UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission file number 0-20141
Mid Penn Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1666413
(State or other jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
349 Union Street, Millersburg, PA 17061
(Address of principal executive offices) (Zip Code)
(717) 692-2133
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the classes of common
stock, as of the latest practical date.
3,037,395 shares of Common Stock, $1.00 par value per share, were outstanding as
of March 31, 2003.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
March 31, Dec. 31
2003 2002
-------- --------
ASSETS:
Cash and due from banks $7 ,837 $8,095
Interest-bearing balances 67,847 65,487
Available-for-sale securities 57,985 58,859
Federal funds sold 0 0
Loans 224,654 221,353
Less,
Allowance for loan losses 3,014 3,051
------- -------
Net loans 221,640 218,302
------- -------
Bank premises and equip't, net 4,051 3,317
Foreclosed assets held for sale 746 781
Accrued interest receivable 1,989 2,007
Cash surrender value of life insurance 4,803 4,743
Deferred income taxes 392 456
Other assets 953 1,237
------- -------
Total Assets 368,243 363,284
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 30,992 28,011
NOW 32,319 33,645
Money Market 44,183 40,515
Savings 27,466 26,705
Time 143,776 145,827
------- -------
Total deposits 278,736 274,703
------- -------
Short-term borrowings 18,000 18,156
Accrued interest payable 1,522 1,187
Other liabilities 1,888 1,651
Long-term debt 32,334 32,383
------- -------
Total Liabilities 332,480 328,080
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,056,501 shares at March 31, 2002 and
December 31, 2001 3,057 3,057
Additional paid-in capital 20,368 20,368
Retained earnings 11,390 10,944
Accumulated other comprehensive inc(loss) 1,481 1,357
Treasury Stock at cost
(19,137 and 19,065 shs., resp.) -533 -522
------- -------
Total Stockholders' Equity 35,763 35,204
------- -------
Total Liabilities & Equity 368,243 363,284
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; dollars in thousands)
For the Quarter
Ended Mar. 31,
2002 2003
---- ----
INTEREST INCOME:
Interest & fees on loans $3,900 $3,999
Int.-bearing balances 595 716
Treas. & Agency securities 151 182
Municipal securities 477 492
Other securities 16 29
Fed funds sold and repos 0 2
------ ------
Total Int. Income 5,139 5,420
------ ------
INTEREST EXPENSE:
Deposits 1,709 1,979
Short-term borrowings 64 22
Long-term borrowings 508 510
Total Int. Expense 2,281 2,511
Net Int. Income 2,858 2,909
PROVISION FOR LOAN LOSSES 190 100
------ ------
Net Int. Inc. after Prov. 2,668 2,809
NON-INTEREST INCOME:
Trust dept 48 42
Service chgs. on deposits 288 250
Investment securities
Gains(losses), net 0 5
Income on life insurance 60 62
Other 202 108
------ ------
Total Non-Interest Income 598 467
------ ------
NON-INTEREST EXPENSE:
Salaries and benefits 1,062 1,028
Occupancy, net 134 96
Equipment 132 126
PA Bank Shares tax 67 62
Other 553 531
------ ------
Tot. Non-int. Exp. 1,948 1,843
------ ------
Income before income taxes 1,318 1,433
INCOME TAX EXPENSE 266 327
------ ------
NET INCOME $1,052 $1,106
====== ======
NET INCOME PER SHARE $0.35 $0.36
====== ======
DIVIDENDS PER SHARE $0.20 $0.20
====== ======
Weighted Average No. of
Shares Outstanding 3,036,874 3,037,095
The accompanying notes are an integral part of these consolidated financial
statements.
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Quarter
Ended March 31,
2003 2002
------ ------
Operating Activities:
Net Income $1,052 $1,106
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 190 100
Depreciation 91 91
Incr. in cash-surr. value of life insurance -60 -62
Investment securities gains, net 0 -5
Gain on sale of foreclosed assets -20 -3
Deferred income taxes 64 -84
Change in accrued interest receivable 18 18
Change in other assets 213 -222
Change in accrued interest payable 335 479
Change in other liabilities 237 115
------ ------
Net cash provided by
operating activities 2,120 1,533
------ ------
Investing Activities:
Net (incr)decr in int-bearing balances -2,360 474
Proceeds from sale of securities 0 1,730
Proceeds from the maturity of secs. 3,735 1,907
Purchases of investment securities -2,666 -2,491
Net increase in loans -3,528 -5,365
Purchases of bank premises & equip't -825 -105
Proceeds from sale of foreclosed assets 55 71
------ ------
Net cash used in
investing activities -5,589 -3,779
------ ------
Financing Activities:
Net increase in deposits 4,033 6,397
Net decrease in federal funds sold 0 -1,600
Net decrease in short-term borrowings -156 -4,656
Long-term debt repayments -49 -45
Cash dividend paid -606 -608
Purchase of treasury stock -11 -1
------ ------
Net cash provided by(used in)
financing activities 3,211 -513
------ ------
Net decrease in cash & due from banks -258 -2,759
Cash & due from banks, beg of period 8,095 9,028
------ ------
Cash & due from banks, end of period 7,837 6,269
====== ======
Supplemental Cash Flow Information:
Interest paid 1,947 2,032
Income taxes paid 0 0
Supplemental Noncash Disclosures:
Loan charge-offs 241 69
The accompanying notes are an integral part of these consolidated financial
statements.
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements
1. The consolidated interim financial statements have been prepared by the
Corporation, with the exception of the consolidated balance sheet dated December
31, 2002, without audit, according to the rules and regulations of the
Securities and Exchange Commission with respect to Form 10- Q. The financial
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in our opinion, necessary for a fair statement of
results for the periods covered. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted according to these
rules and regulations. We believe, however, that the disclosures are adequate so
that the information is not misleading. You should read these interim financial
statements along with the financial statements including the notes included in
the Corporation's most recent Form 10-K.
2. Interim statements are subject to possible adjustments in connection with the
annual audit of the Corporation's accounts for the full fiscal year. In our
opinion, all necessary adjustments have been included so that the interim
financial statements are not misleading.
3. The results of operations for the interim periods presented are not
necessarily an indicator of the results expected for the full year.
4. Management considers the allowance for loan losses to be adequate at this
time.
5. Short-term borrowings as of March 31, 2003, and December 31, 2002, consisted
of:
(Dollars in thousands)
3/31/03 12/31/02
------- --------
Federal funds purchased $15,600 $14,200
Repurchase agreements 2,104 2,550
Treasury, tax and loan note 153 1,058
Due to broker 143 348
------- --------
$18,000 $18,156
======= =======
Federal funds purchased represent overnight funds. Securities sold under
repurchase agreements generally mature between one day and one year. Treasury,
tax and loan notes are open-ended interest bearing notes payable to the U.S.
Treasury upon call. All tax deposits accepted by the Bank are placed in the
Treasury note option account. The due to broker balance represents previous day
balances transferred from deposit accounts under a sweep account agreement.
6. Earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during each of the periods presented, giving
retroactive
effect to stock dividends. The Corporation's basic and diluted earnings per
share are the same since there are no dilutive shares of securities outstanding.
7. The purpose of reporting comprehensive income (loss) is to report a measure
of all changes in the Corporation's equity resulting from economic events other
than transactions with stockholders in their capacity as stockholders. For the
Corporation, "comprehensive income(loss)" includes traditional income statement
amounts as well as unrealized gains and losses on certain investments in debt
and equity securities (i.e. available for sale securities). Because unrealized
gains and losses are part of comprehensive income (loss), comprehensive income
(loss) may vary substantially between reporting periods due to fluctuations in
the market prices of securities held.
(In thousands) Three Months
Ended March 31:
2003 2002
------ -----
Net Income $1,052 $1,106
------ ------
Other comprehensive income(loss)
Unrealized holding gains (losses)
on securities arising during the
period 188 242
Less: reclassification
adjs for losses(gains) included
in net income 0 5
------ ------
Other comprehensive income(loss)
before income tax (provision)
benefit 188 -247
Income tax (provision) benefit
related to other comp.income (loss) -64 84
------ ------
Other comprehensive inc(loss) 124 -163
------ ------
Comprehensive Income 1,176 943
====== ======
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition for the three months
ended March 31, 2003, compared to year- end 2002 and the Results of Operations
for the first quarter of 2003 compared to the same period in 2002.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of March 31, 2003, increased to $368,243,000 from $363,284,000
as of December 31,2002.
During the first quarter of 2003, net loans outstanding
increased by $3,338,000, or 1.5%. Interest-bearing balances, insured
certificates of deposits in other financial institutions, increased by
$2,360,000 as we continue to invest in these short-term instruments to remain
poised for rates to again rebound from their present levels, which are at
forty-year low levels.
Total deposits increased by $4,033,000 during the first three months of 2003.
The most significant component of this increase in deposits was money market
accounts, which increased by $3,668,000. This increase comes in response to the
promotion of our indexed rate, which offered a competitive variable rate of up
to 2.53%. The competitive rate and liquid accessibility of this account was very
attractive to investors looking for an alternative to the stock market during
the first quarter of the year.
Short-term borrowings decreased by approximately $156,000 from year end through
funds generated from operations and deposit growth.
All components of long-term debt are advances from the FHLB. Long-term debt
advances were initiated in order to secure an adequate spread on certain pools
of loans and investments of the Bank. No new advances were initiated during the
quarter.
As of March 31, 2003, the Bank's capital ratios are well in excess of the
minimum and well-capitalized guidelines and the Corporation's capital ratios are
in excess of the Bank's capital ratios.
While we retain a significant portion of our original market (the rural areas
north of Harrisburg in Dauphin County), we are experiencing most of our growth
and opportunity in the Harrisburg (Capital) metropolitan region. Thus, we feel
that additional offices in the Capital region will afford us greater exposure
and opportunities to reach new customers in this market. Thus, we continue to
research sites in the greater Harrisburg area for further branch locations that
may add value for our bank and its shareholders. In addition to our
brick-and-mortar offices, Mid Penn Bank offers complete online banking services
through our website at www.midpennbank.com.
RESULTS OF OPERATIONS
Net income for the first quarter of 2003 was $1,052,000, compared with
$1,106,000 earned in the same quarter of 2002. Net income per share for the
first quarters of 2003 and 2002 was $.35 and $.36, respectively. Net income as a
percentage of stockholders' equity, also known as return on equity, (ROE), was
11.9% on an annualized basis for the first quarter of 2003 as compared to 13.9%
for the same period in 2002.
A portion of the decrease in net income is due to a
decrease in net interest income as it becomes very difficult for banks to reduce
the cost of funds at a rate which keeps pace with the reduction in our return on
assets. Net interest income of $2,858,000 for the quarter ended March 31, 2003,
declined by 1.8% compared to the $2,909,000 earned in the same quarter of 2002.
We continue to closely monitor net interest income, seeing some opportunity for
improvement in the second quarter as certificates of deposit mature and reprice
at lower interest rates.
The major reason for the decrease in net income was the level of provision for
loan losses made during the first quarter. The Bank made a provision of $190,000
and $100,000 during the first quarters of 2003 and 2002, respectively. On a
quarterly basis, senior management reviews potentially unsound loans taking into
consideration judgments regarding risk of error, economic conditions, trends and
other factors in determining a reasonable provision for the period. Due to the
current economic conditions and higher than normal charge offs resulting from
the resolution of two troubled commercial real estate loan relationships, our
analysis led us to the provision that was $90,000 more than that of the same
time period in 2002.
Non-interest income amounted to $598,000 for the first quarter of 2003 compared
to $467,000 earned during the same quarter of 2002. A significant contribution
to non-interest income continues to be insufficient fund (NSF) fee income. NSF
fee income contributed in excess of $227,000 during the first quarter of 2003.
Non-interest expense amounted to $1,948,000 for the first quarter of 2003
compared to $1,843,000 incurred during the same quarter of 2002. The largest
increase in non- interest expense during the first quarter of 2003 as compared
to the same period in 2002, was the $38,000
increase in occupancy expense, which is largely attributable to snow removal and
increased heating costs as a result of the harsh winter.
LIQUIDITY
The Bank's objective is to maintain adequate liquidity while minimizing interest
rate risk. Adequate liquidity provides resources for credit needs of borrowers,
for depositor withdrawals, and for funding Corporate operations. Sources of
liquidity include maturing investment securities, overnight borrowings of
federal funds (and Flex Line), payments received on loans, and increases in
deposit liabilities.
Funds generated from operations contributed a major source of funds for the
first quarter of 2003. Another major source of funds came from the $4 million
increase in deposits, the majority of which came from growth in the indexed
money market product.
The major use of funds during the period was the net increase in loans of $3.5
million, particularly in the area
of commercial loans secured by real estate, and the $2.4 million increase in
interest bearing-balances.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets decreased to $2,659,000 representing 0.72% of total
assets at March 31, 2003, from $2,753,000 or 0.76% of total assets at December
31, 2002. Most non-performing assets are supported by collateral value that
appears to be adequate at March 31, 2003.
The allowance for loan losses at March 31, 2003, was $3,014,000 or 1.34% of
loans, net of unearned interest, as compared to $3,051,000 or 1.38% of loans,
net of unearned interest, at December 31, 2002.
Based upon the ongoing analysis of the Bank's loan portfolio by the loan review
department, the latest quarterly analysis of potentially unsound loans and
non-performing assets, we consider the Allowance for Loan Losses to be adequate
to absorb any reasonable, foreseeable loan losses.
March 31, Dec. 31,
2003 2002
-------- --------
Non-Performing Assets:
Non-accrual loans 954 1,164
Past due 90 days or more 959 808
Restructured loans 0 0
-------- -------
Total non-performing loans 1,913 1,972
Other real estate 746 781
-------- -------
Total 2,659 2,753
======== =======
Percentage of total loans outstanding 1.18% 1.23%
Percentage of total assets 0.72% 0.76%
Analysis of the Allowance for Loan Losses:
Balance beginning of period 3,051 2,856
Loans charged off:
Commercial real estate, construction
and land development 131 41
Commercial, industrial and agricultural 79 113
Real estate - residential mortgage 0 0
Consumer 31 148
-------- -------
Total loans charged off 241 302
-------- -------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 17
Commercial, industrial and agricultural 10 0
Real estate - residential mortgage 0 0
Consumer 4 55
-------- -------
Total recoveries 14 72
-------- -------
Net (charge-offs) recoveries -227 -230
-------- -------
Current period provision for
loan losses 190 425
-------- -------
Balance end of period 3,014 3,051
======= =======
Mid Penn Bancorp, Inc.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Nothing to report
Item 2. Changes in Securities - Nothing to report
Item 3. Defaults Upon Senior Securities - Nothing to report
Item 4. Submission of Matters to a Vote of Security Holders
- -Nothing to report
Item 5. Other Information - Nothing to report
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None.
b. Reports on Form 8-K - None.
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.
Mid Penn Bancorp, Inc.
Registrant
/s/ Alan W. Dakey /s/ Kevin W. Laudenslager
By: Alan W. Dakey By: Kevin W. Laudenslager
Pres.& CEO Treasurer
Date: May 9, 2003 Date: May 9, 2003
CERTIFICATION
I, Alan W. Dakey, President and CEO, certify, that:
--------------------------------
1. I have reviewed this quarterly report on Form 10-Q of Mid Penn
Bancorp.
2. Based on my knowledge, the quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003 By:/s/ Alan W. Dakey
--------------------
Alan W. Dakey
Pres. And CEO
CERTIFICATION
I, Kevin W. Laudenslager, Treasurer, certify, that:
--------------------------------
1. I have reviewed this quarterly report on Form 10-Q of Mid Penn
Bancorp.
2. Based on my knowledge, the quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003 By: /s/Kevin W. Laudenslager
----------------------------
Kevin W. Laudenslager
Treasurer