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 September 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.
3,186,388 shares of Common Stock, $1.00 par value per share, were outstanding as
of September 30, 2003.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
Sept. 30, Dec. 31,
2003 2002
-------- --------
ASSETS:
Cash and due from banks $6,743 $8,095
Interest-bearing balances 68,351 65,487
Available-for-sale securities 53,164 58,859
Federal funds sold 450 0
Loans 234,520 221,353
Less,
Allowance for loan losses 3,112 3,051
------- -------
Net loans 231,408 218,302
------- -------
Bank premises and equip't, net 3,941 3,317
Foreclosed assets held for sale 470 781
Accrued interest receivable 1,807 2,007
Cash surrender value of life insurance 4,894 4,743
Deferred income taxes 505 456
Other assets 921 1,237
------- -------
Total Assets 372,654 363,284
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 31,039 28,011
NOW 33,591 33,645
Money Market 46,956 40,515
Savings 27,689 26,705
Time 148,225 145,827
------- -------
Total deposits 287,500 274,703
------- -------
Short-term borrowings 4,189 18,156
Accrued interest payable 1,770 1,187
Other liabilities 1,874 1,651
Long-term debt 40,735 32,383
------- -------
Total Liabilities 336,068 328,080
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,207,912 and 3,056,501 shares at
Sept. 30, 2003 and Dec. 31, 2002, resp. 3,208 3,057
Additional paid-in capital 23,472 20,368
Retained earnings 9,232 10,944
Accumulated other comprehensive inc(loss) 1,260 1,357
Treasury Stock at cost
(21,524 and 19,111 shs., resp.) -586 -522
------- -------
Total Stockholders' Equity 36,586 35,204
------- -------
Total Liabilities & Equity 372,654 363,284
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; dollars in thousands)
ThreeMonths Nine Months
Ended Sept.30, Ended Sept.30,
2003 2002 2003 2002
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans $3,832 $3,997 $11,656 $11,877
Int.-bearing balances 490 663 1,641 2,064
Treas. & Agency securities 134 159 417 511
Municipal securities 429 515 1,361 1,514
Other securities 14 14 51 65
Fed funds sold and repos 3 31 3 42
----- ----- ----- -----
Total Int. Income 4,902 5,379 15,129 16,073
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 1,446 2,022 4,679 5,960
Short-term borrowings 7 7 118 36
Long-term borrowings 581 521 1,626 1,548
----- ----- ----- -----
Total Int. Expense 2,034 2,550 6,423 7,544
----- ----- ----- -----
Net Int. Income 2,868 2,829 8,706 8,529
PROVISION FOR LOAN LOSSES 75 100 290 300
----- ----- ----- -----
Net Int. Inc. after Prov. 2,793 2,729 8,416 8,229
----- ----- ----- -----
NON-INTEREST INCOME:
Trust dept 53 44 151 130
Service chgs. on deposits 303 272 908 774
Investment securities
Gains(losses), net 88 55 258 60
Income on life insurance 50 57 150 178
Other 179 125 544 332
----- ----- ----- -----
Total Non-Interest Income 673 553 2,011 1,474
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 1,127 1,078 3,365 3,142
Occupancy, net 93 85 329 276
Equipment 147 126 434 383
PA Bank Shares tax 66 66 198 193
Other 644 452 1,723 1,566
----- ----- ----- -----
Tot. Non-int. Exp. 2,077 1,807 6,049 5,560
----- ----- ----- -----
Income before income taxes 1,389 1,475 4,378 4,143
INCOME TAX EXPENSE 303 330 973 916
----- ----- ----- -----
NET INCOME $1,086 $1,145 $3,405 $3,227
===== ===== ===== =====
NET INCOME PER SHARE $0.34 $0.36 $1.07 $1.01
===== ===== ===== =====
DIVIDENDS PER SHARE $0.20 $0.20 $0.60 $0.60
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 3,186,990 3,188,151 3,188,087 3,187,899
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 Nine Months
Ended Sept. 30,
2003 2002
-------- --------
Operating Activities:
Net Income $3,405 $3,227
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 290 300
Depreciation 320 275
Incr. in cash-surr. value of life insurance -151 -179
Investment securities gains, net -258 -60
Loss (gain) on sale/disposal of bank
premises and equipment 0 0
Loss (gain) on the sale of foreclosed
assets -20 52
Deferred income taxes -49 922
Change in accrued interest receivable 200 125
Change in other assets 358 -1,322
Change in accrued interest payable 583 848
Change in other liabilities 223 231
------- -------
Net cash provided by
operating activities 4,901 4,419
------- -------
Investing Activities:
Net (incr)decr in int-bearing balances -2,864 -9,970
Incr. in federal funds sold -450 -4,150
Proceeds from sale of securities 5,255 3,176
Proceeds from the maturity of secs. 11,435 6,681
Purchases of investment securities -10,876 -7,805
Net increase in loans -13,541 -8,119
Purchases of bank premises & equip't -944 -203
Proceeds from sale of foreclosed assets 476 107
Capitalized additions - ORE 0 -163
------- -------
Net cash provided by(used in)
investing activities -11,509 -20,446
------- -------
Financing Activities:
Net incr. in demand and savings 10,399 14,372
Net (decr)incr. in time deposits 2,398 8,273
Net decrease in federal funds sold 0 0
Net decrease in short-term borrowings -13,967 -6,168
Long-term debt repayments -148 -137
Increase in long-term borrowings 8,500 0
Cash dividend paid -1,862 -1,823
Purchase of treasury stock -64 0
------- -------
Net cash provided by(used in)
financing activities 5,256 14,517
------- -------
Net incr(decr) in cash & due from banks -1,352 -1,510
Cash & due from banks, beg of period 8,095 9,028
------- -------
Cash & due from banks, end of period 6,743 7,518
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid 5,840 6,696
Income taxes paid 1,055 1,027
Supplemental Noncash Disclosures:
Loan charge-offs, net of recoveries 229 189
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 Sept. 30, 2003, and December 31, 2002, consisted
of:
(Dollars in thousands)
9/30/03 12/31/02
------- --------
Federal funds purchased $0 $14,200
Repurchase agreements 3,619 2,550
Treasury, tax and loan note 194 1,058
Due to broker 376 348
------- --------
$4,189 $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 and stock splits, if any. 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 Nine Months
Ended Sept. 30: Ended Sept. 30:
2003 2002 2003 2002
-------- -------- -------- --------
Net Income $1,086 $1,145 $3,405 $3,227
-------- -------- -------- --------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period -1,051 1,528 111 2,774
Less: reclassification
adjs for losses(gains) included
in net income -88 -55 -258 -60
-------- -------- -------- --------
Other comprehensive income(loss)
before income tax (provision)
benefit -1,139 1,473 -147 2,714
Income tax (provision) benefit
related to other comp.income (loss) 387 -501 50 -923
-------- -------- -------- --------
Other comprehensive inc(loss) -752 972 -97 1,791
-------- -------- -------- --------
Comprehensive Income 334 2,117 3,308 5,018
===== ===== ===== =====
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition as of Sept. 30,
2003, compared to year-end 2002 and the Results of Operations for the third
quarter and the first nine months of 2003 compared to the same periods in 2002.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of September 30, 2003, increased to $372,654,000, from
$363,284,000 as of December 31, 2002.
During the first three quarters of 2003, net loans outstanding increased by
$13,106,000, or 6% from year end.
Total deposits increased by $12,797,000 during the first nine months of 2003.
Money market accounts increased by more than $6 million over year end largely
due to the popularity of the indexed money market product offered by the bank.
Short-term borrowings decreased by approximately $14 million from yearend. These
borrowings were decreased largely through funds generated by operations and
through increased deposit liabilities and an increase of $8 million in long-term
debt. The long-term debt was entered into in an attempt to lock in the current
borrowing rates as interest rates reached 45-year lows in June of 2003.
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 Sept. 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 nine months of 2003 was $3,405,000, compared with
$3,227,000 earned in the same period of 2002. Net income per share for the same
period of 2003 and 2002 was $1.07 and $1.01, respectively. Net income as a
percentage of stockholders' equity, also known as return on equity, (ROE), was
12.7% on an annualized basis for the nine months of 2003 as well as for the same
period in 2002.
Net income for the third quarter of 2003 was $1,086,000, compared with
$1,145,000 earned in the same quarter of 2002. Net income per share for the
third quarters of 2003 and 2002 was $.34 and $.36, respectively.
Net interest income of $2,868,000 for the quarter ended Sept. 30, 2003,
increased by 1.4% compared to the $2,829,000 earned in the same quarter of 2002.
Even though third quarter net interest income increased in 2003, interest spread
continues to be challenged by the sustained period of record low interest rates.
During the third 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 Sept. 30, 2003, these scenarios indicate that there would not be a
significant variance 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 a provision for loan losses of $75,000 and $100,000 during the
third 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 increased by more than 21% to $673,000 for the third quarter
of 2003 compared to $553,000 earned during the same quarter of 2002. Service
charges on deposits grew by more than 11% during the third 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
$748,000 during the first nine months of 2003, as compared to $615,000 for the
same period of 2002.
Non-interest expense during the third quarter of 2003 of
$2,077,000 increased by 14.9% as compared to an expense of $1,807,000 during the
same period of 2002 as we continue to strive to maintain low overhead. A portion
of the increase in non-interest expense is attributable to depreciation related
to the purchase of a new mainframe computer and a document imaging software
system, which in the long term should allow the bank to enjoy cost-saving
benefits.
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 nine months of 2003. Other major sources of funds included a net increase
in demand and savings deposit liabilities of $10,399,000 mainly in the area of
our indexed money market account, and a net increase in time deposits of
$2,398,000.
Major uses of funds included a net increase in loans of $13,541,000 and a net
increase of $2,864,000 in short-term interest bearing balances purchased as
investment alternatives, which provide monthly income in the form of insured
jumbo certificates of deposit from other banks.
Long-term borrowings increased by $8,352,000 as short-term borrowings were
replaced with longer maturities to benefit from the current low interest rate
environment.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets were $2,787,000,
representing 0.75% of total assets at Sept. 30, 2003, compared to $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 September 30, 2003.
The allowance for loan losses at Sept. 30, 2003, was $3,112,000 or 1.33% 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.
Sept. 30, Dec. 31,
2003 2002
-------- --------
Non-Performing Assets:
Non-accrual loans 1,671 1,164
Past due 90 days or more 646 808
Restructured loans 0 0
-------- --------
Total non-performing loans 2,317 1,972
Other real estate 470 781
-------- --------
Total 2,787 2,753
===== =====
Percentage of total loans outstanding 1.19% 1.24%
Percentage of total assets 0.75% 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 88 113
Real estate - residential mortgage 0 0
Consumer 58 148
-------- --------
Total loans charged off 277 302
-------- --------
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 35 55
-------- --------
Total recoveries 48 72
-------- --------
Net (charge-offs) recoveries -229 -230
-------- --------
Current period provision for
loan losses 290 425
-------- --------
Balance end of period 3,112 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
President & CEO Treasurer
Date: November 8, 2003 Date: November 8, 2003