Edgar Filing: BRYN MAWR BANK CORP

Bryn Mawr Bank Corporation -- Form 10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Quarterly Report Under Section 13 or 15 (d)

of the Securities and Exchange Act of 1934.

For Quarter ended June 30, 2009

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 ¨ 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.

Large accelerated filer ¨ Accelerated filer x

Non-accelerated filer ¨ Smaller reporting company ¨

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 August 3, 2009
Common Stock, par value $1		8,783,079

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (the “Amendment”) of Bryn Mawr Bank Corporation (the “Corporation”) amends the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, originally filed with the Securities and Exchange Commission on August 7, 2009 (the “Original Report”). This Amendment is being filed solely to amend the certifications of the Corporation’s Principal Executive Officer and Principal Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 appended as Exhibits 31.1 and 31.2, and Section 906 of the Sarbanes-Oxley Act of 2002 appended as Exhibits 32.1 and 32.2. Specifically, the Corporation is re-filing the 31.1 and 31.2 certifications solely to remove the title of the certifying officer in the first line of the certification, and to remove the word “we” from paragraph 4 of the certification. The Corporation is re-filing the 32.1 and 32.2 certifications solely to change the date of the quarterly report referenced in the initial paragraph of the certification from “June 30, 2008” to “June 30, 2009.”

Other than these changes, the remainder of the document is unchanged from the Original Report. This Amendment does not reflect events occurring after the filing of the Original Report or modify or update the disclosures therein in any way other than as required to reflect the changes described in this Explanatory Note.

This Amendment has been signed as of a current date, and includes the amended certifications as Exhibits 31.1, 31.2, 32.1 and 32.2, which are currently dated.

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

FORM 10-Q

QUARTER ENDED June 30, 2009

Index


PART I -	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)

	Consolidated Financial Statements	Page 3

	Notes to Consolidated Financial Statements	Page 8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 23

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risks	Page 43

ITEM 4.	Controls and Procedures	Page 43

PART II -	OTHER INFORMATION	Page 43

ITEM 1.	Legal Proceedings	Page 43

ITEM 1A.	Risk Factors	Page 43

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	Page 44

ITEM 3.	Defaults Upon Senior Securities	Page 44

ITEM 4.	Submission of Matters to Vote of Security Holders	Page 45

ITEM 5.	Other Information	Page 45

ITEM 6.	Exhibits	Page 46

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income - Unaudited


	Three Months Ended June 30						Six Months Ended June 30
(dollars in thousands, except share data)	2009			2008			2009		2008
Interest income:
Loans	$	11,489		$	11,571		$	22,950	$	23,532
Leases		1,476			1,444			3,017		2,760
Cash and cash equivalents		92			31			192		133
Investment securities and dividend income		1,165			1,186			2,356		1,869

Total interest and dividend income		14,222			14,232			28,515		28,294
Interest expense:
Savings, NOW, and market rate accounts		798			794			1,614		1,851
Time deposits		1,316			1,353			2,869		3,468
Wholesale deposits		616			1,591			1,429		3,236
Borrowed funds		1,274			1,191			2,538		1,828
Subordinated debt		306			—			527		—

Total interest expense		4,310			4,929			8,977		10,383

Net interest income		9,912			9,303			19,538		17,911
Loan and lease loss provision		1,686			781			3,277		1,635

Net interest income after loan and lease loss provision		8,226			8,522			16,261		16,276

Non-interest income:
Fees for wealth management services		3,621			3,291			7,124		6,603
Service charges on deposit accounts		490			429			954		821
Loan servicing and other fees		343			305			634		615
Net gain on sale of residential mortgage loans		2,516			363			4,393		695
BOLI income		—			117			—		260
Net gain on sale of investments		—			—			472		222
Net gain on trading investments		80			—			80		—
Interest rate floor income		—			—			—		268
Other operating income		751			727			1,629		1,378

Total non-interest income		7,801			5,232			15,286		10,862

Non-interest expenses:
Salaries and wages		5,626			4,532			11,105		9,011
Employee benefits		1,462			947			3,044		2,279
Occupancy and bank premises		906			715			1,833		1,465
Furniture, fixtures, and equipment		612			565			1,198		1,114
Advertising		346			222			578		494
Amortization of mortgage servicing rights		256			119			451		195
(Recovery)/Impairment of mortgage servicing rights		(115	)		(30	)		89		19
Intangible asset amortization		77			—			154		—
FDIC insurance		357			122			679		213
FDIC special assessment		540			—			540		—
Professional fees		544			364			887		683
Other operating expenses		1,676			1,447			3,197		2,609

Total non-interest expenses		12,287			9,003			23,755		18,082
Income before income taxes		3,740			4,751			7,792		9,056
Income taxes		1,291			1,586			2,711		2,993

Net income	$	2,449		$	3,165		$	5,081	$	6,063

Basic earnings per common share	$	0.28		$	0.37		$	0.59	$	0.71
Diluted earnings per common share	$	0.28		$	0.37		$	0.58	$	0.71
Dividends declared per share	$	0.14		$	0.13		$	0.28	$	0.26
Weighted-average basic shares outstanding		8,745,708			8,571,143			8,674,453		8,552,805
Dilutive potential common shares		21,601			31,836			20,050		30,125

Weighted-average dilutive shares		8,767,309			8,602,979			8,694,503		8,582,930

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets - Unaudited


(dollars in thousands, except share data)	June 30, 2009			December 31, 2008
Assets
Cash and due from banks	$	11,260		$	18,776
Interest bearing deposits with banks		51,455			45,100
Money market funds		38,252			5,109

Total cash and cash equivalents		100,967			68,985
Trading securities		5,105			—
Investment securities available for sale, at fair value (amortized cost of $151,910 and $107,255 as of June 30, 2009 and December 31, 2008, respectively)		153,738			108,329

Total investment portfolio		158,843			108,329
Loans held for sale		6,837			3,024
Portfolio loans and leases		877,638			899,577
Less: Allowance for loan and lease losses		(10,389	)		(10,332	)

Net portfolio loans and leases		867,249			889,245

Premises and equipment, net		21,362			21,296
Accrued interest receivable		4,196			4,033
Deferred income taxes		5,404			5,478
Mortgage servicing rights		3,645			2,205
Bank owned life insurance (BOLI)		—			15,585
Goodwill		4,824			4,629
Intangible assets		5,575			5,729
Other investments		10,837			10,866
Other assets		7,905			11,942
Other real estate owned (OREO)		1,897			—

Total assets	$	1,199,541		$	1,151,346

Liabilities
Deposits:
Noninterest-bearing demand	$	181,153		$	174,449
Savings, NOW and market rate accounts		424,551			362,738
Wholesale deposits		88,119			120,761
Time deposits		200,174			211,542

Total deposits		893,997			869,490

Borrowed funds		149,925			154,939
Subordinated debt		22,500			15,000
Mortgage payable		2,090			—
Accrued interest payable		3,610			4,369
Unsettled securities payable		11,811			—
Other liabilities		16,120			15,135

Total liabilities		1,100,053			1,058,933

Shareholders’ equity
Common stock, par value $1; authorized 100,000,000 shares as of June 30, 2009 and December 31, 2008 respectively; issued 11,700,743 and 11,513,782 shares as of June 30, 2009 and December 31, 2008 respectively and outstanding of 8,781,079 and 8,592,259 shares as of June 30, 2009 and December 31, 2008, respectively		11,701			11,514
Paid-in capital in excess of par value		16,387			12,983
Accumulated other comprehensive loss, net of taxes		(7,162	)		(7,995	)
Retained earnings		108,494			105,845

		129,420			122,347

Less: Common stock in treasury at cost - 2,919,664 and 2,921,523 shares as of June 30, 2009 and December 31, 2008 respectively		(29,932	)		(29,934	)

Total shareholders’ equity		99,488			92,413

Total liabilities and shareholders’ equity	$	1,199,541		$	1,151,346

Book value per share	$	11.33		$	10.76

Tangible book value per share	$	10.15		$	9.55

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Unaudited


	Six Months Ended June 30
(dollars in thousands)	2009			2008
Operating activities:
Net income	$	5,081		$	6,063
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Provision for loan and lease losses		3,277			1,635
Provision for depreciation and amortization		1,385			852
Loans originated for resale		(206,512	)		(44,627	)
Proceeds from loans sold		207,092			48,143
Gain on trading securities		(80	)		—
Net gain on sale of residential mortgages		(4,393	)		(695	)
Provision for deferred income taxes (benefit)		(374	)		(199	)
Stock-based compensation cost		141			—
Change in income tax payable/receivable		1,524			306
Change in accrued interest receivable		(163	)		251
Change in accrued interest payable		(759	)		(3,152	)
Change in mortgage servicing rights, net		(1,440	)		(70	)
Change in intangible assets		154			—
Other, net		4,378			(3,523	)

Net cash provided by operating activities		9,311			4,984

Investing activities:
Purchases of investment securities - AFS		(67,390	)		(95,872	)
Purchase of trading securities		(5,025	)		—
Proceeds from sale of investment securities available for sale		12,946			21,004
Proceeds from maturity of investment securities and mortgage-backed securities pay downs		14,737			5,782
Proceeds from calls of investment securities		6,500			9,000
Net change in other investments		29			—
Proceeds from BOLI repayment		15,585			—
Net portfolio loan and lease repayments (originations)		16,823			(51,517	)
Purchase of premises and equipment		(1,030	)		(2,082	)
Contingent earn-out payment for Lau Associates		(195	)		—

Net cash used by investing activities		(7,020	)		(113,685	)

Financing activities:
Change in demand, NOW, savings and market rate deposit accounts		68,517			(73,152	)
Change in time deposits		(11,368	)		(36,783	)
Change in wholesale deposits		(32,642	)		14,229
Dividends paid		(2,432	)		(2,223	)
Increase in borrowed funds greater than 90 days		—			137,293
Repayment of borrowed funds greater than 90 days		(5,014	)		—
Increase in subordinated debt		7,500			—
Mortgage payable		2,090			—
Purchase of treasury stock		(42	)		(286	)
Tax benefit from exercise of stock options		63			116
Proceeds from exercise of stock options		461			855
Proceeds from issuance of common stock		2,558			—

Net cash provided by financing activities		29,691			40,049

Change in cash and cash equivalents		31,982			(68,652	)
Cash and cash equivalents at beginning of period		68,985			95,174

Cash and cash equivalents at end of period	$	100,967		$	26,522

Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	1,499		$	3,041
Interest	$	9,736		$	13,535
Supplemental non-cash investing and financing activities:
Unsettled AFS securities	$	11,811		$	4,954
Change in other comprehensive loss		1,281			1,369
Change in deferred taxes due to change in comprehensive income		448			(478	)
Transfer of loans to assets acquired through foreclosure		1,897			—

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

Consolidated Statements of Changes in Shareholders’ Equity


	For the 6 Months Ended June 30, 2009
	Shares of Common Stock Issued		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
	*(dollars in thousands)*
Balance - December 31, 2008	11,513,782		$	11,514		$	12,983		$	105,845		$	(7,995	)	$	(29,934	)	$	92,413
Net Income	—			—			—			5,081			—			—			5,081
Dividends declared - $0.28 per share	—			—			—			(2,432	)		—			—			(2,432	)
Other comprehensive income, net of tax expense of $448	—			—			—			—			833			—			833
Stock based compensation	—			—			553			—			—			—			553
Tax benefit stock option exercise	—			—			63			—			—			—			63
Purchase of treasury stock	—			—			—			—			—			(42	)		(42	)
Retirement of treasury stock	(4,522	)		(4	)		(40	)		—			—			44			—
Common stock issued	154,583			154			2,404			—			—			—			2,558
Exercise of stock options	36,900			37			424			—			—			—			461

Balance – June 30, 2009	11,700,743		$	11,701		$	16,387		$	108,494		$	(7,162	)	$	(29,932	)	$	99,488


	For the 6 Months Ended June 30, 2008
	Shares of Common Stock Issued		Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
	*(dollars in thousands)*
Balance - December 31, 2007	11,434,332		$	11,434		$	11,698		$	101,146		$	(4,304	)	$	(29,623	)	$	90,351
Net Income	—			—			—			6,063			—			—			6,063
Dividends declared - $0.26 per share	—			—			—			(2,223	)		—			—			(2,223	)
Other comprehensive loss, net of tax benefit of ($478)	—			—			—			—			(891	)		—			(891	)
Tax benefit stock option exercise	—			—			116			—			—			—			116
Purchase of treasury stock	—			—			—			—			—			(336	)		(336	)
Retirement of treasury stock	(5,096	)		(5	)		(45	)		—			—			50			—
Common stock issued	5,096			5			90			—			—			—			95
Exercise of stock options	58,450			59			801			—			—			—			860

Balance – June 30, 2008	11,492,782		$	11,493		$	12,660		$	104,986		$	(5,195	)	$	(29,909	)	$	94,035

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Unaudited


	Three Months Ended June 30
(dollars in thousands)	2009		2008
Net income	$	2,449	$	3,165
Other comprehensive income:
Unrealized investment gains (losses) net of tax expense (benefit) of $292 and ($683), respectively		542		(1,268	)
Change in unfunded pension liability, net of tax expense of $125 and $71, respectively		233		131

Total comprehensive income	$	3,224	$	2,028


	Six Months Ended June 30
(dollars in thousands)	2009		2008
Net income	$	5,081	$	6,063
Other comprehensive income:
Unrealized investment gains (losses) net of tax expense (benefit) of $264 and ($550), respectively		490		(1,023	)
Change in unfunded pension liability, net of tax expense of $184 and $72, respectively		343		132

Total comprehensive income	$	5,915	$	5,172

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

BRYN MAWR BANK CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2009 and 2008

(Unaudited)

1. Basis of Presentation:

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. 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 2008 Annual Report on Form 10-K. The Corporation’s consolidated financial condition and results of operations consist almost entirely of The Bryn Mawr Trust Company’s (the “Bank”) financial condition and results of operations.

The results of operations for the three month and six month periods ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year.

Statements of the Financial Accounting Standards Board are noted in these statements by the abbreviation “FAS”. Staff Accounting Bulletins of the Securities and Exchange Commission (“SEC”) are noted by the abbreviation “SAB”.

2. 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 antidilutive. 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 June 30				Six Months Ended June 30
(dollars in thousands, except per share data)	2009		2008		2009		2008
Numerator:
Net income available to common shareholders	$	2,449	$	3,165	$	5,081	$	6,063

Denominator for basic earnings per share – weighted average shares outstanding		8,745,708		8,571,143		8,674,453		8,552,805
Effect of dilutive potential common shares		21,601		31,836		20,050		30,125

Denominator for diluted earnings per share – adjusted weighted average shares outstanding		8,767,309		8,602,979		8,694,503		8,582,930

Basic earnings per share	$	0.28	$	0.37	$	0.59	$	0.71
Diluted earnings per share	$	0.28	$	0.37	$	0.58	$	0.71
Antidilutive shares excluded from computation of average dilutive earnings per share		631,064		274,037		695,633		276,556

3. Allowance for Loan and Lease Losses

The allowance for loan and lease losses is established through a provision for loan and lease losses charged as an expense. Loans are charged against the allowance for loan and lease losses when Management believes that such amounts are uncollectible. The allowance for loan and lease losses is maintained at a level that Management believes is sufficient to absorb estimated probable credit losses. Note 1 – Summary of Significant Accounting Policies – Allowance for Loan and Lease Losses, included in the Corporation’s 2008 Annual Report on Form 10K contains additional information relative to Management’s determination of the adequacy of the allowance for loan and lease losses.

4. Investment Securities

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

As of June 30, 2009


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government agency securities	$	40,147	$	170	$	(3	)	$	40,314
State, county and municipal securities		17,937		47		(168	)		17,816
Federal agency mortgage backed securities – residential		63,497		1,677		—			65,174
Government agency mortgaged backed securities – residential		11,539		113		(31	)		11,621
Corporate bonds		17,340		152		(129	)		17,363
Other debt securities		1,450		—		—			1,450

Total available for sale securities	$	151,910	$	2,159	$	(331	)	$	153,738

As of December 31, 2008


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government agency securities	$	10,999	$	171	$	—		$	11,170
State, county and municipal securities		7,071		43		(18	)		7,096
Federal agency mortgage backed securities		78,054		1,647		(42	)		79,659
Corporate bonds		10,181		—		(727	)		9,454
Other debt securities		950		—		—			950

Total	$	107,255	$	1,861	$	(787	)	$	108,329

The following table shows the amount of securities that were in an unrealized loss position at June 30, 2009:


(dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agency securities	$	4,997	$	(3	)	$	—	$	—		$	4,997	$	(3	)
State, county and municipal securities		8,228		(168	)		—		—			8,228		(168	)
Federal agency mortgage backed securities		9,166		(31	)		—		—			9,166		(31	)
Corporate bonds		1,486		(14	)		5,051		(115	)		6,537		(129	)

Total	$	18,880	$	(216	)	$	5,051	$	(115	)	$	23,931	$	(331	)

At June 30, 2009 securities having an amortized cost of $56.5 million were specifically pledged as collateral for public funds, trust deposits, the Federal Reserve Bank (“FRB”) discount window program, the Federal Home Loan Bank of Pittsburgh (“FHLB-P”) borrowings and other purposes. The FHLB-P has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Bank’s borrowing agreement with the FHLB-P.

The following table shows the amount of securities that were in a unrealized loss position at December 31, 2008:


(dollars in thousands)	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agency securities	$	—	$	—		$	—	$	—	$	—	$	—
State, county and municipal securities		1,163		(18	)		—		—		1,163		(18	)
Federal agency mortgage backed securities		3,800		(42	)		—		—		3,800		(42	)
Corporate bonds		9,454		(727	)		—		—		9,454		(727	)

Total	$	14,417	$	(787	)	$	—	$	—	$	14,417	$	(787	)

The Corporation’s Management evaluates the debt securities in our investment portfolio, which include U.S. Government agencies, Government sponsored agencies, municipalities and other issuers, for other-than-temporary impairment and considers current economic conditions, the length of time and the extent to which the fair value has been less than cost, interest rates and the bond rating of each security. All of the debt securities in our investment portfolio are highly rated as investment grade and Management believes that it will not incur any material losses with respect to such securities. The unrealized losses presented in the table above are temporary in nature as they are primarily related to market interest rates and are not related to the underlying credit quality of the issuers within our investment portfolio. None of the investments are believed to be other-than-temporarily impaired. The Corporation intends to hold the securities and does not believe it will be required to sell the securities before recovery occurs.

The amortized cost and estimated fair value of available for sale investment securities at June 30, 2009 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2009
(dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	23,454	$	23,516
Due after one year through five years		40,910		41,048
Due after five years through ten years		6,017		6,011
Due after ten years		6,493		6,367
No stated maturity		—		—

Subtotal		76,874		76,942
Mortgage backed securities		75,036		76,796

Total available for sale securities	$	151,910	$	153,738

5. Stock Based Compensation

Stock based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period. 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 June 30, 2009:


	Shares	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding March 31, 2009	866,364	$	19.92	$	4.37
Granted	—		—		—
Forfeited	—		—		—
Exercised	11,200	$	12.73	$	2.43

Options outstanding June 30, 2009	855,164	$	20.02	$	4.40

The following table provides information about unvested options for the three-months ended June 30, 2009:


	Shares	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested options March 31, 2009	235,838	$	23.28	$	5.14
Granted	—		—		—
Vested	1,208	$	21.83	$	5.90
Forfeited	—		—		—

Unvested options June 30, 2009	234,630	$	23.29	$	5.14

The following table provides information about options outstanding for the six months ended June 30, 2009:


	Shares	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Options outstanding December 31, 2008	901,814	$	19.70	$	4.31
Granted	—		—		—
Forfeited/Expired	9,750	$	19.37	$	4.22
Exercised	36,900	$	12.51	$	2.39

Options outstanding June 30, 2009	855,164	$	20.02	$	4.40

The following table provides information about unvested options for the six-months ended June 30, 2009:


	Shares	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Unvested options December 31, 2008	237,172	$	23.28	$	5.15
Granted	—		—		—
Vested	2,542	$	22.85	$	6.38
Forfeited	—		—		—

Unvested options June 30, 2009	234,630	$	23.29	$	5.14

The total not-yet-recognized compensation expense of unvested stock options is $920 thousand. This expense will be recognized over a weighted average period of 43 months.

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised during the six months ended June 30, 2009 and 2008 were as follows:


(dollars in thousands)	2009		2008
Proceeds from strike price of options exercised	$	461.5	$	855.1
Related tax benefit recognized		62.9		116.4

Proceeds of options exercised	$	524.4	$	971.5

Intrinsic value of options exercised	$	165.6	$	332.5

The following table provides information about options outstanding and exercisable options at June 30, 2009:


	Outstanding		Exercisable
Number		855,164		620,534
Weighted average exercise price	$	20.02	$	18.78
Aggregate intrinsic value	$	595,711	$	595,711
Weighted average contractual term (in years)		5.84		4.76

For the six months ended June 30, 2009 there were no options granted.

6. 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 months ended June 30, 2009 and 2008:


	For Three months Ended June 30
	SERP				QDBP						PRBP
	2009		2008		2009			2008			2009			2008
Service cost	$	48	$	16	$	—		$	—		$	—		$	—
Interest cost		68		49		469			426			12			16
Expected return on plan assets		—		—		(501	)		(635	)		—			—
Amortization of transition obligation		—		—		—			—			6			6
Amortization of prior service costs		36		33		—			78			(50	)		(50	)
Amortization of net loss		—		—		265			—			19			14

Net periodic benefit cost (benefit)	$	152	$	98	$	233		$	(131	)	$	(13	)	$	(14	)

The following table provides a reconciliation of the components of the net periodic benefits cost (benefit) for the six months ended June 30, 2009 and 2008:


	For Six months Ended June 30
	SERP				QDBP						PRBP
	2009		2008		2009			2008			2009			2008
Service cost	$	96	$	57	$	—		$	337		$	—		$	—
Interest cost		136		98		938			849			25			32
Expected return on plan assets		—		—		(1,003	)		(1,315	)		—			—
Amortization of transition obligation		—		—		—			—			13			12
Amortization of prior service costs		73		66		—			93			(101	)		(100	)
Amortization of net loss		—		—		531			—			38			28
Curtailment		—		—		—			18			—			—
Settlement		—		—		—			—			—			153

Net periodic benefit cost (benefit)	$	305	$	221	$	466		$	(18	)	$	(25	)	$	125

QDBP: As stated in the Corporation’s 2008 Annual Report, the Corporation does not have any minimum funding requirements for its QDBP for 2009. As of June 30, 2009 no contributions have been made to the QDBP.

SERP: The Corporation contributed $34 thousand during the second quarter of 2009 and it is expected to contribute an additional $68 thousand to the SERP plan for the remaining six months of 2009.

PRBP: In 2005 the Corporation capped the maximum payment under the PBRP at 120% of the 2005 benefit. It is anticipated the cost is at the cap in 2009.

7. Segment Information

The Corporation aggregates certain of its operations and has identified four “segments” as follows: Banking, Wealth Management, Mortgage Banking, and All Other. Footnote 23 – Segment Information, in the Notes to the Consolidated Financial Statements in the Corporation’s 2008 Annual Report on Form 10K provides additional descriptions of the identified segments.

Segment information for the quarter ended June 30, 2009 is as follows:


(Dollars in thousands)	2009
	Banking			Wealth Management			Mortgage Banking			All Other			Consolidated
Net interest income	$	9,928		$	3		$	4		$	(23	)	$	9,912
Less: Loan and lease loss provision		1,686			—			—			—			1,686

Net interest income after loan and lease loss provision		8,242			3			4			(23	)		8,226
Other income:
Fees for wealth management services		—			3,620			—			—			3,621
Service charges on deposit accounts		491			—			—			—			490
Loan servicing and other fees		65			—			278			—			343
Net gain on sale of residential mortgage loans		—			—			2,516			—			2,516
Other income		561			12			228			30			831

Total other income		1,117			3,632			3,022			30			7,801
Other expenses:
Salaries and wages		3,095			1,616			790			125			5,626
Employee benefits		1,121			344			29			(31	)		1,462
Occupancy and bank premises		1,296			222			50			(50	)		1,518
Net impairment/amortization of mortgage servicing rights		—			—			141			—			141
Other operating expense		2,933			388			299			(81	)		3,540

Total other expense		8,445			2,570			1,309			(37	)		12,287

Segment profit before income taxes		914			1,065			1,717			44			3,740
Intersegment pretax revenues (expenses) *		216			46			10			(272	)		—

Pretax segment profit (loss) after eliminations	$	1,130		$	1,111		$	1,727		$	(228	)	$	3,740

% of segment pretax profit (loss) after eliminations		30.2	%		29.7	%		46.2	%		(6.1	)%		100	%
Segment assets in millions of dollars	$	1,179.1		$	12.1		$	4.0		$	4.3		$	1,199.5

*	Intersegment revenues consist of rental payments, insurance commissions and a management fee.

Segment information for the quarter ended June 30, 2008 is as follows:


(Dollars in thousands)	2008
	Banking			Wealth Management			Mortgage Banking			All Other			Consolidated
Net interest income	$	9,277		$	—		$	25		$	1		$	9,303
Less: Loan and lease loss provision		781			—			—			—			781

Net interest income after loan and lease loss provision		8,496			—			25			1			8,522
Other income:
Fees for wealth management services		—			3,291			—			—			3,291
Service charges on deposit accounts		429			—			—			—			429
Loan servicing and other fees		72			—			231			2			305
Net gain on sale of residential mortgage loans		—			—			363			—			363
Other income		744			—			62			38			844

Total other income		1,245			3,291			656			40			5,232
Other expenses:
Salaries and wages		2,949			1,237			250			96			4,532
Employee benefits		662			251			23			11			947
Occupancy and bank premises		1,156			112			58			(46	)		1,280
Net impairment/amortization of mortgage servicing rights		—			—			89			—			89
Other operating expense		1,853			329			105			(132	)		2,155

Total other expense		6,620			1,929			525			(71	)		9,003

Segment profit before income taxes		3,121			1,362			156			112			4,751
Intersegment pretax revenues (expenses) *		201			45			10			(256	)		—

Pretax segment profit (loss) after eliminations	$	3,322		$	1,407		$	166		$	(144	)	$	4,751

% of segment pretax profit (loss) after eliminations		69.9	%		29.6	%		3.5	%		(3.0	%)		100	%
Segment assets in millions of dollars	$	1,041.5		$	0.7		$	3.0		$	4.1		$	1,049.3

*	Intersegment revenues consist of rental payments, insurance commissions and a management fee.

Segment information for the six months ended June 30, 2009 is as follows:


(Dollars in thousands)	2009
	Banking			Wealth Management			Mortgage Banking			All Other			Consolidated
Net interest income	$	19,536		$	7		$	18		$	(23	)	$	19,538
Less: Loan and lease loss provision		3,277			—			—			—			3,277

Net interest income after loan and lease loss provision		16,259			7			18			(23	)		16,261
Other income:
Fees for wealth management services		—			7,124			—			—			7,124
Service charges on deposit accounts		954			—			—			—			954
Loan servicing and other fees		111			—			523			—			634
Net gain on sale of residential mortgage loans		—			—			4,393			—			4,393
Other income		1,723			24			356			78			2,181

Total other income		2,788			7,148			5,272			78			15,286
Other expenses:
Salaries and wages		6,182			3,196			1,476			251			11,105
Employee benefits		2,308			729			54			(47	)		3,044
Occupancy and bank premises		2,600			429			103			(101	)		3,031
Net impairment/amortization of mortgage servicing rights		—			—			540			—			540
Other operating expense		4,999			764			491			(219	)		6,035

Total other expense		16,089			5,118			2,664			(116	)		23,755

Segment profit before income taxes		2,958			2,037			2,626			171			7,792
Intersegment pretax revenues (expenses) *		462			92			20			(574	)		—

Pretax segment profit (loss) after eliminations	$	3,420		$	2,129		$	2,646		$	(403	)	$	7,792

% of segment pretax profit (loss) after eliminations		43.9	%		27.3	%		34.0	%		(5.2	)%		100	%
Segment assets in millions of dollars	$	1,179.1		$	12.1		$	4.0		$	4.3		$	1,199.5

*	Intersegment revenues consist of rental payments, insurance commissions and a management fee.

Segment information for the six months ended June 30, 2008 is as follows:


(Dollars in thousands)	2008
	Banking			Wealth Management			Mortgage Banking			All Other			Consolidated
Net interest income	$	17,872		$	—		$	36		$	3		$	17,911
Less: Loan and lease loss provision		1,635			—			—			—			1,635

Net interest income after loan and lease loss provision		16,237			—			36			3			16,276
Other income:
Fees for wealth management services		—			6,603			—			—			6,603
Service charges on deposit accounts		821			—			—			—			821
Loan servicing and other fees		152			—			462			1			615
Net gain on sale of residential mortgage loans		—			—			695			—			695
Other income		1,940			—			97			91			2,128

Total other income		2,913			6,603			1,254			92			10,862
Other expenses:
Salaries and wages		5,900			2,418			496			197			9,011
Employee benefits		1,701			492			63			23			2,279
Occupancy and bank premises		2,317			246			107			(91	)		2,579
Net impairment/amortization of mortgage servicing rights		—			—			214			—			214
Other operating expense		3,392			610			218			(221	)		3,999

Total other expense		13,310			3,766			1,098			(92	)		18,082

Segment profit before income taxes		5,840			2,837			192			187			9,056
Intersegment pretax revenues (expenses) *		394			90			20			(504	)		—

Pretax segment profit (loss) after eliminations	$	6,234		$	2,927		$	212		$	(317	)	$	9,056

% of segment pretax profit (loss) after eliminations		68.8	%		32.3	%		2.4	%		(3.5	%)		100	%
Segment assets in millions of dollars	$	1,041.5		$	0.7		$	3.0		$	4.1		$	1,049.3

*	Intersegment revenues consist of rental payments, insurance commissions and a management fee.

Other segment information is as follows:


	June 30				December 31, 2008
(dollars in millions)	2009		2008		December 31, 2008
Wealth Management Segment:
Brokerage Assets⁽¹⁾	$	143.2		88.9		75.7
Assets Under Management and Administration – Wealth Division		1,523.0		2,105.4		1,564.0
Assets Under Management, Administration and Supervision – Lau Associates		488.9		—		506.7

Assets Under Management, Administration, Supervision and Brokerage Assets		2,155.1		2,194.3	$	2,146.4

Mortgage Banking Segment:
Mortgage Loans Serviced for Others	$	490.2	$	358.8	$	350.2
Mortgage Servicing Rights	$	3.6	$	2.9	$	2.2

⁽¹⁾	Brokerage assets, which include assets of Bryn Mawr Asset Management, represent assets held at a registered broker dealer under a networking agreement.

8. Mortgage Servicing Rights

The following summarizes the Corporation’s activity related to mortgage servicing rights (“MSR’s”) for the six months ended June 30, 2009 and 2008:


(dollars in thousands)	2009			2008
Balance, January 1	$	2,205		$	2,820
Additions		1,980			284
Amortization		(451	)		(195	)
Recovery		(283	)		(49	)
Impairment		194			30

Balance, June 30	$	3,645		$	2,890

Fair value	$	4,506		$	3,843

At June 30, 2009 key economic assumptions and the sensitivity of the current fair value of MSRs to immediate 10 and 20 percent adverse changes in those assumptions are as follows:


(dollars in thousands)	June 30, 2009
Fair value amount of MSRs	$	4,506
Weighted average life (in years)		5.3
Prepayment speeds (constant prepayment rate)*:		15.5	%
Impact on fair value:
10% adverse change	$	(224	)
20% adverse change	$	(430	)
Discount rate:		10.3	%
Impact on fair value:
10% adverse change	$	(161	)
20% adverse change	$	(312	)

*	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.

9. Impaired Loans and Leases

The following summarizes the Corporation’s impaired loans for the periods ended:


	For The Three Months Ended				For The Twelve Months Ended
(dollars in thousands)	June 30, 2009		June 30, 2008		December 31, 2008
Period end balance	$	3,476	$	1,060	$	4,586
Average period to date balance		2,893		931		1,476
Loans with specific loss allowances		2,054		—		3,150
Charge-offs and recoveries		438		—		—
Loss allowances reserved		202		—		124
Period to date income recognized	$	57	$	21	$	42

The Corporation had impaired leases as of June 30, 2009 of $2.4 million and $717 thousand and $637 thousand as of December 31, 2008 and June 30, 2008, respectively. At June 30, 2009 the Corporation had a total of $3.2 million of troubled debt restructurings (“TDR”) which included one commercial loan of $1.5 million and leases totaling $1.7 million. There were no TDR’s as of December 31, 2008 or June 30, 2008.

10. Goodwill and Other Intangibles

The goodwill and intangible balances presented below resulted from the acquisition of JNJ Holdings LLC, Lau Associates LLC and Lau Professional Services LLC (collectively, “Lau”) in the third quarter of 2008. During the first quarter of 2009, the Corporation paid $195 thousand based on the terms of the acquisition agreement related to the 2008 contingent payment. This payment was recorded as goodwill. For further information on the acquisition of Lau, please refer to Footnote 2 in the Corporation’s 2008 Annual Report on Form 10-K.

The changes in the carrying amount of goodwill and intangibles were as follows:


(dollars in thousands)	Goodwill		Intangibles
Balance January 1, 2009	$	4,629	$	5,729
2008 Earn-out adjustment		195		—
Amortization		—		(154	)

Balance June 30, 2009	$	4,824	$	5,575

Management performed the annual review of goodwill and identifiable intangibles at December 31, 2008 in accordance with FAS 142, “Goodwill and Other Intangible Assets” and FAS 144, “Accounting for the Impairment or disposal of Long-Lived Assets”. Management determined there was no impairment of goodwill and other intangible assets.

11. Capital

Dividend

The Corporation declared and paid a regular dividend of $0.14 per share, during the second quarter of 2009. This payment totaled $1.2 million. The Corporation’s Board of Directors declared a regular quarterly dividend of $0.14 per share payable September 1, 2009 to shareholders of record as of August 14, 2009.

Private Transactions in Securities

On April 20, 2009, the Bank raised from a single investor $7.5 million in subordinated debt which qualified as Tier II capital. This subordinated debt bears interest at a rate per annum equal to the ninety day LIBOR rate plus 5.75% and is adjusted quarterly. Interest is payable quarterly and principal is due on June 15, 2019. The rate of interest is capped at 10.0% per annum during the first five years of the term.

On April 20, 2009, in accordance with and reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), the Corporation also sold 150,061 shares of its common stock, par value $1.00 per share (“Shares”), in a private placement of securities to a purchaser which qualifies as an accredited investor under Rule 501(a) of Regulation D under the Securities Act. The purchase price per Share was equal to the average closing price of shares of the Corporation’s common stock on NASDAQ Global Markets for the thirty trading days ending on April 16, 2009, which equaled $16.66 per Share. The aggregate purchase price for the Shares sold was $2.5 million. The Corporation did not pay any underwriting discounts or commissions and did not pay any brokerage fees in connection with the sale of the Shares. The Shares sold constituted 1.7% of the outstanding shares of the Corporation’s common stock, as determined immediately after the closing of the sale. The Corporation intends to use the proceeds from the sale of the Shares to satisfy its working capital requirements and general corporate purposes, and for any other purpose deemed to be in the Corporation’s best interest

S-3 Shelf Registration Statement and Dividend Reinvestment and Stock Purchase Plan

On June 17, 2009, the SEC declared effective a shelf registration statement on Form S-3/A (“Shelf Registration Statement”) filed by the Corporation on June 15, 2009. The Shelf Registration Statement is intended to allow 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. The Corporation also registered for resale in the Shelf Registration Statement the Shares issued in the private placement of securities discussed in the preceding paragraph.

On July 20, 2009, the Corporation filed with the Securities and Exchange Commission a prospectus supplement pursuant to Section 424(b)(2) of the Securities Act (“Prospectus Supplement”) in order to take securities down from the Shelf Registration Statement in connection with a newly established Dividend Reinvestment and Stock Purchase Plan (the “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. A copy of the Plan as filed in our July 20, 2009 424(b)(2) filing can be found under “SEC filings” at our website, www.bmtc.com, by clicking on “About Us” and then “Investor Relations”.

12. Accounting for Uncertainty in Income Taxes

The Corporation adopted FASB interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007. As required by FIN 48, which clarifies FAS 109, 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. At January 1, 2007, the Corporation applied these criteria to all tax positions for which the statute of limitations remained open. There were no adjustments to retained earnings for unrecognized tax benefits as a result of the implementation of FIN 48 at adoption during 2007.

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 2005. The Corporation recently closed with the Internal Revenue Service an examination of the 2005 tax year. Resolution of the examination did not have any material impact to the financial position of the Corporation. The Corporation received notification dated July 20, 2009 from the Internal Revenue Service that the Corporation’s 2007 tax year is being audited.

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 second quarter of 2009. There were no significant FIN48 liabilities accrued during 2008 or in the first six months of 2009.

13. Fair Value Measurement

The following disclosures are made in conjunction with the application of FAS 157 “Fair Value Measurements” (“FAS 157”).

FAS 157 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 investment securities which generally includes 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.

Trading securities are evaluated using quoted prices in active markets. 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 investments are evaluated using a broker-quote based application, including quotes from issuers.

These investment securities classified as available for sale and trading are shown below.

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 table summarizes the assets at June 30, 2009 that are recognized on the Corporation’s balance sheet using fair value measurement determined based on the differing levels of input.


(dollars in millions)	Level 1		Level 2		Level 3		Total
Assets Measured at Fair Value on a Recurring Basis at June 30, 2009:
Trading Securities	$	5.1	$	—	$	—	$	5.1
Investment Securities – AFS:
U.S. Government agency securities		—		40.3		—		40.3
State, county and municipal securities		—		17.8		—		17.8
Mortgage backed securities		—		76.8		—		76.8
Corporate bonds		—		17.3		—		17.3
Other debt securities		—		1.5		—		1.5

Total available for sale securities	$	—	$	153.7	$	—	$	153.7

Total assets measured at fair value on a recurring basis	$	5.1	$	153.7	$	—	$	158.8

Assets Measured at Fair Value on a Nonrecurring Basis at June 30, 2009:
Mortgage servicing rights (MSRs)	$	—	$	3.6	$	—	$	3.6
OREO & Other repossessed property		—		1.9		—		1.9

Total assets measured at fair value on a nonrecurring basis	$	—	$	5.5	$	—	$	5.5

Other Real Estate Owned and Other Repossessed Property:

Other real estate owned (“OREO”) 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 carrying value or fair value, less estimated costs 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 $1.9 million in OREO assets at June 30, 2009.

14. BOLI

On August 13, 2008, the Corporation gave notice to its BOLI insurance carrier that it was surrendering its separate account BOLI insurance contract. The Corporation received $15.6 million cash on February 9, 2009 which was recorded as a receivable on the December 31, 2008 balance sheet. For the next 5 years the Corporation must send a quarterly certification letter stating that no BOLI contract was entered into for any of the individuals previously covered.

15. Fair Value of Financial Instruments

The following disclosures and schedules are disclosed in conjunction with the Corporation’s adoption of FSP FAS No. 107–1 and APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments”.

FAS No. 107 – “Disclosures about Fair Value of Financial Instruments” (“FAS 107”) 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. FAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented 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.

Trading Securities - Estimated fair values for trading securities are based on quoted market price, where available.

Available for Sale Securities - Estimated fair values for investment securities are based on quoted market price. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Net 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. 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.

MSR’s – The fair value of MSR’s is established using specific loan characteristics as well as market-based assumptions. The value is based on all relevant facts and circumstances, recent sales of comparable assets and the professional experience of the specialized service broker, as well as the hypothetical placement of the portfolio in that day’s active marketplace.

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, 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. FAS 107 defines the fair value of demand deposits as the amount payable on demand and prohibits adjusting estimated fair value from any value derived from retaining those deposits for an expected future period of time.

Borrowed Funds - The fair value of borrowed funds is established using a discounted cash flow calculation that applies interest rates currently being offered on mid-term and long term borrowings.

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

Mortgage payable – The fair value of the mortgage payable is established using a discounted cash flow calculation that applies interest rates currently being offered on comparable borrowings.

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

Off-Balance Sheet Instruments - Estimated fair values of the Corporation’s off-balance sheet instruments (standby letters of credit and loan commitments) 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 estimated fair values of off-balance sheet instruments.

The carrying amount and estimated fair value of the Corporation’s financial instruments as of June 30, 2009 and December 31, 2008 are as follows:


	2009				2008
(dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and due from banks	$	11,260	$	11,260	$	18,776	$	18,776
Interest-bearing deposits with other banks		51,455		51,455		45,100		45,100
Money market funds		38,252		38,252		5,109		5,109

Cash and cash equivalents		100,967		100,967		68,985		68,985
Trading securities		5,105		5,105		––		––
Investment securities - AFS		153,738		153,738		108,329		108,329
Mortgage servicing rights		3,645		4,506		2,205		2,210
Loans held for sale		6,837		6,874		3,024		3,094
Other assets		62,001		62,001		79,558		79,558
Net loans and leases		867,248		881,701		889,245		909,228

Total financial assets	$	1,199,541	$	1,214,892	$	1,151,346	$	1,171,404

Financial liabilities:
Deposits	$	893,997	$	895,526	$	869,490	$	871,679
Borrowed funds		149,925		152,259		154,939		157,160
Subordinated debt		22,500		22,801		15,000		15,184
Mortgage payable		2,090		2,244		––		––
Other liabilities		31,541		31,541		19,504		19,504

Total financial liabilities	$	1,100,053	$	1,104,371	$	1,058,933	$	1,063,527

Off-balance sheet instruments	$	318,320	$	318,320	$	318,368	$	318,368

16. New Accounting Pronouncements

FAS 107-1 and APB 28-1

In April 2009, FASB issued FSP-FAS 107-1 and ABP 28-1, “Interim Disclosure about Fair Value of Financial Instruments”. FSP-FAS107-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. All publicly traded companies are required to include disclosures about the fair value of financial instruments whenever it issues summarized financial information for interim reporting periods. FAS 107-1 became effective for interim reporting periods ending after June 15, 2009. The Corporation adopted this statement as of June 30, 2009 and has made the required disclosures in Note 15 of this Form 10-Q.

FAS 115-2 and FAS 124-2

In April 2009, FASB issued FSP-FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other Than Temporary Impairments”. FSP-FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance for debt securities. FSP-FAS 115-2 and 124-2 became effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Corporation adopted this statement as of June 30, 2009. Since the Corporation has not had any other-than-temporary impairment as of April 1, 2009, no cumulative-effect adjustments were required to be recorded at adoption.

FAS 157-4

In April 2009, FASB issued FSP-FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. FAS-FAS 157-4 became effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this FSP did not have a material effect on the results of operations.

FAS No. 165

In May 2009, the FASB issued SFAS No. 165 “Subsequent Events” (SFAS No. 165). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosure that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for fiscal years and interim periods ending after June 15, 2009, and shall be applied prospectively. The Corporation adopted this statement as of June 30, 2009 and such adoption did not have an impact on the results of operations or financial position. The Company has evaluated subsequent events through August 7, 2009.

FAS No. 166

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 amends the derecognition guidance in Statement 140 and eliminates the concept of a qualifying special-purpose entities (“QSPEs”). SFAS 166 is effective for fiscal years and interim periods beginning after November 15, 2009. Early adoption of SFAS 166 is prohibited. The Corporation will adopt SFAS 166 on January 1, 2010 and has not yet determined the effect of the adoption on its consolidated financial statements.

FAS No. 167

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”) which amends the consolidation guidance applicable to variable interest entities (“VIE”s). An entity would consolidate a VIE, as the primary beneficiary, when the entity has both of the following characteristics: (a) The power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) The obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE is required. SFAS 167 amends interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE. This Statement is effective for fiscal years and interim periods beginning after November 15, 2009. The Corporation will adopt SFAS 167 on January 1, 2010 and has not yet determined the effect of the adoption on its consolidated financial statements.

FAS No. 168

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). This standard identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with U.S. GAAP. The Statement establishes the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative accounting

principles recognized by the FASB in the preparation of financial statements in conformity with U.S. GAAP. Codification does not create new accounting and reporting guidance rather it reorganizes U.S. GAAP pronouncements into approximately 90 topics within a consistent structure. All guidance contained in the Codification carries an equal level of authority. Relevant portions of authoritative content, issued by the SEC, for SEC registrants, have been included in the Codification. After the effective date of this Statement, all non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Corporation will adopt SFAS 168 on September 30, 2009 and will update all disclosures to reference Codification in its September 30, 2009 quarterly report.

17. Subsequent Events

Please refer to Note 11 Capital for information on subsequent events.

· 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, PA, a western suburb of Philadelphia, PA. The Corporation and its subsidiaries provide wealth management, community banking, residential mortgage lending, insurance and business banking services to its customers through nine full service branches and seven limited-hour retirement community offices throughout Montgomery, Delaware and Chester counties. The Corporation trades on the NASDAQ Global 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 competes in a highly competitive market area and includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies, registered investment advisors and mutual fund families. The Corporation and its subsidiaries are regulated by many regulatory agencies including the Securities and Exchange Committee (“SEC”), NASDAQ, Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Bank of Philadelphia (“FRB”) and the Pennsylvania Department of Banking.

Results of Operations

The following is Management’s discussion and analysis of the significant changes in the results of operations, capital resources and liquidity presented in its accompanying consolidated financial statements for the Corporation. 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. These interim financial statements are unaudited.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Corporation and its subsidiaries conform with accounting principles generally accepted in the United States of America (US GAAP) applicable to the financial services industry. All significant 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, Management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ from these estimates.

The allowance for loan and lease losses 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 Management to be sufficient to absorb estimated probable credit losses. Management’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 Management 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 Note 1 to the Corporation’s audited consolidated financial statements filed as part of the 2008 Annual Report on Form 10-K and in the footnotes to the Corporation’s unaudited financial statements filed as part of this Form 10-Q. There have been no material changes in assumptions or estimation techniques utilized as compared to prior periods.

Executive Overview

Three Months Results

The Corporation reported second quarter 2009 diluted earnings per share of $0.28 and net income of $2.4 million compared to diluted earnings per share of $0.37 and net income of $3.2 million in the same period last year. Return on average equity (ROE) and return on average assets (ROA) for the second quarter ended June 30, 2009 were 10.11% and 0.83%, respectively. ROE was 13.65% and ROA was 1.24% for the same period last year.

The Corporation’s second quarter performance was solid given the continued economic stress over the past eighteen months. The Corporation is well positioned for continued growth and profitability, and continues to exceed regulatory requirements for a well-capitalized organization. The Corporation’s capital position was enhanced during the second quarter by a $2.5 million sale of unregistered common stock and $7.5 million in subordinated debt which qualifies as Tier II capital at the Bank. This capital strengthens the Corporation’s and the Bank’s capital position and provides additional resources to take advantage of strategic opportunities to invest and expand.

Net income decreased $716 thousand or 22.6% to $2.4 million in the second quarter 2009 from $3.2 million in the same period last year. Factors contributing to the decrease include an increase in the provision for loan and lease losses attributable to the leasing portfolio, increased operating costs attributable to the opening of the West Chester Regional Banking Center, the acquisition of each of JNJ Holdings LLC, Lau Associates LLC and Lau Professional Services LLC (collectively “Lau”) on July 15, 2008, the opening of The Bryn Mawr Trust Company of Delaware, the FDIC insurance premium increases along with the FDIC insurance special assessment charge, and continued net interest margin pressure. These factors were partially offset by significant increases in mortgage origination activity. The net interest margin for the second quarter of 2009 was 3.59% compared with 3.63% in the fourth quarter of 2008 and 3.97% in the second quarter of 2008 due to lower rates on interest earning assets partially offset by lower costs of interest bearing liabilities.

Total portfolio loans and leases at June 30, 2009 were $877.6 million, a decrease of $22.0 million or 2.4% from 2008 year-end balance of $899.6 million. The decrease in the balance from year end was primarily in construction loans and leases. Credit quality on the overall loan and lease portfolio remains strong as total non-performing loans and leases represented 41 basis points or $3.7 million of portfolio loans and leases at June 30, 2009. This compares with 65 basis points or $5.8 million at December 31, 2008. The Corporation’s other real estate owned (“OREO”) balance as of June 30, 2009 was $1.9 million due to the foreclosure of a site development loan and its transfer into OREO at its estimated net realizable value compared to $0 on December 31, 2008 and $0 as of June 30, 2008.

The provision for loan and lease losses for the quarter ended June 30, 2009 and 2008 were $1.7 million and $781 thousand, respectively. At June 30, 2009, the allowance for loan and lease losses (“allowance”) of $10.4 million represents 1.18% of portfolio loans and leases compared with 1.15% at December 31, 2008 and 1.02% at June 30, 2008. The increase in the allowance from 1.15% to 1.18% is due in part to the continued weak economic environment that has hindered the results of our leasing portfolio.

The Corporation’s investment portfolio increased $50.5 million or 46.7% to $158.8 million at June 30, 2009 from $108.3 million at December 31, 2008 due to the Corporation’s strong liquidity position. Money market fund balances grew to $38.3 million at June 30, 2009 from $5.1 million at December 31, 2008, a result of increased deposit, money market and savings account inflows and lower loan fundings.

Second quarter 2009 average total interest bearing deposits were up $99.7 million during the second quarter of 2009, up 16.1% from the same period in 2008. Over the past 12 months the Corporation had significant increases in money market and savings accounts. Funding from wholesale sources, which includes wholesale deposits, Insured Network Deposits (“IND”) deposits, subordinated debt and borrowings, at June 30, 2009 of approximately $281.2 million, which was a $39.7 million decrease from $320.9 million at December 31, 2008. The increase in deposit activity during the second quarter of 2009 reduced the Corporation’s dependency on wholesale funding.

The Corporation had in aggregate unused borrowing capacity of approximately $416.3 million at June 30, 2009 at the Federal Home Loan Bank of Pittsburgh (“FHLB-P”), the FRB, and its correspondent banks. This compares with $226.6 million at December 31, 2008. The increase in unused borrowing is the result of additional borrowing capacity at the FRB by using commercial and industrial loans and corporate bonds as collateral. Furthermore, borrowing from the FHLB-P decreased $52 million from December 31, 2008 and the maximum borrowing capacity (“MBC”) at the FHLB-P increased $115 million, due to a collateral evaluation performed by the FHLB-P.

For the quarter ended June 30, 2009, non-interest income was $7.8 million, an increase of $2.6 million or 49.1% over the $5.2 million for the same period last year. This increase was primarily due to the net gain on sale of residential mortgage loans and Wealth Management revenue. Mortgage originations for the second quarter of 2009 were $125.1 million compared to $25.8 million in the

fourth quarter of 2008 and $30.6 million in the second quarter of 2008, resulting in a significant increase in the gain on sale of residential mortgage loans. Wealth revenues increased to $3.6 million as of June 30, 2009 compared to $3.3 million in the second quarter of 2008. The addition of Lau Associates in the third quarter of 2008 offset declines in traditional wealth revenue from the Bank.

For the quarter ended June 30, 2009, non-interest expense was $12.3 million, an increase of $3.3 million or 36.5% over the $9.0 million in the same period last year. Costs related to the increase in residential mortgage loan originations, personnel, employee benefit costs and related support costs associated with new business initiatives including the Lau Associates acquisition on July 15, 2008, the opening of our West Chester Regional Banking Center on January 1, 2009 and The Bryn Mawr Trust Company of Delaware in the Fall of 2008, were the largest contributors to this increase. At quarter end, a $540 thousand FDIC insurance special assessment fee was accrued and will be payable September 30, 2009.

Six Months Results

The Corporation reported net income for the six months ended June 30, 2009 of $5.1 million or $0.58 diluted earnings per share, down from net income of $6.1 million or $0.71 diluted earnings per share for the first six months of 2008. ROE and ROA for the six months ended June 30, 2009 were 10.81% and 0.88%, respectively, compared to 13.25% and 1.24%, respectively, for the same period last year.

The tax equivalent net interest margin was 3.60% for the six months ended June 30, 2009, down from 3.97% from the same period in 2008. The earning asset yield declined 100 basis points to 5.25% in the first six months of 2009 from 6.25% in the same period of 2008. At the same time, total funding costs declined 81 basis points from 2.85% for the first six months of 2008 to 2.04% for the same period in 2009. The decrease in the margin to 3.60% in 2009 from 3.97% in 2008 is primarily due to lower rates on interest earning assets and higher overnight cash balances that were invested at lower market rates.

However, the tax equivalent net interest income increased $1.6 million to $19.7 million during the first six months of 2009 from $18.1 million during the first six months of 2008.

Non-interest income in the first half of the year was $15.3 million, up approximately $4.4 million compared to the first half of 2008, mainly due to a $3.7 million increase on the sale of residential mortgages. Other operating income, fees for wealth management services and service charges on deposits of $954 thousand were up $133 thousand or 16.2% from $821 thousand in the same period of 2008. Decreases in traditional Bank Wealth Management revenue was due to market valuation declines in the second half of 2008 and first quarter of 2009, and were more than offset by the revenue from the Lau Associates acquisition.

For the six month period ended June 30, 2009, non-interest expense was $23.8 million, up $5.7 million or 31.4% compared to the six month period ended June 30, 2008. The increase in non-interest expense is primarily the result of increases in salaries and wages associated with the new growth initiatives, FDIC insurance and special assessment charges, and the amortization of MSR’s.

Key Performance Ratios

Key financial performance ratios for the three and six months ended June 30, 2009 and 2008 are shown in the table below:


	Three Months Ended June 30						Six Months Ended June 30
	2009			2008			2009			2008
ROE		10.11	%		13.65	%		10.81	%		13.25	%
ROA		0.83	%		1.24	%		0.88	%		1.24	%
Efficiency ratio		69.4	%		61.9	%		68.2	%		62.9	%
Tax equivalent net interest margin		3.59	%		3.97	%		3.60	%		3.97	%
Diluted earnings per share	$	0.28		$	0.37		$	0.58		$	0.71
Dividend per share	$	0.14		$	0.13		$	0.28		$	0.26

Key period end ratios are shown in the table below:


	June 30, 2009			December 31, 2008			June 30, 2008
Book value per share	$	11.33		$	10.76		$	10.97
Tangible book value per share	$	10.15		$	9.55		$	10.97
Allowance for loan and lease losses as a percentage of loans		1.18	%		1.15	%		1.02	%
Tier I capital to risk weighted assets		9.27	%		8.81	%		10.05	%
Tangible common equity ratio		7.43	%		7.13	%		8.96	%
Loan to deposit ratio		98.0	%		103.0	%		113.0	%

Components of Net Income

Net income is affected by five major elements: Net Interest Income or the difference between interest income earned on loans, leases and investments and interest expense paid on deposit and borrowed funds; the Provision for Loan and Lease Losses or the amount added to the allowance for loan and lease losses to provide reserves for inherent losses on loans and leases; Non-Interest Income which is made up primarily of certain fees, trust income, residential mortgage activities and gains and losses from the sale of securities; Non-Interest Expenses which consist primarily of salaries, employee benefits and other operating expenses; and Income Taxes. Each of these major elements are discussed in more detail below.

NET INTEREST INCOME ON A TAX EQUIVALENT BASIS

We present information on a tax equivalent basis for net interest income. Refer to Analyses of Interest Rates and Interest Differential below for further information.

Three Months Ended June 30, 2009 Compared to the Same Period Ended June 30, 2008

The tax equivalent net interest income for the three months ended June 30, 2009 of $10.0 million was $623 thousand or 6.6% higher than the net interest income for the same period in 2008 of $9.4 million. This increase was substantially volume driven as average loan and lease growth of $52.6 million or 6.3% and average investment portfolio growth of $25.8 million or 24.7% were able to offset several prime rate decreases and the impact of a higher level of wholesale funds, which includes wholesale deposits, subordinated debt and borrowings.

Average interest bearing liabilities increased $122.8 million or 16.0% to $891.6 million during the second quarter of 2009 compared to $768.8 million during second quarter of 2008. The decrease in the rate on interest bearing liabilities from 2.58% in the second quarter 2009 to 1.94% in the second quarter of 2009 is largely due to higher rate wholesale deposits maturing, the increase of lower rate money market and savings accounts and aggressive management of deposit pricing. Average total wholesale funding increased $6.1 million or 2.1% to $298.1 million compared to the same period last year. The change in average deposit balances from the second quarter of 2008 was a $128.1 million increase or 16.8%.

Despite the increase in tax equivalent net interest income due to decreased interest expense, the tax equivalent net interest margin on interest earning assets decreased by 38 basis points from 3.97% in the second quarter of 2008 to 3.59% at June 30, 2009 due to lower rates on interest earning assets, including low market rates on overnight cash balances.

Six Months Ended June 30, 2009 Compared to the Same Period Ended June 30, 2008

The tax equivalent net interest income for the six months ended June 30, 2009 of $19.7 million was $1.6 million or 9.1% higher than the net interest income for the same period in 2008 of $18.1 million. This increase was substantially volume driven as average loan and lease growth of $72.8 million or 8.8% and investment portfolio growth of $38.7 million or 47.8% were able to offset several prime rate decreases and the impact of a higher level of wholesale funds.

Average interest bearing liabilities increased $152.0 million or 20.7% to $885.3 million during the first six months of 2009 compared to $733.2 million same period of 2008. The decrease in the rate on interest bearing liabilities from 2.85% in the first six months of 2008 to 2.04% in the first six months of 2009 is due to higher rate wholesale deposits maturing, the increase of lower rate money market and savings accounts and aggressive management of deposit pricing. The interest rate on the $15 million of subordinated debt reset during the second quarter of 2009 resulting in a decrease of 69 basis points. The $7.5 million of subordinated debt raised on April 20, 2009 is priced at 90 day LIBOR plus 5.75% and resets on the 15^th day of the last month of each quarter. The rate was reset on June 15, 2009. Average total wholesale funding increased $54.4 million or 22.2% to $299.2 million compared to the same period last year. The change in average deposit balances from the first six months of 2008 was a $112.0 million increase or 14.6%.

Despite the increase in tax equivalent net interest income due to decreased interest expense, the tax equivalent net interest margin on interest earning assets decreased by 37 basis points from 3.97% in the first six months of 2008 to 3.60% at June 30, 2009 due to lower rates on interest earning assets.

The rate volume analysis in the table below analyzes dollar changes in the components of interest income and interest expense as it relates to the change in balances (volume) and the change in interest rates (rate) of tax equivalent net interest income for the quarter ended June 30, 2009 compared to the quarter ended June 30, 2008 broken out by rate and volume.

Rate /Volume Analysis on a tax equivalent basis*


((in thousands) Increase/(Decrease)	Three months Ended June 30, 2009 Compared to 2008									Six months Ended June 30, 2009 Compared to 2008
((in thousands) Increase/(Decrease)	Volume			Rate			Total			Volume			Rate			Total
Interest Income:
Interest-bearing deposits with other banks	$	116		$	(117	)	$	(1	)	$	313		$	(339	)	$	(26	)
Federal funds sold		(18	)		—			(18	)		(62	)		(15	)		(77	)
Money market funds		80			—			80			162			—			162
Investment securities		303			(304	)		(1	)		914			(403	)		511
Loans and leases		837			(893	)		(56	)		2,284			(2,626	)		(342	)

Total interest income		1,318			(1,314	)		4			3,611			(3,383	)		228

Interest expense:
Savings, NOW and market rate accounts	$	230		$	(226	)	$	4		$	1,028		$	(1,264	)	$	(236	)
IND deposits		123			(105	)		18			634			(589	)		45
Time deposits		232			(269	)		(37	)		(821	)		(1,031	)		(1,852	)
Wholesale deposits		(462	)		(531	)		(993	)		953			(1,553	)		(600	)
Borrowed funds		184			205			389			1,052			185			1,237

Total interest expense		307			(926	)		(619	)		2,846			(4,252	)		(1,406	)

Interest differential	$	1,011		$	(388	)	$	623		$	765		$	869		$	1,634

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

Analyses of Interest Rates and Interest Differential

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


	For the three months ended June 30,
	2009							2008
(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	$	23,588		$	12	0.20	%	$	2,386		$	13	2.19	%
Federal funds sold		––			––	––			3,200			18	2.26	%
Money market funds		70,933			80	0.45	%		––			––	––
Investment securities:
Taxable		116,968			1,058	3.63	%		97,360			1,120	4.63	%
Tax-exempt		13,996			155	4.44	%		7,785			94	4.86	%

Total investment securities⁽³⁾		130,964			1,213	3.72	%		105,145			1,214	4.64	%

Loans and leases ^{(1) (2)}		892,399			12,999	5.84	%		839,784			13,055	6.25	%

Total interest earning assets		1,117,884			14,304	5.13	%		950,515			14,300	6.05	%
Cash and due from banks		10,386							19,727
Allowance for loan and lease losses		(10,242	)						(8,451	)
Other assets		64,367							61,352

Total assets	$	1,182,395						$	1,023,143

Liabilities:
Savings, NOW and market rate accounts	$	395,317		$	798	0.81	%	$	307,233		$	794	1.04	%
IND deposits		25,057			24	0.38	%		1,171			6	2.06	%
Wholesale deposits		99,371			592	2.39	%		140,288			1,585	4.54	%
Time deposits		198,221			1,316	2.66	%		169,562			1,353	3.21	%

Total interest-bearing deposits		717,966			2,730	1.53	%		618,254			3,738	2.43	%
Borrowed funds		151,109			1,251	3.32	%		150,567			1,191	3.18	%
Mortgage payable		1,614			23	5.72	%		––			––	––
Subordinated debt		20,934			306	5.84	%		––			––	––

Total interest-bearing liabilities		891,623			4,310	1.94	%		768,821			4,929	2.58	%
Noninterest-bearing demand deposits		171,918							143,563
Other liabilities		21,714							17,531

Total noninterest-bearing liabilities		193,632							161,094

Total liabilities		1,085,255							929,915
Shareholders’ equity		97,140							93,228

Total liabilities and shareholders’ equity	$	1,182,395						$	1,023,143

Net interest spread						3.19	%						3.47	%
Effect of noninterest-bearing sources						0.40	%						0.50	%

Net interest income/ margin on earning assets				$	9,994	3.59	%				$	9,371	3.97	%

Tax equivalent adjustment				$	82	0.02	%				$	68	0.03	%

⁽¹⁾	Non-accrual 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 six months ended June 30,
	2009							2008
(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	$	26,495		$	29	0.22	%	$	3,947		$	55	2.80	%
Federal funds sold		1,105			1	0.18	%		5,259			78	2.98	%
Money market funds		56,001			162	0.58	%
Investment securities:
Taxable		107,656			2,174	4.07	%		73,305			1,738	4.77	%
Tax-exempt		12,095			261	4.35	%		7,743			186	4.83	%

Total investment securities⁽³⁾		119,751			2,435	4.10	%		81,048			1,924	4.77	%
Loans and leases ⁽¹⁾⁽²⁾		898,015			26,034	5.85	%		825,184			26,376	6.43	%

Total interest earning assets		1,101,367			28,661	5.25	%		915,438			28,433	6.25	%
Cash and due from banks		11,042							21,017
Allowance for loan and lease losses		(10,297	)						(8,315	)
Other assets		66,757							58,121

Total assets	$	1,168,869						$	986,261

Liabilities:
Savings, NOW and market rate accounts	$	382,190		$	1,614	0.85	%	$	305,960			1,850	1.22	%
IND deposits		27,161			51	0.38	%		586			6	2.06	%
Wholesale deposits		101,454			1,378	2.74	%		135,896			3,230	4.78	%
Time deposits		203,065			2,869	2.85	%		182,488			3,469	3.82	%

Total interest-bearing deposits		713,870			5,912	1.67	%		624,930			8,555	2.75	%
Borrowed funds		152,604			2,515	3.32	%		108,319			1,828	3.39	%
Mortgage payable		811			23	5.72	%
Subordinated debt		17,983			527	5.91	%

Total interest-bearing liabilities		885,268			8,977	2.04	%		733,249			10,383	2.85	%
Noninterest-bearing demand deposits		166,140							143,048
Other liabilities		22,631							17,937

Total noninterest-bearing liabilities		188,771							160,985

Total liabilities		1,074,039							894,234
Shareholders’ equity		94,830							92,027

Total liabilities and shareholders’ equity	$	1,168,869						$	986,261

Net interest spread						3.21	%						3.40	%
Effect of noninterest-bearing sources						0.39	%						0.57	%

Net interest income/ margin on earning assets.				$	19,684	3.60	%				$	18,050	3.97	%

Tax equivalent adjustment				$	146	0.02	%				$	139	0.04	%

⁽¹⁾	Non-accrual 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 net interest margin decreased 38 basis points to 3.59% in the second quarter of 2009 from 3.97% in the same period last year. The interest bearing liability cost decreased in the second quarter of 2009 to 1.94%, a decrease of 64 basis points from the second quarter of 2008. This reduction was slower than the earning asset yield drop of 92 basis points during the same comparative period, mainly due to competitive pressures and pricing by other institutions which kept deposit rates abnormally high.

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
2^ndQuarter	2009	5.13	%	1.94	%	3.19	%	0.40	%	3.59	%
1^stQuarter	2009	5.37	%	2.15	%	3.22	%	0.40	%	3.62	%
4^thQuarter	2008	5.63	%	2.42	%	3.21	%	0.42	%	3.63	%
3^rdQuarter	2008	5.94	%	2.47	%	3.47	%	0.43	%	3.90	%
2^ndQuarter	2008	6.05	%	2.58	%	3.47	%	0.50	%	3.97	%

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 and Liability Committee (“ALCO”), using policies and procedures approved by the Corporation’s Board of Directors, is responsible for managing the 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 offering of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of several sources including borrowings from the FHLB-P, Federal Reserve Bank of Philadelphia discount window, certificates of deposit from institutional brokers, Certificate of Deposit Account Registry Service (“CDARS”), IND and PLGIT.

The Corporation uses several tools to manage its interest rate risk including interest rate sensitivity analysis (a/k/a “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 of established limits.

The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift 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 the balance sheet over the next twelve months. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines. Actual results may differ significantly from the interest rate simulation due to numerous factors including assumptions, the competitive environment, market reactions and customer behavior.

Summary of Interest Rate Simulation


	June 30, 2009
(dollars in thousands)	Change In Net Interest Income Over Next 12 Months
Change in Interest Rates
+300 basis points	$	2,888		6.93	%
+200 basis points	$	1,720		4.13	%
+100 basis points	$	(764	)	(1.83	)%
-100 basis points	$	252		0.60	%
-200 basis points	$	—		N/A

The interest rate simulation above indicates that the Corporation’s balance sheet as of June 30, 2009 is liability sensitive if rates increase 1%. Liability sensitive means that more liabilities are repricing in that time period than assets, and therefore, have a negative impact on the net interest income. However, a 200 basis point and 300 basis point increase in rates will enhance the Bank’s net interest income. An increase in rates of 100 basis points would reduce the net interest income since deposit rates would increase, but there would be no corresponding increase in interest income on all loan products. This is due to the Bank’s prime rate currently being higher than Wall Street Journal Prime and certain interest rate floors that are in place on consumer lines of credit and other loans. The interest rate simulation is an estimate based on assumptions, which are based in part on past behavior of customers, along with expectations of future behavior relative to interest rate changes. In today’s uncertain economic times, the reliability of the Corporation’s interest rate simulation model is more uncertain. Actual customer behavior may be significantly different than expected behavior, which could cause an unexpected outcome which might translate into lower net interest income.

GAP Report

The interest sensitivity or “GAP” report identifies interest rate risk by showing repricing gaps in the bank’s balance sheet. All assets and liabilities are reflected based on 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 investment preferences for the bank. Non-rate sensitive assets and liabilities are spread over time periods to reflect how the Corporation views the maturity of these funds.

Non-maturity deposits, demand deposits in particular, are recognized by the 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 those deposits is reported as having a shorter life than typical retail demand deposits. Additionally, the regulatory capital agencies have inferred what the appropriate distribution limits are for non-maturity deposits. The Corporation has taken a more conservative approach than these limits would imply by reporting them as having a shorter maturity.

The following table presents the Corporation’s interest rate sensitivity position or GAP Analysis as of June 30, 2009:


(dollars in millions)	0 to 90 Days			90 to 365 Days			1-5 Years			Over 5 Years			Non-Rate Sensitive			Total
Assets:
Interest-bearing deposits with banks	$	51.5		$	—		$	—		$	—		$	—		$	51.5
Money market funds		38.3			—			—			—			—			38.3
Trading securities		5.1			—			—			—			—			5.1
Available for sale securities		13.1			54.2			60.5			25.9			—			153.7
Loans and leases⁽¹⁾		360.9			66.1			382.4			75.0			—			884.4
Allowance		—			—			—			—			(10.4	)		(10.4	)
Cash and due from banks		—			—			—			—			11.3			11.3
Other assets		—			—			0.3			0.6			64.7			65.6

Total assets	$	468.9		$	120.3		$	443.2		$	101.5		$	65.6		$	1,199.5

Liabilities and shareholders’ equity:
Non-interest-bearing demand	$	35.4		$	23.0		$	122.8		$	—		$	—		$	181.2
Savings, NOW and market rate		88.6			59.2			217.3			59.4			—			424.5
Time deposits		88.1			105.2			6.8			0.1			—			200.2
Wholesale deposits		39.2			37.7			11.2			—			—			88.1
Borrowed funds		2.5			17.8			118.3			11.3			—			149.9
Subordinated debt		22.5			—			—			—			—			22.5
Mortgage payable		0.1			0.1			1.9			—			—			2.1
Other liabilities		—			—			—			—			31.5			31.5
Shareholders’ equity		3.6			10.6			56.9			28.5			—			99.5

Total liabilities and shareholders’ equity	$	280.0		$	253.6		$	535.1		$	99.3		$	31.5		$	1,199.5

Interest earning assets	$	468.9		$	120.3		$	442.9		$	100.9		$	—		$	1,133.0
Interest bearing liabilities		241.0			220.9			355.5			70.8			—			887.0

Difference between interest earning assets and interest bearing liabilities	$	227.9		$	(99.7	)	$	87.4		$	30.1		$	—		$	245.7

Cumulative difference between interest earning assets and interest bearing liabilities	$	227.9		$	128.2		$	215.6		$	245.7		$	245.7		$	245.7

Cumulative earning assets as a % of cumulative interest bearing liabilities		195	%		128	%		126	%		128	%		128	%		128	%

⁽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. 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 December 31, 2008.

PROVISION FOR LOAN AND LEASE LOSSES

General Discussion of the Allowance for Loan and Lease Losses

The Corporation uses the allowance method of accounting for credit losses. The balance in the allowance for loan and lease losses is determined based on Management’s review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including Management’s assumptions as to future delinquencies, recoveries and losses.

Increases to the allowance for loan and lease losses are implemented through a corresponding provision (expense) in the Corporation’s statement of income. Credit exposures deemed to be uncollectible are charged against the allowance for loan and lease losses. Recoveries of previously charged-off amounts are credited to the allowance for loan and lease losses.

While Management considers the allowance for loan and lease losses to be adequate based on information currently available, future additions to the allowance may be necessary due to changes in economic conditions or Management’s assumptions as to future delinquencies, recoveries and losses and Management’s intent 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 for loan and lease losses.

The Corporation’s allowance for loan and lease losses is the accumulation of four components that are calculated based on various independent methodologies. All components of the allowance for loan and lease losses are estimations. Management discusses these estimates earlier in this document under the heading of “Critical Accounting Policies, Judgments and Estimates”. The four components are as follows:

•

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

•

Historical Charge-Off Component – Applies a historical charge-off rate to pools of non-classified loans and leases.

•

Additional Factors Component – The loan portfolio is broken down into multiple homogenous subclassifications upon which multiple factors (such as delinquency trends, economic conditions, loan terms, and regulatory environment) are evaluated resulting in an allowance amount for each of the subclassifications. The sum of these amounts equals the Additional Factors Component.

•

Unallocated Component – This amount represents a general reserve against all loans and leases.

Asset Quality and Analysis of Credit Risk

Credit quality on the overall loan and lease portfolio remains strong at June 30, 2009 as total nonperforming loans and leases of $3.7 million were 41 basis points of total loans and leases. This compares to non-performing loans and leases of $5.8 million or 65 basis points at December 31, 2008. As of June 30, 2009 the Corporation had OREO valued at $1.9 million which had been written down to its estimated net realizable value at the time it was placed into OREO. Non-performing assets at June 30, 2009 totaled $5.6 million or 47 basis points of total assets, a decrease of $200 thousand from $5.8 million in non-performing assets at December 31, 2008. The allowance for loan and lease losses as a percentage of total loans was 1.18% at June 30, 2009 compared with 1.15% at December 31, 2008 and 1.02% at June 30, 2008. The increase in the allowance from 1.15% to 1.18% at June 30, 2009 is due in part to Management’s decision to provide additional dollars for the leasing portfolio combined with the decline in the overall loan and lease portfolio during the first half of 2009.

In the second quarter of 2009, net lease charge-offs totaled $1.2 million compared to $1.6 million in the fourth quarter of 2008 and $471 thousand in the second quarter of 2008. Management made certain lease underwriting adjustments in 2008 and continued to “tighten” these standards in 2009 to mitigate potential losses, including the reduction of broker relationships, the curtailment of lease originations in certain geographical regions and changes to equipment categories, along with higher credit quality minimum requirements. It is anticipated that these adjustments and others may improve overall lease portfolio performance in coming quarters. For the first six months of 2009, net lease charge-offs totaled $2.6 million compared to $1.1 million for the same period in 2008.

Non Performing Assets and Related Ratios


(dollars in thousands)	June 30, 2009			December 31, 2008			June 30, 2008
Non-accrual loans and leases	$	2,913		$	5,303		$	1,697
Loans and leases 90 days or more past due		746			504			8

Total non-performing loans and leases		3,659			5,807		$	1,705
Other non-performing assets		—			—			155
Other real estate owned (“OREO”)		1,897			—			—

Total non performing assets	$	5,556		$	5,807		$	1,860

Troubled debt restructurings¹	$	3,193		$	—		$	—

Allowance for loan and lease losses to non-performing assets		187.0	%		177.9	%		509	%
Allowance for loan and lease losses to non-performing loans and leases		283.9	%		177.9	%		509	%
Non performing loans and leases to total portfolio loans		0.41	%		0.65	%		0.20	%
Allowance for loan losses to portfolio loans		1.18	%		1.15	%		1.02	%
Delinquency rate – including nonperforming		0.81	%		0.97	%		0.52	%
Delinquency rate – excluding nonperforming		0.40	%		0.32	%		0.32	%
Net loan and lease charge-offs/average quarterly loans and leases		0.64	%		0.71	%		0.22	%
Non-performing assets to total assets		0.47	%		0.50	%		0.18	%
Period end portfolio loans and leases	$	877,638		$	899,577		$	853,355
Average portfolio loans (quarterly average)	$	886,180		$	851,752		$	836,180
Allowance for loan and lease losses	$	10,389		$	10,332		$	8,672

Summary of Changes in the Allowance For Loan and Lease Losses


	Three Months Ended June 30,						Six Months Ended June 30,						Year Ended December 31, 2008
(dollars in thousands)	2009			2008			2009			2008			Year Ended December 31, 2008
Balance, beginning of period	$	10,137		$	8,358		$	10,332		$	8,124		$	8,124
Charge-offs:
Consumer		(10	)		(21	)		(20	)		(38	)		(72	)
Commercial and industrial		(69	)		—			(251	)		—			(4	)
Construction		(166	)		—			(382	)		—			—
Real estate		—			—			—			—			—
Leases		(1,301	)		(527	)		(2,751	)		(1,172	)		(3,540	)

Total charge-offs		(1,546	)		(548	)		(3,404	)		(1,209	)		(3,616	)
Recoveries:
Consumer		1			2			4			6			28
Commercial and industrial		—			—			—			—			—
Real estate		—			24			—			24			24
Construction		—			—			—			—			—
Leases		111			55			180			92			176

Total recoveries		112			81			184			122			228

Net (charge-offs) / recoveries		(1,434	)		(467	)		(3,220	)		(1,087	)		(3,616	)
Provision for loan and lease losses		1,686			781			3,277			1,635			5,596

Balance, end of period	$	10,389		$	8,672		$	10,389		$	8,672		$	10,332

¹	$213 thousand of troubled debt restructurings at June 30, 2009 are included in non-performing assets.

NON-INTEREST INCOME

Three months ended June 30, 2009 Compared to the Same Period Ended June 30, 2008

Non-interest income for the second quarter of 2009 was $7.8 million, an increase of $2.6 million or 49.1% over the $5.2 million in the second quarter of 2008. The major factor contributing to the increase in non-interest income was the gain on sale of residential mortgage loans which increased due to strong mortgage refinancing activity. Mortgage fee revenues in the second quarter of 2009 increased $2.2 million or 593.1% from the same period in 2008.

Second quarter 2009 Wealth Management revenue of $3.6 million was $329 thousand or 10% higher than the same period in 2008. Revenues include fees from trust administration, investment management, brokerage, custody and estates. The acquisition of Lau in the third quarter of 2008 is the primary factor contributing to this increase. Traditional wealth management revenues were impacted by the significant declines in the financial markets during the latter part of 2008 and the first quarter of 2009 resulting in a decline in the value of such wealth assets. Non-interest income from residential mortgage operations, the gain on sale of residential mortgage loans, the investment trading account income, and service charges on deposit accounts increased during the second quarter of 2009 compared to the second quarter 2008. The net gain on sale of residential mortgage loans related to the strong mortgage originations for the second quarter of 2009 of $221.6 million can be directly correlated to an increase in operating expenses equivalent to approximately 36% of the gain on sale of residential mortgages.

Six months ended June 30, 2009 Compared to the Same Period Ended June 30, 2008

Non-interest income for the six months ended June 30, 2009 was $15.3 million, an increase of $4.4 million or 40.7% over the $10.9 million for the six month ended June 30, 2008. This increase is primarily concentrated in the gain on sale of residential mortgage loans and Wealth Management revenues discussed above.

Due to strong mortgage refinancing activity, the gain on sale of residential mortgage loans increased $3.7 million or 532.1% from June 30, 2008. Wealth Management revenues were $521 thousand higher than in the six months ended June 30, 2009 than in the same period in 2008 as a result of the Lau acquisition in July 2008. The gain on sale of investments in the six months ended June 30, 2009 increased $250 thousand or 112.6% from the same period in 2008.

Components of other operating income for the three months ended June 30, 2009 and the six months end June 30, 2008 are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Cash management	$	97	$	179	$	230	$	350
Other		21		57		265		140
Insurance commissions		87		99		176		174
Commissions and fees		89		121		153		180
Safe deposit rental income		88		82		165		162
Other investment income		29		66		46		135
Rent		56		39		114		82
VISA debit card income		56		55		117		107
Title insurance		228		29		363		48

Other operating income	$	751	$	727	$	1,629	$	1,378

Cash management fees in 2009 are lower than the corresponding periods in 2008 due to lower overall fund yields and reductions in fees the Bank earns on these accounts. Title insurance revenue is up significantly due to higher mortgage refinance activity.

NON-INTEREST EXPENSE

Three months ended June 30, 2009 Compared to the Same Period Ended June 30, 2008

Non-interest expense for the second quarter of 2009 was $12.3 million, an increase of $3.3 million or 36.5% from $9.0 million in the second quarter of 2008. Factors contributing to this increase include an FDIC expense increase to $357 thousand or 192.6% from $122 thousand in the second quarter of 2008, the FDIC insurance special assessment fee of approximately $540 thousand accrued as of June 30, 2009 and payable September 30, 2009. In addition, expenses associated with the increased mortgage originations, which include variable compensation, credit reports, appraisals and loan pair off fees, as well as, expenses associated with Lau and Bryn Mawr Trust of Delaware are also responsible for this increase.

Salaries and wages in the second quarter of 2009 were $5.6 million, an increase of $1.1 million or 24.1% over the $4.5 million in the second quarter of 2008. The personnel cost associated with Lau beginning on July 15, 2008, the opening of the West Chester Regional Banking Center in the first quarter of 2009, the opening of The Bryn Mawr Trust Company of Delaware in the fourth quarter of 2008, and the variable compensation cost related to increased mortgage revenue account for majority of this increase. Employee benefits expense in the second quarter of 2009 was $1.5 million, an increase of $515 thousand or 54.4% compared to the second quarter of 2008, mainly due to the decline in the fair value of pension assets and expenses associated with the Corporation’s SERP plan.

Occupancy expense increased to $906 thousand a $191 thousand or 26.7% increase from $715 thousand in the second quarter of 2008. This increase is primarily due to the opening of the West Chester Regional Banking Center and the purchase of a building in Wayne in the third quarter of 2008 that is targeted to be used for future expansion.

Amortization of mortgage servicing rights increased to $256 thousand in the second quarter of 2009, a $137 thousand or 115.1% increase from $119 thousand in the second quarter of 2008. This is due to higher rate mortgages refinancing during the continued low rate environment.

Professional fees increased to $544 thousand in the second quarter of 2009, a $180 thousand or 49.4% increase from $364 thousand in the second quarter of 2008. This increase is partially due to increased legal fees associated with the collection efforts on the loan and lease portfolios.

Other operating expenses of $1.7 million in the second quarter of 2009 were up $229 thousand or 15.8% from the year ago period due to higher mortgage related expense due to increased mortgage origination volume, and the cost associated with the opening of the Corporation’s West Chester Regional Banking Center and The Bryn Mawr Trust Company of Delaware.

Six months ended June 30, 2009 Compared to the Same Period Ended June 30, 2008

Non-interest expense for the six months ended June 30, 2009 was $23.8 million, an increase of $5.7 million or 31.4% compared to $18.1 million for the same period in 2008. The primary reasons for this increase include: a 23.2% or $2.1 million increase in salaries and wages, the details of which are discussed in the preceding section; a 33.6% or $765 thousand increase in employee benefits is mainly due to the decline in the fair value of pension assets and expenses associated with the Corporation’s SERP plan, and also, the expense associated with the Corporation’s 3% discretionary match which started in the second quarter of 2008 as a replacement for the Corporation’s frozen Pension Plan; a 218.8% or $466 thousand increase in FDIC insurance and a 100% or approximate $540 thousand increase due to the FDIC insurance special assessment charge; the amortization of mortgage servicing rights which increased $256 thousand or 131.3% in the six months ended June 30, 2009 over the same period in 2008 due to higher rate mortgages refinancing during the continued low rate environment and professional fees increased $204 thousand or 29.9% in the six months ended June 30, 2009 over the same period in 2008 due in part to the increase in legal fees associated with the collection efforts on the lease portfolio, as discussed in the preceding section.

Components of other operating expense for the three months ended June 30, 2009 and the six months ended June 30, 2009 are as follows:


	Three Months Ended June 30,				Three Months Ended June 30,
	2009		2008		2009		2008
Other	$	383	$	386	$	769	$	588
Temporary help & recruiting		82		146		183		236
Loan processing and closing		413		155		682		310
Computer processing		116		133		247		246
Other taxes		226		201		449		402
Travel and entertainment		90		95		138		166
Postage		86		86		185		176
Director fees		92		92		188		196
Telephone		124		90		218		158
Stationary & supplies		64		63		138		131

Other operating expenses	$	1,676	$	1,447	$	3,197	$	2,609

Loan processing and closing costs have increased in both periods presented due to the strong mortgage refinancing activity in the first six months of 2009.

INCOME TAXES

Income taxes for the three months ended June 30, 2009 were $1.3 million compared to $1.6 million for the same period in 2008. This represents an effective tax rate of 34.5% for the three months ended June 30, 2009. The effective tax rate was 33.4% for the same period in 2008. Income taxes for the six months ended June 30, 2009 were $2.71 million compared to $2.99 million for the same period in 2008. This represents an effective tax rate for the six months ended June 30, 2009 of 34.8% and an effective tax rate of 33.0% for the same period in 2008. For both the quarter and year to date periods, the increase in the effective tax rate in 2009 when compared to 2008 is due to a reduction in tax-free revenue related to BOLI and increased state income taxes and other smaller items.

The Corporation received notification dated July 20, 2009 from the Internal Revenue Service that the Corporation’s 2007 tax year is being audited.

BALANCE SHEET ANALYSIS

Total assets were $1.20 billion as of June 30, 2009 an increase of 4.2% or $48.2 million from $1.15 billion from December 31, 2008, as gross loans and leases declined $21.9 million or 2.4% while cash and cash equivalents increased $32.0 million. The cash and cash equivalent increase is due the growth in core deposits, the receipt of $15.6 million from the BOLI contract surrender and $10 million in common stock and subordinated debt. In the portfolio of loans and leases there was an increase in commercial mortgages and home equity lines and loans which were offset by management’s decision to reduce the leasing portfolio and construction loan balances due to the economic downturn.

The Corporation’s investment portfolio increased $50.4 million or 46.6% from $108.3 million as of December 31, 2008 to $158.8 million as of June 30, 2009. The investment portfolio has a target minimum of approximately 10% of total assets. As of June 30, 2009 the investment portfolio was 13.4% of total assets up from 9.4% at December 31, 2008. As of June 30, 2009 the Corporation had approximately $90 million in overnight cash available. As interest rates remain extremely 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.

Average portfolio loans and leases for the second quarter of 2009 decreased $613 thousand or less than 1% to $886.2 million compared to $886.8 million in the fourth quarter of 2008.

The table below compares portfolio loans and leases outstanding at June 30, 2009 and December 31, 2008. The table reflects a decrease in total loans and leases of $22 million. Residential mortgage balances are lower due to heavy refinancing activity in which a majority of new mortgage originations are being sold, but servicing is being retained. Construction loans have decreased $17.7 million due to loans converting to permanent status and the slowdown of new construction projects by residential home builders. The Corporation decreased its lease portfolio by $3.8 million through a combination of lower originations and net charge-offs. The Corporation continues to focus its business development efforts on building banking relationships with local businesses, not-for-profit and strong credit quality individuals.


	June 30, 2009		December 31, 2008		Change
(dollars in millions)	June 30, 2009		December 31, 2008		Dollars			Percentage
Real estate loans:
Consumer loans	$	10.6	$	8.5	$	2.1		24.7	%
Commercial and industrial loans		224.4		236.5		(12.1	)	(5.1	)%
Commercial mortgage loans		257.2		249.7		7.5		3.0	%
Construction loans		40.8		58.5		(17.7	)	(30.3	)%
Residential mortgage loans		120.5		132.5		(12.0	)	(9.1	)%
Home equity lines and loans		168.6		154.6		14.0		9.1	%
Leases		55.5		59.3		(3.8	)	(6.4	)%

Total portfolio loans and leases	$	877.6	$	899.6	$	(22.0	)	(2.4	)%

Loans held for sale		6.8		3.0		3.8		126.7	%
Quarterly average portfolio loans and leases	$	886.2	$	886.8	$	(0.6	)	(0.1	)%

Total liabilities increased $41.1 million or 3.9% from $1.06 billion as of December 31, 2008 to $1.1 billion as of June 30, 2009. Funding from wholesale sources at June 30, 2009 included $88.1 million in wholesale certificates of deposit, $20.6 million of IND, $149.9 million in FHLB-P borrowings and $22.5 million of subordinated debt, for a total of $281.1 million at June 30, 2009. This compares with $120.8 million in wholesale certificates, $30.2 million in IND deposits, $154.9 million in FHLB-P borrowings and $15 million in subordinated debt, a total of $320.9 million at December 31, 2008. The decrease in total wholesale funding of approximately $40 million from December 31, 2008 was primarily due to the maturity of secured wholesale deposits that were not replaced. Average other deposits (total deposits less wholesale deposits) for the second quarter of 2009 increased 10.7% or $73.7 million to $765.5 million compared with $691.8 million at the end of 2008. See the section titled Liquidity for further details on the Corporation’s borrowing capacity and availability from various sources.

The Corporation successfully attracted new core deposit balances in savings, NOW and market rate accounts. The balance as of June 30, 2009 was $403.9 million, an increase of 21.5% from December 31, 2008.

Average deposits for the second quarter of 2009 increased $44.8 million or 5.3% to $889.9 million compared to $845.1 million in the fourth quarter of 2008.

Deposits and borrowings at June 30, 2009 and December 31, 2008 were as follows:


	June 30, 2009		December 31, 2008		Change
(dollars in millions)	June 30, 2009		December 31, 2008		Dollars			Percentage
Interest bearing demand	$	132.5	$	135.5	$	(3.0	)	(2.2	)%
Money market		172.9		142.7		30.2		21.2	%
Savings		98.5		54.3		44.2		81.4	%
IND deposits		20.6		30.2		(9.6	)	(31.8	)%
Wholesale deposits		88.1		120.8		(32.7	)	(27.1	)%
Time deposits		200.2		211.5		(11.3	)	(5.3	)%

Interest-bearing deposits		712.8		695.0		17.8		2.6	%
Non-interest bearing deposits		181.2		174.5		6.7		3.8	%

Total deposits		894.0		869.5		24.5		2.8	%
FHLB advances		149.9		154.9		(5.0	)	(3.2	)%
Mortgage payable		2.1		—		2.1		100.0	%
Subordinated debt		22.5		15.0		7.5		50.1	%

Borrowed funds		174.5		169.9		2.5		1.5	%

Total deposits and borrowings	$	1,068.5	$	1,039.4	$	27.0		2.6	%

Quarterly average deposits	$	889.9	$	845.1	$	44.8		5.3	%
Quarterly average borrowings and subordinated debt		172.0		171.0		1.0		0.6	%

Quarterly average deposits and borrowings	$	1,061.9	$	1,016.1	$	45.8		4.5	%

Residential Mortgage Segment Activity


(dollars in millions)	2ⁿd Qtr 2009			1^st Qtr 2009			4^th Qtr 2008			3^rdQtr 2008			2^ndQtr 2008
Residential loans held in portfolio *	$	120.5		$	124.6		$	132.5		$	127.8		$	114.9
Mortgage originations		125.1			96.5			25.8			24.1			30.1
Mortgage loans sold:
Servicing retained		112.6			93.1			10.7			6.0			12.6
Servicing released		0.2			1.2			5.8			7.2			10.2

Total mortgage loans sold	$	112.8		$	94.3		$	16.5		$	13.2		$	22.8

Servicing retained %		99.8	%		98.7	%		64.8	%		45.3	%		55.5	%
Servicing released %		0.2	%		1.3	%		35.2	%		54.7	%		44.5	%
Loans serviced for others *	$	490.2		$	411.5		$	350.2		$	353.8		$	358.8
Mortgage servicing rights *		3.6			2.7			2.2			2.9			2.9
Gain on sale of loans		2.5			1.9			0.3			0.3			0.4
Loan servicing and late fees		0.3			0.3			0.3			0.3			0.3
Amortization of MSR’s		0.3			0.2			0.1			0.1			0.1
Impairment (recovery) of MSR’s		(0.1	)		0.2			0.6			0.0			0.0
Basis point yield on loans sold (includes MSR income)		223	bp		199	bp		178	bp		217	bp		159	bp

*	period end balance

Capital

Consolidated shareholder’s equity of the Corporation was $99.5 million or 8.3% of total assets as of June 30, 2009, compared to $92.4 million or 8.0% of total assets as of December 31, 2008. 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 June 30, 2009 and December 31, 2008:


*(dollars in millions)*	Actual				Minimum to be Well Capitalized
	Amount		Ratio		Amount		Ratio
June 30, 2009:
Total (Tier II) Capital to Risk Weighted Assets
Consolidated	$	129.2	12.43	%	$	103.9	10	%
Bank		122.9	11.89	%		103.5	10	%
Tier I Capital to Risk Weighted Assets
Consolidated		96.3	9.27	%		62.3	6	%
Bank		90.1	8.71	%		62.1	6	%
Tier I Leverage Ratio (Tier I Capital to Total Quarterly Average Assets)
Consolidated		96.3	8.22	%		58.5	5	%
Bank		90.1	7.72	%		58.4	5	%
December 31, 2008:
Total (Tier II) Capital to Risk Weighted Assets
Consolidated	$	115.4	11.29	%	$	102.2	10	%
Bank		111.7	10.98	%		101.7	10	%
Tier I Capital to Risk Weighted Assets
Consolidated		90.0	8.81	%		61.3	6	%
Bank		86.4	8.49	%		61.4	6	%
Tier I Leverage Ratio (Tier I Capital to Total Quarterly Average Assets)
Consolidated		90.0	8.03	%		56.1	5	%
Bank		86.4	7.70	%		56.1	5	%

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 Management 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.

To enhance the Tier II regulatory capital ratios of the Corporation and the Bank, the Bank raised $7.5 million in subordinated debt on April 20, 2009 which qualified as Tier II capital. This subordinated debt bears interest at a rate per annum equal to the ninety day LIBOR rate plus 5.75% and is adjusted quarterly. Interest is payable quarterly and principal is due on June 15, 2019. The rate of interest is capped at 10.0% per annum during the first five years of the term.

Additionally, on June 17, 2009, the SEC declared effective a shelf registration statement on Form S-3/A (“Shelf Registration Statement”) filed by the Corporation on June 15, 2009. The Shelf Registration Statement is intended to allow 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. The Corporation also registered for resale in the Shelf Registration Statement the Shares issued in the private placement of securities discussed in the preceding paragraph.

Liquidity

The Corporation has a strong liquidity position as of June 30, 2009. 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-P and Federal Reserve, purchasing and issuing wholesale certificates of deposit as its secondary sources.

Unused availability is detailed on the following table:


(dollars in millions)	6/30/09		% Unused		12/31/08		% Unused		$ Change		% Changed
FHLB-P	$	258.4	63.2	%	$	142.6	41.3	%	$	115.8	81.2	%
Federal Reserve Bank of Philadelphia		82.9	100	%		9.0	100.0	%		73.9	821.1	%
Fed Funds Lines (7 banks)		75.0	100	%		75.0	100.0	%		—	—

Total	$	416.3	73.5	%	$	226.6	52.8	%	$	189.7	83.7	%

Availability at the FHLB-P was $258.4 million at June 30, 2009 compared to $142.6 million at December 31, 2008. The increase in unused availability is due to the maturities of borrowings which were not replaced due to strong deposit growth and a collateral evaluation performed by the FHLB-P.

Availability at the Federal Reserve was $82.9 million as of June 30, 2009 compared to $9 million at December 31, 2008. In the first quarter of 2009, the Bank pledged approximately $110 million of commercial and industrial loans to the Federal Reserve’s discount window, providing the Bank additional borrowing capacity. The Federal Reserve borrowing capacity was reduced by approximately $11 million as of April 27, 2009, as the Federal Reserve reduced the lendable value for collateral purposes of commercial loans from 75% to 65% for all participating banks to reflect economic conditions. 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 June 30, 2009 the Corporation held approximately $7.9 million of FHLB-P stock which is included in other assets. As of December 31, 2008 the FHLB-P announced it had voluntarily suspended the payment of dividends and the repurchase of excess capital stock until further notice. The dividend suspension reduces 2009 earnings by approximately $200 thousand with additional capital calls possible. The Corporation’s use of FHLB-P borrowings as a source of funds is effectively more expensive due to the suspension of FHLB-P dividends and the related capital stock redemption restrictions. The FHLB-P submitted a capital restoration plan to its regulatory agency, The Finance Agency, on February 27, 2009, which is pending review and continued the suspension of the dividend.

The Corporation has an Agreement with Promotory Interfinancial Network, LLC to provide up to $40 million of Insured Network Deposits (“IND”) from broker dealers priced at the effective Federal Funds rate plus 20 basis points. The Corporation had approximately $21 million in balances at June 30, 2009 under this program which are classified on the balance sheet as savings and NOW accounts.

On July 6, 2009 the Corporation entered into an agreement with Institution Deposits Corporation (“IDC”) to provide up to $5 million of money market deposits at an agreed upon rate currently at 1.20%.

Wholesale funding, which is defined as wholesale deposits (primarily certificates of deposit and funds from IND) and borrowed funds (FHLB-P advances, mortgage payable and subordinated debt) of $281.2 million at June 30, 2009 decreased $39.7 million or 12.4% from year end 2008 balances of $320.9 million, primarily due to the Corporation allowing secured wholesale deposits to mature without replacement. Wholesale funding as a percentage of total funding was 26.4% at June 30, 2009 compared to 30.9% at December 31, 2008. The Corporation is constantly evaluating alternative funding sources and different options for increasing core deposits.

The Corporation’s investment portfolio increased $50.5 million or 46.6% to $158.8 million at June 30, 2009 from $108.3 million at December 31, 2008. On June 30, 2009, the fair value of the Corporation’s investment securities portfolio was $158.8 million, approximately $1.8 million or 1.2% above the amortized cost. The Corporation’s investment portfolio is 13.4% of total assets compared to 9.4% of total assets at December 31, 2008. The Corporation’s policy is to keep the investment portfolio at a minimum of approximately 10% of total assets.

Money market fund balances grew to $38.3 million at June 30, 2009 from $5.1 million at December 31, 2008. Many of these funds provide a higher yield than the Federal Reserve and other depository institutions.

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 June 30, 2009 were $301.4 million compared to $318.4 million and $315.8 million at December 31, 2008 and June 30, 2008, respectively.

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 June 30, 2009 amounted to $16.9 million compared to $20.2 million and $18.0 million at December 31, 2008, and June 30, 2008 respectively.

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 June 30, 2009:


(In millions)	Total		Within 1 Year		2-3 Years		4-5 Years		After 5 Years
Deposits without a stated maturity	$	424.6	$	424.6	$	—	$	—	$	—
Wholesale and time deposits		288.3		270.2		17.7		0.3		0.1
Operating leases		21.2		1.3		2.4		2.1		15.4
Subordinated debt		22.5		—		—		—		22.5
Borrowings		149.9		10.0		71.7		49.7		18.5
Mortgage payable		2.1		0.1		0.1		0.1		1.8
Purchase obligations		5.0		1.7		2.4		0.9		—
Non-discretionary pension contributions		0.1		0.1		—		—		—

Total	$	913.7	$	708.0	$	94.3	$	53.1	$	58.3

Section 404 of Sarbanes Oxley Act of 2002

The Corporation and its Management completed compliance procedures relating to Section 404 of the Sarbanes Oxley Act of 2002 (“SOX 404”) for the fiscal year ended December 31, 2008 as documented in the Corporation’s Form 10-K. Management continues to devote considerable effort in 2009 to assure continued compliance with all aspects of SOX 404.

Other Information

•

Branch Office Expansion

The Corporation successfully opened its West Chester PA Regional Banking Center on January 2, 2009. The West Chester PA Regional Banking Center is a conveniently located, state-of-the-art 4,000 foot facility with a multi-lane drive-up and twenty-four hour ATM banking and had deposits of $14.1 million on June 30, 2009.

•

Regulatory Matters and Pending Legislation

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

Risk-based adjustments by the FDIC to the initial base assessment rate was implemented depending on the following factors: unsecured debt, secured liabilities and brokered deposits. The unsecured debt adjustment includes a potential decrease of up to 2 basis points for unsecured debt including senior and subordinated debt, a portion of Tier I capital. The secured liability and brokered deposit adjustments include a potential increase in the secured liability adjustment not to exceed 50% of a bank’s assessment rate before the increase for secured liabilities and a potential increase not exceeding 10 basis points for brokered deposits. All basis point adjustments are annualized and were effective April 1, 2009.

The general cost of compliance with numerous federal and state laws and regulations does have, and in the future may have, an impact on the Corporation’s results of operations.

See Effects of Government Monetary Policies below for additional information.

•

Effects of Inflation

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

•

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.

FDIC Temporary Liquidity Program

Announced on October 14, 2008, the United States Treasury signed a systematic risk exception to the FDIC Act, to enable the FDIC to temporarily guarantee the non-interest bearing deposit transaction accounts and senior debt of all FDIC-insured institutions and their holding companies. Non-interest bearing deposit transaction accounts under this program will have full insurance coverage guaranteed until December 31, 2009, while all other deposit accounts are covered up to $250,000 through December 31, 2013. There will be an annualized service charge of 10 basis points on all deposit accounts not covered by the $250,000 limit. The Corporation has decided not to opt out of this coverage. See Part II, Item 1A-Risk Factors, for further details.

The FDIC’s guarantee of newly issued senior debt is for all amounts issued before June 30, 2009 subject to certain limitations. This includes promissory notes, commercial paper, inter-bank funding and any unsecured portion of secured debt. All FDIC insured institutions will be covered immediately under this program for the first thirty days at no charge. After 30 days or December 5, 2008, the institutions may elect to opt out. Institutions that elect to remain in the program will incur an annualized fee of 75 basis points on the amount of debt issued under this program. Coverage will be provided until June 30, 2012. The Corporation decided not to opt out of this program. However, the Corporation had not issued any debt under this program as of June 30, 2009.

Special Cautionary Notice Regarding Forward Looking Statements

Certain of the statements contained in this Report and the documents incorporated by reference herein, may constitute forward-looking statements for the purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Corporation to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include statements with respect to the Corporation’s financial goals, performance, revenues, growth, profits, operating expenses, business plans, business prospects, credit quality, credit risk, reserve adequacy, liquidity, origination and sale of residential mortgage loans, impairment of goodwill, the effect of changes in accounting standards, and market and pricing trends. The words “may”, “would”, “should”, “could”, “will”, “likely”, “expect,” “anticipate,” “intend”, “estimate”, “target”, “potentially”, “probably”, “outlook”, “predict”, “contemplate”, “continue”, “plan”, “forecast”, “project” and “believe” or other similar words and phrases may identify forward-looking statements. Such statements are only predictions, and the Corporation’s actual results may differ materially from the results anticipated by the forward-looking statement 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, 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;

•

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 income and non-income taxes;

•

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, 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 together with such competitors offering banking products and services by mail, telephone, computer and the internet;

•

any extraordinary event (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 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;

•

changes in consumer and business spending, borrowing and savings habits and demand for financial services in our market area;

•

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 and sell residential mortgage loans;

•

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

•

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

•

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

•

technological changes being more difficult or expensive than anticipated; and

•

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

All written or oral forward-looking statements attributed to the Corporation are expressly qualified in their entirety by use of the foregoing cautionary statements. All forward-looking statements included in this Report are based upon management’s beliefs and assumptions as of the date of this 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 Report or the 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 in the Corporation’s assessment of its sensitivity to market risks since its presentation in the 2008 Annual Report on Form 10-K filed with the SEC.

ITEM 4. Controls and Procedures

As of the end of the period covered by the 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 Principal 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 Principal Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic SEC filings.

There have not been any changes in the Corporation’s internal controls over financial reporting during the quarter ended June 30, 2009 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.

None.

ITEM 1A. Risk Factors.

Other than as set forth below, there have been no material changes to the risk factors included in the Corporation’s 2008 Annual Report on Form 10-K.

The FDIC Temporary Liquidity Program that authorizes the unlimited guarantee of non-interest bearing deposit transaction accounts discussed earlier in this document expires on December 31, 2009. While the FDIC has discussed extending the expiration date beyond December 31, 2009, no action has been taken. If the unlimited temporary guarantee is not extended, there could be banking system disruption and deposit movement prior to and on December 31, 2009. If banking system disruption occurs and deposit movement is significant, the Corporation may lose deposits and be required to draw down on its unused borrowing capacity at the FHLB-P, Federal Reserve or correspondent bank fed funds lines. This may result in fewer funds being available to fund earning asset growth, along with the increased costs of any borrowings required as a result of transaction account loss, may cause the Corporation’s net interest income and net income to be lower.

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 second quarter of 2009⁽¹⁾⁽²⁾:


Period	Total Number of Shares Purchased	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
April 1, 2009 – April 30, 2009	3,224	$	17.47	—	195,705
May 1, 2009 – May 31, 2009	425	$	19.31	—	195,705
June 1, 2009 – June 30, 2009	1,352	$	18.72	—	195,705

Total	5,001	$	17.97	—	195,705

Notes to this table:

(1)

On February 24, 2006, the Board of Directors of the Corporation adopted a new 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 and terminated the 2003 Program. The 2006 Program was publicly announced in a Press Release dated February 24, 2006. There is no expiration date on the 2006 Program and the Corporation has no plans for an early termination of the 2006 Program. All shares purchased through the 2006 Program were accomplished in open market transactions.

(2)	In April, May and June 2009, 5,001 shares were purchased by the Corporation’s Thrift Plan and Deferred Compensation plans through open market transactions by the Corporation’s Wealth Management Division investment personnel and stock option exercise at that day’s closing price.

Unregistered Sale of Equity Securities

The Corporation made an unregistered sale of equity securities as of April 20, 2009 as described more fully in the Corporation’s April 21, 2009 Form 8-K.

Use of Proceeds from Registered Securities

On June 17, 2009, the SEC declared effective a shelf registration statement on Form S-3/A Registration No. 333-159588 (“Shelf Registration Statement”) filed by the Corporation on June 15, 2009. The Shelf Registration Statement is intended to allow 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. The Corporation also registered for resale in the Shelf Registration Statement the Shares issued in the private placement of securities discussed in the preceding section.

On July 20, 2009, the Corporation filed with the Securities and Exchange Commission a prospectus supplement pursuant to Section 424(b)(2) of the Securities Act (“Prospectus Supplement”) in order to take up to 850,000 shares of common stock down from the Shelf Registration Statement in connection with a newly established Dividend Reinvestment and Stock Purchase Plan (the “Plan”). The Plan is intended to allow both existing shareholders and new investors to increase their investment in the Corporation without incurring many of the fees and commissions normally associated with brokerage transactions.

A reasonable estimate of the Corporation’s expenses incurred with respect to the Shelf Registration Statement and the Plan from the effective date of the Shelf Registration Statement through June 30, 2009 consists of direct payments to the parties in the amounts indicated below.


	(In thousands)
Legal Fees	$	14.8
Accounting Fees		13.7

Total	$	28.5

As of June 30, 2009, no offers of securities had commenced, nor had the Corporation issued any securities under the Shelf Registration Statement. Therefore, the Corporation has nothing to report with regard to use of proceeds related thereto.

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Submission of Matters to Vote of Security Holders

The Corporation held its Annual Meeting of Shareholders on April 22, 2009 for the purpose of considering and acting upon the following proposals:

1. A proposal to elect three Class III directors to each serve four year terms expiring in 2013.

The shareholders of the Corporation elected Wendell F. Holland, David E. Lees, and Frederick C. Peters II as Class III directors to each serve four year terms expiring in 2013 by the following vote:


Director Nominee	Votes For	Votes Against/ Withheld
Wendell F. Holland	7,182,249	154,312
David E. Lees	7,247,486	89,075
Frederick C. Peters II	7,264,200	72,361

The following directors continued in office after the Annual Meeting: Thomas L. Bennett, Scott M. Jenkins, Francis J. Leto, Britton H. Murdoch, B. Loyall Taylor Jr. and Andrea F. Gilbert.

2. A proposal to ratify KPMG LLP as the independent registered public accounting firm for the fiscal year ended December 31, 2009.

The shareholders of the Corporation ratified the appointment of KPMG LLP as the independent registered public accounting firm for the fiscal year ended December 31, 2009 by the following vote:


Votes For	Votes Against/ Withheld	Abstained
7,302,024	17,706	16,831

3. A proposal to approve an amendment to ARTICLE 5 of the Corporation’s articles of incorporation to authorize the issuance of up to 1,000,000 shares of preferred stock (the “Amendment”).

The shareholders of the Corporation did not approve the Amendment. by the following vote:


Votes For	Votes Against/ Withheld	Abstained	Broker Nonvotes
2,189,527	4,220,275	47,472	879,287

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

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

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, a copy which is not filed herewith in reliance on the provision of 17 C.F.R. Section 229.601(b)(4)(iii). The registrant agrees to furnish a copy of such agreement to the Commission upon request

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**		The Bryn Mawr Bank Corporation 1998 Stock Option Plan, incorporated by reference to Exhibit B of the Corporation’s Proxy Statement dated March 6, 1998 filed with the SEC on March 5, 1998

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


Exhibit No.		Description and References
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

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

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

32.1		Certification of Principal 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

*	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: January 5, 2010	By:	/S/ FREDERICK C. PETERS II
		Frederick C. Peters II
		President & Chief Executive Officer

Date: January 5, 2010	By:	/S/ J. DUNCAN SMITH
		J. Duncan Smith
		Treasurer & Principal 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 Principal 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 Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.