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, 2004
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.
3,188,711 shares of Common Stock, $1.00 par value per share, MPBre outstanding
as of June 30, 2004.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
June 30, Dec. 31,
2004 2003
-------- --------
ASSETS:
Cash and due from banks $7,509 $7,456
Interest-bearing balances 69,950 69,918
Available-for-sale securities 44,268 54,093
Federal funds sold 0 0
Loans 265,119 232,078
Less,
Allowance for loan losses 3,378 2,992
------- -------
Net loans 261,741 229,086
------- -------
Bank premises and equip't, net 4,991 3,920
Foreclosed assets held for sale 290 1,117
Accrued interest receivable 1,699 1,763
Cash surrender value of life insurance 5,631 4,953
Deferred income taxes 868 303
Other assets 1,587 857
------- -------
Total Assets 398,534 373,466
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 35,549 30,762
NOW 35,469 36,917
Money Market 46,250 45,457
Savings 30,112 27,754
Time 155,857 147,448
------- -------
Total deposits 303,237 288,338
------- -------
Short-term borrowings 12,341 9,688
Accrued interest payable 1,500 1,045
Other liabilities 1,996 1,350
Long-term debt 45,596 35,684
------- -------
Total Liabilities 364,670 336,105
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,207,912 shares at both
June 30, 2004 and December 31, 2003, resp. 3,208 3,208
Additional paid-in capital 23,472 23,472
Retained earnings 7,401 9,805
Accumulated other comprehensive inc(loss) 318 1,415
Treasury Stock at cost
(19,201 and 19,408 shs., resp.) -535 -539
------- -------
Total Stockholders' Equity 33,864 37,361
------- -------
Total Liabilities & Equity 398,534 373,466
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; dollars in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans $3,968 $3,924 $7,707 $7,824
Int.-bearing balances 456 557 904 1,152
Treas. & Agency securities 152 132 304 283
Municipal securities 342 455 729 932
Other securities 11 21 21 37
Fed funds sold and repos 0 0 0 0
----- ----- ----- -----
Total Int. Income 4,929 5,089 9,665 10,228
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 1,365 1,524 2,753 3,233
Short-term borrowings 44 46 75 111
Long-term borrowings 476 538 984 1,045
----- ----- ----- -----
Total Int. Expense 1,885 2,108 3,812 4,389
----- ----- ----- -----
Net Int. Income 3,044 2,981 5,853 5,839
PROVISION FOR LOAN LOSSES 425 25 425 215
----- ----- ----- -----
Net Int. Inc. after Prov. 2,619 2,956 5,428 5,624
----- ----- ----- -----
NON-INTEREST INCOME:
Trust dept 62 50 116 98
Service chgs. on deposits 351 317 695 604
Investment securities
Gains(losses), net 234 170 436 170
Income on life insurance 60 40 117 100
Other 215 163 442 365
----- ----- ----- -----
Total Non-Interest Income 922 740 1,806 1,337
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 1,175 1,176 2,404 2,238
Occupancy, net 102 102 235 235
Equipment 164 157 338 288
PA Bank Shares tax 63 65 125 132
ATM/Debit card expenses 42 44 123 99
Consultant fees 57 53 107 94
Director fees and benefits 96 76 143 130
Advertising Expense 69 30 109 54
Computer software licensing 48 41 89 68
Stationery and supplies 52 55 95 100
Other 383 226 761 534
----- ----- ----- -----
Tot. Non-int. Exp. 2,251 2,025 4,529 3,972
----- ----- ----- -----
Income before income taxes 1,290 1,671 2,705 2,989
INCOME TAX EXPENSE 317 404 646 670
----- ----- ----- -----
NET INCOME $973 $1,267 $2,059 $2,319
===== ===== ===== =====
NET INCOME PER SHARE $0.30 $0.40 $0.65 $0.73
===== ===== ===== =====
DIVIDENDS PER SHARE $0.20 $0.20 $1.40 $0.40
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 3,190,295 3,188,572 3,188,925 3,188,645
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,
2004 2003
-------- --------
Operating Activities:
Net Income $2,059 $2,319
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 425 215
Depreciation 238 202
Incr. in cash-surr. value of life insurance -678 -100
Investment securities gains, net -436 -170
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 -565 279
Change in accrued interest receivable 64 130
Change in other assets 399 80
Change in accrued interest payable 455 285
Change in other liabilities 646 152
------- -------
Net cash provided by
operating activities 2,615 3,372
------- -------
Investing Activities:
Net (incr)decr in int-bearing balances -32 -2,243
Incr. in federal funds sold 0 0
Proceeds from sale of securities 13,741 2,802
Proceeds from the maturity of secs. 4,246 6,224
Purchases of investment securities -9,381 -4,581
Net increase in loans -30,597 -1,592
Purchases of bank premises & equip't -1,309 -883
Proceeds from sale of foreclosed assets 819 268
Capitalized additions - ORE 0 0
Purchase/assumption -- Vartan Nat'l accounts 4,139 0
------- -------
Net cash provided by(used in)
investing activities -18,374 -5
------- -------
Financing Activities:
Net incr. in demand and savings 2,193 6,726
Net (decr)incr. in time deposits 5,513 -5,938
Net decrease in federal funds sold 0 0
Net decrease in short-term borrowings 2,653 -9,105
Long-term debt repayments -5,088 -98
Increase in long-term borrowings 15,000 5,000
Cash dividend paid -4,463 -1,218
Purchase of treasury stock 4 -20
------- -------
Net cash provided by(used in)
financing activities 15,812 -4,653
------- -------
Net incr(decr) in cash & due from banks 53 -1,286
Cash & due from banks, beg of period 7,456 8,095
------- -------
Cash & due from banks, end of period 7,509 6,809
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid 3,357 4,104
Income taxes paid 240 530
Supplemental Noncash Disclosures:
Loan charge-offs 58 262
Transfers to other real estate 0 145
Business Combination:
Loans purchased 2,483 0
DDA and savings accounts assumed -4,297 0
Time deposits assumed -2,896 0
Vault cash purchased 21 0
Core deposit intangible 291 0
Goodwill 259 0
------- -------
-4,139 0
======= =======
Mid Penn Bancorp, Inc. (MPB)
Notes to Consolidated Financial Statements
1. The consolidated interim financial statements have been prepared by MPB, 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. Management believes, 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 MPB's most recent Form 10-K.
2. Interim statements are subject to possible adjustments in connection with the
annual audit of MPB'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, 2004, and December 31, 2003, consisted
of:
(Dollars in thousands)
6/30/04 12/31/03
------- --------
Federal funds purchased $ 9,000 $ 6,000
Repurchase agreements 2,915 3,246
Treasury, tax and loan note 426 254
Due to broker 0 188
------- --------
$12,341 $ 9,688
======= =======
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 MPB 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 retirement 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:
Six months ended June 30:
(Dollars in thousands)
Pension Benefits Other Benefits
2004 2003 2004 2003
Service cost $11,054 $10,020 $18,902 $14,994
Interest cost $19,396 $18,598 $15,864 $14,822
Expected return on plan assets $ - $ - $ - $ -
Amortization of transition obligation $ - $ - $ 7,364 $ 7,364
Amortization of prior service cost $13,032 $13,032 $ - $ -
Amortization of net (gain) loss $ - $ - $ - $(1,412)
-------- ------- ------- --------
Net periodic benefit cost $43,482 $41,650 $42,130 $35,768
-------- ------- ------- --------
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. MPB'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 MPB's equity resulting from economic events other than
transactions with stockholders in their capacity as stockholders. For MPB,
"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:
2004 2003 2004 2003
-------- -------- -------- --------
Net Income $973 $1,267 $2,059 $2,319
-------- -------- -------- --------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period -1,908 974 -1,219 1,162
Less: reclassification
adjs for losses(gains) included
in net income -234 -170 -436 -170
-------- -------- -------- --------
Other comprehensive income(loss)
before income tax (provision)
benefit -2,142 771 -1,655 992
Income tax (provision) benefit
related to other comp.income (loss) 728 -262 558 -337
-------- -------- -------- --------
Other comprehensive inc(loss) -1,414 509 -1,097 655
-------- -------- -------- --------
Comprehensive Income (Loss) -441 1,776 962 2,974
======= ======= ======= ======
9. On June 14, 2004, MPB consummated the purchase of assets and assumption of
liabilities of the Dauphin Office of Vartan National Bank. MPB approved this
deal in order to increase market share in the Central Pennsylvania Area. The
loans purchased amounted to $2,483,000, while DDA and Savings totaled
$4,297,000. Time deposits amounted to $2,896,000. A premium paid of $550,000
coupled with a $21,000 payment for vault cash at the office make the net receipt
of cash $4,139,000 from Vartan National for the transaction.
10. MPB has made a commitment to provide a certain death benefit to one of its
executive officers, the present value of which cannot be presently determined.
This commitment is likely to have a significant cost to the corporation,
affecting the results of operations in the quarter in which the cost is
determined.
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition as of June 30, 2004,
compared to year-end 2003 and the Results of Operations for the second quarter
and the first six months of 2004 compared to the same periods in 2003.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of June 30, 2004, were $398,534,000, compared to $373,466,000 as
of December 31, 2003. 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 2004, net loans outstanding
increased by $32,905,000 from year end. This 14% increase was due to several
factors. These factors include a purchase of the accounts of the Vartan National
Bank Dauphin Office, which included approximately $2.5 million in loans, the
addition of two seasoned lenders to our lending team as well as improvements in
loan demand and the economic environment in general.
The June consummation of the purchase/assumption of the Vartan accounts has
resulted in the recognition of certain intangible assets. These intangible
assets include a core deposit intangible of $291,000 amortizable over 8 years,
and goodwill of $358,000. The goodwill is not amortized as an expense, rather it
will be tested annually for any impairment.
Total deposits increased by $14,899,000 during the first
six months of 2004. More than $6.5 million of this increase came from the
deposits acquired from the accounts of the Dauphin Office of Vartan National
Bank.
Loan growth was funded by a decrease in the investment portfolio, increased
deposits and borrowings. Short-term borrowings increased by $2.6 million from
year end and long-term borrowings increased by approximately $10 million.
Long-term borrowings locked in the low interest rates as the FRB has begun to
raise interest rates. During the second quarter, MPB entered into a $5 million
five-year borrowing at a rate of 4.22%. All components of long-term debt are
advances from the FHLB.
As of June 30, 2004, the Bank's capital ratios exceed minimum guidelines and
MPB's capital ratios are in excess of the Bank's capital ratios.
RESULTS OF OPERATIONS
Net income for the first six months of 2004 was $2,059,000, compared with
$2,319,000 earned in the same period of 2003. Net income per share for the same
period of 2004 and 2003 was $.65 and $.73, respectively. Net income as
a percentage of average stockholders' equity, also known as return on equity,
(ROE), was 11.8% on an annualized basis for the first half of 2004 and 13.0% for
the same period of 2003.
Net income for the second quarter of 2004 was $973,000, compared with $1,267,000
earned in the same quarter of 2003. Net income per share for the second quarters
of 2004 and 2003 was $.30 and $.40, respectively. The decrease in net income was
largely due to flat net interest income in the persistent low rate environment
coupled with higher expenses, including expenses involved with the Vartan
National Bank Dauphin Office purchase/assumption as well as the larger second
quarter provision for loan losses.
Net interest income of $3,044,000 for the quarter ended June 30, 2004, remained
fairly flat compared to the $2,981,000 earned in the same quarter of 2003,
increasing a mere 2.1% despite significant asset growth. Short-term interest
rates remained near forty-year lows, which contributed to the continued
compression of margin.
During the second quarter of 2004, MPB 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, 2004, these scenarios were within the guidelines of +/- 20%
in net interest income; however, actual results could vary significantly from
the calculations prepared by management.
MPB made provisions for loan losses of $425,000 and $25,000 during the second
quarters of 2004 and 2003,
respectively. The majority of the increase was due to the reclassification of a
large commercial real estate loan coupled with the addition of the Vartan loans
and the other new loan activity generated in the second quarter. 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 $922,000 for the second quarter of 2004 compared
to $740,000 earned during the same quarter of 2003. The sale of municipal bonds
resulted in a gain of $234,000. The bonds were
sold in order to realize some of the existing appreciation in these fixed-income
securities and to reduce average maturities in the securities portfolio in light
of expected future rate increases. Service charges on deposits grew by more than
10% during the second quarter of 2004 compared to the same period of 2003 as MPB
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 approximately $590,000 of income during the first half of 2004.
Non-interest expense increased by 11.2% during the second quarter of 2004
compared to the same quarter of 2003. A significant increase was $39,000 in
additional marketing expense used largely to purchase media ads in the Capital
Region. Combination expenses of more than $12,000 were also realized in the
purchase of the accounts from Vartan National Bank.
A portion of MPB's portfolio of interest-bearing balances (insured jumbo
certificates of deposit of other banks with original maturities of one to five
years) is being monitored as interest rates rise. The certificates being
monitored are those with an original maturity of five years, representing
approximately 16% of the portfolio. The remaining 84% of the portfolio is made
up of certificates with original maturities of two years or less, the majority
of which mature within one year. If interest rates reach a point where it would
maximize net income over the life of the five-year certificates to redeem them
early, paying the early withdrawal penalties, and reinvesting at higher rates,
Management may exercise this option to increase future earnings. If they were
redeemed early, the aggregate current period expense associated with the
penalties would approximate $200,000.
LIQUIDITY
MPB'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 interest bearing balances, investment securities, overnight
borrowings of federal funds (and Flex Line), payments received on loans, and
increases in deposit liabilities.
Funds generated from operations were a significant source
of funds for the first half of 2004. Also major sources of
funds came from the net increase in deposits of $14.9 million, the net cash
decrease in investment securities of $9.8 million, reflecting the sale of over
$13 million in municipal securities to realize a gain on market value, and
fifteen million in long-term borrowings. In addition, an increase in short-term
borrowings of $2.6 million was used to meet the funding needs of the increased
loan demand of the quarter.
A major use of funds during the period was the net increase in loans of
approximately $33 million.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets decreased significantly to $1,752,000 representing
0.44% of total assets at June 30, 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 June 30, 2004.
The allowance for loan losses at June 30, 2004, was $3,378,000 or 1.27% 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 MPB's loan portfolio by the loan review
department, the latest quarterly analysis of potentially unsound loans and
non-performing assets, Management considers the Allowance for Loan Losses to be
adequate to absorb any reasonable, foreseeable loan losses.
June 30, Dec. 31,
2004 2003
-------- --------
Non-Performing Assets:
Non-accrual loans 898 984
Past due 90 days or more 564 666
Restructured loans 0 0
-------- --------
Total non-performing loans 1,462 1,650
Other real estate 290 1,117
-------- --------
Total 1,752 2,767
======== ========
Percentage of total loans outstanding 0.66% 1.18%
Percentage of total assets 0.44% 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 53 98
-------- --------
Total loans charged off 58 409
-------- --------
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 19 46
-------- --------
Total recoveries 19 60
-------- --------
Net (charge-offs) recoveries -39 -349
-------- --------
Current period provision for
loan losses 425 290
-------- --------
Balance end of period 3,378 2,992
========= ========
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 27, 2004, a vote was
held for the election of Class C
directors: A. James Durica, Theodore W. Mowery, William G. Nelson, Donald
E. Sauve to serve for a three-year term, and to ratify the selection of
Parente Randolph as external auditors for MPB for the year ending December
31, 2004. A. James Durica received 2,903,696 votes for and 10,511 votes
withheld. Theodore Mowery received 2,902,604 votes for and 11,603 votes
withheld. William Nelson received 2,912,525 votes for and 1,683 votes
withheld. Donald Sauve received 2,880,220 votes for and 33,987 withheld.
The selection of external auditors received 2,906,007 votes for, 6,557
votes against, and 1,643 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 5, 2004 Date: August 5, 2004