

s performance and financial condition may be adversely affected by regional economic conditions and real estate values.

The Bank

’

s loan and deposit activities are largely based in eastern Pennsylvania. As a result, the Corporation

’

s consolidated financial

performance depends largely upon economic conditions in this eastern Pennsylvania region. This region experienced deteriorating local economic

conditions during 2008 through 2011, and a resumption of this deterioration in the regional real estate market could harm our financial condition and

results of operations because of the geographic concentration of loans within this regional area and because a large percentage of our loans are

secured by real property. If there is further decline in real estate values, the collateral for the Corporation

’

s loans will provide less security. As a

result, the Corporation

’

s ability to recover on defaulted loans by selling the underlying real estate will be diminished, and the Bank will be more

likely to suffer losses on defaulted loans.

Additionally, a significant portion of the Corporation

’

s loan portfolio is invested in commercial real estate loans. Often in a commercial real

estate transaction, repayment of the loan is dependent on rental income. Economic conditions may affect the tenant

’

s ability to make rental

payments on a timely basis, or may cause some tenants not to renew their leases, each of which may impact the debtor

’

s ability to make loan

payments. Further, if expenses associated with commercial properties increase dramatically, the tenant

’

s ability to repay, and therefore the debtor

’

ability to make timely loan payments, could be adversely affected.

All of these factors could increase the amount of the Corporation

’

s non

performing loans, increase its provision for loan and lease losses

and reduce the Corporation

’

s net income.

Climate change, severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business.

Natural disasters, including severe weather events of increasing strength and frequency due to climate change, acts of war or terrorism,

and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational

services for us or our customers. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding

loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional

expenses.

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Rapidly changing interest rate environment could reduce the Corporation

’

s net interest margin, net interest income, fee income and net income.

Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a significant part of the Corporation

’

s net

income. Interest rates are key drivers of the Corporation

’

s net interest margin and subject to many factors beyond the control of the

Corporation. As interest rates change, net interest income is affected. Rapidly increasing interest rates in the future could result in interest expenses

increasing faster than interest income because of divergence in financial instrument maturities and/or competitive pressures. Further, substantially

higher interest rates generally reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a

negative effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net

interest income. Changes in interest rates might also impact the values of equity and debt securities under management and administration by the

Wealth Management Division which may have a negative impact on fee income. See the section captioned “Net Interest Income” in the MD&A

section of this Annual Report on Form 10

K for additional details regarding interest rate risk.

Economic troubles may negatively affect our leasing business.

The Corporation

’

s leasing business, which began operations in September 2006, consists of the nationwide leasing of various types of

equipment to small

and medium

sized businesses. Economic sluggishness may result in higher credit losses than we would experience in our

traditional lending business, as well as potential increases in state regulatory burdens such as state income taxes, personal property taxes and sales

and use taxes.

A general economic slowdown could impact Wealth Management Division revenues.

A general economic slowdown may cause current clients to seek alternative investment opportunities with other providers, which would

decrease the value of Wealth Management Division's assets under management and administration resulting in lower fee income to the Corporation.

Our ability to attract and maintain customer and investor relationships depends largely on our reputation.

Damage to our reputation could undermine the confidence of our current and potential customers and investors in our ability to provide

high

quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to

effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service

focused culture and controlling and

mitigating the various risks described in this report, but also on our success in identifying and appropriately addressing issues that may arise in

areas such as potential conflicts of interest, anti

money laundering, customer personal information and privacy issues, customer and other third

party fraud, record

keeping, technology

related issues including but not limited to cyber fraud, regulatory investigations and any litigation that may

arise from the failure or perceived failure to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability

to successfully prevent third parties from infringing on our brands and associated trademarks and our other intellectual property. Defense of our

reputation, trademarks and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on

our business, financial condition, or results of operations.

If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could negatively affect our earnings.

Managing or servicing assets with reasonable prudence in accordance with the terms of governing documents and applicable laws is

important to client satisfaction, which in turn is important to the earnings and growth of our investment businesses. Failure to comply with these

standards, adequately manage these risks or manage the differing interests often involved in the exercise of fiduciary responsibilities could also

result in liability.

Provision for loan and lease losses and level of non

performing loans may need to be modified in connection with internal or external changes.

All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously loaned. We maintain an

allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which represents the

Corporation

’

s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment

of the Corporation, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan

losses reflects the Corporation

’

s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio

quality; present economic conditions;

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and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently

involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative

information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing

loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance

for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision

for loan losses or the recognition of additional loan charge

offs, based on judgments different than those of the Corporation. An increase in the

allowance for loan losses results in a decrease in net income, and possibly risk

based capital, and may have a material adverse effect on our

financial condition and results of operations.

The design of the allowance for loan loss methodology is a dynamic process that must be responsive to changes in environmental factors.

Accordingly, at times the allowance methodology may be modified in order to incorporate changes in various factors including, but not limited to,

levels and trends of delinquencies and charge

offs, trends in volume and types of loans, national and economic trends and industry conditions.

Potential acquisitions may disrupt the Corporation

’

s business and dilute shareholder value.

We regularly evaluate opportunities to advance our strategic objectives by opening new branches or offices or acquiring and investing in

banks and in other complementary businesses, such as wealth advisory or insurance agencies. As a result, we may engage in negotiations or

discussions that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short

and long

term liquidity. Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a

purchase transaction, which could dilute current shareholders

’

ownership interest. These activities could require us to use a substantial amount of

cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were

determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our

results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not

directly impact cash flow or tangible capital.

Our acquisition activities could involve a number of additional risks, including the risks of:

There is no assurance that we will be successful in overcoming these risks or any other problems encountered in connection with pending

or potential acquisitions. Our inability to overcome these risks could have an adverse effect on our levels of reported net income, return on average

equity and return on average assets, and our ability to achieve our business strategy and maintain our market value.

Decreased residential mortgage origination, volume and pricing decisions of competitors could affect our net income.

The Corporation originates, sells and services residential mortgage loans. Changes in interest rates and pricing decisions by our loan

competitors affect demand for the Corporation

’

s residential mortgage loan products, the revenue realized on the sale of loans and revenues received

from servicing such loans for others, ultimately reducing the Corporation

’

s net income. New regulations, increased regulatory reviews, and/or

changes in the structure of the secondary mortgage markets

•

incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential

transactions, resulting in the Corporation

’

s attention being diverted from the operation of our existing business;

•

using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target

institution or assets;

•

potential exposure to unknown or contingent liabilities of banks and businesses we acquire;

•

the time and expense required to integrate the operations and personnel of the combined businesses;

•

experiencing higher operating expenses relative to operating income from the new operations;

•

creating an adverse short

term effect on our results of operations;

•

losing key employees and customers as a result of an acquisition that is poorly received;

•

risk of significant problems relating to the conversion of the financial and customer data of the entity being acquired into the

Corporation

’

s financial and customer product systems; and,

•

potential impairment of intangible assets created in business acquisitions.

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which the Corporation utilizes to sell mortgage loans may be introduced and may increase costs and make it more difficult to operate a residential

mortgage origination business.

Our mortgage servicing rights could become impaired, which may require us to take non

cash charges.

Because we retain the servicing rights on many loans we sell in the secondary market, we are required to record a mortgage servicing right

asset, which we test quarterly for impairment. The value of mortgage servicing rights is heavily dependent on market interest rates and tends to

increase with rising interest rates and decrease with falling interest rates. If we are required to record an impairment charge, it would adversely affect

our financial condition and results of operations.

Declines in asset values may result in impairment charges and may adversely affect the value of the Company

’

s results of operations, financial

condition and cash flows.

A majority of the Corporation

’

s investment portfolio is comprised of securities which are collateralized by residential mortgages. These

residential mortgage

backed securities include securities of U.S. government agencies, U.S. government

sponsored enterprises, on

line banking enterprises, mutual fund companies, insurance

companies and other non

bank businesses. Many of these competitors have substantially greater resources than the Corporation. This is especially

evident in regard to advertising and public relations spending. For a more complete discussion of our competitive environment, see “Description of

Business and Competition” in Item 1 above. If the Corporation is unable to compete effectively, the Corporation may lose market share and income

from deposits, loans, and other products may be reduced.

Additionally, increased competition among financial services companies due to consolidation of certain competing financial institutions and

the conversion of certain investment banks to bank holding companies may adversely affect our ability to market our products and services.

The Corporation

’

s common stock is subordinate to all of our existing and future indebtedness; regulatory and contractual restrictions may limit

or prevent us from paying dividends on our common stock; and we are not limited on the amount of indebtedness we and our subsidiaries may

incur in the future.

Our common stock ranks junior to all indebtedness, including our outstanding subordinated notes, junior subordinated debentures and

other non

equity claims on the Corporation with respect to assets available to satisfy claims on the Corporation, including in a liquidation of the

Corporation. Additionally, unlike indebtedness, where principal and interest would customarily be payable on specified due dates, in the case of our

common stock, dividends are payable only when, as and if authorized and declared by our Board of Directors and depend on, among other things,

our results of operations, financial condition, debt service requirements, other cash needs and any other factors our Board of Directors deems

relevant. Under Pennsylvania law, we are subject to restrictions on payments of dividends out of lawfully available funds. Also, the Corporation

’

right to participate in a distribution of assets upon a subsidiary

’

s liquidation or reorganization is subject to the prior claims of the subsidiary

’

creditors.

In addition, we are not limited by our common stock in the amount of debt or other obligations we or our subsidiaries may incur in the

future. Accordingly, we and our subsidiaries may incur substantial amounts of additional debt and other obligations that will rank senior to our

common stock or to which our common stock will be structurally subordinated.

There may be future sales of additional common stock or other dilution of our equity, which may adversely affect the market price of our common

stock.

We are not restricted from issuing additional common stock or other securities. Further, our shareholders may in the future approve the

authorization of additional classes or series of stock which may have distribution or other rights senior to the rights of our common stock, or may be

convertible into or exchangeable for, or may represent the right to receive, common stock or substantially similar securities. The future issuance of

shares of our common stock or any other such future equity classes or series could have a dilutive effect on the holders of our common stock.

Additionally, the market value of our common stock could decline as a result of sales by us of a large number of shares of common stock, or any

future class or series of stock in the market, or the perception that such sales could occur.

From time to time the Corporation may engage in stock repurchases. Formal guidance from the Federal Reserve Board requires that bank

holding companies, where certain conditions are triggered, provide prior notice to and consult with the Federal Reserve Board or reserve bank staff

prior to implementing a stock repurchase plan. In addition to the formal guidance, the Federal Reserve Board appears to have adopted an informal

policy of requiring bank holding companies to seek a safety and soundness “non

objection” from the appropriate regulatory staff prior to

implementing a stock repurchase plan, regardless of the financial or capital position of the holding company. In some cases, examiners following

this informal policy have required the holding company to produce additional information and materials for review. Given this informal and highly

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discretionary regulatory approach, it is possible that federal regulatory examiners could withhold their non

objection to a proposed stock

repurchase plan, without regard to the Corporation

’

s objective data and performance.

Downgrades in U.S. government and federal agency securities could adversely affect the Corporation.

In addition to causing economic and financial market disruptions, any downgrades in U.S. government and federal agency securities, or

failures to raise the U.S. debt limit if necessary in the future, could, among other things, have a materially adverse effect on the market value of the

U.S. and other government and governmental agency securities that we hold, the availability of those securities as collateral for borrowing, and our

ability to access capital markets on favorable terms, as well as have other material adverse effects on the operation of our business and our financial

results and condition. In particular, it could increase interest rates and disrupt payment systems, money markets, and long

term or short

term fixed

income markets, adversely affecting the cost and availability of funding, which could negatively affect profitability. Also, the adverse

consequences of a downgrade could extend to the borrowers of the loans the bank makes and, as a result, could adversely affect borrowers

’

ability

to repay their loans.

The Corporation is dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect the

Corporation

’

s operations and prospects.

The Corporation currently depends on the services of a number of key management personnel. The loss of key personnel could materially

and adversely affect the results of operations and financial condition. The Corporation

’

s success also depends in part on the ability to attract and

retain additional qualified management personnel. Competition for such personnel is strong and the Corporation may not be successful in attracting

or retaining the personnel it requires.

Risks Related to Ownership of Our Common Stock

The price of our common stock, like many of our peers, has fluctuated significantly over the recent past and may fluctuate significantly in the

future, which may make it difficult for you to resell your shares of common stock at times or at prices you find attractive.

Stock price volatility may make it difficult for holders of our common stock to resell their common stock when desired and at desirable

prices. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

•

Inaccurate management decisions regarding the fair value of assets and liabilities acquired which could materially affect our

financial condition;

•

Natural disasters, fires, and severe weather;

•

Failure of internal controls;

•

Rumors or erroneous information;

•

Reliance on other companies to provide key components of our business processes;

•

Meeting capital adequacy standards and the need to raise additional capital in the future if needed, including through future sales

of our common stock;

•

Actual or anticipated variations in quarterly or annual results of operations;

•

Recommendations by securities analysts;

•

Failure of securities analysts to cover, or continue to cover, us;

•

Operating and stock price performance of other companies that investors deem comparable to us;

•

News reports relating to trends, concerns and other issues in the financial services industry, including the failures of other

financial institutions in the current economic downturn;

•

Perceptions in the marketplace regarding us and/or our competitors;

•

Departure of our management team or other key personnel;

•

New technology used, or services offered, by competitors;

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General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or

recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of operating results as evidenced by

the current volatility and disruption of capital and credit markets.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

The Company

’

s headquarters are located at 801 Lancaster Ave, Bryn Mawr, Pennsylvania. As of December 31, 2018, the Corporation operates

banking locations, including retirement home community locations, wealth management offices, insurance and risk management locations, and

administrative offices in the following counties: Montgomery (14 leased, 7 owned), Chester (6 leased, 2 owned), Delaware (7 leased, 5 owned),

Philadelphia (3 leased, 3 owned), and Dauphin (1 leased) Counties in Pennsylvania; New Castle County in Delaware (2 leased); and Mercer (2

leased) and Camden (1 leased) Counties in New Jersey. Management believes the current facilities are suitable for their present and intended

purposes. For additional detail regarding our properties and equipment, See Note 6, “Premises and Equipment,” in the accompanying Notes to the

Consolidated Financial Statements in this Annual Report on Form 10

Business locations and hours are available on the Corporation

’

s website at

www.bmt.com

ITEM 3.

LEGAL PROCEEDINGS

The information required by this Item is set forth in the “Legal Matters” discussion in Note 24, “Financial Instruments with Off

Balance

Sheet Risk, Contingencies and Concentration of Credit Risk,” in the accompanying Notes to the Consolidated Financial Statements in this Annual

Report on Form 10

K, which is included in Item 8 of this Report, and which is incorporated herein by reference in response to this Item.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

•

Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving

us or our competitors;

•

Failure to integrate acquisitions or realize anticipated benefits from acquisitions;

•

Existing or increased regulatory and compliance requirements, changes or proposed changes in laws or regulations, or differing

interpretations thereof affecting our business, or enforcement of these laws and regulations;

•

Governmental investigations and actions;

•

Changes in government regulations or restructuring of government sponsored enterprises such as Fannie Mae and Freddie Mac;

•

New litigation or changes in existing litigation; and

•

Geopolitical conditions such as acts or threats of terrorism or military conflicts.

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PART II

ITEM 5.

MARKET FOR THE REGISTRANT

’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF

EQUITY SECURITIES

The Corporation

’

s common stock is traded on the NASDAQ Stock Market under the symbol BMTC. As of

February 19, 2019

, there were 851

holders of record of the Corporation

’

s common stock.

The following chart compares the yearly percentage change in the cumulative shareholder return on the Corporation

’

s common stock

during the five years ended December 31, 2018, with (1) the Total Return of the NASDAQ Community Bank Index; (2) the Total Return of the

NASDAQ Market Index; (3) the Total Return of the SNL Bank and Thrift Index; and (4) the Total Return of the SNL Mid

Atlantic Bank Index. This

comparison assumes $100.00 was invested on December 31, 2013, in our common stock and the comparison groups and assumes the reinvestment

of all cash dividends prior to any tax effect and retention of all stock dividends.

•

Comparison of Cumulative Total Return Chart

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The information set forth under the caption “Equity Plan Compensation Information” in the

2019

Proxy Statement is incorporated by

reference herein. Additionally, equity compensation plan information is incorporated by reference to Item 12 of this Annual Report on Form 10

Additional information regarding the Corporation

’

s equity compensation plans can be found at Note 20, “Stock

Based Compensation,” in the

accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

The following tables present the repurchasing activity of the Corporation during the fourth quarter of 2018:

Shares Repurchased in the 4th

Quarter of

2018

Five Year Cumulative Return Summary

As of December 31,

2013

2014

2015

2016

2017

2018

Bryn Mawr Bank Corporation

100.00

106.39

100.25

151.39

162.00

128.81

NASDAQ Community Bank

Index

100.00

104.66

114.65

159.10

163.19

138.83

NASDAQ Market Index

100.00

114.75

122.74

133.62

173.22

168.30

SNL Bank and Thrift

100.00

111.63

113.89

143.78

169.07

140.45

SNL Mid

Atlantic Bank

100.00

108.94

113.03

143.67

176.08

150.45

•

Equity Compensation Plan Information

•

Issuer Purchases of Equity Securities

Period

Total Number of Shares

Purchased

(1)(2)

Average Price

Paid Per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

(3)

Maximum

Number of

Shares that

May Yet Be

Purchased

Under the Plan

or Programs

October 1, 2018

–

October 31, 2018

45,009

39.33

44,150

130,887

November 1, 2018

–

November 30, 2018

57,026

39.77

57,026

73,861

December 1, 2018

–

December 31, 2018

38,168

36.87

33,845

40,016

Total

140,203

38.84

135,021

(1)

On December 31, 2018, 1,282 shares were purchased by the Corporation’s deferred compensation plans through open market transactions.

(2)

Includes shares purchased to cover statutory tax withholding requirements on vested stock awards for certain officers of the Corporation or Bank as follows: 309

shares on October 1, 2018; 550 shares on October 5, 2018; 899 shares on December 1, 2018; and 2,142 shares on December 15, 2018.

(3)

On August 6, 2015, the Corporation announced a stock repurchase program (the “2015 Program”) under which the Corporation may repurchase up to 1,200,000

shares of the Corporation’s common stock, at an aggregate purchase price not to exceed $40 million. There is no expiration date on the 2015 Program and the

Corporation has no plans for an early termination of the 2015 Program. All share repurchases under the 2015 Program were accomplished in open market

transactions. As of December 31, 2018, the maximum number of shares remaining authorized for repurchase under the 2015 Program was 40,016.

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ITEM 6.

SELECTED FINANCIAL DATA

Earnings

As of or for the Year Ended December 31,

(dollars in thousands)

2018

2017

2016

2015

2014

Interest income

181,055

129,559

116,991

108,542

82,906

Interest expense

31,584

14,432

10,755

8,415

6,078

Net interest income

149,471

115,127

106,236

100,127

76,828

Provision for loan and lease losses

7,193

2,618

4,326

4,396

884

Net interest income after provision for loan and

lease losses

142,278

112,509

101,910

95,731

75,944

Noninterest income

75,982

59,132

53,968

55,785

48,223

Noninterest expense

140,303

114,395

101,674

125,590

81,319

Income before income taxes

77,957

57,246

54,204

25,926

42,848

Income taxes

14,165

34,230

18,168

9,172

15,005

Net Income

63,792

23,016

36,036

16,754

27,843

Per

Data

Weighted

average shares outstanding

20,234,792

17,150,125

16,859,623

17,488,325

13,566,239

Dilutive potential common stock

155,375

248,798

168,499

267,996

294,801

Adjusted weighted

average shares

20,390,167

17,398,923

17,028,122

17,756,321

13,861,040

Earnings per common share:

Basic

3.15

1.34

2.14

0.96

2.05

Diluted

3.13

1.32

2.12

0.94

2.01

Dividends paid or accrued

0.94

0.86

0.82

0.78

0.74

Dividends paid or accrued per share to net income

per basic common share

29.84

64.2

38.3

81.3

36.1

Shares outstanding at year end

20,163,816

20,161,395

16,939,715

17,071,523

13,769,336

Book value per share

28.01

26.19

22.50

21.42

17.83

Tangible book value per share

17.75

16.02

15.11

13.89

13.59

Profitability

Ratios

Tax

equivalent net interest margin

3.80

3.69

3.76

3.75

3.93

Return on average assets

1.47

0.67

1.16

0.57

1.32

Return on average equity

11.78

5.76

9.75

4.49

11.56

Noninterest expense to net interest income and

noninterest income

62.2

65.6

63.5

80.6

65.0

Noninterest income to net interest income and

noninterest income

33.7

33.9

33.7

35.8

38.6

Average equity to average total assets

12.44

11.69

11.90

12.68

11.38

Financial Condition

Total assets

4,652,485

4,449,720

3,421,530

3,030,997

2,246,506

Total liabilities

4,087,781

3,921,601

3,040,403

2,665,286

2,001,032

Total shareholders

’

equity

564,704

528,119

381,127

365,711

245,474

Interest

earning assets

4,216,888

4,039,763

3,153,015

2,755,506

2,092,164

Portfolio loans and leases

3,427,154

3,285,858

2,535,425

2,268,988

1,652,257

Investment securities

753,628

701,744

573,763

352,916

233,473

Goodwill

184,012

179,889

104,765

35,502

Intangible assets

23,455

25,966

20,405

23,903

22,998

Deposits

3,599,087

3,373,798

2,579,675

2,252,725

1,688,028

Borrowings

427,847

496,837

423,425

378,509

283,970

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Information related to business combinations and accounting changes may be found under the caption “Nature of Business” at Note 1,

“Summary of Significant Accounting Policies,” and Note 2, “Recent Accounting Pronouncements,” respectively, in the accompanying Notes to the

Consolidated Financial Statements in this Annual Report on Form 10

Wealth assets under management, administration,

supervision and brokerage

13,429,544

12,968,738

11,328,457

8,364,805

7,699,908

Capital Ratios

Tier I leverage ratio (Tier I capital to total quarterly

average assets)

9.06

10.10

8.73

9.02

9.54

Tier I capital to risk weighted assets

10.92

10.42

10.51

10.72

12.00

Total regulatory capital to risk weighted assets

14.30

13.92

12.35

12.61

12.87

Asset quality

Allowance as a percentage of portfolio loans and

leases

0.57

0.53

0.69

0.70

0.88

Non

performing loans and leases as a % of portfolio

loans and leases

0.37

0.26

0.33

0.45

0.61

Table of Contents

ITEM 7.

MANAGEMENT

’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS (

“

MD&A

”

)

Management

’

s Discussion and Analysis of Financial Condition and Results of Operations

The Bryn Mawr Trust Company (the “Bank”

)

received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In

1986, Bryn Mawr Bank Corporation (the “Corporation”

)

was formed and on January 2, 1987, the Bank became a wholly

owned subsidiary of the

Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its

subsidiaries offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing, mortgages, insurance

and wealth management services, including investment management, trust and estate administration, retirement planning, custody services, and tax

planning and preparation from 43 banking locations, six wealth management offices and two insurance and risk management locations in the

following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle County in Delaware; and

Mercer and Camden Counties in New Jersey. The common stock of the Corporation trades on the NASDAQ Stock Market (“NASDAQ”

)

under the

symbol BMTC.

The Corporation operates in a highly competitive market area that includes local, national and regional banks as competitors along with savings

banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its

subsidiaries are regulated by many agencies including the Securities and Exchange Commission (“

SEC

”

NASDAQ, Federal Deposit Insurance

Corporation (“

FDIC

”

the Federal Reserve and the Pennsylvania Department of Banking and Securities. The goal of the Corporation is to become

the preeminent community bank and wealth management organization in the Philadelphia area.

Since January 1, 2010, the Corporation and Bank completed the following ten acquisitions:

For a more complete discussion regarding certain of these acquisitions, see Item 1 – Business – Business Combinations beginning at page 3 in this

Form 10

Results of Operations

The following is management

’

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. The Corporation

’

s consolidated financial condition and results of

operations are comprised primarily of the Bank

’

s financial condition and results of operations. Current performance does not guarantee, and may

not be indicative of, similar performance in the future. For more information on the factors that could affect performance, see “Special Cautionary

Notice Regarding Forward Looking Statements” immediately following the index at the beginning of this document.

The geographic information required by Item 101(d) of Regulation S

K promulgated under the Securities Exchange Act of 1934, as amended, is

impracticable for the Corporation to calculate; however, the Corporation does not believe that a material amount of revenue in any of the last three

years was attributable to customers outside of the United States, nor does it believe that a material amount of its long

lived assets, in any of the

past three years, was located outside of the United States.

Brief History of the Corporation

•

Domenick & Associates (“

Domenick

”

) -

May 1, 2018

•

Royal Bancshares of Pennsylvania, Inc. ("RBPI")

December 15, 2017 (the "RBPI Merger")

•

Harry R. Hirshorn & Company, Inc. ("Hirshorn")

May 24, 2017

•

Robert J. McAllister Agency, Inc. ("RJM")

April 1, 2015

•

Continental Bank Holdings, Inc. ("CBH")

January 1, 2015 (the CBH Merger)

•

Powers Craft Parker and Beard, Inc. ("PCPB")

October 1, 2014

•

First Bank of Delaware ("FBD")

November 17, 2012

•

Davidson Trust Company ("DTC")

May 15, 2012

•

The Private Wealth Management Group of the Hershey Trust Company ("PWMG")

May 11, 2011

•

First Keystone Financial, Inc. ("FKB")

July 1, 2010

Table of Contents

The accounting and reporting policies of the Corporation and its subsidiaries conform to U.S. generally accepted accounting principles (“GAAP”

All inter

company transactions are eliminated in consolidation and certain reclassifications are made when necessary in order to conform the

previous years' consolidated financial statements to the current year

’

s presentation. In preparing the Consolidated Financial Statements,

management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance

sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates.

The

Allowance for

Loan and

Lease Losses

(the

“

Allowance

”

)

The Allowance involves a higher degree of judgment and complexity than other significant accounting policies. The Allowance is estimated with

the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses present in the loan portfolio

as of the reporting date. Management

’

s determination of the adequacy of the Allowance is based on frequent evaluations of the loan and lease

portfolio and other relevant factors. Consideration is given to a variety of factors in establishing the estimate. Quantitative factors in the form of

historical charge

off rates by portfolio segment are considered. In connection with these quantitative factors, management establishes what it

deems to be an adequate look

back period (“

LBP

”

)

for the charge

off history. As of

December 31, 2018

, management utilized a five

year LBP, which

it believes adequately captures the trends in charge

offs. In addition, management develops an estimate of a loss emergence period (“

LEP

”

)

for each

segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a borrower and an actual charge

off of a loan.

As of

December 31, 2018

, management utilized a two

year LEP for its commercial loan segments and a one

year LEP for its consumer loan segments

based on analyses of actual charge

offs tracked back in time to the triggering event for the eventual loss. In addition, various qualitative factors are

considered, including specific terms and conditions of loans and leases, underwriting standards, delinquency statistics, industry concentration,

overall exposure to a single customer, adequacy of collateral, the dependence on collateral, and results of internal loan review, including a

borrower

’

s perceived financial and management strengths, the amounts and timing of the present value of future cash flows, and the access to

additional funds. It should be noted that this evaluation is inherently subjective as it requires material estimates, including, among others, expected

default probabilities, the amounts and timing of expected cash flows on impaired loans and leases, the value of collateral, estimated losses on

consumer loans and residential mortgages and the relevance of historical loss experience. The process also considers economic conditions and

inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from

management

’

s estimates, additional provision for loan and lease losses (the “Provision”

)

may be required that would adversely impact earnings in

future periods. See the section of this document titled Asset Quality and Analysis of Credit Risk beginning at page 43 for additional information.

Fair Value Measurement of Investment Securities Available

for

Sale and Assessment for Impairment of Certain Investment Securities

Management may designate its investment securities as held

maturity, available

for

sale or trading. Each of these designations affords different

treatment for changes in the fair market values of investment securities in the Corporation

’

s Consolidated Financial Statements that are otherwise

identical. Should evidence emerge which indicates that management

’

s intent or ability to maintain the securities as originally designated is not

supported, reclassifications among the three designations may be necessary and, as a result, may require adjustments to the Corporation

’

Consolidated Financial Statements. As of

December 31, 2018

, the Corporation

’

s investment portfolio was primarily comprised of investment

securities classified as available for sale.

Valuation of Goodwill and Intangible Assets

Goodwill and intangible assets have been recorded on the books of the Corporation in connection with its acquisitions. Management completes a

goodwill impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment.

Management also reviews other intangible assets with finite lives for impairment if events and circumstances indicate that the carrying value may

not be recoverable. There was no goodwill or intangible asset impairment recorded during the years ended

December 31, 2018

, 2017

2016

. There

was no impairment of identifiable intangible assets during the years ended

December 31, 2018

, 2017

2016

. There can be no assurance that future

impairment assessments or tests will not result in a charge to earnings.

Other significant accounting policies are presented in Note 1, “Summary of Significant Accounting Policies,” in the accompanying Notes to the

Consolidated Financial Statements in this Annual Report on Form 10

K. The Corporation

’

Critical Accounting Policies, Judgments and Estimates

Table of Contents

accounting policies have not substantively changed any aspect of its overall approach in the application of the foregoing policies.

In 2018, the U.S. economy grew approximately 3%, which exceeded the 2% trend growth rate witnessed following the Great Recession of 2008

2009.

We expect that the U.S. economic growth will continue in 2019, albeit at a slower pace relative to 2018, as the effects of stimulus measures (tax cuts,

deregulation, fiscal spending) enacted at the end of 2017 and early in 2018 begin to wane. We would not be surprised to see growth rates start

heading lower toward the 2% trend growth rate, especially in the second half of 2019.

The economy is showing late cycle attributes such as a flattening of the yield curve, more restrictive monetary policy, and tight labor market

conditions. However, given that consumer spending, which accounts for roughly 70% of the U.S. economy, is showing no visible signs of abating.

The Federal Reserve Board (“

FRB

”

)

was much more active in raising base interest rates during 2018, increasing the Fed Funds Target Rate 4 times.

In contrast, following seven years of stable rates, the FRB raised the Target Rate higher 5 times between late 2015 and through 2017. Recent remarks

from the Fed have been much less hawkish. Financial markets seem to think the FRB will proceed with caution when conducting monetary policy

going forward given the sharp rise in equity prices during January 2019.

Unlike in 2017, which delivered favorable investment results across a wide assortment of different asset classes (stocks, bonds, commodities, etc.),

2018 was much more challenging for investors. A combination of rising rates, especially on the short end of the yield curve, and rising equity market

volatility, resulted in most asset classes delivering flat

negative returns in 2018.

The following Executive Overview provides a summary

level review of the results of operation for

2018

compared to

2017

and

2017

compared to

2016

as well as a comparison of the

December 31, 2018

balance sheet to the

December 31, 2017

balance sheet. More detailed information regarding

these comparisons can be found in the sections that follow.

2018

Compared to

2017

Income Statement

The Corporation reported net income attributable to Bryn Mawr Bank Corporation of

$63.8 million

, or $

3.13

diluted earnings per share for the year

ended

December 31, 2018

, increases of

$40.8 million

and $

1.81

, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation

$23.0 million

, or $

1.32

diluted earnings per share, for the year ended

December 31, 2017

. Return on average equity ("ROE") and return on average

assets ("ROA") for the year ended

December 31, 2018

, were 11.78% and 1.47%, respectively, as compared to 5.76% and 0.67%, respectively, for the

same period in 2017. Contributing to the net income increase were increases of $34.4 million and $16.9 million in net interest income and noninterest

income, respectively, and a decrease of $20.1 million in income tax expense, offset by increases of $25.9 million and $4.6 million in noninterest

expense and Provision, respectively.

Tax

equivalent net interest income of

$149.9 million

for the year ended

December 31, 2018

increased $34.0 million as compared to

$115.9 million

for

the year ended

December 31, 2017

. The increase primarily related to the increase of $47.6 million in tax

equivalent interest and fees on loans and

leases partially offset by the increase of $11.9 million in interest expense on deposits. Average loans and leases for the year ended

December 31,

2018

increased $691.3 million from the same period in 2017 and experienced a 48 basis point increase in tax

equivalent yield. The increase in average

loans and leases was partially related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by

$566.2

million

, as well as organic loan growth between the periods. Average interest

bearing deposits for the year ended

December 31, 2018

increased

$604.0 million from the same period in 2017 and experienced a 36 basis point increase in rates paid. The increase in average interest

bearing deposits

was partially related to the interest

bearing deposits assumed in the RBPI Merger, which initially totaled $494.8 million.

Overview of General Economic, Regulatory and Governmental Environment

Executive Overview

Table of Contents

The Provision of

$7.2 million

for the year ended

December 31, 2018

increased

$4.6 million

as compared to

$2.6 million

for the year ended

December 31, 2017

. Primary contributors to the increased Provision were the $2.7 million increase in net loan and lease charge

offs as well as the

additional Allowance associated with increased loan volume.

Noninterest income of

$76.0 million

for the year ended

December 31, 2018

increased

$16.9 million

, or

28.5%

, as compared to

$59.1 million

for the year

ended

December 31, 2017

. Other operating income increased $6.2 million, primarily due to the $4.0 million increase in recoveries of purchase

accounting fair value marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. Fees for wealth management

services increased $3.6 million, primarily related to the

$460.8 million

increase in wealth assets under management, administration, supervision and

brokerage from

$12.97 billion

December 31, 2017

$13.43 billion

December 31, 2018

. Capital markets revenue increased $2.5 million, primarily

related to a full year of operations for our capital markets group, which was formed during the second quarter on 2017. Insurance commissions

increased $2.2 million partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.

Noninterest expense of

$140.3 million

for the year ended

December 31, 2018

increased

$25.9 million

, or

22.6%

, as compared to

$114.4 million

for the

year ended

December 31, 2017

. These increases were largely due to the additional expenses associated with the staff and facilities assumed in the

RBPI Merger and to a lesser extent, recruiting efforts of certain key leadership positions as well as increases in our incentive accruals.

Balance Sheet

Asset quality as of December 31, 2018 remains stable, with nonperforming loans and leases comprising 0.37% of portfolio loans and leases as

compared to 0.26% of portfolio loans and leases as of December 31, 2017. The Allowance of $19.4 million was 0.57% of portfolio loans and leases as

of December 31, 2018, as compared to $17.5 million, or 0.53% of portfolio loans and leases at December 31, 2017.

Total portfolio loans and leases of $3.43 billion as of December 31, 2018 increased $141.3 million, or 4.3%, from $3.29 billion as of December 31, 2017.

Increases of $134.1 million, $35.5 million, $29.1 million, and $8.7 million in commercial mortgages, residential mortgages, leases and consumer loans,

respectively, were offset by decreases of $31.4 million, $23.7 million, and $10.9 million in construction loans, commercial and industrial loans, and

home equity loans and lines, respectively.

Investment securities available for sale of $737.4 million as of December 31, 2018 increased $48.2 million, or 7.0%, from $689.2 million as of December

31, 2017. Increases of $44.8 million, $14.9 million, and $2.6 million in U.S. government and agency securities, mortgage

backed securities, and

collateralized mortgage obligations, respectively, were partially offset by decreases of $10.0 million and $3.5 million in state & political subdivision

securities and other investments, respectively.

Total deposits of $3.60 billion as of December 31, 2018 increased $225.3 million, or 6.7%, from $3.37 billion as of December 31, 2017. Increases of

$183.4 million, $153.3 million, and $10.5 million in interest

bearing demand accounts, wholesale time deposits, and retail time deposits, respectively,

were partially offset by decreases of $91.5 million, $23.2 million, and $7.2 million in savings accounts, noninterest

bearing demand accounts, and

wholesale non

maturity deposits, respectively.

Wealth Assets

Wealth assets under management, administration, supervision and brokerage of

$13.43 billion

as of

December 31, 2018

increased

$460.8 million

, or

3.55%

, from

$12.97 billion

as of

December 31, 2017

. The increase in wealth assets was comprised of a $581.3 million

increase in fixed rate flat

fee account balances, offset by a $120.5 million decrease in account balances whose fees are based on market value.

2017

Compared

2016

Income Statement

The Corporation reported net income attributable to Bryn Mawr Bank Corporation of

$23.0 million

, or $

1.32

diluted earnings per share for the year

ended

December 31, 2017

, decreases of $13.0 million and $0.80, respectively, as compared to net income attributable to Bryn Mawr Bank Corporation

$36.0 million

, or $

2.12

diluted earnings per share, for the year ended

December 31, 2016

. ROE and ROA for the year ended December 31, 2017, were

5.76% and 0.67%, respectively, as compared to 9.75% and 1.16%, respectively, for the same period in 2016.

Table of Contents

The primary cause for the $13.0 million decrease in net income was the one

time income tax charge of $15.2 million recorded for the re

measurement

of the Corporation

’

s net deferred tax asset. The re

measurement was required as a result of the passage of Tax Reform signed into law on December

22, 2017, which lowered the top federal corporate income tax rate from 35% to 21%. In addition to this one

time tax charge, due diligence, merger

related and merger integration costs increased by $6.1 million year over year primarily related to the RBPI Merger.

Tax

equivalent net interest income of

$115.9 million

for the year ended

December 31, 2017

increased $9.0 million as compared to

$106.9 million

for the

year ended

December 31, 2016

. The increase primarily related to the increases of $10.5 million and $2.2 million in tax

equivalent interest and fees on

loans and leases and tax

equivalent interest income on available for sale investment securities, respectively, partially offset by an increase of $2.9

million in interest expense on deposits. Average loans and leases for the year ended

December 31, 2017

increased $235.5 million from the same

period in 2016 with yields remaining relatively flat. Average interest

bearing deposits for the year ended

December 31, 2017

increased $179.8 million

from the same period in 2016 and experienced a 12 basis point increase in rates paid.

The Provision of $2.6 million for the year ended December 31, 2017 decreased $1.7 million as compared to $4.3 million for the year ended

December 31, 2016

. Slightly lower net loan and lease charge

offs for 2017 as compared to 2016, combined with stable credit quality and

improvements in certain qualitative indicators which factor into the calculation of the Allowance, accounted for the decrease in Provision.

Noninterest income of

$59.1 million

for the year ended

December 31, 2017

increased $5.2 million, or 9.6%, as compared to

$54.0 million

for the year

ended

December 31, 2016

. An increase of $2.0 million in fees for wealth management services resulted as wealth assets under management,

administration, supervision and brokerage increased $1.64 billion from December 31, 2016 to December 31, 2017. Insurance commissions increased

$867 thousand for the year ended December 31, 2017 as compared to the same period in 2016, due to the May 2017 acquisition of Hirshorn Boothby.

Revenue from our capital markets initiative, which was launched in the second quarter of 2017, contributed $2.4 million to noninterest income for the

twelve

months ended December 31, 2017. These increases were partially offset by a $607 thousand decrease in net gain on sale of loans.

Noninterest expense of

$114.4 million

for the year ended

December 31, 2017

increased $12.7 million, or 12.5%, as compared to

$101.7 million

for the

year ended

December 31, 2016

. The increase was largely related to a $6.1 million increase in due diligence and merger

related expenses primarily

associated with the RBPI Merger. A $5.8 million increase in salaries and wages was largely due to staffing increases from our capital markets

initiative, the Hirshorn Boothby acquisition and the Princeton wealth management office and to a lesser extent, the December 15, 2017 RBPI Merger.

Annual salary and wage increases and increases in incentive compensation also contributed to the increase.

Net income is comprised of five major elements:

Components of Net Income

•

Net Interest Income,

or the difference between the interest income earned on loans, leases and investments and the interest expense paid

on deposits and borrowed funds;

•

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

and leases;

•

Noninterest Income

, which is made up primarily of wealth management revenue, capital markets revenue, gains and losses from the sale of

residential mortgage loans, gains and losses from the sale of available for sale investment securities and other fees from loan and deposit

services;

•

Noninterest Expense, which consists primarily of salaries and employee benefits, occupancy, intangible asset amortization, professional

fees, due diligence, merger

related and merger integration expenses, and other operating expenses; and

•

Income Tax Expense,

which include state and federal jurisdictions.

Table of Contents

Rate/Volume Analyses

(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 average balances (volume) and the change in average interest rates (rate) of tax

equivalent net interest income for the years

2018

compared to

2017

, and

2017

as compared to

2016

. The change in interest income / expense due to both volume and rate has been allocated to

changes due to volume.

* The tax rate used in the calculation of the tax

equivalent income is 21% for 2018 and 35% for 2017 and 2016, respectively.

Net Interest Income

Year Ended December 31,

(dollars in thousands)

2018 Compared to 2017

2017 Compared to 2016

increase/(decrease)

Volume

Rate

Total

Volume

Rate

Total

Interest income:

Interest

bearing deposits with banks

(35

)

Investment securities – taxable

2,131

1,494

3,625

1,427

1,018

2,445

Investment securities – nontaxable

(215

)

(14

)

(229

)

(216

)

(167

)

Loans and leases

31,524

16,109

47,633

10,733

(267

)

10,466

Total interest income

33,458

17,661

51,119

11,909

841

12,750

Interest expense:

Savings, NOW and market rate

accounts

792

4,779

5,571

161

643

804

Wholesale deposits

695

2,261

2,956

186

639

825

Retail time deposits

2,147

1,130

3,277

500

786

1,286

Borrowed funds – short

term

552

1,450

2,002

226

1,071

1,297

Borrowed funds – long

term

(1,096

)

253

(843

)

(971

)

238

(733

)

Subordinated notes

3,203

(256

)

2,947

182

(30

)

152

Junior subordinated debentures

945

297

1,242

—

Total interest expense

7,238

9,914

17,152

330

3,347

3,677

Interest differential

26,220

7,747

33,967

11,579

(2,506

)

9,073

Table of Contents

Analysis of Interest Rates and Interest Differential

The table below presents the major asset and liability categories on an average daily basis for the periods presented, along with tax

equivalent

interest income and expense and key rates and yields:

For the Year Ended December 31,

2018

2017

2016

(dollars in thousands)

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

Average

Balance

Interest

Income/

Expense

Average

Rates

Earned/

Paid

Assets:

Interest-bearing deposits with

banks

37,550

264

0.70

34,122

174

0.51

43,214

168

0.39

Investment securities - available

for sale:

Taxable

513,114

11,652

2.27

409,813

8,147

1.99

329,161

5,784

1.76

Tax –Exempt

16,966

346

2.04

27,062

575

2.12

38,173

742

1.94

Total investment

securities – available

for sale

530,080

11,998

2.26

436,875

8,722

2.00

367,334

6,526

1.78

Investment securities – held to

maturity

8,232

0.47

5,621

0.60

2,060

—

Investment securities – trading

8,237

169

2.05

4,185

1.29

3,740

0.05

Loans and leases

(1)(2)(3)

3,356,295

169,024

5.04

2,664,944

121,391

4.56

2,429,416

110,925

4.57

Total interest-earning

assets

3,940,394

181,494

4.61

3,145,747

130,375

4.14

2,845,764

117,625

4.13

Cash and due from banks

9,853

13,293

16,317

Allowance for loan and lease

losses

(18,447

)

(17,181

)

(17,159

)

Other assets

420,322

274,287

260,728

Total assets

4,352,122

3,416,146

3,105,650

Liabilities:

Savings, NOW, and market rate

accounts

1,715,239

8,860

0.52

1,383,560

3,289

0.24

1,292,228

2,485

0.19

Wholesale deposits

251,384

5,021

2.00

188,179

2,065

1.10

163,724

1,240

0.76

Time deposits

539,934

6,671

1.24

330,797

3,394

1.03

266,772

2,108

0.79

Total interest-bearing

deposits

2,506,557

20,552

0.82

1,902,536

8,748

0.46

1,722,724

5,833

0.34

Short-term borrowings

178,582

3,392

1.90

128,008

1,390

1.09

37,041

0.25

Long-term FHLB advances

93,503

1,777

1.90

161,004

2,620

1.63

225,815

3,353

1.48

Subordinated notes

98,462

4,575

4.65

33,153

1,628

4.91

29,503

1,476

5.00

Junior subordinated debt

21,491

1,288

5.99

997

4.61

—

Total interest-bearing

liabilities

2,898,595

31,584

1.09

2,225,698

14,432

0.65

2,015,083

10,755

0.53

Noninterest-bearing deposits

856,506

751,069

687,134

Other liabilities

55,436

40,109

33,904

Total noninterest-

bearing liabilities

911,942

791,178

721,038

Total liabilities

3,810,537

3,016,876

2,736,121

Shareholders’ equity

541,585

399,270

369,529

Total liabilities and

shareholders’ equity

4,352,122

3,416,146

3,105,650

Net interest spread

3.52

3.49

3.60

Effect of noninterest-bearing

sources

0.28

0.20

0.16

Net interest income/margin on

earning assets

149,910

3.80

115,943

3.69

106,870

3.76

Tax-equivalent adjustment

(4)

439

0.01

816

0.03

634

0.02

Table of Contents

Tax

Equivalent Net Interest Income and Margin

– 2018

Compared to

2017

Tax

equivalent net interest income of

$149.9 million

for the year ended

December 31, 2018

increased $34.0 million as compared to

$115.9 million

for

the year ended

December 31, 2017

. Tax

equivalent net interest margin of

3.80%

for the year ended

December 31, 2018

increased eleven basis points

as compared to

3.69%

for the year ended

December 31, 2017

Tax

equivalent interest and fees on loans and leases of

$169.0 million

for the year ended

December 31, 2018

increased $47.6 million as compared to

$121.4 million

for the year ended

December 31, 2017

. Average loans and leases for the year ended

December 31, 2018

increased $691.3 million from

the same period in 2017 and experienced a 48 basis point increase in tax

equivalent yield. The increase in average loans and leases was primarily

related to the loans and leases acquired in the RBPI Merger which initially increased loans and leases by

$566.2 million

, as well as organic loan

growth between the periods.

Tax

equivalent interest income on available for sale investment securities of

$12.0 million

for the year ended

December 31, 2018

increased $3.3

million as compared to

$8.7 million

for the year ended

December 31, 2017

. Average available for sale investment securities for the year ended

December 31, 2018

increased $93.2 million from the same period in 2017 and experienced a 26 basis point increase in tax

equivalent yield.

Partially offsetting the effect on net interest income associated with the increase in average balances and yields in loans and leases and available for

sale investment securities were increases in interest expense on deposits and borrowings. Interest expense on interest

bearing deposits of

$20.6

million

for the year ended

December 31, 2018

increased $11.9 million as compared to

$8.7 million

for the year ended

December 31, 2017

. Average

interest

bearing deposits for the year ended

December 31, 2018

increased $604.0 million from the same period in 2017 and experienced a 36 basis

point increase in rates paid. The increase in average interest

bearing deposits was primarily related to the interest

bearing deposits assumed in the

RBPI Merger, which initially totaled $494.8 million.

Interest expense on borrowings of $11.0 million for the year ended

December 31, 2018

increased $5.3 million as compared to $5.7 million for the year

ended

December 31, 2017

. The increase related to increases in interest expense on subordinated notes, short

term borrowings, and junior

subordinated debt of $2.9 million, $2.0 million, and $1.2 million, respectively, partially offset by a decrease in interest expense on long

term FHLB

advances of $843 thousand. Average subordinated notes for the year ended

December 31, 2018

increased $65.3 million from the same period in 2017

and experienced a 26 basis point decrease in rates paid. The volume increase in subordinated notes was the result of the December 13, 2017

issuance of $70 million ten

year, 4.25% fixed

floating subordinated notes. Average short

term borrowings and junior subordinated notes for the

year ended

December 31, 2018

increased $50.6 million and $20.5 million, respectively, from the same period in 2017 and experienced an 81 and 138

basis point increase, respectively, in rates paid. The volume increase in junior subordinated debt was related to the $21.4 million of floating rate

junior subordinated debentures assumed in the RBPI Merger.

Tax

Equivalent Net Interest Income and Margin

– 2017

Compared to

2016

Tax

equivalent net interest income of

$115.9 million

for the year ended

December 31, 2017

increased $9.0 million as compared to

$106.9 million

for the

year ended

December 31, 2016

. Tax

equivalent net interest margin of

3.69%

for the year ended

December 31, 2017

decreased seven basis points as

compared to

3.76%

for the year ended

December 31, 2016

Tax

equivalent interest and fees on loans and leases of

$121.4 million

for the year ended

December 31, 2017

increased $10.5 million as compared to

$110.9 million

for the year ended

December 31, 2016

. Average loans and leases for the year ended

December 31, 2017

increased $235.5 million from

the same period in 2016 with yields remaining relatively flat.

Tax

equivalent interest income on available for sale investment securities of

$8.7 million

for the year ended

December 31, 2017

increased $2.2 million

as compared to

$6.5 million

for the year ended

December 31, 2016

. Average available for sale investment securities for the year ended

December 31,

2017

increased $69.5 million from the same period in 2017 and experienced a 22 basis point increase in tax

equivalent yield.

Partially offsetting the effect on net interest income associated with the increase in average balances and yields in loans and leases and available for

sale investment securities were increases in interest expense on deposits and borrowings.

(1)

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

income.

(2)

Includes portfolio loans and leases and loans held for sale.

(3)

Interest on loans and leases includes deferred fees of $1.5 million, $947 thousand and $522 thousand for the years ended December 31, 2018, 2017 and 2016,

respectively.

(4)

Tax rate used for tax-equivalent calculations is 21% for 2018 and 35% for 2017 and 2016.

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Interest expense on interest

bearing deposits of

$8.7 million

for the year ended

December 31, 2017

increased $2.9 million as compared to

$5.8 million

for the year ended

December 31, 2016

. Average interest

bearing deposits for the year ended

December 31, 2017

increased $179.8 million from the

same period in 2016 and experienced a 12 basis point increase in rates paid.

Interest expense on borrowings of $5.7 million for the year ended

December 31, 2017

increased $762 thousand as compared to $4.9 million for the

year ended

December 31, 2016

. The increase primarily related to increases in interest expense on short

term borrowings and subordinated notes of

$1.3 million and $152 thousand, respectively, partially offset by a decrease in interest expense on long

term FHLB advances of $733 thousand.

Average borrowings for the year ended

December 31, 2017

increased $30.8 million from the same period in 2016 and experienced an 8 basis point

increase in rates paid.

Tax

Equivalent

Net Interest Margin –

Quarterly Comparison

The tax

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

Interest Rate Sensitivity

Management actively manages the Corporation

’

s interest rate sensitivity position. The objectives of interest rate risk management are to control

exposure of net interest income changes associated with interest rate movements and to achieve sustainable growth in net interest income. The

Corporation

’

s Asset Liability Committee (“

ALCO

”

using policies approved by the Corporation

’

s Board of Directors, is responsible for the

management of the Corporation

’

s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing

and re

pricing characteristics of its assets and liabilities. This is accomplished through the management of the investment portfolio, the pricings of

loans and deposit offerings and through wholesale funding. Wholesale funding is available from multiple sources including borrowings from the

FHLB, the Federal Reserve Bank of Philadelphia

’

s discount window, federal funds from correspondent banks, certificates of deposit from

institutional brokers, Certificate of Deposit Account Registry Service (“

CDARS

”

Insured Network Deposit (“

IND

”

)

Program, Insured Cash Sweep

(

“

ICS

”

)

and Pennsylvania Local Government Investment Trust (“

PLGIT

”

Management utilizes several tools to measure the effect of interest rate risk on net interest income. These methods include gap analysis, market

value of portfolio equity analysis, and net interest income simulations under various scenarios. The results of these analyses are compared to limits

established by the Corporation

’

s ALCO policies and make adjustments as appropriate if the results are outside the established limits.

The below table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or

“shock”

in the yield curve and subjective adjustments in deposit pricing, might have on management

’

s projected net interest income over the next

12 months.

This simulation assumes that there is no growth in interest

earning assets or interest

bearing liabilities over the next twelve months. By definition,

the simulation assumes static interest rates and does not incorporate forecasted changes in the yield curve. The changes to net interest income

shown below are in compliance with the Corporation

’

s policy guidelines.

Quarter

Year

Earning

Asset

Yield

Interest

Bearing

Liability Cost

Net Interest

Spread

Effect of Non

Interest

Bearing Sources

Tax

Equivalent

Net Interest

Margin

2018

4.74

1.30

3.44

0.35

3.79

2018

4.54

1.16

3.38

0.31

3.69

2018

4.57

1.02

3.55

0.26

3.81

2018

4.58

0.87

3.71

0.23

3.94

2017

4.15

0.74

3.41

0.21

3.62

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Summary of Interest Rate Simulation

The above interest rate simulation suggests that the Corporation

’

s balance sheet is asset sensitive as of December 31, 2018 in the +100 basis point

scenario, demonstrating that a 100 basis point increase in interest rates would have a positive impact on net interest income over the next 12

months. The balance sheet is less asset sensitive in a rising

rate environment as of December 31, 2018 than it was as of December 31, 2017. The

decrease is related to a change on the mix and repricing characteristics of the retail deposits as well as an increase in fixed rate assets as a

percentage of total assets. The improvement of the change in the 100 basis point decrease in rate is related to the Bank's less asset sensitive

position as previously described.

The interest rate simulation is an estimate based on assumptions, which are derived from past behavior of customers, along with expectations of

future behavior relative to interest rate changes. In today

’

s economic environment and the emergent from an extended period of very low interest

rates, the reliability of management

’

s assumptions in the interest rate simulation model is more uncertain than in prior years. Actual customer

behavior, as it relates to deposit activity, may be significantly different than expected behavior, which could cause an unexpected outcome and may

result in lower net interest income than that derived from the analysis referenced above.

Gap

Analysis

The interest sensitivity, or gap analysis, identifies interest rate risk by showing repricing gaps in the Corporation

’

s balance sheet. All assets and

liabilities are reflected based on behavioral sensitivity, which is usually the earliest of: repricing, maturity, contractual amortization, prepayments or

likely call dates. Non

maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the

expected sensitivity of these rates considering liquidity. Non

rate

sensitive assets and liabilities are spread over time periods to reflect

management

’

s view of the maturity of these funds.

Non

maturity deposits (demand deposits in particular) are recognized by the Bank

’

s regulatory agencies to have different sensitivities to interest

rate environments. Consequently, it is an accepted practice to spread non

maturity deposits over defined time periods to capture that sensitivity.

Commercial demand deposits are often in the form of compensating balances, and fluctuate inversely to the level of interest rates; the maturity of

these deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the Bank

’

s regulatory agencies have suggested

distribution limits for non

maturity deposits. However, management has taken a more conservative approach than these limits would suggest by

forecasting these deposit types with a shorter maturity. These assumptions are also reflected in the above interest rate simulation. The following

table presents the Corporation

’

s gap analysis as of

December 31, 2018

Change in Net Interest Income Over the Twelve

Months Beginning After December 31, 2018

Change in Net Interest Income Over the Twelve

Months Beginning After December 31, 2017

Amount

Percentage

Amount

Percentage

+300 basis points

5,644

3.74

15,953

10.66

+200 basis points

3,734

2.47

10,644

7.11

+100 basis points

1,860

1.23

5,316

3.55

100 basis points

(6,546

)

(4.34

(6,913

)

(4.62

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The table above indicates that the Corporation is asset

sensitive in the immediate 90

day time frame and may experience an increase in net interest

income during that time period if rates rise. Conversely, if rates decline, net interest income may decline. It should be noted that the gap analysis is

only one tool used to measure interest rate sensitivity and should be used in conjunction with other measures such as the interest rate simulation

discussed above. The gap analysis measures the timing of changes in rate, but not the true weighting of any specific component of the

Corporation

’

s balance sheet. The asset

sensitive position reflected in this gap analysis is similar to the Corporation

’

s position at December 31, 2017.

(dollars in millions)

0 to 90

Days

91 to 365

Days

Years

Over

5 Years

Non

Rate

Sensitive

Total

Assets:

Interest

bearing deposits with banks

34.4

—

34.4

Investment securities

(1)

222.1

54.4

346.5

130.6

—

753.6

Loans and leases

(2)

1,346.5

385.3

1,339.9

357.2

—

3,428.9

Allowance

—

(

19.4

)

(19.4

)

Cash and due from banks

—

14.1

Other assets

—

440.9

Total assets

1,603.0

439.7

1,686.4

487.8

435.6

4,652.5

Liabilities and shareholders

’

equity:

Demand, noninterest

bearing

25.3

76.0

263.8

536.5

—

901.6

Savings, NOW and market rate

86.2

246.7

728.5

713.1

—

1,774.5

Time deposits

87.9

326.3

126.4

2.1

—

542.7

Wholesale non

maturity deposits

55.0

—

55.0

Wholesale time deposits

185.6

139.7

—

325.3

Short

term borrowings

252.4

—

252.4

Long

term FHLB advances

—

28.3

27.1

—

55.4

Subordinated notes

—

98.5

—

98.5

Junior subordinated debentures

21.6

—

21.6

Other liabilities

—

60.8

Shareholders

’

equity

20.2

60.5

322.7

161.3

—

564.7

Total liabilities and shareholders

’

equity

734.2

877.5

1,567.0

1,413.0

60.8

4,652.5

Interest

earning assets

1,603.0

439.7

1,686.4

487.8

—

4,216.9

Interest

bearing liabilities

688.7

741.0

980.5

715.2

—

3,125.4

Difference between interest

earning

assets and interest

bearing liabilities

914.3

(301.3

)

705.9

(227.4

)

—

1,091.5

Cumulative difference between interest

earning assets and interest

bearing

liabilities

914.3

613.0

1,318.9

1,091.5

—

1,091.5

Cumulative earning assets as a % of

cumulative interest

bearing liabilities

233

143

155

135

(1)

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

(2)

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

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General Discussion of the Allowance for Loan and Lease Losses

The balance of the Allowance for loan and lease losses is determined based on management

’

s review and evaluation of the loan and lease portfolio

in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors,

including management

’

s assumptions as to future delinquencies, recoveries and losses.

Increases to the Allowance are implemented through a corresponding Provision (expense) in the Corporation

’

s statement of income. Loans and

leases deemed uncollectible are charged against the Allowance. Recoveries of previously charged

off amounts are credited to the Allowance.

While management considers the Allowance to be adequate, based on information currently available, future additions to the Allowance may be

necessary due to changes in economic conditions or management

’

s assumptions as to future delinquencies, recoveries and losses and

management

’

s intent regarding the disposition of loans. In addition, the Pennsylvania Department of Banking and Securities and the Federal

Reserve Bank of Philadelphia, as an integral part of their examination processes, periodically review the Corporation

’

s Allowance.

The Corporation

’

s Allowance is comprised of four components that are calculated based on various independent methodologies. All components

of the Allowance are based on management

’

s estimates. These estimates are summarized earlier in this document under the heading “

Critical

Accounting Policies, Judgments and Estimates.”

The four components of the Allowance are as follows:

As part of the process of calculating 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 employees as well as an external loan review service. The results of these reviews are reflected in the risk grade

assigned to each loan. These internally assigned grades are as follows:

Provision for Loan and Lease Losses

•

Specific Loan Evaluation Component

Loans and leases for which management has reason to believe it is probable that it will not be able

to collect all contractually due amounts of principal and interest are evaluated for impairment on an individual basis and a specific

allocation of the Allowance is assigned, if necessary.

•

Historical Charge

Off Component

Homogeneous pools of loans are evaluated to determine average historic charge

off rates.

Management applies a rolling, twenty quarter charge

off history as a look

back period to determine these average charge

off rates.

Management evaluates the length of this look

back period to determine its appropriateness. In addition, management develops an estimate

of a loss emergence period for each segment of the loan portfolio. The loss emergence period estimates the time between the occurrence of

a loss event for a borrower and an actual charge

off of a loan.

•

Qualitative Factors Component

Various qualitative factors are considered as they relate to the different homogeneous loan pools to

adjust the historic charge

off rates so that they reflect current economic conditions that may not be accurately reflected in the historic

charge

off rates. These factors include delinquency trends, economic conditions, loan terms, credit grades, concentrations of credit,

regulatory environment and other relevant factors. The resulting adjustments are combined with the historic charge

off rates and result in

an allocation rate for each homogeneous loan pool.

•

Unallocated Component

This amount represents the margin of imprecision inherent in the underlying assumptions used in the

methodologies for estimating the specific, historical, and qualitative losses in the portfolio discussed above. There are many factors

considered, such as the inherent delay in obtaining information regarding a customer

’

s financial information or changes in their business

condition, the judgmental nature of loan and lease evaluations, the delay in interpreting economic trends, and the judgmental nature of

collateral assessments.

•

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 well

defined weaknesses that may jeopardize the

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liquidation of the collateral and repayment of the debt. They are characterized by the distinct possibility that the institution will sustain

some loss if the deficiencies are not corrected.

Consumer credit exposure, which includes residential mortgages, home equity lines and loans, leases and consumer loans, are assigned a credit risk

profile based primarily on payment activity (that is, their delinquency status).

Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated

Financial Statements in this Annual Report on Form 10

K for details regarding credit quality indicators associated with the Corporation

’

s loan and

lease portfolio.

ALLL Portfolio Segmentation

– The Corporation

’

s loan and lease portfolio is divided into specific segments of loans and leases having similar

characteristics. These segments are as follows:

(1) During 2018 management further segmented commercial mortgages between owner

occupied and non

owner occupied to account for

different risk profiles and sensitivity to market factors that are attributed to each sub

segment. The commercial mortgage segment for 2018, as

disclosed within this Form 10

K, includes both owner

occupied and non

owner occupied for comparability to prior periods.

Refer to Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

K and

the section of this MD&A under the heading Portfolio Loans and Leases for details of the Corporation

’

s loan and lease portfolio, broken down by

portfolio segment.

Impairment Measurement

In accordance with guidance provided by ASC 310

10, "Receivables", the Corporation employs one of three methods

to determine and measure impairment:

Loans and leases for which there is an indication that all contractual payments may not be collectible are evaluated for impairment on an individual

basis. Loans that are evaluated on an individual basis include non

performing loans, troubled debt restructurings and purchased credit

impaired

loans.

Nonaccrual Loans

– In general, loans and leases that are delinquent on contractually due principal or interest payments for more than 89 days are

placed on nonaccrual status and any unpaid interest is reversed as a charge to interest income. When the loan resumes payment, all payments

(principal and interest) are applied to reduce principal. After a period of six months of satisfactory performance, the loan may be placed back on

accrual status. Any interest payments received during the nonaccrual period that had been applied to reduce principal are reversed and recorded as

a deferred fee which accretes to interest income over the remaining term of the loan or lease. In certain cases, management may have information

about a loan or lease that may indicate a future disruption or curtailment of contractual payments. In these cases, management will preemptively

place the loan or lease on nonaccrual status.

Troubled Debt Restructurings

(

“TDRs”

)

– Management follows guidance provided by ASC 310

40,

“Troubled Debt Restructurings by Creditors.”

A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor

’

s financial difficulties, grants a

concession to the debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of

repayment terms which would not normally be granted, a reduction of interest

•

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. Loan balances classified as doubtful have been reduced by partial charge

offs and are carried at their net

realizable values.

•

Commercial mortgage

(1)

•

Home equity lines and loans

•

Residential mortgage

•

Construction

•

Commercial and industrial

•

Consumer

•

Leases

•

the Present Value of Future Cash Flow Method;

•

the Fair Value of Collateral Method;

•

the Observable Market Price of a Loan Method.

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rate or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the creditor has granted a

concession, management will make the necessary disclosures related to the TDR. In certain cases, a modification may be made in an effort to retain a

customer who is not experiencing financial difficulty. This type of modification is not considered to be a TDR. Once a loan or lease has been

modified and is considered a TDR, it is reported as an impaired loan or lease. If the loan or lease deemed a TDR has performed for at least six months

at the level prescribed by the modification, it is not considered to be non

performing; however, it will generally continue to be reported as impaired.

Loans and leases that have performed for at least six months are reported as TDRs in compliance with modified terms.

Refer to Section G, “Troubled Debt Restructurings,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial

Statements in this Annual Report on Form 10

Charge

off Policy

The Corporation

’

s charge

off policy is that, on a periodic basis, not less often than quarterly, delinquent and non

performing

loans that exceed the following limits are considered for full or partial charge

off:

Any other loan or lease, for which management has reason to believe collectability is unlikely, and for which sufficient collateral does not exist, is

also charged off.

Refer to Section F, “Allowance for Loan and Lease Losses,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated

Financial Statements in this Annual Report on Form 10

K for more information regarding the Corporation's charge

offs and factors which influenced

management

’

s judgment with respect thereto.

Loans Acquired in Mergers and Acquisitions

In accordance with GAAP, the loans acquired from RBPI, FKB, FBD and CBH were recorded at their fair value with no carryover of the previously

associated allowance for loan loss.

Certain loans were acquired which exhibited deteriorated credit quality since origination and for which management does not expect to collect all

contractual payments. Accounting for these purchased credit

impaired (

“

PCI

”

)

loans is done in accordance with ASC 310

30,

“Receivables – Loans

and Debt Securities Acquired with Deteriorated Credit Quality”

The loans were recorded at fair value, reflecting the present value of the amounts

expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be

collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain

on non

accrual status and have no accretable yield. On a regular basis, at least quarterly, an assessment is made on PCI loans to determine if there

has been any improvement or deterioration of the expected cash flows. If there has been improvement, an adjustment is made to increase the

recognition of interest on the PCI loan, as the estimate of expected loss on the loan is reduced. Conversely, if there is deterioration in the expected

cash flows of a PCI loan, an allowance is recorded in connection with the loan. Management evaluates PCI loans individually for further impairment

as well as for improvements to expected cash flows.

Loans acquired in acquisitions which do not exhibit deteriorated credit quality at the time of acquisition are accounted for under ASC 310

20 and

receive a loan mark based on a credit and interest

rate analysis. The resulting discount or premium is accreted or amortized, respectively, to interest

income over their remaining maturity. These non

impaired acquired loans, along with the balance of the Corporation's loan and lease portfolio are

evaluated on either an individual basis or on a collective basis for impairment. For more information regarding the Corporation's impaired loans and

leases, refer to Section F, “Allowance for Loan and Lease Losses,” and Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the

accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

K. For more information regarding loan marks,

refer to Section I, “Loan Mark,” of Note 5, “Loans and Leases,” in the accompanying Notes to the Consolidated Financial Statements in this Annual

Report on Form 10

Asset Quality and Analysis of Credit Risk

As of December 31, 2018, total non

performing loans and leases were $12.8 million, representing 0.37% of portfolio loans and leases, as compared to

$8.6 million, or 0.26% of portfolio loans and leases, as of December 31, 2017. The $4.2 million increase in non

performing loans and leases was

primarily due to increases of $2.1 million, $1.7 million, and $872 thousand in home equity

•

Open

ended consumer loans exceeding 180 days past due.

•

Closed

ended consumer loans exceeding 120 days past due.

•

All commercial/business purpose loans exceeding 180 days past due.

•

All leases exceeding 120 days past due.

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lines, commercial mortgages, and leases, respectively, partially offset by a decrease of $965 thousand in non

performing residential mortgage loans.

The Provision for the years ended December 31, 2018, 2017 and 2016 was $7.2 million, $2.6 million and $4.3 million, respectively. The Provision

recorded during any given period reflects an allocation related to net new loan volume, changes in the economic environment, and the

replenishment of Allowance consumed by charge

offs of loans and leases for which the Corporation had not specifically reserved. Net loan charge

offs for the year ended December 31, 2018 totaled $5.3 million as compared to $2.6 million for the same period in 2017. Total portfolio loans increased

by $141.3 million during the year ended December 31, 2018 as compared to $750.4 million for the same period in 2017. As of December 31, 2018, the

Allowance of $19.4 million represents 0.57% of portfolio loans and leases, as compared to the Allowance as of December 31, 2017 of $17.5 million,

which represented 0.53% of portfolio loans and leases as of that date.

As of December 31, 2018, the Corporation had other real estate owned (“

OREO

”

)

valued at $417 thousand, as compared to $304 thousand as of

December 31, 2017. The increase was primarily due to $372 thousand of additions to OREO during 2018 comprised of one residential property and

one manufactured home, which resulted from loan foreclosures. Partially offsetting the additions were sales of OREO properties acquired in the

December 2017 RBPI Merger, carried at $170 thousand.

As of December 31, 2018, the Corporation had $11.0 million of TDRs, of which $9.7 million were in compliance with their modified terms for six

months or greater, and hence, excluded from non

performing loans and leases. As of December 31, 2017, the Corporation had $9.1 million of TDRs,

of which $5.8 million were in compliance with their modified terms.

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

payments in accordance with the original terms of the loans and leases. Included in impaired loans and leases are non

accrual loans and leases and

TDRs in compliance with modified terms. Purchased credit

impaired loans are not included in impaired loan and lease totals. As of December 31,

2018, the Corporation had $22.6 million of impaired loans and leases, as compared to $14.2 million as of December 31, 2017. For more information

regarding the Corporation's impaired loans and leases, refer to Section H, “Impaired Loans,” of Note 5, “Loans and Leases,” in the accompanying

Notes to the Consolidated Financial Statements in this Annual Report on Form 10

Management continues to be diligent in its credit underwriting process and very proactive with its loan review process, including engaging 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. Management believes that timely identification of credit

issues and appropriate actions early in the process serve to mitigate overall losses.

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Non

Performing Assets, TDRs

and Related Ratios

as of

for the Year Ended

December 31,

As of

December 31, 2018

, management is not aware of any loan or lease, other than those disclosed in the table above, for which it has any serious

doubt as to the borrower

’

s ability to pay in accordance with the terms of the loan.

Summary of Changes in the Allowance for Loan and Lease Losses

(dollars in thousands)

2018

2017

2016

2015

2014

Non-

accrual loans and leases

12,820

8,579

8,363

10,244

10,096

Loans 90 days or more past due and still accruing

—

Total non-performing loans and leases

12,820

8,579

8,363

10,244

10,096

Other real estate owned

417

304

1,017

2,638

1,147

Total non-performing assets

13,237

8,883

9,380

12,882

11,243

TDRs included in non-performing assets

1,217

3,289

2,632

1,935

4,315

TDRs in compliance with modified terms

9,745

5,800

6,395

4,880

4,157

Total TDRs

10,962

9,089

9,027

6,815

8,472

Allowance for loan and lease losses to non-performing loans and

leases

151.5

204.3

209.1

154.8

144.5

Non-performing loans and leases to total loans and leases

0.37

0.26

0.33

0.45

0.61

Allowance for loan losses to total portfolio loans and leases

0.57

0.53

0.69

0.70

0.88

Non-performing assets to total assets

0.28

0.20

0.27

0.43

0.50

Period-end portfolio loans and leases

3,427,154

3,285,858

2,535,425

2,268,988

1,652,257

Average portfolio loans and leases

3,397,479

2,660,999

2,419,950

2,153,542

1,608,248

Allowance for loan and lease losses

19,426

17,525

17,486

15,857

14,586

Interest income that would have been recorded on impaired loans if

the loans had been current in accordance with their original terms

and had been outstanding throughout the period or since origination

1,240

708

1,098

1,100

533

Interest income on impaired loans included in net income for the

period

774

485

551

513

341

(dollars in thousands)

2018

2017

2016

2015

2014

Balance, January 1

17,525

17,486

15,857

14,586

15,515

Charge

offs:

Consumer

(311

)

(154

)

(173

)

(177

)

(144

)

Commercial and industrial

(1,374

)

(692

)

(1,298

)

(1,220

)

(415

)

Real estate

(1,018

)

(1,056

)

(1,008

)

(1,615

)

(1,231

)

Leases

(3,132

)

(1,224

)

(808

)

(442

)

(410

)

Total charge

offs

(5,835

)

(3,126

)

(3,287

)

(3,454

)

(2,200

)

Recoveries:

Consumer

Commercial and industrial

Real estate

182

178

160

Construction

Leases

433

328

232

101

165

Total recoveries

543

547

590

329

387

Net charge

offs

(5,292

)

(2,579

)

(2,697

)

(3,125

)

(1,813

)

Provision for loan and lease losses

7,193

2,618

4,326

4,396

884

Balance, December 31

19,426

17,525

17,486

15,857

14,586

Ratio of net charge

offs to average portfolio loans

outstanding

0.16

0.10

0.17

0.15

0.11

Table of Contents

Allocation of Allowance for Loan and Lease Losses

The following table sets forth an allocation of the Allowance by portfolio segment. The specific allocations in any portfolio segment may be

changed in the future to reflect then

current conditions. Accordingly, management considers the entire Allowance to be available to absorb losses

in any portfolio segment.

2018

Compared to

2017

Noninterest income of

$76.0 million

for the year ended

December 31, 2018

increased

$16.9 million

, or

28.5%

, as compared to

$59.1 million

for the year

ended

December 31, 2017

. The increase was primarily due to increases of $6.2 million, $3.6 million, $2.5 million, and $2.2 million in other operating

income, fees for wealth management services, capital markets revenue, and insurance commissions, respectively. The increase in other operating

income, which is further detailed in the table below, was primarily due to the $4.0 million increase in recoveries of purchase accounting fair value

marks resulting from the pay off of purchased credit impaired loans acquired in the RBPI Merger. The increase in fees for wealth management

services was primarily related to the

$460.8 million

increase in wealth assets under management, administration, supervision and brokerage from

$12.97 billion

December 31, 2017

$13.43 billion

December 31, 2018

. The increase in capital markets revenue was primarily related to a full year

of operations for our capital markets group, which was formed during the second quarter of 2017, as well as organic growth. The increase in

insurance commissions was partially due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition.

Components of

other operating income

for the indicated years ended December 31 include:

December 31,

2018

2017

2016

2015

2014

(dollars in

thousands)

Allowance

Loans

Total

Loans

Allowance

Loans

Total

Loans

Allowance

Loans

Total

Loans

Allowance

Loans

Total

Loans

Allowance

Loans

Total

Loans

Allowance at end

of period

applicable to:

Commercial

mortgage

7,567

48.3

7,550

46.4

6,227

43.8

5,199

42.5

3,948

41.8

Home equity lines

and loans

1,003

6.1

1,086

6.6

1,255

8.2

1,307

9.2

1,917

11.0

Residential

mortgage

1,813

14.4

1,926

14.0

1,917

16.3

1,740

17.9

1,736

19.0

Construction

1,485

5.3

937

6.5

2,233

5.6

1,324

4.0

1,367

4.0

Commercial and

industrial

5,461

20.3

5,038

21.9

5,142

22.9

5,609

23.1

4,533

20.3

Consumer

229

1.4

246

1.1

153

1.0

142

1.0

238

1.1

Leases

1,868

4.2

742

3.5

559

2.2

518

2.3

468

2.8

Unallocated

—

379

—

Total

19,426

100.0

17,525

100.0

17,486

100.0

15,857

100.0

14,586

100.0

Noninterest Income

(dollars in thousands)

2018

2017

2016

Visa debit card income

1,700

1,443

1,381

Bank owned life insurance income

1,177

959

908

Commissions and fees

1,270

621

673

Safe deposit box rentals

386

365

382

Other investment income

337

223

Rent income

150

193

163

(Loss) gain on trading investments

(153

)

613

112

Recovery of purchase accounting fair value loan mark

4,338

337

452

Miscellaneous other income

2,341

742

574

Other operating income

11,546

5,321

4,868

Table of Contents

2017

Compared to

2016

Noninterest income of

$59.1 million

for the year ended

December 31, 2017

increased $5.2 million, or 9.6%, as compared to

$54.0 million

for the year

ended

December 31, 2016

. The increase was primarily due to increases of $2.4 million, $2.1 million, $876 thousand, and $453 thousand in capital

markets revenue, fees for wealth management services, insurance commissions, and other operating income, respectively. The increase in capital

markets revenue was due to the establishment of our capital markets initiative, which was launched in the second quarter of 2017. The increase in

fees for wealth management services was primarily related to the $1.64 million increase in wealth assets under management, administration,

supervision and brokerage from $11.33 billion at December 31, 2016 to $12.97 billion at December 31, 2017. The increase in insurance commissions

was primarily due to the May 2017 acquisition of Hirshorn. The increase in other operating income, which is further detailed in the table above, was

primarily due to a $501 thousand increase in gain on trading investments. The Corporation

’

s trading investments are comprised solely of

investments held in deferred compensation plan trusts whose investment decisions are at the sole discretion of the plan participants. Partially

offsetting these increases was a $607 thousand decrease in net gain on sale of loans as mortgage refinancing activity slowed during 2017 with

increasing interest rates.

2018

Compared to

2017

Noninterest expense of

$140.3 million

for the year ended

December 31, 2018

increased

$25.9 million

, or

22.6%

, as compared to

$114.4 million

for the

year ended

December 31, 2017

. The increase was primarily due to increases of $13.4 million and $2.7 million in salaries and wages and employee

benefits, respectively. A majority of these increases were related to the additional expenses associated with the staff assumed in the RBPI Merger,

and to a lesser extent, recruiting efforts of certain key leadership positions and increases in our incentive accruals. The remaining increase in

noninterest expense consisted of increases of $1.7 million, $1.7 million, $1.4 million, $1.3 million, and $1.0 million in occupancy and bank premises

expenses, due diligence, merger

related and merger integration expenses, information technology expenses, other operating expenses, and furniture,

fixtures and equipment expenses, respectively. These increases were also primarily due to the additional expenses associated with the facilities

assumed in the RBPI Merger. While much of the merger

related expenses associated with the RBPI Merger were recorded at the time of the merger,

certain expenses incurred in connection with the banking system conversion, contract terminations and lease terminations are recorded as they are

incurred.

Components of other operating expense for the indicated years ended December 31 include:

Noninterest Expense

(dollars in thousands)

2018

2017

2016

Contributions

1,659

1,511

957

Deferred compensation expense

(492

)

783

664

Director fees

544

542

566

Dues and subscriptions

1,150

871

456

FDIC insurance

1,716

1,580

1,616

Impairment of OREO and other repossessed assets

208

Insurance

851

838

788

Loan processing

1,068

423

323

Miscellaneous other expense

3,765

2,545

1,480

MSR amortization and impairment

830

745

881

Other taxes

Outsourced services

243

315

569

Portfolio maintenance

435

417

391

Postage

763

575

551

Stationary and supplies

536

488

518

Telephone and data lines

1,909

1,616

1,620

Temporary help and recruiting

416

852

1,522

Travel and entertainment

1,093

900

894

Other operating expense

16,635

15,248

13,935

Table of Contents

2017

Compared to

2016

Noninterest expense of

$114.4 million

for the year ended

December 31, 2017

increased $12.7 million, or 12.5%, as compared to

$101.7 million

for the

year ended

December 31, 2016

. The increase was primarily due to a $6.1 million increase in due diligence and merger

related and merger integration

expenses related to the RBPI Merger, and a $5.8 million increase in salary and wages due to staffing increases from our capital markets initiative, the

Hirshorn Boothby acquisition and the Princeton wealth management office, annual salary and wage increases, increases in incentive compensation

and to a smaller extent, the additional staff added in the RBPI Merger.

Secondary Market Sold

Loan Repurchase Demands

In the course of originating residential mortgage loans and selling those loans in the secondary market, the Corporation makes various

representations and warranties to the purchasers of the mortgage loans. Each residential mortgage loan originated by the Corporation is evaluated

by an automated underwriting application, which verifies the underwriting criteria and certifies the loan

’

s eligibility for sale to the secondary market.

Any exceptions discovered during this process are remedied prior to sale. These representations and warranties also apply to underwriting the real

estate appraisal opinion of value for the collateral securing these loans. Under the representations and warranties, failure by the Corporation to

comply with the underwriting and appraisal standards could result in the Corporation

’

s being required to repurchase the mortgage loan or to

reimburse the investor for losses incurred (make whole requests) if such failure cannot be cured by the Corporation within the specified period

following discovery. As of

December 31, 2018

, there were no pending or unsettled loan repurchase demands.

Income tax expense of

$14.2 million

for the year ended

December 31, 2018

decreased

$20.1 million

as compared to

$34.2 million

for the year ended

December 31, 2017

. The effective tax rates for the years ended

December 31, 2018

and

2017

were 18.2% and 59.8%, respectively. The decrease was

directly related to the Tax Reform enacted on December 22, 2017, which lowered the top federal corporate rate from 35% to 21%. Also contributing

to the decrease in income tax expense was the absence of the $15.2 million one

time income tax charge related to the re

measurement of the

Corporation

’

s net deferred tax asset, triggered by Tax Reform, during the year ended

December 31, 2017

, and a $2.6 million income tax benefit

recorded during the year ended

December 31, 2018

for certain discrete items included on our 2017 tax return that was filed during the fourth quarter

of 2018.

Income tax expense of

$34.2 million

for the year ended

December 31, 2017

increased $16.1 million as compared to

$18.2 million

for the year ended

December 31, 2016

. The effective tax rates for the years ended

December 31, 2017

and

2016

were 59.8% and 33.5%, respectively. The increase was

primarily due to the $15.2 million one

time charge to income tax expense, triggered by Tax Reform, during the year ended

December 31, 2017

For more information related to income taxes, refer to Note 16, “Income Taxes,” in the accompanying Notes to the Consolidated Financial

Statements in this Annual Report on Form 10

Asset Changes

Total assets of

$4.65 billion

as of

December 31, 2018

increased

$202.8 million

, or

4.6%

, from

$4.45 billion

as of

December 31, 2017

. The increase is

primarily due to the increases in portfolio loans and leases and available for sale investment securities discussed in the following sections.

Income Tax Expense

Balance Sheet Analysis

Table of Contents

Investment Securities

The following table details the maturity and weighted average yield

(1)

of the available for sale investment portfolio as of

December 31, 2018

The following table details the amortized cost of the available for sale investment portfolio as of the dates indicated:

(dollars in thousands)

Maturing

During

2018

Maturing

From

2019

Through

2022

Maturing

From

2023

Through

2027

Maturing

After

2027

Total

U.S. Treasury securities:

Amortized cost

199,926

100

—

200,026

Weighted average yield

2.28

2.63

—

2.28

Obligations of the U.S. government and agencies:

Amortized cost

3,263

174,697

6,588

14,056

198,604

Weighted average yield

2.00

2.31

3.48

2.75

2.38

State and political subdivisions

(1)

Amortized cost

5,491

5,211

670

—

11,372

Weighted average yield

0.52

0.57

—

0.52

Mortgage

related securities

(2)

Amortized cost

17,414

60,589

256,211

334,226

Weighted average yield

0.25

0.37

0.39

0.37

Other investment securities:

Amortized cost

450

650

—

1,100

Weighted average yield

1.99

3.46

—

2.86

Total amortized cost

209,142

198,072

67,847

270,267

745,328

Weighted average yield

2.27

2.34

2.65

2.71

2.48

(1)

Weighted average yields on tax-exempt obligations have not been computed on a tax-equivalent basis.

(2)

Mortgage-related securities are included in the above table based on their contractual maturity. However, mortgage-related securities, by design, have scheduled

monthly principal payments which are not reflected in this table.

Amortized Cost as of December 31,

(dollars in thousands)

2018

2017

2016

2015

2014

U.S. Treasury securities

200,026

200,077

200,094

101

102

Obligations of the U.S. government and agencies

198,604

153,028

83,111

101,342

66,881

Obligations of state and political subdivisions

11,372

21,352

33,625

41,892

28,955

Mortgage

backed securities

294,076

275,958

185,997

157,422

79,498

Collateralized mortgage obligations

40,150

37,596

49,488

29,756

34,618

Other investment securities

1,100

4,813

16,575

17,263

17,499

Total amortized cost

745,328

692,824

568,890

347,776

227,553

Table of Contents

Portfolio Loans and Leases

The table below details the loan portfolio as of the dates indicated:

The following table summarizes the loan maturity distribution and interest rate sensitivity as of

December 31, 2018

. Excluded from the table are

residential mortgage, home equity lines and loans, and consumer loans:

The list below identifies certain key characteristics of the Corporation

’

s loan and lease portfolio. Refer to Note 5, “Loans and Leases,” in the

accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

K and the section of this MD&A under the

heading “Portfolio Loans and Leases” for further details.

December 31,

(dollars in thousands)

2018

2017

2016

2015

2014

Commercial mortgage

1,657,436

1,523,377

1,110,898

964,259

689,528

Home equity lines & loans

207,351

218,275

207,999

209,473

182,082

Residential mortgage

494,355

458,886

413,540

406,404

313,442

Construction

181,078

212,454

141,964

90,421

66,267

Commercial & industrial

695,584

719,312

579,791

524,515

335,645

Consumer

46,814

38,153

25,341

22,129

18,480

Leases

144,536

115,401

55,892

51,787

46,813

Total portfolio loans and leases

3,427,154

3,285,858

2,535,425

2,268,988

1,652,257

Loans held for sale

1,749

3,794

9,621

8,987

3,882

Total loans and leases

3,428,903

3,289,652

2,545,046

2,277,975

1,656,139

(dollars in thousands)

Maturing

During

2019

Maturing

From

2020

Through

2023

Maturing

After

2023

Total

Loan

portfolio

maturity:

Commercial and industrial

270,993

224,197

200,394

695,584

Construction

95,346

43,025

42,707

181,078

Commercial mortgage

97,434

618,603

941,399

1,657,436

Leases

8,766

133,635

2,135

144,536

Total

472,539

1,019,460

1,186,635

2,678,634

Interest sensitivity on the above loans:

Loans with fixed rates

116,504

764,745

284,904

1,166,153

Loans with adjustable or floating rates

356,035

254,715

901,731

1,512,481

Total

472,539

1,019,460

1,186,635

2,678,634

•

Portfolio Loans and Leases

The Corporation

’

s $3.43 billion loan and lease portfolio is predominantly based in the Corporation

’

traditional market areas of Southeastern Pennsylvania, Southern and Central New Jersey, and Delaware. These markets have exhibited

relatively stable economic attributes, and have generally not seen the high levels of real estate price volatility experienced in other regions

nationwide.

•

Concentrations

The Corporation has a significant portion of its portfolio loans (excluding leases) in real estate

related loans. As of

December 31, 2018 and December 31, 2017, respectively, loans secured by real estate were $2.54 billion and $2.41 billion, or 74.1% and

73.4%, of the total loan portfolio of $3.43 billion and $3.29 billion. A predominant percentage of the Corporation

’

s real estate exposure, both

commercial and residential, is within Pennsylvania, Delaware and Southern and Central New Jersey. Management is aware of this

concentration and mitigates this risk to the extent possible in many ways, including maintaining a diverse group of collateral property

types within the portfolio, and by exercising underwriting discipline which includes assessment of the borrower

’

s capacity to repay, equity

in the underlying real estate collateral and a review of a borrower

’

s global cash flows. For a substantial portion of the loans in the real

estate portfolio, the Corporation has recourse to the owners/sponsors, primarily through personal guaranties, in addition to liens on

collateral. This recourse provides credit strength, as it incorporates the borrowers

’

global cash flows.

Table of Contents

In addition to loans secured by real estate, commercial and industrial loans comprise 20.3% of the total loan portfolio as of December 31,

2018.

•

Construction

The construction portfolio of $181.1 million accounts for 5.3% of the total loan and lease portfolio at December 31, 2018, a

decrease of $31.4 million from December 31, 2017. The construction loan segment of the portfolio, which consists of residential site

development loans, commercial construction loans, and loans for construction of individual homes, had no delinquent or nonperforming

loans as of both December 31, 2018 and 2017.

•

Residential Mortgages

Residential mortgage loans were $494.4 million as of December 31, 2018, an increase of $35.5 million from

December 31, 2017. The residential mortgage segment accounts for 14.4% of the total loan and lease portfolio as of December 31, 2018. The

residential mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.52%, as compared

to 0.32% as of December 31, 2017. Nonperforming residential mortgage loans comprised 0.70% of the residential mortgage segment of the

portfolio as of December 31, 2018, as compared to 0.96% as of December 31, 2017. Management believes it is well protected with its

collateral position on this portfolio.

•

Commercial Mortgages

Commercial mortgages were $1.66 billion as of December 31, 2018, an increase of $134.1 million from December 31,

2017. Management has made a concerted effort, over several operating cycles, to attract strong commercial real estate entrepreneurs in its

primary trade area. The commercial mortgage segment accounts for 48.4% of the total loan and lease portfolio as of December 31, 2018. The

commercial mortgage segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.06%, as compared

to 0.25% as of December 31, 2017. Nonperforming commercial mortgage loans comprised 0.15% of the commercial mortgage segment of the

portfolio as of December 31, 2018, as compared to 0.06% as of December 31, 2017. The borrowers comprising this segment of the portfolio

generally have strong, global cash flows, which are regularly assessed and have remained stable.

•

Commercial and Industrial

Commercial and industrial loans were $695.6 million as of December 31, 2018, a decrease of $23.7 million from

December 31, 2017. The commercial and industrial segment accounts for 20.3% of the total loan and lease portfolio as of December 31, 2018.

The commercial and industrial segment of the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.09%, as

compared to 0.13% as of December 31, 2017. Nonperforming commercial and industrial loans comprised 0.30% of the commercial and

industrial segment of the portfolio as of December 31, 2018, as compared to 0.24% as of December 31, 2017. The commercial and industrial

segment of the portfolio consists primarily of loans to privately held businesses and non

profit institutions headquartered within the

Corporation

’

s traditional market area. While some of these loans are collateralized by real estate, others are collateralized by non

real estate

business assets, including accounts receivable, inventory and equipment.

•

Home Equity Loans and Lines of Credit

Home equity loans and lines of credit were $207.4 million as of December 31, 2018, a decrease of

$10.9 million from December 31, 2017. The home equity loans and lines of credit segment accounts for 6.1% of the total loan and lease

portfolio as of December 31, 2018. The home equity loans and lines of credit segment of the portfolio had a delinquency rate on performing

loans, as of December 31, 2018, of 0.05%, as compared to 0.16% as of December 31, 2017. Nonperforming home equity loans and lines of

credit comprised 1.74% of the home equity loans and lines of credit segment of the portfolio as of December 31, 2018, as compared to

0.68% as of December 31, 2017. The Bank originates the majority of its home equity loans and lines of credit through its retail channel.

•

Consumer loans

Consumer loans were $46.8 million as of December 31, 2018, an increase of $8.7 million from December 31, 2017. The

consumer loan segment accounted for 1.4% of the total loan and lease portfolio as of December 31, 2018. The consumer loan segment of

the portfolio had a delinquency rate on performing loans, as of December 31, 2018, of 0.09%, as compared to 2.90% as of December 31,

2017. Nonperforming consumer loans comprised 0.23% of the consumer loan segment of the portfolio as of December 31, 2018, as

compared to no nonperforming consumer loans as of December 31, 2017. Consumer loans consist primarily of small

balance revolving or

installment loans originated through the Bank's retail channel.

•

Leasing

Leases totaled $144.5 million as of December 31, 2018, an increase of $29.1 million from December 31, 2017. The lease segment of

the portfolio accounted for 4.2% of the total loan and lease portfolio as of December 31, 2018. The lease segment of the portfolio had a

delinquency rate on performing leases, as of December 31, 2018, of 0.77%, as compared to 0.26% as of December 31, 2017. Nonperforming

leases comprised 0.67% of the leasing segment of the portfolio as of December 31, 2018, as compared to 0.09% as of December 31, 2017.

Table of Contents

Goodwill and Intangible Assets

Goodwill of

$184.0 million

as of

December 31, 2018

increased

$4.1 million

, or

2.3%

, from

$179.9 million

as of

December 31, 2017

. The increase was due

$3.4 million

of measurement period adjustments in connection with the RBPI Merger recorded during the year ended

December 31, 2018

, coupled

with $677 thousand of goodwill recorded from the acquisition of Domenick.

Intangible assets, other than mortgage servicing rights ("MSRs"), of

$23.5 million

as of

December 31, 2018

decreased

$2.5 million

, or

9.7%

, from

$26.0 million

as of

December 31, 2017

. The decrease was due to

$3.7 million

of amortization, partially offset by the addition of $779 thousand of

intangible assets from the acquisition of Domenick.

For more information regarding goodwill and intangible assets, see Note 1, “Summary of Significant Accounting Policies,” Note 3, “Business

Combinations,” and Note 8, “Goodwill and Intangible Assets,” respectively, in the accompanying Notes to the Consolidated Financial Statements

in this Annual Report on Form 10

FHLB Stock

The Corporation

’

s investment in stock issued by the FHLB was

$14.5 million

as of

December 31, 2018

a decrease of

$5.6 million

, or

27.7%

, from

$20.1

million

as of

December 31, 2017

. The Corporation must purchase, or the FHLB must redeem, its stock based on the Corporation

’

s borrowings

balance with the FHLB.

Mortgage Servicing Rights

MSRs of

$5.0 million

as of

December 31, 2018

decreased $814 thousand, or

14%

, from

$5.9 million

as of

December 31, 2017

. The decrease was

primarily due to amortization of $803 thousand for the year ended

December 31, 2018

. Mortgage loans sold with servicing retained was $1.9 million

for the year ended

December 31, 2018

, a decrease of $101.5 million, or 98.2%, from the $103.4 million of mortgage loans sold with servicing retained

for the year ended

December 31, 2017

The following table details activity related to mortgage servicing rights for the periods indicated:

For the Year Ended or as of December 31,

(dollars in thousands)

2018

2017

2016

Mortgage originations

162,854

190,007

280,059

Mortgage loans sold:

Servicing retained

1,850

103,439

138,134

Servicing released

86,518

27,871

22,829

Total mortgage loans sold

88,368

131,310

160,963

Percentage of originated mortgage loans sold

54.3

69.1

57.5

Servicing retained %

2.1

78.8

85.8

Servicing released %

97.9

21.2

14.2

Residential mortgage loans serviced for others

578,788

650,703

631,889

Mortgage servicing rights

5,047

5,861

5,582

Gain on sale of mortgage loans

2,477

2,038

2,693

Loan servicing and other fees

2,259

1,939

Amortization of MSRs

803

791

750

(Impairment) / Recovery of MSRs

(27

)

(131

)

Table of Contents

Liability Changes

Total liabilities of

$4.09 billion

as of

December 31, 2018

increased

$166.2 million

, or

4.2%

, from

$3.92 billion

as of

December 31, 2017

. The increase is

primarily due to the increase in total deposits offset by the decrease in total borrowings discussed in the following sections.

Deposits

Deposits of

$3.60 billion

as of

December 31, 2018

increased

$225.3 million

, or

6.7%

, from

$3.37 billion

as of

December 31, 2017

. Increases of $183.4

million, $153.3 million, and $10.5 million in interest

bearing demand accounts, wholesale time deposits, and retail time deposits, respectively, were

partially offset by decreases of $91.5 million, $23.2 million, and $7.2 million in savings accounts, noninterest

bearing demand accounts, and

wholesale non

maturity deposits, respectively.

The following table details deposits as of the dates indicated:

The following table summarizes the maturities of certificates of deposit of $100,000 or greater as of

December 31, 2018

For more information regarding deposits, including average amount of deposits and average rate paid, refer to the sections of this MD&A under the

headings “Balance Sheet Analysis” and “Analysis of Interest Rates and Interest Differential.”

Borrowings

Borrowings of

$427.8 million

as of

December 31, 2018

, which include short

term borrowings, long

term FHLB advances, subordinated notes and

junior subordinated debentures, decreased $69.0 million, or 13.9%, from

$496.8 million

as of December 31, 2017. The decrease was comprised of a

$83.8 million decrease in long

term FHLB advances, partially offset by a $14.5 million increase in short

term borrowings (original maturity of one year

or less), which consisted of funds obtained from overnight repurchase agreements with commercial customers and short

term FHLB advances.

The following table details borrowings as of the dates indicated:

As of December 31,

(dollars in thousands)

2018

2017

2016

2015

2014

Interest

bearing demand

664,749

481,336

379,424

338,861

277,228

Money market

862,644

862,639

761,657

749,726

566,354

Savings

247,081

338,572

232,193

187,299

138,992

Retail time deposits

542,702

532,202

322,912

229,253

118,400

Wholesale non

maturity deposits

55,031

62,276

74,272

67,717

66,693

Wholesale time deposits

325,261

171,929

73,037

53,185

73,458

Total interest

bearing deposits

2,697,468

2,448,954

1,843,495

1,626,041

1,241,125

Noninterest

bearing deposits

901,619

924,844

736,180

626,684

446,903

Total deposits

3,599,087

3,373,798

2,579,675

2,252,725

1,688,028

(dollars in thousands)

Retail

Wholesale

Three months or less

42,121

182,382

Three to six months

40,431

102,225

Six to twelve months

125,904

37,515

Greater than twelve months

57,828

—

Total

266,284

322,122

Table of Contents

See the Liquidity Section of this MD&A under the heading “Liquidity” for further details on the Corporation

’

s FHLB available borrowing capacity.

The Corporation has two operating segments: Wealth Management and Banking. These segments are discussed below. Detailed segment

information appears in Note 30, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report

on Form 10

Wealth

Management

Segment Activity

The Wealth Management segment, which includes the insurance reporting unit, reported a pre

tax segment profit (“

PTSP

”

)

for the year ended

December 31, 2018

$16.5 million

, an increase of $1.4 million, or 9.7%, as compared to

$15.1 million

for the year ended

December 31, 2017

. Fees for

wealth management services of

$42.3 million

for the year ended

December 31, 2018

increased $3.6 million, or 9.3%, as compared to

$38.7 million

for

the year ended

December 31, 2017

. The increase in fees was comprised of a $2.1 million increase from accounts whose fees are charged on a flat or

fixed basis, primarily due to a $581.3 million increase in fixed rate flat

fee account balances, and a $1.4 million increase in fees derived from market

value based fee accounts, primarily due to strong market performance experienced during 2018. Revenue from the insurance division of

$6.8 million

for the year ended

December 31, 2018

, which is reported as part of the Wealth Management segment, increased by $2.2 million, or 48.4%, partially

due to the May 2017 Hirshorn acquisition and the May 2018 Domenick acquisition, in addition to organic growth.

The PTSP of the Wealth Management segment for the year ended

December 31, 2017

was

$15.1 million

, an increase of $702 thousand, or 4.9%, as

compared to

$14.4 million

for the year ended

December 31, 2016

. Fees for wealth management services of

$38.7 million

for the year ended

December 31, 2017

increased $2.0 million, or 5.6%, as compared to

$36.7 million

for the year ended

December 31, 2016

. The increase in fees, year over

year, is related to the $1.64 billion increase in assets under management, administration, supervision and brokerage. Approximately two

thirds of the

growth of the wealth asset portfolio was from accounts whose fees are charged on a flat or fixed basis. However, nearly two

thirds of the increase in

wealth management fees was derived from market

value based fee accounts, as a result of the strong market performance experienced in 2017.

Revenue from the insurance division, which is reported as part of the Wealth Management segment, increased by $867 thousand, or 23.3%,

primarily due to the May 2017 acquisition of Hirshorn, in addition to organic growth.

Wealth Assets Under Management,

Administration,

Supervision and

Brokerage

(

“Wealth Assets”

)

Wealth Asset accounts are categorized into two groups; the first account group consists predominantly of clients whose fees are determined based

on the market value of the assets held in their accounts (“Market Value” basis). The second account group consists predominantly of clients whose

fees are set at fixed amounts (“

Fixed Fee

” basis), and, as such, are not affected by market value changes.

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

As of December 31,

(dollars in thousands)

2018

2017

2016

2015

2014

Short

term borrowings

252,367

237,865

204,151

94,167

23,824

Long

term FHLB advances

55,374

139,140

189,742

254,863

260,146

Subordinated notes

98,526

98,416

29,532

29,479

—

Jr. subordinated debentures

21,580

21,416

—

Total borrowings

427,847

496,837

423,425

378,509

283,970

Discussion of Segments

Table of Contents

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

Banking Segment Activity

Banking segment data as presented in Note 30, “Segment Information,” in the accompanying Notes to the Consolidated Financial Statements in this

Annual Report on Form 10

K indicates a PTSP of

$61.4 million

2018,

$42.2 million

2017

and

$39.8 million

2016

. See the section of this MD&A

under the heading “Components of Net Income” for a discussion of the Banking Segment results.

Consolidated shareholders

’

equity of the Corporation was

$564.7 million

, or 12.1% of total assets, as of

December 31, 2018

, as compared to

$528.1

million

, or 11.9% of total assets, as of

December 31, 2017

In May 2018, the Corporation filed a shelf registration statement on Form S

3, SEC File No. 333

224849 (the

“Shelf Registration Statement”

The

Shelf Registration Statement allows the Corporation to raise additional capital from time to time through offers and sales of registered securities

consisting of common stock, debt securities, warrants, purchase contracts, rights and units or units consisting of any combination of the foregoing

securities. The Corporation may sell these securities using the prospectus in the Shelf Registration Statement, together with applicable prospectus

supplements, from time to time, in one or more offerings.

In addition, the Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”

which allows it to issue up to

1,500,000

shares of registered common stock. The Plan allows for the grant of

(dollars in thousands)

Wealth Assets as of:

Fee Basis

December 31,

2018

December 31,

2017

December 31,

2016

Market value

5,764,189

5,884,692

5,302,463

Fixed fee

7,665,355

7,084,046

6,025,994

Total

13,429,544

12,968,738

11,328,457

Percentage of Wealth Assets as of:

Fee Basis

December 31,

2018

December 31,

2017

December 31,

2016

Market value

42.9

45.4

46.8

Fixed fee

57.1

54.6

53.2

Total

100.0

(dollars in thousands)

For the Year Ended:

Fee Basis

December 31,

2018

December 31,

2017

December 31,

2016

Market value

31,142

29,752

28,418

Fixed fee

11,184

8,983

8,272

Total

42,326

38,735

36,690

Percentage of Fees for Wealth Management Services

For the Year Ended:

Fee Basis

December 31,

2018

December 31,

2017

December 31,

2016

Market value

73.6

76.8

77.5

Fixed fee

26.4

23.2

22.5

Total

100.0

Capital and Regulatory Capital Ratios

Table of Contents

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.

For the year ended

December 31, 2018

, the Corporation did not issue any shares through the Plan, nor were any RFWs approved. The Plan

administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were

executed under the Shelf Registration Statement during the year ended

December 31, 2018

Accumulated other comprehensive loss (“

AOCL

”

)

$7.5 million

as of

December 31, 2018

increased

$3.1 million

, or

70%

, from

$4.4 million

as of

December 31, 2017

. The primary cause of the increase in AOCL was the increase in net unrealized losses on available for sale investment securities

primarily due to increasing interest rates.

As detailed in Section E, “Regulatory Capital Ratios,” of Note 27, “Regulatory Capital Requirements,” in the accompanying Notes to the

Consolidated Financial Statements in this Annual Report on Form 10

K, the capital ratios, as of

December 31, 2018

and

2017

indicate levels above

the regulatory minimum to be considered “

well capitalized.

”

The Corporation has significant sources of liquidity as of

December 31, 2018

. The liquidity position is managed on a daily basis as part of the daily

settlement function, and on a monthly basis as part of the asset liability management process. The Corporation

’

s primary liquidity is maintained by

managing its deposits, along with the utilization of borrowings from the FHLB, purchased federal funds, and utilization of other wholesale funding

sources. Secondary sources of liquidity include the sale of certain investment securities and certain loans in the secondary market.

Other wholesale funding sources include certificates of deposit from brokers, generally available in blocks of $1.0 million or more. Funds obtained

through these programs totaled

$325.3 million

as of

December 31, 2018

As of

December 31, 2018

, the maximum borrowing capacity with the FHLB was

$1.53 billion

, with an unused borrowing availability of

$1.25 billion

Borrowing availability at the Federal Reserve Discount Window was

$140.4 million

, and overnight Fed Funds lines, consisting of lines from seven

banks, totaled

$79.0 million

. On a monthly basis, the ALCO reviews the Corporation

’

s liquidity needs. This information is reported to the Risk

Management Committee of the Board of Directors on a quarterly basis.

As of

December 31, 2018

, the Corporation held

$14.5 million

of FHLB stock as required by the borrowing agreement between the FHLB and the

Corporation.

The Corporation has an agreement with IND to provide up to $70 million, plus interest, of money market and NOW funds at an agreed upon interest

rate equal to the current Fed Funds rate plus 20 basis points. The Corporation had

$55.0 million

in balances as of

December 31, 2018

under this

program.

The Corporation

’

s available for sale investment portfolio of

$737.4 million

as of

December 31, 2018

was

15.9%

of total assets. Some of these

investments were in short

term, high

quality, liquid investments to earn more than the 25 basis points currently earned on Fed Funds. The

Corporation

’

s policy is to maintain its investment portfolio at a minimum level of 10% of total assets. The portion of the investment portfolio that is

not already pledged against borrowings from the FHLB or other funding sources, provides the Corporation with the ability to utilize the securities to

borrow additional funds through the FHLB, Federal Reserve or other repurchase agreements.

Management continually evaluates its borrowing capacity and sources of liquidity. Management currently believes that it has sufficient capacity to

fund expected short

and long

term earning asset growth with wholesale sources, along with deposit growth from its internal branch and wealth

products.

The Corporation becomes party to financial instruments 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 and create off

balance sheet risk.

Liquidity

Off Balance Sheet Risk

Table of Contents

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.

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 following chart presents the off

balance sheet commitments of the Corporation as of

December 31, 2018

, listed by dates of funding or payment:

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. Collateral requirements for off

balance sheet items are generally based upon the same standards and policies as booked loans. 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.

Effects of Inflation

Inflation has some impact on the Corporation

’

s operating costs. Unlike many industrial companies, however, substantially all of the Corporation

’

assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Corporation

’

s performance than the

general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as

prices of goods and services.

Effect 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.

(dollars in

millions)

Total

Within

1 Year

Years

After

5 Years

Unfunded loan commitments

867.2

433.7

138.6

45.0

249.9

Standby letters of credit

21.2

17.1

4.1

—

Total

888.4

450.8

142.7

45.0

249.9

Contractual Cash Obligations of the Corporation as of December 31, 2018

(dollars in thousands)

Total

Within

1 Year

Years

After

5 Years

Deposits without a stated maturity

2,731,124

—

Wholesale and retail certificates of deposit

867,963

739,766

115,409

11,901

887

Short

term borrowings

252,367

—

Long

term FHLB Advances

55,374

28,105

27,269

—

Subordinated Notes

100,000

—

100,000

Junior subordinated debentures

25,774

—

25,774

Operating leases

64,488

5,211

9,178

8,254

41,845

Purchase obligations

9,066

6,736

2,330

—

Total

4,106,156

3,763,309

154,186

20,155

168,506

Other Information

Table of Contents

The Corporation is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a

significant effect on its deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the

Corporation

’

s operations in the future. The effect of such policies and regulations upon the future business and earnings of the Corporation cannot

be predicted.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item 7A is incorporated by reference to information appearing in the MD&A Section of this Annual Report

on Form 10

K, more specifically in the sections entitled “Interest Rate Sensitivity,” “Summary of Interest Rate Simulation,” and “Gap Analysis.”

Table of Contents

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following audited Consolidated Financial Statements and related documents are set forth in this Annual Report on Form 10

K on the

following pages:

Page

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Shareholders

’

Equity

Notes to Consolidated Financial Statements

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Bryn Mawr Bank Corporation:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Bryn Mawr Bank Corporation and subsidiaries (the Company) as of

December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in shareholders

’

equity, and cash

flows for each of the years in the three

year period ended December 31, 2018, and the related notes (collectively, the consolidated financial

statements). We also have audited the Company

’

s internal control over financial reporting as of December 31, 2018, based on criteria established in

Internal Control

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company

as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three

year period ended

December 31, 2018, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material

respects, effective internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control

Integrated

Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company

’

s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial

reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management

Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company

’

s consolidated financial

statements and an opinion on the Company

’

s internal control over financial reporting based on our audits. We are a public accounting firm

registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the

Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and

whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated

financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on

a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the

accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated

financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial

reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control

based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We

believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company

’

s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial

reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A

company

’

s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in

reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that

transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,

and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the

company

’

s assets that could have a material effect on the financial statements.

Table of Contents

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any

evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with the policies or procedures may deteriorate.

(signed) KPMG LLP

We have served as the Company

’

s auditor since 2004.

Philadelphia, Pennsylvania

March 1, 2019

Table of Contents

Consolidated Balance Sheets

(dollars in thousands)

December 31,

2018

December 31,

2017

Assets

Cash and due from banks

14,099

11,657

Interest bearing deposits with banks

34,357

48,367

Cash and cash equivalents

48,456

60,024

Investment securities available for sale, at fair value (amortized cost of $745,328 and $692,824 as of

December 31, 2018 and December 31, 2017, respectively)

737,442

689,202

Investment securities held to maturity, at amortized cost (fair value of $8,438 and $7,851 as of

December 31, 2018 and December 31, 2017, respectively)

8,684

7,932

Investment securities, trading

7,502

4,610

Loans held for sale

1,749

3,794

Portfolio loans and leases, originated

2,885,251

2,487,296

Portfolio loans and leases, acquired

541,903

798,562

Total portfolio loans and leases

3,427,154

3,285,858

Less: Allowance for originated loan and lease losses

(19,329

)

(17,475

)

Less: Allowance for acquired loan and lease losses

(97

)

(50

)

Total allowance for loans and lease losses

(19,426

)

(17,525

)

Net portfolio loans and leases

3,407,728

3,268,333

Premises and equipment, net

65,648

54,458

Accrued interest receivable

12,585

14,246

Mortgage servicing rights

5,047

5,861

Bank owned life insurance

57,844

56,667

Federal Home Loan Bank stock

14,530

20,083

Goodwill

184,012

179,889

Intangible assets

23,455

25,966

Other investments

16,526

12,470

Other assets

61,277

46,185

Total assets

4,652,485

4,449,720

Liabilities

Deposits:

Noninterest-

bearing

901,619

924,844

Interest-

bearing

2,697,468

2,448,954

Total deposits

3,599,087

3,373,798

Short-term borrowings

252,367

237,865

Long

-term FHLB advances

55,374

139,140

Subordinated notes

98,526

98,416

Junior subordinated debentures

21,580

21,416

Accrued interest payable

6,652

3,527

Other liabilities

54,195

47,439

Total liabilities

4,087,781

3,921,601

Shareholders' equity

Common stock, par value $1; authorized 100,000,000 shares; issued 24,545,348 and 24,360,049

shares as of December 31, 2018 and December 31, 2017, respectively, and outstanding of 20,163,816

and 20,161,395 as of December 31, 2018 and December 31, 2017, respectively

24,545

24,360

Paid-in capital in excess of par value

374,010

371,486

Less: Common stock in treasury at cost - 4,381,532 and 4,198,654 shares as of December 31, 2018

and December 31, 2017, respectively

(75,883

)

(68,179

)

Accumulated other comprehensive loss, net of tax

(7,513

)

(4,414

)

Retained earnings

250,230

205,549

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

Total Bryn Mawr Bank Corporation shareholders' equity

565,389

528,802

Noncontrolling interest

(685

)

(683

)

Total shareholders' equity

564,704

528,119

Total liabilities and shareholders' equity

4,652,485

4,449,720

Table of Contents

Consolidated Statements of Income

Year Ended December 31,

2018

2017

2016

(dollars in thousands, except per share data)

Interest income:

Interest and fees on loans and leases

168,638

120,762

110,536

Interest on cash and cash equivalents

264

174

168

Interest on investment securities:

Taxable

11,854

8,136

5,575

Non-

taxable

293

388

497

Dividends

215

Total interest income

181,055

129,559

116,991

Interest expense:

Interest on deposits

20,552

8,748

5,833

Interest on short-term borrowings

3,392

1,390

Interest on FHLB advances and other borrowings

1,777

2,620

3,353

Interest on subordinated notes

4,575

1,628

1,476

Interest on junior subordinated debentures

1,288

—

Total interest expense

31,584

14,432

10,755

Net interest income

149,471

115,127

106,236

Provision for loan and lease losses

7,193

2,618

4,326

Net interest income after provision for loan and lease losses

142,278

112,509

101,910

Noninterest income:

Fees for wealth management services

42,326

38,735

36,690

Insurance commissions

6,808

4,589

3,722

Capital markets revenue

4,848

2,396

—

Service charges on deposits

2,989

2,608

2,791

Loan servicing and other fees

2,259

2,106

1,939

Net gain on sale of loans

3,283

2,441

3,048

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

101

(77

)

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

295

(104

)

(76

)

Dividends on FHLB and FRB stock

1,621

939

1,063

Other operating income

11,546

5,321

4,868

Total noninterest income

75,982

59,132

53,968

Noninterest expenses:

Salaries and wages

66,671

53,251

47,411

Employee benefits

12,918

10,170

9,249

Occupancy and bank premises

11,599

9,906

9,611

Furniture, fixtures, and equipment

8,407

7,385

7,520

Advertising

1,719

1,454

1,381

Amortization of intangible assets

3,656

2,734

3,498

Due diligence, merger

related and merger integration expenses

7,761

6,104

—

Professional fees

4,203

3,268

3,659

Pennsylvania bank shares tax

1,792

1,294

1,749

Information technology

4,942

3,581

3,661

Other operating expenses

16,635

15,248

13,935

Total noninterest expenses

140,303

114,395

101,674

Income before income taxes

77,957

57,246

54,204

Income tax expense

14,165

34,230

18,168

Net income

63,792

23,016

36,036

Net (loss) income attributable to noncontrolling interest

—

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

Net income attributable to Bryn Mawr Bank Corporation

63,792

23,016

36,036

Basic earnings per common share

3.15

1.34

2.14

Diluted earnings per common share

3.13

1.32

2.12

Dividends declared per share

0.94

0.86

0.82

Weighted

average basic shares outstanding

20,234,792

17,150,125

16,859,623

Dilutive shares

155,375

248,798

168,499

Adjusted weighted-

average diluted shares

20,390,167

17,398,923

17,028,122

Table of Contents

Consolidated Statements of Comprehensive Income

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

(dollars in thousands)

Year Ended December 31,

2018

2017

2016

Net income attributable to Bryn Mawr Bank Corporation

63,792

23,016

36,036

Other comprehensive loss:

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

Net unrealized losses arising during the period, net of tax benefit of $(806), $(570)

and $(1,106), respectively

(3,033

)

(1,057

)

(2,055

)

Reclassification adjustment for net (gain) loss on sale realized in net income, net

of tax (expense) benefit of $(1), $(35), and $27, respectively

)

(66

)

Reclassification adjustment for net gain realized on transfer of investment

securities available for sale to trading, net of tax expense of $(88), $0 and $0,

respectively

(329

)

—

Unrealized investment losses, net of tax benefit of $(895), $(605) and $(1,079),

respectively

(3,368

)

(1,123

)

(2,005

)

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 (benefit) of $72, $(54) and $5,

respectively

269

(100

)

Total other comprehensive loss

(3,099

)

(1,223

)

(1,997

)

Total comprehensive income

60,693

21,793

34,039

Table of Contents

Consolidated Statements of Cash Flows

(dollars in thousands)

Year Ended December 31,

2018

2017

2016

Operating activities:

Net income attributable to Bryn Mawr Bank Corporation

63,792

23,016

36,036

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

Provision for loan and lease losses

7,193

2,618

4,326

Depreciation of premises and equipment

6,610

5,551

5,630

Loss on disposal of premises and equipment

1,627

—

Net amortization of investment premiums and discounts

3,044

2,990

3,200

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

)

(101

)

Net gain on sale of loans

(3,283

)

(2,441

)

(3,048

)

Stock-based compensation

2,750

2,068

1,713

Amortization and net impairment of mortgage servicing rights

830

744

880

Net accretion of fair value adjustments

(9,883

)

(2,376

)

(3,776

)

Amortization of intangible assets

3,656

2,734

3,498

Impairment of other real estate owned ("OREO") and other repossessed assets

208

Net (gain) loss on sale of OREO

(295

)

104

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

(1,177

)

(838

)

(908

)

Other, net

532

(788

)

Loans originated for resale

(86,323

)

(125,482

)

(161,597

)

Proceeds from loans sold

91,353

132,639

162,762

Provision for deferred income taxes

9,839

20,418

1,676

Settlement of pension liability acquired in RBPI Merger

—

(15,233

)

—

Change in income taxes payable/receivable

415

(7,917

)

4,340

Change in accrued interest receivable

1,661

(3,178

)

(664

)

Change in accrued interest payable

3,125

(2,023

)

883

Change in other assets

(19,222

)

(3,471

)

865

Change in other liabilities

2,909

3,690

(1,914

)

Net cash provided by operating activities

79,235

32,932

54,228

Investing activities:

Purchases of investment securities available for sale

(338,421

)

(445,294

)

(350,669

)

Purchases of investment securities held to maturity

(1,328

)

(5,189

)

(2,928

)

Proceeds from maturity and paydowns of investment securities available for sale

278,895

283,545

65,176

Proceeds from maturity and paydowns of investment securities held to maturity

532

108

Proceeds from sale of investment securities available for sale

130,858

276

Net change in FHLB stock

5,553

(2,778

)

(4,363

)

Proceeds from calls of investment securities

810

25,682

60,840

Proceeds from sales of other investments

—

664

Net change in other investments

(4,056

)

2,059

264

Purchase of domain name

—

(151

)

—

Purchase of customer relationships

(366

)

—

Purchase of portfolio loans and leases

(14,974

)

—

Net portfolio loan and lease originations

(127,589

)

(180,869

)

(266,331

)

Purchases of premises and equipment

(19,426

)

(8,304

)

(2,207

)

Acquisitions, net of cash acquired

(380

)

12,301

—

Proceeds from sale of OREO

525

1,048

1,806

Net cash used in investing activities

(220,218

)

(186,984

)

(497,438

)

Financing activities:

Change in deposits

226,598

201,015

327,169

Change in short-term borrowings

14,502

18,714

109,995

Dividends paid

(19,289

)

(14,799

)

(13,961

)

Change in long

-term FHLB advances and other borrowings

(83,872

)

(110,049

)

(65,000

)

Payment of contingent consideration for business combinations

(660

)

(642

)

(627

)

Net proceeds from issuance of subordinated notes

—

68,829

—

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

compensation

(1,639

)

(1,140

)

(745

)

Net proceeds from sale of (purchase of) treasury stock for deferred compensation plans

(115

)

(133

)

Repurchase of warrants from U.S. Treasury

(1,755

)

—

Net purchase of treasury stock through publicly announced plans

(5,936

)

—

(7,971

)

Proceeds from exercise of stock options

1,464

1,498

2,181

Net cash provided by financing activities

129,415

163,311

350,908

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

Change in cash and cash equivalents

(11,568

)

9,259

(92,302

)

Cash and cash equivalents at beginning of period

60,024

50,765

143,067

Cash and cash equivalents at end of period

48,456

60,024

50,765

Supplemental cash flow information:

Cash paid during the year for:

Income taxes

3,449

21,632

12,261

Interest

28,453

13,639

9,872

Non-cash information:

Change in other comprehensive loss

(3,099

)

(1,223

)

(1,997

)

Change in deferred tax due to change in comprehensive income

(823

)

(659

)

(1,074

)

Transfer of loans to other real estate owned and repossessed assets

372

342

546

Issuance of shares, warrants and options for acquisitions

—

138,509

—

Acquisition of noncash assets and liabilities:

Assets acquired

1,096

849,610

—

Liabilities assumed

687

724,085

—

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Consolidated Statements of Changes In Shareholders

’

Equity

(dollars in thousands, except share and per share data)

For the Years Ended December 31, 2016, 2017, and 2018

Shares of

Common

Stock

Issued

Common

Stock

Paid-in

Capital

Treasury

Stock

Accumulated

Other

Comprehensive

Loss

Retained

Earnings

Noncontrolling

Interest

Total

Shareholders'

Equity

Balance December 31, 2015

20,931,416

20,931

228,814

(58,144

)

(412

)

174,522

—

365,711

Net income

—

36,036

—

36,036

Tax provision-to-return adjustment related

to excess tax benefit on stock-based

compensation

—

197

—

197

Dividends paid or accrued, $0.82 per share

—

(13,989

)

—

(13,989

)

Other comprehensive loss, net of tax

benefit of $1,074

—

(1,997

)

—

(1,997

)

Stock based compensation

—

1,713

—

1,713

Retirement of treasury stock

(4,320

)

(39

)

—

Net purchase of treasury stock through

publicly announced plans

—

(7,971

)

—

(7,971

)

Net purchase of treasury stock from stock

award and deferred compensation plans

—

(878

)

—

(878

)

Common stock issued:

Common stock issued through share-based

awards and options exercises

183,872

184

2,121

—

2,305

Balance December 31, 2016

21,110,968

21,111

232,806

(66,950

)

(2,409

)

196,569

—

381,127

Net income

—

23,016

—

23,016

Dividends paid or accrued, $0.86 per share

—

(14,818

)

—

(14,818

)

Other comprehensive loss, net of tax

benefit of $659

—

(1,223

)

—

(1,223

)

Reclassification due to the adoption of

ASU No. 2018-02

—

(782

)

782

—

Stock-based compensation

—

2,068

—

2,068

Form S

-4 stock issuance costs

—

(233

)

—

(233

)

Retirement of treasury stock

(2,628

)

(23

)

—

Net purchase of treasury stock from stock

awards for statutory tax withholdings

—

(1,140

)

—

(1,140

)

Net purchase of treasury stock for

deferred compensation trusts

—

(115

)

—

(115

)

Stock warrants assumed in acquisitions

—

1,854

—

1,854

Noncontrolling interest assumed in

acquisitions

—

(683

)

(683

)

Common stock issued:

Shares issued in acquisitions

3,098,754

3,099

133,556

—

136,655

Common stock issued through share-based

awards and options exercises

152,955

153

1,458

—

1,611

Balance December 31, 2017

24,360,049

24,360

371,486

(68,179

)

(4,414

)

205,549

(683

)

528,119

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(1) Shares relating to the RBPI Merger (defined in Note 3, “Business Combinations,” below) recorded in April 2018.

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

For the Years Ended December 31, 2016, 2017, and 2018

Shares of

Common

Stock

Issued

Common

Stock

Paid-in

Capital

Treasury

Stock

Accumulated

Other

Comprehensive

Loss

Retained

Earnings

Noncontrolling

Interest

Total

Shareholders'

Equity

Net income attributable to Bryn Mawr

Bank Corporation

—

63,792

—

63,792

Net income attributable to noncontrolling

interest

—

Goodwill measurement period adjustment

effect on noncontrolling interest

—

)

—

Dividends paid or accrued, $0.94 per share

—

(19,209

)

—

(19,209

)

Other comprehensive loss, net of tax

benefit of $823

—

(3,099

)

—

(3,099

)

Stock based compensation

—

2,750

—

2,750

Retirement of treasury stock

(2,253

)

(20

)

—

Net purchase of treasury stock from stock

awards for statutory tax withholdings

—

(1,639

)

—

(1,639

)

Net treasury stock activity for deferred

compensation trusts

—

153

(151

)

—

Purchase of treasury stock through

publicly announced plans

—

(5,936

)

—

(5,936

)

Repurchase of warrants from U.S.

Treasury

—

(1,853

)

—

(1,755

)

Common stock issued:

—

Common stock issued through share-based

awards and options exercises

184,990

184

1,382

—

1,566

Shares issued in acquisitions

(1)

2,562

110

—

113

Balance December 31, 2018

24,545,348

24,545

374,010

(75,883

)

(7,513

)

250,230

(685

)

564,704

Table of Contents

Notes to Consolidated Financial Statements

Note 1

Summary of Significant Accounting Policies

A. Nature of Business

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, located in the western suburbs of Philadelphia. The

Corporation and its subsidiaries offer a full range of personal and business banking services, consumer and commercial loans, equipment leasing,

mortgages, insurance and wealth management services, including investment management, trust and estate administration, retirement planning,

custody services, and tax planning and preparation from

banking locations,

six

wealth management offices and two insurance and risk

management locations in the following counties: Montgomery, Chester, Delaware, Philadelphia, and Dauphin Counties in Pennsylvania; New Castle

County in Delaware; and Mercer and Camden Counties in New Jersey. The common stock of the Corporation trades on the NASDAQ Stock Market

(

“NASDAQ”

)

under the symbol BMTC.

The Bank

’

s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full

service insurance agency established in 1993

and headquartered in Philadelphia, on May 1, 2018. The consideration paid was

$1.5 million

, of which $750 thousand was paid at closing, with three

contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and May 1, 2021, subject to the

attainment of certain targets during the related periods.

On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“

RBPI

”

)

with and into the Corporation (the

“Effective Date”

and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the Agreement and

Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”

)

was completed. Consideration paid

totaled

$138.7 million

, comprised of

3,101,316

shares of the Corporation

’

s common stock, the assumption of

140,224

warrants to purchase BMTC

common stock valued at

$1.9 million

$112 thousand for the cash

out of certain options and $7 thousand of cash in lieu of fractional shares. The

RBPI Merger initially added

$570.4 million

of loans,

$121.6 million

of investments,

$593.2 million

of deposits, and twelve new branches. The

acquisition of RBPI expands the Corporation further into Montgomery, Chester, Berks and Philadelphia Counties in Pennsylvania as well as Mercer

and Camden Counties in New Jersey.

On May 24, 2017, the acquisition of Harry R. Hirshorn & Company, Inc. (“Hirshorn”

an insurance agency headquartered in the Chestnut Hill

section of Philadelphia, was completed. Immediately after the acquisition, Hirshorn was merged into the Bank

’

s existing insurance subsidiary, BMT

Insurance Advisors, Inc., formerly known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was

$7.5 million

, of which

$5.8

million

was paid at closing, one contingent cash payment of $575 thousand was paid during the second quarter of 2018, and two contingent cash

payments, not to exceed $575 thousand each, to be payable in 2019 and 2020, subject to certain conditions. The acquisition enhanced the Bank

’

ability to offer comprehensive insurance solutions to both individual and business clients and continues the strategy of selectively establishing

specialty offices in targeted areas.

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 regulatory agencies including the Securities and Exchange Commission (“

SEC

”

Federal Deposit Insurance

Corporation (“

FDIC

”

the Federal Reserve and the Pennsylvania Department of Banking.

B. Basis of Presentation

The accounting policies of the Corporation conform to U.S. generally accepted accounting principles (“GAAP”

The Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries. The Corporation

’

s consolidated

financial condition and results of operations consist almost entirely of the Bank

’

s financial condition and results of operations. All inter

company

transactions and balances have been eliminated.

In preparing the Consolidated Financial Statements, the Corporation is required to make estimates and assumptions that affect the reported amounts

of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the balance sheets,

Table of Contents

and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in

2019, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial

condition. Amounts subject to significant estimates are items such as the allowance for loan and lease losses and lending related commitments,

goodwill and intangible assets, pension and post

retirement obligations, the fair value of financial instruments and other

than

temporary

impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and

establishment of allowances for loan losses and lending

related commitments as well as increased pension and post

retirement expense.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Corporation and its wholly owned subsidiaries; the Corporation

’

s primary

subsidiary is the Bank. In connection with the RBPI Merger, the Corporation acquired two Delaware trusts, Royal Bancshares Capital Trust I and

Royal Bancshares Capital Trust II. These two entities are not consolidated per requirements under Financial Accounting Standards Board (“FASB”

)

Accounting Standards Codification (“ASC”

)

Topic 810,

“Consolidation”

(

“ASC Topic 810”

All significant intercompany balances and

transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current

year presentation.

C. Cash and Cash Equivalents

Cash and cash equivalents include cash, interest

bearing and noninterest

bearing amounts due from banks, and federal funds sold. Cash balances

required to meet regulatory reserve requirements of the Federal Reserve Board amounted to

$4.3 million

and

$5.8 million

December 31, 2018

and

December 31, 2017

, respectively.

D. Investment Securities

Investment securities which are held for indefinite periods of time, which the Corporation intends to use as part of its asset/liability strategy, or

which may be sold in response to changes in credit quality of the issuer, interest rates, changes in prepayment risk, increases in capital

requirements, or other similar factors, are classified as available for sale and are carried at fair value. Net unrealized gains and losses for such

securities, net of tax, are required to be recognized as a separate component of shareholders

’

equity and excluded from determination of net income.

Gains or losses on disposition are based on the net proceeds and cost of the securities sold, adjusted for the amortization of premiums and

accretion of discounts, using the specific identification method.

The Corporation follows ASC 370

“Recognition and Presentation of Other

Than

Temporary Impairments” that provides guidance related to

accounting for recognition of other

than

temporary impairment for debt securities and expands disclosure requirements for other

than

temporarily

impaired debt and equity securities. Companies are required to record other

than

temporary impairment charges through earnings if they have the

intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition,

companies are required to record other

than

temporary impairment charges through earnings for the amount of credit losses, regardless of the intent

or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security

’

s cash flows and its

amortized cost basis. Non

credit

related write

downs to fair value must be recorded as decreases to accumulated other comprehensive income as

long as the Corporation has no intent, or it is more likely than not that the Corporation would not be required, to sell an impaired security before a

recovery of its amortized cost basis. The Corporation did not have any other

than

temporary impairments for

2018, 2017

2016.

Investments for which management has the intent and ability to hold until maturity are classified as held

maturity and are carried at their

amortized cost on the balance sheet. No adjustment for market value fluctuations are recorded related to the held to maturity portfolio.

Investment securities held in trading accounts consist of deferred compensation trust accounts, which are invested in listed mutual funds whose

diversification is at the discretion of the deferred compensation plan participants. Investment securities held in trading accounts are reported at fair

value, with adjustments in fair value reported through income.

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E. Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net

unrealized temporary losses, if any, are recognized through a valuation allowance by charges to income.

F. Portfolio Loans and Leases

The Corporation originates construction, commercial and industrial, commercial mortgage, residential mortgage, home equity and consumer loans to

customers primarily in southeastern Pennsylvania, as well as small

ticket equipment leases to customers nationwide. Although the Corporation has

a diversified loan and lease portfolio, its debtors

’

ability to honor their contracts is substantially dependent upon the real estate and general

economic conditions of the region.

Loans and leases that management has the intention and ability to hold for the foreseeable future, or until maturity or pay

off, generally are reported

at their outstanding principal balance adjusted for charge

offs, the allowance for loan and lease losses and any deferred fees or costs on originated

loans and leases. Interest income is accrued on the unpaid principal balance.

Loan and lease origination fees and loan and lease origination costs are deferred and recognized as an adjustment to the related yield using the

interest method.

The accrual of interest on loans and leases is generally discontinued at the time the loan is 90 days delinquent unless the credit is well secured and

in the process of collection. Loans and leases are placed on nonaccrual status or charged

off at an earlier date if collection of principal or interest is

considered doubtful. All interest accrued, but not collected for loans that are placed on nonaccrual status or charged

off is charged against interest

income. All interest accrued, but not collected, on leases that are placed on nonaccrual status is not charged against interest income until the lease

becomes 120 days delinquent, at which point it is charged off. The interest received on these nonaccrual loans and leases is applied to reduce the

carrying value of loans and leases. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are

brought current and remain current for at least six months, and future payments are reasonably assured. Once a loan returns to accrual status, any

interest payments collected during the nonaccrual period which had been applied to the principal balance are reversed and recognized as interest

income over the remaining term of the loan.

Certain loans which have reached maturity and have been approved for extension or renewal, but for which all required documents have not been

fully executed as of the reporting date, are classified as Administratively Delinquent and are not considered to be delinquent. These loans are

reported as current in all disclosures.

Loans acquired in mergers are recorded at their fair values. The difference between the recorded fair value and the principal value is accreted to

interest income over the contractual lives of the loans in accordance with ASC 310

20. Certain acquired loans which were deemed to be credit

impaired at acquisition are accounted for in accordance with ASC 310

30, as discussed below, in subsection

of this footnote.

G. Allowance for Loan and Lease Losses

The allowance for loan and lease losses (the “Allowance”

)

is established through a provision for loan and lease losses (the “Provision”

)

charged as

an expense. The principal balances of loans and leases are charged against the Allowance when management believes that the principal is

uncollectible. The Allowance is maintained at a level that the Corporation believes is sufficient to absorb estimated potential credit losses.

Management

’

s determination of the adequacy of the Allowance is based on guidance provided in ASC 450 – Contingencies and ASC 310

Receivables, and involves the periodic evaluations of the loan and lease portfolio and other relevant factors. However, this evaluation is inherently

subjective as it requires significant estimates by management. Consideration is given to a variety of factors in establishing these estimates.

Quantitative factors in the form of historical net charge

off rates by portfolio segment are considered. In connection with these quantitative factors,

management establishes what it deems to be an adequate look

back period (“

LBP

”

)

for the charge

off history. As of

December 31, 2018

management utilized a five

year LBP, which it believes adequately captures the trends in charge

offs. In addition, management develops an estimate

of a loss emergence period (“

LEP

”

)

for each segment of the loan portfolio. The LEP estimates the time between the occurrence of a loss event for a

borrower and an actual charge

off of a loan. As of

December 31, 2018

, management utilized a two

year LEP for its commercial loan segments, and a

one

year LEP for its consumer loan segments, based on analyses of actual charge

offs tracked back in time to the triggering event for the eventual

loss. In addition, various qualitative factors are considered, including the specific terms and conditions of loans, changes in underwriting

standards, delinquency statistics, industry concentrations and overall exposure of a single customer. In addition, consideration is given to the

adequacy of collateral, the dependence on collateral,

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and the results of internal loan reviews, including a borrower

’

s financial strengths, their expected cash flows, and their access to additional funds.

As part of the process of calculating 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 third

party loan review specialists. The result of these reviews is reflected in the risk grade

assigned to each loan. For the consumer segments of the loan portfolio, the indicator of credit quality is reflected by the performance/non

performance status of a loan.

The evaluation process also considers the impact of competition, current and expected economic conditions, national and international events, the

regulatory and legislative environment, and inherent risks in the loan and lease portfolio. All of these factors may be susceptible to significant

change. To the extent actual outcomes differ from management

’

s estimates, an additional Provision may be required that might adversely affect the

Corporation

’

s results of operations in future periods. In addition, various regulatory agencies, as an integral part of their examination processes,

periodically review the adequacy of the Allowance. Such agencies may require the Corporation to record additions to the Allowance based on their

judgment of information available to them at the time of their examination.

H. Impaired Loans and Leases

A loan or lease is considered impaired when, based on current information, it is probable that management will be unable to collect the contractually

scheduled payments of principal or interest. When assessing impairment, management considers various factors, which include payment status,

realizable value of collateral and the probability of collecting scheduled principal and interest payments when due. Loans and leases that experience

insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case

case basis, taking into consideration all of the

circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower

’

s prior payment

record, and the amount of the shortfall in relation to the principal and interest owed.

For loans that indicate possible signs of impairment, which in most cases is based on the performance/non

performance status of the loan, an

impairment analysis is conducted based on guidance provided by ASC 310

10. Impairment is measured by (i) the fair value of the collateral, if the

loan is collateral

dependent, (ii) the present value of expected future cash flows discounted at the loan

’

s contractual effective interest rate, or (iii),

less frequently, the loan

’

s obtainable market price.

In addition to originating loans, the Corporation occasionally acquires loans through mergers or loan purchase transactions. Some of these

acquired loans may exhibit deteriorated credit quality that has occurred since origination and, as such, management may not expect to collect all

contractual payments. Accounting for these purchased credit

impaired (

“

PCI

”

)

loans is done in accordance with ASC 310

30. The loans are

recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a

reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral

dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield. On a regular basis,

at least quarterly, PCI loans are assessed to determine if there has been any improvement or deterioration of the expected cash flows. If there has

been improvement, an adjustment is made to increase the recognition of interest on the PCI loan, as the estimate of expected loss on the loan is

reduced. Conversely, if there is deterioration in the expected cash flows of a PCI loan, a Provision is recorded in connection with the loan.

I. Troubled Debt Restructurings (

“

TDRs")

A TDR occurs when a creditor, for economic or legal reasons related to a borrower

’

s financial difficulties, modifies the original terms of a loan or

lease, or grants a concession to the borrower that it would not otherwise have granted. A concession may include an extension of repayment terms,

a reduction in the interest rate, or the forgiveness of principal and/or accrued interest. If the debtor is experiencing financial difficulty and the

creditor has granted a concession, the Corporation will make the necessary disclosures related to the TDR. In certain cases, a modification or

concession may be made in an effort to retain a customer who is not experiencing financial difficulty. This type of modification is not considered a

TDR.

J. Other Real Estate Owned (

“

OREO

”

)

OREO consists of assets that the Corporation has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking

possession of assets that were used as loan collateral. The Corporation reports OREO on the balance sheet as part of other assets, at the lower of

cost or fair value less cost to sell, adjusted periodically based on current appraisals. Costs

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relating to the development or improvement of assets, as well as the costs required to obtain legal title to the property, are capitalized, while costs

related to holding the property are charged to expense as incurred.

K. Other Investments and

Equity

Stocks

Without a

Readily

Determinable

Fair

Value

Other investments include Community Reinvestment Act (“

CRA

”

)

investments and equity stocks without a readily determinable fair value. The

Corporation

’

s investments in equity stocks include those issued by the Federal Home Loan Bank of Pittsburgh (“

FHLB

”

the Federal Reserve Bank

(

“

FRB

”

)

and Atlantic Central Bankers Bank. The Corporation is required to hold FHLB stock as a condition of its borrowing funds from the FHLB.

As of

December 31, 2018

, the carrying value of the Corporation

’

s FHLB stock was

$14.5 million

. In addition, the Corporation is required to hold FRB

stock based on the Corporation

’

s capital. As of

December 31, 2018

, the carrying value of the Corporation

’

s FRB stock was

$12.0 million

. Ownership

of FHLB and FRB stock is restricted and there is no market for these securities. For further information on the FHLB stock, see Note 11, “Short

Term

Borrowings and Long

Term FHLB Advances,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form

L. Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation and predetermined rent are recorded using the straight

line

method over the estimated useful lives of the assets. Leasehold improvements are amortized over the expected lease term or the estimated useful

lives, whichever is shorter.

M. Pension and Postretirement Benefit Plan

As of

December 31, 2018

, the Corporation had two non

qualified defined

benefit supplemental executive retirement plans and a postretirement

benefit plan as discussed in Note 15, “Pension and Postretirement Benefit Plans,” in the accompanying Notes to the Consolidated Financial

Statements in this Annual Report on Form 10

K. Net pension expense related to the defined

benefit consists of service cost, interest cost, return on

plan assets, amortization of prior service cost, amortization of transition obligations and amortization of net actuarial gains and losses. As it relates

to the costs associated with the post

retirement benefit plan, the costs are recognized as they are incurred.

N. Bank Owned Life Insurance (

“

BOLI

”

)

BOLI is recorded at its cash surrender value. Income from BOLI is tax

exempt and included as a component of noninterest income.

O. Derivative Financial Instruments

The Corporation recognizes all derivative financial instruments on its balance sheet at fair value. Derivatives that are not hedges must be adjusted

to fair value through income. The Corporation enters into interest rate swaps that allow commercial loan customers to effectively convert a variable

rate commercial loan agreement to a fixed

rate commercial loan agreement. Under these agreements, the Corporation originates variable

rate loans

with customers in addition to interest rate swap agreements, which serve to effectively swap the customers

’

variable

rate loans into fixed

rate loans.

The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its exposure on the

variable and fixed components of the customer agreements. The interest rate swaps with both the customers and third parties are not designated as

hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to

the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may

be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.

In addition to interest rate swaps with customers, the Corporation may also enter into a risk participation agreement with another institution as a

means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income

commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk

associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the

Corporation may purchase a risk participation agreement from an institution participating in the facility in exchange for a fee commensurate with the

risk shared. This type of derivative is referred to as an “RPA purchased.”

If a derivative has qualified as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the

change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or

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recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative

’

s change in fair

value is recognized in earnings immediately. To determine fair value, management uses valuations obtained from a third party which utilizes a

pricing model that incorporates assumptions about market conditions and risks that are current as of the reporting date. Management reviews,

annually, the inputs utilized by its independent third

party valuation organization.

The Corporation may use interest

rate swap agreements to modify the interest rate characteristics from variable to fixed, or fixed to variable, in order

to reduce the impact of interest rate changes on future net interest income. If present, the Corporation accounts for its interest

rate swap contracts

in cash flow hedging relationships by establishing and documenting the effectiveness of the instrument in offsetting the change in cash flows of

assets or liabilities that are being hedged. To determine effectiveness, the management performs an analysis to identify if changes in fair value or

cash flow of the derivative correlate to the equivalent changes in the forecasted interest receipts or payments related to a specified hedged item.

Recorded amounts related to interest

rate swaps are included in other assets or liabilities. The change in fair value of the ineffective part of the

instrument would need to be charged to the Statement of Income, potentially causing material fluctuations in reported earnings in the period of the

change relative to comparable periods. In a fair value hedge, the fair value of the interest rate swap agreements and changes in the fair value of the

hedged items are recorded in the Corporation

’

s consolidated balance sheets with the corresponding gain or loss being recognized in current

earnings. The difference between changes in the fair values of interest rate swap agreements and the hedged items represents hedge

ineffectiveness, and is recorded in net interest income in the statement of income. Management performs an assessment, both at the inception of

the hedge and quarterly thereafter, to determine whether these derivatives are highly effective in offsetting changes in the value of the hedged

items.

P. Accounting for Stock

Based Compensation

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.

All share

based payments, including grants of stock options, restricted stock awards and performance

based stock awards, are recognized as

compensation expense in the statement of income at their fair value. The fair value of stock option grants is determined using the Black

Scholes

pricing model which considers the expected life of the options, the volatility of our stock price, risk

free interest rate and annual dividend yield. The

fair value of the restricted stock awards and performance

based awards whose performance is measured based on an internally produced metric is

based on their closing price on the grant date, while the fair value of the performance

based stock awards which use an external measure, such as

total stockholder return, is based on their grant

date market value adjusted for the likelihood of attaining certain pre

determined performance goals

and is calculated by utilizing a Monte Carlo Simulation model.

Q. Earnings

per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted

average

common shares outstanding during the period. Diluted earnings per common share takes into account the potential dilution that would occur if in

the

money stock options were exercised and converted into shares of common stock and restricted stock awards and performance

based stock

awards were vested. Proceeds assumed to have been received on options exercises are assumed to be used to purchase shares of the Corporation

’

common stock at the average market price during the period, as required by the treasury stock method of accounting. The effects of stock options

are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

R. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax

consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases and operating

loss and tax credit carry

forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the

years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax

rates is recognized in income in the period that includes the enactment date. Net deferred tax assets are included within the other assets line item on

the Consolidated Balance Sheets.

The Corporation recognizes the benefit of a tax position only after determining that the Corporation would more

likely

than

not sustain the position

following an examination. For tax positions meeting the more

likely

than

not threshold, the amount recognized in the Consolidated Financial

Statements is the largest benefit that has a greater than 50 percent likelihood of being

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realized upon settlement with the relevant tax authority. Management applies these criteria to tax positions for which the statute of limitations

remains open.

S. Revenue Recognition

With the exception of nonaccrual loans and leases, the Corporation recognizes all sources of income on the accrual method.

Additional information relating to wealth management fee revenue recognition follows:

The Corporation earns wealth management fee revenue from a variety of sources including fees from trust administration and other related fiduciary

services, custody, investment management and advisory services, employee benefit account and IRA administration, estate settlement, tax service

fees, shareholder service fees and brokerage. These fees are generally based on asset values and fluctuate with the market. Some revenue is not

directly tied to asset value but is based on a flat fee for services provided. For many of our revenue sources, amounts are not received in the same

accounting period in which they are earned. However, each source of wealth management fees is recorded on the accrual method of accounting.

The most significant portion of the Corporation

’

s wealth management fees is derived from trust administration and other related services, custody,

investment management and advisory services, and employee benefit account and IRA administration. These fees are generally billed monthly, in

arrears, based on the market value of assets at the end of the previous billing period. A smaller number of customers are billed in a similar manner,

but on a quarterly or annual basis, and some revenues are not based on market values.

The balance of the Corporation

’

s wealth management fees includes estate settlement fees and tax service fees, which are recorded when the related

service is performed, and asset management and brokerage fees on non

depository investment products, which are received one month in arrears,

based on settled transactions, but are accrued in the month the settlement occurs.

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

Insurance revenue is primarily related to commissions earned on insurance policies and is recognized over the related policy coverage period.

T. Mortgage Servicing

A portion of the residential mortgage loans originated by the Corporation is sold to third parties; however, the Corporation may retain the servicing

rights related to these loans. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received in return for these

services. Gains on the sale of these loans are based on the specific identification method.

An intangible asset, referred to as mortgage servicing rights (“MSRs") is recognized when a loan

’

s servicing rights are retained upon sale of a loan.

These MSRs amortize to noninterest expense in proportion to, and over the period of, the estimated future net servicing life of the underlying loans.

MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is determined

by stratifying the MSRs by predominant characteristics, such as interest rate and terms. Fair value is determined based upon discounted cash flows

using market

based assumptions. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount

for the stratum. A valuation allowance is utilized to record temporary impairment in MSRs. Temporary impairment is defined as impairment that is

not deemed permanent. Permanent impairment is recorded as a reduction of the MSR and is not reversed.

U. Goodwill and Intangible Assets

The Corporation accounts for goodwill and intangible assets in accordance with ASC 350, “Intangibles – Goodwill and Other.” The amount of

goodwill initially recorded is based on the fair value of the acquired entity at the time of acquisition. Management performs goodwill and intangible

assets impairment testing annually, as of October 31, or when events occur or circumstances change that would more likely than not reduce the fair

value of the acquisition or investment. Goodwill impairment is tested on a reporting unit level. The Corporation currently has three reporting units:

Banking, Wealth Management and Insurance. As of

December 31, 2018

, the Insurance reporting unit did not meet the quantitative thresholds for

separate disclosure as an operating segment, and is therefore reported as a component of the Wealth Management segment,

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based on its internal reporting structure. While the Insurance reporting unit did not meet the threshold for reporting as a separate operating

segment for goodwill testing, the Insurance segment was tested for impairment. An operating segment is a component of an enterprise that engages

in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise

’

s chief

operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete

financial information is available.

Management

’

s impairment testing methodology is consistent with the methodology prescribed in ASC 350. Management completes a goodwill

impairment analysis at least on an annual basis, or more often if events and circumstances indicate that there may be impairment. Management also

reviews other intangible assets with finite lives for impairment if events and circumstances indicate that the carrying value may not be recoverable.

V. Reclassifications

Certain prior year amounts have been reclassified to conform to the current year

’

s presentation.

Note 2

Recent Accounting Pronouncements

The following Financial Accounting Standards Board ("FASB") Accounting Standards Updates ("ASUs") are divided into pronouncements which

have been adopted by the Corporation during the year ended

December 31, 2018

, and those which are not yet effective as of

December 31, 2018

and

have been evaluated or are currently being evaluated by management.

Adopted Pronouncements in 2018:

FASB ASU 2014

09 (Topic 606), “

Revenue from Contracts with Customers

”

The Corporation adopted ASU 2014

Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC

606

”

which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is

appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation

’

s revenues come from

interest income and other sources, including loans, leases, investment securities and derivatives, that are outside the scope of ASC 606. The

Corporation

’

s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the

Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, Visa debit card

income, wealth management fees, investment brokerage fees, and the net gain on sale of OREO. Refer to Note 19, “Revenue from Contracts with

Customers,” in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

K for further discussion on the

Corporation

’

s accounting policies for revenue sources within the scope of ASC 606. The adoption of this ASU did not have an impact to our

Consolidated Financial Statements and related disclosures.

FASB ASU 2017

01 (Topic 805), “Business Combinations”

The Corporation adopted ASU 2017

01, which clarifies the definition of a business with the objective of adding guidance to assist entities with

evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects

many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The adoption of this ASU did not have a material impact

on our Consolidated Financial Statements and related disclosures.

FASB ASU 2016

15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”

The Corporation adopted ASU 2016

15, which provides guidance on eight specific cash flow issues and their disclosure in the consolidated

statements of cash flows. The issues addressed include debt prepayment, settlement of zero

coupon debt, contingent consideration in business

combinations, proceeds from settlement of insurance claims, proceeds from settlement of BOLI, distributions received from equity method

investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.

The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2016

01 (Subtopic 825

10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial

Liabilities”

The Corporation adopted ASU 2016

01 which requires that equity investments be measured at fair value with changes in fair value recognized in net

income. The Corporation

’

s equity investments with a readily determinable fair value are currently

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included within trading securities and are measured at fair value with changes in fair value recognized in net income. In connection with the

adoption of this ASU, the Corporation elected the practicability exception to fair value measurement for investments in equity securities without a

readily determinable fair value (other than our Federal Home Loan Bank (“

FHLB

”

Federal Reserve Bank ("FRB"), and Atlantic Central Bankers

Bank stock, which are outside of the scope of this ASU). Under the practicability exception, the investments are measured at cost, less impairment,

plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer. The adoption of this ASU

did not have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2017

07 (Topic 715), “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”

On January 1, 2018, the Corporation adopted ASU 2017

07 and all subsequent amendments to the ASU, which requires that an employer report the

service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees

during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost

component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other

components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or

items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also

allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory

or a self

constructed asset).

Upon adoption, the components of net periodic benefit cost other than the service cost component were reclassified retrospectively from

“Employee benefits

”

to “Other operating expenses” in the Consolidated Statements of Income. Since both “Employee benefits

”

and “Other

operating expenses” line items are under “Noninterest expenses,” there was no impact to total “Noninterest expenses” or “Net income

” The

components of net periodic benefit cost are currently disclosed in Note 15, “Pension and Postretirement Benefit Plans,” in the accompanying Notes

to the Consolidated Financial Statements in this Annual Report on Form 10

K. Additionally, the Corporation does not currently capitalize any

components of its net periodic benefit costs. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements

and related disclosures.

Pronouncements Not Effective as of

December 31, 2018

FASB ASU 2018

07, “

Improvements to Nonemployee Share

Based Payment Accounting”

Issued in June 2018, ASU 2018

07: Compensation

Stock Compensation (Topic 718), “Improvements to Nonemployee Share

Based Payment

Accounting” expands the scope of Topic 718 to include share

based payment transactions for acquiring goods and services from

nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option

pricing model and the attribution of cost (that is, the period of time over which share

based payment awards vest and the pattern of cost

recognition over that period). The amendments specify that Topic 718 applies to all share

based payment transactions in which a grantor acquires

goods or services to be used or consumed in a grantor

’

s own operations by issuing share

based payment awards. The amendments also clarify that

Topic 718 does not apply to share

based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with

selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this update became effective for us January 1, 2019. The adoption did not have an impact on our Consolidated Financial

Statements and related disclosures as the Corporation has not historically granted share based payment awards to nonemployees other than to the

Corporation

’

s Board of Directors, who are treated as employees for share

based payment accounting.

FASB ASU 2017

04 (Topic 350), “Intangibles –

Goodwill and Others

”

Issued in January 2017, ASU 2017

04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill

impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit

’

s goodwill with the carrying

amount of that goodwill. ASU 2017

04 is effective for annual periods beginning after December 15, 2019 including interim periods within those

periods. Management does not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related

disclosures.

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FASB ASU 2016

13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

Issued in June 2016, ASU 2016

13 (Topic 326

Credit Losses), commonly referenced as the Current Expected Credit Loss (“

CECL

”

eliminates the

Provision for Loan and Lease Losses ("PLLL") and Allowance for Loan and Lease Losses ("ALLL") line items and establishes the Provision for

Credit Losses ("PCL") and Allowance for Credit Losses ("ACL") line items.

Under the legacy “Incurred Loss” notion, management presents an ALLL intended to represent “probable and estimable” incurred but not yet

realized credit losses on assets in scope. When management deems collection of contractual cashflows for an instrument unlikely, a specific reserve

is calculated under ASC 310

10. Management further calculates a general reserve for performing assets under ASC 450

20, using historical loss

experience and adjustments for several qualitative factors, including current economic conditions. The “Incurred Loss” standard does not allow for

projections beyond the likely

‘

emergence period

’

of losses, or for forward

looking economic conditions; for example, loss contingencies in 2022 are

not currently presented, nor is the presentation adjusted for the likelihood of future economic condition change.

In contrast, the future accounting standard requires projection of credit loss over the contract lifetime of the asset, adjusted for prepayment

tendencies. Further, management

’

s specific expectations for the future economic environment must be incorporated in the projection, with loss

expectations to revert to the long

run historical mean after such time as management can make or obtain a reasonable and supportable forecast. This

valuation reserve will be established in the ACL and maintained through expense (provision) in the PCL. In the event that additional allocation is

required to fund the ACL at adoption, investors will see a cumulative

effect (one time) adjustment to retained earnings upon adoption of the new

standard. The new CECL standard will become effective for the Corporation for fiscal years beginning after December 15, 2019 and for interim

periods within those fiscal years.

The Corporation has engaged with a leading vendor to assist in computing and establishing the ACL, and management has completed the data

gathering and model selection efforts, with continued effort through 2019 to operationalize the practice for establishing the ACL and preparing its

presentation. Significant additional quantitative analysis is included in management

’

s contemplated measurement regime, including examination of

loss experience at representative peer institutions when the Corporation

’

s first

party loss history does not result in estimations that are meaningful

to users of the Corporation

’

s Consolidated Financial Statements. Preliminary evaluations were performed by discounting instrument

level cashflows

adjusted for timing (e.g. prepayment) and credit (default and loss) expectations. Management will continue to evaluate other estimation

methodologies and disaggregation approaches through the 2019 year.

The Corporation will comply with the new disclosure and presentation requirements enumerated in ASU 2016

13, including presentation of the

vintage disclosure organizing certain credit performance data by year of origination/renewal (“policy year”

Financial statement users should be aware that the ACL is, by design, inherently sensitive to changes in economic outlook, loan and lease portfolio

composition, portfolio duration, and other factors. The following factors could lead to a material impact to retained earnings

in either direction

of the adoption date:

Management cautions that this list is not exhaustive. Further, management may adjust quantitatively established allocation for factors that defy

numerical modeling, leading to a material adjustment not due to factors specified above. Moreover, interpretations and clarifications of the guidance

through the FASB

’

s ongoing Transition Resource Group efforts may change management

’

s estimates of the impact. Finally, the impact of

accounting treatment changes for establishing the ACL for purchased assets under future acquisitions may effect a cumulative

effect adjustment to

retained earnings that proves material.

Ongoing financial statement behavior will be impacted by the standard, regardless of any cumulative

effect adjustment at adoption. Under our

currently contemplated cashflow projection model, assets will originate with a specific allocation for the contract life of that instrument, adjusted for

prepayment behavior and probabilistic credit performance expectations to arrive at an expected cashflow projection. All else being equal, as that

continues toward its contract maturity, estimates of lifetime credit

•

Increases / decreases to the time period management deems reasonably and supportably forecastable

•

Inclusion / exclusion of forecast factors

•

Adverse changes to reasonable and supportable forecasts

•

Detectable increases / decreases in the Corporation

’

s or comparable industry credit loss parameters

•

Deterioration / improvement in the risk profile of the Corporation

’

s loan and lease portfolio

•

Decreased / increased prepayment behavior or other factors impacting loan and lease portfolio duration

•

Changes in credit risk through the ordinary course of operations, such as launch or expansion of higher risk

bearing products

•

Interest rate fluctuations impacting effective yield on certain instruments.

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loss at the instrument level will decrease. Under steady

state conditions, portfolio

segment

level aggregation of management

’

s expected loss

estimates should be stable or track with portfolio

segment growth (contraction and runoff). When management

’

s expectations of the likely future

economic environment change based on reasonable and supportable forecasts, portfolio allocation may increase (decrease) rapidly between

periods. The establishment of the ACL will be more responsive to deteriorating (improving) economic conditions than prior establishment of the

ALLL, which is based on historical experience and agnostic to future conditions. In dynamic economic environments, users of financial statements

should expect expense (income) in the PCL to be concentrated in fewer quarters than was typical for the PLLL. Users of financial statements should

be aware that this accounting treatment does not determine the ultimate, realized loss or recovery for assets in scope; ASU 2016

13 impacts timing.

Criteria for establishment of specific reserves are still under evaluation. Specific reserve impact to instruments meeting the legacy “

impairment

”

criteria are not anticipated to change, though the volume of such credits may change before the adoption date due to deterioration (improvement) of

portfolio credit quality. Management is evaluating additional criteria to identify instruments for specific evaluation under the future standard

’

broader allowable criteria.

Management does not currently plan to implement an accounting election to recognize changes in the ACL valuation account due to timing

(prepayment) behavior as interest income (expense).

FASB ASU 2016

02 (Topic 842), “Leases”

In February 2016, the FASB established Topic 842, Leases, by issuing ASU 2016

02, which requires lessees to recognize leases on

balance sheet

and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018

01, Land Easement Practical

Expedient for Transition to Topic 842; ASU 2018

10, Codification Improvements to Topic 842, Leases; and ASU 2018

11, Targeted Improvements.

The new standard establishes a right

use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for

all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and

classification of expense recognition in the income statement.

The new standard became effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard

to all leases existing at the date of initial application. Management has elected to use the effective date as its date of initial application.

Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and

periods before January 1, 2019.

The new standard provided a number of optional practical expedients in transition. We have elected the

‘

package of practical expedients

’

which

permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

This standard will have a material effect on our Consolidated Balance Sheet and related disclosures but is not expected to have a material impact on

our Consolidated Statement of Income. Any additional assets recorded as a result of adoption is expected to have a negative impact on the

Corporation and Bank capital ratios under current regulatory guidance. On adoption, we have:

The new standard also provides practical expedients for an entity

’

s ongoing accounting. We have elected the short

term lease recognition

exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes

not recognizing ROU assets or lease liabilities for existing short

term leases of those assets in transition. We also have elected the practical

expedient to not separate lease and non

lease components for all of our leases.

FASB ASU 2018

12 (Topic 944), “

Targeted Improvements to the Accounting for Long

Duration Contracts

”

Issued in August 2018, ASU 2018

12 makes targeted improvements to the existing recognition, measurement, presentation, and disclosure

requirements for long

duration contracts issued by an insurance entity. Specifically, the ASU is intended to 1) improve the timeliness of recognizing

changes in the liability for future policy benefits and modify the rate used to discount

•

recognized operating lease liabilities of approximately

$49.1 million

, with corresponding ROU assets of the same amount, based on the

present value of the remaining minimum rental payments under current leasing standards for existing operating leases, and

•

derecognized $541 thousand of favorable lease assets,

$2.2 million

in unfavorable lease liabilities, and

$2.5 million

in deferred rent, with a

corresponding adjustment to the ROU asset for the same amounts.

Table of Contents

future cash flows, 2) simplify and improve the accounting for certain market

based options or guarantees associated with deposit (or account

balance) contracts, 3) simplify the amortization of deferred acquisition costs, and 4) improve the effectiveness of the required disclosures. ASU

2018

12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early application of the amendments is permitted. As an independent insurance agent, the Corporation does not issue insurance contracts. As a

result, management does not expect the adoption of this ASU to have an impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2018

13, "Fair Value Measurement Disclosure Framework"

Issued in August 2018, ASU No. 2018

13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure

requirements for fair value measurements. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019.

Early adoption is permitted. Adoption is required on both a prospective and retrospective basis depending on the amendment. Management does

not expect the adoption of this ASU to have a material impact on our Consolidated Financial Statements and related disclosures.

FASB ASU 2018

14 (Topic 715), "Compensation

Retirement Benefits

Defined Benefit Plans

General"

Issued in August 2018, the ASU 2018

14, modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure

requirements to financial statement users. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is

permitted. Use of the retrospective method is required. Management does not expect the adoption of this ASU to have a material impact on our

Consolidated Financial Statements and related disclosures.

FASB ASU 2018

15 (Topic 350), "Intangibles

Goodwill and Other

Internal

Use Software"

Issued in August 2018, ASU No. 2018

15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in

a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for

impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted.

Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. Management is

currently evaluating the potential impact of ASU 2018

15 on our Consolidated Financial Statements and related disclosures.

Note 3

Business Combinations

Domenick & Associates (“Domenick”

)

The Bank

’

s subsidiary, BMT Insurance Advisors, Inc., completed the acquisition of Domenick, a full

service insurance agency established in 1993

and headquartered in the Old City section of Philadelphia, on May 1, 2018. The consideration paid was

$1.5 million

, of which $750 thousand was

paid at closing, with three contingent cash payments, not to exceed $250 thousand each, to be payable on each of May 1, 2019, May 1, 2020, and

May 1, 2021, subject to the attainment of certain targets during the related periods.

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

of acquisition and the resulting goodwill recorded:

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

Royal Bancshares of Pennsylvania,

Inc.

On December 15, 2017, the previously announced merger of Royal Bancshares of Pennsylvania, Inc. (“

RBPI

”

)

with and into the Corporation (the

“Effective Date”

and the merger of Royal Bank America with and into the Bank (collectively, the "RBPI Merger"), pursuant to the Agreement and

Plan of Merger, by and between RBPI and the Corporation, dated as of January 30, 2017 (the “Agreement”

)

was completed. In accordance with the

Agreement, the aggregate share consideration paid to RBPI shareholders consisted of

3,101,316

shares of the Corporation

’

s common stock.

Shareholders of RBPI received

0.1025

shares of Corporation common stock for each share of RBPI Class A common stock and

0.1179

shares of

Corporation common stock for each share of RBPI Class B common stock owned as of the Effective Date of the RBPI Merger, with cash

lieu of

fractional shares totaling $7 thousand. Holders of in

the

money options to purchase RBPI Class A common stock received cash totaling

$112

thousand. In addition,

1,368,040

warrants to purchase Class A common stock of RBPI, valued at

$1.9 million

were converted to

140,224

warrants to

purchase Corporation common stock. In accordance with the acquisition method of accounting, assets acquired and liabilities assumed were

preliminarily adjusted to their fair values as of the Effective Date. The excess of consideration paid above the fair value of net assets acquired was

recorded as goodwill. This goodwill is not amortizable nor is it deductible for income tax purposes.

In connection with the RBPI Merger, the consideration paid and the estimated fair value of identifiable assets acquired and liabilities assumed as of

the Effective Date, which include the effects of any measurement period adjustments in accordance with ASC 805

10, are summarized in the

following table:

(dollars in thousands)

Consideration paid:

Cash paid at closing

750

Contingent payment liability (present value)

706

Value of consideration

1,456

Assets acquired:

Cash and due from banks

370

Intangible assets

customer relationships

779

Premises and equipment

Other assets

316

Total assets

1,466

Liabilities assumed:

Accounts payable

657

Other liabilities

Total liabilities

687

Net assets acquired

779

Goodwill resulting from acquisition of Domenick

677

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During the year ended December 31, 2018, the Corporation adjusted certain provisional fair value estimates related to the RBPI Merger. The

following table details the changes in fair value of the net assets acquired and liabilities assumed as of the Effective Date from the amounts

originally reported in the 2017 Annual Report:

(dollars in thousands)

Consideration paid:

Common shares issued (3,101,316)

136,768

Cash in lieu of fractional shares

Cash

out of certain options

112

Fair value of warrants assumed

1,853

Value of consideration

138,740

Assets acquired:

Cash and due from banks

17,092

Investment securities available for sale

121,587

Loans

566,228

Premises and equipment

8,264

Deferred income taxes

34,823

Bank

owned life insurance

16,550

Core deposit intangible

4,670

Favorable lease asset

566

Other assets

13,611

Total assets

783,391

Liabilities assumed:

Deposits

593,172

FHLB and other long

term borrowings

59,568

Short

term borrowings

15,000

Junior subordinated debentures

21,416

Unfavorable lease liability

322

Other liabilities

31,381

Total liabilities

720,859

Net assets acquired

62,532

Goodwill resulting from acquisition of

RBPI

76,208

(dollars in thousands)

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

72,762

Value of Consideration Adjustment:

Common shares issued (2,562)

113

Fair Value Adjustments:

Loans

4,145

Other assets

876

Deferred income taxes

(1,688

)

Total Fair Value Adjustments

3,333

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

76,208

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As of

December 31, 2018

, the estimates of the fair value of identifiable assets acquired and liabilities assumed in the RBPI merger were final.

Methods Used to Estimate the Fair Value of Assets and Liabilities

For information regarding the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities

assumed, refer to Note 2, “Business Combinations,” in the Notes to the Consolidated Financial Statements in the 2017 Annual Report on Form 10

Loans Held for Investment

During the first and third quarters of 2018, new information became available related to certain loans acquired from RBPI which resulted in an

adjustment to the fair value mark applied to acquired loans with evidence of credit quality deterioration. Loans meeting this definition were reviewed

by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value

results in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans or over the recovery period of the

underlying collateral on a level yield basis as an adjustment to yield. As a result of the adjustments, the Corporation recorded increases of

$3.0

million

and

$1.6 million

in nonaccretable difference in the first and third quarters of 2018, respectively. The adjustment to the aggregate expected

cash flows less the Effective Date fair value resulted in an increase in accretable yield of $325 thousand. There were no adjustments to the fair value

mark applied to the acquired loan portfolio during the second and fourth quarters of 2018.

The following table provides an updated summary of the acquired impaired loans and leases as of the Effective Date, which include the effects of

any measurement period adjustments in accordance with ASC 805

10, resulting from the RBPI Merger:

Harry R. Hirshorn & Company, Inc., d/b/a Hirshorn Boothby (

“Hirshorn”

)

The acquisition of Hirshorn, an insurance agency headquartered in the Chestnut Hill section of Philadelphia, was completed on May 24, 2017.

Immediately after the acquisition, Hirshorn was merged into the Bank

’

s existing insurance subsidiary, BMT Insurance Advisors, Inc., formerly

known as Powers Craft Parker and Beard, Inc. The consideration paid by the Bank was

$7.5 million

, of which

$5.8 million

was paid at closing, one

contingent cash payment of $575 thousand was paid during the second quarter of 2018, and two contingent cash payments, not to exceed

$575

thousand each, to be payable in 2019 and 2020, subject to certain conditions. The acquisition enhanced the Bank

’

s ability to offer comprehensive

insurance solutions to both individual and business clients and continues the strategy of selectively establishing specialty offices in targeted

areas.

(dollars in thousands)

Contractually required principal and interest payments

40,741

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

(17,637

)

Cash flows expected to be collected

23,104

Interest component of expected cash flows (accretable yield)

(2,644

)

Fair value of loans acquired with deterioration of credit quality

20,460

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In connection with the Hirshorn acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets

acquired and liabilities assumed as of the date of acquisition and the resulting goodwill recorded:

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

Pro Forma Income Statements (unaudited)

The following pro forma income statements for the years ended

December 31, 2017

and

2016

present the pro forma results of operations of the

combined institution (RBPI and the Corporation) as if the RBPI Merger occurred on January 1, 2016 and January 1, 2017, respectively. The pro forma

income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization, and include

the impacts of measurement period adjustments made in accordance with ASC 805

10. No cost savings or additional merger expenses have been

included in the pro forma results of operations. Due to the immaterial contribution to net income of the Hirshorn acquisition, which occurred during

the two

year period shown in the table, the pro forma effects of these acquisitions are excluded.

(dollars in thousands)

Consideration paid:

Cash paid at closing

5,770

Contingent payment liability (present value)

1,690

Value of consideration

7,460

Assets acquired:

Cash operating accounts

978

Intangible assets – trade name

195

Intangible assets – customer relationships

2,672

Intangible assets – non

competition agreements

Premises and equipment

1,795

Accounts receivable

192

Other assets

Total assets

5,900

Liabilities assumed:

Accounts payable

800

Other liabilities

Total liabilities

802

Net assets acquired

5,098

Goodwill resulting from acquisition of Hirshorn

2,362

Table of Contents

(1) Total noninterest expense includes RBPI Net Income Attributable to Noncontrolling Interest and Preferred Stock Series A Accumulated

Dividend and Accretion for pro

forma presentation.

(2) Assumes that the shares of RBPI common stock outstanding as of December 31, 2017 were outstanding for the full twelve month periods

ended December 31, 2017 and 2016, respectively.

Due Diligence, Merger

Related and Merger Integration

Expenses

Due diligence, merger

related and merger integration expenses include consultant costs, investment banker fees, contract breakage fees, retention

bonuses for severed employees, salary and wages for redundant staffing involved in the integration of the institutions and bonus accruals for

members of the merger integration team. The following table details the costs identified and classified as due diligence, merger

related and merger

integration costs for the periods indicated:

(dollars in thousands, except per share data)

Year Ended December 31,

2017

2016

Total interest income

171,155

157,276

Total interest expense

20,065

17,086

Net interest income

151,090

140,190

Provision for loan and lease losses

3,454

5,568

Net interest income after provision for loan and lease losses

147,636

134,622

Total noninterest income

61,423

58,275

Total noninterest expenses

(1)

140,756

124,261

Income before income taxes

68,303

68,636

Income tax expense

40,841

23,006

Net income

27,462

45,630

Per share data

(2)

Weighted

average basic shares outstanding

20,248,879

19,958,377

Dilutive shares

257,591

168,499

Adjusted weighted

average diluted shares

20,506,470

20,126,876

Basic earnings per common share

1.36

2.29

Diluted earnings per common share

1.34

2.27

Year Ended December 31,

(dollars in thousands)

2018

2017

2016

Advertising

180

—

Employee Benefits

271

—

Occupancy and bank premises

2,145

—

Furniture, fixtures, and equipment

365

109

—

Information technology

421

837

—

Professional fees

1,450

3,160

—

Salaries and wages

852

1,285

—

Other

2,196

512

—

Total due diligence, merger

related and merger integration expenses

7,761

6,104

—

Table of Contents

Note

Investment Securities

The amortized cost and fair value of investments, which were classified as available for sale, are as follows:

As of December 31, 2018

As of December 31, 2017

The following tables present the aggregate amount of gross unrealized losses as of

December 31, 2018

and

December 31, 2017

on available for sale

investment securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of December 31, 2018

(dollars in thousands)

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

U.S. Treasury securities

200,026

—

(

)

200,013

Obligations of the U.S. government and agencies

198,604

107

(2,856

)

195,855

Obligations of state and political subdivisions

11,372

(43

)

11,332

Mortgage

backed securities

294,076

554

(4,740

)

289,890

Collateralized mortgage obligations

40,150

141

(1,039

)

39,252

Other investment securities

1,100

—

1,100

Total

745,328

805

(8,691

)

737,442

(dollars in thousands)

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

U.S. Treasury securities

200,077

—

200,088

Obligations of the U.S. government and agencies

153,028

(2,059

)

151,044

Obligations of state and political subdivisions

21,352

(53

)

21,310

Mortgage

backed securities

275,958

887

(1,855

)

274,990

Collateralized mortgage obligations

37,596

(948

)

36,662

Other investment securities

4,813

318

(23

)

5,108

Total

692,824

1,316

(4,938

)

689,202

Less than 12

Months

12 Months

or Longer

Total

(dollars in thousands)

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

U.S. Treasury securities

199,912

(13

)

—

199,912

(13

)

Obligations of the U.S. government and

agencies

12,916

(62

)

140,506

(2,794

)

153,422

(2,856

)

Obligations of state and political

subdivisions

668

—

3,989

(43

)

4,657

(43

)

Mortgage

backed securities

43,276

(352

)

195,697

(4,388

)

238,973

(4,740

)

Collateralized mortgage obligations

540

)

27,077

(1,038

)

27,617

(1,039

)

Total

257,312

(428

)

367,269

(8,263

)

624,581

(8,691

)

Table of Contents

As of December 31, 2017

Management evaluates the Corporation

’

s investment securities that are in an unrealized loss position in order to determine if the decline in fair

value is other than temporary. The investment portfolio includes debt securities issued by U.S. government agencies, U.S. government

sponsored

agencies, state and local municipalities and other issuers. All fixed income investment securities in the Corporation

’

s investment portfolio are rated

as investment

grade or higher. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which

the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are

temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers or collateral.

Management does not believe that these unrealized losses are other

than

temporary. Management does not have the intent to sell these securities

prior to their maturity or the recovery of their cost bases, and believes that it is more likely than not that it will not have to sell these securities prior

to their maturity or the recovery of their cost bases.

As of

December 31, 2018

and

2017

, securities having a fair value of

$123.5 million

and

$126.2 million

, respectively, were specifically pledged as

collateral for public funds, trust deposits, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket lien

on non

pledged, mortgage

related loans and securities as part of the Corporation

’

s borrowing agreement with the FHLB.

The amortized cost and fair value of available for sale investment and mortgage

related securities available for sale as of

December 31, 2018

and

December 31, 2017

, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities as borrowers may have the

right to call or prepay obligations with or without call or prepayment penalties.

(1)

Expected maturities of mortgage

related securities may differ from contractual maturities as borrowers may have the right to call or prepay

obligations with or without call or prepayment penalties.

Less than 12

Months

12 Months

or Longer

Total

(dollars in thousands)

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Obligations of the U.S. government and

agencies

114,120

(1,294

)

26,726

(765

)

140,846

(2,059

)

Obligations of state and political

subdivisions

11,144

(29

)

2,709

(24

)

13,853

(53

)

Mortgage

backed securities

177,919

(1,293

)

31,787

(562

)

209,706

(1,855

)

Collateralized mortgage obligations

5,166

(47

)

26,686

(901

)

31,852

(948

)

Other investment securities

1,805

(23

)

—

1,805

(23

)

Total

310,154

(2,686

)

87,908

(2,252

)

398,062

(4,938

)

December 31, 2018

December 31, 2017

(dollars in thousands)

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Investment securities:

Due in one year or less

209,129

209,099

211,019

Due after one year through five years

180,657

177,972

126,452

124,797

Due after five years through ten years

7,258

7,268

23,147

22,804

Due after ten years

14,058

13,961

15,439

15,421

Subtotal

411,102

408,300

376,057

374,041

Mortgage

related securities

(1)

334,226

329,142

313,554

311,652

Mutual funds with no stated maturity

—

3,213

3,509

Total

745,328

737,442

692,824

689,202

Table of Contents

Proceeds from the sale of available for sale investment securities totaled $7 thousand

$130.9 million

, and $276 thousand for the years ended

December 31, 2018

, 2017

, and

2016

, respectively. Net gain (loss) on sale of available for sale investment securities totaled $7 thousand

, $101

thousand, and $(77) thousand for the years ended

December 31, 2018

, 2017

, and

2016

, respectively.

The amortized cost and fair value of investment securities held to maturity as of

December 31, 2018

and

December 31, 2017

are as follows:

As of December 31, 2018

As of December 31, 2017

The following tables present the aggregate amount of gross unrealized losses as of

December 31, 2018

and

December 31, 2017

on held to maturity

securities classified according to the amount of time those securities have been in a continuous unrealized loss position:

As of December 31, 2018

As of December 31, 2017

The amortized cost and fair value of held to maturity investment securities as of

December 31, 2018

and

December 31, 2017

, by contractual maturity,

are shown below:

(1)

Expected maturities of mortgage

related securities may differ from contractual maturities as borrowers may have the right to call or prepay

obligations with or without call or prepayment penalties.

As of

December 31, 2018

and

December 31, 2017

, the Corporation

’

s investment securities held in trading accounts totaled

$7.5 million

and

$4.6

million

, respectively, and primarily consist of deferred compensation trust accounts which are invested in listed mutual funds whose diversification

is at the discretion of the deferred compensation plan participants and a rabbi trust account established to fund certain unqualified pension

obligations. During the first quarter of 2018,

$3.2 million

of investment securities included within the rabbi trust account were reclassified from

available for sale to trading. Investment securities held in trading accounts are reported at fair value, with adjustments in fair value reported

through income.

(dollars in thousands)

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

Mortgage

backed securities

8,684

—

(

246

)

8,438

(dollars in thousands)

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

Mortgage

backed securities

7,932

(86

)

7,851

Less than 12

Months

12 Months

or Longer

Total

(dollars in thousands)

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Mortgage

backed securities

1,315

)

7,123

(242

)

8,438

(246

)

Less than 12

Months

12 Months

or Longer

Total

(dollars in thousands)

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Fair

Value

Unrealized

Losses

Mortgage

backed securities

2,756

(25

)

3,866

(61

)

6,622

(86

)

December 31, 2018

December 31, 2017

(dollars in thousands)

Amortized

Cost

Fair Value

Amortized

Cost

Fair Value

Mortgage

backed securities

(1)

8,684

8,438

7,932

7,851

Table of Contents

Note 5

Loans and Leases

The loan and lease portfolio consists of loans and leases originated by the Corporation, as well as loans acquired in mergers and acquisitions.

These mergers and acquisitions include the December 2017 RBPI Merger, the January 2015 CBH Merger, the November 2012 transaction with First

Bank of Delaware and the July 2010 acquisition of First Keystone Financial, Inc. Certain tables in this Note 5 are presented with a breakdown

between originated and acquired loans and leases.

A. The table below details

portfolio

loans and leases as of the dates indicated:

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

C. Non

Performing Loans and Leases

(1)

December 31, 2018

December 31, 2017

(dollars in thousands)

Originated

Acquired

Total Loans and

Leases

Originated

Acquired

Total Loans and

Leases

Loans held for sale

1,749

—

1,749

3,794

—

3,794

Real estate loans:

Commercial mortgage

1,327,822

329,614

1,657,436

1,122,327

401,050

1,523,377

Home equity lines and loans

181,506

25,845

207,351

183,283

34,992

218,275

Residential mortgage

411,022

83,333

494,355

360,935

97,951

458,886

Construction

174,592

6,486

181,078

128,266

84,188

212,454

Total real estate loans

2,094,942

445,278

2,540,220

1,794,811

618,181

2,412,992

Commercial and industrial

624,643

70,941

695,584

589,304

130,008

719,312

Consumer

44,099

2,715

46,814

35,146

3,007

38,153

Leases

121,567

22,969

144,536

68,035

47,366

115,401

Total portfolio loans and leases

2,885,251

541,903

3,427,154

2,487,296

798,562

3,285,858

Total loans and leases

2,887,000

541,903

3,428,903

2,491,090

798,562

3,289,652

Loans with fixed rates

1,204,070

323,604

1,527,674

1,034,542

538,510

1,573,052

Loans with adjustable or floating rates

1,682,930

218,299

1,901,229

1,456,548

260,052

1,716,600

Total loans and leases

2,887,000

541,903

3,428,903

2,491,090

798,562

3,289,652

Net deferred loan origination fees

included in the above loan table

2,226

—

2,226

887

—

887

December 31, 2018

December 31, 2017

(dollars in thousands)

Originated

Acquired

Total Leases

Originated

Acquired

Total Leases

Minimum lease payments receivable

135,313

25,372

160,685

75,592

55,219

130,811

Unearned lease income

(19,388

)

(3,005

)

(22,393

)

(10,338

)

(9,523

)

(19,861

)

Initial direct costs and deferred fees

5,642

602

6,244

2,781

1,670

4,451

Total Leases

121,567

22,969

144,536

68,035

47,366

115,401

December 31, 2018

December 31, 2017

(dollars in thousands)

Originated

Acquired

Total Loans and

Leases

Originated

Acquired

Total Loans and

Leases

Commercial mortgage

435

2,133

2,568

782

872

Home equity lines and loans

3,590

3,616

1,221

260

1,481

Residential mortgage

2,813

639

3,452

1,505

2,912

4,417

Commercial and industrial

1,786

315

2,101

826

880

1,706

Consumer

108

—

Leases

392

583

975

103

—

103

Total non-performing loans and

leases

9,061

3,759

12,820

3,745

4,834

8,579

Table of Contents

(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

and $167 thousand of purchased credit

impaired loans as of December 31, 2018 and December 31, 2017

respectively, which became non

performing subsequent to acquisition.

D. Purchased Credit

Impaired Loans

The outstanding principal balance and related carrying amount of purchased credit

impaired loans, for which the Corporation applies ASC 310

30,

Accounting for Purchased Loans with Deteriorated Credit Quality, to account for the interest earned, as of the dates indicated, are as follows:

(1)

Includes $0 and $1.9 million of purchased credit

impaired loans as of December 31, 2018 and December 31, 2017, respectively, for which the

Corporation could not estimate the timing or amount of expected cash flows to be collected at acquisition, and for which no accretable yield is

recognized. Additionally, the table above includes $0 and $167 thousand of purchased credit

impaired loans as of December 31, 2018 and

December 31, 2017, respectively, which became non

performing subsequent to acquisition, which are disclosed in Section C,

“

Non

Performing

Loans and Leases,

”

of Note 5,

“

Loans and Leases,

”

in the accompanying Notes to the Consolidated Financial Statements in this Annual Report

on Form 10

K, and which also have no accretable yield.

The following table presents changes in the accretable discount on purchased credit

impaired loans, for which the Corporation applies ASC 310

30,

for the year ended

December 31, 2018

E. Age Analysis of Past Due Loans and Leases

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

(dollars in thousands)

December 31, 2018

December 31, 2017

Outstanding principal balance

17,904

46,543

Carrying amount

(1)

12,304

30,849

(dollars in thousands)

Accretable

Discount

Balance, December 31, 2017

4,083

Accretion

(2,271

)

Reclassifications from nonaccretable difference

701

Additions/adjustments

329

Disposals

(145

)

Balance, December 31, 2018

2,697

Accruing Loans and Leases

As of December 31, 2018

30 – 59

Days

Past Due

60 – 89

Days

Past Due

Over 89

Days

Past Due

Total Past

Due

Current*

Total

Accruing

Loans and

Leases

Nonaccrual

Loans and

Leases

Total

Loans and

Leases

(dollars in thousands)

Commercial mortgage

821

251

—

1,072

1,653,796

1,654,868

2,568

1,657,436

Home equity lines and loans

—

203,643

203,735

3,616

207,351

Residential mortgage

2,330

218

—

2,548

488,355

490,903

3,452

494,355

Construction

—

181,078

—

181,078

Commercial and industrial

280

332

—

612

692,871

693,483

2,101

695,584

Consumer

—

46,666

46,706

108

46,814

Leases

641

460

—

1,101

142,460

143,561

975

144,536

Total portfolio loans and leases

4,199

1,266

—

5,465

3,408,869

3,414,334

12,820

3,427,154

Table of Contents

*Included as

“

current

”

are $3.2 million and $4.1 million of loans and leases as of December 31, 2018 and 2017, respectively, which are

classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but

has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

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

*Included as

“

current

”

are $2.0 million and $4.0 million of loans and leases as of December 31, 2018 and 2017, respectively, which are

classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but

has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

Accruing Loans and Leases

As of December 31, 2017

30 – 59

Days

Past Due

60 – 89

Days

Past Due

Over 89

Days

Past Due

Total Past

Due

Current*

Total

Accruing

Loans and

Leases

Nonaccrual

Loans and

Leases

Total

Loans and

Leases

(dollars in thousands)

Commercial mortgage

1,366

2,428

—

3,794

1,518,711

1,522,505

872

1,523,377

Home equity lines and loans

338

—

348

216,446

216,794

1,481

218,275

Residential mortgage

1,386

—

1,465

453,004

454,469

4,417

458,886

Construction

—

212,454

—

212,454

Commercial and industrial

658

286

—

944

716,662

717,606

1,706

719,312

Consumer

1,106

—

1,106

37,047

38,153

—

38,153

Leases

125

177

—

302

114,996

115,298

103

115,401

Total portfolio loans and leases

4,979

2,980

—

7,959

3,269,320

3,277,279

8,579

3,285,858

Accruing Loans and Leases

As of December 31, 2018

30 – 59

Days

Past Due

60 – 89

Days

Past Due

Over 89

Days

Past Due

Total Past

Due

Current*

Total

Accruing

Loans and

Leases

Nonaccrual

Loans and

Leases

Total

Loans and

Leases

(dollars in thousands)

Commercial mortgage

816

251

—

1,067

1,326,320

1,327,387

435

1,327,822

Home equity lines and loans

—

177,891

177,916

3,590

181,506

Residential mortgage

1,545

—

1,545

406,664

408,209

2,813

411,022

Construction

—

174,592

—

174,592

Commercial and industrial

280

332

—

612

622,245

622,857

1,786

624,643

Consumer

—

44,014

44,054

44,099

Leases

350

233

—

583

120,592

121,175

392

121,567

Total originated portfolio loans

and leases

3,051

821

—

3,872

2,872,318

2,876,190

9,061

2,885,251

Accruing Loans and Leases

As of December 31, 2017

30 – 59

Days

Past Due

60 – 89

Days

Past Due

Over 89

Days

Past Due

Total Past

Due

Current*

Total

Accruing

Loans and

Leases

Nonaccrual

Loans and

Leases

Total

Loans and

Leases

(dollars in thousands)

Commercial mortgage

1,255

—

1,336

1,120,901

1,122,237

1,122,327

Home equity lines and loans

—

182,036

182,062

1,221

183,283

Residential mortgage

721

—

721

358,709

359,430

1,505

360,935

Construction

—

128,266

—

128,266

Commercial and industrial

439

236

—

675

587,803

588,478

826

589,304

Consumer

—

35,125

35,146

—

35,146

Leases

125

177

—

302

67,630

67,932

103

68,035

Total originated portfolio loans

and leases

2,587

494

—

3,081

2,480,470

2,483,551

3,745

2,487,296

Table of Contents

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

*Included as

“

current

”

are $1.2 million and $102 thousand of loans and leases as of December 31, 2018 and 2017, respectively, which are

classified as Administratively Delinquent. An Administratively Delinquent loan is one which has been approved for a renewal or extension but

has not had all the required documents fully executed as of the reporting date. The Corporation does not consider these loans to be delinquent.

F. Allowance for Loan and Lease Losses (the

“

Allowance

”

)

The following tables detail the roll

forward of the Allowance for the year ended

December 31, 2018

and

December 31, 2017

The following tables detail the allocation of the Allowance for all portfolio loans and leases by portfolio segment based on the methodology used

Accruing Loans and Leases

As of December 31, 2018

30 – 59

Days

Past Due

60 – 89

Days

Past Due

Over 89

Days

Past Due

Total Past

Due

Current*

Total

Accruing

Loans and

Leases

Nonaccrual

Loans and

Leases

Total

Loans and

Leases

(dollars in thousands)

Commercial mortgage

—

327,476

327,481

2,133

329,614

Home equity lines and loans

—

25,752

25,819

25,845

Residential mortgage

785

218

—

1,003

81,691

82,694

639

83,333

Construction

—

6,486

—

6,486

Commercial and industrial

—

70,626

315

70,941

Consumer

—

2,652

2,715

Leases

291

227

—

518

21,868

22,386

583

22,969

Total acquired portfolio loans and

leases

1,148

445

—

1,593

536,551

538,144

3,759

541,903

Accruing Loans and Leases

As of December 31, 2017

30 – 59

Days

Past Due

60 – 89

Days

Past Due

Over 89

Days

Past Due

Total Past

Due

Current*

Total

Accruing

Loans and

Leases

Nonaccrual

Loans and

Leases

Total

Loans and

Leases

(dollars in thousands)

Commercial mortgage

111

2,347

—

2,458

397,810

400,268

782

401,050

Home equity lines and loans

312

—

322

34,410

34,732

260

34,992

Residential mortgage

665

—

744

94,295

95,039

2,912

97,951

Construction

—

84,188

—

84,188

Commercial and industrial

219

—

269

128,859

129,128

880

130,008

Consumer

1,085

—

1,085

1,922

3,007

—

3,007

Leases

—

47,366

—

47,366

Total acquired portfolio loans and

leases

2,392

2,486

—

4,878

788,850

793,728

4,834

798,562

(dollars in thousands)

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

Balance, December 31, 2017

7,550

1,086

1,926

937

5,038

246

742

17,525

Charge-offs

(331

)

(333

)

(354

)

—

(1,374

)

(311

)

(3,132

)

(5,835

)

Recoveries

433

543

Provision for loan and lease losses

332

248

185

546

1,773

284

3,825

7,193

Balance, December 31, 2018

7,567

1,003

1,813

1,485

5,461

229

1,868

19,426

(dollars in thousands)

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

Balance, December 31, 2016

6,227

1,255

1,917

2,233

5,142

153

559

17,486

Charge-offs

(55

)

(675

)

(326

)

—

(692

)

(154

)

(1,224

)

(3,126

)

Recoveries

165

328

547

Provision for loan and lease losses

1,366

501

170

(1,300

)

563

239

1,079

2,618

Balance, December 31, 2017

7,550

1,086

1,926

937

5,038

246

742

17,525

to evaluate the loans and leases for impairment as of

December 31, 2018

and

December 31, 2017

Table of Contents

(1)

Purchased credit

impaired loans are evaluated for impairment on an individual basis.

The following tables detail the carrying value for all portfolio loans and leases by portfolio segment based on the methodology used to evaluate

the loans and leases for impairment as of

December 31, 2018

and

December 31, 2017

(1)

Purchased credit

impaired loans are evaluated for impairment on an individual basis.

(1)

Purchased credit

impaired loans are evaluated for impairment on an individual basis.

The following tables detail the allocation of the Allowance for originated portfolio loans and leases by portfolio segment based on the

methodology used to evaluate the loans and leases for impairment as of

December 31, 2018

and

December 31, 2017

As of December 31, 2018

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Allowance on loans and leases:

Individually evaluated for impairment

—

162

272

—

462

Collectively evaluated for

impairment

7,567

841

1,541

1,485

5,461

201

1,868

18,964

Purchased credit-impaired

(1)

—

Total

7,567

1,003

1,813

1,485

5,461

229

1,868

19,426

As of December 31, 2017

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Allowance on loans and leases:

Individually evaluated for impairment

—

230

—

258

Collectively evaluated for

impairment

7,550

1,067

1,696

937

5,033

242

742

17,267

Purchased credit-impaired

(1)

—

Total

7,550

1,086

1,926

937

5,038

246

742

17,525

As of December 31, 2018

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Carrying value of loans and leases:

Individually evaluated for

impairment

7,008

4,998

6,608

—

2,629

134

—

21,377

Collectively evaluated for

impairment

1,642,117

201,841

487,747

178,673

691,879

46,680

144,536

3,393,473

Purchased credit-impaired

(1)

8,311

512

—

2,405

1,076

—

12,304

Total

1,657,436

207,351

494,355

181,078

695,584

46,814

144,536

3,427,154

As of December 31, 2017

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Carrying value of loans and leases:

Individually evaluated for

impairment

2,128

2,162

7,726

—

1,897

—

13,940

Collectively evaluated for

impairment

1,503,825

215,604

451,160

204,088

712,865

38,126

115,401

3,241,069

Purchased credit-impaired

(1)

17,424

509

—

8,366

4,550

—

30,849

Total

1,523,377

218,275

458,886

212,454

719,312

38,153

115,401

3,285,858

As of December 31, 2018

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Allowance on loans and leases:

Individually evaluated for impairment

—

162

175

—

365

Collectively evaluated for

impairment

7,567

841

1,541

1,485

5,461

201

1,868

18,964

Total

7,567

1,003

1,716

1,485

5,461

229

1,868

19,329

Table of Contents

The following tables detail the carrying value for originated portfolio loans and leases by portfolio segment based on the methodology used to

evaluate the loans and leases for impairment as of

December 31, 2018

and

December 31, 2017

The following tables detail the allocation of the Allowance for acquired portfolio loans and leases by portfolio segment based on the methodology

used to evaluate the loans and leases for impairment as of

December 31, 2018

and

December 31, 2017

(1)

Purchased credit

impaired loans are evaluated for impairment on an individual basis.

As of December 31, 2017

Commercial

Mortgage

Home

Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Allowance on loans and leases:

Individually evaluated for impairment

—

180

—

208

Collectively evaluated for

impairment

7,550

1,067

1,696

937

5,033

242

742

17,267

Total

7,550

1,086

1,876

937

5,038

246

742

17,475

As of December 31, 2018

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Carrying value of loans and leases:

Individually evaluated for

impairment

4,874

4,972

5,106

—

2,314

—

17,337

Collectively evaluated for

impairment

1,322,948

176,534

405,916

174,592

622,329

44,028

121,567

2,867,914

Total

1,327,822

181,506

411,022

174,592

624,643

44,099

121,567

2,885,251

As of December 31, 2017

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Carrying value of loans and leases:

Individually evaluated for

impairment

1,345

1,902

4,418

—

1,186

—

8,878

Collectively evaluated for

impairment

1,120,982

181,381

356,517

128,266

588,118

35,119

68,035

2,478,418

Total

1,122,327

183,283

360,935

128,266

589,304

35,146

68,035

2,487,296

As of December 31, 2018

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Allowance on loans and leases:

Individually evaluated for

impairment

—

Collectively evaluated for

impairment

—

Purchased credit-impaired

(1)

—

Total

—

As of December 31, 2017

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Allowance on loans and leases:

Individually evaluated for

impairment

—

Collectively evaluated for

impairment

—

Purchased credit-impaired

(1)

—

Total

—

(1)

Purchased credit

impaired loans are evaluated for impairment on an individual basis.

The following tables detail the carrying value for acquired portfolio loans and leases by portfolio segment based on the methodology used to

evaluate the loans and leases for impairment as of

December 31, 2018

and

December 31, 2017

Table of Contents

(1)

Purchased credit

impaired loans are evaluated for impairment on an individual basis.

(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. 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:

The following tables detail the carrying value of all portfolio loans and leases by portfolio segment based on the credit quality indicators used to

determine the Allowance as of

December 31, 2018

and

December 31, 2017

As of December 31, 2018

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Carrying value of loans and leases:

Individually evaluated for

impairment

2,134

1,502

—

315

—

4,040

Collectively evaluated for

impairment

319,169

25,307

81,831

4,081

69,550

2,652

22,969

525,559

Purchased credit-impaired

(1)

8,311

512

—

2,405

1,076

—

12,304

Total

329,614

25,845

83,333

6,486

70,941

2,715

22,969

541,903

As of December 31, 2017

Commercial

Mortgage

Home Equity

Lines and

Loans

Residential

Mortgage

Construction

Commercial

and

Industrial

Consumer

Leases

Total

(dollars in thousands)

Carrying value of loans and leases:

Individually evaluated for

impairment

783

260

3,308

—

711

—

5,062

Collectively evaluated for

impairment

382,843

34,223

94,643

75,822

124,747

3,007

47,366

762,651

Purchased credit-impaired

(1)

17,424

509

—

8,366

4,550

—

30,849

Total

401,050

34,992

97,951

84,188

130,008

3,007

47,366

798,562

•

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.

Credit Risk Profile by Internally Assigned Grade

As of December 31, 2018

(dollars in thousands)

Pass

Special Mention

Substandard

Doubtful

Total

Commercial mortgage

1,635,068

631

20,639

1,098

1,657,436

Home equity loans and lines

203,037

—

4,314

—

207,351

Residential

490,789

—

3,566

—

494,355

Construction

171,353

938

8,787

—

181,078

Commercial & Industrial

684,444

2,737

8,402

695,584

Consumer

46,588

—

226

—

46,814

Leases

143,561

—

975

—

144,536

Total

3,374,840

4,306

46,909

1,099

3,427,154

Table of Contents

The following tables detail the carrying value of originated portfolio loans and leases by portfolio segment based on the credit quality indicators

used to determine the Allowance as of

December 31, 2018

and

December 31, 2017

Credit Risk Profile by Internally Assigned Grade

As of December 31, 2017

(dollars in thousands)

Pass

Special Mention

Substandard

Doubtful

Total

Commercial mortgage

1,490,862

13,448

18,194

873

1,523,377

Home equity loans and lines

216,794

—

1,481

—

218,275

Residential

454,469

—

4,417

—

458,886

Construction

193,227

3,902

15,325

—

212,454

Commercial & Industrial

711,145

889

6,013

1,265

719,312

Consumer

38,153

—

38,153

Leases

115,298

—

103

—

115,401

Total

3,219,948

18,239

45,533

2,138

3,285,858

Credit Risk Profile by Internally Assigned Grade

As of December 31, 2018

(dollars in thousands)

Pass

Special Mention

Substandard

Doubtful

Total

Commercial mortgage

1,321,973

631

5,218

—

1,327,822

Home equity loans and lines

177,916

—

3,590

—

181,506

Residential

408,095

—

2,927

—

411,022

Construction

167,272

938

6,382

—

174,592

Commercial & Industrial

615,817

2,511

6,314

624,643

Consumer

43,936

—

163

—

44,099

Leases

121,175

—

392

—

121,567

Total

2,856,184

4,080

24,986

2,885,251

Credit Risk Profile by Internally Assigned Grade

As of December 31, 2017

(dollars in thousands)

Pass

Special Mention

Substandard

Doubtful

Total

Commercial mortgage

1,114,171

—

8,156

—

1,122,327

Home equity loans and lines

182,062

—

1,221

—

183,283

Residential

359,430

—

1,505

—

360,935

Construction

126,260

—

2,006

—

128,266

Commercial & Industrial

586,896

664

1,389

355

589,304

Consumer

35,146

—

35,146

Leases

67,932

—

103

—

68,035

Total

2,471,897

664

14,380

355

2,487,296

Table of Contents

The following tables detail the carrying value of acquired portfolio loans and leases by portfolio segment based on the credit quality indicators

used to determine the Allowance as of

December 31, 2018

and

December 31, 2017

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:

Credit Risk Profile by Internally Assigned Grade

As of December 31, 2018

(dollars in thousands)

Pass

Special Mention

Substandard

Doubtful

Total

Commercial mortgage

313,095

—

15,421

1,098

329,614

Home equity loans and lines

25,121

—

724

—

25,845

Residential

82,694

—

639

—

83,333

Construction

4,081

—

2,405

—

6,486

Commercial & Industrial

68,627

226

2,088

—

70,941

Consumer

2,652

—

2,715

Leases

22,386

—

583

—

22,969

Total

518,656

226

21,923

1,098

541,903

Credit Risk Profile by Internally Assigned Grade

As of December 31, 2017

(dollars in thousands)

Pass

Special Mention

Substandard

Doubtful

Total

Commercial mortgage

376,691

13,448

10,038

873

401,050

Home equity loans and lines

34,732

—

260

—

34,992

Residential

95,039

—

2,912

—

97,951

Construction

66,967

3,902

13,319

—

84,188

Commercial & Industrial

124,249

225

4,624

910

130,008

Consumer

3,007

—

3,007

Leases

47,366

—

47,366

Total

748,051

17,575

31,153

1,783

798,562

(dollars in thousands)

December 31, 2018

December 31, 2017

TDRs included in nonperforming loans and leases

1,217

3,289

TDRs in compliance with modified terms

9,745

5,800

Total TDRs

10,962

9,089

Table of Contents

The following table presents information regarding loans and leases categorized as TDRs for modifications made during the year ended

December 31, 2018

The following table presents information regarding the types of loan and lease modifications made for the year ended

December 31, 2018

The following table presents information regarding loans and leases categorized as TDRs for modifications made during the year ended

December 31, 2017

For the Year Ended December 31, 2018

(dollars in thousands)

Number of

Contracts

Pre

Modification

Outstanding

Recorded

Investment

Post

Modification

Outstanding

Recorded

Investment

Commercial mortgage

4,439

Home equity lines and loans

961

Residential

620

640

Commercial and industrial

156

Consumer

Leases

173

Total

6,369

6,389

Number of Contracts

Loan Term

Extension

Interest Rate

Change and

Term Extension

Interest Rate

Change and/or

Interest

Only

Period

Contractual

Payment

Reduction

(Leases only)

Temporary

Payment

Deferral

Commercial mortgage

—

Home equity lines and loans

—

Residential

—

Commercial and industrial

—

Consumer

—

Leases

—

Total

—

For the Year Ended December 31, 2017

(dollars in thousands)

Number of

Contracts

Pre

Modification

Outstanding

Recorded

Investment

Post

Modification

Outstanding

Recorded

Investment

Residential

432

Home equity lines and loans

582

Leases

100

Total

1,114

Table of Contents

The following table presents information regarding the types of loan and lease modifications made for the year ended

December 31, 2017

During the year ended

December 31, 2018

one home equity loan and one lease with principal balances of $25 thousand and $49 thousand

respectively, which had been previously modified to troubled debt restructuring, defaulted and were charged off.

H. Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related allowance for loan

and lease losses and interest income recognized for the year ended

December 31, 2018

, 2017

and

2016

(purchased credit

impaired loans are not

included in the tables):

(1) The table above does not include the recorded investment of $1.2 million of impaired leases without a related allowance for loan and lease

losses.

(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge

offs and interest

payments on non

performing loans that have been applied to principal.

Number of Contracts

Loan Term

Extension

Interest Rate

Change and

Term

Extension

Interest Rate

Change and/or

Interest

Only

Period

Contractual

Payment

Reduction

(Leases only)

Temporary

Payment

Deferral

Residential

—

Home equity lines and loans

—

Leases

—

Total

—

As of or for the Year Ended December

31, 2018

Recorded

Investment

(2)

Principal

Balance

Allowance

Average

Principal

Balance

Interest

Income

Recognized

Cash

Basis

Interest

Income

Recognized

(dollars in thousands)

Impaired loans with related allowance:

Home equity lines and loans

1,280

162

640

—

Residential mortgage

1,966

272

1,983

—

Consumer

—

Total

3,296

462

2,679

125

—

Impaired loans

(1)

without related

allowance:

Commercial mortgage

7,007

7,264

—

7,010

320

—

Home equity lines and loans

3,718

3,724

—

3,537

—

Residential mortgage

4,641

4,728

—

4,750

133

—

Commercial and industrial

2,629

3,803

—

3,349

126

—

Consumer

—

100

—

Total

18,078

19,605

—

18,746

649

—

Grand total

21,374

22,901

462

21,425

774

—

Table of Contents

(1) The table above does not include the recorded investment of $272 thousand of impaired leases without a related allowance for loan and

lease losses.

(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge

offs and interest

payments on non

performing loans that have been applied to principal.

(1) The table above does not include the recorded investment of $240 thousand of impaired leases without a related allowance for loan and

lease losses

(2) Recorded investment equals principal balance, net of deferred origination costs/fees and loan marks, less partial charge

offs and interest

payments on non

performing loans that have been applied to principal.

100

As of or for the Year Ended December

31, 2017

Recorded

Investment

(2)

Principal

Balance

Allowance

Average

Principal

Balance

Interest

Income

Recognized

Cash

Basis

Interest

Income

Recognized

(dollars in thousands)

Impaired loans with related allowance:

Home equity lines and loans

577

232

—

Residential mortgage

2,436

230

2,467

127

—

Commercial and industrial

—

Consumer

—

Total

3,058

258

2,746

136

—

Impaired loans

(1)

without related

allowance:

Commercial mortgage

2,128

2,218

—

2,205

—

Home equity lines and loans

1,585

1,645

—

1,636

—

Residential mortgage

5,290

5,529

—

4,994

191

—

Commercial and industrial

1,879

3,613

—

2,079

—

Total

10,882

13,005

—

10,914

349

—

Grand total

13,940

16,063

258

13,660

485

—

As of or for the Year Ended December

31, 2016

Recorded

Investment

(2)

Principal

Balance

Allowance

Average

Principal

Balance

Interest

Income

Recognized

Cash

Basis

Interest

Income

Recognized

(dollars in thousands)

Impaired loans with related allowance:

Residential mortgage

622

639

—

Commercial and industrial

103

—

Consumer

—

Total

737

775

—

Impaired loans

(1)

without related

allowance:

Commercial mortgage

1,577

—

1,583

—

Home equity lines and loans

2,354

2,778

—

2,833

—

Residential mortgage

6,644

6,970

—

7,544

276

—

Commercial and industrial

2,862

3,692

8,362

146

—

Total

13,437

15,017

—

20,322

517

—

Grand total

14,174

15,754

21,097

551

—

Table of Contents

Loan

Mark

Loans acquired in mergers and acquisitions are recorded at fair value as of the date of the transaction. This adjustment to the acquired principal

amount is referred to as the “Loan Mark”

With the exception of purchased credit impaired loans, for which the Loan Mark is accounted under ASC

310

30, the Loan Mark is amortized or accreted as an adjustment to yield over the lives of the loans.

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

the dates indicated:

Note 6

Premises and Equipment

A. A summary of premises and equipment is as follows:

Depreciation and amortization expense related to the assets detailed in the above table for the years ended

December 31, 2018

, 2017

, and

2016

amounted to

$6.6 million

$5.7 million

, and

$5.8 million

, respectively.

101

As of December 31, 2018

(dollars in thousands)

Outstanding

Principal

Remaining

Loan Mark

Recorded

Investment

Commercial mortgage

339,241

(9,627

)

329,614

Home equity lines and loans

28,212

(2,367

)

25,845

Residential mortgage

86,111

(2,778

)

83,333

Construction

6,780

(294

)

6,486

Commercial and industrial

72,948

(2,007

)

70,941

Consumer

2,828

(113

)

2,715

Leases

23,695

(726

)

22,969

Total

559,815

(17,912

)

541,903

As of December 31, 2017

(dollars in thousands)

Outstanding

Principal

Remaining

Loan Mark

Recorded

Investment

Commercial mortgage

412,263

(11,213

)

401,050

Home equity lines and loans

37,944

(2,952

)

34,992

Residential mortgage

101,523

(3,572

)

97,951

Construction

86,081

(1,893

)

84,188

Commercial and industrial

141,960

(11,952

)

130,008

Consumer

3,051

(44

)

3,007

Leases

50,530

(3,164

)

47,366

Total

833,352

(34,790

)

798,562

December 31,

(dollars in thousands)

2018

2017

Land

11,219

9,522

Buildings

40,947

31,376

Furniture and equipment.

44,862

38,775

Leasehold improvements

25,186

26,636

Construction in progress

4,400

4,171

Less: accumulated depreciation

(60,966

)

(56,022

)

Total

65,648

54,458

Table of Contents

B. Future minimum cash rent commitments under various operating leases as of December 31, 2018 are as follows:

Rent expense on leased premises and equipment for the years ended

December 31, 2018

, 2017

, and

2016

amounted to

$5.2 million

$4.7 million

, and

$4.6 million

, respectively.

Note 7

Mortgage Servicing Rights

The following summarizes the Corporation

’

s activity related to MSRs for the years ended December 31:

The following summarizes the Corporation

’

s activity related to changes in the impairment valuation allowance of MSRs for the years ended

December 31:

As of

December 31, 2018

and

2017

, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate

and 20 percent

adverse changes in those assumptions are as follows:

(1)

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

102

(dollars in thousands)

Commitments

2019

5,211

2020

4,700

2021

4,478

2022

4,203

2023

4,051

2024 and thereafter

41,845

Total

64,488

(dollars in thousands)

2018

2017

2016

Balance, January 1

5,861

5,582

5,142

Additions

1,025

1,321

Amortization

(803

)

(791

)

(750

)

(Impairment) / Recovery

(27

)

(131

)

Balance, December 31

5,047

5,861

5,582

Fair value

6,277

6,397

6,154

Residential mortgage loans serviced for others

578,788

650,703

631,889

(dollars in thousands)

2018

2017

2016

Balance, January 1

(1,760

)

(1,805

)

(1,674

)

Impairment

(103

)

(52

)

(715

)

Recovery

584

Balance, December 31

(1,787

)

(1,760

)

(1,805

)

December 31,

(dollars in thousands)

2018

2017

Fair value amount of MSRs

6,277

6,397

Weighted average life (in years)

6.7

6.1

Prepayment speeds (constant prepayment rate)

(1)

9.1

10.3

Impact on fair value:

10% adverse change

(124

)

(194

)

20% adverse change

(257

)

(394

)

Discount rate

9.55

Impact on fair value:

10% adverse change

(234

)

(225

)

20% adverse change

(451

)

(434

)

Table of Contents

December 31, 2018

and

2017

, the fair value of the MSRs was

$6.3 million

and

$6.4 million

, respectively. The fair value of the MSRs for these dates

was determined using values obtained from a third party which utilizes a valuation model which calculates the present value of estimated future

servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of

prepayment speeds and discount rates. Mortgage loan prepayment speed is the annual rate at which borrowers are forecasted to repay their

mortgage loan principal and is based on historical experience. The discount rate is used to determine the present value of future net servicing

income. Another key assumption in the model is the required rate of return the market would expect for an asset with similar risk. These assumptions

can, and generally will, change quarterly valuations as market conditions and interest rates change. Management reviews, annually, the process

utilized by its independent third

party valuation experts.

These assumptions and sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a

10%

variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value

may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated without changing any other

assumption. In reality, changes in one factor may result in changes in another, which could magnify or counteract the sensitivities.

Note 8

Goodwill and Intangible Assets

The following table presents activity in the Corporation's goodwill by its reporting units and finite

lived and indefinite

lived intangible assets, other

than MSRs, for the years ended

December 31, 2018

and

2017

103

(dollars in thousands)

Balance

December 31,

2017

Additions

Adjustments

Amortization

Balance

December 31,

2018

Amortization

Period

Goodwill – Wealth

20,412

—

20,412

Indefinite

Goodwill –

Banking

153,545

—

3,446

—

156,991

Indefinite

Goodwill – Insurance

5,932

677

—

6,609

Indefinite

Total Goodwill

179,889

677

3,446

—

184,012

Core deposit intangible

7,380

—

(1,474

)

5,906

10 years

Customer relationships

14,173

1,145

—

(1,711

)

13,607

10 to 20 years

Non-compete agreements

1,319

—

(218

)

1,101

5 to 10 years

Trade names

2,322

—

(173

)

2,149

3 to 5 years

Domain name

151

—

151

Indefinite

Favorable lease assets

621

—

(80

)

541

1 to 16 years

Total Intangible Assets

25,966

1,145

—

(3,656

)

23,455

Grand Total

205,855

1,822

3,446

(3,656

)

207,467

(dollars in thousands)

Balance

December 31,

2016

Additions

Adjustments

Amortization

Balance

December 31,

2017

Amortization

Period

Goodwill – Wealth

20,412

—

20,412

Indefinite

Goodwill –

Banking

80,783

72,762

—

153,545

Indefinite

Goodwill – Insurance

3,570

2,362

—

5,932

Indefinite

Total Goodwill

104,765

75,124

—

179,889

Core deposit intangible

3,447

4,670

—

(737

)

7,380

10 years

Customer relationships

13,056

2,672

—

(1,555

)

14,173

10 to 20 years

Non-compete agreements

1,634

—

(356

)

1,319

5 to 10 years

Trade names

2,165

195

—

(38

)

2,322

3 years to Indefinite

Domain name

—

151

—

151

Indefinite

Favorable lease assets

103

566

—

(48

)

621

1 to 16 years

Total Intangible Assets

20,405

8,295

—

(2,734

)

25,966

Grand total

125,170

83,419

—

(2,734

)

205,855

Table of Contents

Management conducted its annual impairment tests for goodwill and indefinite

lived intangible assets as of October 31, 2018 using generally

accepted valuation methods. Management determined that no impairment of goodwill or indefinite

lived intangible assets was identified as a result

of the annual impairment analyses. Future impairment testing will be conducted each October 31, unless a triggering event occurs in the interim that

would suggest possible impairment, in which case it would be tested as of the date of the triggering event. For the two months ended

December 31,

2018

, management determined there were no events that would necessitate impairment testing of goodwill or indefinite

lived intangible assets.

Amortization expense on finite

lived intangible assets was

$3.7 million

$2.7 million

, and

$3.5 million

for the years ended

December 31, 2018

, 2017,

and

2016

, respectively. As of October 1, 2018, due to changes in branding strategies, the estimate of the remaining useful lives of certain trade name

intangible assets were changed from indefinite to five years. The effect of this change in estimate increased amortization of intangible asset expense

by $108 thousand. The estimated aggregate amortization expense related to finite

lived intangible assets for each of the five succeeding fiscal years

ending December 31 is:

Note 9

Other Real Estate Owned

The summary of the change in other real estate owned, which is included as a component of other assets on the Corporation's Consolidated

Balance Sheets, is as follows:

As of

December 31, 2018

, the balance of OREO is comprised of one residential property and two manufactured homes, which resulted from loan

foreclosures.

Note 10

Deposits

A. The following table details the components of deposits:

104

(dollars in thousands)

Fiscal Year Amount

Fiscal year ending

2019

4,065

2020

3,928

2021

3,860

2022

3,643

Thereafter

7,267

December 31,

(dollars in thousands)

2018

2017

Balance January 1

304

1,017

Additions

372

560

Impairments

(89

)

(121

)

Sales

(170

)

(1,152

)

Balance December 31

417

304

As of December 31,

(dollars in thousands)

2018

2017

Interest

bearing demand

664,749

481,336

Money market

862,644

862,639

Savings

247,081

338,572

Retail time deposits

542,702

532,202

Wholesale non

maturity deposits

55,031

62,276

Wholesale time deposits

325,261

171,929

Total interest

bearing deposits

2,697,468

2,448,954

Noninterest

bearing deposits

901,619

924,844

Total deposits

3,599,087

3,373,798

Table of Contents

The aggregate amount of deposit and mortgage escrow overdrafts included as loans were $408 thousand and $669 thousand as of

December 31,

2018

and

2017

, respectively.

The aggregate amount of time deposits in denominations over $250 thousand were

$324.4 million

and

$193.3 million

as of

December 31, 2018

and

2017

, respectively.

B. The following tables detail the maturities of retail

time deposits:

C. The following tables detail the maturities of wholesale time deposits:

Note 11

Short

Term Borrowings and Long

Term FHLB Advances

A. Short

term borrowings

The Corporation

’

s short

term borrowings (original maturity of one year or less), which consist of funds obtained from overnight repurchase

agreements with commercial customers, FHLB advances with original maturities of one year or less, and overnight fed funds, are detailed below.

A summary of short

term borrowings is as follows:

(1) Overnight repurchase agreements with no expiration date

The following table sets forth information concerning short

term borrowings:

105

As of December 31, 2018

(dollars in thousands)

Less than

$100

or more

Maturing during:

2019

206,050

208,455

2020

33,003

23,096

2021

28,072

31,238

2022

5,325

1,945

2023 and thereafter

3,968

1,550

Total

276,418

266,284

As of December 31, 2018

(dollars in thousands)

Less than

$100

or more

Maturing during:

2019

3,139

322,122

Total

3,139

322,122

As of December 31,

(dollars in thousands)

2018

2017

Repurchase agreements

(1)

– commercial customers

22,717

25,865

Short

term FHLB advances

229,650

212,000

Total short

term borrowings

252,367

237,865

As for the Year Ended December 31,

(dollars in thousands)

2018

2017

Balance at period

end

252,367

237,865

Maximum amount outstanding at any month end

302,932

237,865

Average balance outstanding during the period

186,290

128,008

Weighted

average interest rate:

As of the period

end

2.23

1.40

Paid during the period

1.90

1.09

Table of Contents

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

the related average balance.

Long

term

FHLB Advances

The following table presents the remaining periods until maturity of long

term FHLB advances (original maturities exceeding one year):

The following table presents rate and maturity information on long

term FHLB advances:

(1) Maturity range, weighted average rate and coupon rate range refers to December 31, 2018 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 December 31, 2018, substantially all FHLB advances with this convertible

feature are subject to conversion in fiscal 2018. These advances are included in the maturity ranges in which they mature, rather than the period

in which they are subject to conversion.

C. Other Borrowings

Information

In connection with its FHLB borrowings, the Corporation is required to hold the capital stock of the FHLB. The amount of capital stock held was

$14.5 million

December 31, 2018

, and

$20.1 million

December 31, 2017

. The carrying amount of the FHLB stock approximates its redemption

value.

The level of required investment in FHLB stock is based on the balance of outstanding loans the Corporation has from the FHLB. Although FHLB

stock is a financial instrument that represents an equity interest in the FHLB, it does not have a readily determinable fair value. FHLB stock is

generally viewed as a long

term investment. Accordingly, when evaluating FHLB stock for impairment, its value should be determined based on the

ultimate recoverability of the par value rather than by recognizing temporary declines in value.

The Corporation had a maximum borrowing capacity with the FHLB of

$1.53 billion

as of

December 31, 2018

of which the unused capacity was

$1.25

billion

. In addition, there were

$79.0 million

in the overnight federal funds line available and

$140.4 million

of Federal Reserve Discount Window

capacity.

Note 12 –

Subordinated Notes

On December 13, 2017, the Corporation completed the issuance of

$70.0 million

in aggregate principal amount of fixed

floating rate subordinated

notes due 2027 (the "2027 Notes") in an underwritten public offering. On August 6, 2015, the Corporation completed the issuance of

$30.0 million

aggregate principal amount of fixed

floating rate subordinated notes due 2025 (the "2025 Notes") in a private placement transaction to

institutional accredited investors. The net proceeds of both offerings increased Tier II regulatory capital at the Corporation level.

106

As of December 31,

(dollars in thousands)

2018

2017

Within one year

28,105

83,766

Over one year through five years

27,269

55,374

Total

55,374

139,140

Maturity Range

(1)

Weighted

Average

Rate

(1)

Coupon Rate

(1)

Balance at

December 31,

Description

From

2018

2017

Bullet maturity –

fixed rate

5/20/2019

8/24/2021

1.76

1.40

2.13

55,374

118,131

Convertible

fixed

(2)

N/A

—

21,009

Total

55,374

139,140

Table of Contents

The following tables detail the subordinated notes, including debt issuance costs, as of

December 31, 2018

and

2017

(1) The 2027 Notes bear interest at an annual fixed rate of 4.25% from the date of issuance until December 14, 2022, and will thereafter bear

interest at a variable rate that will reset quarterly to a level equal to the then

current three

month LIBOR rate plus 2.050% until December 15,

2027, or any early redemption date.

(2) The 2025 Notes bear interest at an annual fixed rate of 4.75% from the date of issuance until August 14, 2020, and will thereafter bear

interest at a variable rate that will reset quarterly to a level equal to the then

current three

month LIBOR rate plus 3.068% until August 15,

2025, or any early redemption date.

Note 13 –

Junior Subordinated Debentures

In connection with the RBPI Merger, the Corporation acquired Royal Bancshares Capital Trust I (“Trust I”

)

and Royal Bancshares Capital Trust II

(

“Trust II”

) (

collectively, the “Trusts”

which were utilized for the sole purpose of issuing and selling capital securities representing preferred

beneficial interests. Although the Corporation owns $774 thousand of the common securities of Trust I and Trust II, the Trusts are not consolidated

into the Corporation

’

s consolidated financial statements as the Corporation is not deemed to be the primary beneficiary of these entities. In

connection with the issuance and sale of the capital securities, RBPI issued, and the Corporation assumed as a result of the RBPI Merger, junior

subordinated debentures to the Trusts of

$10.7 million

each, totaling

$21.4 million

representing the Corporation

’

s maximum exposure to loss. The

junior subordinated debentures incur interest at a coupon rate of

4.94%

as of

December 31, 2018

. The rate resets quarterly based on 3

month LIBOR

plus

2.15%

Each of Trust I and Trust II issued an aggregate principal amount of

$12.5 million

of capital securities initially bearing fixed and/or fixed/floating

interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of

$387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the

Corporation. As a result of the RBPI Merger, the Corporation has fully and unconditionally guaranteed all of the obligations of the Trusts, including

any distributions and payments on liquidation or redemption of the capital securities.

The rights of holders of common securities of the Trusts are subordinate to the rights of the holders of capital securities only in the event of a

default; otherwise, the common securities

’

economic and voting rights are pari passu with the capital securities. The capital and common securities

of the Trusts are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier

dissolved, the Trusts will dissolve on December 15, 2034. The junior subordinated debentures are the sole assets of Trusts, mature on December 15,

2034, and may be called at par by the Corporation any time after December 15, 2009. The Corporation records its investments in the Trusts

’

common

securities of $387 thousand each as investments in unconsolidated entities and records dividend income upon declaration by Trust I and Trust II.

Note

Derivatives and Hedging Activities

Derivative financial instruments involve, to varying degrees, interest rate, market and credit risk. Management manages these risks as part of its

asset and liability management process and through credit policies and procedures. Management seeks to minimize counterparty credit risk by

establishing credit limits and collateral agreements, and utilizes certain derivative financial instruments to enhance its ability to manage interest rate

risk that exists as part of its ongoing business operations. The derivative transactions entered into by the Corporation are an economic hedge of a

derivative offerings to Bank customers. The Corporation does not use derivative financial instruments for trading purposes.

Customer Derivatives – Interest Rate Swaps. The Corporation enters into interest rate swaps that allow commercial loan customers to effectively

convert a variable

rate commercial loan agreement to a fixed

rate commercial loan agreement. Under these agreements, the Corporation originates

variable

rate loans with customers in addition to interest rate swap agreements, which serve to effectively swap the customers

’

variable

rate loans

into fixed

rate loans. The Corporation then enters into corresponding swap agreements with swap dealer counterparties to economically hedge its

exposure on the variable and fixed

107

December 31, 2018

December 31, 2017

(dollars in thousands)

Balance

Rate

(1)(2)

Balance

Rate

(1)(2)

Subordinated notes – due 2027

68,885

4.25

68,829

4.25

Subordinated notes – due 2025

29,641

4.75

29,587

4.75

Total subordinated notes

98,526

98,416

Table of Contents

components of the customer agreements. The interest rate swaps with both the customers and third parties are not designated as hedges under

FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying

benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value

adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. As of

December 31, 2018

, there were no fair value adjustments related to credit quality.

Risk Participation Agreements. The Corporation may enter into a risk participation agreement (“RPA”

)

with another institution as a means to

assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income

commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk

associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the

Corporation may purchase a RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type

of derivative is referred to as an “RPA purchased.”

The following tables detail the derivative instruments as of

December 31, 2018

and

December 31, 2017

The Corporation has International Swaps and Derivatives Association agreements with third parties that requires a minimum dollar transfer amount

upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties at

December 31, 2018

and

December 31, 2017

was

$8.8 million

and

$1.3 million

, respectively. The amount of collateral posted with third parties is

deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a

change in the specified credit measures. The aggregate fair value of all derivative financial instruments in a liability position with credit measure

contingencies and entered into with third parties was

$11.5 million

and

$1.6 million

as of

December 31, 2018

and

December 31, 2017

, respectively.

Note 15

Pension and Postretirement Benefit Plans

A. General Overview

– The Corporation sponsors two non

qualified defined

benefit supplemental executive retirement plans (“

SERP I

” and “

SERP

”

)

which are restricted to certain senior officers of the Corporation and a postretirement benefit plan (“

PRBP

”

)

that covers certain retired

employees and a group of current employees.

Effective March 31, 2008, the Corporation amended SERP I to freeze further increases in the defined benefit amounts to all participants. Effective

March 31, 2013, the Corporation curtailed SERP II, as further increases to the defined benefit amounts to over

20%

of the participants were frozen.

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 table provides information with respect to our SERP and PRBP, including benefit obligations and funded status, net periodic pension

costs, plan assets, cash flows, amortization information and other accounting items.

108

Asset Derivatives

Liability Derivatives

(dollars in thousands)

Notional

Amount

Fair

Value

Notional

Amount

Fair

Value

Derivatives not designated as hedging instruments

As of December 31, 2018:

Customer derivatives – interest rate swaps

369,623

12,550

369,623

12,549

RPAs sold

—

854

RPAs purchased

35,305

—

Total derivatives

404,928

12,621

370,477

12,551

As of December 31, 2017:

Customer derivatives – interest rate swaps

124,627

1,895

124,627

1,895

RPAs sold

—

899

RPAs purchased

14,710

—

Total derivatives

139,337

1,916

125,526

1,898

Table of Contents

B. Actuarial Assumptions used to determine benefit obligations as of December 31 of the years indicated:

C. Changes in Benefit Obligations and Plan Assets:

109

SERP I and SERP II

PRBP

2018

2017

2018

2017

Discount rate

3.95

3.30

3.45

2.75

Rate of increase for future compensation

N/A

Expected long

term rate of return on plan assets

N/A

SERP I & SERP II

PRBP

(dollars in thousands)

2018

2017

2018

2017

Change in benefit obligations

Benefit obligation at January 1

4,983

4,786

353

418

Service cost

—

Interest cost

160

176

Plan participants contribution

—

Actuarial loss (gain)

(180

)

282

(61

)

Settlements

—

Benefits paid

(276

)

(261

)

(104

)

(111

)

Benefit obligation at December 31

4,687

4,983

241

353

Change in plan assets

Fair value of plan assets at January 1

—

Actual return on plan assets

—

Settlements

—

Excess assets transferred to defined contribution plan

—

Employer contribution

278

261

Plan participants

’

contribution

—

Benefits paid

(278

)

(261

)

(104

)

(111

)

Fair value of plan assets at December 31

—

Funded status at year end (plan assets less benefit obligations)

(4,687

)

(4,983

)

(241

)

(353

)

For the Year Ended December 31,

SERP I & SERP II

PRBP

Amounts included in the Consolidated Balance Sheet as Other liabilities and

accumulated other comprehensive income including the following:

2018

2017

2018

2017

Accrued liability

(3,174

)

(3,221

)

(129

)

(149

)

Net actuarial loss

(1,513

)

(1,762

)

(112

)

(204

)

Prior service cost

—

Unrecognized net initial obligation

—

Net included in Other liabilities in the Consolidated Balance Sheets

(4,687

)

(4,983

)

(241

)

(353

)

Table of Contents

D. The following tables provide the components of net periodic pension costs for the

periods

indicated:

E. Plan Assets:

The PRBP, SERP I and SERP II are unfunded plans and, as such, have no related plan assets.

F. Cash Flows

The following benefit payments, which reflect expected future service, are expected to be paid over the next ten years:

G. Other Pension and Post Retirement Benefit Information

In 2005, the Corporation placed a cap on the future annual benefit payable through the PRBP. This cap is equal to

120%

of the 2005 annual benefit.

H. Expected Contribution to be Paid in the Next Fiscal Year

The

2019

expected contribution for the SERP I and SERP II is $286 thousand

I. Actuarial Losses

As indicated in section C of this footnote, the Corporation

’

s pension plans had cumulative actuarial losses as of

December 31, 2018

that will result

in an increase in the Corporation

’

s future pension expense because such losses at each measurement date

110

SERP I and SERP II Periodic Pension Cost

For the Year Ended December 31,

(dollars in thousands)

2018

2017

2016

Service cost

—

Interest cost

160

176

184

Amortization of prior service cost

—

Recognition of net actuarial loss

Net periodic pension cost

230

235

241

PRBP

Net Periodic Pension Cost

For the Year Ended December 31,

(dollars in thousands)

2018

2017

2016

Service cost

—

Interest cost

Amortization of prior service cost

—

Recognition of net actuarial loss

Net periodic pension cost

For the Year Ended December 31,

Discount Rate Used in the Calculation of Periodic Pension Costs

2018

2017

2016

SERP I and SERP II

3.30

3.75

3.90

PRBP

2.75

2.80

3.90

(dollars in thousands)

SERP I & SERP II

PRBP

Fiscal year ending

2019

286

2020

286

2021

283

2022

280

2023

355

2024

2028

1,711

Table of Contents

exceed

10%

of the greater of the projected benefit obligation or the market

related value of the plan assets. In accordance with GAAP, net

unrecognized gains or losses that exceed that threshold are required to be amortized over the expected service period of active employees, and are

included as a component of net pension cost. Amortization of these net actuarial losses has the effect of increasing the Corporation

’

s pension

costs as shown on the table in section D of this footnote.

Note 16 –

Income Taxes

Components of Net Deferred Tax Asset:

Not included in the table above are deferred tax assets for state net operating losses and unrealized capital losses for partnership investments and

their respective valuation allowance of $705 thousand and $616 thousand. The state net operating losses of our leasing subsidiary as of

December 31, 2018

will expire between 2023 and 2036.

As a result of the RBPI Merger, deferred tax assets were initially increased by

$33.1 million

related to purchase accounting adjustments and net

deferred tax assets carried over from RBPI. During 2018, adjustments were made to the original purchase accounting adjustments that resulted in an

incremental deferred tax asset of

$1.1 million

B. The provision

for income taxes consists of the following:

111

December 31,

(dollars in thousands)

2018

2017

Deferred tax assets:

Loan and lease loss reserve

4,476

3,948

Other reserves

2,919

3,169

Net operating loss carry

forward

9,728

11,113

Alternative minimum tax credits

1,100

1,116

Unrealized depreciation of available for sale securities

1,656

761

Defined benefit plans

1,377

1,361

RBPI Merger Fair Values

2,580

4,726

Total deferred tax asset

23,836

26,194

Deferred tax liabilities:

Intangibles and other amortizing fair value adjustments

5,290

970

Originated MSRs

1,105

1,253

Deferred loan costs

1,105

—

Other reserves

535

Total deferred tax liability

8,035

2,295

Total net deferred tax asset

15,801

23,899

December 31,

(dollars in thousands)

2018

2017

2016

Current

4,326

13,812

16,492

Deferred

9,839

20,418

1,676

Total

14,165

34,230

18,168

Table of Contents

C. Applicable income taxes differed from the amount derived by applying the statutory federal tax rate to income as follows:

D. Tax Law Changes

–

Impact to Tax Expense

With the enactment of the Tax Cuts and Jobs Act (“

Tax Reform

” or the “Tax Act”

)

on December 22, 2017, the federal corporate income tax rate was

reduced from 35% to

21%

effective January 1, 2018. The Corporation's 2017 financial results included a charge of

$15.2 million

to income tax expense,

primarily resulting from re

measuring the Corporation's net deferred tax assets to reflect the recently enacted lower tax rate effective January 1, 2018.

During 2018, we recorded certain tax provision to tax return true

up adjustments associated with items that were finalized as part of our 2017 tax

return filing. We recorded a

$2.5 million

tax benefit in 2018, primarily for deferred tax temporary difference items that were claimed on the 2017 tax

return at a 35% federal tax rate that were recorded at December 31, 2017 as anticipating to be deducted at a 21% federal tax rate. Also during 2018, as

a result of additional purchase accounting adjustments during the year, $611 thousand of such purchase accounting adjustments were charged to

income tax expense as a result of reducing their original 35% tax benefit to the new 21% tax rate in effect for 2018. There are no remaining provisional

items as of December 31, 2018.

Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense

related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in

continuing operations, but also to items initially recognized in other comprehensive income. The income tax expense recognized as a result of Tax

Reform is as follows:

Because ASC 740 requires the effect of income tax law changes on deferred taxes to be recognized as a component of income tax expense related to

continuing operations rather than backward tracing the adjustment through the accumulated other comprehensive income component of

shareholders' equity, the net adjustment to deferred taxes for the year ending December 31, 2017 detailed above included a net expense totaling

$782

thousand related to items recognized in other comprehensive income.

E. Other Income Tax Information

In accordance with the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes”

management recognizes the financial statement

benefit of a tax position only after determining that the Corporation would more likely than not sustain the position following an examination. For tax

positions meeting the more

likely

than

not threshold, the amount recognized in the

112

(dollars in thousands)

2018

Tax

Rate

2017

Tax

Rate

2016

Tax

Rate

Computed tax expense at

statutory federal rate

16,371

21.0

20,036

35.0

18,972

35.0

Tax

exempt income

(470

)

(0.6

(600

)

(1.0

(758

)

(1.4

State tax (net of federal tax benefit)

874

1.1

303

0.5

425

0.8

Non

deductible merger expense

—

455

0.8

—

Excess tax benefit – stock based

compensation

(848

)

(1.1

(1,049

)

(1.8

(565

)

(1.0

Adjustment to net deferred tax assets for

enacted changes in tax laws, rates and

return to provision adjustments

(1,895

)

(2.4

15,193

26.5

—

Other, net

133

0.2

(108

)

(0.2

0.1

Total income tax expense

14,165

18.2

34,230

59.8

18,168

33.5

Year Ended

December 31,

(dollars in thousands)

2018

2017

Deferred taxes related to items recognized in continuing operations

(1,895

)

14,411

Deferred taxes on net actuarial loss on defined benefit post

retirement benefit plans

—

275

Deferred taxes on net unrealized losses on available for sale investment securities

—

507

Total income tax (benefit) / expense related to Tax Reform

(1,895

)

15,193

Table of Contents

financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax

authority. Management applied these criteria to tax positions for which the statute of limitations remained open.

There were no reserves for uncertain tax positions recorded during the years ended

December 31, 2018

, 2017

2016.

The Corporation is subject to income taxes in the U.S. federal jurisdiction, and in multiple state jurisdictions. The Corporation is no longer subject to

U.S. federal income tax examination by tax authorities for the years before 2015.

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 2018.

As of

December 31, 2018

, the Corporation has net operating loss (“

NOL

”

)

carry

forwards for federal income tax purposes of

$46.3 million

, all of

which relate to the RBPI Merger which are subject to an annual usage limitation of approximately

$2.7 million

. Management estimates it will be able

to utilize an additional

$5.0 million

per year of the NOLs acquired in the RBPI Merger for a five

year period subsequent to December 15, 2017 due to

the existence of net unrealized built

in gains (“

NUBIG

”

)

under IRC Section 382, these NOLs will begin to expire in 2030. In addition, the Corporation

has alternative minimum tax (“AMT”

)

credits of

$1.1 million

, approximately $532 thousand of which are related to the RBPI Merger. The credit

amounts do not expire. The amount of AMT credits that can be used per year are limited under IRC section 383. The Corporation has determined

that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset related to

these amounts.

As a result of the July 1, 2010 merger with FKF, the Corporation succeeded to

$2.5 million

of tax bad debt reserves that existed at FKF as of June 30,

2010. As of

December 31, 2018

, the Corporation has not recognized a deferred income tax liability with respect to these reserves. These reserves

could be recognized as taxable income and create a current and/or deferred tax liability at the income tax rates then in effect if one of the following

conditions occurs: (1) the Bank

’

s retained earnings represented by this reserve are used for distributions, in liquidation, or for any other purpose

other than to absorb losses from bad debts; (2) the Bank fails to qualify as a bank, as provided by the Internal Revenue Code; or (3) there is a

change in federal tax law.

Note 17 –

Accumulated Other Comprehensive Loss

The following table details the components of accumulated other comprehensive (loss) income for the years ended

December 31, 2018

, 2017

and

2016

113

(dollars in thousands)

Net Change in

Unrealized Gains on

Available

for

Sale

Investment Securities

Net Change in

Unfunded Pension

Liability

Accumulated Other

Comprehensive Loss

Balance, December 31, 2015

774

(1,186

)

(412

)

Other comprehensive (loss) income

(2,005

)

(1,997

)

Balance, December 31, 2016

(1,231

)

(1,178

)

(2,409

)

Other comprehensive (loss) income

(1,123

)

(100

)

(1,223

)

Reclassification due to the adoption of ASU No. 2018

(507

)

(275

)

(782

)

Balance, December 31, 2017

(2,861

)

(1,553

)

(4,414

)

Other comprehensive (loss) income

(3,368

)

269

(3,099

)

Balance, December 31, 2018

(6,229

)

(1,284

)

(7,513

)

Table of Contents

The following tables detail the amounts reclassified from each component of accumulated other comprehensive loss for the years ended

December 31, 2018

, 2017

and

2016

(1) Accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 15,

“

Pension and

Postretirement Benefit Plans,

”

in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

Note 18

Earnings per Common Share

The calculation of basic earnings per share and diluted earnings per share is presented below:

(1) Excludes restricted stock

All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of

stock dividends and splits. See Section Q, “Earnings per Common Share” of Note 1, “Summary of Significant Accounting Policies,” in the

accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

K for a discussion on the calculation of earnings

per share.

114

Amount Reclassified from

Accumulated Other Comprehensive

Loss

Description of Accumulated Other

Comprehensive Loss Component

For the Year Ended

December 31,

Affected Income Statement Category

2018

2017

2016

Net unrealized gain on investment securities available for

sale:

Realization of gain (loss) on sale of investment securities

available for sale

101

(77

)

Net gain (loss) on sale of investment

securities available for sale

Realization of gain on transfer of investment securities

available for sale to trading

417

—

Other operating income

Total

424

101

(77

)

Income tax effect

(27

)

Income tax expense

Net of income tax

335

(50

)

Net income

Unfunded pension liability:

Amortization of net loss included in net periodic pension

costs

(1)

100

Other operating expenses

Income tax effect

Income tax expense

Net of income tax

Net income

Year Ended December 31,

(dollars in thousands, except per share data)

2018

2017

2016

Numerator:

Net income available to common shareholders

63,792

23,016

36,036

Denominator for basic earnings per share –

Weighted average shares

outstanding

(1)

20,234,792

17,150,125

16,859,623

Effect of dilutive potential common shares

155,375

248,798

168,499

Denominator for diluted earnings per share –

Adjusted weighted average shares

outstanding

20,390,167

17,398,923

17,028,122

Basic earnings per share

3.15

1.34

2.14

Diluted earnings per share

3.13

1.32

2.12

Antidilutive shares excluded from computation of average dilutive earnings per

19,422

27,159

—

Table of Contents

Note 19

Revenue from Contracts with Customers

All of the Corporation

’

s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following

table presents the Corporation

’

s noninterest income by revenue stream and reportable segment for the years ended

December 31, 2018

and

2017

and

2016

, respectively. Items outside the scope of ASC 606 are noted as such.

(1) Not within the scope of ASC 606.

(2) Other operating income includes Visa debit card income, safe deposit box rentals, and rent income totaling $2.2 million

$2.0 million and

$1.9 million for the years ended December 31, 2018 and 2017 and 2016, respectively, which are within the scope of ASC 606.

A description of the Corporation

’

s primary revenue streams accounted for under ASC 606 follows:

Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction

based, account maintenance, and

overdraft services. Transaction

based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH

fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer

’

s request. Account

maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the

Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on

deposits are withdrawn from the customer

’

s account balance.

Wealth Management Fees:

The Corporation earns wealth management fee revenue from a variety of sources including fees from trust

administration and other related fiduciary services, custody, investment management and advisory services, employee benefit account and IRA

administration, estate settlement, tax service fees, shareholder service fees and brokerage.

Fees that are determined based on the market value of the assets held in their accounts are generally billed monthly, in arrears, based on the market

value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the

services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is

executed, i.e. the trade date.

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

115

For the Year Ended December 31,

2018

2017

2016

(dollars in thousands)

Banking

Wealth

Management

Consolidated

Banking

Wealth

Management

Consolidated

Banking

Wealth

Management

Consolidated

Fees for wealth

management services

—

42,326

—

38,735

—

36,690

Insurance commissions

—

6,808

—

4,589

—

3,722

Capital markets revenue

(1)

4,848

—

4,848

2,396

—

2,396

—

Service charges on deposit

accounts

2,989

—

2,989

2,608

—

2,608

2,791

—

2,791

Loan servicing and other

fees

(1)

2,259

—

2,259

2,106

—

2,106

1,939

—

1,939

Net gain on sale of loans

(1)

3,283

—

3,283

2,441

—

2,441

3,048

—

3,048

Net gain (loss) on sale of

investment securities

available for sale

(1)

—

101

—

101

(77

)

—

(77

)

Net gain (loss) on sale of

OREO

295

—

295

(104

)

—

(104

)

(76

)

—

(76

)

Dividends on FHLB and

FRB stock

(1)

1,621

—

1,621

939

—

939

1,063

—

1,063

Other operating income

(2)

11,360

186

11,546

5,124

197

5,321

4,710

158

4,868

Total noninterest income

26,662

49,320

75,982

15,611

43,521

59,132

13,398

40,570

53,968

Table of Contents

Insurance Commissions: The Corporation earns commissions from the sale of insurance policies, which are generally calculated as a percentage of

the policy premium, and contingent income, which is calculated based on the volume and performance of the policies held by each carrier.

Obligations for the sale of insurance policies are generally satisfied at the point in time which the policy is executed and are recognized at the point

in time in which the amounts are known and collection is reasonably assured. Performance metrics for contingent income are generally satisfied over

time, not exceeding one year, and are recognized at the point in time in which the amounts are known and collection is reasonably assured.

Visa Debit Card Income:

The Corporation earns income fees from debit cardholder transactions conducted through the Visa payment network. Fees

from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction

processing services provided to the cardholder.

Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer,

which generally occurs at the time of an executed deed.

Note 20

Stock–

Based Compensation

A. General Information

The Corporation permits the issuance of stock options, dividend equivalents, performance stock awards, stock appreciation rights and restricted

stock units or awards to employees and directors of the Corporation under several plans. The performance awards and restricted awards may be in

the form of stock awards or stock units. Stock awards and stock units differ in that for a stock award, shares of restricted stock are issued in the

name of the grantee, whereas a stock unit constitutes a promise to issue shares of stock upon vesting. The accounting for awards and units is

identical. The terms and conditions of awards under the plans are determined by the Corporation

’

s Management Development and Compensation

Committee.

Prior to April 25, 2007, all shares authorized for grant as stock

based compensation were limited to grants of stock options. On April 25, 2007, the

shareholders approved the Corporation

’

s “

2007 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” under which a total of

445,002

shares of the Corporation

’

s common stock were made available for award grants, and on April

30, 2015, the shareholders approved an amendment and restatement of such plan (as amended and restated, the “

2010 LTIP

”

)

to, among other

things, increase the number of shares available for award grants by

500,000

945,002 .

In addition to the shareholder

approved plans mentioned in the preceding paragraph, the Corporation periodically authorizes grants of stock

based

compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)

(4) of the Nasdaq listing rules.

The equity awards are authorized to be in the form of, among others, options to purchase the Corporation

’

s common stock, restricted stock units

(

“RSUs”

)

and performance stock units (“PSUs”

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

PSUs have a restriction based on the passage of time and also have a restriction based on a performance criteria. The performance criteria may be a

market

based criteria measured by the Corporation

’

s total shareholder return (“

TSR

”

)

relative to the performance of the community bank index for

the respective period. The fair value of the PSUs based on the Corporation

’

s TSR relative to the performance of a designated peer group or the

NASDAQ Community Bank Index is calculated using the Monte Carlo Simulation method. The performance criteria may also be based on a non

market

based criteria such as return on average equity relative to that designated peer group. The grant date fair value of these PSUs is based on

the closing price of the Corporation

’

s stock on the date of the grant. PSU grants may have a vesting percent ranging from 0% to

150%

116

Table of Contents

The following table summarizes the remaining shares authorized to be granted under the 2010 LTIP:

(1) Non

vesting PSUs represent PSUs that did not meet their performance criteria, were cancelled and are available for future grant.

B. Fair Value of Options Granted

No stock options were granted or assumed during the years ended

December 31, 2018

, 2017

and

2016.

C. Other Stock Option Information

The following table provides information about options outstanding:

117

Authorized for

Grant

Balance, December 31, 2015

617,765

Grants of RSUs

(33,142

)

Grants of PSUs

(45,346

)

Expiration of unexercised options

—

Non

vesting PSUs

(1)

10,088

Forfeitures of PSUs

2,344

Forfeitures of RSUs

1,250

Balance, December 31, 2016

552,959

Grants of RSUs

(40,137

)

Grants of PSUs

(41,323

)

Expiration of unexercised options

250

Non

vesting PSUs

(1)

—

Forfeitures of PSUs

3,899

Forfeitures of RSUs

4,305

Balance, December 31, 2017

479,953

Grants of RSUs

(38,806

)

Grants of PSUs

(40,722

)

Expiration of unexercised options

—

Non

vesting PSUs

(1)

—

Forfeitures of PSUs

5,679

Forfeitures of RSUs

1,515

Balance, December 31, 2018

407,619

For the Year Ended December 31,

2018

2017

2016

Weighted

Average

Exercise

Price

Weighted

Average

Grant Date

Fair Value

Weighted

Average

Exercise

Price

Weighted

Average

Grant Date

Fair Value

Weighted

Average

Exercise

Price

Weighted

Average

Grant Date

Fair Value

Options outstanding,

beginning of period

115,246

20.73

4.86

185,023

21.04

4.88

290,853

20.88

4.85

Expired

—

(250

)

22.00

4.90

—

Exercised

(64,645

)

22.65

5.00

(69,527

)

21.55

4.91

(105,830

)

20.61

7.32

Options outstanding,

end of period

50,601

18.28

4.68

115,246

20.73

4.86

185,023

21.04

4.88

Table of Contents

The following table provides information related to options as of

December 31, 2018

(1) Price of exercisable options

For the years ended

December 31, 2018

, 2017

and

2016

there are no unvested options.

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

The following table provides information about options outstanding and exercisable options:

As of

December 31, 2018

, all compensation expense related to stock options has been recognized.

D. RSUs and PSUs

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

standards.

RSUs

Compensation expense for RSUs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a

straight

line basis over the vesting period.

For the year ended

December 31, 2018

, the Corporation recognized

$1.2 million

of expense related to the Corporation

’

s RSUs. As of

December 31,

2018

, there was

$2.4 million

of unrecognized compensation cost related to RSUs. This cost will be recognized over a weighted average period of

2.6

years

118

Range of Exercise

Prices

Options

Outstanding

and Exercisable

Remaining

Contractual

Life (in years)

Weighted

Average

Exercise

Price

(1)

15.48

15.75

225

0.09

15.48

15.76

17.15

338

1.07

16.02

17.16

18.30

49,475

0.64

18.27

18.31

18.33

563

5.05

18.33

Total Outstanding and Exercisable

50,601

Year Ended December 31,

(dollars in thousands)

2018

2017

2016

Proceeds from strike price of value of options exercised

1,464

1,498

2,181

Related tax benefit recognized

312

506

256

Proceeds of options exercised

1,776

2,004

2,437

Intrinsic value of options exercised

1,512

1,445

1,125

As of December 31,

2018

2017

2016

(dollars in thousands, except

share data and exercise price)

Options

Outstanding

Exercisable

Options

Outstanding

Exercisable

Options

Outstanding

Exercisable

Options

Number

50,601

115,246

185,023

Weighted average exercise price

18.28

20.73

21.03

Aggregate intrinsic value

1,478

2,705

3,908

Weighted average contractual

term

0.7 years

1.2 years

2.0 years

Table of Contents

The following table details the RSUs for the years ended

December 31, 2018

, 2017

and

2016

PSUs

Compensation expense for PSUs is measured based on their grant date fair value as calculated using the Monte Carlo Simulation and is recognized

on a straight

line basis over the vesting period. The grant date fair value of each grant was determined independently using the Monte Carlo

Simulation. Assumptions used in the Monte Carlo Simulation for the grant of

20,971

PSUs, whose performance is based on TSR, in August 2018,

included expected volatility of

20.47%

and a risk

free rate of interest of

2.72%

The Corporation recognized

$1.5 million

of expense related to the PSUs for the year ended

December 31, 2018

. As of

December 31, 2018

, there was

$3.0 million

of unrecognized compensation cost related to PSUs. This cost will be recognized over a weighted average period of 2.0 years

The following table details the PSUs for the years ended

December 31, 2018

, 2017

and

2016

(1) Non

vesting PSUs represent PSUs that did not meet their performance criteria, were cancelled and are available for future grant. The

associated expense, however, was incurred over the vesting period.

Note 21

401(K) Plan and Other Defined Contribution Plans

The Corporation has a qualified defined contribution plan (the “

401(K) Plan

”

)

for all eligible employees, under which the Corporation matches

employee contributions up to a maximum of

3.0%

of the employee

’

s base salary. The Corporation recognized expense for matching contributions to

the 401(K) Plan of

$1.4 million

$1.2 million

, and

$1.0 million

for the years ended

December 31, 2018

, 2017

and

2016

, respectively.

In addition to the matching contribution above, the Corporation provides a discretionary, non

matching employer contribution to the 401(K) Plan.

The Corporation recognized expense for the non

matching discretionary contributions of

$1.5 million

$489 thousand, and $126 thousand for the

years ended

December 31, 2018

, 2017

and

2016

, respectively.

On June 28, 2013, the Corporation adopted the Bryn Mawr Bank Corporation Executive Deferred Compensation Plan (the “

EDCP

”

a non

qualified

defined

contribution plan which was restricted to certain senior officers of the Corporation. The intended purpose of the EDCP is to provide

deferred compensation to a select group of employees. The Corporation recognized

119

Year Ended

December 31, 2018

Year Ended

December 31, 2017

Year Ended

December 31, 2016

Number of

Weighted

Average

Grant Date

Fair Value

Number of

Weighted

Average

Grant Date

Fair Value

Number of

Weighted

Average

Grant Date

Fair Value

Beginning balance

75,707

35.80

58,862

29.57

42,802

28.58

Granted

38,806

42.23

40,137

41.23

33,142

29.67

Vested

(36,252

)

34.38

(18,987

)

29.40

(15,832

)

27.14

Forfeited

(1,515

)

36.52

(4,305

)

29.54

(1,250

)

29.12

Ending balance

76,746

39.71

75,707

35.80

58,862

29.57

Year Ended

December 31, 2018

Year Ended

December 31, 2017

Year Ended

December 31, 2016

Number of Shares

Weighted

Average

Grant Date

Fair Value

Number of Shares

Weighted

Average

Grant Date

Fair Value

Number of Shares

Weighted

Average

Grant Date

Fair Value

Beginning balance

168,453

24.76

192,844

18.77

216,820

15.07

Granted

40,722

44.56

41,323

37.86

45,346

28.34

Vested

(81,840

)

16.40

(61,815

)

15.05

(56,890

)

13.38

Non

vesting

(1)

—

(

10,088

)

13.38

Forfeited

(5,679

)

28.79

(3,899

)

21.45

(2,344

)

15.37

Ending balance

121,656

36.82

168,453

24.76

192,844

18.77

Table of Contents

expense for contributions to the EDCP of $441 thousand

$238 thousand, and $272 thousand for the years ended

December 31, 2018

, 2017

and

2016,

respectively.

Note 22

Fair Value Measurement

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 value of the Corporation

’

s available for sale investment securities, which include obligations of the U.S. government and its agencies,

mortgage

backed securities issued by U.S. government

and U.S. government sponsored agencies, obligations of state and political subdivisions,

corporate bonds, other debt securities, as well as bond mutual funds are determined by the Corporation, including the use of an independent third

party. Management performs tests to assess the validity of these third

party values. The third party

’

s evaluations are based on market data. They

utilize pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily

basis, their pricing models apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the

evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers

recognized as market participants), issuer spreads, two

sided markets, benchmark securities, bid, 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

backed securities are evaluated

using matrix correlation to treasury or floating index benchmarks, prepayment speeds, monthly payment information and other benchmarks. Other

available

for

sale investments are evaluated using a broker

quote based application, including quotes from issuers.

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

December 31, 2018

and

2017

that are recognized on the Corporation

’

s Consolidated Balance Sheets using fair value measurement determined

based on the differing levels of input.

Fair value of assets measured on a recurring basis as of

December 31, 2018

120

Table of Contents

Fair value of assets measured on a non

recurring basis as of

December 31, 2018

Fair value of assets measured on a recurring basis as of

December 31, 2017

(dollars in thousands)

Total

Level 1

Level 2

Level 3

Investment securities available for sale:

U.S. Treasury securities

200,013

—

Obligations of U.S. government & agencies

195,855

—

195,855

—

Obligations of state & political subdivisions

11,332

—

11,332

—

Mortgage

backed securities

289,890

—

289,890

—

Collateralized mortgage obligations

39,252

—

39,252

—

Other investment securities

1,100

—

1,100

—

Total investment securities available for sale

737,442

200,013

537,429

—

Investment securities trading:

Mutual funds

7,502

—

Derivatives:

Interest rate swaps

12,550

—

12,550

—

RPAs purchased

—

Total derivatives

12,621

—

12,621

—

Total assets measured on a recurring basis at fair value

757,565

207,515

550,050

—

(dollars in thousands)

Total

Level 1

Level 2

Level 3

Mortgage servicing rights

6,277

—

6,277

Impaired loans and leases

22,112

—

22,112

OREO

417

—

417

Total assets measured at fair value on a non

recurring basis

28,806

—

28,806

(dollars in thousands)

Total

Level 1

Level 2

Level 3

Investment securities available for sale:

U.S. Treasury securities

200,088

—

Obligations of U.S. government & agencies

151,044

—

151,044

—

Obligations of state & political subdivisions

21,310

—

21,310

—

Mortgage

backed securities

274,990

—

274,990

—

Collateralized mortgage obligations

36,662

—

36,662

—

Mutual funds

3,509

—

Other investment securities

1,599

—

1,599

—

Total investment securities available for sale

689,202

203,597

485,605

—

Investment securities trading:

Mutual funds

4,610

—

Derivatives:

Interest rate swaps

1,895

—

1,895

—

RPAs purchased

—

Total derivatives

1,916

—

1,916

—

Total recurring fair value measurements

695,728

208,207

487,521

—

121

Table of Contents

Fair value of assets measured on a non

recurring basis as of

December 31, 2017

For the year ended

December 31, 2018

, a net increase of $204 thousand in the Allowance was recorded, and for the year ended

December 31, 2017

, a

net increase of $175 thousand in the Allowance was recorded 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 year ended

December 31, 2018

122

(dollars in thousands)

Total

Level 1

Level 2

Level 3

Mortgage servicing rights

6,397

—

6,397

Impaired loans and leases

13,954

—

13,954

OREO

304

—

304

Total assets measured at fair value on a non

recurring basis

20,655

—

20,655

Table of Contents

Note 23 – Disclosure about Fair Value of Financial Instruments

FASB ASC 825,

“Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial

instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the

fair value of financial assets and financial liabilities measured at fair value on a recurring and non

recurring basis are discussed above. The

estimated fair value amounts have been determined by management using available market information and appropriate valuation methodologies,

are based on the exit price notion set forth by ASU 2016

01 effective January 1, 2018, and are applied to this disclosure on a prospective basis.

Estimated fair value of assets and liabilities carried at cost as of December 31, 2017 were based on an entry price notion. In cases where quoted

market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are

significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value

estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the

instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.

The carrying amount and fair value of the Corporation

’

s financial instruments are as follows:

(1) See Note 22,

“

Fair Value Measurement,

”

in the accompanying Notes to the Consolidated Financial Statements in this Annual Report on

Form 10

K for a description of hierarchy levels.

123

As of December 31,

2018

2017

(dollars in thousands)

Fair Value

Hierarchy

Level

(1)

Carrying

Amount

Fair Value

Carrying

Amount

Fair Value

Financial assets:

Cash and cash equivalents

Level 1

48,456

60,024

Investment securities

available for sale

See Note 22

737,442

689,202

Investment securities

trading

See Note 22

7,502

4,610

Investment securities – held to maturity

Level 2

8,684

8,438

7,932

7,851

Loans held for sale

Level 2

1,749

3,794

Net portfolio loans and leases

Level 3

3,407,728

3,414,921

3,268,333

3,293,802

Mortgage servicing rights

Level 3

5,047

6,277

5,861

6,397

Interest rate swaps

Level 2

12,550

1,895

Risk participation agreements purchased

Level 2

Other assets

Level 3

43,641

46,799

Total financial assets

4,272,870

4,281,047

4,088,471

4,114,395

Financial liabilities:

Deposits

Level 2

3,599,087

3,594,123

3,373,798

3,368,276

Short

term borrowings

Level 2

252,367

237,865

Long

term FHLB advances

Level 2

55,374

54,803

139,140

138,685

Subordinated notes

Level 2

98,526

100,120

98,416

95,044

Junior subordinated debentures

Level 2

21,580

31,176

21,416

19,366

Interest rate swaps

Level 2

12,549

1,895

Risk participation agreements sold

Level 2

Other liabilities

Level 3

60,847

49,071

Total financial liabilities

4,100,332

4,105,987

3,921,604

3,910,205

Table of Contents

Note 24

Financial Instruments with Off

Balance Sheet Risk, Contingencies and Concentration of Credit Risk

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. Those instruments involve, to varying

degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual amounts

of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation

’

s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument of commitments to extend

credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in

making commitments and conditional obligations as it does for on

balance sheet financial instruments.

Commitments to extend credit, which include unused lines of credit and unfunded commitments to originate loans, are agreements to lend to a

customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other

termination clauses and may require payment of a fee. Some of the commitments are expected to expire without being drawn upon, and the total

commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at

December 31, 2018

were

$867.2

million

. Management evaluates each customer

’

s creditworthiness on a case

case basis. The amount of collateral obtained, if deemed necessary

by the Corporation upon extension of credit, is based on a credit evaluation of the counterparty. Collateral varies but may include accounts

receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income

producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credits are issued

to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in extending loan

facilities to customers. The collateral varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment,

and residential real estate for those commitments for which collateral is deemed necessary. The Corporation

’

s obligation under standby letters of

credit as of

December 31, 2018

was

$21.2 million

Contingencies

Legal Matters

In the ordinary course of its operations, the Corporation and its subsidiaries are parties to various claims, litigation, investigations, and legal and

administrative cases and proceedings. Such pending or threatened claims, litigation, investigations, legal and administrative cases and proceedings

typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted

in many of these types of legal actions. Based on the information currently available, the Corporation believes it has meritorious defenses to the

claims asserted against it in its currently outstanding legal proceedings and with respect to such legal proceedings, intends to continue to defend

itself vigorously, litigating or settling cases according to management

’

s judgment as to what is in the best interests of the Corporation and its

shareholders.

On a regular basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information

available. For those matters where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, a

liability may be recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant

developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount or range of the loss is not estimable, legal

reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of

counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal

proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash

flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be

material to the consolidated financial position, consolidated results of operations or consolidated cash flows of the Corporation.

124

Table of Contents

Indemnifications

In general, the Corporation does not sell loans with recourse, except to the extent that it arises from standard loan

sale contract provisions. These

provisions cover violations of representations and warranties and, under certain circumstances, first payment default by borrowers. These

indemnifications may include the repurchase of loans by the Corporation and are considered customary provisions in the secondary market for

conforming mortgage loan sales. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such

repurchases for the year ended

December 31, 2018

Concentrations of Credit Risk

The Corporation has a material portion of its loans in real estate

related loans. A predominant percentage of the Corporation

’

s real estate exposure,

both commercial and residential, is in the Corporation

’

s primary trade area, which includes portions of Delaware, Chester, Montgomery and

Philadelphia counties in Southeastern Pennsylvania. Management is aware of this concentration and attempts to mitigate this risk to the extent

possible in many ways, including the underwriting and assessment of borrower

’

s capacity to repay. See Note 5, “Loans and Leases,” in the

accompanying Notes to the Consolidated Financial Statements in this Annual Report on Form 10

K for additional information.

Note 25 – Related Party Transactions

In the ordinary course of business, the Bank granted loans to principal officers, directors and their affiliates. The outstanding balances of loans,

including undrawn commitments to lend, to such related parties at

December 31, 2018

and

2017

were

$9.3 million

and

$8.1 million

, respectively.

Related party deposits amounted to

$6.7 million

and

$4.8 million

December 31, 2018

and

2017

, respectively.

Note 26

Dividend Restrictions

The Bank is subject to the Pennsylvania Banking Code of 1965 (the “Code”

as amended, and is restricted in the amount of dividends that can be

paid to its sole shareholder, the Corporation. The Code restricts the payment of dividends by the Bank to the amount of its net income during the

current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Board of

Governors of the Federal Reserve System. Accordingly, the dividend payable by the Bank to the Corporation beginning on January 1, 2019 is

limited to net income not yet earned in 2019 plus the Bank

’

s total retained net income for the combined two years ended

December 31, 2017

and

2018

$55.1 million

. The Bank issued

$26.0 million

of dividends to the Corporation during the year ended

December 31, 2018

, and did not issue any

dividends to the Corporation during the year ended December 31, 2017. The amount of dividends paid by the Bank may not exceed a level that

reduces capital levels to below levels that would cause the Bank to be considered less than adequately capitalized as detailed in Note 27 –

“Regulatory Capital Requirements.”

Note 27

Regulatory Capital Requirements

A. General Regulatory Capital Information

Both the Corporation and the Bank are subject to various regulatory capital requirements, administered by the federal banking agencies. Failure to

meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if taken, could

have a direct material effect on the Corporation

’

s and the Bank

’

s consolidated financial statements. Under capital adequacy guidelines and the

regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative

measures of their assets, liabilities and certain off

balance

sheet items as calculated under regulatory accounting practices. The capital amounts and

classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective

action provisions are not applicable to bank holding companies. Beginning in 2015, new regulatory capital reforms, known as Basel III, issued as

part of the Dodd

Frank Act began to be phased in. For more information, refer to the section titled Capital Adequacy within Item 1

Business

Supervision and Regulation beginning at page 5 in this Form 10

B. S

3 Shelf Registration Statement and Offerings Thereunder

In May 2018, the Corporation filed a shelf registration statement on Form S

3, SEC File No. 333

224849 (the

“Shelf Registration Statement”

The

Shelf Registration Statement allows the Corporation to raise additional capital from time to time through offers and sales of registered securities

consisting of common stock, debt securities, warrants, purchase contracts, rights and units or

125

Table of Contents

units consisting of any combination of the foregoing securities. The Corporation may sell these securities using the prospectus in the Shelf

Registration Statement, together with applicable prospectus supplements, from time to time, in one or more offerings.

In addition, the Corporation has in place under its Shelf Registration Statement a Dividend Reinvestment and Stock Purchase Plan (the “Plan”

which allows it to issue up to

1,500,000

shares of registered common stock. The Plan allows for the grant of a request for waiver (“RFW”

)

above the

Plan

’

s maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation

’

current and projected capital needs, prevailing market prices of the Corporation

’

s common stock and general economic and market conditions.

For the year ended

December 31, 2018

, the Corporation did not issue any shares through the Plan, nor were any RFWs approved. The Plan

administrator conducted dividend reinvestments for Plan participants through open market purchases. No other sales of equity securities were

executed under the Shelf Registration Statement during the year ended

December 31, 2018

C. Shares Issued in Mergers and Acquisitions

In connection with the RBPI Merger, the Corporation issued

3,101,316

common shares, valued at

$136.8 million

, to former shareholders of RBPI.

These shares were registered on an S

4 registration statement filed by the Corporation in April 2017 (SEC File No. 333

216995).

D. Share Repurchases

For the years ended

December 31, 2018

and

2017

, the Corporation repurchased

149,284

and

shares, respectively, of Corporation stock through its

announced repurchase program. In addition, it is the Corporation

’

s practice to retire shares to its treasury account upon the vesting of stock awards

to certain officers, in order to cover the statutory income tax withholdings related to such vesting.

E. Regulatory Capital Ratios

As set forth in the following table, quantitative measures have been established to ensure capital adequacy ratios required of both the Corporation

and the Bank. As of

December 31, 2018

and

2017

, the Corporation and the Bank had met all capital adequacy requirements to which they were

subject. Federal banking regulators have defined specific capital categories, and categories range from a best of “

well capitalized

” to a worst of

“critically under

capitalized.” Both the Corporation and the Bank were classified as “

well capitalized

” as of

December 31, 2018

and

2017.

126

Table of Contents

The Corporation

’

s and the Bank

’

s capital amounts and ratios as of

December 31, 2018

and

2017

are presented in the following table:

127

Actual

Minimum

to be Well

Capitalized

(dollars in thousands)

Amount

Ratio

Amount

Ratio

December 31, 2018

Total capital to risk weighted assets:

Corporation

500,375

14.30

349,918

10.00

Bank

419,136

11.99

349,692

10.00

Tier I capital to risk weighted assets:

Corporation

382,151

10.92

279,934

8.00

Bank

399,438

11.42

279,754

8.00

Common equity Tier I risk weighted assets:

Corporation

361,256

10.32

227,446

6.50

Bank

399,438

11.42

227,300

6.50

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

Corporation

382,151

9.06

210,830

5.00

Bank

399,438

9.48

210,615

5.00

December 31, 2017

Total capital to risk weighted assets:

Corporation

463.637

13.92

333,068

10.00

Bank

387,067

11.65

332,388

10.00

Tier I capital to risk weighted assets:

Corporation

347.187

10.42

266,454

8.00

Bank

369,033

11.10

265,910

8.00

Common equity Tier I to risk weighted assets:

Corporation

328.676

9.87

216,494

6.50

Bank

369,033

11.10

216,052

6.50

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

Corporation

347.187

10.10

171,804

5.00

Bank

369,033

10.75

171,609

5.00

Table of Contents

Note 28

Selected Quarterly Financial Data (Unaudited)

(1) Earnings per share is computed independently for each period shown. As a result, the sum of the quarters may not equal the total earnings

per share for the year.

128

2018

(dollars in thousands, except per share data)

Quarter

Interest income

43,534

44,754

45,233

47,534

Interest expense

6,095

7,438

8,504

9,547

Net interest income

37,439

37,316

36,729

37,987

Provision for loan and lease losses

1,030

3,137

664

2,362

Noninterest income

19,536

20,075

18,274

18,097

Noninterest expense

36,030

35,836

33,592

34,845

Income before income taxes

19,915

18,418

20,747

18,877

Income taxes

4,630

3,723

4,066

1,746

Net income

15,285

14,695

16,681

17,131

Net (loss) income attributable to noncontrolling interest

)

Net income attributable to Bryn Mawr Bank Corporation

15,286

14,688

16,682

17,136

Basic earnings per common share

(1)

0.76

0.73

0.82

0.85

Diluted earnings per common share

(1)

0.75

0.72

0.82

0.84

Dividend paid or accrued

0.22

0.25

2017

(dollars in thousands, except per share data)

Quarter

Interest income

30,326

31,237

33,198

34,798

Interest expense

2,923

3,272

3,760

4,477

Net interest income

27,403

27,965

29,438

30,321

Provision for loan and lease losses

291

(83

)

1,333

1,077

Noninterest income

13,227

14,785

15,584

15,536

Noninterest expense

26,660

28,495

28,184

31,056

Income before income taxes

13,679

14,338

15,505

13,724

Income taxes

4,635

4,905

4,766

19,924

Net income (loss)

9,044

9,433

10,739

(6,200

)

Net (loss) income attributable to noncontrolling interest

—

Net income (loss) attributable to Bryn Mawr Bank Corporation

9,044

9,433

10,739

(6,200

)

Basic earnings (loss) per common share

(1)

0.53

0.56

0.63

(0.35

)

Diluted earnings (loss) per common share

(1)

0.53

0.55

0.62

(0.35

)

Dividend paid or accrued

0.21

0.22

Table of Contents

Note 29

Parent Company

Only Financial Statements

The condensed financial statements of the Corporation (parent company only) are presented below. These statements should be read in

conjunction with the Notes to the Consolidated Financial Statements.

A. Condensed Balance Sheets

Condensed Statements of Income

129

December 31,

(dollars in thousands)

2018

2017

Assets:

Cash

78,143

68,535

Investment securities

418

458

Investments in subsidiaries, as equity in net assets

606,023

580,230

Premises and equipment, net

2,091

2,189

Goodwill

245

Other assets

1,060

1,135

Total assets

687,980

652,792

Liabilities and shareholders

’

equity:

Subordinated notes

98,526

98,416

Junior subordinated debentures

21,580

21,416

Other liabilities

2,485

4,158

Total liabilities

122,591

123,990

Common stock, par value $1; authorized 100,000,000 shares; issued 24,545,348 and 24,360,049

shares as of December 31, 2018 and December 31, 2017, respectively, and outstanding of

20,163,816 and 20,161,395 as of December 31, 2018 and December 31, 2017, respectively

24,545

24,360

Paid

in capital in excess of par value

374,010

371,486

Less: Common stock in treasury at cost

4,381,532 and 4,198,654 shares as of December 31, 2018

and December 31, 2017, respectively

(75,883

)

(68,179

)

Accumulated other comprehensive loss, net of deferred income taxes benefit

(7,513

)

(4,414

)

Retained earnings

250,230

205,549

Total shareholders

’

equity

565,389

528,802

Total liabilities and shareholders

’

equity

687,980

652,792

Year Ended December 31,

(dollars in thousands)

2018

2017

2016

Dividends from subsidiaries

30,900

950

17,718

Net interest and other income

2,615

2,761

2,714

Total operating income

33,515

3,711

20,432

Expenses

3,527

2,782

2,443

Income before equity in undistributed income of subsidiaries

29,988

929

17,989

Equity in undistributed income of subsidiaries

32,779

21,053

17,600

Income before income taxes

62,767

21,982

35,589

Income tax benefit

(1,025

)

(1,034

)

(447

)

Net income

63,792

23,016

36,036

Table of Contents

C. Condensed Statements of Cash Flows

Note 30

Segment Information

FASB Codification 280

– “Segment Reporting” identifies operating segments as components of an enterprise which are evaluated regularly by the

Corporation

’

s chief operating decision maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The

Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

The Corporation

’

s Banking segment consists of commercial and retail banking. The Banking segment is evaluated as a single strategic unit which

generates revenues from a variety of products and services. The Banking segment generates interest income from its lending (including leases) and

investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for

funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains

on the sale in available for sale investment securities, gains on the sale of residential mortgage loans, service charges on deposit accounts, cash

sweep fees, overdraft fees, BOLI income and interchange revenue associated with its Visa Check Card offering. Also included in the Banking

segment are two subsidiaries of the Bank, KCMI Capital, Inc. and Bryn Mawr Equipment Financing, Inc., both of which provide specialized lending

solutions to our customers.

The Wealth Management segment has responsibility for a number of activities within the Corporation, including trust administration, other related

fiduciary services, custody, investment management and advisory services, employee benefits and IRA administration, estate settlement, tax

services and brokerage. Bryn Mawr Trust of Delaware and Lau Associates are included in the Wealth Management segment of the Corporation

since they have similar economic characteristics, products and services to those of the Wealth Management Division of

130

Year Ended December 31,

(dollars in thousands)

2018

2017

2016

Operating activities:

Net income

63,792

23,016

36,036

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

Equity in undistributed income of subsidiaries

(32,779

)

(21,053

)

(17,600

)

Depreciation and amortization

154

151

Stock

based compensation cost

2,750

2,068

1,713

Other, net

2,860

1,241

1,000

Net cash provided by operating activities

36,721

5,426

21,300

Investing Activities:

Investment in subsidiaries

—

(

15,300

)

(15,000

)

Net change in trading securities

(58

)

—

Acquisitions, net of cash acquired

—

531

—

Net cash provided by (used in) investing activities

(14,827

)

(15,000

)

Financing activities:

Dividends paid

(19,289

)

(14,799

)

(13,961

)

Proceeds from issuance of subordinated notes

—

68,829

—

Net proceeds from sale of (purchase of) treasury stock for deferred compensation

plans

(115

)

(133

)

Net purchase of treasury stock through publicly announced plans

(5,936

)

—

(

7,971

)

Cash payments to taxing authorities on employees' behalf from shares withheld

from stock

based compensation

(1,639

)

(1,140

)

(745

)

Proceeds from exercise of stock options

1,464

1,498

2,181

Repurchase of treasury warrants

(1,755

)

—

Net cash

(used

in)

provided by financing activities

(27,153

)

54,273

(20,629

)

Change in cash and cash equivalents

9,608

44,872

(14,329

)

Cash and cash equivalents at beginning of period

68,535

23,663

37,992

Cash and cash equivalents at end of period

78,143

68,535

23,663

Table of Contents

the Corporation. BMT Investment Advisers, formed in May 2017, which serves as investment adviser to BMT Investment Funds, a Delaware

statutory trust, is also reported under the Wealth Management segment.

In addition, with the October 1, 2014 acquisition of PCPB, followed by the April 1, 2015 acquisition of RJM and the May 2017 acquisition of

Hirshorn Boothby, both of which were merged into PCPB (now BMT Insurance Advisors), the Wealth Management Division assumed

responsibility for all insurance services of the Corporation.

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

tax basis.

The following table details the Corporation

’

s segments:

(1) Inter

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

As of or for the Year Ended December 31,

2018

2017

2016

(dollars in thousands)

Banking

Wealth

Management

Consolidated

Banking

Wealth

Management

Consolidated

Banking

Wealth

Management

Consolidated

Net interest income

149,464

149,471

115,124

115,127

106,233

106,236

Provision for loan and

lease losses

7,193

—

7,193

2,618

—

2,618

4,326

—

4,326

Net interest income after

loan loss provision

142,271

142,278

112,506

112,509

101,907

101,910

Noninterest income:

Fees for wealth

management services

—

42,326

—

38,735

—

36,690

Insurance commissions

—

6,808

—

4,589

—

3,722

Capital markets revenue

4,848

—

4,848

2,396

—

2,396

—

Service charges on deposit

accounts

2,989

—

2,989

2,608

—

2,608

2,791

—

2,791

Loan servicing and other

fees

2,259

—

2,259

2,106

—

2,106

1,939

—

1,939

Net gain on sale of loans

3,283

—

3,283

2,441

—

2,441

3,048

—

3,048

Net gain on sale of

investment securities

available for sale

—

101

—

101

(77

)

—

(77

)

Net gain (loss) gain on sale

of OREO

295

—

295

(104

)

—

(104

)

(76

)

—

(76

)

Other operating income

12,981

186

13,167

6,063

197

6,260

5,773

158

5,931

Total noninterest income

26,662

49,320

75,982

15,611

43,521

59,132

13,398

40,570

53,968

Noninterest expenses:

Salaries & wages

46,936

19,735

66,671

36,559

16,692

53,251

32,321

15,090

47,411

Employee benefits

9,046

3,872

12,918

6,350

3,820

10,170

5,958

3,291

9,249

Occupancy and bank

premise

9,588

2,011

11,599

8,208

1,698

9,906

8,005

1,606

9,611

Amortization of intangible

assets

1,555

2,101

3,656

783

1,951

2,734

872

2,626

3,498

Professional fees

3,747

456

4,203

2,998

270

3,268

3,516

143

3,659

Other operating expenses

35,928

5,328

41,256

30,605

4,461

35,066

24,411

3,835

28,246

Total noninterest

expenses

106,800

33,503

140,303

85,503

28,892

114,395

75,083

26,591

101,674

Segment profit

62,133

15,824

77,957

42,614

14,632

57,246

40,222

13,982

54,204

Intersegment (revenues)

expenses

(1)

(715

)

715

—

(448

)

448

—

(396

)

396

—

Pre-tax segment profit

after eliminations

61,418

16,539

77,957

42,166

15,080

57,246

39,826

14,378

54,204

% of segment pre-tax

profit after eliminations

78.8

21.2

100.0

73.7

26.3

100.0

73.5

26.5

100.0

Segment assets (dollars in

millions)

4,601.7

50.8

4,652.5

4,398.5

51.2

4,449.7

3,377.1

44.4

3,421.5

131

Table of Contents

Wealth Management Segment Information

ITEM 9.

CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation

’

s management, including the

Corporation

’

s Chief Executive Officer, Francis J. Leto, and Chief Financial Officer, Michael W. Harrington, of the effectiveness of the Corporation

’

disclosure controls and procedures (as such term is defined in Rules 13a

15(e) and 15d

15(e) under the Exchange Act) as of

December 31, 2018

pursuant to Exchange Act Rule 13a

15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the

Corporation

’

s disclosure controls and procedures as of

December 31, 2018

are effective.

There were no changes in the Corporation

’

s internal control over financial reporting during the fourth quarter of 2018 that have materially

affected, or are reasonably likely to materially affect, the Corporation

’

s internal control over financial reporting.

Pursuant to Section 404 of Sarbanes

Oxley, the following is a report of management

’

s assessment of the design and effectiveness of our

internal controls for the fiscal year ended

December 31, 2018

, and a report from our independent registered public accounting firm attesting to the

effectiveness of our internal controls:

Management

’

s Report on Internal Control Over Financial Reporting

The Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this

Annual Report on Form 10

K. The consolidated financial statements and notes included in this Annual Report on Form 10

K have been prepared in

conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on Management

’

best estimates and judgments.

The Corporation

’

s Management is responsible for establishing and maintaining effective internal control over financial reporting that is

designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Internal control over

financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly

reflect the transactions and dispositions of the assets of the Corporation; provide reasonable assurance that the transactions are recorded as

necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; provide a reasonable

assurance that receipts and expenditures of the Corporation are only being made in accordance with authorizations of Management and directors of

the Corporation; and provide a reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of

the Corporation

’

s assets that could have a material effect on the financial statements. The system of internal control over financial reporting as it

relates to the financial statements is evaluated for effectiveness by Management and tested for reliability through a program of internal audits.

Actions are taken to correct potential deficiencies as they are noted.

Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be

circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions,

internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance

with respect to financial statement preparation.

The Corporation

’

s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such

term is defined in Exchange Act Rule 13a

15(f). Management, including the Corporation

’

s Chief Executive Officer and Chief Financial Officer,

assessed the Corporation

’

s system of internal control over financial reporting as of

December 31, 2018

, in relation to the criteria for effective control

over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the

Treadway Commission (2013). Based on this assessment, Management concludes that, as of

December 31, 2018

, the Corporation

’

s system of

internal control over financial reporting is effective.

KPMG, LLP, which is the independent registered public accounting firm that audited the financial statements in this Annual Report on Form

(dollars in millions)

December 31,

2018

December 31,

2017

Assets under management, administration, supervision and brokerage

13,429.5

12,968.7

•

Evaluation of Disclosure Controls and Procedures

•

Changes in Internal Control over Financial Reporting

•

Design and Evaluation of Internal Control Over Financial Reporting

K, has issued an attestation report on the Corporation

’

s internal control over financial reporting, which can be found under the heading “Report

of Independent Registered Public Accounting Firm” at page 60, and is incorporated by reference herein.

ITEM 9B.

OTHER INFORMATION

On February 27, 2019, the Bank determined to transition Alison Eichert from the role of Chief Operating Officer to Chief Administrative

Officer, such that Ms. Eichert is no longer deemed the principal operating officer of the Bank. Ms. Eichert remains an Executive Vice President of the

Bank and will continue to serve on the executive management team.

PART III

ITEM 10.

DIRECTORS,

EXECUTIVE OFFICERS

AND CORPORATE GOVERNANCE

The information required for Item 10 is incorporated by reference to the sections titled “Our Board of Directors and Board Committees,”

“Information About our Directors,” “Information About our Executive Officers,” “Corporate Governance,” “Audit Committee Report” and “Section

16(a) Beneficial Ownership Reporting Compliance” in the

2019

Proxy Statement.

ITEM 11.

EXECUTIVE COMPENSATION

The information required for Item 11 is incorporated by reference to section titled “Director Compensation,” “Compensation Discussion

and Analysis,” “Executive Compensation,” “Our Board of Directors and Board Committees,” and “Compensation Committee Report” and

“Compensation Committee Interlocks and Insider Participation” in the

2019

Proxy Statement.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required for Item 12 is incorporated by reference to the section titled “Security Ownership of Certain Beneficial Owners and

Management” and “Equity Compensation Plan Information” in the

2019

Proxy Statement.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required for Item 13 is incorporated by reference to sections titled “Transactions with Related Persons” and “Corporate

Governance – Director Independence” in the

2019

Proxy Statement.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required for Item 14 is incorporated by reference to the section “Independent Registered Public Accounting Firm” in the

2019

Proxy Statement.

132

Table of Contents

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Item 15(a) (1 & 2) Financial Statements and Schedules

The financial statements listed in the accompanying index to financial statements are filed as part of this Annual Report.

Item 15(a) (3) and

(b)

—

Exhibits

133

Page

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Shareholders

’

Equity

Notes to Consolidated Financial Statements

Exhibit No.

Description and References

2.1

Stock Purchase Agreement, dated as of February 18, 2011, by and between Bryn Mawr Bank Corporation and Hershey Trust

Company, incorporated by reference to Exhibit 2.1 of the Corporation

’

s 8

K filed with SEC on February 18, 2011

2.2

Amendment to Stock Purchase Agreement, dated as of May 27, 2011, by and between Hershey Trust Company and Bryn

Mawr Bank Corporation, incorporated by reference to Exhibit 2.2 of the Corporation

’

s 8

K filed with the SEC on May 27, 2011

2.3

Assignment and Assumption Agreement, dated as of May 27, 2011, by and between Hershey Trust Company and PWMG

Bank Holding Company Trust, incorporated by reference to Exhibit 2.3 of the Corporation

’

s 8

K filed with the SEC on May

27, 2011

2.4

Stock Purchase Agreement, dated as of February 3, 2012, by and among Bryn Mawr Bank Corporation, Davidson Trust

Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert, James

M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and Alvin A.

Clay III, incorporated by reference to Exhibit 2.1 of the Corporation

’

s 8

K filed with the SEC on February 7, 2012

2.5

Purchase and Assumption Agreement, dated as of April 27, 2012, by and between The Bryn Mawr Trust Company and First

Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation

’

s 8

K filed with the SEC on May 2, 2012

2.6

Amendment to Stock Purchase Agreement, dated as of May 15, 2012, by and among Bryn Mawr Bank Corporation, Davidson

Trust Company, Boston Private (PA) Corporation, Bruce K. Bauder, Ernest E. Cecilia, Joseph J. Costigan, William S. Covert,

James M. Davidson, Steven R. Klammer, N. Ray Sague, Malcolm C. Wilson, Boston Private Financial Holdings, Inc., and

Alvin A. Clay III, incorporated by reference to Exhibit 2.1 of the Corporation

’

s 8

K filed with the SEC on May 18, 2012

2.7

Amendment to Purchase and Assumption Agreement, dated as of October 12, 2012, by and between The Bryn Mawr Trust

Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation

’

s 8

K filed with the SEC on

October 18, 2012

2.8

Amendment to Purchase and Assumption Agreement, dated as of November 14, 2012, by and between The Bryn Mawr Trust

Company and First Bank of Delaware, incorporated by reference to Exhibit 2.1 of the Corporation

’

s 8

K filed with the SEC on

November 19, 2012

2.9

Agreement and Plan of Merger, dated as of May 5, 2014, by and between Bryn Mawr Bank Corporation and Continental

Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation

’

s Form 8

K filed with the SEC on May 5, 2014

2.10

Amendment to Agreement and Plan of Merger, dated as of October 23, 2014, between Bryn Mawr Bank Corporation and

Continental Bank Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Corporation

’

s Form 8

K filed with the SEC on

October 23, 2014

Table of Contents

134

Exhibit No.

Description and References

2.11

Stock Purchase Agreement, dated as of August 21, 2014, by and among The Bryn Mawr Trust Company, Donald W. Parker,

Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the Corporation

’

s Form

Q filed with the SEC on November 7, 2014

2.12

Amendment to Stock Purchase Agreement, dated as of October 1, 2014, by and among The Bryn Mawr Trust Company,

Donald W. Parker, Edward F. Lee, and Powers Craft Parker and Beard, Inc., incorporated by reference to Exhibit 2.1 to the

Corporation

’

s Form 8

K filed with the SEC on October 3, 2014

2.13

Agreement and Plan of Merger, dated as of January 30, 2017, by and between Bryn Mawr Bank Corporation and Royal

Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation

’

s Form 8

K filed with the SEC

on January 31, 2017

2.14

Amendment No. 1 to Agreement and Plan of Merger, dated December 14, 2017, by and between Bryn Mawr Bank

Corporation and Royal Bancshares of Pennsylvania, Inc., incorporated by reference to Exhibit 2.1 to the Corporation

’

s Form

K filed with the SEC on December 18, 2017

3.1

Amended and Restated By

Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation

’

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

4.1

Amended and Restated By

Laws, effective November 20, 2007, incorporated by reference to Exhibit 3.2 of the Corporation

’

Form 8

K filed with the SEC on November 21, 2007

4.2

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

4.3

Indenture, dated August 6, 2015, by and between Bryn Mawr Bank Corporation and U.S. Bank National Association, as

trustee, incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on August 7, 2015

4.4

Forms of 4.75% Subordinated Note due 2025 (included as Exhibit A

1 and Exhibit A

2 to the Indenture filed as Exhibit 4.1),

incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on August 7, 2015

4.5

Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National Association, as

trustee, incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on December 13, 2017

4.6

First Supplemental Indenture, dated as of December 13, 2017 between Bryn Mawr Bank Corporation and U.S. Bank National

Association as trustee, incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on December 13, 2017

4.7

Form of 4.25% Fixed

Floating Rate Subordinated Note due December 15, 2027 (included as Exhibit A to the Indenture filed

as Exhibit 4.2), incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on December 13, 2017

4.8

Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as

Institutional Trustee, dated October 27, 2004, incorporated by reference to Exhibit 4.1 to RBPI

’

s Current Report on Form 8

(included as Exhibit A to Exhibit 10.1) filed with the SEC on November 1, 2004

4.9

Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of Pennsylvania, Inc. to JPMorgan Chase Bank, as

Institutional Trustee, dated October 27, 2004, incorporated by reference to Exhibit 4.2 to RBPI

’

s Current Report on Form 8

(included as Exhibit A to Exhibit 10.2) filed with the SEC on November 1, 2004

4.10

Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27,

2004, incorporated by reference to Exhibit 10.1 to RBPI

’

s Current Report on Form 8

K filed with the Commission on November

1, 2004

4.11

Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Trustee, dated October 27,

2004, incorporated by reference to Exhibit 10.2 to RBPI

’

s Current Report on Form 8

K filed with the Commission on November

1, 2004

4.12

Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee

Trustee, dated October 27, 2004, incorporated by reference to Exhibit 10.3 to RBPI

’

s Current Report on Form 8

K filed with

the Commission on November 1, 2004

Table of Contents

135

Exhibit No.

Description and References

4.13

Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan Chase Bank, as Guarantee

Trustee, October 27, 2004, incorporated by reference to Exhibit 10.4 to RBPI

’

s Current Report on Form 8

K filed with the

Commission on November 1, 2004

4.14

Warrant to Purchase Class A Common Stock, issued February 20, 2009, by Royal Bancshares of Pennsylvania, Inc. to the

United States Department of the Treasury, incorporated by reference to Exhibit 4.1 to RBPI

’

s Current Report on Form 8

filed with the Commission on February 26, 2009

10.1*

Amended and Restated Supplemental Employee Retirement Plan of the Bryn Mawr Bank Corporation, effective January 1,

1999, incorporated by reference to Exhibit 10.1 of the Corporation

’

s Form 10

K filed with the SEC on March 13, 2008

10.2**

Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive

Plan, incorporated by reference to Exhibit 10.3 of the Corporation

’

s Form 10

K filed with the SEC on March 16, 2011

10.3*

Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective January 1, 2008

incorporated by reference to Exhibit 10.4 of the Corporation

’

s Form 10

K filed with the SEC on March 16, 2009

10.4*

Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Bank Corporation, effective January 1, 2008

incorporated by reference to Exhibit 10.5 of the Corporation

’

s Form 10

K filed with the SEC on March 16, 2009

10.5*

Amended and Restated Deferred Payment Plan for Directors of Bryn Mawr Trust Company, effective January 1, 2008

incorporated by reference to Exhibit 10.6 of the Corporation

’

s Form 10

K filed with the SEC on March 16, 2009

10.6*

Employment Letter Agreement, dated as of April 25, 2014, between the Corporation and Francis J. Leto, incorporated by

reference to Exhibit 10.1 to the Corporation

’

s Form 8

K filed with the SEC on April 25, 2014

10.7*

Standard Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), as of August 2018, filed

herewith

10.8*

Standard Form of Restricted Stock Unit Agreement for Non

Employee Directors (Time/Performance Based), as of August

2018, filed herewith

10.9*

Standard Form of Executive Change

Control Agreement, updated January 2019, filed herewith

10.10*

Executive Change

Control Amended and Restated Severance Agreement, dated May 21, 2004, between the Bryn Mawr

Trust Company and Alison E. Gers, incorporated by reference to Exhibit 10.M of the Corporation

’

s Form 10

K filed with the

SEC on March 15, 2007

10.11*

Executive Change

Control Amended and Restated Severance Agreement, dated May 21, 2004, between the Bryn Mawr

Trust Company and Joseph G. Keefer, incorporated by reference to Exhibit 10.N of the Corporation

’

s Form 10

K filed with the

SEC on March 15, 2007

10.12*

Form of Restricted Stock Unit Agreement for Executives (Time/Performance Based), incorporated by reference to Exhibit

10.12 of the Corporation's Form 10

K filed with the SEC on March 2, 2018

10.13**

Form of Key Employee Non

Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.3 of the

Corporation

’

s Form 10

Q filed with the SEC on May 10, 2005

10.14**

Form of Non

Qualified Stock Option Agreement for Non

Employee Directors, incorporated by reference to Exhibit 10.2 of the

Corporation

’

s Form 10

Q filed with the SEC on May 10, 2005

10.15**

Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based) – Multi

Year Vesting, incorporated by

reference to Exhibit 10.1 to the Corporation

’

s Form 8

K filed with the SEC on September 17, 2014

10.16**

2007 Long Term Incentive Plan, effective April 25, 2007, incorporated by reference to Exhibit 10.1 of the Corporation

’

s Form

Q filed with the SEC May 10, 2007

10.17**

Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed December 8, 2008,

incorporated by reference to Exhibit 10.20 of the Corporation

’

s Form 10

K filed with the SEC on March 16, 2009

10.18

Form of Director Letter Agreement, incorporated by reference to Exhibit 10.2 to the Corporation

’

s Form 10

Q filed with the

SEC on August 8, 2014

Table of Contents

Exhibit No.

Description and References

10.19*

Executive Change

Control Amended and Restated Severance Agreement, dated November 2, 2009, between the Bryn

Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.1 of the Corporation

’

s 8

K filed with the

SEC on November 6, 2009

10.20**

Form of Restricted Stock Unit Agreement for Employees (Time

Based Cliff Vesting), incorporated by reference to Exhibit 10.2

to the Corporation

’

s Form 10

Q filed with the SEC on August 7, 2015

10.21**

Bryn Mawr Bank Corporation 2010 Long

Term Incentive Plan, effective April 28, 2010, incorporated by reference to Exhibit

10.24 of the Corporation

’

s Form 10

Q filed with the SEC on May 10, 2010

10.22**

Amended and Restated Bryn Mawr Bank Corporation 2010 Long

Term Incentive Plan, effective April 30, 2015, incorporated

by reference to Appendix A of the Corporation

’

s Proxy Statement on Definitive Schedule 14A filed with the SEC on March

20, 2015

10.23**

First Keystone Financial, Inc. Amended and Restated 1998 Stock Option Plan, as assumed by Bryn Mawr Bank Corporation,

incorporated by reference to Exhibit 10.1 of the Corporation

’

s Post

Effective Amendment No.1 to Form S

4 on Form S

3, filed

with the SEC on July 9, 2010

10.24

Continental Bank Holdings, Inc. Amended and Restated 2005 Stock Incentive Plan, incorporated by reference to Exhibit 4.3

of the Corporation

’

s Form S

8 filed with the SEC on January 22, 2015

10.25**

Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, dated

as of January 10, 2011, for Francis J. Leto, incorporated by reference to Exhibit 10.30 of the Corporation

’

s Form 10

K filed with

the SEC on March 16, 2011

10.26

Amendment No. 2 to Stock Purchase Agreement by and between PWMG Bank Holding Company Trust and Bryn Mawr

Bank Corporation dated September 29, 2011, filed with the SEC on Form 8

K on October 4, 2011

10.27**

Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive

Plan, incorporated by reference to Exhibit 10.32 of the Corporation

’

s Form 10

Q filed with the SEC on November 9, 2011

10.28**

Form of Restricted Stock Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive

Plan, incorporated by reference to Exhibit 10.33 of the Corporation

’

s Form 10

Q filed with the SEC on November 9, 2011

10.29*

Amendment No. 1 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective

as of January 1, 2013, incorporated by reference to Exhibit 10.29 of the Corporation

’

s Form 10

K filed with the SEC on March

15, 2013

10.30*

Amendment No. 2 to Amended and Restated Deferred Bonus Plan for Executives of Bryn Mawr Bank Corporation, effective

as of January 1, 2013, incorporated by reference to Exhibit 10.30 of the Corporation

’

s Form 10

K filed with the SEC on March

15, 2013

10.31*

Form of Letter Agreement entered into with certain executive officers of the Corporation in connection with the curtailment of

benefits under the Bryn Mawr Bank Corporation Supplemental Employee Retirement Plan for Select Executives, executed

December 8, 2008 (SERP II), incorporated by reference to Exhibit 10.1 of the Corporation

’

s Form 8

K filed with the SEC on

April 4, 2013

10.32*

Bryn Mawr Bank Corporation Executive Deferred Compensation Plan, effective January 1, 2013, incorporated by reference to

Exhibit 10.32 of the Corporation

’

s Form 10

K filed with the SEC on March 14, 2014

10.33*

Retention Bonus Agreement, dated as of June 10, 2013, by and between The Bryn Mawr Trust Company and Francis J. Leto,

incorporated by reference to Exhibit 10.1 of the Corporation

’

s Form 8

K filed with the SEC on June 14, 2013

10.34*

Form of Restricted Stock Unit Agreement for Directors (Time/Performance Based), incorporated by reference to Exhibit 10.34

of the Corporation's Form 10

K filed with the SEC on March 2, 2018

10.35**

Form of Restricted Stock Unit Agreement for Employees (Service/Performance Based), incorporated by reference to Exhibit

10.4 to the Corporation

’

s Form 10

Q filed with the SEC on November 7, 2014

10.36**

Form of Restricted Stock Unit Agreement for Directors (Service/Performance Based), incorporated by reference to Exhibit

10.5 to the Corporation

’

s Form 10

Q filed with the SEC on November 7, 2014

10.37**

Form of Restricted Stock Unit Agreement – Inducement Grant, incorporated by reference to Exhibit 10.6 to the Corporation

’

Form 10

Q filed with the SEC on November 7, 2014

136

Table of Contents

137

Exhibit No.

Description and References

10.38

Third Amended and Restated Dividend Reinvestment and Stock Purchase Plan, effective May 25, 2018, incorporated by

reference to the Corporation

’

s Prospectus (Form 424B2) filed with the SEC on May 25, 2018

10.39*

Employment Letter Agreement, dated December 15, 2017, by and between The Bryn Mawr Trust Company and F. Kevin

Tylus, incorporated by reference to Exhibit 10.1 of the Corporation

’

s Form 8

K filed with the SEC on December 18, 2017

10.40

Form of Subordinated Note Purchase Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation and the

Purchasers identified therein, incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on August 7, 2015

10.41

Form of Registration Rights Agreement, dated August 6, 2015, by and among Bryn Mawr Bank Corporation and Purchasers

identified therein, incorporated by reference to the Corporation

’

s Form 8

K filed with the SEC on August 7, 2015

10.42*

Employment Letter Agreement, dated September 8, 2015, by and among Bryn Mawr Bank Corporation, The Bryn Mawr Trust

Company and Michael W. Harrington, incorporated by reference to Exhibit 10.1 of the Corporation

’

s Form 8

K filed with the

SEC on September 9, 2015

10.43*

Executive Change

Control Severance Agreement, dated as of September 8, 2015, by and between The Bryn Mawr Trust

Company and Michael W. Harrington, incorporated by reference to Exhibit 10.2 to the Corporation

’

s Form 8

K filed with the

SEC on September 9, 2015

10.44*

Employment Agreement dated as of April 1, 2015, between The Bryn Mawr Trust Company and Lori Goldman, incorporated

by reference to Exhibit 10.1 of the Corporation

’

s Form 10

Q filed with the SEC on November 3, 2017

10.45*

Employment Letter Agreement, dated November 20, 2017, by and between Bryn Mawr Bank Corporation, The Bryn Mawr

Trust Company and Jennifer Dempsey Fox, incorporated by reference to Exhibit 10.45 of the Corporation

’

s Form 10

K filed

with the SEC on March 2, 2018

10.46*

Form of Restricted Stock Unit Agreement for New Employee, incorporated by reference to Exhibit 10.46 of the Corporation

’

Form 10

K filed with the SEC on March 2, 2018

10.47

Form of Restricted Stock Unit Agreement for New Employee, filed herewith

10.48

Form of Restricted Stock Unit Agreement (Performance Based), filed herewith

21.1

List of Subsidiaries, filed herewith

23.1

Consent of KPMG LLP, filed herewith

31.1

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes

Oxley Act of 2002, filed herewith

31.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes

Oxley Act of 2002, filed herewith

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes

Oxley Act of 2002, filed herewith

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes

Oxley Act of 2002, filed herewith

99.1

Corporation

’

s Proxy Statement for 2018 Annual Meeting to be held on April 18, 2019, expected to be filed with the SEC on or

about March 8, 2019

101.INS XBRL

Instance Document, filed herewith

101.SCH XBRL

Taxonomy Extension Schema Document, filed herewith

101.CAL XBRL

Taxonomy Extension Calculation Linkbase Document, filed herewith

101.DEF XBRL

Taxonomy Extension Definition Linkbase Document, filed herewith

101.LAB XBRL

Taxonomy Extension Label Linkbase Document, filed herewith

Table of Contents

Item 15(c) — Not Applicable

Item 16 — None.

138

Exhibit No.

Description and References

101.PRE XBRL

Taxonomy Extension Presentation Linkbase Document, filed herewith

* 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.

Table of Contents

SIGNATURES

Pursuant to the requirements of section 13 or 15d of the Securities Exchange Act of 1934, the registrant has duly caused this report to be

signed on its behalf by the undersigned, there unto duly authorized.

139

Bryn Mawr Bank Corporation

By:

/s/ Michael W. Harrington

Michael W. Harrington

Chief Financial Officer

(Principal Financial Officer)

Date: February 28, 2019

Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the

Corporation and in the capacities and on the date indicated.

140

(

)

NAME

TITLE

DATE

/s/ Britton H. Murdoch

Chairman and Director

February 28, 2019

Britton H. Murdoch

/s/ Francis J. Leto

Chief Executive Officer

February 28, 2019

Francis J. Leto

(Principal Executive Officer) and Director

/s/ Michael W. Harrington

Chief Financial Officer

February 28, 2019

Michael W. Harrington

(Principal Financial Officer)

/s/ Michael T. LaPlante

Chief Accounting Officer

February 28, 2019

Michael T. LaPlante

(Principal Accounting Officer)

/s/ Diego F. Calderin

Director

February 28, 2019

Diego F. Calderin

/s/ Michael J. Clement

Director

February 28, 2019

Michael J. Clement

/s/ Andrea F. Gilbert

Director

February 28, 2019

Andrea F. Gilbert

/s/ Wendell F. Holland

Director

February 28, 2019

Wendell F. Holland

/s/ Scott M. Jenkins

Director

February 28, 2019

Scott M. Jenkins

/s/ A. John May, III

Director

February 28, 2019

A. John May, III

/s/ Lynn B. McKee

Director

February 28, 2019

Lynn B. McKee

/s/ F. Kevin Tylus

Director

February 28, 2019

F. Kevin Tylus

Section 2: EX-10.7 (EXHIBIT 10.7)

BRYN MAWR BANK CORPORATION

RESTRICTED STOCK UNIT AGREEMENT FOR EXECUTIVES

(SERVICE/PERFORMANCE

BASED)

SUBJECT TO THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN

Grantee: [ ]

Date of Grant: [ ]

Total Number of RSUs:

[ ]

Number of time

based RSUs:

[ ]

(

“

Time

Based RSUs”

)

Target number of performance

based RSUs:

[ ]

(

“Performance

Based RSUs”

)

Service Period: [ ] to [ ] (

“Service Period”

)

RESTRICTED STOCK UNIT AGREEMENT (

“Agreement”

dated as of the Date of Grant set forth above by and between

BRYN MAWR

BANK CORPORATION

(the “Corporation”

)

and the Grantee named above (the “Grantee”

The Plan. This Agreement is subject to the terms and conditions of the Amended and Restated Bryn Mawr Bank Corporation

2010 Long Term Incentive Plan (the “Plan”

)

as approved by the Board of Directors of the Corporation on February 27, 2015 and by the

Corporation

’

s shareholders on April 30, 2015. Except as otherwise specified herein, all capitalized terms used in this Agreement shall have the

meanings given to them in the Plan.

Grant of Restricted Stock Units

a. Subject to the terms and conditions of the Plan and this Agreement, and the Grantee

’

s acceptance of same by execution of

this Agreement, the Corporation

’

s Management Development and Compensation Committee (“Compensation Committee”

)

hereby grants to the

Grantee the number of Restricted Stock Units set forth under “Total Number of RSUs” above (the “RSUs”

b. Upon vesting of the RSUs and satisfaction of all of the other terms and conditions in this Agreement, the Corporation will

issue stock representing the shares underlying the vested RSUs (regardless of whether such RSUs are Time

Based RSUs or Performance

Based

RSUs) as soon as practicable following the Time Vesting Date (as defined in subsection 3(a) below), in the case of the vested Time

Based RSUs,

and the Performance Vesting Date (as defined in subsection 3(b) below), in the case of the Performance

Based RSUs.

Terms and Conditions. The Grant is subject to the following terms and conditions:

Time

Based Requirements. The Time

Based RSUs will vest on August 9, 2021 (such date, the “Time Vesting Date”

provided

that Grantee has remained continually employed by the Corporation or any of its direct or indirect subsidiaries (individually and collectively, the

“Company Group”

)

from the Date of Grant through the Time Vesting Date.

Performance Goals. The Performance

Based RSUs are subject to the performance goals set forth in Exhibit A (the

“Performance Goals”

)

and shall vest, in whole or in part, upon the Performance Vesting Date only if the Performance Goals are achieved and the

Grantee has remained continuously employed by the Company Group through the end of the Service Period, or as otherwise provided herein. The

Compensation Committee shall determine within 75 days after the last day of the Service Period whether the Performance Goals have been achieved,

in whole or in part, in accordance with Exhibit A attached hereto. The value of any fractional shares will be paid to the Grantee through a separate

disbursement. No vesting of Performance

Based RSUs shall be deemed to have occurred unless and until the Compensation Committee certifies in

writing as to the portion of Performance Goals that have been achieved. The date on which the

Performance Goal:

Certain conditions and goals as determined according to Exhibit A hereto

Compensation Committee certifies as to the achievement of the Performance Goals and the vesting of the Performance

Based RSUs is referred to in

this Agreement as the “Performance Vesting Date”

No Rights as a Shareholder. Grantee will have no rights or privileges of a shareholder (including but not limited to, no right to

vote the shares) with respect to shares underlying RSUs until such RSUs have vested and such shares have been issued.

Dividend

Equivalents. At the time of issuance of shares underlying vested RSUs pursuant to subsection 2(b) above, the

Corporation shall also pay to Grantee an amount equal to the aggregate amount of all dividends declared and paid by the Corporation based on

dividend record dates falling between the Date of Grant and the date of issuance in accordance with the number of shares issued. The dividend

equivalents will be reported as W

2 wages and, as such, will be subject to statutory withholding requirements for federal, state and local taxes. The

computation set forth in this subparagraph is separate and distinct from the calculations and concepts set forth on Exhibit “A” hereto and the

calculations and concepts set forth on Exhibit “A” hereto have no applicability to the calculation of the amount of dividends to be paid by the

Corporation pursuant to this subparagraph.

Holding Period. All vested RSUs will be subject to a holding period (“Holding Period”

)

until the earliest of:

For purposes of clarification, once shares underlying vested RSUs have been issued and until the expiration of the applicable

Holding Period, Grantee shall have all of the rights and privileges of a shareholder with respect to such shares other than the right to sell, transfer,

gift, or otherwise divest himself or herself of such shares. Notwithstanding anything herein to the contrary, the Corporation may lift the Holding

Period with respect to any shares underlying vested RSUs where the sale of such shares is necessary to satisfy the payment of statutory federal,

state and local withholding taxes including, without limitation, social security and medicare taxes.

Forfeiture

. All Time

Based RSUs that have not vested at the Time Vesting Date in accordance with subsection 3(a), and all

Performance

Based RSUs that have not vested at the Performance Vesting Date in accordance with subsection 3(b) and Exhibit A attached hereto,

shall be forfeited in their entirety.

Forfeiture of Unvested RSUs and Payment to the Corporation for Issued Shares Resulting from Vested RSUs If Grantee

Engages in Certain Activities. The provisions of this subsection 4(b) will apply to all RSUs granted to Grantee under the Plan and to any shares

issued to the Grantee upon vesting of RSUs. If, at any time during the Service Period, or for a period of two (2) years after termination of Grantee

’

employment for any reason, Grantee engages in any activity inimical, contrary or harmful to the interests of the Company Group including, but not

limited to (A) conduct related to Grantee

’

s employment for which either criminal or civil penalties against Grantee may be brought, (B) violation of

the Company Group

’

s policies including, without limitation, the Corporation

’

s Insider Trading Policy, Code of Business Conduct and Ethics, Code

of Personal Conduct, Employee Handbook, or otherwise, (C) soliciting of any customer of the Company Group for business which would result in

such customer terminating their relationship with the Company Group; soliciting or inducing any individual who is an employee or director of the

Company Group to leave the Company Group or otherwise terminate their relationship with the Company Group, (D) disclosing or using any

confidential information or material concerning the Company Group, (E) breach of any agreement between the Grantee and the Company Group, or

(F) participating in a hostile takeover attempt, then (x) all RSUs that have not vested effective as of the date on which Grantee engages in such

activity, unless forfeited sooner by operation of another term or condition of this Agreement or the Plan, shall be forfeited in their entirety, and

(y) for any shares underlying vested RSUs which have been issued to Grantee, the Grantee shall pay to the Corporation the market value of the

shares on the date of issuance or the date Grantee engages in such activity, whichever is greater. The term “Confidential Information” as used in

this Agreement includes, but is not limited to, records, documents, programs, technical data, information technology, policies, files, lists, client non

public personal information, pricing, costs, strategies, market data, statistics, business partners, customers, customer requirements,

The two

year anniversary of such Time Vesting Date or Performance Vesting Date, as applicable;

ii.

The date of the Grantee

’

s death or Disability (as defined in section 5 below); or

iii.

The date of consummation of a Change in Control (as defined in section 7 below).

prospective customer contacts, knowledge of the Company Group

’

s clients, methods of operation, processes, trade secrets, methods of

determination of prices, fees, financial condition, profits, sales, net income, indebtedness, potential mergers or acquisitions, or the sale of Company

Group assets or subsidiaries, commercial contracts and relationships, employees, litigation (whether actual or threatened), information acquired in

connection with the Grantee

’

s employment with the Company Group, including without limitation, proprietary or confidential information of any

third party who may disclose such information to the Company Group or the Grantee in the course of Company Group business, and any other

information relating to the Company Group that has not been made available to the general public, as the same may exist from time to time. The

provisions of this Section 4 are in addition to, and in no way decrease, limit, or affect the applicability of or relief available to the Corporation under

Section 8.

Right of Setoff. By accepting this Agreement, Grantee consents to the deduction, to the extent permitted by law, from any

amounts that the Company Group owes Grantee from time to time (including amounts owed to Grantee as wages or other compensation, fringe

benefits, or paid time

off pay, as well as any other amounts owed to Grantee by the Company Group), the amounts Grantee owes the Corporation

under subsection 4(b) above. Whether or not the Corporation elects to make any setoff in whole or in part, if the Corporation does not recover by

means of setoff the full amount Grantee owes it, calculated as set forth above, Grantee agrees to immediately pay the unpaid balance to the

Corporation.

Compensation Committee Discretion. Grantee may be released from Grantee

’

s obligations under subsections 4(b) and 4(c)

only if the Compensation Committee, or its duly appointed agent, determines in its sole discretion that such action is in the best interest of the

Corporation.

Death, Disability or Retirement. In the event the Grantee shall cease to be employed by the Company Group by reason of: (a)

Retirement; (b) a transfer of the Grantee in a spinoff; (c) death; or (d) total and permanent disability as determined by the Compensation Committee

(

“Disability”

then the vesting requirements on a fraction of Grantee

’

s RSUs will be deemed to have been fulfilled. With respect to the Time

Based

RSUs, the vested portion shall be calculated as follows: the number of Time

Based RSUs granted multiplied by a fraction, the numerator of which is

the number of full calendar months that elapsed in the Service Period prior to the death, Disability, Retirement or transfer in a spinoff of the Grantee

and the denominator of which is the total number of full calendar months in the Service Period. With respect to the Performance

Based RSUs, the

vested portion shall be calculated as follows: the number of Performance

Based RSUs that would have vested in accordance with Section 3(b) had

Grantee remained employed through the Service Period, multiplied by a fraction, the numerator of which is the number of full calendar months that

elapsed in the Service Period prior to the death, Disability, Retirement or transfer in a spinoff of the Grantee and the denominator of which is the

total number of full calendar months in the Service Period. Shares underlying all Time

Based RSUs that vest in accordance with the terms of this

Section 5 shall be issued as soon as practicable following such vesting and Performance

Based RSUs that vest in accordance with the terms of this

Section 5 shall be issued as soon as practicable following the Performance Vesting Date. Any remaining RSUs which have not vested as provided

in this section 5 shall be forfeited.

Termination. If the Grantee terminates the Grantee

’

s employment with the Company Group or if the Company Group terminates

the Grantee

’

s employment with or without Cause, other than as described in section 5 above, any RSUs that have not yet vested at the date of

termination shall automatically be forfeited.

Change in Control. In the event of a Change in Control, Grantee

’

s outstanding RSUs will be deemed to have vested and any

shares underlying such RSUs not previously issued shall be issued within ten days after the Change in Control. For purposes of clarification, in

such a situation, all Time

Based RSUs will vest, and Performance

Based RSUs will vest at the target levels as described in Exhibit A hereto. A

“Change in Control” shall be deemed to have taken place if (i) any Person (as defined below) other than an entity in the Company Group or an

employee benefit plan of the Company Group (or any Person organized, appointed or established by the Company Group for or pursuant to the

terms of any such employee benefit plan), together with all affiliates and associates of such Person, becomes the beneficial owner in the aggregate

of 25% or more of the common stock of the Corporation then outstanding, or (ii) during any twenty

four month period, individuals who at the

beginning of such period constituted the Board of Directors of the Corporation or The Bryn Mawr Trust Company (the “Bank”

)

cease, for any

reason, to constitute a majority thereof, unless the election, or the nomination for election by the Corporation or the Bank

’

s shareholders, as the

case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two

thirds of the directors

in office at the time of such election or nomination, who were directors at the beginning of such period.

Non

Interference and Non

Solicitation

a. For a period of twelve (12) months following the date Grantee ceases to be employed by the Company Group for any reason,

whether voluntarily or involuntarily (the “Separation Date”

Grantee agrees not to disrupt, damage, impair or interfere with the business of the

Company Group in any manner, including without limitation, by: (a) employing, engaging or soliciting any employee of the Company Group; (b)

inducing or attempting to influence an employee to leave the employ of the Company Group; (c) adversely influencing or altering the relationship of

any person, firm, corporation, partnership, association or other entity (“Person”

)

with the Company Group, whether such Person is an employee,

customer, client or otherwise; or (d) directly or indirectly, individually or for any other, calling on, engaging in business with, soliciting, inducing, or

attempting to solicit or induce, any Person who has been a customer, client or business referral source of the Company Group, or who has been

solicited as a potential customer, client or business referral source of the Company Group, during the two (2) year period preceding the Separation

Date to (x) cease doing business in whole or in part with or through the Company Group or (y) do business with any other Person which performs

services or offers products materially similar to or competitive with those provided by the Company Group.

b. Grantee shall maintain confidential information (as defined in Section 4(b)) in the strictest of confidence, shall not disclose

confidential information to any person outside of the Company Group, and shall not use, reproduce, disseminate, or take any other action with

respect to confidential information other than in connection with Grantee

’

s employment and for the benefit of the Company Group. Grantee shall not

remove confidential information from Company Group premises unless necessary in connection with the performance of Grantee

’

s job duties, and in

such event, such confidential information shall be returned or destroyed immediately upon cessation of Grantee

’

s employment with the Company

Group. The obligations of Grantee under this Section 8(b) shall apply during Grantee

’

s employment and following termination of Grantee

’

employment, and shall survive in perpetuity.

c. Grantee acknowledges and agrees that the restrictions contained in this section 8 are reasonable and necessary in order to

protect the legitimate interests of the Company Group and that any violation thereof would result in irreparable injury to the Company Group.

Consequently, Grantee acknowledges and agrees that, in the event of any violation thereof, the Company Group shall be authorized and entitled,

without the necessity of posting a bond or other form of security, to obtain from any court of competent jurisdiction injunctive and equitable relief,

as well as an equitable accounting of all profits and benefits arising out of such violation, which rights and remedies shall be cumulative and in

addition to any other rights or remedies to which the Company Group may be entitled at law or in equity (including the rights of forfeiture set forth

in section 4 hereof) and, in the event the Company Group is required to enforce the terms of this Agreement through court proceedings, the

Company Group shall be entitled to reimbursement of all legal fees, costs and expenses incident to enforcement of any such term, in whole or in part

and/or such term as may be modified by a court of competent jurisdiction.

d. If any court of competent jurisdiction construes any of the restrictive covenants set forth in this section 8, or any part

thereof, to be unenforceable because of the duration, scope or geographic area covered thereby, such court shall have the power to reduce the

duration, scope or geographic area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.

Change Adjustments. The Compensation Committee shall make appropriate adjustments to give effect to adjustments made in

the number of shares of the Corporation

’

s common stock through a merger, consolidation, recapitalization, reclassification, combination, spinoff,

common stock dividend, stock split or other relevant change as the Compensation Committee deems appropriate to prevent dilution or enlargement

of the rights of the Grantee. Any adjustments or substitutions pursuant to this section shall meet the requirements of Section 409A of the Internal

Revenue Code of 1986, as amended (the “Code”

)

and shall be final and binding upon the Grantee.

10.

Compliance with Law and Regulations. The grant of RSUs and the issuance of shares underlying vested RSUs shall be subject

to all applicable federal and state laws, the rules and regulations and to such approvals by any government or regulatory agency as may be

required. The Corporation shall not be required to register any securities pursuant to the Securities Act of 1933, as amended, or to list such shares

under the stock market or exchange on which the common stock of the Corporation may then be listed, or to take any other affirmative action in

order to cause the issuance or delivery of shares underlying vested RSUs to comply with any law or regulation of any governmental authority.

11.

Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be

delivered personally or by mail, postage prepaid, addressed as follows: to the Corporation, Attention: Corporate Secretary, at its office at 801

Lancaster Avenue, Bryn Mawr, PA 19010 or to the Grantee at her/his address on the records of the Corporation or at such other addresses as the

Corporation, or Grantee, may designate in writing from time to time to the other party hereto.

12.

Employment. Neither the action of the Corporation or its shareholders, nor any action taken by the Compensation Committee

under the Plan nor any provisions of this Agreement shall be construed as giving to the Grantee the right to be retained as an employee of the

Company Group.

13.

Payment of Taxes. Upon issuance of shares underlying the vested RSUs the value of the shares issued, calculated based on

the closing price of the Corporation

’

s common stock on the day preceding the applicable Vesting Date (whether vested Time

Based RSUs or vested

Performance

Based RSUs), will constitute W

2 wages to the Grantee and, as such, will be subject to statutory federal, state and local withholding

taxes. The Corporation will withhold a sufficient number of whole shares in order to satisfy this tax obligation. The remaining shares will be made

available to the Grantee as soon as practicable. The value of any fractional shares will be paid to the Grantee through a separate disbursement.

14.

Incorporation by Reference. This Restricted Stock Unit Award is granted pursuant and subject to the terms and conditions of

the Plan, the provisions of which are incorporated herein by reference. If any provision of this Agreement conflicts with any provision of the Plan in

effect on the Date of Grant, the terms of the Plan shall control. This Agreement shall not be modified after the Date of Grant except by written

agreement between the Corporation and the Grantee; provided, however, that such modification shall (a) not be inconsistent with the Plan, and

(b) be approved by the Committee.

15.

Reformation; Severability. If any provision of this Agreement shall hereafter be held to be invalid, unenforceable or illegal, in

whole or in part, by a court of competent jurisdiction under any circumstances for any reason, (i) such provision shall be reformed to the minimum

extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties as expressed in, and the

benefits of the parties provided by, this Agreement or (ii) if such provision cannot be so reformed, such provision shall be severed from this

Agreement or the Notice and an equitable adjustment shall be made to this Agreement (including, without limitation, addition of necessary further

provisions) so as to give effect to the intent as so expressed and the benefits so provided. Such holding shall not affect or impair the validity,

enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation or

severance shall affect the legality, validity or enforceability of any other provision of this Agreement.

16.

Compliance with Internal Revenue Code Section 409A. It is the intention of the parties that the RSUs and the Agreement

comply with the provisions of Section 409A of the Code to the extent, if any, that such provisions are applicable to the Agreement and the

Agreement will be administered by the Compensation Committee in a manner consistent with this intent. If any payments or benefits may be subject

to taxation under Section 409A of the Code, Grantee agrees that the Compensation Committee may, without the consent of Grantee, modify this

Agreement to the extent and in the manner that the Compensation Committee deems necessary or advisable or take any other action or actions,

including an amendment or action with retroactive effect that the Compensation Committee determines is necessary or appropriate to exempt any

payments or benefits from the application of Section 409A or to provide such payments or benefits in the manner that complies with the provisions

of Section 409A such that they will not be taxable thereunder.

17.

Choice of Law. The provisions of this Agreement shall be construed in accordance with the laws of the Commonwealth of

Pennsylvania, without regard to any conflict of law provision that would apply the law of another jurisdiction.

18.

Interpretation. The interpretation and construction or any terms or conditions of the Plan or this Agreement by the

Compensation Committee shall be final and conclusive.

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized officer, and the Grantee has

hereunto set his/her hand and seal, effective as of the Date of Grant set forth above.

BRYN MAWR BANK CORPORATION

By:

Name: Michael W. Harrington

Title: Chief Financial Officer

(Signature of Grantee)

(Print Name of Grantee)

(Address of Grantee)

EXHIBIT A

TO RESTRICTED STOCK UNIT AGREEMENT DATED AS OF [ ]

All of the terms and conditions of the Restricted Stock Unit Agreement dated as of [ ], (“Agreement”

to which this Exhibit is attached are

incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.

Name of Grantee:

[ ]

1. Target Number of Performance

Vested Restricted Stock Units subject to vesting based on Total Shareholder Return (“

TSR

”): ______

[ ]

___________

2. Target Number of Performance

Vested Restricted Stock Units subject to vesting based on Return on Average Equity (“

ROAE

”): _____

[ ]

____________

3. Performance Goals: Except as otherwise set forth in the Award Agreement, the number of RSUs (rounded down to the nearest whole number

of RSUs) that become nonforfeitable with respect to the Performance Period in accordance with the terms of the Award Agreement will be based

on the Company

’

s relative TSR and ROAE Percentile Rank (as defined below) compared to the Peer Group (as defined below) in respect of the

relevant Performance Period, as set forth in the chart below. Notwithstanding anything herein to the contrary, in the event of a Change in

Control, the number of RSUs that vest shall be the greater of (i) 100% of target and (ii) the percent of target that would have been achieved

based on actual TSR and ROAE Percentile Ranks calculated in accordance with the terms of this Exhibit A.

If the applicable TSR or ROAE Percentile Rank is greater than 25% and less than 75% with respect to the relevant Performance Period, the number

of RSUs that shall vest shall be prorated based on the actual level of performance achieved. For example, performance at the 37.5th percentile

(halfway between the threshold of 25th percentile and the max of 50th percentile) for both metrics would result in 50% of target RSUs vesting

(halfway between 0% at threshold and 100% at target).

Provided however, if the Corporation

’

s TSR over the Performance Period is negative, no more than 100% of the target number of RSUs subject to

TSR will vest.

4. For purposes of this

Exhibit A

, the following terms shall have the respective meanings set forth below:

a. “Peer Group” means the following financial institutions:

TSR Percentile

Rank

1,2

Less than 25%

25%

50%

75% or Greater

ROAE Percentile

Rank

Less than 25%

25%

50%

75% or Greater

Number of RSUs

Vesting

0 RSUs

0% of target

100% of target

150% of target

b. “Performance Period” means (i) for measurement of ROAE, the 12

quarter period beginning July 1, 2018 and ending June 30, 2021; and (i) for

measurement of TSR, the 3

year period beginning August 9, 2018 and ending August 9, 2021.

c. “

ROAE

” means (a) net income applicable to the common shareholders of a company during the Performance Period, divided by (b) that

company

’

s average common shareholders

’

equity during the Performance Period (as reported in the company

’

s annual or quarterly report for the

applicable fiscal period end) subject to adjustments for certain extraordinary or special items, in the form and manner determined in the

Committee

’

s sole discretion and if permitted by the IRS regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended,

relating to the “pre

established performance goal” rules, for any: change in accounting policy; gain/loss on disposition of assets or business;

charge for goodwill impairment; extraordinary legal/regulatory settlements; extraordinary market conditions; significant currency fluctuations;

effects of nature or man

made disasters; hyperinflation; change in statutory tax rates/regulations; charges or costs associated with Board

approved restructurings of the Company, including, but not limited to, acquisitions and mergers by the Company; results of discontinued

operations held for sale after sale closing; other extraordinary, unusual or infrequently occurring items as determined under U.S. generally

accepted accounting principles (“GAAP”

d. “

TSR

” means, with respect to any company, the Company

’

s total shareholder return, which will be calculated by dividing (i) the Closing Average

Share Value by (ii) the Opening Average Share Value.

e. “Opening Average Share Value” means the average, over the trading days in the Opening Average Period, of the closing price of a company

’

stock multiplied by the Accumulated Shares for each trading day during the Opening Average Period.

“Opening Average Period” means the 20 trading days preceding August 9, 2018.

g. “Accumulated Shares” means, solely for purposes of the calculation of TSR, for a given trading day, the sum of (i) one (1) share and (ii) a

cumulative number of shares of the company

’

s common stock purchased with the dividends declared on a company

’

s common stock, assuming

same day reinvestment of the dividends in the common stock of a company at the closing price on the ex

dividend date, for ex

dividend dates

between the start of the Opening Average Period and the trading day.

h. “Closing Average Share Value” means the average, over the trading days in the Closing Average Period, of the closing price of the company

’

stock multiplied by the Accumulated Shares for each trading day during the Closing Average Period.

Company Name

Ticker

(1)

Notwithstanding the foregoing, if at any time prior to the expiration of the Performance Period a member of the Peer Group ceases to be a

domestically domiciled publicly traded company on a national stock exchange or market system; or has gone private; or has reincorporated

in a foreign (e.g., non

U.S.) jurisdiction, regardless of whether it is a reporting company in that or another jurisdiction; or has been acquired

by another company (whether by a peer company or otherwise, but not including internal reorganizations), or has sold all or substantially

all of its assets, then such member shall be immediately removed from the Peer Group.

“Closing Average Period” means (i) in the absence of a Change in Control, the 20 trading days preceding August 9, 2021; or (ii) in the case of a

Change in Control, the trading days during the period beginning thirty (30) calendar days prior to the Change in Control and ending on the

Accelerated End Date.

“Accelerated End Date” means the date five (5) calendar days (or such shorter period as may be established by the Compensation Committee in its

sole discretion) prior to the Change in Control.

“Percentile Rank” means the Company

’

s relative percentile positioning in respect of the TSR or ROAE, as applicable, of the other members of the

Peer Group.

(

)

BRYN MAWR BANK CORPORATION

RESTRICTED STOCK UNIT AGREEMENT FOR NON

EMPLOYEE DIRECTORS

(SERVICE/PERFORMANCE

BASED)

SUBJECT TO THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN

Grantee: [ ]

Date of Grant: [ ]

Total Number of RSUs:

[ ]

Number of time

based RSUs: [ ] (“

Time

Based RSUs”

)

Target number of performance

based RSUs:

[ ]

(

“Performance

Based RSUs”

)

Service Period: [ ] to [ ] (

“Service Period”

)

RESTRICTED STOCK UNIT AGREEMENT (

“Agreement”

dated as of the Date of Grant set forth above by and between

BRYN MAWR

BANK CORPORATION

(the “Corporation”

)

and the Grantee named above (the “Grantee”

The Plan. This Agreement is subject to the terms and conditions of the Amended and Restated Bryn Mawr Bank Corporation

2010 Long Term Incentive Plan (the “Plan”

)

as approved by the Board of Directors of the Corporation on February 27, 2015 and by the

Corporation

’

s shareholders on April 30, 2015. Except as otherwise specified herein, all capitalized terms used in this Agreement shall have the

meanings given to them in the Plan.

Grant of Restricted Stock Units

a. Subject to the terms and conditions of the Plan and this Agreement, and the Grantee

’

s acceptance of same by execution of

this Agreement, the Corporation

’

s Management Development and Compensation Committee (“Compensation Committee”

)

hereby grants to the

Grantee the number of Restricted Stock Units set forth under “Total Number of RSUs” above (the “RSUs”

b. Upon vesting of the RSUs and satisfaction of all of the other terms and conditions in this Agreement, the Corporation will

issue stock representing the shares underlying the vested RSUs (regardless of whether such RSUs are Time

Based RSUs or Performance

Based

RSUs) as soon as practicable following the Time Vesting Date (as defined in subsection 3(a) below), in the case of the vested Time

Based RSUs,

and the Performance Vesting Date (as defined in subsection 3(b) below)), in the case of the Performance

Based RSUs.

Section 3: EX-10.8 (EXHIBIT 10.8)

Performance Goal:

Certain conditions and goals as determined according to Exhibit A hereto

Terms and Conditions. The Grant is subject to the following terms and conditions:

Time

Based Requirements. The Time

Based RSUs will vest on August 9, 2021 (such date, the “Time Vesting Date”

provided

that Grantee provides continuous service as a director of the Corporation from the Date of Grant through the Time Vesting Date.

Performance Goals. The Performance

Based RSUs are subject to the performance goals set forth in Exhibit A (the

“Performance Goals”

)

and shall vest, in whole or in part, upon the Performance Vesting Date only if the

Performance Goals are achieved and the Grantee has provided continuous service as a director of the Corporation through the end of the Service

Period, or as otherwise provided herein. The Compensation Committee shall determine within 75 days after the last day of the Service Period

whether the Performance Goals have been achieved, in whole or in part, in accordance with Exhibit A attached hereto. The value of any fractional

shares will be paid to the Grantee through a separate disbursement. No vesting of Performance

Based RSUs shall be deemed to have occurred

unless and until the Compensation Committee certifies in writing as to the portion of Performance Goals that have been achieved. The date on

which the Compensation Committee certifies as to the achievement of the Performance Goals and the vesting of the Performance

Based RSUs is

referred to in this Agreement as the “Performance Vesting Date”

No Rights as a Shareholder. Grantee will have no rights or privileges of a shareholder (including but not limited to, no right to

vote the shares) with respect to shares underlying RSUs until such RSUs have vested and such shares have been issued.

Dividend

Equivalents. At the time of issuance of shares underlying vested RSUs pursuant to subsection 2(b) above, the

Corporation shall also pay to Grantee an amount equal to the aggregate amount of all dividends declared and paid by the Corporation based on

dividend record dates falling between the Date of Grant and the date of issuance in accordance with the number of shares issued. The computation

set forth in this subparagraph is separate and distinct from the calculations and concepts set forth on Exhibit “A” hereto and the calculations and

concepts set forth on Exhibit “A” hereto have no applicability to the calculation of the amount of dividends to be paid by the Corporation pursuant

to this subparagraph.

Holding Period. All vested RSUs will be subject to a holding period (“Holding Period”

)

until the earliest of:

For purposes of clarification, once shares underlying vested RSUs have been issued and until the expiration of the applicable

Holding Period, Grantee shall have all of the rights and privileges of a shareholder with respect to such shares other than the right to sell, transfer,

gift, or otherwise divest himself or herself of such shares. Notwithstanding anything herein to the contrary, the Corporation may lift the Holding

Period with respect to any shares underlying vested RSUs where the sale of such shares is necessary to satisfy the payment of statutory federal,

state and local withholding taxes including, without limitation, social security and medicare taxes.

Forfeiture

. All Time

Based RSUs that have not vested at the Time Vesting Date in accordance with subsection 3(a), and all

Performance

Based RSUs that have not vested at the Performance Vesting Date in accordance with subsection 3(b) and Exhibit A attached hereto,

shall be forfeited in their entirety.

Forfeiture of Unvested RSUs and Payment to the Corporation for Issued Shares Resulting from Vested RSUs If Grantee

Engages in Certain Activities. The provisions of this subsection 4(b) will apply to all RSUs granted to Grantee under the Plan and to any shares

issued to the Grantee upon vesting of RSUs. If, at any time during the Service Period, or for a period of two (2) years after termination of Grantee

’

service as a director of the Corporation for any reason, Grantee engages in any activity inimical, contrary or harmful to the interests of the

Corporation including, but not limited to (A) conduct related to Grantee

’

s service for which either criminal or civil penalties against Grantee may be

brought, (B) violation of the Corporation

’

s or the Bank

’

s policies including, without limitation, the Insider Trading Policy, Code of Business

Conduct and Ethics, Code of Personal Conduct, Employee Handbook, or otherwise, (C) soliciting of any customer of the Corporation or any of its

direct or indirect subsidiaries (individually and collectively, the “Company Group”

)

for

The two

year anniversary of such Time Vesting Date or Performance Vesting Date, as applicable;

ii.

The date of the Grantee

’

s death or Disability (as defined in section 5 below); or

iii.

The date of consummation of a Change in Control (as defined in section 7 below).

business which would result in such customer terminating their relationship with the Company Group; soliciting or inducing any individual who is

an employee or director of the Company Group to leave the Company Group or otherwise terminate their relationship with the Company Group,

(D) disclosing or using any confidential information or material concerning the Company Group, (E) breach of any agreement between the Grantee

and the Company Group, or (F) participating in a hostile takeover attempt, then (x) all RSUs that have not vested effective as of the date on which

Grantee engages in such activity, unless forfeited sooner by operation of another term or condition of this Agreement or the Plan, shall be forfeited

in their entirety, and (y) for any shares underlying vested RSUs which have been issued to Grantee, the Grantee shall pay to the Corporation the

market value of the shares on the date of issuance or the date Grantee engages in such activity, whichever is greater. The term “Confidential

Information” as used in this Agreement includes, but is not limited to, records, documents, programs, technical data, information technology,

policies, files, lists, client non

public personal information, pricing, costs, strategies, market data, statistics, business partners, customers, customer

requirements, prospective customer contacts, knowledge of the Company Group

’

s clients, methods of operation, processes, trade secrets, methods

of determination of prices, fees, financial condition, profits, sales, net income, indebtedness, potential mergers or acquisitions, or the sale of

Company Group assets or subsidiaries, commercial contracts and relationships, employees, litigation (whether actual or threatened), information

acquired in connection with the Grantee

’

s role as a director to the Company, whether through board meetings, deliberations or discussions among

directors, Company Group employees or agents, or relating to board dynamics generally, including, without limitation, proprietary or confidential

information of any third party who may disclose such information to the Company Group or the Grantee in the course of Company Group business,

and any other information relating to the Company Group that has not been made available to the general public, as the same may exist from time to

time

. The provisions of this Section 4 are in addition to, and in no way decrease, limit, or affect the applicability of or relief available to the

Corporation under Section 8.

Right of Setoff. By accepting this Agreement, Grantee consents to the deduction, to the extent permitted by law, from any

amounts that the Company Group owes Grantee from time to time and the amounts Grantee owes the Corporation under subsection 4(b) above.

Whether or not the Corporation elects to make any setoff in whole or in part, if the Corporation does not recover by means of setoff the full amount

Grantee owes it, calculated as set forth above, Grantee agrees to immediately pay the unpaid balance to the Corporation.

Compensation Committee Discretion. Grantee may be released from Grantee

’

s obligations under subsections 4(b) and 4(c)

only if the Compensation Committee, or its duly appointed agent, determines in its sole discretion that such action is in the best interest of the

Corporation.

Death, Disability or Retirement. In the event the Grantee shall cease to be a director of the Corporation prior to the expiration of

the Service Period by reason of: (a) Retirement; (b) a transfer of the Grantee in a spinoff; (c) death; or (d) total and permanent disability as

determined by the Compensation Committee (“Disability”

then the vesting requirements on a fraction of Grantee

’

s RSUs will be deemed to have

been fulfilled. With respect to the Time

Based RSUs, the vested portion shall be calculated as follows: the number of Time

Based RSUs granted

multiplied by a fraction, the numerator of which is the number of full calendar months that elapsed in the Service Period prior to the death, Disability,

Retirement or transfer in a spinoff of the Grantee and the denominator of which is the total number of full calendar months in the Service Period.

With respect to the Performance

Based RSUs, the vested portion shall be calculated as follows: the number of Performance

Based RSUs that would

have vested in accordance with Section 3(b) had Grantee remained a director through the Service Period, multiplied by a fraction, the numerator of

which is the number of full calendar months that elapsed in the Service Period prior to the death, Disability, Retirement or transfer in a spinoff of the

Grantee and the denominator of which is the total number of full calendar months in the Service Period. Shares underlying all Time

Based RSUs that

vest in accordance with the terms of this Section 5 shall be issued as soon as practicable following such vesting and Performance

Based RSUs that

vest in accordance with the terms of this Section 5 shall be issued as soon as practicable following the Performance Vesting Date. Any remaining

RSUs which have not vested as provided in this section 5 shall be forfeited.

Termination. If the Grantee ceases to be a director of the Corporation prior to the expiration of the Service Period for any reason

other than as described in section 5 above, any RSUs that have not yet vested at the date of termination shall automatically be forfeited.

Change in Control. In the event of a Change in Control, Grantee

’

s outstanding RSUs will be deemed to have vested and any

shares underlying such RSUs not previously issued shall be issued within ten days after the Change in Control. For purposes of clarification, in

such a situation, all Time

Based RSUs will vest, and Performance

Based RSUs will vest at the target levels as described in Exhibit A hereto. A

“Change in Control” shall be deemed to have taken place if (i) any Person (as defined below) other than an entity in the Company Group or an

employee benefit plan of the Company Group (or any Person organized, appointed or established by the Company Group for or pursuant to the

terms of any such employee benefit plan), together with all affiliates and associates of such Person, becomes the beneficial owner in the aggregate

of 25% or more of the common stock of the Corporation then outstanding, or (ii) during any twenty

four month period, individuals who at the

beginning of such period constituted the Board of Directors of the Corporation or The Bryn Mawr Trust Company (the “Bank”

)

cease, for any

reason, to constitute a majority thereof, unless the election, or the nomination for election by the Corporation or the Bank

’

s shareholders, as the

case may be, of each director who was not a director at the beginning of such period was approved by a vote of at least two

thirds of the directors

in office at the time of such election or nomination, who were directors at the beginning of such period.

Non

Interference and Non

Solicitation

a. For a period of twelve (12) months following the date Grantee ceases to be a director of the Corporation for any reason,