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Bryn Mawr Bank Corporation -- Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15 (d) of

the Securities and Exchange Act of 1934.

For Quarter ended September 30, 2011

Commission File Number 0-15261

Bryn Mawr Bank Corporation

(Exact name of registrant as specified in its charter)


Pennsylvania		23-2434506
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer identification No.)

801 Lancaster Avenue, Bryn Mawr, Pennsylvania		19010
(Address of principal executive offices)		(Zip Code)

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

Not Applicable

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

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

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

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

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

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


Class		Outstanding at November 4, 2011
Common Stock, par value $1		13,087,166

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED September 30, 2011

Index


PART I - FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)
	Consolidated Financial Statements	Page 3
	Notes to Consolidated Financial Statements	Page 7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 32

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	Page 55

ITEM 4.	Controls and Procedures	Page 55

PART II - OTHER INFORMATION		Page 55

ITEM 1.	Legal Proceedings	Page 55

ITEM 1A.	Risk Factors	Page 55

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 56

ITEM 3.	Defaults Upon Senior Securities	Page 56

ITEM 4.	Reserved	Page 56

ITEM 5.	Other Information	Page 56

ITEM 6.	Exhibits	Page 56

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited


	September 30, 2011			December 31, 2010
	(dollars in thousands)
Assets
Cash and due from banks	$	10,801		$	10,961
Interest bearing deposits with banks		52,311			78,523

Cash and cash equivalents		63,112			89,484
Investment securities available for sale, at fair value (amortized cost of $272,649 and $315,587 as of September 30, 2011 and December 31, 2010 respectively)		275,729			317,052
Loans held for sale		4,857			4,838
Portfolio loans and leases		1,278,357			1,196,717
Less: Allowance for loan and lease losses		(11,654	)		(10,275	)

Net portfolio loans and leases		1,266,703			1,186,442

Premises and equipment, net		29,615			29,158
Accrued interest receivable		6,075			6,470
Deferred income taxes		13,781			14,551
Mortgage servicing rights		4,206			4,925
Bank owned life insurance (“BOLI”)		19,321			18,972
FHLB stock		12,198			14,227
Goodwill		23,169			17,659
Other intangible assets		18,536			7,064
Other investments		4,982			5,156
Other assets		14,835			15,770

Total assets	$	1,757,119		$	1,731,768

Liabilities
Deposits:
Non-interest-bearing	$	292,415		$	282,356
Interest-bearing		1,058,733			1,059,076

Total deposits		1,351,148			1,341,432


Short-term borrowings		22,535			10,051
FHLB advances and other borrowings		140,532			160,144
Subordinated debentures		22,500			22,500
Junior subordinated debentures		11,992			12,029
Accrued interest payable		2,425			3,293
Other liabilities		18,853			20,901

Total liabilities		1,569,985			1,570,350

Shareholders’ equity
Common stock, par value $1; authorized 100,000,000 shares; issued 15,996,312 and 15,109,718 shares as of September 30, 2011 and December 31, 2010, respectively, and outstanding of 13,086,770 and 12,195,240 as of September 30, 2011 and December 31, 2010, respectively		15,996			15,110
Paid-in capital in excess of par value		82,721			68,398
Less: Common stock in treasury, at cost; 2,909,542 and 2,914,478 shares as of September 30, 2011 and December 31, 2010		(29,833	)		(29,881	)
Accumulated other comprehensive loss, net of tax benefit		(5,127	)		(6,757	)
Retained earnings		123,377			114,548

Total shareholders’ equity		187,134			161,418

Total liabilities and shareholders’ equity	$	1,757,119		$	1,731,768

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited


	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011			2010
	(dollars in thousands, except share and per share data)					(dollars in thousands, except share and per share data)
Interest income:
Interest and fees on loans and leases	$	17,471	$	16,876		$	51,705		$	42,285
Interest on cash and cash equivalents		29		61			88			113
Interest on investment securities:
Taxable		1,113		1,007			3,388			2,556
Non-taxable		16		193			203			560
Dividends		43		336			365			677

Total interest income		18,672		18,473			55,749			46,191

Interest expense on:
Deposits		1,493		1,737			4,434			4,448
Short-term borrowings		7		8			19			8
FHLB advances and other borrowings		968		1,430			2,787			3,715
Subordinated debentures		279		294			835			847
Junior subordinated debentures		271		222			814			223

Total interest expense		3,018		3,691			8,889			9,241

Net interest income		15,654		14,782			46,860			36,950
Provision for loan and lease losses		1,828		4,236			5,032			8,343

Net interest income after provision for loan and lease losses		13,826		10,546			41,828			28,607
Non-interest income:
Fees for wealth management services		6,098		3,689			15,363			11,418
Service charges on deposits		646		672			1,841			1,662
Loan servicing and other fees		449		422			1,370			1,183
Net gain on sale of residential mortgage loans		764		1,189			1,818			2,320
Net gain on sale of available for sale securities		343		259			1,410			1,803
Net gain (loss) on sale of other real estate owned (“OREO”)		70		38			(59	)		(114	)
Bank owned life insurance (“BOLI”) income		115		131			348			131
Other operating income		791		653			2,560			1,699

Total non-interest income		9,276		7,053			24,651			20,102
Non-interest expenses:
Salaries and wages		7,639		7,047			20,680			17,679
Employee benefits		1,674		1,646			5,000			4,568
Occupancy and bank premises		1,225		1,195			3,752			3,080
Furniture, fixtures, and equipment		865		695			2,571			1,847
Advertising		204		303			909			821
Amortization of mortgage servicing rights		197		206			524			615
Net impairment of mortgage servicing rights		468		168			672			386
Amortization of other intangible assets		540		166			968			320
FDIC insurance		238		416			968			1,029
Impairment of OREO		0		381			127			381
Due diligence and merger-related expenses		135		4,292			616			5,277
Professional fees		516		459			1,664			1,537
Other operating expenses		2,284		2,391			6,600			5,681

Total non-interest expenses		15,985		19,365			45,051			43,221
Income (loss) before income taxes		7,117		(1,766	)		21,428			5,488
Income tax expense (benefit)		2,095		(746	)		6,885			1,879

Net income (loss)	$	5,022	$	(1,020	)	$	14,543		$	3,609


Basic earnings per common share	$	0.39	$	(0.08	)	$	1.15		$	0.35
Diluted earnings per common share	$	0.39	$	(0.08	)	$	1.15		$	0.35
Dividends declared per share	$	0.15	$	0.14		$	0.45		$	0.42

Weighted-average basic shares outstanding		12,948,979		12,184,447			12,664,704			10,284,897
Dilutive potential shares		36,306		0			35,080			12,836

Adjusted weighted-average diluted shares		12,985,285		12,184,447			12,699,784			10,297,733

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited


(dollars in thousands)	Nine Months Ended September 30,
	2011			2010
Operating activities:
Net Income	$	14,543		$	3,609
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		5,032			8,343
Provision for depreciation and amortization		4,043			2,628
Net gain on sale of available for sale securities		(1,410	)		(1,803	)
Net gain on sale of residential mortgages		(1,818	)		(2,320	)
Stock based compensation cost		600			373
Amortization and net impairment of mortgage servicing rights		1,196			1,001
Net accretion of fair value adjustments		(1,553	)		(1,306	)
Amortization of intangible assets		968			320
Impairment of other real estate owned (“OREO”)		127			381
Loss on sale of OREO		59			114
Net change in cash surrender value of bank owned life insurance (“BOLI”)		(348	)		(131	)
Other, net		(631	)		3,212
Loans originated for resale		(59,434	)		(79,330	)
Proceeds from loans sold		60,756			80,642
Provision for deferred income taxes		(107	)		(1,607	)
Change in income taxes payable/receivable		1,274			54
Change in accrued interest receivable		395			(598	)
Change in accrued interest payable		(868	)		(678	)

Net cash provided by operating activities		22,824			12,904


Investing activities:
Purchases of investment securities		(150,616	)		(271,543	)
Proceeds from maturity of investment securities and mortgage-backed securities paydowns		25,202			12,169
Proceeds from sale of investment securities available for sale		72,779			57,787
Proceeds from calls of investment securities		96,400			150,020
Net change in other investments		48			(97	)
Net portfolio loan and lease originations		(85,145	)		(26,715	)
Purchases of premises and equipment		(2,196	)		(1,579	)
Acquisitions, net of cash acquired		(13,367	)		44,763
Proceeds from sale of OREO		2,045			1,373

Net cash used by investing activities		(54,850	)		(33,822	)


Financing activities:
Net change in deposits		10,159			1,312
Net change in short-term borrowings		12,484			(1,204	)
Dividends paid		(5,714	)		(4,208	)
Net repayment of FHLB advances and other borrowings		(19,171	)		(27,862	)
Tax benefit from exercise of stock options		141			58
Proceeds from issuance of common stock		6,789			26,650
Proceeds from exercise of stock options		966			257

Net cash (used) provided by financing activities		5,654			(4,997	)


Change in cash and cash equivalents		(26,372	)		(25,915	)
Cash and cash equivalents at beginning of year		89,484			79,317

Cash and cash equivalents at end of year	$	63,112		$	53,402


Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	5,506		$	3,418
Interest		9,757			8,069

Supplemental cash flow information:
Available for sale securities purchased, not settled	$	0		$	900
Change in other comprehensive income		2,507			1,783
Change in deferred tax due to change in comprehensive income		877			624
Transfer of loans to other real estate owned		1,005			1,962
Issuance of shares and options for acquisitions		6,661			26,493
Issuance of shares for directors’ retainer		100			92
Acquisition of noncash assets and liabilities:
Assets acquired		18,411			438,989
Liabilities assumed		0			458,736

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statement of Changes In Shareholders’ Equity - Unaudited

(dollars in thousands, except share information)


	For the Nine Months Ended September 30, 2011
	Shares of Common Stock Issued			Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance December 31, 2010		15,109,718		$	15,110		$	68,398		$	114,548		$	(6,757	)	$	(29,881	)	$	161,418
Net income		0			0			0			14,543			0			0			14,543
Dividends declared, $0.15 per share		0			0			0			(5,714	)		0			0			(5,714	)
Other comprehensive income, net of tax of $877		0			0			0			0			1,630			0			1,630
Stock based compensation		0			0			600			0			0			0			600
Tax benefit from gains on stock option exercise		0			0			141			0			0			0			141
Retirement of treasury stock		(4,936	)		(5	)		(43	)		0			0			48			0
Common stock issued:
Acquisitions		321,929			322			6,339			0			0			0			6,661
Dividend reinvestment and stock purchase plan		357,793			357			6,432			0			0			0			6,789
Share-based awards and options exercises		211,808			212			854			0			0			0			1,066

Balance September 30, 2011		15,996,312		$	15,996		$	82,721		$	123,377		$	(5,127	)	$	(29,833	)	$	187,134

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

Consolidated Statements of Comprehensive Income


(dollars in thousands)	Three Months Ended September 30,
	2011		2010
Net income (loss)	$	5,022	$	(1,020	)
Other comprehensive income (loss):
Unrealized investment gains, net of tax $125 and $666, respectively		232		1,236
Change in unfunded pension liability, net of tax expense (benefit) of $51 and ($608) respectively		95		(1,130	)

Total comprehensive income (loss)	$	5,349	$	(914	)


(dollars in thousands)	Three Months Ended September 30,
	2011		2010
Net income	$	14,543	$	3,609
Other comprehensive income (loss):
Unrealized investment gains, net of tax $564 and $987, respectively		1,050		1,833
Change in unfunded pension liability, net of tax expense (benefit) of $313 and ($363), respectively		580		(674	)

Total comprehensive income	$	16,173	$	4,768

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of Bryn Mawr Bank Corporation’s (the “Corporation”) Management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Corporation’s 2010 Annual Report on Form 10-K (the “2010 Annual Report”).

The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.

2. Business Combinations

Private Wealth Management Group of the Hershey Trust Company

On May 27, 2011, the acquisition of the Private Wealth Management Group (“PWMG”) of the Hershey Trust Company (“HTC”) by the Corporation (the “Acquisition”) was completed. The consideration paid by the Corporation was $18.4 million, of which $8.2 million cash and 322,101 unregistered shares of the BMBC common stock, valued at $6.7 million, were paid at closing, and $3.6 million cash was placed in escrow to be paid in three equal installments on the 6-, 12- and 18-month anniversaries of February 17, 2010, the date preceding the date of the definitive stock purchase agreement (the “Agreement”), subject to certain post-closing contingencies relating to the assets under management. The first payment of $1.2 million was issued on August 17, 2011.

The acquisition of PWMG initially increased the Corporation’s Wealth Management Division assets under management by $1.1 billion.

The acquisition of PWMG was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill in the amount of $5.7 million, which will not be amortizable, however will be deductible for tax purposes. The Corporation allocated the total balance of goodwill to its Wealth Management segment. The Corporation also recorded an $8.6 million intangible asset for customer relationships, which will be amortized over a 15 year period using an accelerated method and a $3.8 million intangible asset for restrictive covenant agreements, which will be amortized over a five-and-a-half year period using a straight-line method.

The fair values of the intangible assets listed below are estimates and are subject to adjustment; however, while they are not expected to be materially different than those shown. Any adjustments to the estimates will be reflected, retroactively, as of the date of the Acquisition.

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


(dollars in thousands)
Consideration paid:
Common shares issued (322,101 shares)	$	6,661
Cash paid		9,350
Cash held in escrow		2,400

Value of consideration		18,411
Assets acquired:
Intangible asset – customer relationships		8,610
Intangible asset – non-compete agreements		3,830
Premises and equipment		250

Total assets		12,690
Liabilities assumed: none
Net assets acquired		12,690

Goodwill resulting from acquisition of PWMG	$	5,721

First Keystone Financial, Inc.

The merger with First Keystone Financial, Inc. (“FKF”) was completed on July 1, 2010 (the “Merger”). The Merger was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill in the amount of $9.5 million, which will not be amortizable and is not deductible for tax purposes. The Corporation allocated the total balance of goodwill recorded in connection with the Merger to its Banking segment. The Corporation also recorded $2.1 million in core deposit intangibles which will be amortized over ten years using a declining balance method.

The following table details the effect on goodwill of the changes in estimates of the fair values of the assets acquired and liabilities assumed from the amounts originally reported on the Form 10-Q for the period ended September 30, 2010:


Goodwill resulting from acquisition of FKF reported on Form 10-Q for the quarter ended September 30, 2010	$	10,370
Effect of adjustments to:
Portfolio loans		250
Deferred tax asset		(311	)
Other assets		(779	)

Adjusted goodwill resulting from acquisition of FKF as of September 30, 2011	$	9,530

As of June 30, 2011, the corporation finalized its fair value estimates related to the Merger.

3. Earnings Per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share takes into account the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive. All weighted average shares, actual shares and per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and splits.


	Three Months Ended September 30,					Nine months Ended September 30,
(dollars in thousands, except per share data)	2011		2010			2011		2010
Numerator:
Net income (loss) available to common shareholders	$	5,022	$	(1,020	)	$	14,543	$	3,609

Denominator for basic earnings per share – weighted average shares outstanding		12,948,979		12,184,447			12,664,704		10,284,897
Effect of dilutive potential common shares		36,306		—			35,080		12,836

Denominator for diluted earnings per share – adjusted weighted average shares outstanding		12,985,285		12,184,447			12,699,784		10,297,733

Basic earnings per share	$	0.39	$	(0.08	)	$	1.15	$	0.35
Diluted earnings per share	$	0.39	$	(0.08	)	$	1.15	$	0.35
Antidilutive shares excluded from computation of average dilutive earnings per share		996,404		953,301			987,244		927,006

4. Investment Securities

The amortized cost and estimated fair value of investments, all of which are classified as available for sale, are as follows:

As of September 30, 2011


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Obligations of U.S. government agencies	$	114,072	$	464	$	(27	)	$	114,509
Obligations of state & political subdivisions		3,428		40		—			3,468
Mortgage-backed securities		104,783		2,379		(65	)		107,097
Collateralized mortgage obligations		21,694		241		(15	)		21,920
Corporate bonds		12,664		133		(35	)		12,762
Investment certificates of deposit		2,425		7		(4	)		2,428
Other debt securities		1,400		—		—			1,400

Total fixed income investments		260,466		3,264		(146	)		263,584

Bond mutual funds		11,940		13		(92	)		11,861
Equity securities		243		41		—			284

Total non-maturity investments		12,183		54		(92	)		12,145


Total	$	272,649	$	3,318	$	(238	)	$	275,729

As of December 31, 2010


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Obligations of the U.S. Treasury	$	5,011	$	134	$	—		$	5,145
Obligations of U.S. government agencies		156,301		704		(367	)		156,638
Obligations of state & political subdivisions		32,013		358		(99	)		32,272
Mortgage-backed securities		72,907		866		(246	)		73,527
Collateralized mortgage obligations		2,068		30		—			2,098
Corporate bonds		10,803		—		(159	)		10,644
Other debt securities		1,750		—		—			1,750

Total fixed income investments		280,853		2,092		(871	)		282,074

Bond mutual funds		34,491		241		(10	)		34,722
Equity securities		243		13		—			256

Total non-maturity investments		34,734		254		(10	)		34,978


Total	$	315,587	$	2,346	$	(881	)	$	317,052

The following table shows the amount of securities that were in an unrealized loss position:

As of September 30, 2011

		Unrealized Loss		Unrealized Loss			Unrealized Loss		Unrealized Loss			Unrealized Loss		Unrealized Loss
(dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Obligations of U.S. government agencies	$	21,349	$	(27	)	$	—	$	—		$	21,349	$	(27	)
Mortgage-backed securities		4,687		(54	)		2,969		(11	)		7,656		(65	)
Collateralized mortgage obligations		3,856		(15	)		—		—			3,856		(15	)
Investment certificates of deposit		445		(4	)		—		—			445		(4	)
Corporate bonds		4,006		(35	)		—		—			4,006		(35	)

Total fixed income investments		34,343		(135	)		2,969		(11	)		37,312		(146	)

Bond mutual funds		11,220		(92	)		—		—			11,220		(92	)

Total	$	45,563	$	(227	)	$	2,969	$	(11	)	$	48,532	$	(238	)

The following table shows the amount of securities that were in an unrealized loss position:

As of December 31, 2010

		Unrealized Loss		Unrealized Loss			Unrealized Loss		Unrealized Loss		Unrealized Loss		Unrealized Loss
(dollars in thousands)	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of U.S. government agencies	$	46,027	$	(367	)	$	—	$	—	$	46,027	$	(367	)
Obligations of state & political subdivisions		10,158		(99	)		—		—		10,158		(99	)
Mortgage-backed securities		32,765		(246	)		—		—		32,765		(246	)
Corporate bonds		10,645		(159	)		—		—		10,645		(159	)

Total fixed income investments		99,595		(871	)		—		—		99,595		(871	)

Bond mutual funds		603		(10	)		—		—		603		(10	)

Total	$	100,198	$	(881	)	$	—	$	—	$	100,198	$	(881	)

Management evaluates the Corporation’s investment securities that are in an unrealized loss position in order to determine if the decline in market 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 investment securities in the Corporation’s investment portfolio are highly rated as investment grade. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, interest rates and the bond rating of each security. The unrealized losses presented in the tables above are temporary in nature and are primarily related to market interest rates rather than the underlying credit quality of the issuers. Management does not believe that these unrealized losses are other-than-temporary. The Corporation 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 September 30, 2011, securities having a market value of $131.3 million were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank of Philadelphia discount window program, Federal Home Loan Bank of Pittsburgh (“FHLB”) borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Bank’s borrowing agreement with the FHLB.

The amortized cost and fair value of available for sale investment securities as of September 30, 2011, by contractual maturity, are shown below:


	September 30, 2011
(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,645	$	1,645
Due after one year through five years		59,441		59,844
Due after five years through ten years		55,375		55,487
Due after ten years		17,528		17,591

Subtotal		133,989		134,567
Mortgage-related securities		126,477		129,017

Total available for sale securities	$	260,466	$	263,584

Included in the investment portfolio, but not in the table above, are $11.9 million of bond mutual funds and $284 thousand of equity securities which have no stated maturity or constant stated coupon rate. 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.

5. Loans and Leases

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


	September 30, 2011		December 31, 2010
Loans held for sale	$	4,857	$	4,838

Real estate loans:
Commercial mortgage	$	414,656	$	385,615
Home equity lines and loans		209,687		216,853
Residential mortgage		279,696		261,983
Construction		59,303		45,403

Total real estate loans		963,342		909,854
Commercial and industrial		271,228		239,266
Consumer		12,235		12,200
Leases		31,552		35,397

Total portfolio loans and leases		1,278,357		1,196,717
Total loans and leases	$	1,283,214	$	1,201,555

Loans with predetermined rates	$	584,204	$	544,784
Loans with adjustable or floating rates		699,010		656,771

Total loans and leases	$	1,283,214	$	1,201,555

Net deferred loan origination costs included in the above loan table	$	485	$	378

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


(dollars in thousands)	September 30, 2011			December 31, 2010
Minimum lease payments receivable	$	35,400		$	39,711
Unearned lease income		(5,184	)		(5,808	)
Initial direct costs and deferred fees		1,336			1,494

Total	$	31,552		$	35,397

C. Troubled Debt Restructurings (“TDRs”):

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

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

The Corporation has adopted the provisions of Accounting Standards Update (“ASU”) No. 2011-02, “Receivables (Topic 310)—A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” As such, the Corporation reassessed all loan and lease modifications occurring since January 1, 2011 for identification as troubled debt restructurings. The reassessment of all loan and lease modifications since January 1, 2011 did not uncover any previously undisclosed TDRs.

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


(dollars in thousands)	September 30, 2011		December 31, 2010
TDRs included in nonperforming loans and leases	$	901	$	1,879
TDRs in compliance with modified terms		7,182		4,693

Total TDRs	$	8,083	$	6,572

The following table presents information regarding loan and lease modifications categorized as Troubled Debt Restructurings for the three months ended September 30, 2011:


(dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial		2	$	230	$	230
Construction		1		1,105		1,105
Leases		3		28		28

Total		6	$	1,363	$	1,363

The following table presents information regarding loan and lease modifications categorized as Troubled Debt Restructurings for the nine months ended September 30, 2011:


(dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential		1	$	495	$	495
Commercial and industrial		3		479		479
Construction		1		1,105		1,105
Leases		10		128		128

Total		15	$	2,207	$	2,207

The following table presents information regarding the types of loan and lease modifications made for the three months ended September 30, 2011:


	Number of Contracts
	Interest Rate Change		Loan Term Extension		Interest Rate Change and Term Extension		Interest Rate Change with Interest-Only Period		Contractual Payment Reduction (Leases only)
Commercial and industrial		—		—		2		—		—
Construction		—		1		—		—		—
Leases		—		—		—		—		3

Total		—		1		2		—		3

The following table presents information regarding the types of loan and lease modifications made for the nine months ended September 30, 2011:


	Number of Contracts
	Interest Rate Change		Loan Term Extension		Interest Rate Change and Term Extension		Interest Rate Change with Interest-Only Period		Contractual Payment Reduction (Leases only)
Residential		—		—		—		1
Commercial and industrial		—		—		2		1		—
Construction		—		1		—		—		—
Leases		—		—		—		—		10

Total		—		1		2		2		10

During the three and nine months ended September 30, 2011, there were no defaults of loans or leases that had been previously modified to troubled debt restructurings.

D. Non-Performing Loans and Leases⁽¹⁾


(dollars in thousands)	September 30, 2011		December 31, 2010
Non-accrual loans and leases:
Commercial mortgage	$	1,113	$	1,911
Home equity lines and loans		2,401		987
Residential mortgage		3,229		4,411
Construction		4,919		202
Commercial and industrial		2,453		1,692
Consumer		7		15
Leases		86		279

Total	$	14,208	$	9,497

Loans and leases 90 days or more past due and still accruing:
Consumer	$	—		10

Total		—		10

Total non-performing loans and leases	$	14,208	$	9,507

⁽¹⁾

Purchased credit-impaired loans, which have been recorded at their fair values at the Merger date and which are performing, are excluded from this table, with the exception of $1.4 million and $785 thousand as of September 30, 2011 and December 31, 2010, respectively, of purchased credit-impaired loans which became non-performing subsequent to acquisition.

E. Purchased Credit-Impaired Loans

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


(dollars in thousands)	September 30, 2011		December 31, 2010
Outstanding principal balance	$	23,682	$	27,489
Carrying amount⁽¹⁾		14,312		17,837

(1)

Includes $823 thousand and $1.1 million of purchased credit-impaired loans as of September 30, 2011 and December 31, 2010, respectively, for which the Bank could not estimate the timing or amount of expected cash flows to be collected at the Merger date, and for which no accretable yield is recognized. Additionally, the table above includes $1.4 million and $785 thousand as of September 30, 2011 and December 31, 2010, respectively, of purchased credit-impaired loans that subsequently became non-performing, which are disclosed in Note 5D, above, and which also have no accretable yield.

The following table presents changes in the accretable discount on purchased credit-impaired loans, for which the Bank applies ASC 310-30, for the nine months ended September 30, 2011:


(dollars in thousands)	Accretable Discount
Balance, December 31, 2010	$	6,333
Accretion		(922	)
Reclassifications from nonaccretable difference		3,449
Additions		2,276
Disposals		(168	)

Balance, September 30, 2011	$	10,968

F. Age Analysis of Past Due Loans and Leases

The following tables present an aging of the Corporation’s loan and lease portfolio as of September 30, 2011 and December 31, 2010:


(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Loans and Leases		Over 89 Days and Accruing		Delinquency %⁽¹⁾
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Loans and Leases		Over 89 Days and Accruing		Delinquency %⁽¹⁾
As of September 30, 2011
Commercial mortgage	$	425	$	—	$	1,510	$	1,935	$	412,721	$	414,656	$	—		0.47	%
Home equity lines and loans		691		107		1,607		2,405		207,282		209,687		—		1.15	%
Residential mortgage		1,549		301		2,330		4,180		275,516		279,696		—		1.49	%
Construction		—		—		4,919		4,919		54,384		59,303		—		8.29	%
Commercial and industrial		947		800		1,571		3,318		267,910		271,228		—		1.22	%
Consumer		4		1		6		11		12,224		12,235		—		0.09	%
Leases		89		142		66		297		31,255		31,552		—		0.94	%

	$	3,705	$	1,351	$	12,009	$	17,065	$	1,261,292	$	1,278,357	$	—		1.33	%

⁽¹⁾	Delinquency % equals total past due divided by total loans and leases


(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Loans and Leases		Over 89 Days and Accruing		Delinquency %(1)
(dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Over 89 Days Past Due		Total Past Due		Current		Total Loans and Leases		Over 89 Days and Accruing		Delinquency %(1)
As of December 31, 2010
Commercial mortgage	$	377	$	—	$	1,854	$	2,231	$	383,384	$	385,615	$	—		0.58	%
Home equity lines and loans		958		981		988		2,927		213,926		216,853		—		1.35	%
Residential mortgage		958		1,089		1,885		3,932		258,051		261,983		—		1.50	%
Construction		1,730		201		—		1,931		43,472		45,403		—		4.25	%
Commercial and industrial		1,467		68		1,344		2,879		236,387		239,266		—		1.20	%
Consumer		21		3		23		47		12,153		12,200		10		0.39	%
Leases		244		257		203		704		34,693		35,397		—		1.99	%

	$	5,755	$	2,599	$	6,297	$	14,651	$	1,182,066	$	1,196,717	$	10		1.22	%

⁽¹⁾	Delinquency % equals total past due divided by total loans and leases

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

The following tables detail the roll-forward of the Corporation’s allowance for loan and lease losses, by loan category, for the three- and nine months ended September 30, 2011:


(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total
Balance, June 30, 2011	$	2,571		$	1,476		$	1,246		$	1,409		$	3,619		$	129		$	638		$	253	$	11,341
Charge-offs		(599	)		(56	)		(159	)		(812	)		(1	)		(7	)		(183	)		—		(1,817	)
Recoveries		—			20			—			—			130			—			152			—		302
Provision for loan and lease losses		791			94			90			812			(103	)		9			(11	)		146		1,828

Balance, September 30, 2011	$	2,763		$	1,534		$	1,177		$	1,409		$	3,645		$	131		$	596		$	399	$	11,654


(dollars in thousands)	Commercial Mortgage			Home Equity Lines and Loans			Residential Mortgage			Construction			Commercial and Industrial			Consumer			Leases			Unallocated		Total
Balance, December 31, 2010	$	2,534		$	1,563		$	843		$	633		$	3,565		$	115		$	766		$	256	$	10,275
Charge-offs		(827	)		(506	)		(271	)		(1,172	)		(492	)		(76	)		(840	)		—		(4,184	)
Recoveries		—			20			—			—			133			5			373			—		531
Provision for loan and lease losses		1,056			457			605			1,948			439			87			297			143		5,032

Balance, September 30, 2011	$	2,763		$	1,534		$	1,177		$	1,409		$	3,645		$	131		$	596		$	399	$	11,654

The following table details the roll-forward of the Corporation’s allowance for loan and lease losses for the three and nine months ended September 30, 2010:


(dollars in thousands)
Balance, June 30, 2010	$	9,841
Charge-offs		(3,934	)
Recoveries		154
Provision for loan and lease losses		4,236

Balance, September 30, 2010	$	10,297


(dollars in thousands)
Balance, December 31, 2009	$	10,424
Charge-offs		(8,951	)
Recoveries		481
Provision for loan and lease losses		8,343

Balance, September 30, 2010	$	10,297

The following table details the allocation of the allowance for loan and lease losses by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of September 30, 2011 and December 31, 2010:


(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Unallocated		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Unallocated		Total
As of September 30, 2011
Allowance on loans and leases:
Individually evaluated for impairment	$	1	$	17	$	198	$	637	$	126	$	—	$	13	$	—	$	992
Collectively evaluated for impairment		2,760		1,517		979		768		3,519		131		583		399		10,656
Purchased credit- impaired⁽¹⁾		2		—		—		4		—		—		—		—		6

Total	$	2,763	$	1,534	$	1,177	$	1,409	$	3,645	$	131	$	596	$	399	$	11,654

As of December 31, 2010
Allowance on loans and leases:
Individually evaluated for impairment	$	111	$	391	$	34	$	—	$	56	$	—	$	27	$	—	$	619
Collectively evaluated for impairment		2,423		1,172		809		633		3,509		115		739		256		9,656
Purchased credit- impaired⁽¹⁾		—		—		—		—		—		—		—		—		—

Total	$	2,534	$	1,563	$	843	$	633	$	3,565	$	115	$	766	$	256	$	10,275

⁽¹⁾

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

The following table details the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of September 30, 2011 and December 31, 2010:


(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
(dollars in thousands)	Commercial Mortgage		Home Equity Lines and Loans		Residential Mortgage		Construction		Commercial and Industrial		Consumer		Leases		Total
As of September 30, 2011
Carrying value of loans and leases:
Individually evaluated for impairment	$	160	$	2,437	$	8,198	$	5,972	$	2,539	$	7	$	679	$	19,992
Collectively evaluated for impairment		402,588		207,214		271,174		51,822		268,155		12,227		30,873		1,244,053
Purchased credit- impaired⁽¹⁾		11,908		36		324		1,509		534		1		—		14,312

Total	$	414,656	$	209,687	$	279,696	$	59,303	$	271,228	$	12,235	$	31,552	$	1,278,357

As of December 31, 2010
Carrying value of loans and leases:
Individually evaluated for impairment	$	1,855	$	1,023	$	7,321	$	—	$	1,836	$	25	$	1,356	$	13,416
Collectively evaluated for impairment		372,452		215,717		254,324		40,054		236,703		12,173		34,041		1,165,464
Purchased credit- impaired⁽¹⁾		11,308		113		338		5,349		727		2		—		17,837

Total	$	385,615	$	216,853	$	261,983	$	45,403	$	239,266	$	12,200	$	35,397	$	1,196,717

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

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

•

Pass—Loans considered to be satisfactory with no indications of deterioration.

•

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

•

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

•

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

In addition, the remaining segments of the loan and lease portfolio, which include residential mortgage, home equity lines and loans, consumer, and leases, are allocated portions of the allowance based on their performance status.

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to allocate the allowance for loan and lease losses as of September 30, 2011 and December 31, 2010:


	Credit Risk Profile by Internally Assigned Grade⁽²⁾
(dollars in thousands)	Commercial Mortgage				Construction				Commercial and Industrial				Total
(dollars in thousands)	September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010
Pass	$	409,441	$	373,098	$	44,718	$	36,230	$	264,770	$	232,717	$	718,929	$	642,045
Special Mention		2,582		9,141		3,607		6,486		894		4,969		7,083		20,596
Substandard		2,633		1,680		10,726		2,687		5,062		735		18,421		5,102
Doubtful⁽¹⁾		—		1,696		252		—		502		845		754		2,541

Total	$	414,656	$	385,615	$	59,303	$	45,403	$	271,228	$	239,266	$	745,187	$	670,284

⁽¹⁾ Loans balances classified as “Doubtful” have been reduced by partial charge-offs, and are carried at their net realizable value.

⁽²⁾ Internally assigned grades have been updated between January 1, 2011 and September 30, 2011.


Credit Risk Profile by Payment Activity
(dollars in thousands)	Residential Mortgage				Home Equity Lines and Loans				Consumer				Leases				Total
(dollars in thousands)	September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010
Performing	$	276,467	$	257,572	$	207,286	$	215,866	$	12,228	$	12,175	$	31,466	$	35,118	$	527,447	$	520,731
Non-performing		3,229		4,411		2,401		987		7		25		86		279		5,723		5,702

Total	$	279,696	$	261,983	$	209,687	$	216,853	$	12,235	$	12,200	$	31,552	$	35,397	$	533,170	$	526,433

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 as of the dates or for the periods indicated:


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
As of or for the three months ended September 30, 2011
Impaired loans with related allowance:
Commercial mortgage	$	160	$	158	$	1	$	158	$	—	$	—
Home equity lines and loans		2,437		2,489		18		2,493		1		—
Residential mortgage		7,476		7,569		197		7,597		66		—
Construction		5,973		7,162		636		7,613		14		—
Commercial and industrial		2,443		2,981		127		3,053		7		—

Total	$	18,489	$	20,359	$	979	$	20,914	$	88	$	—
Impaired loans without related allowance^{(1) (3)}:
Residential mortgage	$	721	$	811	$	—	$	739	$	—	$	—
Commercial and industrial		95		99		—		332		—		—
Consumer		7		7		—		7		—		—

Total	$	823	$	917	$	—	$	1,078	$	—	$	—

Grand total	$	19,312	$	21,276	$	979	$	21,992	$	88	$	—


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance		Average Principal Balance		Interest Income Recognized		Cash-Basis Interest Income Recognized
As of or for the nine months ended September 30, 2011
Impaired loans with related allowance:
Commercial mortgage	$	160	$	158	$	1	$	158	$	—	$	—
Home equity lines and loans		2,437		2,489		18		2,502		11		—
Residential mortgage		7,476		7,569		197		7,620		211		—
Construction		5,973		7,162		636		8,015		117		—
Commercial and industrial		2,443		2,981		127		3,064		41		—

Total	$	18,489	$	20,359	$	979	$	21,359	$	380	$	—
Impaired loans without related allowance^{(1) (3)}:
Residential mortgage	$	721	$	811	$	—	$	762	$	—	$	—
Commercial and industrial		95		99		—		346		2		—
Consumer loans		7		7		—		8		—		—

Total	$	823	$	917	$	—	$	1,116	$	2	$	—

Grand total	$	19,312	$	21,276	$	979	$	22,475	$	382	$	—

⁽¹⁾

The 2011 tables above do not include the recorded investment of $679 thousand of impaired leases with a related $13 thousand allowance for loan and lease losses.

⁽²⁾

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

⁽³⁾

The table above excludes all purchased credit-impaired loans, which are discussed in Note 5E, above.


(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance
(dollars in thousands)	Recorded Investment⁽²⁾		Principal Balance		Related Allowance
As of December 31, 2010
Impaired loans with related allowance:
Commercial mortgage	$	1,696	$	2,285	$	110
Home equity lines and loans		749		1,099		390
Residential mortgage		2,480		2,480		56
Commercial and industrial		1,514		4,294		123

Total	$	6,439	$	10,158	$	679
Impaired loans without related allowance^{(1) (3)}:
Commercial mortgage	$	158	$	158	$	—
Home equity lines and loans		273		279		—
Residential mortgage		4,841		5,170		—
Commercial and industrial		323		500		—
Consumer		25		26		—

Total	$	5,620	$	6,133	$	—

Grand total	$	12,059	$	16,291	$	679

⁽¹⁾

The 2010 table above does not include the recorded investment of $1.4 million of impaired leases without a related Allowance.

⁽²⁾

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

6. Deposits

The following table details the components of deposits:


(dollars in thousands)	September 30, 2011		December 31, 2010
Non-interest-bearing demand	$	292,415	$	282,356
Savings, NOW and market rate accounts		739,982		696,094
Time deposits		224,331		245,669
Wholesale time deposits		28,992		37,201
Other wholesale deposits		65,428		80,112

	$	1,351,148	$	1,341,432

7. Short-term and Other Borrowings

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 and overnight fed funds are detailed below.

A summary of short-term borrowings is as follows:


(dollars in thousands)	September 30, 2011		December 31, 2010
Overnight fed funds	$	10,000	$	—
Repurchase agreements		12,535		10,051

Total short-term borrowings	$	22,535		10,051

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


(dollars in thousands)	Three Months Ended September 30,					Nine months Ended September 30,
	2011			2010		2011			2010
Balance at period-end	$	22,535		$	—	$	22,535		$	—
Maximum amount outstanding at any month-end		22,535			—		23,326			—
Average balance outstanding during the period		10,908			—		10,110			249
Weighted-average interest rate:
As of period-end		0.32	%		N/A		0.32	%		N/A
Paid during the period		0.23	%		N/A		0.25	%		0.01	%

B. FHLB Advances and Other Borrowings

The Corporation’s other borrowings consist mainly of advances from the FHLB as well as a commercial mortgage on its Wealth Management Division’s offices located in Bryn Mawr, Pennsylvania.

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


(dollars in thousands)	September 30, 2011		December 31, 2010
Within one year	$	32,790	$	63,680
Over one year through five years		84,408		72,980
Over five years through ten years		22,277		22,345
Over ten years		1,057		1,139

Total	$	140,532	$	160,144

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


	Maturity Range*				Weighted Average Rate			Stated Interest Rate						Balance
Description	From		To		Weighted Average Rate			From			To			September 30, 2011		December 31, 2010
Fixed amortizing		08/02/12		12/29/15		3.56	%		3.15	%		3.90	%	$	12,395	$	19,028
Adjustable amortizing (commercial mortgage)		01/01/29		01/01/29		5.50	%		5.50	%		5.50	%		1,958		2,000
Bullet maturity		11/09/11		05/19/16		2.60	%		1.19	%		4.12	%		78,000		65,500
Convertible-fixed		12/11/12		08/20/18		2.01	%		1.25	%		2.62	%		48,179		73,616

Total														$	140,532	$	160,144

*	Maturity range refers to September 30, 2011 balances

Included in the table above as of September 30, 2011 and December 31, 2010 are $48.2 million and $73.6 million, respectively, of FHLB advances whereby the FHLB has the option, at predetermined times, to convert the fixed interest rate to an adjustable interest rate indexed to the London Interbank Offered Rate (“LIBOR”). The Corporation has the option to prepay these advances, without penalty, if the FHLB elects to convert the interest rate to an adjustable rate. As of September 30, 2011, substantially all the FHLB advances with this convertible feature are subject to conversion in fiscal 2011. These advances are included in the periods in which they mature, rather than the period in which they are subject to conversion.

C. Other FHLB Information

As of September 30, 2011, the Corporation had a maximum borrowing capacity with the FHLB of approximately $657.9 million, of which the unused capacity was $510.5 million. In addition, there were unused capacities of $54.0 million in overnight federal funds line and $61.1 million of Federal Reserve Discount Window borrowings as of September 30, 2011. 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 $12.2 million at September 30, 2011, and $14.2 million at December 31, 2010. The carrying amount of the FHLB stock approximates its redemption value. On December 23, 2008, the FHLB announced that it would voluntarily suspend the payment of dividends and the repurchase of excess capital stock until further notice. There were no dividends paid on FHLB stock during the three- and nine month periods ended September 30, 2011 and 2010. During the three and nine months ended September 30, 2011 the FHLB redeemed $642 thousand and $2.0 million of its capital stock, respectively.

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 regularly reviews financial statements filed by the FHLB. The most recent financial information available as of October 27, 2011 indicates net income of $11.9 million for the third quarter of 2011. In addition, credit-related other-than-temporary impairments have declined by more than 74.2% for the three months ended September 30, 2011, as compared to the same period in 2010. Management believes that these indicators, as well as the fact that the FHLB has resumed redemption of its capital stock, support the Corporation’s assessment that its investment in FHLB capital stock is not other-than-temporarily impaired.

8. Stock Based Compensation

A. General Information

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

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

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

The fair value of the RSAs is based on the closing price on the day preceding the date of the grant.

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

B. Stock Options

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

The following table provides information about options outstanding for the three months ended September 30, 2011:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding June 30, 2011		908,540		$	20.19	$	4.48
Granted		—			—		—
Forfeited		(7,830	)		21.12		4.82
Expired		(19,330	)		20.99		2.63
Exercised		(4,910	)		18.56		3.95

Options outstanding September 30, 2011		876,470		$	20.18	$	4.49

The following table provides information about options outstanding for the nine months ended September 30, 2011:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding December 31, 2010		993,710		$	19.82	$	4.38
Granted		—			—		—
Forfeited		(16,320	)		20.94		4.80
Expired		(32,330	)		21.87		3.82
Exercised		(68,590	)		14.08		2.76

Options outstanding September 30, 2011		876,470		$	20.18	$	4.49

The following table provides information about unvested options for the three months ended September 30, 2011:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested options June 30, 2011		241,084		$	20.71	$	4.76
Granted		—			—		—
Vested		(74,739	)		21.16		4.82


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Forfeited		(7,830	)		21.12		4.81

Unvested options September 30, 2011		158,515		$	20.49	$	4.73

The following table provides information about unvested options for the nine months ended September 30, 2011:


	Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested options December 31, 2010		249,574		$	20.72	$	4.76
Granted		—			—		—
Vested		(74,739	)		21.16		4.82
Forfeited		(16,320	)		20.94		4.79

Unvested options September 30, 2011		158,515		$	20.49	$	4.73

For the three and nine months ended September 30, 2011 there were no grants of stock options.

For the three months ended September 30, 2011, the Corporation recognized $83 thousand of expense related to the stock options. For the nine months ended September 30, 2011, the Corporation recognized $280 thousand of expense related to the stock options. As of September 30, 2011, the total not-yet-recognized compensation expense of unvested stock options is $551 thousand. This expense will be recognized over a weighted average period of 2.00 years.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the three and nine months ended September 30, 2011 and 2010 are detailed below:


(dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Proceeds from exercise of stock options	$	91	$	85	$	966	$	257
Related tax benefit recognized		4		12		141		58

Net proceeds of options exercised	$	95	$	97	$	1,107	$	315

Intrinsic value of options exercised	$	11	$	72	$	444	$	425

The following table provides information about options outstanding and exercisable at September 30, 2011:


	Outstanding		Exercisable
Number of shares		876,470		717,955
Weighted average exercise price	$	20.17	$	20.10
Aggregate intrinsic value	$	41,419	$	41,419
Weighted average contractual term in years		4.5		3.5

C. Restricted Stock Awards and Performance Stock Awards

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

The compensation expense for the RSAs is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight line basis over the vesting period, accelerated for retirement eligibility. Stock restrictions are subject to alternate vesting for death and disability and retirement.

On January 1, 2011, the Corporation granted 9,000 RSAs with a grant date fair value of $18.56 per share. The awards are subject to a three-year cliff vesting period and are contingent on achievement of specific performance goals.

On August 9, 2011, the Corporation granted 15,648 RSAs with a grant date fair value of $19.17 per share. The awards are subject to a four-year cliff vesting period and are contingent on continued employment through the vesting date.

For the three and nine months ended September 30, 2011, the Corporation recognized $36 thousand and $85 thousand of expense related to the Corporation’s RSAs, respectively. As of September 30, 2011, there was $546 thousand of unrecognized compensation cost related to RSAs. This cost will be recognized over a weighted average period of 3.3 years.

The following table details the unvested RSAs for the three- and nine month periods ended September 30, 2011:


	Three Months Ended September 30, 2011					Nine Months Ended September 30, 2011
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning balance		20,920		$	17.09		11,920		$	16.78
Granted		15,648			19.17		24,648			18.56
Vested		(2,980	)		16.78		(2,980	)		16.78
Forfeited		—			—		—			—

Ending balance		33,588		$	18.09		33,588		$	18.09

The compensation expense for PSAs is measured based on the grant date fair value as calculated using the Monte Carlo Simulation. The Simulation used various assumptions that include expected volatility of 54.8%, a risk free rate of return of 0.74% and a correlation co-efficient of 0.56%.

On August 12, 2011, the Corporation granted 60,238 PSAs at a grant date fair value of $10.07 per share. The awards are subject to a three-year cliff vesting period, and are contingent on continued employment through the vesting date and the attainment of certain performance goals related to total shareholder return indexed to the NASDAQ Community Bank Index for the respective period.

For the three and nine months ended September 30, 2011, the Corporation recognized $137 thousand and $235 thousand of expense related to the PSAs, respectively. As of September 30, 2011, there was $837 thousand of unrecognized compensation cost related to PSAs. This cost will be recognized over a weighted average period of 2.89 years.

The following table details the unvested PSAs for the three and nine month periods ended September 30, 2011:


	Three Months Ended September 30, 2011					Nine Months Ended September 30, 2011
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Beginning balance		58,867		$	9.64		60,267		$	9.64
Granted		60,238			10.07		60,238			10.07
Vested		—			—		—			—
Forfeited		(1,744	)		9.64		(3,144	)		9.64

Ending balance		117,361		$	9.86		117,361		$	9.86

9. Pension and Other Post-Retirement Benefit Plans

The Corporation sponsors two pension plans; the qualified defined benefit pension plan (“QDBP”) and the non-qualified defined benefit pension plan (“SERP”). In addition, the Corporation also sponsors a post-retirement benefit plan (“PRBP”).

On February 12, 2008, the Corporation amended the QDBP to cease further accruals of benefits effective March 31, 2008, and amended the 401(K) Plan to provide for a new class of immediately vested discretionary, non-matching employer contributions effective April 1, 2008. Additionally, the Corporation amended the SERP to expand the class of eligible participants to include certain officers of the Bank and to provide that each participant’s accrued benefit shall be reduced by the actuarially equivalent value of the immediately vested discretionary, non-matching employer contribution to the 401(K) Plan made on his or her behalf.

The following table provides a reconciliation of the components of the net periodic benefits cost (benefit) for the three and nine months ended September 30, 2011 and 2010:


	Three Months Ended September 30,
	SERP				QDBP						PRBP
(dollars in thousands)	2011		2010		2011			2010			2011			2010
Service cost	$	78	$	46	$	—		$	(24	)	$	—		$	—
Interest cost		52		56		421			431			12			13
Expected return on plan assets		—		—		(555	)		(596	)		—			—
Amortization of transition obligation		—		—		—			—			6			6
Amortization of prior service costs		21		22		—			—			(14	)		(35	)
Amortization of net (gain) loss		—		7		200			194			19			19

Net periodic benefit cost	$	151	$	131	$	66		$	5		$	23		$	3


	Nine Months Ended September 30,
	SERP				QDBP						PRBP
(dollars in thousands)	2011		2010		2011			2010			2011			2010
Service cost	$	235	$	138	$	—		$	—		$	—		$	—
Interest cost		156		168		1,263			1,291			36			39
Expected return on plan assets		—		—		(1,665	)		(1,574	)		—			—
Amortization of transition obligation		—		—		—			—			19			18
Amortization of prior service costs		63		66		—			—			(42	)		(105	)
Amortization of net (gain) loss		—		21		600			576			57			57

Net periodic benefit cost	$	454	$	393	$	198		$	293		$	70		$	9

QDBP: As stated in the Corporation’s 2010 Annual Report, the Corporation did not have any minimum funding requirements for its QDBP for 2010. As of September 30, 2011, no contributions were made to the QDBP.

SERP: The Corporation contributed $37 thousand and $110 thousand during the three and nine months ended September 30, 2011 and it is expected to contribute an additional $38 thousand to the SERP plan for the remaining three months of 2011.

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

10. Segment Information

The Corporation aggregates certain of its operations and has identified four segments as follows: Banking, Wealth Management, Mortgage Banking, and All Other.

Segment information for the three and nine months ended September 30, 2011 and 2010 is as follows:


	Three Months Ended September 30,
	2011															2010
(dollars in thousands)	Banking			Wealth Management			Mortgage Banking			All Other			Consolidated			Banking			Wealth Management			Mortgage Banking			All Other			Consolidated
Net interest income (expense)	$	15,943		$	1		$	5		$	(295	)	$	15,654		$	15,027		$	3		$	—		$	(248	)	$	14,782
Less loan loss provision		1,828			—			—			—			1,828			4,236			—			—			—			4,236

Net interest income (expense) after loan loss provision		14,115			1			5			(295	)		13,826			10,791			3			—			(248	)		10,546

Other income:
Fees for wealth management services		—			6,098			—			—			6,098			—			3,689			—			—			3,689
Service charges on deposit accounts		646			—			—			—			646			672			—			—			—			672
Loan servicing and other fees		47			—			402			—			449			61			—			361			—			422
Net gain on sale of loans		—			—			764			—			764			10			—			1,179			—			1,189
Net loss on sale of OREO		70			—			—			—			70			—			—			—			—			—
Other operating income		1,148			5			31			65			1,249			954			8			60			59			1,081

Total other income.		1,911			6,103			1,197			65			9,276			1,697			3,697			1,600			59			7,053
Other expenses:
Salaries and wages		4,702			2,306			296			335			7,639			4,801			1,735			299			212			7,047
Employee benefits		1,103			563			33			(25	)		1,674			1,328			315			20			(17	)		1,646
Occupancy and equipment		1,800			291			43			(44	)		2,090			1,699			195			50			(54	)		1,890
Due diligence and merger-related expenses		135			—			—			—			135			4,292			—			—			—			4,292
Impairment of MSRs		—			—			468			—			468			—			—			168			—			168
Other operating expenses		2,990			1,002			440			(453	)		3,979			3,646			369			409			(102	)		4,322

Total other expenses		10,730			4,162			1,280			(187	)		15,985			15,766			2,614			946			39			19,365

Segment profit (loss)		5,296			1,942			(78	)		(43	)		7,117			(3,278	)		1,086			654			(228	)		(1,766	)
Intersegment pretax (revenues) expenses*		567			31			9			(607	)		—			94			25			10			(129	)		—

Pre-tax segment profit (loss) after eliminations	$	5,863		$	1,973		$	(69	)	$	(650	)	$	7,117		$	(3,184	)	$	1,111		$	664		$	(357	)	$	(1,766	)

% of segment (loss) pre-tax profit (loss) after eliminations		82.4	%		27.7	%		(1.0	)%		(9.1	)%		100.0	%		180.4	%		(62.9	)%		(37.7	)%		20.2	%		100.0	%
Period-end segment assets (in millions)	$	1,714		$	33		$	5		$	5		$	1,757		$	1,665		$	13		$	6		$	30		$	1,714


	Nine Months Ended September 30,
	2011															2010
(dollars in thousands)	Banking			Wealth Management			Mortgage Banking			All Other			Consolidated			Banking			Wealth Management			Mortgage Banking			All Other			Consolidated
Net interest income (expense)	$	47,743		$	5		$	1		$	(889	)	$	46,860		$	37,247		$	7		$	—		$	(304	)	$	36,950
Less loan loss provision		5,032			—			—			—			5,032			8,343			—			—			—			8,343

Net interest income (expense) after loan loss provision		42,711			5			1			(889	)		41,828			28,904			7			—			(304	)		28,607

Other income:
Fees for wealth management services		—			15,363			—			—			15,363			—			11,418			—			—			11,418
Service charges on deposit accounts		1,841			—			—			—			1,841			1,662			—			—			—			1,662
Loan servicing and other fees		158			—			1,212			—			1,370			144			—			1,039			—			1,183
Net gain on sale of loans		—			—			1,818			—			1,818			10			—			2,310			—			2,320
Net loss on sale of OREO		(37	)		—			(22	)		—			(59	)		—			—			—			—			—
Other operating income		4,045			13			78			182			4,318			3,214			27			160			118			3,519

Total other income		6,007			15,376			3,086			182			24,651			5,030			11,445			3,509			118			20,102
Other expenses:
Salaries and wages		13,112			5,935			825			808			20,680			11,058			5,277			799			545			17,679
Employee benefits		3,444			1,498			137			(79	)		5,000			3,321			1,227			82			(62	)		4,568
Occupancy and equipment		5,596			732			128			(133	)		6,323			4,335			593			153			(154	)		4,927
Due diligence and merger-related expenses		616			—			—			—			616			5,277			—			—			—			5,277
Impairment of MSRs		—			—			672			—			672			—			—			386			—			386
Other operating expenses		10,014			2,172			1,055			(1,481	)		11,760			8,495			1,224			1,039			(374	)		10,384

Total other expenses		32,782			10,337			2,817			(885	)		45,051			32,486			8,321			2,459			(45	)		43,221

Segment profit (loss)		15,936			5,044			270			178			21,428			1,448			3,131			1,050			(141	)		5,488
Intersegment pretax (revenues) expenses*		1,862			90			29			(1,981	)		—			798			83			30			(911	)		—

Pre-tax segment profit (loss) after eliminations	$	17,798		$	5,134		$	299		$	(1,803	)	$	21,428		$	2,246		$	3,214		$	1,080		$	(1,052	)	$	5,488

% of segment (loss) pre-tax profit (loss) after eliminations		83.1	%		23.9	%		1.4	%		(8.4	)%		100.0	%		40.9	%		58.6	%		19.7	%		(19.2	)%		100.0	%
Period-end segment assets (in millions)	$	1,714		$	33		$	5		$	5		$	1,757		$	1,665		$	13		$	6		$	30		$	1,714

*	Inter-segment revenues consist of rental payments, insurance commissions and a management fee.

Other segment information is as follows:

Wealth Management Segment Activity


(dollars in millions)	September 30, 2011		December 31, 2010
Total wealth assets under management, administration, supervision and brokerage	$	4,501	$	3,413

Mortgage Segment Activity


(dollars in thousands)	September 30, 2011		December 31, 2010
Mortgage loans serviced for others	$	593,125	$	605,485
Mortgage servicing rights		4,206		4,925

11. Mortgage Servicing Rights

The following tables summarize the Corporation’s activity related to mortgage servicing rights (“MSRs”) for the three and nine months ended September 30, 2011 and 2010:


	Three Months Ended September 30,
(dollars in thousands)	2011			2010
Balance, July 1	$	4,662		$	3,759
Additions		209			624
Amortization		(197	)		(206	)
Recovery		—			4
Impairment		(468	)		(172	)

Balance, September 30	$	4,206		$	4,009

Fair value	$	4,206		$	4,082


	Nine Months Ended September 30,
(dollars in thousands)	2011			2010
Balance, January 1	$	4,925		$	4,059
Additions		477			951
Amortization		(524	)		(615	)
Recovery		—			4
Impairment		(672	)		(390	)

Balance, September 30	$	4,206		$	4,009

Fair value	$	4,206		$	4,082

As of September 30, 2011 and December 31, 2010, key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:


(dollars in thousands)	September 30, 2011			December 31, 2010
Fair value amount of MSRs	$	4,206		$	5,815
Weighted average life (in years)		4.0			5.6
Prepayment speeds (constant prepayment rate)*		18.9			13.0
Impact on fair value:
10% adverse change	$	(257	)	$	(265	)
20% adverse change	$	(489	)	$	(510	)
Discount rate		10.25	%		10.26	%
Impact on fair value:
10% adverse change	$	(123	)	$	(210	)
20% adverse change	$	(239	)	$	(406	)

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

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

12. Goodwill and Other Intangibles

The Corporation’s goodwill and intangible assets related to the acquisitions of Lau Associates LLC (“Lau”) in July, 2008, FKF in July, 2010 and PWMG in May, 2011 are detailed below:


(dollars in thousands)	Beginning Balance 1/1/11		Additions		Amortization			Ending Balance 9/30/11		Amortization Period
Goodwill – Lau	$	7,918	$	—	$	—		$	7,918	Indefinite
Goodwill – FKF		9,530		—		—			9,530	Indefinite
Goodwill – PWMG		—		5,721		—			5,721	Indefinite
Core deposit intangible		1,951		—		(246	)		1,705	10 years
Customer relationships		4,473		8,610		(450	)		12,633	15 to 20 years
Non compete agreement		400		3,830		(272	)		3,958	5.5 to 10 years
Brand (trade name)		240		—		—			240	Indefinite

Total	$	24,512	$	18,161	$	(968	)	$	41,705

The Corporation performed its annual review of goodwill and identifiable intangible assets at December 31, 2010 in accordance with ASC 350, “Intangibles Goodwill and Other.” For the nine months ended September 30, 2011, the Corporation determined there were no events that would trigger impairment testing of goodwill and other intangible assets.

13. Shareholders’ Equity

Dividend

During the third quarter of 2011, the Corporation declared and paid a regular quarterly dividend of $0.15 per share. This payment totaled $1.9 million, based on outstanding shares at August 9, 2011 of 12,949,313. On October 27, 2011, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.15 per share payable December 1, 2011 to shareholders of record as of November 8, 2011.

S-3 Shelf Registration Statement and Offerings Thereunder

In June 2009, the Corporation filed a shelf registration statement (the “Shelf Registration Statement”) which allows the Corporation to raise additional capital through offers and sales of registered securities consisting of common stock, warrants to purchase common stock, stock purchase contracts or units consisting of any combination of the foregoing securities. Using the prospectus in the Shelf Registration Statement, together with applicable prospectus supplements, the Corporation may sell, from time to time, in one or more offerings, any amount of such securities in a dollar amount up to $90,000,000, in the aggregate.

On May 18, 2010, through a registered direct stock offering under the Shelf Registration Statement, the Corporation issued 1,548,167 common shares, at a price of $17.00 per share, raising $24.6 million after deducting placement agent’s fees and other offering expenses of $1.7 million.

On July 20, 2009, the Corporation filed with the Securities and Exchange Commission a prospectus supplement in order to register 850,000 shares of its common stock, under the Shelf Registration Statement in connection with a Dividend Reinvestment and Stock Purchase Plan (the “Plan”). The Plan allows for the grant of a request for waiver (“RFW”) above the Plan maximum investment of $120 thousand per account per year. An RFW is granted based on a variety of factors, including the Corporation’s current and projected capital needs, prevailing market prices of the Corporation’s common stock and general economic and market conditions. The Plan is intended to allow both existing shareholders and new investors to easily and conveniently increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions. For the nine months ended September 30, 2011, the Corporation issued 357,793 shares and raised $6.8 million through the Plan. As of September 30, 2011, there are 291,391 shares remaining for issuance under the Plan.

14. Accounting for Uncertainty in Income Taxes

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

The Corporation is subject to income taxes in the United States federal jurisdiction and multiple state jurisdictions. The Corporation is no longer subject to U.S. Federal income tax examination by taxing authorities for years before 2008.

The Corporation’s policy is to record interest and penalties on uncertain tax positions as income tax expense. No interest or penalties were accrued in the three and nine months ended September 30, 2011. There were no reserves for uncertain income tax positions recorded during the three and nine months ended September 30, 2011.

15. Fair Value Measurement

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

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

The value of the Corporation’s available for sale investment securities, which generally include state and municipal securities, U.S. government agencies and mortgage backed securities, are reported at fair value. These securities are valued by an independent third party. The third party’s evaluations are based on market data. They utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, their pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, 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 at September 30, 2011 and December 31, 2010 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input.

Fair value of assets measured on a recurring basis as of September 30, 2011:


(dollars in millions)	Total		Level 1		Level 2		Level 3
Assets Measured at Fair Value on a Recurring Basis:
Available for sale investment securities:
Obligations of the U.S. government agencies	$	114.5	$	—	$	114.5	$	—
Obligations of state & political subdivisions		3.5		—		3.5		—
Mortgage-backed securities		107.1		—		107.1		—
Collateralized mortgage obligations		21.9		—		21.9		—
Corporate bonds		12.8		—		12.8		—
Investment certificates of deposit		2.4		—		2.4
Other equity investments		0.3		0.3		—		—
Bond mutual funds		11.9		11.9		—		—
Other debt securities		1.4		—		1.4		—

Total assets measured on a recurring basis at fair value	$	275.8	$	12.2	$	263.6	$	—

Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage servicing rights	$	4.2	$	—	$	4.2	$	—
Impaired loans and leases		19.0		—		19.0		—
Other real estate owned (“OREO”)		1.3		—		1.3		—

Total assets measured on a non-recurring basis at fair value	$	24.5	$	—	$	24.5	$	—

Fair value of assets measured on a recurring basis as of December 31, 2010:


(dollars in millions)	Total		Level 1		Level 2		Level 3
Assets Measured at Fair Value on a Recurring Basis:
Available for sale investment securities:
Obligations of the U.S. Treasury	$	5.1	$	5.1	$	—	$	—
Obligations of the U.S. government agencies		156.6		—		156.6		—
Obligations of state & political subdivisions		32.3		—		32.3		—
Mortgage-backed securities		73.5		—		73.5		—
Collateralized mortgage obligations		2.1		—		2.1		—
Corporate bonds		10.6		—		10.6		—
Other equity investments		0.3		0.3		—		—
Bond mutual funds		34.7		34.7		—		—
Other debt securities		1.8		—		1.8		—

Total assets measured on a recurring basis at fair value	$	317.0	$	40.1	$	276.9	$	—

Assets Measured at Fair Value on a Non-Recurring Basis
Mortgage servicing rights	$	0.7	$	—	$	0.7	$	—
Impaired loans and leases		12.7		—		12.7
OREO		2.5		—		2.5		—

Total assets measured on a non-recurring basis at fair value	$	15.9	$	—	$	15.9	$	—

During the three and nine months ended September 30, 2011, net increases of $744 thousand and $557 thousand, respectively, were recorded in the Allowance as a result of adjusting the carrying value and estimated fair value on the impaired loans in the above tables.

There have been no transfers between levels during the nine months ended September 30, 2011.

Other Real Estate Owned and Other Repossessed Property:

Other real estate owned consists of properties acquired as a result of deed in-lieu-of foreclosure and foreclosures. Properties or other assets are classified as OREO and are reported at the lower of cost or fair value less cost to sell. Costs relating to the development or improvement of assets are capitalized, and costs relating to holding the property are charged to expense. The Corporation had $1.3 million and $2.5 million in OREO assets as of September 30, 2011 and December 31, 2010, respectively. OREO assets with a carrying value of $500 thousand and $2.1 million were sold during the three and nine months ended September 30, 2011, respectively, with a net gain of $70 thousand and a net loss of $59 thousand for the three and nine months ended September 30, 2011, respectively.

16. Fair Value of Financial Instruments

FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market value techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Corporation.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

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

Investment Securities Available for Sale

Estimated fair values for investment securities are generally valued by an independent third party based on market data utilizing pricing models that vary by asset and incorporate available trade, bid and other market information. See Note 4 for more information.

Loans Held for Sale

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

Net Portfolio Loans and Leases

For variable rate loans that reprice frequently and which have no significant change in credit risk, estimated fair values are based on carrying values. Fair values of certain mortgage loans and consumer loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and are indicative of an entry price. The estimated fair value of nonperforming loans is based on discounted estimated cash flows as determined by the internal loan review of the Bank or the appraised market value of the underlying collateral, as determined by independent third party appraisers. This technique does not reflect an exit price as contemplated in Note 5.

Mortgage Servicing Rights

The fair value of the MSRs for these periods was determined using a third-party valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates.

Other Assets

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

Deposits

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

Short-term borrowings

The carrying amount of short-term borrowings, which include overnight repurchase agreements and overnight fed funds, approximate their fair value.

FHLB Advances and Other Borrowings

The fair value of FHLB advances and other borrowings, which includes a commercial mortgage loan on the Corporation’s Wealth Management building, is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings with equivalent maturities.

Subordinated Debentures

The fair value of subordinated debentures is established using a discounted cash flow calculation that applies interest rates currently being offered on comparable borrowings.

Junior Subordinated Debentures

The carrying amounts reported in the balance sheet for junior subordinated debentures approximate their fair values, and are based in part on the call price of the instruments.

Other Liabilities

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

Off-Balance Sheet Commitments

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

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


	As of September 30, As of December 31
	2011				2010
(dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	63,112	$	63,112	$	89,484	$	89,484
Investment securities AFS		275,729		275,729		317,052		317,052
Loans held for sale		4,857		5,093		4,838		4,874
Net portfolio loans and leases		1,266,703		1,279,959		1,186,442		1,204,056
Mortgage servicing rights		4,206		4,206		4,925		5,815
Other assets		23,255		23,255		25,853		25,853

Total financial assets	$	1,637,862	$	1,651,354	$	1,628,594	$	1,647,134

Financial liabilities:
Deposits	$	1,351,148	$	1,351,914	$	1,341,432	$	1,342,294
Short-term borrowings		22,535		22,535		10,051		10,051
FHLB advances and other borrowings		140,532		144,740		160,144		163,693
Subordinated debentures		22,500		21,503		22,500		22,732
Junior subordinated debentures		12,000		12,043		12,029		12,029
Other liabilities		21,256		21,256		24,174		24,174

Total financial liabilities	$	1,569,971	$	1,573,991	$	1,570,330	$	1,574,973

17. New Accounting Pronouncements

FASB ASU No. 2011-02 – Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring

In April 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” (ASU 2011-02). The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are applied retrospectively to the beginning of the annual period of adoption. The Corporation has adopted the methodologies prescribed by this ASU.

FASB ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Topic 860)

On April 29, 2011, the FASB issued ASU No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements (Topic 860)”, which removes the collateral maintenance provision that is currently required when determining whether a transfer of a financial instrument is accounted for as a sale or a secured borrowing. The Corporation will adopt ASU No. 2011-03 in its consolidated financial statements in the first quarter of 2012. The Corporation is currently evaluating the impact of this standard on its financial condition, results of operations, and disclosures.

FASB ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Topic 820)

On May 12, 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Topic 820)”, which is a joint effort between the FASB and IASB to converge fair value measurement and disclosure guidance. The ASU permits measuring financial assets and liabilities on a net credit risk basis, if certain criteria are met. The ASU also increases disclosure surrounding company-determined market price (Level 3) financial instruments and also requires the fair value hierarchy disclosure of financial assets and liabilities that are not recognized at fair value in the statement of financial position, but are included in disclosures at fair value. The Corporation will adopt ASU No. 2011-04 in its consolidated financial statements in the first quarter of 2012. The Corporation is currently evaluating the impact of this standard on its financial condition, results of operations, and disclosures.

FASB ASU No. 2011-05, Presentation of Comprehensive Income (Topic 220)

On June 16, 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income (Topic 220)”, which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. The Corporation has adopted ASU No. 2011-05 in its consolidated financial statements.

FASB ASU No. 2011-08, Testing Goodwill for Impairment (Topic 350)

On September 15, 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other– Testing Goodwill for Impairment.” The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The provisions of ASU 2011-08 will be effective for years beginning after December 15, 2011 for both public and nonpublic entities, although earlier adoption is allowed. The Corporation does not expect that adoption of this standard will have a significant impact on the Company’s consolidated financial statements.

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

Brief History of the Corporation

The Bryn Mawr Trust Company (the “Bank”) received its Pennsylvania banking charter in 1889 and is a member of the Federal Reserve System. In 1986, Bryn Mawr Bank Corporation (the “Corporation”) was formed and on January 2, 1987, the Bank became a wholly-owned subsidiary of the Corporation. The Bank and Corporation are headquartered in Bryn Mawr, Pennsylvania, a western suburb of Philadelphia. The Corporation and its subsidiaries provide wealth management, community banking, residential mortgage lending, insurance and business banking services to customers through seventeen full-service branches and seven limited-hour retirement community offices throughout the Montgomery, Delaware and Chester Counties of Pennsylvania. The Corporation trades on the NASDAQ Stock Market (“NASDAQ”) under the symbol BMTC. The goal of the Corporation is to become the preeminent community bank and wealth management organization in the Philadelphia area.

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

Acquisition of the Private Wealth Management Group of the Hershey Trust Company

On May 27, 2011, the acquisition of the Private Wealth Management Group (“PWMG”) of the Hershey Trust Company (“HTC”) by the Corporation (the “Acquisition”) was completed. The acquisition of PWMG initially increased the Corporation’s Wealth Management Division assets under management by $1.1 billion. As of September 30, 2011, the assets under management acquired in the Acquisition were valued at approximately $1.0 billion. The purchase price for the Acquisition was $18.4 million, of which $8.2 million cash and 322,101 unregistered shares of the Corporation’s common stock, valued at $6.7 million, were paid at closing, and $3.6 million cash was placed in escrow to be paid in three equal installments on the 6-, 12- and 18-month anniversaries of February 17, 2010, subject to certain post-closing contingencies relating to the assets under management. The first post-closing payment of $1.2 million was issued on August 17, 2011. Additionally, on September 30, 2011, the Corporation filed with the SEC a registration statement on Form S-3 (File No. 333-177109) to register for resale the 322,101 shares issued as part of the purchase price. The Corporation expects the SEC to declare this registration statement effective in the fourth quarter of 2011.

Acquisition of First Keystone Financial, Inc.

The Corporation’s merger with First Keystone Financial, Inc. (“FKF”), which was completed on July 1, 2010 (the “Merger”) included the acquisition of $275 million of loans, $101 million of investment securities, $321 million of deposits and $106 million of borrowings, as well as eight full-service branch locations.

Results of Operations

The following is the Corporation’s discussion and analysis of the significant changes in the financial condition, results of operations, capital resources and liquidity presented in the accompanying consolidated financial statements. The Corporation’s consolidated financial condition and results of operations consist almost entirely 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.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform with U.S. generally accepted accounting principles (“GAAP”). All inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the previous year’s financial statements to the current year’s presentation. In preparing the consolidated financial statements, the Corporation is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates.

The allowance for loan and lease losses involves a higher degree of judgment and complexity than other significant accounting policies. The allowance for loan and lease losses is calculated with the objective of maintaining a reserve level believed by the Corporation to be sufficient to absorb estimated probable credit losses. The Corporation’s determination of the adequacy of the allowance is based on periodic evaluations of the loan and lease portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, expected loan commitment usage, the amounts and timing of expected future cash flows on impaired loans and leases, value of collateral, estimated losses on consumer loans and residential mortgages and general amounts for historical loss experience. The process also considers economic conditions, international events, 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 the Corporation’s estimates, additional provisions for loan and lease losses 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 for additional information.

Other significant accounting policies are presented in Footnote 1 – Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in the Corporation’s 2010 Annual Report.

Executive Overview

The following items highlight the Corporation’s results of operations for the three and nine months ended September 30, 2011, as compared to the same periods in 2010, and the changes in its financial condition as of September 30, 2011 compared to December 31, 2010. More detailed information related to these highlights can be found in the sections that follow.

Three Month Results

•

A comparison of the results of operations for the three months ended September 30, 2011, to the same period in 2010, reflects the impact of the May 27, 2011 Acquisition of PWMG.

•

Net income for the three months ended September 30, 2011 was $5.0 million, or diluted earnings per share of $0.39, an increase of $6.0 million as compared to a net loss of $1.0 million, or diluted loss per share of $0.08, for the same period in 2010.

•

Annualized return on average equity (“ROE”) and annualized return on average assets (“ROA”) for the three months ended September 30, 2011 were 10.81% and 1.14%, respectively, as compared to ROE and ROA of (2.55)% and (0.29)%, respectively, for the same period in 2010.

•

Tax-equivalent net interest income increased $780 thousand, or 5.2%, to $15.7 million for the three months ended September 30, 2011, as compared to $14.9 million for the same period in 2010.

•

The provision for loan and lease losses (the “Provision”) for the three months ended September 30, 2011 was $1.8 million, a decrease of $2.4 million, or 56.8%, from the $4.2 million recorded for the same period in 2010.

•

Non-interest income of $9.2 million for the three months ended September 30, 2011 increased $2.2 million, or 31.5%, as compared to $7.0 million for the same period in 2010.

•

Non-interest expense of $16.0 million for the three months ended September 30, 2011 decreased $3.4 million, or 17.5%, as compared to $19.4 million for the same period in 2010.

•

Fees for Wealth Management services of $6.1 million for the three months ended September 30, 2011 increased $2.4 million, or 65.3%, as compared to $3.7 million for the same period in 2010.

Nine Month Results

•

A comparison of the results of operations for the nine months ended September 30, 2011, to the same period in 2010, reflects the impact of the May 27, 2011 acquisition of PWMG as well as the July 1, 2010 Merger with FKF.

•

Net income for the nine months ended September 30, 2011 was $14.5 million, or diluted earnings per share of $1.15, an increase of $10.9 million, or 302.8%, as compared to net income of $3.6 million, or diluted earnings per share of $0.35, for the same period in 2010.

•

ROE and ROA for the nine months ended September 30, 2011 were 11.14% and 1.13%, respectively, as compared to ROE and ROA of 3.77% and 0.34%, respectively, for the same period in 2010.

•

Tax-equivalent net interest income increased $9.7 million, or 26.0%, to $47.1 million for the nine months ended September 30, 2011, as compared to $37.4 million for the same period in 2010.

•

The Provision for the nine months ended September 30, 2011 was $5.0 million, a decrease of $3.3 million, or 39.7%, from the $8.3 million recorded for the same period in 2010.

•

Non-interest income of $24.7 million for the nine months ended September 30, 2011 increased $4.5 million, or 22.6%, as compared to $20.1 million for the same period in 2010.

•

Non-interest expense of $45.1 million for the nine months ended September 30, 2011 increased $1.8 million, or 4.2%, as

compared to $43.2 million for the same period in 2010.

•

Fees for Wealth Management services of $15.4 million for the nine months ended September 30, 2011 increased $3.9 million, or 34.6%, as compared to $11.4 million for the same period in 2010.

Changes in Financial Condition

•

Total assets of $1.76 billion as of September 30, 2011 increased $25.4 million from $1.73 billion as of December 31, 2010.

•

Shareholders’ equity of $187.1 million as of September 30, 2011 increased $25.7 million from $161.4 million as of December 31, 2010.

•

Total portfolio loans and leases as of September 30, 2011 were $1.28 billion, an increase of $81.6 million, or 6.8%, from the December 31, 2010 balance of $1.20 billion.

•

Total non-performing loans and leases of $14.2 million represented 1.11% of portfolio loans and leases as of September 30, 2011 as compared to $9.5 million, or 0.79%, of portfolio loans and leases as of December 31, 2010.

•

The allowance for loan and lease losses (the “Allowance”) of $11.7 million as of September 30, 2011 represented 0.91% of portfolio loans and leases as compared to $10.3 million, or 0.86%, of portfolio loans and leases as of December 31, 2010.

•

Total deposits of $1.35 billion as of September 30, 2011 increased $9.7 million, or 0.7%, from $1.34 billion as of December 31, 2010.

•

Wealth Management assets under management, administration, supervision and brokerage as of September 30, 2011 were $4.5 billion, an increase of $1.1 billion from December 31, 2010.

Key Performance Ratios

Key financial performance ratios for the three and nine months ended September 30, 2011 and 2010 are shown in the tables below:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Annualized return on average equity		10.81	%		(2.55	)%		11.14	%		3.77	%
Annualized return on average assets		1.14	%		(0.29	)%		1.13	%		0.34	%
Efficiency ratio *		64.7	%		88.7	%		63.0	%		75.8	%
Tax equivalent net interest margin		3.90	%		3.66	%		3.98	%		3.82	%
Diluted earnings per share	$	0.39		$	(0.08	)	$	1.15		$	0.35
Dividend per share	$	0.15		$	0.14		$	0.45		$	0.42

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

Key period end ratios and balances for the periods indicated are shown in the table below:


*(dollars in millions, except per share amounts)*	September 30, 2011			December 30, 2010			September 30, 2010
Book value per share	$	14.30		$	13.24		$	12.99
Tangible book value per share	$	11.11		$	11.21		$	11.03
Allowance for loan and lease losses as a percentage of loans and leases		0.91	%		0.86	%		0.88	%
Allowance for originated loan and lease losses as a percentage of originated loans and leases*		1.08	%		1.08	%		1.12	%
Tier I capital to risk weighted assets		11.71	%		11.30	%		10.82	%
Tangible common equity ratio		8.48	%		8.01	%		7.95	%
Loan to deposit ratio		94.97	%		89.60	%		93.40	%
Wealth assets under management, administration, supervision and brokerage	$	4,501.4		$	3,412.9		$	3,291.3
Portfolio loans and leases	$	1,278.4		$	1,196.7		$	1,176.4
Total assets	$	1,757.1		$	1,731.8		$	1,714.2
Shareholders’ equity	$	187.1		$	161.4		$	158.3

*	A non-GAAP measure. Refer to “Non-GAAP Financial Measures Reconciliation” at page 43 below for reconciliation of the non-GAAP measure to the GAAP measure.

Components of Net Income

Net income is affected by five major elements: Net Interest Income, or the difference between interest income and loan fees earned on loans, leases and investments and interest expense paid on deposits and borrowed funds; Provision For Loan and Lease Losses, or the amount added to the allowance for loan and lease losses to provide for estimated inherent losses on loans and leases; Non-Interest Income which is made up primarily of certain fees, wealth management revenue, residential mortgage activities and gains and losses from the sale of loans, securities and other assets; Non-Interest Expense, which consists primarily of salaries, employee benefits and other operating expenses; and Income Taxes. Each of these major elements will be reviewed in more detail in the following discussion.

Tax-Equivalent Net Interest Income

Tax-equivalent net interest income for the three months ended September 30, 2011, of $15.7 million, was $780 thousand, or 5.2%, higher than the tax-equivalent net interest income of $14.9 million for the same period in 2010. This slight increase was primarily related to the $91.5 million decrease in average interest-bearing liabilities for the three months ended September 30, 2011 as compared to the same period in 2010, primarily comprised of Federal Home Loan Bank (“FHLB”) advances which matured during the period. Partially offsetting the decrease in average interest-bearing liabilities for the three months ended September 30, 2011 as compared to the same period in 2010 was a $17.6 million decrease in average interest-earning assets. This decrease was comprised of decreases of $64.7 million and $37.4 million in average investments and average interest-bearing deposits with other banks, offset by an $84.5 million, or 7.2%, increase in average loans and leases.

Tax-equivalent net interest income for the nine months ended September 30, 2011 of $47.1 million was $9.7 million, or 26.0%, higher than the tax-equivalent net interest income of $37.4 million for the same period in 2010. This increase was primarily related to the $273.8 million increase in average interest-earning assets for the nine months ended September 30, 2011 as compared to the same period in 2010, largely comprised of loans and investment securities acquired in the Merger. Partially offsetting the increase in average interest-earning assets for the nine months ended September 30, 2011, was a $197.2 million increase in average interest-bearing liabilities, which were also largely a result of the Merger. In addition, the 22 basis point decline in funding costs, to 0.96% for the nine months ended September 30, 2011 from 1.18% for the same period in 2010, was primarily related to market conditions as well as the Bank’s management of deposit pricing.

Rate/Volume Analysis (tax equivalent basis*)

The rate volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and nine months ended September 30, 2011 as compared to the same periods in 2010, allocated by rate and volume. The change in interest income and/or expense due to both volume and rate has been allocated to changes in volume.


(dollars in thousands) Increase/(Decrease)	Three Months Ended September 30, 2011 Compared to 2010									Nine months Ended September 30, 2011 Compared to 2010
(dollars in thousands) Increase/(Decrease)	Volume			Rate			Total			Volume			Rate			Total
Interest Income:
Interest-bearing deposits with other banks	$	(24	)	$	(8	)	$	(32	)	$	(20	)	$	(4	)	$	(24	)
Money market funds		—			—			—			—			—			—
Investment securities		(407	)		(39	)		(446	)		187			(83	)		104
Loans and leases		1,220			(635	)		585			9,815			(518	)		9,297

Total interest income		789			(682	)		107			9,982			(605	)		9,377

Interest expense:
Savings, NOW and market rate accounts		59			(128	)		(69	)		422		$	(339	)		83
Other wholesale deposits		(3	)		(27	)		(30	)		24			(63	)		(39	)
Time deposits		(86	)		17			(69	)		341			(142	)		199
Wholesale time deposits		(34	)		(41	)		(75	)		(109	)		(149	)		(258	)
Borrowed funds		(640	)		210			(430	)		269			(606	)		(337	)

Total interest expense		(704	)		31			(673	)		947			(1,299	)		(352	)

Interest differential	$	1,493		$	(713	)	$	780		$	9,035		$	694		$	9,729

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

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

Analyses of Interest Rates and Interest Differential

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


	For the three months ended September 30,
	2011								2010
*(dollars in thousands)*	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid
Assets:
Interest-bearing deposits with banks	$	57,855		$	29		0.20	%	$	95,226		$	61		0.25	%
Money market funds		108			—		—			106			—		—
Investment securities available for sale:
Taxable		277,634			1,159		1.66	%		316,276			1,351		1.69	%
Non-taxable		3,933			18		1.82	%		29,999			272		3.60	%

Total investment securities⁽³⁾		281,567			1,177		1.66	%		346,275			1,623		1.86	%

Loans and leases ^{(1) (2)}		1,259,864			17,529		5.52	%		1,175,346			16,944		5.72	%

Total interest earning assets		1,599,394			18,735		4.65	%		1,616,953			18,628		4.57	%
Cash and due from banks		11,905								12,668
Allowance for loan and lease losses		(11,790	)							(10,068	)
Other assets		144,447								130,495

Total assets	$	1,743,956							$	1,750,048

Liabilities:
Savings, NOW and market rate accounts	$	724,266		$	772		0.42	%	$	675,969		$	841		0.49	%
Other wholesale deposits		65,177			51		0.31	%		67,596			81		0.48	%
Wholesale time deposits		29,187			86		1.17	%		36,864			161		1.73	%
Time deposits		234,645			585		0.99	%		269,653			654		0.96	%

Total interest-bearing deposits		1,053,275			1,494		0.56	%		1,050,082			1,737		0.66	%
Subordinated debentures		22,500			279		4.92	%		22,500			293		5.17	%
Junior subordinated debentures		12,000			271		8.96	%		12,066			223		7.43	%
Short-term borrowings		10,908			6		0.22	%		10,848			8		0.29	%
FHLB advances and other borrowings		148,963			968		2.58	%		243,698			1,430		2.33	%

Total interest-bearing liabilities		1,247,646			3,018		0.96	%		1,339,194			3,691		1.09	%
Noninterest-bearing demand deposits		290,468								226,439


	For the three months ended September 30,
	2011							2010
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid
Other liabilities		21,481							25,434

Total noninterest-bearing liabilities		311,949							251,873

Total liabilities		1,559,595							1,591,067
Shareholders’ equity		184,361							158,981

Total liabilities and shareholders’ equity	$	1,743,956						$	1,750,048

Net interest spread						3.69	%						3.48	%
Effect of noninterest-bearing sources						0.21	%						0.18	%
Tax equivalent net interest income and margin on earning assets*			$	15,717		3.90	%			$	14,937		3.66	%

Tax equivalent adjustment*			$	64		0.02	%			$	155		0.04	%

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

⁽¹⁾	Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has not been included for purposes of determining interest income.

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

⁽³⁾	Investment securities include trading and available for sale.


	For the nine months ended September 30,
	2011								2010
(dollars in thousands)	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid
Assets:
Interest-bearing deposits with other banks	$	50,778		$	88		0.23	%	$	61,196		$	112		0.24	%
Money market funds		167			1		0.80	%		589			1		0.23	%
Investment securities available for sale:
Taxable		283,354			3,762		1.78	%		230,887			3,240		1.88	%
Non-taxable		11,486			403		4.69	%		26,567			821		4.13	%

Total investment securities⁽³⁾		294,840			4,165		1.89	%		257,454			4,061		2.11	%
Loans and leases ⁽¹⁾⁽²⁾		1,237,692			51,765		5.59	%		990,449			42,468		5.73	%

Total interest earning assets		1,583,477			56,019		4.73	%		1,309,688			46,642		4.76	%
Cash and due from banks		12,249								11,132
Allowance for loan and lease losses		(11,157	)							(10,195	)
Other assets		137,793								90,150

Total assets	$	1,722,362							$	1,400,775

Liabilities:
Savings, NOW and market rate accounts	$	713,223		$	2,247		0.42	%	$	555,982		$	2,164		0.52	%
Other wholesale deposits		68,691			174		0.34	%		57,317			213		0.50	%
Wholesale deposits		31,333			248		1.06	%		39,914			506		1.69	%
Time deposits		237,948			1,765		0.99	%		184,530			1,566		1.13	%

Total interest-bearing deposits		1,051,195			4,434		0.56	%		837,743			4,449		0.71	%
Subordinated debentures		22,500			835		4.96	%		22,500			846		5.03	%
Junior subordinated debentures		12,012			814		9.06	%		4,066			223		7.33	%
Short-term borrowings		10,110			19		0.25	%		3,656			8		0.29	%
FHLB advances and other borrowings		147,189			2,787		2.53	%		177,881			3,715		2.79	%

Total interest-bearing liabilities		1,243,006			8,889		0.96	%		1,045,846			9,241		1.18	%
Noninterest-bearing demand deposits		281,714								203,093
Other liabilities		23,095								23,926

Total noninterest-bearing liabilities		304,809								227,019


	For the nine months ended September 30,
	2011							2010
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid
Total liabilities		1,547,815							1,272,865
Shareholders’ equity		174,547							127,910

Total liabilities and shareholders’ equity	$	1,722,362						$	1,400,775

Net interest spread						3.77	%						3.58	%
Effect of noninterest-bearing sources						0.21	%						0.24	%
Tax equivalent net interest income and margin on earning assets*			$	47,130		3.98	%			$	37,401		3.82	%

Tax equivalent adjustment*			$	270		0.02	%			$	451		0.04	%

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

⁽¹⁾	Nonaccrual loans have been included in average loan balances, but interest on nonaccrual loans has not been included for purposes of determining interest income.

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

⁽³⁾	Investment securities include trading and available for sale.

Tax Equivalent Net Interest Margin

The Corporation’s tax-equivalent net interest margin increased 24 basis points to 3.90% for the three months ended September 30, 2011, from 3.66% for the same period in 2010, as the 13 basis point decrease in the cost of funding was supplemented by an eight basis point increase in yield on interest-earning assets. The decrease in the cost of funding for the three months ended September 30, 2011 as compared to the same period in 2010 was primarily related to the $94.7 million decrease in average FHLB advances between the periods.

The Corporation’s tax-equivalent net interest margin increased 16 basis points to 3.98% for the nine months ended September 30, 2011, from 3.82% for the same period in 2010 as a result of the 15 basis point decrease in the average rate paid on deposits, along with a 26 basis point decrease in average rate paid on FHLB advances. These decreases in rates paid were partially offset by decreases of 22 basis points and 14 basis points in the average yield earned on available for sale investment securities and loans and leases, respectively, for the nine months ended September 30, 2011, as compared to the same period in 2010.

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


	Year		Earning Asset Yield			Interest Bearing Liability Cost			Net Interest Spread			Effect of Non-Interest Bearing Sources			Net Interest Margin
Net Interest Margin Last Five Quarters
3^rdQuarter		2011		4.65	%		0.96	%		3.69	%		0.21	%		3.90	%
2^ndQuarter		2011		4.78	%		0.98	%		3.80	%		0.21	%		4.01	%
1^st Quarter		2011		4.76	%		0.93	%		3.83	%		0.20	%		4.03	%
4^th Quarter		2010		4.56	%		1.04	%		3.52	%		0.21	%		3.73	%
3^rd Quarter		2010		4.57	%		1.09	%		3.48	%		0.18	%		3.66	%

Interest Rate Sensitivity

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

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

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

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

Summary of Interest Rate Simulation


	September 30, 2011
*(dollars in thousands)*	Change In Net Interest Income Over Next 12 Months
Change in Interest Rates
+300 basis points	$	5,378		8.27	%
+200 basis points	$	3,724		5.73	%
+100 basis points	$	1,423		2.19	%
-100 basis points	$	(1,416	)	(2.18	%)

The interest rate simulation above indicates that the Corporation’s balance sheet is asset sensitive as of September 30, 2011, demonstrating that an increase in interest rates will have a positive impact on net interest income over the next 12 months while a decrease in interest rates will negatively impact net interest income. In this simulation, net interest income will increase if rates increase 100, 200 or 300 basis points. However, the 100-basis point-increase scenario indicates a less significant increase in net interest income over the next 12 months, than the other scenarios, as the Corporation has interest rate floors on many of its portfolio loans. In addition, the Corporation’s internal prime loan rate is set, as of September 30, 2011, at 3.99%, or 74 basis points above the Wall Street Journal Prime Rate of 3.25%. The 100-basis point decrease scenario shows a $1.4 million, or 2.18%, decrease in net interest income over the next twelve months as some of the Corporation’s liabilities bear rates of interest below 1.00% and therefore would not be able to sustain the entire decrease. The four scenarios are directionally consistent with both the December 31, 2010 and June 30, 2011 simulations.

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

Gap Report

The interest sensitivity, or Gap report, identifies interest rate risk by showing repricing gaps in the Corporation’s balance sheet. All assets and liabilities are categorized in the following table according to their behavioral sensitivity, which is usually the earliest of either: repricing, maturity, contractual amortization, prepayments or likely call dates. Non-maturity deposits, such as NOW, savings and money market accounts are spread over various time periods based on the expected sensitivity of these rates considering liquidity and the investment preferences of the bank. Non-rate-sensitive assets and liabilities are spread over time periods to reflect the Corporation’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 in order 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, the Corporation has taken a more conservative approach than these limits would suggest by forecasting these deposit types with a shorter maturity.

The following table presents the Corporation’s interest rate sensitivity position or Gap Analysis as of September 30, 2011:


(dollars in millions)	0 to 90 Days			91 to 365 Days			1 - 5 Years			Over 5 Years			Non-Rate Sensitive			Total
Assets:
Interest-bearing deposits with banks	$	52.2		$	—		$	—		$	—		$	—		$	52.2
Money market funds		0.1			—			—			—			—			0.1
Investment securities		81.4			81.5			98.1			14.7			—			275.7
Loans and leases⁽¹⁾		496.5			163.2			510.9			112.6			—			1,283.2
Allowance		—			—			—			—			(11.7	)		(11.7	)
Cash and due from banks		—			—			—			—			10.8			10.8
Other assets		—			—			—			—			146.8			146.8

Total assets	$	630.2		$	244.7		$	609.0		$	127.3		$	145.9		$	1,757.1

Liabilities and shareholders’ equity:
Demand, non-interest-bearing	$	56.3		$	37.3		$	198.8		$	—		$	—		$	292.4
Savings, NOW and market rate		131.9			116.0			400.7			91.4			—			740.0
Time deposits		67.2			103.3			53.8			—			—			224.3
Other wholesale deposits		65.4			—			—			—			—			65.4
Wholesale time deposits		23.6			—			5.4			—			—			29.0
Short-term borrowings		22.5			—			—			—			—			22.5
FHLB advances and other borrowings		5.6			28.5			85.4			21.0			—			140.5
Subordinated debentures		22.5			—			—			—			—			22.5
Junior Subordinated debentures		—			—			—			12.0			—			12.0
Other liabilities		—			—			—			—			21.3			21.3
Shareholders’ equity		6.7			20.1			106.9			53.5			—			187.2

Total liabilities and shareholders’ equity	$	401.7		$	305.2		$	851.0		$	177.9		$	21.3		$	1,757.1

Interest-earning assets	$	630.2		$	244.7		$	609.0		$	127.3		$	—		$	1,611.2
Interest-bearing liabilities		316.2			247.8			545.3			124.4			—			1,233.7

Difference between interest-earning assets and interest-bearing liabilities	$	314.0		$	(3.1	)	$	63.7		$	2.9		$	—		$	377.5

Cumulative difference between interest earning assets and interest-bearing liabilities	$	314.0		$	310.9		$	374.6		$	377.5		$	—		$	377.5

Cumulative earning assets as a % of cumulative interest bearing liabilities		199	%		155	%		134	%		131	%

⁽¹⁾	Loans include portfolio loans and leases and loans held for sale.

The table above indicates that the Corporation is asset sensitive in the immediate to 90-day time frame and should theoretically experience an increase in net interest income during that time period if rates rise. It should be noted that the Gap analysis is one tool used to measure interest rate sensitivity and must be used in conjunction with other measures such as the interest rate simulation discussed above. The Gap report measures the timing of changes in rate, but not the true weighting of any specific line item. Accordingly, if rates decline, theoretically net interest income will also decline. This position is similar to the Corporation’s position at both December 31, 2010 and June 30, 2011.

PROVISION FOR LOAN AND LEASE LOSSES

Loans acquired in the Merger

In accordance with GAAP, the loans acquired from FKF were recorded at their fair value with no carryover of the previously associated allowance for loan loss. As a result, loans acquired from FKF are not factored into the calculation of the allowance unless or until their credit quality declines below the level present at acquisition.

In connection with the Merger, certain loans were acquired which exhibited deteriorated credit quality since origination and for which the Bank does not expect to collect all contractual payments. Accounting for these purchased credit-impaired loans is done in accordance with ASC 310-30 “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”. 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.

Management evaluates purchased credit-impaired loans individually for further impairment. The balance of the Bank’s loan and lease portfolio is evaluated on either an individual basis or on a collective basis for impairment. Refer to Notes 5-G and 5-H in the Notes to Consolidated Financial Statements for more information regarding the Bank’s impaired loans and leases.

General Discussion of the Allowance for Loan and Lease Losses

The Allowance for loan and lease losses is determined based on the Corporation’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 the Corporation’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 the Corporation 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 the Corporation’s assumptions as to future delinquencies, recoveries and losses and the Corporation’s intent with regard to the disposition of loans. In addition, the Pennsylvania Department of Banking and the Federal Reserve Bank of Philadelphia, as an integral part of their examination process, periodically review the Corporation’s Allowance.

The Corporation’s Allowance is the accumulation 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:

•

Specific Loan Evaluation Component – Includes the specific evaluation of larger classified loans.

•

Historical Charge-Off Component – Applies a rolling, twelve-quarter historical charge-off rate to pools of non-classified loans.

•

Additional Factors Component – The loan and lease portfolios are broken down into multiple homogenous sub classifications, upon which multiple factors (such as delinquency trends, economic conditions, loan terms, credit grade, state of origination, industry, other relevant information and regulatory environment) are evaluated, resulting in an allowance amount for each of the sub classifications. The sum of these amounts comprises the Additional Factors Component.

•

Unallocated Component – This amount represents a reserve against all loans for factors not included in the components mentioned above, as well as the imprecision involved with the above components.

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

•

Pass – Loans considered satisfactory with no indications of deterioration.

•

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

•

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

•

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

Consumer credit exposure, which includes residential mortgages, home equity lines and loans, leases and consumer loans, are assigned a credit risk profile based on payment activity.

Refer to Note 5-G in the Notes to Consolidated Financial Statements for details regarding credit quality indicators associated with the bank’s loan and lease portfolio.

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:

•

Commercial mortgage

•

Home equity lines and loans

•

Residential mortgage

•

Construction

•

Commercial and industrial

•

Consumer

•

Leases

Refer to Note 5 in the Notes to Consolidated Financial Statements for the details of the Bank’s loan and lease portfolio, broken down by portfolio segment.

Impairment Measurement – In accordance with guidance provided by ASC 310-10, “Accounting by Creditors for Impairment of a Loan”, Management employs one of three methods to determine and measure impairment:

•

the Present Value of Future Cash Flow Method;

•

the Fair Value of Collateral Method; and

•

the Observable Market Price of a Loan Method.

To perform an impairment analysis, the Corporation reviews a loan’s internally assigned grade, its outstanding balance, guarantors, collateral, strategy, and a current report of the action being implemented.

Based on the nature of the specific loans, one of the impairment methods is chosen for the respective loan and any impairment is determined, based on criteria established in ASC 310-10.

Troubled Debt Restructurings (“TDRs”) – The Corporation follows guidance provided by FASB ASC 310-40, “Troubled Debt Restructurings by Creditors” in conjunction with the recently issued Accounting Standards Update (ASU) No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which clarifies existing guidance used by creditors to determine when a modification represents a concession and enhances the disclosure requirements related to TDRs. The 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 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 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 Notes 5-C and 5-H in the Notes to Consolidated Financial Statements for more information regarding the Bank’s TDRs.

Charge-off Policy – The Bank’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 charge-off:

•

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; and

•

All leases exceeding 120 days past due.

Any other loan or lease, for which Management has reason to believe the ability to collect is unlikely, and for which sufficient collateral does not exist, is also charged off.

Refer to Notes 5-G in the Notes to Consolidated Financial Statements for more information regarding the Bank’s charge-offs.

Asset Quality and Analysis of Credit Risk

As of September 30, 2011, total non-performing loans and leases increased by $4.7 million, to $14.2 million, representing 1.11% of portfolio loans and leases, as compared to $9.5 million, or 0.79% of portfolio loans and leases as of December 31, 2010. The increase in the non-performing loans and leases of $4.7 million from December 31, 2010 to September 30, 2011 is primarily related to a $4.7 million increase in non-performing construction loans. This increase in nonperforming construction loans is comprised of a $1.4 million residential construction loan and the Bank’s $3.2 million participation in a residential construction loan that both became non-performing during the second quarter of 2011. In addition, increases of $761 thousand and $1.4 million in nonperforming commercial and industrial and home equity loans, respectively, were partially offset by $798 thousand and $1.2 million decreases in nonperforming commercial mortgage loans and residential mortgage loans, respectively. As of September 30, 2011, non-performing loans and leases include $1.4 million of loans acquired in the Merger.

The Provision for the three months ended September 30, 2011 and 2010 was $1.8 million and $4.2 million, respectively. The decrease in the Provision was primarily due to the decreased charge-off activity for the three months ended September 30, 2011, as compared to the same period in 2010. Charge-offs for the three months ended September 30, 2011 totaled $1.8 million as compared to $3.9 million for the same period in 2010. The Provision for the nine months ended September 30, 2011 and 2010 was $5.0 million and $8.3 million, respectively. The decrease in the Provision for the nine months ended September 30, 2011, as compared to the same period in 2010 was primarily related to the decrease in net loan and lease charge-offs from $9.0 million for the nine months ended September 30, 2010 to $4.2 million for the same period in 2011. As of September 30, 2011, the Allowance of $11.7 million represented 0.91% of portfolio loans and leases, as compared to $10.3 million, or 0.86% of portfolio loans and leases, as of December 31, 2010. The Allowance related to originated loans and leases as a percentage of originated loans and leases (a non-GAAP measure discussed below, under “Non-GAAP Financial Measures Reconciliation”) was 1.08% as of both September 30, 2011 and December 31, 2010. The portion of the Allowance related to loans acquired in the Merger, as of September 30, 2011, was $123 thousand.

As of September 30, 2011, the Corporation had OREO valued at $1.3 million, as compared to $2.5 million as of December 31, 2010. The balance as of September 30, 2011, is comprised of a residential property and a commercial property which were both foreclosed on during the three months ended September 30, 2011 and one commercial property that was the result of the foreclosure of a loan acquired in the Merger. All properties are recorded at the lower of cost or fair value less cost to sell.

As of September 30, 2011, the Corporation had $8.1 million of TDRs, of which $7.2 million are in compliance with the modified terms, and hence, excluded from non-performing loans and leases. As of December 31, 2010, the Corporation had $6.6 million of TDRs, of which $4.7 million were in compliance with the modified terms, and as such, were excluded from non-performing loans and leases.

As of September 30, 2011, the Corporation had $20.0 million of impaired loans and leases which included $8.1 million of TDRs. Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest in accordance with the original terms of the loans and leases. Impaired loans and leases as of December 31, 2010 totaled $13.4 million. Refer to Note 5-H in the Notes to Consolidated Financial Statements for more information regarding the Bank’s impaired loans and leases.

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

Non Performing Assets and Related Ratios


	At or for the Period Ended
(dollars in thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Non-Performing Assets:
Non-accrual loans and leases	$	14,208		$	9,497		$	8,709
Loans and leases 90 days or more past due – still accruing		—			10			902

Total non-performing loans and leases		14,208			9,507			9,964
Other real estate owned		1,301			2,527			1,170

Total non-performing assets	$	15,509		$	12,034		$	10,781

Troubled Debt Restructures (“TDRs”):
TDRs included in non-performing loans	$	901		$	1,879		$	657
TDRs in compliance with modified terms		7,182			4,693			2,417

Total TDRs	$	8,083		$	6,572		$	3,074

Loan and Lease quality indicators:
Allowance for loan and lease losses to non-performing loans and leases		82.0	%		108.1	%		107.1	%
Non-performing loans and leases to total loans and leases		1.11	%		0.79	%		0.82	%
Allowance for loan and lease losses to total portfolio loans and leases		0.91	%		0.86	%		0.88	%
Allowance for originated loan losses to total original portfolio loans and leases⁽¹⁾		1.08	%		1.08	%		1.12	%
Non-performing assets to total assets		0.88	%		0.69	%		0.63	%
Period end portfolio loans and leases	$	1,278,357		$	1,196,717		$	1,176,438
Allowance for loan and lease losses	$	11,654		$	10,275		$	10,297

⁽¹⁾	A non-GAAP measure. See below for reconciliation of non-GAAP measure to GAAP measure.

Non-GAAP Financial Measures Reconciliation

The Allowance for originated loan and lease losses to total originated loans and leases, a non-GAAP measure, was 1.08% as of both September 30, 2011 and December 31, 2010. The Corporation believes the presentation of this non-GAAP financial measure provides useful supplemental information that is essential to an investor’s proper understanding of the financial condition of the Corporation. Management uses this non-GAAP financial measure in the analysis of the Corporation’s performance. This non-GAAP disclosure should not be viewed as a substitute for the financial measure determined in accordance with GAAP, nor is it necessarily comparable to a non-GAAP performance measure that may be presented by other companies. The reconciliation of the GAAP to non-GAAP measure is included in the table below:


(dollars in thousands)	September 30, 2011			December 31, 2010
Allowance for loan and lease losses (GAAP measure)	$	11,654		$	10,275
Less: Allowance for loan and lease losses related to acquired loans		123			—

Allowance for originated loans and lease losses (non-GAAP measure)	$	11,531		$	10,275

Total portfolio loans and leases (GAAP measure)	$	1,278,357		$	1,196,717
Less: acquired loans		(211,445	)		(244,833	)

Total originated loans and leases (non-GAAP measure)	$	1,066,912		$	951,884

Allowance for loan and lease losses / total portfolio loans (a GAAP measure)		0.91	%		0.86	%
Allowance for originated loan and lease losses / originated loans and leases (a non-GAAP measure)		1.08	%		1.08	%

NON-INTEREST INCOME

Three Months Ended September 30, 2011 Compared to the Same Period in 2010

Non-interest income for the three months ended September 30, 2011 was $9.3 million, an increase of $2.2 million from the same period in 2010. Largely contributing to the increase was a $2.4 million increase in fees for Wealth Management services which was primarily the result of the acquisition of PWMG, which accounted for $2.0 million of the fee increase. The increase in Wealth Management fees for the three months ended September 30, 2011, as compared to the same period in 2010, was primarily attributable to the $1.2 billion increase, to $4.5 billion, in Wealth Management assets under management, administration, supervision and brokerage, as of September 30, 2011, as compared to $3.3 billion as of September 30, 2010. In addition, the continued success of strategic initiatives within the division, as well as asset appreciation resulting from improvements in the financial markets contributed to the increase.

Also contributing to the increase in non-interest income for the three months ended September 30, 2011 as compared to the same period in 2010, was a $138 thousand increase in other operating income, as detailed in the table below. These increases were partially offset by a $425 thousand decrease in gain on sale of residential mortgage loans between the respective periods.

Nine Months Ended September 30, 2011 Compared to the Same Period in 2010

Non-interest income for the nine months ended September 30, 2011 was $24.7 million, an increase of $4.5 million from the same period in 2010. Contributing to the increase for the nine months ended September 30, 2011 as compared to the same period in 2010 were increases of $3.9 million, $861 thousand and $217 thousand in fees for wealth management services, other operating income and BOLI income, respectively. These increases were partially offset by decreases of $502 thousand in gain on sale of residential mortgage loans and $393 thousand in gain on sale of available for sale investment securities for the nine months ended September 30, 2011 as compared to the same period in 2011.

The decrease in gain on sale of available for sale investment securities for the nine months ended September 30, 2011, as compared to the same period in 2010, was related to the types and amounts of securities sold. The types of securities sold during the nine months ended September 30, 2011 were the result of the Corporation’s repositioning of its holdings, designed, in part, to reduce the credit- and extension risks associated with certain segments of the portfolio.

The increase in Wealth Management fees for the nine months ended September 30, 2011, as compared to the same period last year, was attributable to the $1.2 billion increase, to $4.5 billion, in Wealth Management assets under management, administration, supervision and brokerage, as of September 30, 2011, as compared to $3.3 billion, as of September 30, 2010. The May 27, 2011 acquisition of PWMG accounts for approximately $1.0 billion of the increase in assets under management, administration, supervision and brokerage between the dates. In addition, the continued success of strategic initiatives within the division, as well as asset appreciation resulting from improvements in the financial markets contributed to the increase.

The increase in other non-interest income, as detailed in the table below, for the nine months ended September 30, 2011, as compared to the same period in 2010, was largely attributable to two loan-related items resulting from the Merger. The $218 thousand in recoveries of loans previously charged off by FKF. In addition, a credit-impaired loan acquired in the Merger, for which the Bank recorded a loan mark based on the borrower’s weak financial condition, was unexpectedly refinanced by the borrower and paid off in full, resulting in income of $228 thousand.

Components of other operating income:


(dollars in thousands)	Three Months Ended September 30,				Nine months Ended September 30,
	2011		2010		2011		2010
Title insurance income	$	34	$	71	$	104	$	96
Recovery of loans previously charged off by FKF		8		—		218		—
Loan mark reversal due to early loan payoff		—		—		228		—
Other		218		100		387		247
Cash management		7		27		35		55
Insurance commissions		116		107		281		276
Safe deposit rentals		103		98		311		268
Commissions and fees		126		80		344		313
VISA debit card income		142		87		419		240
Rent		29		48		92		135
Other investment income		8		35		141		69

Other operating income	$	791	$	653	$	2,560	$	1,699

NON-INTEREST EXPENSE

Three Months Ended September 30, 2011 Compared to the Same Period in 2010

Non-interest expense for the three months ended September 30, 2011 was $16.0 million, a decrease of $3.4 million, or 17.5%, as compared to the same period in 2010. The decrease was largely attributable to the $4.2 million decrease in due diligence and merger-related expenses for the three months ended September 30, 2011 as compared to the same period in 2010, primarily related to the Merger. In addition, the Corporation saw decreases of $381 thousand and $178 thousand in impairment of OREO and FDIC insurance, respectively, for the three months ended September 30, 2011 as compared to the same period in 2010. Partially offsetting these decreases were an increase in salaries and employee benefits of $620 thousand and a $200 thousand increase in occupancy-related expenses for the three months ended September 30, 2011, as compared to the same period in 2010. These increases were related to the PWMG Acquisition as well as improvements made to the acquired FKF branches. The Corporation also recorded a $374 thousand increase in amortization of intangible assets, primarily related to the intangible assets acquired from PWMG.

Nine Months Ended September 30, 2011 Compared to the Same Period in 2010

Non-interest expense for the nine months ended September 30, 2011 was $45.1 million, an increase of $1.8 million, or 4.2%, as compared to the same period in 2010. The increase was largely attributable to increased operating expenses related to the eight full-service branch locations acquired in the Merger. The increases in salaries and employee benefits of $3.4 million and $1.4 million in occupancy-related expenses for the nine months ended September 30, 2011, as compared to the same period in 2010, are directly the result of the operation of the FKF branches and, to a lesser extent, the operation of the newly-acquired PWMG offices. In addition, the $647 thousand increase in amortization of intangible assets for the nine months ended September 30, 2011, as compared to the same period in 2010, was largely due to the increase in intangible assets that resulted from the Merger and the PWMG acquisition. Partially offsetting these increases was the $4.7 million decrease in merger-related and due diligence expenses for the nine months ended September 30, 2011, as compared to the same period in 2010. Increases in other operating expenses, which were primarily the result of the increased processing costs associated with the Merger, are detailed in the table below.

Components of other operating expenses:


(dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Fidelity bond & insurance		58		62		179		191
Loan processing and closing		233		270		699		662
Other taxes		50		234		560		709
Computer processing		220		571		642		822
Telephone		137		129		361		305
Director fees		94		121		278		360
Postage		105		104		322		257
Temporary help and recruiting		164		114		489		398
Travel and entertainment		113		60		302		239
Security portfolio maintenance		109		54		236		176
Dues and memberships		18		22		77		70
Subscriptions		49		37		138		110
Stationary and supplies		94		86		286		222
Other		840		527	$	2,031		1,160

Other operating expenses	$	2,284	$	2,391	$	6,600	$	5,681

INCOME TAXES

Income tax expense for the three months ended September 30, 2011 was $2.1 million as compared to income tax benefit of $746 thousand for the same period in 2010. The effective tax rate for the three months ended September 30, 2011 was 29.4% as compared to 42.2% for the same period in 2010. The decrease in the effective tax rate for the three months ended September 30, 2011, as compared to the rate for the same period in 2010 was primarily due to a decrease in the Corporation’s estimate of non-tax-deductible due diligence and merger-related expenses related to the 2010 tax year. This estimate was adjusted upon the completion of the Corporation’s 2010 federal tax return during the three months ended September 30, 2011,.

Income taxes for the nine months ended September 30, 2011 were $6.9 million as compared to $1.9 million for the same period in 2010. The effective tax rate for the nine months ended September 30, 2011 was 32.1% as compared to 34.2% for the same period in 2010. The decrease in the effective tax rate for the nine months ended September 30, 2011 as compared to the rate for the same period in 2010 was primarily due to a decrease in non-tax-deductible due diligence and merger-related expenses discussed above, as well as the utilization of a previously unrecognized capital loss carry forward of $425 thousand to offset capital gains realized in the period.

BALANCE SHEET ANALYSIS

Total assets were $1.76 billion as of September 30, 2011, an increase of $25.4 million or 1.46% from $1.73 billion, as of December 31, 2010, as portfolio loans and leases increased $81.6 million, or 6.82%, and total deposits increased $9.7 million, or 0.7%, over the same time period.

The table below compares the portfolio loans and leases outstanding at September 30, 2011 to December 31, 2010.


(dollars in thousands)	September 30, 2011		December 31, 2010		Change
(dollars in thousands)	September 30, 2011		December 31, 2010		Dollars			Percentage
Commercial mortgage	$	414,656	$	385,615	$	29,041			7.53	%
Home equity lines & loans		209,687		216,853		(7,166	)		(3.30	)%
Residential mortgage		279,696		261,983		17,713			6.76	%
Construction		59,303		45,403		14,000			30.90	%
Commercial and industrial		271,228		239,266		31,862			13.31	%
Consumer		12,235		12,200		35			(0.29	)%
Leases		31,552		35,397		(3,845	)		(10.86	)%

Total portfolio loans and leases		1,278,357		1,196,717		81,640			6.82	%
Loans held for sale		4,857		4,838		19			0.39	%

Total loans and leases	$	1,283,214	$	1,201,555	$	81,659			6.80	%

Quarterly average portfolio loans and leases	$	1,253,804	$	1,185,456	$	68,348			5.77	%

Loans and Leases

Commercial mortgage loans as a percentage of total portfolio loans remained relatively unchanged at 32.4% of the total portfolio loans and leases as of September 30, 2011 as compared to the December 31, 2010 level. The $29.0 million increase is consistent with the Bank’s ongoing strategy to grow this part of the portfolio in light of the unrest in this sector of the market. The Corporation believes there are opportunities to originate high-quality loans on properties with stabilized cash flows, good tenant bases and low tenant rollover risk.

Home equity loans and lines of credit comprised 16.4% of the total portfolio loans and leases as of September 30, 2011, a decrease from 18.1% as of December 31, 2010. Home equity loan balances continue to be refinanced into residential mortgage loans given the low-fixed rate environment which has hindered organic growth and offset new originations.

Construction loans comprised 4.6% of the total portfolio loans and leases as of September 30, 2011, an increase from 3.8% as of December 31, 2010. Balances increased $13.9 million as of September 30, 2011, as compared to December 31, 2010, as the Bank has begun to review new requests from builders within a targeted price range. The structure of the loans has become tighter, with requirements for higher cash-equity, pre-sales or pre-leases. Contributing significantly to the increase during the nine months ended September 30, 2011, was a $9.2 million commercial construction loan with a substantial portion of the project already leased, strong debt service capacity and a low loan-to-value ratio.

Residential mortgage loans increased $17.7 million as of September 30, 2011, maintaining the 21.9% of the total portfolio loans and leases they comprised as of December 31, 2010. During the nine months ended September 30, 2011, the Bank retained a larger portion than it usually does of its residential mortgage loan production, rather than sell them, in order to help grow the loan portfolio. The impact of this decision was reflected in the $502 thousand decrease in the gain on sale of residential mortgage loans for the nine months ended September 30, 2011, as compared to the same period in 2010.

Commercial and industrial loans increased $32.0 million as of September 30, 2011 as compared to December 31, 2010, with balances comprising 21.2% and 20.0% of portfolio loans and leases as of September 30, 2011 and December 31, 2010, respectively, as growth in this category of the portfolio has continued to increase slightly.

Consumer loans remained relatively unchanged at $12.2 million, or less than one percent of portfolio loans and leases, as of September 30, 2011 as compared to December 31, 2010.

Leases comprised 2.5% of total portfolio loans and leases as of September 30, 2011, as compared to 3.0%, as of December 31, 2010. The Corporation decreased its lease portfolio by $3.8 million through a combination of credit tightening, scheduled payments and net charge-offs, which exceeded new lease production during the nine month period ended September 30, 2011. This trend is expected to continue for the next few quarters until new production matches scheduled payments and charge-offs.

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

Cash and Investment Securities

The Corporation’s investment portfolio had a fair value of $275.7 million as of September 30, 2011, a decrease of $41.3 million or 13.0% from $317.1 million at December 31, 2010. The reduction resulted primarily from the sale, during the nine months ended September 30, 2011, of $24.8 million of municipal obligations, $22.9 million of bond mutual funds, $16.6 million of U.S. government-sponsored agency securities and $5.0 million of U.S. Treasury bonds, as the Corporation sought to reduce its exposure to the credit- and interest rate risk associated with types of investments.

As of September 30, 2011, liquidity remained strong as the Corporation had $33.9 million of cash balances at the Federal Reserve and $18.3 million in other interest-bearing accounts, along with significant borrowing capacity as discussed in the “Liquidity” section below. As interest rates remain low, the Corporation continues to look for attractive yielding investments while placing a strong emphasis on liquidity without taking unnecessary risks in this recessionary economic environment.

Deposits and Borrowings

Average total interest bearing deposits for the nine months ended September 30, 2011 were $1.05 billion, an increase of $321.4 million as compared to the same period in 2010. Average total interest bearing deposits for the three months ended September 30, 2011 of $1.05 billion remained relatively unchanged from the same period in 2010. Total deposits as of September 30, 2011 increased $9.7 million from the levels present as of December 31, 2010. This slight increase was the result of a $56.6 million increase in money market accounts, partially offset by a $22.9 million decrease in wholesale deposits and a $21.3 million decrease in time deposits between the respective dates.

Deposits and borrowings as of September 30, 2011 and December 31, 2010 were as follows:


	September 30, 2011		December 31, 2010		Change
(dollars in millions)	September 30, 2011		December 31, 2010		Dollars			Percentage
Interest bearing checking	$	224.6	$	234.1	$	(9.5	)		(4.0	)%
Money market		384.5		327.8		56.6			17.3	%
Savings		130.9		134.2		(3.3	)		(2.4	)%
Other wholesale deposits		65.4		80.1		(14.7	)		(18.3	)%
Wholesale time deposits		29.0		37.2		(8.2	)		(22.1	)%
Time deposits		224.3		245.7		(21.3	)		8.7	%

Interest-bearing deposits		1,058.7		1,059.1		(0.4	)		0.03	%
Non-interest-bearing deposits		292.4		282.3		10.1			3.6	%

Total deposits		1,351.1		1,341.4		(9.7	)		(0.7	)%
Short-term borrowings		22.5		10.1		(12.4	)		124.2	%
FHLB advances and other borrowings		140.5		160.1		(19.6	)		(12.3	)%
Subordinated debentures		22.5		22.5		—			—
Junior subordinated debentures		12.0		12.0		—			—

Borrowed funds		197.5		204.7		(7.2	)		(3.5	)%

Total deposits and borrowings	$	1,548.6	$	1,546.1	$	(2.5	)		(0.20	)%

Quarterly average deposits	$	1,343.7	$	1,357.6	$	(13.9	)		(1.02	)%
Quarterly average borrowed funds		194.4		224.7		(30.3	)		(13.48	)%

Quarterly average deposits and borrowed funds	$	1,538.1	$	1,582.3	$	(44.2	)		(2.79	)%

Capital

Consolidated shareholder’s equity of the Corporation was $187.1 million or 10.7% of total assets as of September 30, 2011, as compared to $161.4 million or 9.3% of total assets as of December 31, 2010. The increase was largely the result of an $8.8 million increase in retained earnings, the $6.7 million in stock issued in the acquisition of PWMG, and the $6.8 million in additional capital raised through the Corporation’s Dividend Reinvestment and Stock Purchase Plan during the nine months ended September 30, 2011. The following table presents the Corporation’s and Bank’s capital ratios and the minimum capital requirements to be considered “Well Capitalized” by regulators as of September 30, 2011 and December 31, 2010:


(dollars in thousands)	Actual					Minimum to be Well Capitalized
(dollars in thousands)	Amount		Ratio			Amount		Ratio
September 30, 2011:
Total (Tier II) capital to risk weighted assets
Corporation	$	195,078		14.19	%	$	137,433		10.00	%
Bank		189,081		13.82	%		136,808		10.00	%
Tier I capital to risk weighted assets
Corporation		160,906		11.71	%		82,460		6.00	%
Bank		154,927		11.32	%		82,085		6.00	%
Tier I Leverage ratio (Tier I capital to total quarterly average assets)
Corporation		160,906		9.47	%		84,922		5.00	%
Bank		154,927		9.15	%		84,867		5.00	%
Tangible common equity to tangible assets
Corporation		145,428		8.48	%
Bank		150,197		8.79	%

December 31, 2010:
Total (Tier II) capital to risk weighted assets
Corporation	$	186,657		13.71	%	$	136,142		10.00	%
Bank		182,587		13.47	%		135,556		10.00	%
Tier I capital to risk weighted assets
Corporation		153,806		11.30	%		81,685		6.00	%
Bank		149,742		11.05	%		81,334		6.00	%
Tier I leverage ratio (Tier I capital to total quarterly average assets)
Corporation		153,806		8.85	%		86,926		5.00	%
Bank		149,742		8.62	%		86,828		5.00	%
Tangible common equity to tangible assets
Corporation		136,695		8.01	%
Bank		143,259		8.42	%

Both the Corporation and the Bank exceed the required capital levels to be considered “well capitalized” by their respective regulators at the end of each period presented. Neither the Corporation nor the Bank are under any agreement with regulatory authorities, nor is the Corporation aware of any current recommendations by the regulatory authorities, which, if such recommendations were implemented, would have a material effect on liquidity, capital resources or operations of the Corporation. There is no official regulatory guideline for the tangible common equity to tangible asset ratio.

Acquisition of PWMG

On May 27, 2011, in connection with the PWMG, which is discussed in Note 2 in the Notes to Consolidated Financial Statements, the Corporation issued 322,101 unregistered shares of common stock, valued at $6.7 million. On September 30, 2011, the Corporation filed with the SEC a registration statement on Form S-3 (File No. 333-177109) to register for resale the 322,101 shares issued as part of the purchase price. The Corporation expects the SEC to declare this registration statement effective in the fourth quarter of 2011.

Acquisition of First Keystone Financial, Inc.

On July 1, 2010, in connection with the acquisition of First Keystone Financial, Inc, which is discussed in Note 2 above, the Corporation issued 1,629,881 shares of common stock valued at approximately $26.4 million. In addition, the Corporation recorded a $102 thousand increase in additional paid in capital related to fully vested FKF employee stock options which were converted to options to purchase 21,133 shares of the Corporation’s common stock.

Registered Direct Common Stock Offering

On May 18, 2010, the Corporation announced it had completed the registration and sale of 1,548,167 shares of common stock, par value $1.00, at a price of $17.00 per share under the Corporation’s Shelf Registration Statement. The Corporation received net proceeds of $24.6 million after deducting placement agents’ fees and other offering expenses, which the Corporation expects to use for regulatory capital purposes, funding asset growth and financing possible mergers or acquisitions.

Dividend Reinvestment and Stock Purchase Plan

The Plan is intended to allow both existing shareholders and new investors to easily and conveniently increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions. For the nine months ended September 30, 2011, the Corporation issued 357,793 shares and raised $6.8 million through the Plan. As of September 30, 2011, the Plan has raised $10.1 million since it was established and there are 291,391 shares remaining for issuance under the Plan.

Liquidity

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

Unused availability is detailed on the following table:


(dollars in millions)	9/30/11		%Unused			12/31/10		% Unused			$ Change			% Change
Federal Home Loan Bank of Pittsburgh	$	510.5		77.6	%	$	444.8		72.8	%	$	30.4			6.8	%
Federal Reserve Bank of Philadelphia		61.1		100.0	%		55.0		100.0	%		6.1			11.1	%
Fed Funds Lines (7 banks)		54.0		84.4	%		75.0		100.0	%		(21.0	)		(28.0	)%

Total	$	625.6		79.9	%	$	574.8		77.5	%	$	15.5			2.6	%

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

As of September 30, 2011, the Corporation held $12.2 million of FHLB stock, as compared to $14.2 million as of December 31, 2010. In December 2008, the FHLB announced it had voluntarily suspended the payment of dividends and the repurchase of excess capital stock until further notice. The Corporation’s use of FHLB borrowings as a source of funds is effectively more expensive due to the suspension of FHLB dividends and the related capital stock redemption restrictions. No dividends were paid during the three months ended September 30, 2011 or 2010. Capital stock redemptions have resumed, with the redemption of $642 thousand and $2.0 million during the three and nine months ended September 30, 2011, respectively. The suspension of dividends will continue until further notice by the FHLB. On August 5, 2011, Standard & Poor’s downgraded the credit rating of the U.S. Government and federal agencies, including the FHLB, from AAA to AA+ , with a negative outlook. These recent downgrades, and any future downgrades, in the credit ratings of the U.S. Government and the FHLB could likely increase the borrowing costs of the FHLB and possibly have a negative impact on its operations and long-term performance. It is possible this could have an adverse effect on the value of the Corporation’s investment in FHLB stock. Please see “Item 1A—Risk Factors” later in this quarterly report on Form 10-Q for further discussion regarding the potential risks of such downgrades.

The Corporation has an agreement with Promontory Interfinancial Network LLC to provide up to $60 million of Insured Network Deposits from broker dealers priced at the effective Federal Funds rate plus 20 basis points. The Corporation had $60 million and $75 million in balances, as of September 30, 2011 and December 31, 2010, respectively, from this source, which is reported on the balance sheet as other wholesale deposits.

The Corporation has an agreement with IDC to provide up to $5 million of money market deposits at an agreed upon rate currently 0.65%. The Corporation had $5.1 million in balances as of both September 30, 2011 and December 31, 2010 under this program which are reported on the balance sheet as other wholesale deposits.

The Corporation continually evaluates the cost and mix of its retail and wholesale funding sources relative to earning assets and expected future earning-asset growth. The Corporation believes that with the expanded branch network resulting from the Merger, along with the available borrowing capacity at FHLB and other sources, it has sufficient capacity available to fund expected earning-asset growth.

Discussion of Segments

The Corporation has three principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are: Banking, Residential Mortgage and Wealth Management (see Note 10 in the Notes to Consolidated Financial Statements). The following table provides supplemental information regarding the Residential Mortgage segment for the last five quarters:


(dollars in millions)	3^rdQtr 2011			2nd Qtr 2011			1^stQtr 2011			4^thQtr 2010			3^rdQtr 2010
Residential loans held in portfolio *	$	279.7		$	280.1		$	277.6		$	262.0		$	251.8
Mortgage originations		39.0			31.1			38.1			107.9			67.3

Mortgage loans sold:
Servicing retained		26.1			15.0			13.3			77.4			34.9
Servicing released		1.9			2.2			0.9			0.7			2.2

Total mortgage loans sold		28.0			17.2			14.2			78.1		$	37.1

Servicing retained %		93.1	%		87.2	%		93.3	%		99.1	%		94.1	%
Servicing released %		6.9	%		12.8	%		6.7	%		0.9	%		5.9	%
Loans serviced for others *	$	593.1		$	595.2		$	596.7			605.5		$	578.3
Mortgage servicing rights *		4.2			4.7			4.9			4.9			4.0
Net gain on sale of loans		0.8			0.7			0.4			2.4			1.2
Loan servicing and other fees		0.5			0.5			0.5			0.4			0.4
Amortization of MSR’s		0.2			0.2			0.2			0.3			0.2
Impairment (recovery) of MSR’s		0.5			0.2			—			(0.4	)		0.2
Basis point yield on loans sold (includes MSR income)		273	bp		382	bp		279	bp		30	bp		320	bp

*	period end balance

The Residential Mortgage segment’s pre-tax segment loss (“PTSL”) for the three months ended September 30, 2011 of $69 thousand was a decrease of $733 thousand from the pre-tax-segment profit (“PTSP”) of $664 thousand for the same period in 2010 primarily as a result of the $415 thousand decrease in the gain on sale of mortgage loans and the $300 thousand increase in impairment of mortgage servicing rights for the three months ended September 30, 2011, as compared to the same period in 2010.

The Residential Mortgage segment’s PTSP for the nine months ended September 30, 2011 of $270 thousand was a decrease of $780 thousand from the same period in 2010 primarily as a result of the $492 thousand decrease in the gain on sale of mortgage loans and the $286 thousand increase in impairment of mortgage servicing rights for the nine months ended September 30, 2011, as compared to the same period in 2010.

The Wealth Management segment, as discussed in the Non-Interest Income section of Management’s Discussion and Analysis of Results of Operation and Financial Condition recorded a PTSP of $2.0 million and $5.1 million for the three and nine months ended September 30, 2011, respectively, as compared to PTSP of $1.1 million and $3.2 million for the respective periods in 2010.

The Banking Segment, which accounts for the majority of the Corporation’s operations, recorded a PTSP of $5.9 million and $17.9 million for the three and nine months ended September 30, 2011, respectively.

Off Balance Sheet Risk

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, 2011 were $359.7 million, as compared to $385.9 million at December 31, 2010.

Standby letters of credit are conditional commitments issued by the Bank to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at September 30, 2011 amounted to $19.9 million, as compared to $27.2 million at December 31, 2010.

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

Contractual Cash Obligations of the Corporation as of September 30, 2011:


(dollars in millions)	Total		Within 1 Year		2-3 Years		4-5 Years		After 5 Years
Deposits without a stated maturity	$	1,032.3	$	1,032.3	$	—	$	—	$	—
Wholesale and time deposits		318.8		259.2		50.5		9.1		—
Subordinated debentures		22.5		—		—		—		22.5
Junior subordinated debentures		12.0		—		—		—		12.0
Short-term borrowings		22.5		22.5		—		—		—
FHLB advances and other borrowings		140.5		32.8		63.3		21.1		23.3
Operating leases		35.4		2.1		3.8		3.6		25.9
Purchase obligations		7.4		2.5		3.0		1.7		0.2
Non-discretionary pension contributions		2.0		0.1		0.3		0.3		1.3

Total	$	1,593.4	$	1,351.5	$	120.9	$	35.8	$	85.2

Other Information

Downgrade of the U.S. Government and Federal Agencies

On August 5, 2011, Standard & Poor’s rating agency lowered the long-term rating of the U.S. government and federal agencies, including the FHLB, from AAA to AA+. With regard to this action, the federal banking agencies issued a joint press release providing the following guidance to banking organizations: for risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board’s Regulation W, will also be unaffected. At this time it is not possible to predict the various impacts, if any, that the downgrade may have on the Corporation and the Bank. Please see “Item 1A—Risk Factors” later in this quarterly report on Form 10-Q for further discussion regarding the potential risks that the downgrade poses.

Regulatory Matters and Pending Legislation

The Corporation is not aware of any other current specific recommendations by regulatory authorities or proposed legislation which, if implemented, would have a material adverse effect upon the liquidity, capital resources, or results of operations, however the general cost of compliance with numerous and multiple federal and state laws and regulations does have, and in the future may have, an impact on the Corporation’s results of operations.

The Dodd-Frank Act expands the base for FDIC insurance assessments, requiring that assessments be based on the average consolidated total assets less tangible equity capital of a financial institution. On February 7, 2011, the FDIC approved a final rule to implement the foregoing provision of the Dodd-Frank Act and to make other changes to the deposit insurance assessment system applicable to insured depository institutions with over $10 billion in assets. Among other things, the final rule eliminates risk categories and the use of long-term debt issuer ratings in calculating risk-based assessments, and instead implements a scorecard method, combining CAMELS ratings and certain forward-looking financial measures to assess the risk an institution poses to the Deposit Insurance Fund. The final rule also revises the assessment rate schedule for large institutions and highly complex institutions to provide assessments ranging from 2.5 to 45 basis points. Except as specifically provided, the final rule took effect for the quarter beginning April 1, 2011, and is reflected in the September 30, 2011 fund balance and was reflected in the invoices for assessments due September 30, 2011. This shift in assessment basis should benefit community banks by placing more of the burden on the large, multi-national banks, which, until now, were only assessed on their domestic deposit base.

Effects of Inflation

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

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.

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

Special Cautionary Notice Regarding Forward Looking Statements

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

•

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

•

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

•

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

•

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

•

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

•

changes in accounting requirements or interpretations;

•

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

•

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

•

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

•

any extraordinary events (such as the September 11, 2001 events, the war on terrorism and the U.S. Government’s response to those events, including the war in Iraq);

•

the Corporation’s need for capital;

•

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

•

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

•

Differences in the actual financial results, cost savings and revenue enhancements associated with our acquisitions including our acquisition of the Private Wealth Management Group of the Hershey Trust Company;

•

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

•

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

•

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

•

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

•

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

•

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

•

technological changes being more difficult or expensive than anticipated;

•

the Corporation’s success in managing the risks involved in the foregoing.

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Quarterly Report and incorporated documents are based upon the Corporation’s beliefs and assumptions as of the date of this Quarterly Report. The Corporation assumes no obligation to update any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this Quarterly Report or incorporated documents might not occur and you should not put undue reliance on any forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risks

There has been no material change to the Corporation’s and Bank’s exposure to market risk since December 31, 2010. For further discussion of quantitative and qualitative disclosures about market risks, please refer to the Corporation’s 2010 Annual Report and Form 10-K of which it forms a part.

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer, Frederick C. Peters II, and Chief Financial Officer, J. Duncan Smith, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective.

There have not been any changes in the Corporation’s internal controls over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II OTHER INFORMATION.

ITEM 1. Legal Proceedings.

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

ITEM 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under “Part I – Item 1A – Risk Factors” in the Corporation’s 2010 Annual Report, as supplemented and updated by the discussion below.

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

The full impact of the recent downgrade of the U.S. Government and federal agencies from an AAA to an AA+ credit rating is currently unknown. However, in addition to causing economic and financial market disruptions, the recent downgrade, and any future downgrades and/or failures to raise the U.S. debt limit if necessary in the future, could, among other things, materially adversely affect 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 as a result of the downgrade could extend to the borrowers of the loans the bank makes and, as a result, could adversely affect its borrowers’ ability to repay their loans.

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

Share Repurchase

The following tables present the shares repurchased by the Corporation during the third quarter of 2011⁽¹⁾:


Period	Total Number of Shares Purchased⁽²⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
July 1, 2011 – July 31, 2011		—	$	—		—		195,705
August 1, 2011 – August 31, 2011		—	$	—		—		195,705
September 1, 2011 – September 30, 2011		—	$	—		—		195,705

Total		—	$	—		—		195,705

(1)

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

There were no share repurchases made by the Corporation during the third quarter of 2011. As of September 30, 2011, the maximum number of shares that may yet be purchased under the 2006 Program was 195,705.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Reserved.

ITEM 5. Other Information

None.

ITEM 6. Exhibits


Exhibit No.		Description and References

2.1		Membership Interest Purchase Agreement, dated as of June 9, 2008, by and among Bryn Mawr Bank Corporation, Marigot Daze LLC, JNJ Holdings LLC, Lau Associates LLC, Lau Professional Services LLC and Judith W. Lau, incorporated by reference to Exhibit 2.1 to the Corporation’s 10-Q filed with SEC on November 10, 2008

2.2		Agreement and Plan of Merger, dated as of November 3, 2009, by and between Bryn Mawr Bank Corporation and First Keystone Financial, Inc., incorporated by reference to Exhibit 2.1 to the Corporation’s 8-K filed with SEC on November 4, 2009

2.3		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 to the Corporation’s 8-K filed with SEC on February 18, 2011

2.4		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 to the Corporation’s 8-K filed with the SEC on May 27, 2011

2.5		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 to the Corporation’s 8-K filed with the SEC on May 27, 2011

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

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

4.1		Shareholders Rights Plan, dated November 18, 2003, incorporated by reference to Exhibit 4 of the Corporation’s Form 8-A12G filed with the SEC on November 25, 2003

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


Exhibit No.		Description and References

4.3		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

4.4		Subordinated Note Purchase Agreement dated July 30, 2008, incorporated by reference to Exhibit 4.4 to the Corporation’s 10-Q filed with SEC on November 10, 2008

4.5		Subordinated Note Purchase Agreement dated August 28, 2008, incorporated by reference to Exhibit 4.5 of the Corporation’s 10-Q filed with the SEC on November 10, 2008

4.6		Subordinated Note Purchase Agreement dated April 20, 2009, incorporated by reference to Exhibit 4.6 of the Corporation’s 10-Q filed with the SEC on August 7, 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 to the Corporation’s Form 10-K filed with the SEC on March 13, 2008

10.2*		Executive Change-of-Control Severance Agreement, dated October 19, 1995, between the Bryn Mawr Trust Company and Robert J. Ricciardi, incorporated by reference to Exhibit 10.O of the Corporation’s Form 10-K filed with the SEC on March 15, 2007

10.3**		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 to the Corporation’s Form 10-K filed with the SEC on March 16, 2011

10.4*		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

10.5*		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

10.6*		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

10.7*		Employment Agreement, dated January 11, 2001, between the Bryn Mawr Bank Corporation and Frederick C. Peters II, incorporated by reference to Exhibit 10.N of the Corporation’s Form 10-K filed with the SEC on March 29, 2001

10.8*		Executive Change-of-Control Severance Agreement, dated January 22, 2001, between the Bryn Mawr Trust Company and Frederick C. Peters II, incorporated by reference to Exhibit 10.K of the Corporation’s Form 10-K filed with the SEC on March 15, 2007

10.9**		The Bryn Mawr Bank Corporation 2001 Stock Option Plan, incorporated by reference to Appendix B of the Corporation’s Proxy Statement dated March 8, 2001 filed with the SEC on March 6, 2001

10.10**		Bryn Mawr Bank Corporation 2004 Stock Option Plan, incorporated by reference to Appendix A of the Corporation’s Proxy Statement dated March 10, 2004 filed with the SEC on March 8, 2004

10.11*		Executive Change-of-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

10.12*		Executive Change-of-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

10.13*		Executive Severance and Change of Control Agreement, dated April 4, 2005, between the Bryn Mawr Trust Company and J. Duncan Smith, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on April 6, 2005

10.14**		Form of Key Employee Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.3 to the Corporation’s Form 10-Q filed with the SEC on May 10, 2005

10.15**		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

10.16*		Letter Employment Agreement, dated January 3, 2007, from the Bryn Mawr Trust Company to Matthew G. Waschull, incorporated by reference to Exhibit 10.2 of the Corporation’s Form 10-Q filed with the SEC on August 7, 2007

10.17*		Executive Change-of-Control Amended and Restated Severance Agreement, dated March 15, 2007, between the Bryn Mawr Trust Company and Matthew G. Waschull, incorporated by reference to Exhibit 10.P of the Corporation’s Form 10-K filed with the SEC on March 15, 2007


Exhibit No.		Description and References

10.18*		Non-Disclosure and Nonsolicitation Agreement, dated March 9, 2007, between the Bryn Mawr Trust Company and Matthew G. Waschull, incorporated by reference to Exhibit 10.18 to the Corporation’s 10-K filed with SEC on March 13, 2008

10.19**		2007 Long Term Incentive Plan, effective April 25, 2007, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 10-Q filed with the SEC May 10, 2007

10.20**		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

10.21*		Restricted Covenant Agreement, dated as of November 2, 2009, between the Bryn Mawr Trust Company and Francis J. Leto, incorporated by reference to Exhibit 10.2 of the Corporation’s 8-K filed with the SEC on November 6, 2009

10.22*		Executive Change-of-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

10.23		Bryn Mawr Bank Corporation Dividend Reinvestment and Stock Purchase Plan with Request for Waiver Program, effective July 20, 2009, incorporated by reference to the prospectus supplement filed with the SEC on July 20, 2009 pursuant to Rule 424(b)(2) of the Securities Act

10.24**		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

10.25		Placement Agency Agreement dated as of May 13, 2010, among Bryn Mawr Bank Corporation, Stifel Nicolaus & Company, Incorporation, Keefe, Bruyette & Woods, Inc., and Boenning & Scattergood, Inc., incorporated by reference to Exhibit 1.1 to the Corporation’s Form 8-K filed with the SEC on May 14, 2010

10.26		Form of Purchase Agreement relating to May 2010 Registered Direct Offering, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed with the SEC on May 14, 2010

10.27		Amended and Restated Transition, Consulting, Noncompetition and Retirement Agreement, dated November 25, 2008, by and among First Keystone Financial, Inc., First Keystone Bank and Donald S. Guthrie, as assumed by Bryn Mawr Bank Corporation and The Bryn Mawr Trust Company as of July 1, 2010, incorporated by reference to Exhibit 10.1 to the Corporation’s Form 8-K filed with the SEC on July 1, 2010

10.28		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 to the Corporation’s Post-Effective Amendment No.1 to Form S-4 on Form S-3, filed with the SEC on July 9, 2010

10.29*		Executive Change-of-Control Amended and Restated Severance Agreement, dated September 27, 2010, between The Bryn Mawr Trust Company and Geoffrey L. Halberstadt, incorporated by reference to Exhibit 10.29 to the Corporation’s Form 10-K filed with the SEC on March 16, 2011

10.30*		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 to the Corporation’s Form 10-K filed with the SEC on March 16, 2011

10.31		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 filed with the SEC on October 4, 2011.

10.32		Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, as filed herewith

10.33		Form of Restricted Stock Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, filed herewith

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

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

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

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

101		The following materials from the Quarterly Report on Form 10-Q for the period ended September 30, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) the Consolidated Statements of Income for the three and nine month ended September 30, 2011 and 2010, (iii) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2011, (v) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010 and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text. (These interactive data files shall not be deemed filed for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities under these Sections.)

*	Management contract or compensatory plan arrangement.

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

Signatures

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


	Bryn Mawr Bank Corporation

Date: November 9, 2011	By:	/s/ FREDERICK C. PETERS II
		Frederick C. Peters II
		President & Chief Executive Officer

Date: November 9, 2011	By:	/s/ J. DUNCAN SMITH
		J. Duncan Smith
		Treasurer & Chief Financial Officer

Form 10-Q

Index to Exhibits Furnished Herewith


Exhibit 31.1		Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)

Exhibit 31.2		Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)

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

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

Exhibit 10.32		Form of Restricted Stock Agreement for Employees (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, as filed herewith

Exhibit 10.33		Form of Restricted Stock Agreement for Directors (Service/Performance Based) Subject to the 2010 Long Term Incentive Plan, filed herewith

Exhibit 101		The following materials from the Quarterly Report on Form 10-Q for the period ended September 30, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010, (iii) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2011, (v) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010 and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text. (These interactive data files shall not be deemed filed for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities under these Sections.)