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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, 2004
Commission file number 0-20141
Mid Penn Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1666413
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(State or other jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
349 Union Street, Millersburg, PA 17061
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(Address of principal executive offices) (Zip Code)
(717) 692-2133
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(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.
3,188,721 shares of Common Stock, $1.00 par value per share, were outstanding as
of March 31, 2004.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
March 31, Dec. 31,
2004 2003
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ASSETS:
Cash and due from banks $6,740 $7,456
Interest-bearing balances 70,177 69,918
Available-for-sale securities 50,392 54,093
Federal funds sold 0 0
Loans 239,734 232,078
Less,
Allowance for loan losses 2,956 2,992
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Net loans 236,778 229,086
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Bank premises and equip't, net 5,050 3,920
Foreclosed assets held for sale 290 1,117
Accrued interest receivable 1,746 1,763
Cash surrender value of life insurance 5,571 4,953
Deferred income taxes 141 303
Other assets 1,067 857
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Total Assets 377,952 373,466
======== =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 33,047 30,762
NOW 34,435 36,917
Money Market 43,991 45,457
Savings 28,814 27,754
Time 149,658 147,448
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Total deposits 289,945 288,338
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Short-term borrowings 14,204 9,688
Accrued interest payable 1,330 1,045
Other liabilities 1,900 1,350
Long-term debt 35,632 35,684
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Total Liabilities 343,011 336,105
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STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,207,912 shares at March 31, 2004 and
December 31, 2003 3,208 3,208
Additional paid-in capital 23,472 23,472
Retained earnings 7,064 9,805
Accumulated other comprehensive inc(loss) 1,732 1,415
Treasury Stock at cost
(19,191 and 19,408 shs., resp.) -535 -539
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Total Stockholders' Equity 34,941 37,361
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Total Liabilities & Equity 377,952 373,466
======== ========
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,
2004 2003
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INTEREST INCOME:
Interest & fees on loans $3,739 $3,900
Int.-bearing balances 448 595
Treas. & Agency securities 152 151
Municipal securities 388 477
Other securities 9 16
Fed funds sold and repos 0 0
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Total Int. Income 4,736 5,139
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INTEREST EXPENSE:
Deposits 1,387 1,709
Short-term borrowings 31 64
Long-term borrowings 509 508
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Total Int. Expense 1,927 2,281
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Net Int. Income 2,809 2,858
PROVISION FOR LOAN LOSSES 0 190
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Net Int. Inc. after Prov. 2,809 2,668
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NON-INTEREST INCOME:
Trust dept 54 48
Service chgs. on deposits 344 288
Investment securities
Gains(losses), net 202 0
Income on life insurance 57 60
Mortgage banking income 32 50
Other 194 152
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Total Non-Interest Income 883 598
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NON-INTEREST EXPENSE:
Salaries and benefits 1,229 1,062
Occupancy, net 134 134
Equipment 174 132
PA Bank Shares tax 63 67
ATM/Debit card expenses 81 55
Consultant fees 50 41
Director fees and benefits 47 54
Computer software licenses and maintenance 41 27
Stationery and supplies 43 45
Other 415 331
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Tot. Non-int. Exp. 2,277 1,948
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Income before income taxes 1,415 1,318
INCOME TAX EXPENSE 329 266
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NET INCOME $1,086 $1,052
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NET INCOME PER SHARE $0.34 $0.33
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DIVIDENDS PER SHARE $1.20 $0.19
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Weighted Average No. of
Shares Outstanding 3,187,555 3,188,718
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 Quarter
Ended March 31,
2004 2003
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Operating Activities:
Net Income $1,086 $1,052
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 0 190
Depreciation 118 91
Incr. in cash-surr. value of life insurance -618 -60
Investment securities gains, net -202 0
Loss (gain) on sale/disposal of bank
premises and equipment 0 0
Loss (gain) on the sale of foreclosed
assets 8 -20
Deferred income taxes 162 64
Change in accrued interest receivable 17 18
Change in other assets -380 213
Change in accrued interest payable 285 335
Change in other liabilities 550 237
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Net cash provided by operating activities 1,026 2,120
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Investing Activities:
Net (incr)decr in int-bearing balances -259 -2,360
Proceeds from sale of securities 6,482 0
Proceeds from the maturity of secs. 2,839 3,735
Purchases of investment securities -4,931 -2,666
Net increase in loans -7,692 -3,528
Purchases of bank premises & equip't -1,248 -825
Proceeds from sale of foreclosed assets 819 55
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Net cash used in investing activities -3,990 -5,589
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Financing Activities:
Net (decr)incr. in demand and savings -603 6,084
Net incr.(decr) in time deposits 2,210 -2,051
Net decrease in federal funds sold 0 0
Net incr.(decr) in short-term borrowings 4,516 -156
Long-term debt repayments -52 -49
Cash dividend paid -3,827 -606
Reissue (purchase) of treasury stock 4 -11
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Net cash provided by(used in) financing activities 2,248 3,211
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Net decrease in cash & due from banks -716 -258
Cash & due from banks, beg of period 7,456 8,095
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Cash & due from banks, end of period 6,740 7,837
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Supplemental Disclosures of Cash Flow Information:
Interest paid 1,642 1,947
Income taxes paid 0 0
Supplemental Noncash Disclosures:
Loan charge-offs 44 241
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, 2003, 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, 2004, and December 31, 2003, consisted
of:
(Dollars in thousands)
3/31/04 12/31/03
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Federal funds purchased $10,400 $ 6,000
Repurchase agreements 3,592 3,246
Treasury, tax and loan note 194 254
Due to broker 18 188
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$14,204 $ 9,688
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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. MPB has an unfunded noncontributory defined benefit pension plan for
directors. The plan provides defined benefits based on years of service. MPB
also has other postretirement benefit plans covering full-time employees. These
health care and life insurance plans are noncontributory. MPB uses a December 31
measurement date for its plans.
The components of net periodic benefit costs from these benefit plans are as
follows:
Three months ended March 31:
(Dollars in thousands)
Pension Benefits Other Benefits
2004 2003 2004 2003
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Service cost $6 $5 $9 $7
Interest cost 10 9 8 7
Expected return on plan assets 0 0 0 0
Amortization of transition obligation 0 0 4 4
Amortization of prior service cost 6 7 0 0
Amortization of net (gain) loss 0 0 0 (1)
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Net periodic benefit cost $22 $21 $21 $17
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7. 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.
8. 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:
2004 2003
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Net Income $1,086 $1,052
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Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period 689 188
Less: reclassification
adjs for gains included
in net income -202 0
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Other comprehensive income(loss)
before income tax (provision)
benefit 487 188
Income tax (provision) benefit
related to other comp.income (loss) -170 -64
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Other comprehensive inc(loss) 317 124
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Comprehensive Income 1,403 1,176
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Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition
as of March 31, 2004, compared to year-end 2003 and the Results of Operations
for the first quarter of 2004 compared to the same period in 2003.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of March 31, 2004, increased to $377,952,000 from $373,466,000
as of December 31,2003.
During the first quarter of 2004, net loans outstanding increased by $7,692,000,
or 3.4%. Interest-bearing balances, insured certificates of deposits in other
financial institutions, increased by $259,000 as we continue to invest in these
instruments to remain poised for rates to again rebound from their present
levels, which remain near forty-year lows.
Total deposits increased by $1,607,000 during the first three months of 2004.
The most significant component of this increase came from demand deposit
accounts, which increased by $2,285,000. This increase comes in
response to a continued effort to increase penetration of demand deposit
products among the bank's loan customers.
Short-term borrowings increased by approximately $4,516,000 from year-end. These
funds are being purchased overnight at the current federal fund rate of
approximately 1.20%. It is anticipated that these additional borrowings will be
repaid in June of this year when the bank acquires the deposits it is purchasing
from the Dauphin Branch of Vartan National Bank.
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. A $5,000,000 fixed-rate borrowing was
entered into during the quarter with the FHLB at a fixed rate of 2.17%.
As of March 31, 2004, 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 maintain 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, subject to
regulatory approval, the bank will be acquiring approximately $12 million of
deposits and $3.5 million of loans from the Dauphin Office of Vartan National
Bank. These accounts will be serviced through existing capacity at Mid Penn
Bank's Dauphin Office. During the quarter, we also purchased a property at 5500
Allentown Boulevard in Harrisburg for a future branch office site, as well as
having entered into an agreement to lease office space near Market Square in
downtown Harrisburg for a future downtown operation. 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 2004 was $1,086,000, compared with
$1,052,000 earned in the same quarter of 2003. Net income per share for the
first quarters of 2004 and 2003 was $.34 and $.33, respectively. Net income as a
percentage of stockholders' equity, also known as return on equity, (ROE), was
12.5% on an annualized basis for the first quarter of 2004 as compared to 11.9%
for the same period in 2003.
Net interest income decreased as it continues to be very difficult for banks to
reduce the cost of funds at a rate which keeps pace with the reduction in the
return on assets. Net interest income of $2,809,000 for the quarter ended March
31, 2004, declined by 1.7% compared to the $2,858,000 earned in the same quarter
of 2003. We continue to closely monitor net interest income, positioning the
balance sheet so as to benefit in a rising rate environment. According to the
recent statement by the Federal Reserve, it would appear that the next move in
interest rates will be an increase.
The Bank made no provision for loan losses during the first quarter of 2004 and
a provision of $190,000 during the first quarter of 2003. 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 an improved
economic environment and across-the-board improvements in all areas of
nonperforming assets, management recommended following the results of the
analysis and made no provision during this quarter.
Non-interest income amounted to $883,000 for the first quarter of 2004 compared
to $598,000 earned during the same quarter of 2003. Gains on the sale of
securities amounted to $202,000 during the first quarter of 2004. No securities
were sold during the same quarter of 2003. A significant contribution to
non-interest income continues to be insufficient fund (NSF) fee income. NSF fee
income contributed in excess of $297,000 during the first quarter of 2004.
Non-interest expense amounted to $2,277,000 for the first quarter of 2004
compared to $1,948,000 incurred during the same quarter of 2003. The largest
increase in non- interest expense during the first quarter of 2004 as compared
to the same period in 2003, was the $167,000 increase in salary and benefits
expense, which is largely attributable to the addition of three officer level
employees, including two seasoned loan officers. The new personnel will all be
helping to expand the bank's penetration in the Capital Region. The bank also
incurred a one-time charge of approximately $40,000 in the transfer of debit
card processors. By making this change, the bank expects to significantly lower
ongoing costs in the processing of debit card transactions.
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 approximately $1 million of funds
for the first quarter of 2004. Another significant source of funds came from the
sale and maturity of investment securities, which generated over $9 million in
funds. These funds were reinvested in higher-yielding loans as loan demand
heightened during the quarter. With interest rates being at record lows,
security calls continue to be heavy. Securities were sold during the quarter to
take advantage of temporary gains and to help reposition the portfolio for the
increasing probability of rising rates. Short-term borrowings increased by
approximately $4,516,000 from year-end. These funds are being purchased
overnight at the current federal fund rate of approximately 1.20%. It is
anticipated that these additional borrowings will be repaid in June of this year
when the bank acquires the deposits it is purchasing from the Dauphin Branch of
Vartan National Bank. Another source of funds came from the $1.6 million
increase in deposits, the majority of which came from growth in demand and time
deposits.
The major use of funds during the period was the net increase in loans of $7.6
million, particularly in the area of commercial loans secured by real estate.
Another major use of cash during the first quarter was the payment of a special
$1 per share dividend. The Board felt that in light of the current favorable tax
treatment of dividend income that it could pay out some of the Bank's excess
capital to shareholders in the form of a special dividend.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets decreased to $1,791,000 representing 0.47% of total
assets at March 31, 2004, from $2,767,000 or 0.74% of total assets at December
31, 2003. Most non-performing assets are supported by collateral value that
appears to be adequate at March 31, 2004.
The allowance for loan losses at March 31, 2004, was $2,956,000 or 1.23% of
loans, net of unearned interest, as compared to $2,992,000 or 1.29% of loans,
net of unearned interest, at December 31, 2003.
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,
2004 2003
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Non-Performing Assets:
Non-accrual loans 898 984
Past due 90 days or more 603 666
Restructured loans 0 0
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Total non-performing loans 1,501 1,650
Other real estate 290 1,117
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Total 1,791 2,767
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Percentage of total loans outstanding 0.75% 1.18%
Percentage of total assets 0.47% 0.74%
Analysis of the Allowance for Loan Losses:
Balance beginning of period 2,992 3,051
Loans charged off:
Commercial real estate, construction
and land development 0 171
Commercial, industrial and agricultural 5 140
Real estate - residential mortgage 0 0
Consumer 39 98
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Total loans charged off 44 409
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Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 0
Commercial, industrial and agricultural 0 14
Real estate - residential mortgage 0 0
Consumer 8 46
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Total recoveries 8 60
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Net (charge-offs) recoveries -36 -349
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Current period provision for loan losses 0 290
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Balance end of period 2,956 2,992
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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
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By: Alan W. Dakey By: Kevin W. Laudenslager
Pres. & CEO Treasurer
Date: May 4, 2004 Date: May 4, 2004