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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 September 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.
3,187,855 shares of Common Stock, $1.00 par value per share, were outstanding as
of September 30, 2004.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in thousands)
Sept. 30, Dec. 31,
2004 2003
-------- --------
ASSETS:
Cash and due from banks $6,131 $7,456
Interest-bearing balances 61,978 69,918
Available-for-sale securities 42,021 54,093
Federal funds sold 0 0
Loans 277,173 232,078
Less,
Allowance for loan losses 3,560 2,992
------- -------
Net loans 273,613 229,086
------- -------
Bank premises and equip't, net 4,975 3,920
Foreclosed assets held for sale 276 1,117
Accrued interest receivable 1,826 1,763
Cash surrender value of life insurance 5,673 4,953
Deferred income taxes 577 303
Other assets 1,479 857
------- -------
Total Assets 398,549 373,466
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 36,145 30,762
NOW 33,915 36,917
Money Market 43,881 45,457
Savings 28,850 27,754
Time 157,869 147,448
------- -------
Total deposits 300,660 288,338
------- -------
Short-term borrowings 9,229 9,688
Accrued interest payable 1,675 1,045
Other liabilities 2,180 1,350
Long-term debt 49,986 35,684
------- -------
Total Liabilities 363,730 336,105
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,207,912 shares at both
Sept. 30, 2004 and December 31, 2003, resp. 3,208 3,208
Additional paid-in capital 23,472 23,472
Retained earnings 7,819 9,805
Accumulated other comprehensive inc(loss) 883 1,415
Treasury Stock at cost
(20,057 and 19,408 shs., resp.) -563 -539
------- -------
Total Stockholders' Equity 34,819 37,361
------- -------
Total Liabilities & Equity 398,549 373,466
======= =======
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 Nine Months
Ended Sept. 30, Ended Sept. 30,
2004 2003 2004 2003
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans $4,274 $3,832 $11,981 $11,656
Int.-bearing balances 459 490 1,363 1,641
Treas. & Agency securities 149 134 453 417
Municipal securities 283 429 1,013 1,361
Other securities 12 14 33 51
Fed funds sold and repos 0 3 0 3
----- ----- ----- -----
Total Int. Income 5,177 4,902 14,843 15,129
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 1,441 1,446 4,194 4,679
Short-term borrowings 34 7 109 118
Long-term borrowings 546 581 1,531 1,626
----- ----- ----- -----
Total Int. Expense 2,021 2,034 5,834 6,423
----- ----- ----- -----
Net Int. Income 3,156 2,868 9,009 8,706
PROVISION FOR LOAN LOSSES 200 75 625 290
----- ----- ----- -----
Net Int. Inc. after Prov. 2,956 2,793 8,384 8,416
----- ----- ----- -----
NON-INTEREST INCOME:
Trust dept 61 53 178 151
Service chgs. on deposits 389 303 1,084 908
Investment securities
Gains(losses), net 39 88 475 258
Income on life insurance 42 50 159 150
Other 250 179 691 544
----- ----- ----- -----
Total Non-Interest Income 781 673 2,587 2,011
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 1,294 1,127 3,698 3,365
Occupancy, net 113 93 348 329
Equipment 159 147 496 434
PA Bank Shares tax 66 66 192 198
ATM/Debit card expenses 46 31 169 130
Consultant fees 85 46 192 140
Director fees and benefits 51 37 194 167
Advertising Expense 30 22 139 76
Computer software licensing 46 10 135 78
Stationery and supplies 35 31 130 131
Other 406 467 1,167 1,001
----- ----- ----- -----
Tot. Non-int. Exp. 2,331 2,077 6,860 6,049
----- ----- ----- -----
Income before income taxes 1,406 1,389 4,111 4,378
INCOME TAX EXPENSE 349 303 995 973
----- ----- ----- -----
NET INCOME $1,057 $1,086 $3,116 $3,405
===== ===== ===== =====
NET INCOME PER SHARE $0.33 $0.34 $0.98 $1.07
===== ===== ===== =====
DIVIDENDS PER SHARE $0.20 $0.20 $1.60 $0.60
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 3,189,643 3,186,990 3,189,164 3,188,087
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,
2004 2003
------- -------
Operating Activities:
Net Income $3,116 $3,405
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 625 290
Depreciation 360 320
Incr. in cash-surr. value of life insurance -720 -151
Investment securities gains, net -475 -258
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 -274 -49
Change in accrued interest receivable -63 200
Change in other assets 216 358
Change in accrued interest payable 630 583
Change in other liabilities 830 223
------- -------
Net cash provided by
operating activities 4,253 4,901
------- -------
Investing Activities:
Net (incr)decr in int-bearing balances
7,940 -2,864
Incr. in federal funds sold 0 -450
Proceeds from sale of securities 16,195 5,255
Proceeds from the maturity of secs. 4,934 11,435
Purchases of investment securities -9,381 -10,876
Net increase in loans -42,689 -13,541
Purchases of bank premises & equip't -1,415 -944
Proceeds from sale of foreclosed assets 853 476
Capitalized additions - ORE 0 0
Purchase/assumption -- Vartan Nat'l accounts 4,139 0
------- -------
Net cash provided by(used in)
investing activities -19,424 -11,509
------- -------
Financing Activities:
Net (decr)incr. in demand and savings -2,396 10,399
Net (decr)incr. in time deposits 7,525 2,398
Net decrease in federal funds sold 0 0
Net decrease in short-term borrowings -459 -13,967
Long-term debt repayments -5,102 -148
Increase in long-term borrowings 19,400 8,500
Cash dividend paid -5,102 -1,862
Purchase of treasury stock -24 -64
------- -------
Net cash provided by(used in)
financing activities 13,846 5,256
------- -------
Net incr(decr) in cash & due from banks -1,325 -1,352
Cash & due from banks, beg of period 7,456 8,095
------- -------
Cash & due from banks, end of period 6,131 6,743
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid 5,204 5,840
Income taxes paid 905 1,055
Supplemental Noncash Disclosures:
Loan charge-offs, net of recoveries 57 229
Transfers to other real estate 20 145
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
======= =======
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 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 September 30, 2004, and December 31, 2003,
consisted of:
(Dollars in thousands)
9/30/04 12/31/03
------- --------
Federal funds purchased $ 5,900 $ 6,000
Repurchase agreements 2,789 3,246
Treasury, tax and loan note 540 254
Due to broker 0 188
------- --------
$ 9,229 $ 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:
Nine months ended September 30:
Pension Benefits Other Benefits
2004 2003 2004 2003
Service cost $16,581 $15,030 $28,353 $22,491
Interest cost $29,094 $27,897 $23,796 $22,233
Expected return on plan assets $ - $ - $ - $ -
Amortization of transition obligation $ - $ - $11,046 $11,046
Amortization of prior service cost $19,548 $19,548 $ - $ -
Amortization of net (gain) loss $ - $ - $ - $(2,118)
----- ------- ------- -------
Net periodic benefit cost $65,223 $62,475 $63,195 $53,652
----- ------- ------- -------
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 Nine Months
Ended Sept. 30: Ended Sept. 30:
2004 2003 2004 2003
-------- -------- -------- --------
Net Income $1,057 $1,086 $3,116 $3,405
------ ------ ------ ------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period 895 -1,051 -324 111
Less: reclassification
adjs for losses(gains) included
in net income -39 -88 -475 -258
------ ------ ------ ------
Other comprehensive income(loss)
before income tax (provision)
benefit 856 -1,139 -799 -147
Income tax (provision) benefit
related to other comp.income (loss) -291 387 267 50
------ ------ ------ ------
Other comprehensive inc(loss) 565 -752 -532 -97
------ ------ ------ ------
Comprehensive Income 1,622 334 2,584 3,308
====== ====== ====== ======
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. This commitment is being funded with bank-owned life
insurance, in addition to a life insurance agreement with associated costs of
approximately $72,000 in 2004, $121,000 in 2005, and $83,000 in 2006.
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition as of September 30,
2004, compared to year-end 2003 and the Results of Operations for the third
quarter and the first nine months of 2004 compared to the same periods in 2003.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of Sept. 30, 2004, were $398,549,000, compared to $373,466,000
as of December 31, 2003. Asset growth has been led by demand for commercial real
estate loans, particularly in the Capital Region.
During the first nine months of 2004, net loans outstanding increased by
$44,527,000 from year end. This 19% 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 $259,000. The goodwill is not amortized as an expense, rather it
will be tested annually for any impairment.
Mid Penn Bank has also entered into an agreement to sell its Tremont office
accounts to Minersville Safe Deposit Bank and Trust to be consummated in late
January of 2005. The office being sold has not experienced any significant
growth and currently services approximately $4.5 million in deposits. The office
is located in a building that was operated as a crafts store. The store has
since ceased operation, and MPB will be losing its lease.
Total deposits increased by $12,322,000 during the first nine 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. Net long-term borrowings increased by approximately
$14.3 million in an effort to lock in low interest rates as rates begin to rise.
During the third quarter, MPB entered into a $5 million three-year borrowing at
a rate of 3.71%, as well as a $4.4 million twenty-two year Community Lending
Program advance at 4.80% used as matched funding for a municipal loan. All
components of long-term debt are advances from the FHLB.
As of September 30, 2004, the Bank's capital ratios exceed minimum guidelines
for well-capitalized banks, and MPB's capital ratios are in excess of the Bank's
capital ratios.
RESULTS OF OPERATIONS
Net income for the first nine months of 2004 was $3,116,000, compared with
$3,405,000 earned in the same period of 2003. Net income per share for the same
period of 2004 and 2003 was $.98 and $1.07, respectively. Net income as a
percentage of average stockholders' equity, also known as return on equity,
(ROE), was 12.1% on an annualized basis for the first three quarters of 2004 and
12.7% for the same period of 2003.
Net income for the third quarter of 2004 was $1,057,000, compared with
$1,086,000 earned in the same quarter of 2003. Net income per share for the
third quarters of 2004 and 2003 was $.33 and $.34, respectively. The decrease in
net income was largely due to higher expenses, particularly salary and benefits
costs as well as the larger third quarter provision for loan losses.
Net interest income of $3,156,000 for the quarter ended
September 30, 2004, has begun to rebound, increasing by more than 10% compared
to the $2,868,000 earned in the same quarter of 2003. Short-term interest rates,
which remained near forty-year lows through the first half of the year, have
begun to increase. This increase in rates, coupled with significant asset
growth, bodes well for increasing net interest income in future periods.
During the third 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 instantaneously
increased by 200 basis points (2 percentage points) and another whereby they are
decreased by 200 basis points. At Sept. 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 $200,000 and $75,000 during the third
quarters of 2004 and 2003, respectively. The majority of the increase was due to
the reclassification of a large commercial real estate loan that is performing
but was reclassified to the substandard category during the second quarter,
coupled with the addition of the Vartan loans and other new loan activity
generated in the third 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 $781,000 for the third quarter of 2004 compared
to $673,000 earned during the same quarter of 2003. The sale of municipal bonds
resulted in a gain of $39,000. 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 28% during the third
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 $323,000 of income during the third quarter of 2004.
Non-interest expense increased by 12.2% during the third quarter of 2004
compared to the same quarter of 2003. A significant increase was $167,000 in
additional personnel expense as the bank is hiring and training additional
personnel in preparation for the opening of two new offices in the Capital
Region in early 2005.
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 20% of the portfolio. The remaining 80% 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
nine months of 2004. Also major sources of funds came from the net increase in
deposits of $12.3 million, the net cash decrease in investment securities of
$12.1 million, reflecting the sale of over $16 million in municipal securities
to realize a gain on market value, and $19.4 million in long-term borrowings.
A major use of funds during the period was the net increase in loans of
approximately $44.5 million.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets decreased significantly to $1,719,000 representing
0.43% of total assets at Sept. 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 Sept. 30, 2004.
The allowance for loan losses at Sept. 30, 2004, was $3,560,000 or 1.28% 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.
MID PENN BANCORP, INC.
Sept. 30 Dec. 31,
2004 2003
-------- --------
Non-Performing Assets:
Non-accrual loans 873 984
Past due 90 days or more 570 666
Restructured loans 0 0
-------- --------
Total non-performing loans 1,443 1,650
Other real estate 276 1,117
-------- --------
Total 1,719 2,767
======== ========
Percentage of total loans outstanding 0.62% 1.18%
Percentage of total assets 0.43% 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 25 171
Commercial, industrial and agricultural 10 140
Real estate - residential mortgage 0 0
Consumer 62 98
-------- --------
Total loans charged off 97 409
-------- --------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 0
Commercial, industrial and agricultural 5 14
Real estate - residential mortgage 0 0
Consumer 35 46
-------- --------
Total recoveries 40 60
-------- --------
Net (charge-offs) recoveries -57 -349
-------- --------
Current period provision for
loan losses 625 290
-------- --------
Balance end of period 3,560 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
- 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 5, 2004 Date: November 5, 2004