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, 1999 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. 2,892,988 shares of Common Stock, $1.00 par value per share, were outstanding as of September 30, 1999.
<TABLE> MID PENN BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited; Dollars in thousands) <CAPTION> Sept. 30, Dec. 31, 1999 1998 -------- -------- <S> <C> <C> ASSETS: Cash and due from banks 5,869 5,651 Interest bearing balances 38,222 42,883 Available-for-sale securities 63,159 67,933 Federal funds sold 0 0 Loans 162,426 152,993 Less: Allowance for loan losses 2,454 2,313 ------- ------- Net loans 159,972 150,680 ------- ------- Bank premises and equip't, net 3,385 3,498 Other real estate 53 347 Accrued interest receivable 2,050 1,907 Cash surrender value of life insurance 4,040 3,900 Other assets 1,864 1,028 ------- ------- Total Assets 278,614 277,827 ======= ======= LIABILITIES & STOCKHOLDERS EQUITY: Deposits: Demand 22,249 20,971 NOW 26,866 28,234 Money Market 21,768 17,158 Savings 26,010 25,305 Time 122,247 125,134 ------- ------- Total deposits 219,140 216,802 ------- ------- Short-term borrowings 14,371 12,159 Accrued interest payable 1,959 1,240 Other liabilities 1,191 540 Long-term debt 15,439 15,550 ------- ------- Total Liabilities 252,100 246,291 ------- ------- STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; authorized 10,000,000 shares; issued 2,912,267 shares at Sept. 30, 1999 and December 31, 1998 2,912 2,912 Surplus 17,181 17,181 Undivided profits 8,448 11,640 Unrealized holding gain on securities, net of estimated tax effect -1,489 344 Less: Treasury Stock at cost (19,279 and 19,337 shares) 538 541 ------- ------- Total Stockholders Equity 26,514 31,536 ------- ------ Total Liabilities & Equity 278,614 277,827 ======= ======= </TABLE>
<TABLE> MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited; dollars in thousands) <CAPTION> Three Months Nine Months Ended Sept 30, Ended Sept 30, 1999 1998 1999 1998 <S> <C> <C> <C> <C> INTEREST INCOME: ----- ----- ----- ----- Interest & fees on loans 3,402 3,698 10,090 10,797 Int.-bearing balances 598 639 1,853 1,916 Treas. & Agency securities 610 599 1,853 1,770 Municipal securities 333 250 987 715 Other securities 35 18 99 44 Fed funds sold and repos 0 15 0 40 ----- ----- ----- ----- Total Int. Income 4,978 5,219 14,882 15,282 ----- ----- ----- ----- INTEREST EXPENSE: Deposits 2,048 2,164 6,242 6,525 Short-term borrowings 118 27 261 139 Long-term borrowings 220 217 655 546 ----- ----- ----- ----- Total Int. Expense 2,386 2,408 7,158 7,210 ----- ----- ----- ----- Net Int. Income 2,592 2,811 7,724 8,072 PROVISION FOR LOAN LOSSES 100 50 250 104 ----- ----- ----- ----- Net Int. Inc. after Prov. 2,492 2,761 7,474 7,968 ----- ----- ----- ----- NON-INTEREST INCOME: Trust Dept 9 8 82 63 Service Chgs. on Deposits 129 125 373 336 Investment sec. gains, net 0 3 50 11 Gain on sale of loans 0 42 0 65 Other 190 226 848 640 ----- ----- ----- ----- Total Non-Interest Income 328 404 1,353 1,115 ----- ----- ----- ----- NON-INTEREST EXPENSE: Salaries and benefits 919 798 2,858 2,518 Occupancy, net 81 84 248 247 Equipment 124 119 354 375 PA Bank Shares tax 70 69 208 213 Other 399 510 1,355 1,552 ----- ----- ----- ----- Tot. Non-int. Exp. 1,593 1,580 5,023 4,905 ----- ----- ----- ----- Income before income taxes 1,227 1,585 3,804 4,178 INCOME TAX EXPENSE 297 523 950 1,213 ----- ----- ----- ----- NET INCOME 930 1,062 2,854 2,965 ===== ===== ===== ===== Other Comprehensive Income, net of tax: Unrealized holding losses on securities arising during the period -228 373 -1,833 351 Less: reclassification adjustments for gains included in net income 0 3 50 11 ---- ---- ---- ---- Other comprehensive income -228 370 -1,883 340 ---- ---- ---- ---- Comprehensive Income 702 1,432 971 3,305 ===== ===== ===== ===== NET INCOME PER SHARE 0.32 0.37 .99 1.03 ===== ===== ===== ===== Weighted Average No. of Shares Outstanding 2,893,197 2,893,705 2,893,049 2,892,220 </TABLE>
<TABLE> MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; Dollars in thousands) <CAPTION> For the nine months ended: Sept 30, Sept 30, 1999 1998 -------- -------- <S> <C> <C> Operating Activities: Net Income 2,854 2,965 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 250 104 Depreciation 303 304 Change in interest receivable -143 52 Change in other assets -146 270 Change in interest payable 719 784 Change in other liabilities 651 562 Other, net 0 0 ------- ------- Net cash provided by operating activities: 4,488 5,041 ------- ------- Investing Activities: Net decrease in int-bearing balances 4,661 -4,385 Proceeds from sale of securities 3,811 2,150 Proceeds from the maturity of secs. 7,998 19,096 Purchase of investment securities -9,905 -27,986 Proceeds from the sale of loans 0 6,132 Net decrease in loans -9,542 -6,852 Purchase of loans 0 0 Net purchases of fixed assets -190 -452 Proceeds from sale of other real estate 504 1,368 Capitalized additions - ORE 0 0 ------- ------- Net cash provided by investing activities -2,663 -10,929 ------- ------- Financing Activities: Net increase in demand and savings 5,225 3,787 Net increase in time deposits -2,887 -6,050 Net increase in sh-term borrowings 2,212 -1,527 Net increase in long-term borrowings -111 9,897 Cash dividend declared -6,046 -1,554 ------- ------- Net cash provided by financing activities -1,607 4,553 ------- ------- Net increase in cash & equivalents 218 -1,335 Cash & cash equivalents, beg of period 5,651 6,998 ------- ------- Cash & cash equivalents, end of period 5,869 5,663 ======= ======= Supplemental Noncash Disclosures: Loan charge-offs 189 107 Transfers to other real estate 0 169 </TABLE>
Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements 1. The consolidated interim financial statements included here have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission with respect to Form 10-Q. The financial information included here 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 made here 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 Company's most recent Form 10-K. 2. Interim statements are subject to possible adjustments in connection with the annual audit of the Company'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.
Mid Penn Bancorp, Inc. Millersburg, Pennsylvania Management's Discussion of Consolidated Financial Condition for the nine months ended September 30, 1999, compared to year-end 1998 and the Results of Operations for the third quarter and first nine months of 1999 compared to the same periods in 1998. CONSOLIDATED FINANCIAL CONDITION Total assets as of September 30, 1999, amounted to $278,614,000, compared to $277,827,000 the total assets as of December 31, 1998. Our entire portfolio of investment securities is considered available for sale. As such, the investments are recorded on our Balance Sheet at market value. Our investments: US Treasury, Agency and Municipal securities are given a market price relative to investments of the same type with similar maturity dates. Since the interest rate environment of these securities has increased by as much as 2.10 percentage points in the past twelve months, our existing securities are valued lower in comparison. This difference in value, or unrealized loss, amounted to $1,489,000, net of tax, as of the end of the quarter. However, the investments are all high quality United States and municipal securities that if held to maturity are expected to yield no loss to the bank. Despite some large payoffs in the commercial loan portfolio along with a continuing competitive pricing environment, loans increased by $9,433,000 during the first three quarters of 1999. The majority of this growth occurred during the third quarter in the commercial loan portfolio. Loan demand remains strong into the fourth quarter. Foreclosed assets held for sale (real estate owned by the Corporation resulting from loan transactions) decreased to $53,000 during the first three quarters of 1999 due to the sale of a commercial property and several lots of undeveloped land. These sales of other real estate resulted in a net after-tax gain of approximately $183,000. As of September 30, 1999, the balance of foreclosed assets held for sale consisted exclusively of undeveloped land. Total deposits increased by $2,338,000 during the first nine months of 1999. This increase was seen mainly in our money market deposit and demand accounts. During the third quarter of this year, we experienced heightened competition in the deposit area, particularly in the area of certificates of deposit. This competitive deposit environment continues into the fourth quarter as well. 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. During the first quarter of 1999 our Board of Directors declared a special cash dividend of $1.50 per share. This special dividend is not expected to affect future regular dividends. The special dividend was declared to reduce the capital levels of Mid Penn Bancorp, Inc., increase return on equity (ROE), and enhance shareholder value. We have enjoyed a very solid capital position due to strong financial performance. After payment of this special dividend, Mid Penn will maintain capital levels well above regulatory requirements. In the banking industry, there has been a general shift from return on assets (ROA) to ROE as a measure of financial performance. By lowering capital through this special dividend, we will be improving ROE, thus improving this ratio important to bank stock analysis. We have also modified our employee performance incentives to encourage activities that will emphasize earnings per share and return on equity instead of our traditional return on assets approach. We believe over time this change in emphasis will improve the bank's performance measures that are utilized by investors in bank stocks. RESULTS OF OPERATION Net income for the first three quarters of 1999 was $2,854,000, compared with $2,965,000 earned in the same period of 1998. Net income per share for the first half of 1999 and 1998 was $.99 and $1.03, respectively. Net income as a percentage of stockholders' equity, also known as return on equity,(ROE), was 14.2% on an annualized basis for the first nine months of 1999 as compared to 13.2% for the same period in 1998. Third quarter net income was $930,000 or $.32 per share, in 1999 as compared to $1,062,000, or $.37 per share, during the same period of 1998. Net interest income of $7,724,000 for the period ended September 30, 1999, decreased 4.3% from the $8,072,000 earned in the same period of 1998. Margins continued to be challenged by strong rate competition for loans. In addition, this decrease reflects the effect of a commercial loan that was entered into a non-accrual status. As such, all interest earned by the bank on this loan that was not yet collected, approximately $49,000, was deducted from the bank's income in the third quarter. Due to the competitive pressures that continue to challenge net interest income, management is actively pursuing alternative sources of fee income for the bank. The Bank made a provision for loan losses of $250,000 and $104,000 during the first nine months of 1999 and 1998, respectively. Due to the cyclical nature of the economy coupled with the Bank's substantial involvement in commercial loans and the record number of nationwide consumer bankruptcies, management thought it prudent to make this allocation now during stronger economic times. On a quarterly basis, senior management reviews potentially unsound loans taking into consideration judgments regarding risk or error, economic conditions, trends and other factors. Non-interest income was $328,000 for the third quarter of 1999 compared with $404,000 earned during the same period of 1998. Gains resulting from the sale of student loans amounted to $68,000 during the first nine months of 1998. These gains realized last year account, in part, for the difference in non-interest income as no such sale occurred during the same period of 1998. A significant contribution to non-interest income is non- sufficient funds (NSF) fee income. NSF fee income contributed in excess of $283,000 during the first nine months of 1999. Non-interest expense increased slightly to $5,023,000 for the first nine months of 1999 compared to $4,905,000 for the same period of 1998. We do anticipate higher non-interest expense in the upcoming quarters as we update our technology so as to be able to provide internet banking services to our customers by yearend or the beginning of next year. We have also hired a business development officer for our trust department in order to increase our market penetration and fee income potential in the areas of asset management and trust services. LIQUIDITY The Bank's objective is to maintain adequate liquidity while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding Corporate operations. Sources of liquidity include maturing investment securities, overnight borrowings of federal funds (and Flex Line), payments received on loans, and increases in deposit liabilities. Funds generated from operations contributed a major source of funds for the first nine months of 1999. The major source of funds came from the increase in demand and savings deposits, mainly the $4,610,000 increase in money market deposit accounts. Other major sources of funds included the $4,661,000 net decrease in investment certificates of deposit, and the proceeds of the sale of other real estate of $504,000. The major use of funds during the period was a net increase in loans of $9,542,000. The other major use of funds was for the payment of the first three quarter regular dividends and the February special dividend of $1.50 per share, having a combined cash outflow of $6,046,000. CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES Total non-performing assets decreased to $2,765,000 representing 0.99% of total assets at September 30, 1999, from $3,064,000 or 1.10% of total assets at December 31, 1998. Included in the past-due category at September 30, 1999 is a commercial loan relationship loan with an outstanding principal balance exceeding $600,000. This loan relationship is fully secured by marketable securities, and a work-out plan continues into the fourth quarter. Most non-performing assets are supported by collateral value that appears to be adequate at September 30, 1999. The Allowance for Loan Losses at September 30, 1999, was $2,454,000 or 1.51% of loans, net of unearned interest, as compared to $2,313,000 also 1.51% of loans, net of unearned interest, at December 31, 1998. 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. YEAR 2000 COMPLIANCE: MANAGEMENT INFORMATION SYSTEMS We have established a Year 2000 compliance committee to address the risks of the critical internal bank systems that are affected by date sensitive applications, as well as external systems provided by third parties. A comprehensive Year 2000 Business Action Plan was developed detailing the sequence of events and actions to be taken as the Year 2000 approaches. In November 1997, the Company purchased and installed an upgrade to its current computer systems to improve efficiencies of operations and position itself for future growth. The cost of the new system was approximately $284,000. Anticipated additional costs prior to year 2000 are estimated to be $47,000. Testing demonstrated that the new hardware and software are Year 2000 compliant. In addition, the Corporation has hired a third-party Year 2000 consultant. With the aid of the consultant, we have developed a Year 2000 testing master plan, organization chart and detailed work plan. The testing plan includes several phases of testing in accordance with regulatory guidelines. We successfully completed the testing of all systems critical the operation of the bank on February 3, 1999.
<TABLE> MID PENN BANCORP, INC. <CAPTION> Sept. 30, Dec. 31, 1999 1998 -------- -------- <S> <C> <C> Non-Performing Assets: Non-accrual loans 1,017 376 Past due 90 days or more 813 844 Restructured loans 882 1,497 ------- ------- Total non-performing loans 2,712 2,717 Other real estate 53 347 ------- ------- Total 2,765 3,064 ======= ======= Percentage of total loans outstanding 1.70 2.00 Percentage of total assets 0.99 1.10 Analysis of the Allowance for Loan Losses: Balance beginning of period 2,313 2,281 Loans charged off: Commercial real estate, construction and land development 0 40 Commercial, industrial and agricultural 144 200 Real estate - residential mortgage 0 40 Consumer 45 37 ------- ------- Total loans charged off 189 317 ------- ------- Recoveries of loans previously charged off: Commercial real estate, construction and land development 55 10 Commercial, industrial and agricultural 1 56 Real estate - residential mortgage 0 0 Consumer 24 29 ------- ------- Total recoveries 80 95 ------- ------- Net charge-offs (recoveries) -109 -222 ------- ------- Current period provision for loan losses 250 254 ------- ------- Balance end of period 2,454 2,313 ======= ====== </TABLE>
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 - (27) Financial Data Schedule 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/ Eugene F. Shaffer /s/ Kevin W. Laudenslager By:Eugene F. Shaffer By:Kevin W. Laudenslager Chairman, Pres. & CEO Treasurer Date: November 1, 1999 Date: November 1, 1999