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 June 30, 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.
3,188,393 shares of Common Stock, $1.00 par value per share, were outstanding as
of June 30, 2003.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
June 30, Dec. 31
2003 2002
-------- --------
ASSETS:
Cash and due from banks $6,809 $8,095
Interest-bearing balances 67,730 65,487
Available-for-sale securities 55,583 58,859
Federal funds sold 0 0
Loans 222,583 221,353
Less,
Allowance for loan losses 3,049 3,051
------- -------
Net loans 219,534 218,302
------- -------
Bank premises and equip't, net 3,997 3,317
Foreclosed assets held for sale 678 781
Accrued interest receivable 1,877 2,007
Cash surrender value of life insurance 4,844 4,743
Deferred income taxes 177 456
Other assets 813 1,237
------- -------
Total Assets 362,042 363,284
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 29,588 28,011
NOW 33,296 33,645
Money Market 44,279 40,515
Savings 28,439 26,705
Time 139,889 145,827
------- -------
Total deposits 275,491 274,703
------- -------
Short-term borrowings 9,051 18,156
Accrued interest payable 1,472 1,187
Other liabilities 1,803 1,651
Long-term debt 37,285 32,383
------- -------
Total Liabilities 325,102 328,080
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,207,912 and 3,056,501 shares at
June 30, 2003 and December 31, 2002, resp. 3,208 3,057
Additional paid-in capital 23,472 20,368
Retained earnings 8,790 10,944
Accumulated other comprehensive inc(loss) 2,012 1,357
Treasury Stock at cost
(19,519 and 19,065 shs., resp.) -542 -522
------- -------
Total Stockholders' Equity 36,940 35,204
------- -------
Total Liabilities & Equity 362,042 363,284
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
Note: The balance sheet at December 31, 2002, has been derived from the audited
financial statements at that date but does not include all the information and
notes required by generally accepted accounting principles for complete
financial statements.
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; dollars in thousands)
ThreeMonths SixMonths
EndedJune 30, EndedJune 30,
2003 2002 2003 2002
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans $3,924 $3,882 $7,824 $7,881
Int.-bearing balances 557 685 1,152 1,401
Treas. & Agency securities 132 170 283 352
Municipal securities 455 507 932 999
Other securities 21 22 37 50
Fed funds sold and repos 0 8 0 11
----- ----- ----- -----
Total Int. Income 5,089 5,274 10,228 10,694
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 1,524 1,958 3,233 3,937
Short-term borrowings 46 8 111 30
Long-term borrowings 538 517 1,045 1,027
----- ----- ----- -----
Total Int. Expense 2,108 2,483 4,389 4,994
----- ----- ----- -----
Net Int. Income 2,981 2,791 5,839 5,700
PROVISION FOR LOAN LOSSES 25 100 215 200
----- ----- ----- -----
Net Int. Inc. after Prov. 2,956 2,691 5,624 5,500
----- ----- ----- -----
NON-INTEREST INCOME:
Trust dept 50 43 98 86
Service chgs. on deposits 317 253 604 503
Investment securities
Gains(losses), net 170 0 170 5
Income on life insurance 40 60 100 121
Other 163 98 365 207
----- ----- ----- -----
Total Non-Interest Income 740 454 1,337 922
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 1,176 1,036 2,238 2,063
Occupancy, net 102 95 235 191
Equipment 157 132 288 258
PA Bank Shares tax 65 65 132 128
Other 525 582 1,079 1,114
----- ----- ----- -----
Tot. Non-int. Exp. 2,025 1,910 3,972 3,754
----- ----- ----- -----
Income before income taxes 1,671 1,235 2,989 2,668
INCOME TAX EXPENSE 404 259 670 586
----- ----- ----- -----
NET INCOME $1,267 $976 $2,319 $2,082
===== ===== ===== =====
NET INCOME PER SHARE $0.40 $0.31 $0.73 $0.65
===== ===== ===== =====
DIVIDENDS PER SHARE $0.20 $0.20 $0.40 $0.40
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 3,188,572 3,186,605 3,188,645 3,187,771
<
The accompanying notes are an integral part of these consolidated financial
statements.
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in thousands)
For the Six Months
Ended June 30,
2003 2002
-------- --------
Operating Activities:
Net Income $2,319 $2,082
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 215 200
Depreciation 202 182
Incr. in cash-surr. value of life insurance -100 -121
Investment securities gains, net -170 -5
Loss (gain) on sale/disposal of bank
premises and equipment 0 0
Loss (gain) on the sale of foreclosed
assets -20 -3
Deferred income taxes 279 -423
Change in accrued interest receivable 130 32
Change in other assets 80 261
Change in accrued interest payable 285 413
Change in other liabilities 152 182
------- -------
Net cash provided by
operating activities 3,372 2,800
------- -------
Investing Activities:
Net increase in int-bearing balances -2,243 -2,000
Incr. in federal funds sold 0 -600
Proceeds from sale of securities 2,802 1,730
Proceeds from the maturity of secs. 6,224 3,227
Purchases of investment securities -4,581 -5,331
Net increase in loans -1,592 -7,288
Purchases of bank premises & equip't -883 -134
Proceeds from sale of foreclosed assets 268 71
Capitalized additions - ORE 0 -80
------- -------
Net cash provided by(used in)
investing activities -5 -10,405
------- -------
Financing Activities:
Net incr. in deposits 788 13,602
Net decrease in short-term borrowings -9,105 -5,871
Long-term debt repayments -98 -91
Increase in long-term borrowings 5,000 0
Cash dividend paid -1,218 -1,216
Purchase of treasury stock -20 -17
------- -------
Net cash (used in)provided by
financing activities -4,653 6,407
------- -------
Net decrease in cash & due from banks -1,286 -1,198
Cash & due from banks, beg of period 8,095 9,028
------- -------
Cash & due from banks, end of period 6,809 7,830
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid 4,104 4,581
Income taxes paid 530 727
Supplemental Noncash Disclosures:
Loan charge-offs 262 140
Transfers to other real estate 145 0
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, 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 June 30, 2003, and December 31, 2002, consisted
of:
(Dollars in thousands)
6/30/03 12/31/02
------- --------
Federal funds purchased $5,500 $14,200
Repurchase agreements 2,520 2,550
Treasury, tax and loan note 1,031 1,058
Due to broker 0 348
------- --------
$9,051 $18,156
======= =======
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 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 Six Months
Ended June 30: Ended June 30:
2003 2002 2003 2002
-------- -------- -------- --------
Net Income $1,267 $976 $2,319 $2,082
-------- -------- -------- --------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period 974 1,488 1,162 1,241
Less: reclassification
adjs for losses(gains) included
in net income -170 0 -170 -5
-------- -------- -------- --------
Other comprehensive income(loss)
before income tax (provision)
benefit 771 1,488 992 1,236
Income tax (provision) benefit
related to other comp.income (loss) 262 -506 -337 -420
-------- -------- -------- --------
Other comprehensive inc(loss) 509 982 655 816
-------- -------- -------- --------
Comprehensive Income 1,776 1,958 2,974 2,898
===== ===== ===== =====
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition as of June 30, 2003,
compared to year-end 2002 and the Results of Operations for the second quarter
and the first six months of 2003 compared to the same periods in 2002.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of June 30, 2003, were $362,042,000, compared to $363,284,000 as
of December 31, 2002. Asset growth has been challenged this year by both the
general economic downturn and the competitive environment with more banks
chasing a smaller amount of commercial borrowing activity. It is currently our
stance to only pursue growth that makes sense from the standpoint of both
profitability and interest-rate risk.
During the first half of 2003, net loans outstanding increased by $1,232,000
from year end.
Total deposits increased by $788,000 during the first six months of 2003. Money
market accounts increased by $3,764,000 over year end largely due to the
popularity of an indexed money market product offered by the bank. Time deposits
decreased by $5,938,000 as a three-year CD special matured and a portion of
these rate-sensitive deposits were not reinvested.
Short-term borrowings decreased by $9,105,000 from year end. Five million of
these short-term borrowings were replaced with a long-term, five-year fixed rate
borrowing with the FHLB so as to extend the benefit of the current forty-year
lows in interest rates, and this maturity closely matches the repricing of loans
currently being booked. The remainder of these borrowings was decreased largely
through funds generated by operations.
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.
As of June 30, 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.
RESULTS OF OPERATIONS
Net income for the first six months of 2003 was $2,319,000, compared with
$2,082,000 earned in the same period of 2002. Net income per share for the same
period of 2003 and 2002 was $.73 and $.65, respectively. Net income as a
percentage of stockholders' equity, also known as return on equity, (ROE), was
13.0% on an annualized basis for the first half of 2003 and 13.1% for the same
period of 2002.
Net income for the second quarter of 2003 was $1,267,000, compared with $976,000
earned in the same quarter of 2002. Net income per share for the second quarters
of
2003 and 2002 was $.40 and $.31, respectively. The increase in net income was
largely due to a lower quarterly provision for loan losses (following a higher
than normal provision in the first quarter), an increase in net interest margin,
and a $112,000 net gain on the sale of investment securities.
Net interest income of $2,981,000 for the quarter ended June 30, 2003, increased
slightly over the $2,791,000 earned in the same quarter of 2002, an increase of
6.8%. Year-to-date, we have managed to maintain the bank's interest spread
despite the drastic reduction in interest rates and keen interest rate
competition.
During the second quarter of 2003, we analyzed interest rate risk using the
Profitstar Asset-Liability Management Model. Using the computerized model,
management reviews interest rate risk on a periodic basis. This analysis
includes an earnings scenario whereby interest rates are increased by 200 basis
points (2 percentage points) and another whereby they are decreased by 200 basis
points. At June 30, 2003, these scenarios indicate that there would be a
variance of less than +/- 6.0% in net interest income at the one-year time frame
due to interest rate changes; however, actual results could vary significantly
from the calculations prepared by management.
The Bank made provisions for loan losses of $25,000 and $100,000 during the
second 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.
Non-interest income amounted to $740,000 for the second quarter of 2003 compared
to $454,000 earned during the same quarter of 2002. The sale of several
municipal bonds resulted in a gain of $112,000, after tax. The bonds were sold
in order to realize some of the record level profits on these fixed-income
securities and to reduce average maturities in the securities portfolio in light
of possible future rate increases. Service charges on deposits grew by 25%
during the second quarter of 2003 compared to the same period of 2002 as the
bank continues to focus on fee and service charge income. One significant
contributor to non-interest income is insufficient fund (NSF) fee income. NSF
fee income contributed in excess of $490,000 during the first half of 2003.
Non-interest expense increased by 6.0% during the second quarter of 2003
compared to the same quarter of 2002. The main increase was $140,000 in salaries
and benefits expense, due largely to the addition of a commercial loan officer
and the increase in benefit costs.
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 half of 2003. Also a major source of funds came from the net increase in
money market funds of $3,764,000 mainly in the area of the indexed money market.
Another source of funds was the net decrease in investment securities of
$3,276,000, reflecting the sale of over $2 million in municipal securities to
realize a gain in market value.
A major use of funds during the period was a net increase in loans of
$1,232,000. Another major use of funds was the net increase in interest-bearing
balances, investments in insured certificates of deposit of other banks, of
$2,243,000 purchased in maturities of two years or less in order to provide
liquidity and positioning for possible future increases in interest rates.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets increased slightly to $3,422,000 representing 0.95%
of total assets at June 30, 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 June 30, 2003.
The allowance for loan losses at June 30, 2003, was $3,049,000 or 1.37% 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.
MID PENN BANCORP, INC.
June 30, Dec. 31,
2003 2002
-------- --------
Non-Performing Assets:
Non-accrual loans 1,259 1,164
Past due 90 days or more 1,485 808
Restructured loans 0 0
-------- --------
Total non-performing loans 2,744 1,972
Other real estate 678 781
-------- --------
Total 3,422 2,753
===== =====
Percentage of total loans outstanding 1.54% 1.24%
Percentage of total assets 0.95% 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 82 113
Real estate - residential mortgage 0 0
Consumer 49 148
-------- --------
Total loans charged off 262 302
-------- --------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 17
Commercial, industrial and agricultural 13 0
Real estate - residential mortgage 0 0
Consumer 32 55
-------- --------
Total recoveries 45 72
-------- --------
Net (charge-offs) recoveries -217 -230
-------- --------
Current period provision for
loan losses 215 425
-------- --------
Balance end of period 3,049 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:
At the Annual Meeting of Shareholders held on April 22,
2003, a vote was held for the election of Class B
directors: Jere M. Coxon, Alan W. Dakey, Charles F. Lebo,
Guy J. Snyder, Jr. to serve for
a three-year term, and to ratify the selection of Parente
Randolph as external auditors for the corporation for the
year ending December 31, 2003. Jere Coxon received
2,770,563 votes for and 17,129 votes withheld. Alan Dakey received
2,773,994 votes for and 13,698 votes withheld. Charles Lebo received
2,768,234 votes for and 19,457 votes withheld. Guy Snyder received
2,773,994 votes for and 13,698 withheld. The selection of external auditors
received 2,779,223 votes for, 4,395 votes against, and 4,074 votes
abstaining.
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
President & CEO Treasurer
Date: August 12, 2003 Date: August 12, 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: August 12, 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: August 12, 2003 By: /s/Kevin W. Laudenslager
--------------------------
Kevin W. Laudenslager
Treasurer