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, 2005
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the classes of common
stock, as of the latest practical date.
3,182,703 shares of Common Stock, $1.00 par value per share, were outstanding as
of March 31, 2005.
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
Mar. 31 Dec. 31
2005 2004
-------- --------
ASSETS:
Cash and due from banks $ 5,677 $ 6,679
Interest-bearing balances 59,915 60,407
Available-for-sale securities 42,768 44,613
Federal funds sold 0 0
Loans 281,367 279,547
Less,
Allowance for loan losses 3,687 3,643
-------- --------
Net loans 277,680 275,904
-------- --------
Bank premises and equip't, net 5,117 4,874
Foreclosed assets held for sale 505 505
Accrued interest receivable 1,890 1,875
Cash surrender value of life insurance 6,233 6,180
Deferred income taxes 1,128 982
Other assets 1,631 1,237
-------- --------
Total Assets 402,544 403,256
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 39,011 37,586
NOW 33,493 35,562
Money Market 39,998 43,116
Savings 29,058 28,414
Time 157,158 156,466
-------- --------
Total deposits 298,718 301,144
-------- --------
Short-term borrowings 5,486 13,801
Accrued interest payable 1,400 1,192
Other liabilities 1,804 1,890
Long-term debt 59,928 49,957
-------- --------
Total Liabilities 367,336 367,984
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,207,912 shares at March 31, 2005 and
December 31, 2004 3,208 3,208
Additional paid-in capital 23,472 23,472
Retained earnings 8,814 8,435
Accumulated other comprehensive inc(loss) 408 693
Treasury Stock at cost
(25,209 and 19,086 shs., resp.) -694 -536
-------- --------
Total Stockholders' Equity 35,208 35,272
-------- --------
Total Liabilities & Equity 402,544 403,256
======== ========
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 March 31,
2005 2004
---------- ----------
INTEREST INCOME:
Interest & fees on loans $ 4,424 $ 3,739
Int.-bearing balances 464 448
Treas. & Agency securities 172 152
Municipal securities 264 388
Other securities 20 9
Fed funds sold and repos 4 0
---------- ----------
Total Int. Income 5,348 4,736
---------- ----------
INTEREST EXPENSE:
Deposits 1,385 1,387
Short-term borrowings 44 31
Long-term borrowings 674 509
---------- ----------
Total Int. Expense 2,103 1,927
---------- ----------
Net Int. Income 3,245 2,809
PROVISION FOR LOAN LOSSES 60 0
---------- ----------
Net Int. Inc. after Prov 3,185 2,809
---------- ----------
NON-INTEREST INCOME:
Trust dept 61 54
Service chgs. on deposits 322 344
Investment securities
Gains(losses), net 0 202
Income on life insurance 53 57
Mortgage banking income 28 32
Other 268 194
---------- ----------
Total Non-Interest Income 732 883
---------- ----------
NON-INTEREST EXPENSE:
Salaries and benefits 1,481 1,229
Occupancy, net 146 134
Equipment 168 174
PA Bank Shares tax 67 63
ATM/Debit card expenses 12 81
Consultant fees 71 50
Director fees and benefits 50 47
Computer software licenses and maintenance 55 41
Stationery and supplies 50 43
Other 440 415
---------- ----------
Tot. Non-int. Exp 2,540 2,277
---------- ----------
Income before income taxes 1,377 1,415
INCOME TAX EXPENSE 360 329
---------- ----------
NET INCOME $ 1,017 $ 1,086
========== ==========
NET INCOME PER SHARE $ 0.32 $ 0.34
========== ==========
DIVIDENDS PER SHARE $ 0.20 $ 1.20
========== ==========
Weighted Average No. of
Shares Outstanding 3,188,122 3,187,555
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,
2005 2004
------- -------
Operating Activities:
Net Income $ 1,017 $ 1,086
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 60 0
Depreciation 123 118
Incr. in cash-surr. value of life insurance -53 -618
Investment securities gains, net 0 -202
Amortization 9 0
Loss (gain) on sale/disposal of bank
premises and equipment 0 0
Loss (gain) on the sale of foreclosed
assets 0 8
Deferred income taxes -146 162
Change in accrued interest receivable -15 17
Change in other assets -255 -380
Change in accrued interest payable 208 285
Change in other liabilities -86 550
------- -------
Net cash provided by
operating activities 862 1,026
------- -------
Investing Activities:
Net (incr)decr in int-bearing balances 492 -259
Proceeds from sale of securities 0 6,482
Proceeds from the maturity of secs 1,573 2,839
Purchases of investment securities -161 -4,931
Net increase in loans -1,836 -7,692
Purchases of bank premises & equip't -366 -1,248
Proceeds from sale of foreclosed assets 0 819
------- -------
Net cash provided by(used in)
investing activities -298 -3,990
------- -------
Financing Activities:
Net decr. in demand and savings -3,118 -603
Net incr. in time deposits 692 2,210
Net decrease in federal funds sold 0 0
Net decr.(incr.) in short-term borrowings -8,315 4,516
Long-term debt repayments -29 -52
Long-term borrowings 10,000 0
Cash dividend paid -638 -3,827
Reissue (purchase) of treasury stock -158 4
------- -------
Net cash provided by(used in)
financing activities -1,566 2,248
------- -------
Net incr(decr) in cash & due from banks -1,002 -716
Cash & due from banks, beg of period 6,679 7,456
------- -------
Cash & due from banks, end of period 5,677 6,740
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid 1,895 1,642
Income taxes paid 0 0
Supplemental Noncash Disclosures:
Loan charge-offs 29 44
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, 2004, 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, 2005, and December 31, 2004, consisted
of:
(Dollars in thousands)
3/31/05 12/31/04
------- --------
Federal funds purchased $1,400 $10,400
Repurchase agreements 3,582 2,928
Treasury, tax and loan note 504 473
Due to broker 0 0
------ -------
$5,486 $13,801
====== =======
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. During the first quarter, MPB entered into a three-year long-term borrowing
with the FHLB at a fixed rate of 3.80%.
7. 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
2005 2004 2005 2004
---- ---- ---- ----
Service cost $ 7 $ 6 $11 $ 9
Interest cost 10 10 9 8
Expected return on plan assets 0 0 0 0
Amortization of transition obligation 0 0 4 4
Amortization of prior service cost 7 6 0 0
Amortization of net (gain) loss 0 0 0 0
--- --- --- ---
Net periodic benefit cost $24 $22 $24 $21
--- --- --- ---
8. 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.
9. 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:
2005 2004
------ ------
Net Income $1,017 $1,086
------ ------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period -432 689
Less: reclassification
adjs for losses(gains) included
in net income 0 -202
------ ------
Other comprehensive income(loss)
before income tax (provision)
benefit -432 487
Income tax (provision) benefit
related to other comp.income (loss) 147 -170
------ ------
Other comprehensive inc(loss) -285 317
------ ------
Comprehensive Income 732 1,403
====== ======
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition
as of March 31, 2005, compared to year-end 2004 and the Results of Operations
for the first quarter of 2005 compared to the same period in 2004.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of March 31, 2005, were $402,544,000 compared to $403,256,000 as
of December 31, 2004.
During the first quarter of 2005, net loans outstanding increased by $1,776,000,
or 0.6%. Interest-bearing balances, insured certificates of deposits in other
financial institutions and investment securities, decreased by $2,337,000 as we
continue to reinvest a portion of these maturing funds into higher yielding
loans.
Total deposits decreased by $2,426,000 during the first three months of 2005.
The main reason for the decrease was the sale of the accounts of our Tremont
Office during the first quarter to Minersville Safe Deposit Bank. The deposit
balances sold amounted to approximately $2.5 million. The Bank decided to close
the leased office as the lease was ending and balances at the offices were not
large enough to maintain profitability. The accounts were purchased by
Minersville Safe Deposit Bank, which operates a full-service office within a
mile of our Tremont Office.
Short-term borrowings decreased by approximately $8,315,000 from year-end, as we
entered into a $10 million, three-year, long-term borrowing during the quarter
with the FHLB at a fixed rate of 3.80%. We felt it prudent to lock in the
borrowing in anticipating of continued rising interest rates.
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 March 31, 2005, 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
of Dauphin County north of Harrisburg), 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. Accordingly during the
second quarter, the Bank will be opening two new full-service branch offices in
Harrisburg. These new office locations include 5500 Allentown Boulevard and a
location on Market Square in Harrisburg. 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 2005 was $1,017,000, compared with
$1,086,000 earned in the same quarter of 2004. Net income per share for the
first quarters of 2005 and 2004 was $.32 and $.34, respectively. Net income as a
percentage of stockholders' equity, also known as return on equity, (ROE), was
11.5% on an annualized basis for the first quarter of 2005 as compared to 12.5%
for the same period in 2004.
Net interest income increased due to both higher interest rates as well as a
larger base of earning assets as compared to the first quarter of 2004. Net
interest income of $3,245,000 for the quarter ended March 31, 2005, increased by
15.5% compared to the $2,809,000 earned in the same quarter of 2004. 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 interest rates will continue to rise.
According to its internal formula, the Bank made a $60,000 provision for
possible loan losses during the first quarter of 2005, compared to no provision
made during the first quarter of 2004. 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 an appropriate
provision during this quarter.
Non-interest income amounted to $732,000 for the first quarter of 2005 compared
to $883,000 earned during the same quarter of 2004. Gains on the sale of
securities amounted to $202,000 during the first quarter of 2004. No securities
were sold during the current quarter. A significant contribution to non-interest
income continues to be insufficient fund (NSF) fee income. NSF fee income
contributed in excess of $270,000 during the first quarter of 2005. In addition,
a one-time premium of approximately $50,000 was realized during the quarter for
the sale of the accounts of our Tremont Office.
Non-interest expense amounted to $2,540,000 for the first quarter of 2005
compared to $2,277,000 incurred during the same quarter of 2004. The largest
increase in non- interest expense during the first quarter of 2005 as compared
to the same period in 2004, was the $252,000 increase in salary and benefits
expense, which is largely attributable to the addition of five full-time
equivalent personnel in preparation of the opening of our new Harrisburg Offices
and a new equipment leasing division within our loan department. The new
personnel will all be helping to expand the bank's penetration in the Capital
Region.
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 our major source of funds during the
quarter. Another significant source of funds came from the net maturities of
investment securities, which generated over $1.4 million in funds. These funds
were reinvested in higher-yielding loans during the quarter. Another source of
funds during the quarter resulted from a $10 million long-term borrowing entered
into with the FHLB, the majority of which was used to pay off existing
short-term borrowings.
A major use of funds during the period was the net increase in loans of $1.8
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
approximately $2.5 million for the sale of the accounts of our Tremont Office.
As mentioned above, short-term borrowings decreased by approximately $8.3
million as the bank entered into a three-year borrowing.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets increased to $2,743,000, representing 0.68% of total
assets at March 31, 2005, from $1,775,000, or 0.44% of total assets at December
31, 2004. Most non-performing assets are supported by collateral value that
appears to be adequate at March 31, 2005.
The allowance for loan losses at March 31, 2005, was $3,687,000 or 1.31% of
loans, net of unearned interest, as compared to $3,643,000 or 1.30% of loans,
net of unearned interest, at December 31, 2004.
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.
Mar. 31, Dec. 31,
2005 2004
----- -----
Non-Performing Assets:
Non-accrual loans 1,455 873
Past due 90 days or more 783 397
Restructured loans 0 0
----- -----
Total non-performing loans 2,238 1,270
Other real estate 505 505
----- -----
Total 2,743 1,775
===== =====
Percentage of total loans outstanding 0.97% 0.63%
Percentage of total assets 0.68% 0.44%
Analysis of the Allowance for Loan Losses:
Balance beginning of period 3,643 2,992
Loans charged off:
Commercial real estate, construction
and land development 0 25
Commercial, industrial and agricultural 17 10
Real estate - residential mortgage 0 0
Consumer 12 86
----- -----
Total loans charged off 29 121
----- -----
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 0
Commercial, industrial and agricultural 6 9
Real estate - residential mortgage 0 0
Consumer 7 38
----- -----
Total recoveries 13 47
----- -----
Net (charge-offs) recoveries -16 -74
----- -----
Current period provision for
loan losses 60 725
----- -----
Balance end of period 3,687 3,643
===== =====
Item 3: Controls and Procedures:
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, Mid Penn Bancorp
carried out an evaluation, under the supervision and with the participation of
the Mid Penn Bancorp's management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
corporation's disclosure controls and procedures pursuant to the Securities
Exchange Act of 1934 ("Exchange Act") Rule 13a-15e. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, Mid Penn
Bancorp's disclosure controls and procedures are effective in timely alerting
them to material information relating to Mid Penn Bancorp (including its
consolidated subsidiaries) required to be included in our periodic SEC filings.
Changes in Internal Controls Over Financial Reporting
There were no significant changes in Mid Penn Bancorp's internal
controls or, to its knowledge, in other factors that could significantly affect
internal controls during the fiscal quarter ended March 31, 2005 except for the
following:
o All period-end adjusting and consolidating entries are reviewed by a
second finance employee and initialed by both CFO and the reviewing
employee beginning with the first quarter of 2005.
o The CFO and a second finance employee are responsible for financial
statement preparation so that the financial statements and disclosures
prepared for inclusion in an SEC filing is approved by both a preparer
and a reviewer.
o Each quarter-end financial statement is reviewed by members of our
Disclosure Committee: the CFO, the CEO, the Accounting Assistant and
the Audit Committee (including the BOD Financial Expert).
o The IT area of the bank is in the process of addressing the control
areas seen as deficiencies, with several of the issues being addressed
in the first and second quarters. This remediation includes third-party
testing by a data communications firm. None of the deficiencies noted
at year-end constituted a material weakness in and of themselves, but
taken in aggregate, they were taken as a material weakness at year-end.
Mid Penn Bancorp, Inc.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Management is not aware of any litigation that would
have a material adverse effect on the consolidated financial position of Mid
Penn Bancorp. There are no proceedings pending other than ordinary routine
litigation incident to the business of Mid Penn Bancorp and of Mid Penn Bank. In
addition, management does not know of any material proceedings contemplated by
governmental authorities against Mid Penn Bancorp or Mid Penn Bank or any of its
properties.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - 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 - None
Item 6. Exhibits - 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
Pres. & CEO Treasurer
Date: May 4, 2005 Date: May 4, 2005