UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-20141
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MID PENN BANCORP, INC.
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(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 25-1666413
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
349 Union Street
Millersburg, Pennsylvania 17601
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(Address of Principal Executive Offices) (Zip Code)
(717) 692-2133
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
-----------------------------
(Title of Class)
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. Yes X No
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PAGE 1 OF 92 SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX IS LOCATED ON SEQUENTIAL PAGE 20
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the shares of Common Stock of the
Registrant held by nonaffiliates of the Registrant was $34,632,019 at March 6,
1997 (a date within 60 days of the date hereof). As of March 6, 1997, the
Registrant had 1,241,973 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Excerpts from the Registrant's 1996 Annual Report to Shareholders are
incorporated herein by reference in response to Part II, hereof. The
Registrant's definitive Proxy Statement to be used in connection with the 1997
Annual Meeting of Shareholders is incorporated herein by reference in partial
response to Part III, hereof.
<PAGE>
MID PENN BANCORP, INC.
FORM 10-K
INDEX
PAGE #
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PART I
Item 1 - Business....................................... 1
Item 2 - Properties..................................... 10
Item 3 - Legal Proceedings.............................. 11
Item 4 - Submission of Matters to a
Vote of Security Holders....................... 11
PART II
Item 5 - Market for Registrant's Common Equity and
Related Shareholder Matters.................... 11
Item 6 - Selected Financial Data........................ 11
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of
Operation...................................... 12
Item 8 - Financial Statements and Supplementary Data 12
Item 9 - Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure......... 12
PART III
Item 10 - Directors and Executive Officers of
the Registrant................................. 12
Item 11 - Executive Compensation......................... 12
Item 12 - Security Ownership of Certain Beneficial
Owners and Management.......................... 13
Item 13 - Certain Relationships and
Related Transactions........................... 13
PART IV
Item 14 - Exhibits, Financial Statements, Schedules
and Reports on Form 8-K........................ 13
Signatures............................................... 15
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PART I
ITEM 1. BUSINESS.
General. Mid Penn Bancorp, Inc. (the "Registrant"), was incorporated in
the Commonwealth of Pennsylvania in August, 1991, for the sole purpose of
forming a one-bank holding company. On December 31, 1991, the Registrant
acquired, as part of the holding company formation, all of the outstanding
common stock of Mid Penn Bank (the "Bank"), and the Bank became a wholly owned
subsidiary of the Registrant. The Bank is the Registrant's only, direct or
indirect, subsidiary.
Millersburg Bank, the predecessor to the Bank, was organized in 1868,
and became a state chartered bank in 1931, obtaining trust powers in 1935, at
which time its name was changed to Millersburg Trust Company. In 1962, the
Lykens Valley Bank merged with and into Millersburg Trust Company. In 1971,
Farmer's State Bank of Dalmatia merged with Millersburg Trust Company and the
resulting entity adopted the name "Mid Penn Bank." In 1985, the Bank acquired
Tower City National Bank. The Bank is supervised by the Pennsylvania Department
of Banking (the "Department") and the Federal Deposit Insurance Corporation (the
"FDIC"). The Registrant's and the Bank's legal headquarters is located at 349
Union Street, Millersburg, Pennsylvania 17061.
At December 31, 1996, the Registrant's consolidated assets, deposits
and shareholders' equity were approximately $210,172, $174,671 and $24,650,
respectively. The Registrant's primary business consists of attracting deposits
from its network of community banking offices operated by the Bank. The Bank
engages in a full-service commercial banking and trust business, making
available to the community a wide range of financial services, including, but
not limited to, personal loans, mortgage and home equity loans, secured and
unsecured commercial loans, lines of credit, construction financing, farm loans,
community development and local government loans and various types of time and
demand deposits. Deposits of the Bank are insured by the Bank Insurance Fund
(the "BIF") of the FDIC to the maximum extent provided by law.
The Registrant operates in a heavily regulated environment. Changes in
laws and regulations affecting the Registrant and it's subsidiary, the Bank, may
have an impact on operations. See "Supervision and Regulation--The Registrant"
and "Supervision and Regulation--The Bank."
Employees. At December 31, 1996, the Registrant had 68 full-time and 24
part-time employees. None of these employees is represented by a collective
bargaining agent, and the Registrant believes it enjoys good relations with its
personnel.
The Registrant experiences substantial competition in attracting and
retaining deposits and in lending funds. Primary factors in competing for
deposits are the ability to offer attractive rates and the convenience of office
locations. Direct competition for deposits comes primarily from other commercial
banks and thrift institutions. Competition for deposits also comes from money
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market mutual funds, corporate and government securities and credit unions. The
primary factors in the competition for loans are interest rates, loan
origination fees and the range of products and services offered. Competition for
origination of real estate loans normally comes from other commercial banks,
thrift institutions, mortgage bankers, mortgage brokers and insurance companies.
For additional information with respect to the Registrant's business
activities, see Part II, Item 7 hereof.
Environmental Laws. Neither the Registrant nor the Bank anticipate that
compliance with environmental laws and regulations will have any material effect
on capital, expenditures, earnings, or on its competitive position. However,
environmentally related hazards have become a source of high risk and
potentially unlimited liability for financial institutions. Environmentally
contaminated properties owned by an institution's borrowers may result in a
drastic reduction in the value of the collateral securing the institution's
loans to such borrowers, high environmental clean up costs to the borrower
affecting its ability to repay the loans, the subordination of any lien in favor
of the institution to a state or federal lien securing clean up costs, and
liability to the institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of the borrower. To
minimize this risk, the Bank may require an environmental examination of and
report with respect to the property of any borrower or prospective borrower if
circumstances affecting the property indicate a potential for contamination,
taking into consideration a potential loss to the institution in relation to the
borrower. Such examination must be performed by an engineering firm experienced
in environmental risk studies and acceptable to the institution, and the cost of
such examinations and reports are the responsibility of the borrower. These
costs may be substantial and may deter prospective borrower from entering into a
loan transaction with the Bank. The Registrant is not aware of any borrower who
is currently subject to any environmental investigation or clean up proceeding
that is likely to have a material adverse effect on the financial condition or
results of operations of the Bank.
In 1995, the Pennsylvania General Assembly enacted the Economic
Development Agency, Fiduciary and Lender Environmental Liability Protection Act
which, among other things, provides protection to lenders from environmental
liability and remediation costs under the environmental laws for releases and
contamination caused by others. A lender who engages in activities involved in
the routine practices of commercial lending, including, but not limited to, the
providing of financial services, holding of security interests, workout
practices, foreclosure or the recovery of funds from the sale of property shall
not be liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents, directly cause
an immediate release or directly exacerbate a release of regulated substances on
or from the property, or knowingly and willfully compelled the borrower to
commit an action which caused such release or violate an environmental act. The
Economic Development Agency, Fiduciary and Lender Environmental Liability
Protection Act, however, does not limit federal liability which still exists
under certain circumstances.
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As discussed above, there are several federal and state statutes that
regulate the obligations and liabilities of financial institutions pertaining to
environmental issues. In addition to the potential for attachment of liability
resulting from its own actions, a bank may be held liable under certain
circumstances for the actions of its borrowers, or third parties, when such
actions result in environmental problems on properties that collateralize loans
held by the Bank. Further, the liability has the potential to far exceed the
original amount of the loan issued by the Bank. Currently, neither the
Registrant nor the Bank is a party to any pending legal proceeding pursuant to
any environmental statute, nor is the Registrant or the Bank aware of any
circumstances that may give rise to liability under any such statute.
Supervision and Regulation - The Registrant. The Registrant is subject
to the provisions of the Bank Holding Company Act of 1956, as amended (the
"Holding Company Act"), and to supervision and regulation by the Board of
Governors of the Federal Reserve System (the "Board"). The Holding Company Act
requires the Registrant to secure the prior approval of the Board before it owns
or controls, directly or indirectly, more than 5 percent of the voting shares or
substantially all of the assets of any institution, including another bank. The
Holding Company Act prohibits acquisition by the Registrant of more than 5
percent of the voting shares of, or interest in, all or substantially all of the
assets of any bank located outside of Pennsylvania unless such acquisition is
specifically authorized by the laws of the state in which such bank is located.
A bank holding company, such as the Registrant, is prohibited from
engaging in or acquiring direct or indirect control of more than 5 percent of
the voting shares of any company engaged in non-banking activities unless the
Board, by order or regulation, has found that such activities are so closely
related to banking, managing or controlling banks as to be a proper incident
thereto. In making this determination, the Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects. The Registrant does not at
this time engage in any other permissible activities, nor does the Registrant,
presently, have plans to engage in any other permissible activities.
Federal law also prohibits acquisitions of control of a bank holding
company without prior notice to certain federal bank regulators. Control is
defined for this purpose as the power, directly or indirectly, to direct the
management or policies of the bank or bank holding company or to vote 25 percent
or more of any class of voting securities.
The Bank, as a subsidiary bank of a bank holding company, is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the Registrant or to any of its subsidiaries, on investments in the
stock or other securities of the Registrant and on taking of such stock or
securities as collateral for loans to any borrower.
The Board, the FDIC and other federal regulators have issued certain
risk-based capital guidelines, which supplement existing capital requirements.
The guidelines require all United States banks and bank holding companies to
maintain a minimum risk-based capital ratio of 8 percent (of which at least 4
percent must be in the form of common stockholders' equity). The risk-based
capital rules are designed to make regulatory capital requirements more
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sensitive to differences in risk profiles among banks and bank holding companies
and to minimize disincentives for holding liquid assets. The Registrant and the
Bank have capital ratios exceeding regulatory requirements. For information
concerning the Registrant's ratios, please see page 35 of the Registrant's 1996
Annual Report to Shareholders, which page is included at Exhibit 13 hereto and
incorporated herein by reference. A detailed discussion of the Bank's regulatory
capital requirements is set forth below in "Supervision and Regulation--The
Bank."
Under the Pennsylvania Banking Code of 1965, as amended, (the "Code"),
the Registrant is permitted to control an unlimited number of banks. However, as
discussed above, the Registrant would be required, under the Holding Company
Act, to obtain the prior approval of the Board. The Holding Company Act has been
amended by The Riegle-Neal Interstate Banking and Branching Act of 1994 (the
"Riegle-Neal Act") to authorize bank holding companies, subject to certain
limitations and restrictions, to acquire banks located in any state. The
Riegle-Neal Act permitted interstate banking after September 29, 1995. Bank
holding companies can acquire a bank located in any state, as long as the
acquisition does not result in the bank holding company controlling more than 10
percent of the deposits in the United States, or 30 percent of the deposits in
the target bank's state. The legislation permits states to waive the
concentration limits and require that the target institution be in existence for
up to five years before it can be acquired by an out-of-state bank or bank
holding company. Interstate branching and merging of existing banks is permitted
after September 29, 1998, if the bank is adequately capitalized and demonstrates
good management. The Riegle-Neal Act also amends the International Banking Act
to allow a foreign bank to establish and operate a federal branch or agency upon
approval of the appropriate federal and state banking regulator.
In 1995, the Pennsylvania legislature amended the Code to harmonize
Pennsylvania law with the Riegle-Neal Act to enable Pennsylvania institutions to
participate fully in interstate banking and to remove obstacles to the
selection, by banks from other states engaged in interstate banking, of
Pennsylvania as a head office location. Some of the more salient features of the
amendment are described below.
A bank holding company located in Pennsylvania, another state, the
District of Columbia or a territory or possession of the United States, with the
prior approval of the Department, may control one or more banks, bank and trust
companies, national banks or interstate banks located in Pennsylvania. A
Pennsylvania-chartered institution may maintain branches in any other state, the
District of Columbia, or a territory or possession of the United States upon the
written approval of the Department. A banking institution existing under the
laws of another jurisdiction may establish a branch in Pennsylvania, if the laws
of the jurisdiction in which such institution is located permit establishment
and maintenance of a branch by a Pennsylvania-chartered institution or a
national bank (located in Pennsylvania) in such jurisdiction on substantially
the same terms and conditions.
From time to time, legislation is enacted that has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
4
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institutions are frequently made in Congress, and before various bank regulatory
agencies. The Registrant can not predict the likelihood of any major changes or
the impact such changes might have on the Registrant and/or the Bank. Various
congressional bills and other proposals have proposed a sweeping overhaul of the
banking system, including provisions for: limitations on deposit insurance
coverage; changing the timing and method financial institutions use to pay for
deposit insurance; expanding the power of banks by removing the restrictions on
bank underwriting activities; and tightening the regulation of bank derivatives
activities; and allowing commercial enterprises to own banks. Set forth below
are some of the proposals advanced by the federal banking agencies. Congress is
considering legislative reform centered on repealing the Glass-Steagall Act,
which prohibits commercial banks from engaging in the securities industry.
The Registrant's earnings are and will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The monetary policies of the Board have had, and will likely
continue to have, an impact on the operating results of commercial banks because
of the Board's power to implement national monetary policy, to, among other
things, curb inflation or combat recession. The Board has a major impact on the
levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of,
among other things, the discount rate on borrowings of member banks and the
reserve requirements against member bank deposits. It is not possible to predict
the nature and impact of future changes in monetary and fiscal policies.
Federal Taxation. The Registrant and the Bank are subject to those
rules of federal income taxation generally applicable to corporations and report
their respective income and expenses on the accrual method of accounting. The
Registrant and its subsidiary file a consolidated federal income tax return on a
calendar year basis. Intercompany distributions (including dividends) and
certain other items of income and loss derived from intercompany transactions
are eliminated upon consolidation of all the consolidated group members'
respective taxable income and losses.
The Internal Revenue Code (the "IRC") imposes a corporate alternative
minimum tax (AMT). The corporate AMT only applies if such tax exceeds a
corporation's regular tax liability. In general, the AMT is calculated by
multiplying the corporate AMT rate of 20% by an amount equal to the excess of
(i) the sum of (a) regular taxable income plus (b) certain adjustments and
tax preference items ("alternative minimum taxable income" or "AMTI") over (ii)
an exemption amount ($40,000 for a corporation, that such amount is reduced by
25% of the excess of AMTI over $150,000 and is completely eliminated when AMTI
equals $310,000). There are certain applicable adjustment and preference items
(E.G., the adjustment for depreciation) for determining AMTI. If a banking
institution is subject to AMT, then all or a portion of the amount of a
preference will effectively be subject to a 20% surtax.
State Tax. The Registrant is subject to the Pennsylvania Corporate Net
Income Tax and Capital Stock Tax. The Corporate Net Income Tax rate for 1996 and
thereafter is 9.99% and is imposed upon a corporate taxpayer's unconsolidated
taxable income for federal tax purposes with certain adjustments. In general,
the Capital Stock Tax is a property tax imposed on a corporate taxpayer's
capital stock value apportionable to the Commonwealth of Pennsylvania, which is
determined in accordance with a fixed formula based upon average book income and
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net worth. In the case of a holding company, an optional elective method permits
the corporate taxpayer to be taxed on only 10% of such capital stock value. The
Capital Stock Tax rate is presently 1.275%.
Supervision and Regulation--The Bank The Bank's deposits are insured by
the BIF of the FDIC. The Bank is not a member of the Federal Reserve System. The
Bank is subject to supervision, regulation and examination by the Department and
by the FDIC. In addition, the Bank is subject to a variety of local, state and
federal laws that affect its operation.
The laws of Pennsylvania applicable to the Bank include provisions
that, among other things: (1) require the maintenance of certain reserves
against deposits; (2) limit the type and amount of loans that may be made and
the interest that may be charged thereon; (3) restrict investments and other
activities; (4) set limits on the payment of dividends; and (5) regulate
activities of the Bank with respect to mergers and consolidations and the
establishment of branches. The amount of funds that the Bank may lend to a
single borrower is limited, generally, under Pennsylvania law, to 15 percent of
the aggregate of its capital, surplus, undivided profits and loan loss reserves
and capital securities (all as defined by statute and by regulation).
The Bank, as a subsidiary bank of a bank holding company, is subject to
certain restrictions imposed by the Federal Reserve Act on (1) any extensions of
credit to the Registrant or its subsidiaries; (2) investments in the stock or
other securities of the Registrant or its subsidiaries; and (3) taking such
stock or securities as collateral for loans. The Federal Reserve Act and Board
regulations also place certain limitations and reporting requirements on
extensions of credit by a bank to principal shareholders of its parent holding
company, among others, and to related interests of such principal shareholders.
In addition, legislation and regulations promulgated thereunder may affect the
terms upon which any person becoming a principal shareholder of a holding
company may obtain credit from banks with which the subsidiary bank maintains a
correspondent relationship.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), federal regulatory agencies classify institutions into one of five
defined capital categories, as illustrated below (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized).
<TABLE>
<CAPTION>
Total Tier 1 Under a
Risk- Risk- Tier 1 Capital
Based Based Leverage Order or
Ratio Ratio Ratio Directive
----- ----- ----- ---------
CAPITAL CATEGORY
<S> <C> <C> <C> <C>
Well capitalized greater than 10.0 greater than 6.0 greater than 5.0 No
Adequately capitalized greater than 8.0 greater than 4.0 greater than 4.0*
Undercapitalized less than 8.0 less than 4.0 less than 4.0*
Significantly undercapitalized less than 6.0 less than 3.0 less than 3.0
Critically undercapitalized less than 2.0
</TABLE>
*3.0 for those banks having the highest available regulatory rating.
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In the event an institution's capital deteriorates to the
undercapitalized category or below, FDICIA prescribes an increasing amount of
regulatory intervention, including: (1) the institution by a bank of a capital
restoration plan and a guarantee of the plan by a parent institution; and (2)
the placement of a hold on increases in assets, number of branches or lines of
business. If capital has reached the significantly or critically
undercapitalized level, further material restrictions can be imposed, including
restrictions on interest payable on accounts, dismissal of management and (in
critically undercapitalized situations) appointment of a receiver. For well
capitalized institutions, FDICIA provides authority for regulatory intervention
where the institution is deemed to be engaging in unsafe or unsound practices or
receives a less than satisfactory examination report rating for asset quality,
management, earnings or liquidity. All but well capitalized institutions are
prohibited from accepting brokered deposits without prior regulatory approval.
Under FDICIA, financial institutions are subject to increased
regulatory scrutiny and must comply with certain operational, managerial and
compensation standards to be developed by Federal Reserve Board regulations.
FDICIA also requires the regulators to issue new rules establishing certain
minimum standards to which an institution must adhere including standards
requiring a minimum ratio or classified assets to capital, minimum earnings
necessary to absorb losses and a minimum ratio of market value to book value for
publicly held institutions. Additional regulations are required to be developed
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth and excessive compensation, fees and benefits.
A separate subtitle within FDICIA, called the "Bank Enterprise Act of
1991," requires "truth-in-savings" on consumer deposit accounts so that
consumers can make meaningful comparisons between the competing claims of banks
with regard to deposit accounts and products. Under this provision, the Bank
will be required to provide information to depositors concerning the terms of
their deposit accounts, and in particular, to disclose the annual percentage
yield. There will inevitably be some operational cost of complying with the
Truth-In-Savings law.
Management believes that full implementation of FDICIA has had no
material impact on the Registrant's or the Bank's liquidity, capital resources
or reported results of operations. If all FDIC insurance premium assessments
increase in the future, Management believes that such increase might have a
material impact on future reported results of operations.
Under the Federal Deposit Insurance Act (the "FDIA"), federal
regulatory agencies possess the power to prohibit institutions from engaging in
any activity that would be an unsafe or unsound banking practice or would
otherwise be in violation of law. Moreover, the Financial Institutions
Regulatory and Interest Rate Control Act of 1978 ("FIRA") generally expanded the
circumstances under which officers or directors of a bank may be removed by the
institution's federal supervisory agency, restricts lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof and restricts management personnel of a bank from serving as directors
or in other management positions with certain depository institutions whose
assets exceed a specified amount or which have an office within a specified
geographic area, and restricts the relationships of management personnel of a
bank with securities companies and securities dealers. Additionally, FIRA
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prohibits acquisition of control of a bank unless the appropriate federal
supervisory agency has received sixty (60) days prior written notice, and,
within that time, has not disapproved the acquisition of control or otherwise
extended the period for disapproval. Control, for purposes of FIRA, means the
power to direct, either directly or indirectly, the management or policies or to
vote twenty-five percent (25%) or more of any class of outstanding stock of a
financial institution or its respective holding company. A person or group
holding revocable proxies to vote twenty-five percent (25%) or more of the
outstanding common stock of a financial institution or holding company would be
presumed to be in control the institution for purposes of FIRA.
Under the Community Reinvestment Act of 1977, as amended ("CRA"), an
institutions federal regulator is required to assess a financial institutions
record to determine if the institution is meeting the credit needs of the
community (including low and moderate income neighborhoods) which it serves and
to take this record into account evaluating any application made by an
institution for, among other things, approval of a branch or other deposit
facility, office relocation, a merger or any acquisition of bank shares. The
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
amended the CRA to require, among other things, that a bank's record of meeting
the credit needs of its community, including low and moderate income
neighborhoods be made available to the public. This evaluation includes a
descriptive rating ("outstanding", "satisfactory", "needs to improve" or
"substantial noncompliance") and a statement describing the basis for the
rating. These ratings are publicly disclosed.
FIRREA was enacted primarily to improve the supervision of savings
associations by strengthening capital, accounting and other supervisory
standards. In addition, FIRREA reorganized the FDIC by creating two deposit
insurance funds to be administered by the FDIC: the Savings Association
Insurance Fund and BIF. Customers' deposits held by the Bank are insured under
the BIF. FIRREA also regulates real estate appraisal standards and the
supervisory/enforcement powers and penalty provisions in connection with the
regulation of the Bank.
In 1995, federal regulators revised the CRA rules to emphasize
performance over process and documentation. Under the revised rules, a
five-point rating scale is used; A bank's compliance is determined by a
three-prong test whereby examiners assign a numerical score for a bank's
performance in each of three areas: lending, service and investment. The area of
lending is weighted to increase its importance in the application of the test.
When rating a bank in the area of lending, regulators examine the number and
amount of loan originations, the location of where the loans were made, and the
income levels of the borrowers. Although banks, under the revised rules, are not
required to make loans in every area, if there are apparent tracts in which
there is little lending, examiners will focus their investigations in that area.
The service prong evaluates how a bank delivers its products to the community
through branching. As with lending, banks are not required to branch in every
area, although conspicuous gaps will be investigated. The third prong,
investment in community, examines how the bank meets the investment needs in the
community within which it operates. Assessment of investment is accomplished
using a "performance context" pursuant to which regulators meet with civic,
community and bank officials in order to determine the credit needs of the
community.
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Expanded Home Mortgage Disclosure Act reporting requirements were also
approved for large banks and thrifts which require reporting of census tract
data on mortgages made outside of the delineated communities. In addition,
effective March 1, 1997, institutions with assets above $250 million are
required to report their aggregate small business loans made by geographic
region. Independent banks with total assets of less than $250 million and bank
subsidiaries with total assets of less than $250 million that have holding
companies with total assets of less than $1 billion are subjected to less
stringent CRA examinations.
Under the new regulation, banks enjoy a reduction in compliance burden.
Banks are not required to keep extensive documentation to prove that directors
have participated in drafting and review of CRA policies. A formal CRA statement
need not be prepared. The efforts banks make to market in low - and
moderate-income communities do not have to be documented, nor will banks have to
justify the basis for their community delineation or the methods used to
determine the credit needs of the community.
Under the Bank Secrecy Act ("BSA"), banks and other financial
institutions are required to report to the Internal Revenue Service currency
transactions of more than $10,000 or multiple transactions of which the Bank is
aware in any one day that aggregate in excess of $10,000. Civil and criminal
penalties are provided under the BSA for failure to file a required report, for
failure to supply information required by the BSA or for filing a false or
fraudulent report.
The Competitive Equality Banking Act ("CEBA"), included the legislation
which (1) imposes certain restrictions on transactions between banks and their
affiliates; (2) expands the powers available to Federal bank regulators in
assisting failed or failing banks; (3) limits the amount of time banks may hold
certain deposits prior to making such funds available for withdrawal and any
interest thereon; and (4) requires that any adjustable rate mortgage loan
secured by a lien on a one-to-four family dwelling include a limitation on the
maximum rate at which interest may accrue on the principal balance during the
term of such loan.
From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and restrictions
on, the business of the Bank. It cannot be predicted whether any such
legislation will be adopted or, if adopted, how such legislation would affect
the business of the Bank. As a consequence of the extensive regulation of
commercial banking activities in the United States, the Bank's business is
particularly susceptible to being affected by federal legislation and
regulations that may increase the costs of doing business.
ITEM 2. PROPERTIES.
The Bank owns its main office, branch offices and certain parking
facilities related to its banking offices, all of which are free and clear of
any lien. The Bank's main office and all branch offices are located in
Pennsylvania. The table below sets forth the location of each of the Bank's
properties.
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Office and Address Description of Property
- ------------------ -----------------------
Main Office Main Bank Office
349 Union Street
Millersburg, PA 17061
Tremont Branch Office Branch Bank
7-9 East Main Street
Tremont, PA 17981
Elizabethville Branch Office Branch Bank
2 East Main Street
Elizabethville, PA 17023
Elizabethville Branch Offices Drive-In
11 East Main Street
Elizabethville, PA 17023
Dalmatia Branch Office Branch Bank
School House Road
Dalmatia, PA 17017
Halifax Branch Office Branch Bank
Halifax Shopping Center
3763 Peters Mountain Road
Halifax, PA 17032
Carlisle Pike Branch Office Branch Bank
4622 Carlisle Pike
Mechanicsburg, PA 17055
Harrisburg Branch Office Branch Bank
4098 Derry Street
Harrisburg, PA 17111
Tower City Branch Office Branch Bank
545 East Grand Avenue
Tower City, PA 17980
Dauphin Branch Office Branch Bank
1001 Peters Mountain Road
Dauphin, PA 17018
All of these properties are in good condition and are deemed by
management to be adequate for the Bank's purposes.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Management, after consulting with the Registrant's legal counsel, is
not aware of any litigation that would have a material adverse effect on the
consolidated financial position of the Registrant. There are no proceedings
pending other than ordinary routine litigation incident to the business of the
Registrant and of the Bank. In addition, management does not know of any
material proceedings contemplated by governmental authorities against the
Registrant or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information required by this Item, regarding market value, dividend
payment, and number of shareholders is set forth on page 2 of the Registrant's
Annual Report to Shareholders, which page is included at Exhibit 13 hereto, and
incorporated herein by reference.
As of March 6, 1997, there were approximately 648 shareholders of
record of the Registrant's common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth on page 35 of the
Registrant's Annual Report to Shareholders, which pages are included at Exhibit
13 hereto, and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
The information required by this Item is set forth on page 21 through
34 of the Registrant's Annual Report to Shareholders, which pages are included
at Exhibit 13 hereto, and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth on pages 4 through
20 of the Registrant's Annual Report to Shareholders, which pages are included
at Exhibit 13 hereto, and incorporated herein by reference.
11
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item, relating to directors, executive
officers, control persons is set forth on pages 6 through 8 and 14 through 18 of
the Registrant's definitive Proxy Statement to be used in connection with the
1997 Annual Meeting of Shareholders, which pages are incorporated herein by
reference.
Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Registrant's officers
and directors, and persons who own more than 10 percent of a registered class of
the Registrant's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10 percent shareholders are required by SEC
regulation to furnish the Registrant with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Registrant believes that during the period
January 1, 1996 through December 31, 1996, its officers and directors were in
compliance with all filing requirements applicable to them.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item, relating to executive
compensation, is set forth in pages 9 through 12 of the Registrant's definitive
Proxy Statement to be used in connection with the 1997 Annual Meeting of
Shareholders, which pages are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item, relating to beneficial ownership
of the Registrant's Common Stock, is set forth in pages 3 and 4 of the
Registrant's definitive Proxy Statement to be used in connection with the 1997
Annual Meeting of Shareholders, which pages are incorporated herein by
reference.
12
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item, relating to transactions with
management and others, certain business relationships and indebtedness of
management, is set forth on page 14, of the Registrant's definitive Proxy
Statement to be used in connection with the 1997 Annual Meeting of Shareholders,
which page is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
The following financial statements are included by
reference in Part II, Item 8 hereof:
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets.
Consolidated Statements of Income.
Consolidated Statements of Changes in Stockholders' Equity.
Consolidated Statement of Cash Flows.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
Financial Statement Schedules are omitted because the
required information is either not applicable, not
required or is shown in the respective financial
statements or in the notes thereto.
3. The following Exhibits are filed herewith or incorporated by
reference as a part of this Annual Report.
3 (i) Registrant's Articles of Incorporation.
(ii) Registrant's By-laws.
10 Retirement Bonus Plan for the Board of Directors of
Mid Penn Bank.
13
<PAGE>
11 Statement re: Computation of Earnings per share.
(Included herein at Exhibit 13, at page 2 of
Registrant's Annual Report to Shareholders.)
13 Excerpts from Registrant's 1996 Annual
Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Parente, Randolph, Orlando
Carey & Associates, independent auditors.
27 Financial Data Schedule.
(b) No Current Report on Form 8-K was filed by the Registrant
during the fourth quarter of the fiscal year ended December
31, 1996.
(c) The exhibits required to be filed by this Item are listed under
Item 14(a)3, above.
(d) NOT APPLICABLE.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ Eugene F. Shaffer
---------------------------------------
Eugene F. Shaffer
President and Chief Executive Officer
Date March 25, 1997
---------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
DATE
----
By /s/ Eugene F. Shaffer March 25, 1997
------------------------------------------ --------------
Eugene F. Shaffer
Chairman of the Board of Directors,
President, Chief Executive Officer
and Director (principal executive officer)
By /s/ Gerald D. Schoffstall March 25, 1997
------------------------------------------ ---------------
Gerald D. Schoffstall
Treasurer (principal financial and
accounting officer)
By /s/ Jere M. Coxon March 25, 1997
------------------------------------------ --------------
Jere M. Coxon, Director
By /s/ Alan W. Dakey March 25, 1997
------------------------------------------ --------------
Alan W. Dakey, Director
<PAGE>
By /s/ Earl R. Etzweiler March 25, 1997
------------------------------------------ --------------
Earl R. Etzweiler, Director
By /s/ Harvey J. Hummel March 25, 1997
------------------------------------------ --------------
Harvey J. Hummel, Director
By /s/ Charles F. Lebo March 25, 1997
------------------------------------------ --------------
Charles F. Lebo, Director
By /s/ Warren A. Miller March 25, 1997
------------------------------------------ --------------
Warren A. Miller, Director
By /s/ William G. Nelson March 25, 1997
------------------------------------------ --------------
William G. Nelson, Director
By /s/ Charles R. Phillips March 25, 1997
------------------------------------------ --------------
Charles R. Phillips, Director
By March 25, 1997
------------------------------------------ --------------
Edwin D. Schlegel, Director
By /s/ Guy J. Snyder, Jr. March 25, 1997
------------------------------------------ --------------
Guy J. Snyder, Jr., Director
<PAGE>
EXHIBIT INDEX
Page Number
in Manually Signed
Exhibit No. Original
- ----------- --------
3(i) Registrant's Articles of Incorporation. 21
3(ii) Registrant's By-laws. 26
10 Retirement Bonus Plan for the Board of
Directors of Mid Penn Bank. 48
11 Statement re: Computation of Earnings per
share. (Included herein at Exhibit 13, at
page 2 of Registrant's Annual Report to
Shareholders.)
13 Excerpts from Registrant's 1996 Annual
Report to Shareholders. 51
21 Subsidiaries of the Registrant. 86
23 Consent of Parente, Randolph, Orlando
Carey & Associates, independent auditors. 88
27 Financial Data Schedule. 90
EXHIBIT 3(i)
Registrant's Articles of Incorporation
<PAGE>
ARTICLES OF INCORPORATION
OF
MID PENN BANCORP, INC.
In compliance with the requirements of 15 Pa.C.S. Section 1306
(relating to Articles of Incorporation), the undersigned, desiring to be
incorporated as a business corporation, hereby state that:
1. The name of the Corporation is Mid Penn Bancorp, Inc.
2. The address, including street and number, if any, of this
Corporation's initial registered office in this Commonwealth is 349 Union
Street, Millersburg, Pennsylvania 17061, and the county of venue is Dauphin.
3. The Corporation is incorporated under the provisions of the
Pennsylvania Business Corporation Law of 1988 (15 Pa.C.S. Section 1101 et seq.),
as the same may be amended.
4. The purpose or purposes of the Corporation are to have unlimited
power to engage in and to do any lawful act concerning any or all business for
which corporations may be incorporated under the provisions of the Pennsylvania
Business Corporation Law of 1988, as the same may be amended.
5. The aggregate number of shares that the Corporation shall have
authority to issue is ten million (10,000,000) shares of Common Stock having a
par value of One Dollar ($1.00) per share.
6. The name and address, including street and number, if any, of each
of the Incorporators, and the number and class of shares subscribed to by each
Incorporator is:
Number and
Name Address Class of Shares
- ---- ------- ---------------
Earl R. Etzweiler R.D.#1, Box 316 1 share of Common Stock
Millersburg, PA 17061
Charles F. Lebo 141 Lebo Road 1 share of Common Stock
Halifax, PA 17032
William G. Nelson 900 Center Street 1 share of Common Stock
Millersburg, PA 17061
Eugene F. Shaffer 903 East Union Street 1 share of Common Stock
Millersburg, PA 17061
1
<PAGE>
7. No merger, consolidation, liquidation or dissolution of the
Corporation, nor any action that would result in the sale or other disposition
of all or substantially all of the assets of the Corporation shall be valid
unless first approved by the affirmative vote of:
(a) the holders of at least eighty percent (80%) of the outstanding
shares of Common Stock of the Corporation; or
(b) the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the outstanding shares of Common Stock of the Corporation, provided that such
transaction has received the prior approval of at least eighty percent (80%) of
all of the members of the Board of Directors.
8. Cumulative voting rights shall not exist with respect to the
election of directors.
9. (a) The Board of Directors may, if it deems advisable, oppose a
tender or other offer for the corporation's securities, whether the offer is in
cash or in the securities of a corporation or otherwise. When considering
whether to oppose an offer, the Board of Directors may, but is not legally
obligated to, consider any relevant, germane or pertinent issue; by way of
illustration, but not to be considered any limitation on the power of the Board
of Directors to oppose a tender or other offer for this corporation's
securities, the Board of Directors may, but shall not be legally obligated to,
consider any or all of the following:
(i) Whether the offer price is acceptable based on the historical and
present operating results or financial condition of the corporation;
(ii) Whether a more favorable price could be obtained for this
corporation's securities in the future;
(iii) The social and economic effects of the offer or transaction on
this corporation and any of its subsidiaries, employees, depositors, loan and
other customers, creditors, shareholders and other elements of the communities
in which this corporation and any of its subsidiaries operate or are located;
(iv) The reputation and business practice of the offeror and its
management and affiliates as they would affect the shareholders, employees,
depositors and customers of the corporation and its subsidiaries and the future
value of the corporation's stock;
(v) The value of the securities (if any) which the offeror is offering
in exchange for the corporation's securities, based on an analysis of the worth
of the corporation or other entity whose securities are being offered;
(vi) The business and financial conditions and earnings prospects of
the offeror, including, but not limited to, debt service and other existing or
likely financial obligations of the offeror, and the possible affect of such
conditions upon this corporation and any of its subsidiaries and the other
elements of the communities in which this corporation and any of its
subsidiaries operate or are located;
2
<PAGE>
(vii) Any antitrust or other legal and regulatory issues that are
raised by the offer.
(b) If the Board of Directors determines that an offer should be
rejected, it make take any lawful action to accomplish its purpose including,
but not limited to, any or all of the following: advising shareholders not to
accept the offer; litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the offeror corporation's
securities; selling or otherwise issuing authorized but unissued securities or
treasury stock or granting options with respect thereto; acquiring a company to
create an antitrust or other regulatory problem for the offeror; and obtaining a
more favorable offer from another individual or entity.
10. Opt Out and Nonapplicability of Subchapter G. This Corporation
specifically opts out and shall not be governed by Subchapter G, Control-share
Acquisitions, of Chapter 25 of the Business Corporation Law of 1988, as added
and amended by Act 36 of 1990. Subchapter G, Control-share Acquisitions, of
Chapter 25 of the Business Corporation Law of 1988, as added and amended by Act
36 of 1990, shall not be applicable to the Corporation.
11. Opt Out and Nonapplicability of Subchapter H. This Corporation
specifically opts out and shall not be governed by Subchapter H, Disgorgement by
Certain Controlling Shareholders Following Attempts to Acquire Control, of
Chapter 25 of the Business Corporation Law of 1988, as added and amended by Act
36 of 1990. Subchapter H, Disgorgement by Certain Controlling Shareholders
Following Attempts to Acquire Control, of Chapter 25 of the Business Corporation
Law of 1988, as added and amended by Act 36 of 1990, shall not be applicable to
the Corporation.
12. Articles 7, 8, 9, 10, 11 and 12 shall not be amended unless first
approved by the affirmative vote of:
(a) the holders of at least eighty percent (80%) of the outstanding
shares of Common Stock of the Corporation; or
(b) the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the outstanding shares of Common Stock of the Corporation, provided that such
amendment has received the prior approval of at least eighty percent (80%) of
all of the members of the Board of Directors.
3
<PAGE>
IN TESTIMONY WHEREOF, the incorporators have signed these Articles of
Incorporation this 14th day of August, 1991.
/s/ Earl R. Etzweiler /s/ William G. Nelson
- ------------------------ ------------------------
Ear. R. Etzweiler William G. Nelson
/s/ Charles F. Lebo /s/ Eugene F. Shafer
- ------------------------ ------------------------
Charles F. Lebo Eugene F. Shafer
4
EXHIBIT 3(ii)
Registrant's By-laws
<PAGE>
BY-LAWS
of
MID PENN BANCORP, INC.
Article 1
CORPORATION OFFICE
Section 1.1 The Corporation shall have and continuously maintain in
Pennsylvania a registered office which may, but need not, be the same as its
place of business and at an address to be designated from time to time by the
Board of Directors.
Section 1.2 The Corporation may also have offices at such other places
as the Board of Directors may from time to time designated or the business of
the Corporation may require.
Article 2
SHAREHOLDERS MEETINGS
Section 2.1 All meetings of the shareholders shall be held at such time
and place as may be fixed from time to time by the Board of Directors.
Section 2.2 The annual meeting of the shareholders shall be held no
later than the thirty-first day of May in each year, when the shareholders shall
elect members to the Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 2.3 Special meetings of the shareholders may be called at any
time by the Chairman of the Board, the President, a majority of the Board of
Directors or of its Executive Committee or by shareholders entitled to cast at
least twenty percent (20%) of the votes which all shareholders are entitled to
cast at a particular meeting. At any time, upon written request of any person
who has called a special meeting, it shall be the duty of the Secretary to fix
the time of the meeting which, if the meting is called pursuant to a statutory
right, shall be held not more than sixty (60) days after the receipt of the
request. If the Secretary neglects or refuses to fix the time of the meeting,
the person or persons calling the meeting may do so.
Section 2.4 Written notice of all shareholder meetings (other than
adjourned meetings of shareholders), shall state the place, date, hour, the
purpose thereof and shall be served upon, or mailed, postage prepaid, or
telegraphed, charges prepaid, at least ten days before such meeting, unless a
greater period of notice is required by statute or by these By-laws, to each
shareholder entitled to vote thereat at such address as appears on the transfer
books for shares of the Corporation.
1
<PAGE>
Section 2.5 When a meeting of shareholders is adjourned, it shall not
be necessary to give any notice of the adjourned meeting or of the business to
be transacted at an adjourned meeting, other than by announcement at the meeting
at which the adjournment is taken, unless the Board of Directors fixes a new
record date for the adjourned meeting.
Article 3
QUORUM OF SHAREHOLDERS
Section 3.1 The presence, in person or by proxy, of shareholders
entitled to cast on the particular matter shall constitute a quorum for purposes
of considering such matter, and unless otherwise provided by statute the acts of
such shareholders at a duly organized meeting shall be the acts of the
shareholders. If, however, any meeting of shareholders cannot be organized
because of lack of a quorum, those present, in person or by proxy, shall have
the power, except as otherwise provided by statute, to adjourn the meeting to
such time and place as they may determine, without notice other than an
announcement at the meeting, until the requisite number of shareholders for a
quorum shall be present, in person or by proxy, except that in the case of any
meeting called for the election of directors such meeting may be adjourned only
for periods not exceeding fifteen (15) days as the holders of a majority of the
shares present, in person or by proxy, shall direct, and those who attend the
second of such adjourned meetings, although less than a quorum, shall
nevertheless constitute a quorum for the purpose of electing directors. At any
adjourned meeting at which a quorum shall be present or so represented, any
business may be transacted which might have been transacted at the original
meeting if a quorum had been present. The shareholders present, in person or by
proxy, at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Article 4
VOTING RIGHTS
Section 4.1 Except as may be otherwise provided by statute or by the
Articles of Incorporation, at every shareholders meeting, every shareholder
entitled to vote thereat shall have the right to one vote for every share having
voting power standing in such shareholder's name on the transfer books for
shares of the Corporation on the record date fixed for the meeting.
Section 4.2 When a quorum is present at any meeting the voice vote of
the holders of a majority of the stock having voting power, present, in person
or by proxy, shall decide any question brought before such meeting except as
provided differently by statute or by the Articles of Incorporation.
Section 4.3 Upon demand made by a shareholder entitled to vote at any
election for directors before the voting begins, the election shall be by
ballot.
2
<PAGE>
Article 5
PROXIES
Section 5.1 Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
shareholder by proxy. Every proxy shall be executed in writing by the
shareholder or such shareholder's duly authorized attorney in fact and filed
with the Secretary of the Corporation. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other agreement or any provision
in the proxy to the contrary, but the revocation of a proxy shall not be
effective until notice thereof has been given to the Secretary of the
Corporation. No unrevoked proxy shall be valid after eleven (11) months from the
date of its execution, unless a longer time is expressly provided therein, but
in no event shall a proxy, unless coupled with an interest, be voted after three
years from the date of its execution. A proxy shall not be revoked by the death
or incapacity of the maker, unless before the vote is counted or the authority
is exercised, written notice of such death or incapacity is given to the
Secretary of the Corporation.
Article 6
RECORD DATE
Section 6.1 The Board of Directors may fix a time, not more than ninety
(90) days prior to the date of any meeting of shareholders, or the date fixed
for the payment of any dividend or distribution, or the date for the allotment
of rights, or the date when any change or conversion or exchange of shares will
be made or go into effect, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend or distribution, or to receive
any such allotment of rights, or to exercise the rights in respect to any such
change, conversion or exchange of shares. In such case, only such shareholders
as shall be shareholders of record on the date so fixed shall be entitled to
notice of, or to vote at, such meeting or to receive payment of such dividend or
distribution or to receive such allotment of rights or to exercise such rights,
as the case may be, notwithstanding any transfer of any shares on the transfer
books for shares of the Corporation after any record date fixed as aforesaid.
The Board of Directors may close the books of the Corporation against transfers
of shares during the whole or any part of such period, and in such case written
or printed notice thereof shall be mailed at least ten (10) days before closing
thereof to each shareholder of record at the address appearing on the records of
the Corporation or supplied by such shareholder to the Corporation for the
purpose of notice. While the stock transfer books of the Corporation are closed,
no transfer of shares shall be made thereon. If no record date is fixed by the
Board of Directors for the determination of shareholders entitled to receive
notice of, and vote at, a shareholders meeting, transferees of shares which are
transferred on the books of the Corporation within ten (10) days next preceding
the date of such meeting shall not be entitled to notice of or to vote at such
meeting.
3
<PAGE>
Article 7
VOTING LISTS
Section 7.1 The Secretary shall have charge of the transfer books for
shares of the Corporation and shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical order,
with their addresses and number of shares held by each, which list shall be kept
on file at the registered office or principal place of business of the
Corporation. The list shall be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
entire meeting for the purposes thereof.
Section 7.2 Failure to comply with the requirements of Section 7.1
shall not affect the validity of any action taken at a meeting prior to a demand
at the meeting by any shareholder entitled to vote thereat to examine the list.
The original share register or transfer book, or a duplicate thereof kept in the
Commonwealth of Pennsylvania shall be prima facie evidence as to who are the
shareholders entitled to exercise the rights of a shareholder.
Article 8
JUDGES OF ELECTION
Section 8.1 In advance of any meeting of shareholders, the Board of
Directors may appoint judges of election, who need not be shareholders, to act
at such meeting or any adjournment thereof. If judges of election are not so
appointed, the presiding officer of the meeting may, and on the request of any
shareholder, or such shareholder's proxy, appoint judges of election at the
meeting. The number of judges shall be one or three. If appointed at a meeting
on the request of one or more shareholders or proxies, the majority of shares
present and entitled to vote shall determine whether one or three judges are to
be appointed. A person who is a candidate for office to be filled at the meeting
shall not act as a judge.
Section 8.2 In case any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the convening of the meeting or at the meeting
by the presiding officer thereof.
Section 8.3 The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies,
receive votes or ballots, hear and determine all challenges and questions in any
way arising in connection with the right to vote, county and tabulate all votes,
determine the result and do such acts as may be proper to conduct the election
or vote with fairness to all shareholders. The judges of election shall perform
their duties impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all.
4
<PAGE>
Section 8.4 On request of the presiding officer of the meeting, or of
any shareholder, the judges of election shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts stated therein.
Article 9
CONSENTS OF SHAREHOLDERS IN LIEU OF MEETING
Section 9.1 Any action required to be taken at a meeting of the
shareholders, or of a class of shareholders, may be taken without a meeting, if
a consent or consents in writing setting forth the action so taken shall be
signed by all of the shareholders who would be entitled to vote at a meeting for
such purpose and shall file with the Secretary of the Corporation.
Article 10
DIRECTORS
Section 10.1 Any shareholder who intends to nominate or to cause to
have nominated any candidate for election to the Board of Directors (other than
any candidate proposed by the Corporation's then existing Board of Directors)
shall so notify the Secretary of the Corporation in writing not less than sixty
(60) days prior to the date of any meeting of shareholders called for the
election of directors. Such notification shall contain the following information
to the extent known by the notifying shareholder.
(a) the name and address of each proposed nominee;
(b) the age of each proposed nominee;
(c) the principal occupation of each proposed nominee;
(d) the number of shares of the Corporation owned by each
proposed nominee;
(e) the total number of shares that to the knowledge of
the notifying shareholder will be voted for each
proposed nominee;
(f) the name and residence address of the notifying
shareholder; and
(g) the number of shares of the Corporation owned by the
notifying shareholder.
5
<PAGE>
Any nomination for director not made in accordance with this Section
shall be disregarded by the presiding officer of the meeting, and votes cast for
each such nominee shall be disregarded by the judges of election. In the event
that the same person is nominated by more than one shareholder, if at least one
nomination for such person complies with this Section, the nomination shall be
honored and all votes cast for such nominee shall be counted.
Section 10.2 The number of directors that shall constitute the whole
Board of Directors shall be not less than five (5), nor more than twenty-five
(25). The Board of Directors shall be classified into three (3) classes, each
class to be elected for a term of three (3) years. The terms of the respective
classes shall expire in successive years as provided in Section 10.3 hereof.
Within the foregoing limits, the Board of Directors may from time to time fix
the number of directors and their respective classifications.
Section 10.3 At the 1992 annual meeting of shareholders of the
Corporation, the shareholders shall elect eleven (11) directors as follows: four
(4) Class A directors to serve until the 1993 annual meeting of Shareholders,
four (4) Class B directors to serve until the 1994 annual meeting of
shareholders, and three (3) Class C directors to serve until the 1995 annual
meeting of shareholders. Each class shall be elected in a separate election. At
each annual meeting of shareholders thereafter, successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term of three (3) years, so that the term of office of one class of directors
shall expire in each year. The Board of Directors shall have the sole discretion
to increase the number of Directors that shall constitute the whole Board of
directors; provided however, that the total number of Directors in each class
remains relatively proportionate to the others.
Section 10.4 The Board of Directors may declare vacant the office of a
director who has been judicially declared of unsound mind or who has been
convicted of an offense punishable by imprisonment for a term of more than one
year or for any other proper cause which these By-laws may specify or if, within
sixty (60) days or such other time as these By-laws may specify after notice of
such director's selection, he does not accept the office either in writing or by
attending a meeting of the Board of Directors and fulfill such other
requirements of qualification as these By-laws may specify.
Section 10.5 Upon application of any shareholder or director, the court
may remove from office any director in case of fraudulent or dishonest acts, or
gross abuse of authority or discretion with reference to the Corporation, or for
any other proper cause, and may bar from office any director so removed for a
period prescribed by the court. The Corporation shall be made a party to the
action and, as a prerequisite to the maintenance of an action under this Section
10.5, a shareholder shall comply with Section 1782 of the Business Corporation
Law of 1988, as amended.
Section 10.6 An act of the Board of Directors done during the period
when a director has been suspended or removed for cause shall not be impugned or
invalidated if the suspension or removal is thereafter rescinded by the
shareholders or by the Board of Directors or by the final judgment of a court.
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Section 10.7 The Board of Directors may appoint a person who previously
held the position of Director to be a Director Emeritus. A Director Emeritus may
attend meetings of the Board of Directors and shall have such other rights and
privileges as may be determined from time to time by resolution of the Board of
Directors.
Article 11
VACANCIES ON BOARD OF DIRECTORS
Article 11.1 Vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by a
majority of the remaining members of the Board of Directors, though less than a
quorum, and each person so appointed shall be a director until the expiration of
the term of office of the class of directors to which such director was
appointed.
Article 12
POWERS OF BOARD OF DIRECTORS
Section 12.1 The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these By-laws directed or required to be
exercised and done by the shareholders.
Section 12.2 The Board of Directors shall have the power and authority
to appoint an Executive Committee and such other committees as may be deemed
necessary by the Board of Directors for the efficient operation of the
Corporation. The Executive Committee shall consist of the Chairman of the Board,
the President and not less than two (2) nor more than five (5) other directors
(one of which other directors may be an employee of the Corporation or any of
its subsidiaries). The Executive Committee shall meet at such time as may be
fixed by the Board of Directors, or upon call of the Chairman of the Board or
the President. A majority of members of the Executive Committee shall constitute
a quorum. The Executive Committee shall have an exercise and authority of the
Board of Directors in the intervals between the meetings of the Board of
Directors as far as may be permitted by law.
Section 12.3 A director shall stand in a fiduciary relation to the
Corporation and shall perform such director's duties as a director, including
those duties undertaken as a member of any committee of the Board of Directors
upon which such director may serve, in good faith, in a manner such director
reasonably believes to be in the best interests of the Corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing duties as a
director, a director shall be entitled to rely in good faith on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by any of the following:
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(a) One or more officers or employees of the Corporation whom the
director reasonably believes to be reliable and competent in the matters
presented.
(b) Counsel, public accountants or other persons as to matters which
the director reasonably believes to be within the professional or expert
competence of such persons.
(c) A committee of the Board of Directors upon which such director does
not serve, duly designated in accordance with law, as to matters within its
designated authority, which committee the director reasonably believes to merit
confidence.
A director shall not be considered to be acting in good faith if such
director has knowledge concerning the matter in question that would cause such
director's reliance to be unwarranted.
Section 12.4 In discharging the duties of their respective positions,
the Board of Directors, committees of the Board of Directors and individual
directors may, in considering the best interests of the Corporation, consider
the effects of any action upon employees, upon suppliers and customers of the
Corporation and upon communities in which offices or other establishments of the
Corporation are located, and all other pertinent factors. The consideration of
those factors shall not constitute a violation of Section 12.3.
Section 12.5 Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Corporation.
Section 12.6 A director shall not be personally liable, as such, for
monetary damages for any action taken, or any failure to take any action,
unless:
(a) the director has breached or failed to perform the duties of such
director's office under this Article 12; and
(b) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
Section 12.7 The provisions of Section 12.6 shall not apply to:
(a) the responsibility or liability of a director pursuant to any
criminal statute; or
(b) the liability of a director for the payment of taxes pursuant to
local, State or Federal law.
Section 12.8 A director of the Corporation who is present at a meeting
of the Board of Directors, or of a committee of the Board of Directors, at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless such director's dissent is entered in the minutes of the
meeting or unless such director files such director's written dissent to the
action with the Secretary of the Corporation before the adjournment thereof or
transmits
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the dissent in writing to the Secretary of the Corporation immediately after the
adjournment of the meeting. The right to dissent shall not apply to a director
who voted in favor of the action. Nothing in this Section 12.8 shall bar a
director from asserting that minutes of any meeting incorrectly omitted such
director's dissent if, promptly upon receipt of a copy of such minutes, such
director notifies the Secretary of the Corporation, in writing, of the asserted
omission or inaccuracy.
Article 13
COMMITTEES OF THE BOARD OF DIRECTORS
Section 13.1 The Board of Directors may, by resolution adopted by a
majority of the directors in office, establish one or more committees to consist
of one or more directors of the Corporation. Any committee, to the extend
provided in the resolution of the Board of Directors or in these By-laws, shall
have and may exercise all of the powers and authority of the Board of Directors,
except that a committee shall not have any power or authority as to the
following:
(a) The submission to shareholders of any action requiring approval of
shareholders under applicable law, the Articles of Incorporation or these
By-laws.
(b) The creation or filling of vacancies in the Board of Directors.
(c) The adoption, amendment or repeal of these By-laws.
(d) The amendment or repeal of any resolution of the Board of Directors
that by its terms is amendable or repealable only by the Board of Directors.
(e) Action on matters committed by these By-laws or resolution of the
Board of Directors to another committee of the Board of Directors.
Section 13.2 The Board of Directors may designate one or more directors
as alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee or for the purposes of any written action
by the committee. In the absence or disqualification of a member and alternate
member or members of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of the absent or disqualified member.
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Section 13.3 Each committee of the Board of Directors shall serve at
the pleasure of the Board of Directors. The term "Board of Directors," when used
in any provision of this Article 13 relating to the organization or procedures
of or the manner of taking action by the Board of Directors, shall be construed
to include and refer to any executive or other committee of the Board of
Directors. Any provision of this Article 13 relating or referring to action to
be taken by the Board of Directors or the procedure required therefor shall be
satisfied by the taking of corresponding action by a committee of the Board of
Directors to the extent authority to take the action has been delegated to the
committee pursuant to this Article 13.
Article 14
MEETINGS OF THE BOARD OF DIRECTORS
Section 14.1 An organization meeting may be held immediately following
the annual shareholders meeting without the necessity of notice to the directors
to constitute a legally convened meeting, or the directors may meet at such time
and place as may be fixed by either a notice or waiver of notice or consent
signed by all such directors.
Section 14.2 Regular meetings of the Board of Directors shall be held
not less often then semi-annually at a time and place determined by the Board of
Directors at the preceding meeting. One or more directors may participate in any
meeting of the Board of Directors, or of any committee thereof, by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear one another.
Section 14.3 Special meetings of the Board of Directors may be called
by the Chairman of the Board or the President on one (1) day's notice to each
director, either personally or by mail, telegram or telephone; special meetings
shall be called by the Chairman of the Board or the President in like manner and
on like notice upon the written request of three (3) directors.
Section 14.4 At all meetings of the Board of Directors, a majority of
the directors shall constitute a quorum for the transaction of business, and the
acts of a majority of the directors present at a meeting in person or by
conference telephone or similar communications equipment at which a quorum is
present in person or by such communications equipment shall be the acts of the
Board of Directors, except as may be otherwise specifically provided by statute
or by the Articles of Incorporation or by these By-laws. If a quorum shall not
be present in person or by communications equipment at any meeting of the
directors, the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or as permitted herein.
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Article 15
INFORMAL ACTION BY THE BOARD OF DIRECTORS
Section 15.1 Any action required or permitted to be taken at a meeting
of the directors may be taken without a meeting and shall be as valid a
corporate action as though it had been authorized at a meeting of the Board of
Directors if, prior or subsequent to the action, a consent or consent's thereto
by all of the directors in office is filed with the Secretary of the
Corporation.
Article 16
COMPENSATION OF DIRECTORS
Section 16.1 Directors, as such, may receive a stated salary for their
services or a fixed sum and expenses for attendance at regular and special
meetings, or any combination of the foregoing as may be determined from time to
time by resolution of the Board of Directors, and nothing contained herein shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Article 17
OFFICERS
Section 17.1 The officers of the Corporation shall be elected by the
Board of Directors at its organizational meeting and shall be a Chairman of the
Board, a President, at least one Vice President, a Secretary and Treasurer. The
Board of Directors may elect more than one Vice President and such other
officers and appoint such agents as it shall deem necessary, who shall hold
their offices for such terms, have such authority and perform such duties as may
from time to time be prescribed by the Board of Directors. Any two or more of
offices may be held by the same person.
Section 17.2 The compensation of all officers of the Corporation shall
be fixed by the Board of Directors.
Section 17.3 Each officer shall hold office for a term of one year and
until such officer's successor has been selected and qualified or until such
officer's earlier death, resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. The resignation shall be effective
upon receipt thereof by the Corporation or at such subsequent time as may be
specified in the notice of resignation. The Corporation may secure the fidelity
of any or all of the officers by bond or otherwise.
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Section 17.4 Any officer or agent of the Corporation may be removed by
the Board of Directors with or without cause. The removal shall be without
prejudice to the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
Section 17.5 An officer shall perform such officer's duties as an
officer in good faith, in a manner such officer reasonably believes to be in the
best interests of the Corporation and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. An officer who so performs such duties shall not be
liable by reason of having been an officer of the Corporation.
Article 18
THE CHAIRMAN AND VICE-CHAIRMEN OF THE BOARD
Section 18.1 The Chairman of the Board shall preside at all meetings of
the shareholders and directors. The Chairman shall supervise the carrying out of
the policies adopted or approved by the Board of Directors. The Chairman shall
also have and may exercise such further powers and duties as from time to time
may be conferred upon or assigned to the Chairman by the Board of Directors.
Section 18.2 The Vice-Chairman of the Board or, if more than one, the
Vice-Chairmen in the order established by the Board of Directors, shall preside
at meetings of the shareholders and directors as a result of the absence or
incapacity of the Chairman of the Board. If there is no Chairman of the Board,
Vice-Chairmen designated by the Board shall also have and may exercise such
further powers and duties as from time to time may be conferred upon or assigned
to the Vice-Chairman or the Vice-Chairmen by the Board of Directors.
Article 19
THE PRESIDENT
Section 19.1 The President shall be the chief executive officer of the
Corporation; shall have general and active management of the business of the
Corporation; shall see that all orders and resolutions of the Board of Directors
are put into effect, subject however, to the right of the Board of Directors to
delegate any specific powers, except such as may be by the statute exclusively
conferred on the President, to any other officer or officers of the Corporation.
The President shall execute bonds, mortgages and other contracts requiring a
seal under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation. The President shall also have and may
exercise such further powers and duties as from time to time may be conferred
upon or
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assigned to the President by the Board of Directors. In the absence or
incapacity of the Chairman of the Board and Vice Chairman of the Board, if any,
the President shall preside at meetings of the shareholders and the directors.
If there is no Chairman or Vice Chairman of the Board, the President shall have
and exercise all powers conferred by the By-laws or otherwise on the Chairman of
the Board.
Article 20
THE VICE PRESIDENT
Section 20.1 The Vice President or, if more than one, the Vice
Presidents in the order established by the Board of Directors shall, in the
absence or incapacity of the President, exercise all powers and perform the
duties of the President. The Vice Presidents, respectively, shall also have such
other authority and perform such other duties as may be provided in these
By-laws or as shall be determined by the Board of Directors or the President.
Any Vice President may, in the discretion of the Board of Directors, be
designated as "executive," "senior," or by departmental or functional
classification.
Article 21
THE SECRETARY
Section 21.1 The Secretary shall attend all meetings of the Board of
Directors and of the shareholders and keep accurate records thereof in one or
more minute books kept for that purpose and shall perform the duties customarily
performed by the secretary of a corporation and such other duties as may be
assigned to the secretary by the Board of Directors or the President.
Article 22
THE TREASURER
Section 22.1 The Treasurer shall have the custody of the corporate
funds and securities; shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall perform such other
duties as may be assigned to the Treasurer by the Board of Directors or the
President. The Treasurer shall give bond in such sum and with such surety as the
Board of Directors may from time to time direct.
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Article 23
ASSISTANT OFFICERS
Section 23.1 Each assistant officer shall assist in the performance of
the duties of the officer to whom such person is an assistant and shall perform
such duties in the absence of the officer. Each assistant officer shall perform
such additional duties as may be assigned by the Board of Directors, the
Chairman of the Board, the President or the officer to whom such person is an
assistant. Such officers may be given such functional titles as the Board of
Directors shall from time to time determine.
Article 24
INDEMNIFICATION
Section 24.1 (Third Party Actions) The Corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a
representative of the Corporation, or is or was serving at the request of the
Corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action or proceeding if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action or proceeding by judgment,
order, settlement or conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner that he reasonably believed to be in, or not
opposed to, the best interests of the Corporation and, with respect to any
criminal proceeding, had reasonable cause to believe that his conduct was
unlawful.
Section 24.2 (Derivative Actions) The Corporation shall have power to
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a representative of the Corporation or is or was serving at the request
of the Corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation. Indemnification
shall not be made under this section in respect of any claim, issue or matter as
to which the person has been adjudged to be liable to the Corporation unless and
only to the extent that the court of common pleas of the judicial district
embracing the county in which the registered office of the Corporation is
located
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or the court in which the action was brought determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnity for the
expenses that the court of common please or other court deems proper.
Section 24.3 (Mandatory Indemnification) To the extent that a
representative of the Corporation has been successful on the merits or otherwise
in defense of any action or proceeding referred to in Sections 24.1 (relating to
third party actions) or 24.2 (relating to derivative actions) or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 24.4 (Procedure for Effecting Indemnification) Unless ordered
by a court, any indemnification under Sections 24.1 (relating to third party
actions) or 24.2 (relating to derivative actions) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the person is proper in the circumstances because he has met
the applicable standard of conduct set forth in those sections. The
determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to the action or proceeding;
(b) if such a quorum is not obtainable or if obtainable and a majority
vote of a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
(c) by the shareholders.
Section 24.5 (Advancing Expenses) Expenses (including attorneys' fees)
incurred in defending any action or proceeding referred to in this Article 24
may be paid by the Corporation in advance of the final disposition of the action
or proceeding upon receipt of an undertaking by or on behalf of the person to
repay the amount if it is ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article 24 or otherwise.
Section 24.6 (Supplementary Coverage) (a) The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this Article 24 shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
any By-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding that office. The Corporation may create a fund of
any nature, which may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner its indemnification obligations,
whether arising under or pursuant to this Section 24.6 or otherwise.
(b) Indemnification pursuant to subsection (a) of this Section 24.6
shall not be made in any case where the act or failure to act giving rise to the
claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
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(c) Indemnification pursuant to subsection (a) of this Section 24.6
under any By-law, agreement, vote of shareholders or directors or otherwise, may
be granted for any action taken or any failure to take any action and may be
made whether or not the Corporation would have the power to indemnify the person
under any other provision of law except as provided in this Section 24.6 and
whether or not the indemnified liability arises or arose from any threatened,
pending or completed action by or in the right of the Corporation.
Section 24.7 (Power to Purchase Insurance) The Corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
representative of the Corporation or is or was serving at the request of the
Corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against that liability under the
provisions of this Article 24.
Section 24.8 (Application to Surviving or New Corporations) For the
purpose of this Article 24, references to "the Corporation" include all
constituent corporations absorbed in a consolidation, merger or division, as
well as the surviving or new corporations surviving or resulting therefrom, so
that any person who is or was a representative of the constituent, surviving or
new corporation, or is or was serving at the request of the constituent,
surviving or new corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article 24 with respect to the surviving or new corporation as he would if he
had served the surviving or new corporation in the same capacity.
Section 24.9 (Application to Employee Benefit Plans) For purposes of
this Article 24:
(a) References to "other enterprises" shall include employee benefit
plans and references to "serving at the request of the Corporation" shall
include any service as a representative of the Corporation that imposes duties
on, or involves services by, the representative with respect to an employee
benefit plan, its participants or beneficiaries.
(b) Excise taxes assessed on a person with respect to an employee
benefit plan pursuant to applicable law shall be deemed "fines."
(c) Action with respect to an employee benefit plan taken or omitted in
good faith by a representative of the Corporation in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of the plan
shall be deemed to be action in a manner that is not opposed to the best
interests of the Corporation.
Section 24.10 (Duration and Extent of Coverage) The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article 24
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a representative of the Corporation and shall inure
to the benefit of the heirs and personal representative of that person.
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Article 25
SHARE CERTIFICATES
Section 25.1 The share certificates of the Corporation shall be
numbered and registered in a share register as they are issued; shall bear the
name of the registered holder, the number and class of shares represented
thereby, the par value of each share or a statement that such shares are without
par value, as the case may be; shall be signed by the President and the
Secretary or the Treasurer or any other person properly authorized by the Board
of Directors, and shall bear the corporate seal, which seal may be a facsimile
engraved or printed. Where the certificate is signed by a transfer agent or a
registrar, the signature of any corporate officer on such certificate may be a
facsimile engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise before the
certificate is issued, it may be issued by the Corporation with the same effect
as if the officer had not ceased to be such at the date of its issue.
Article 26
TRANSFER OF SHARES
Upon surrender to the Corporation of a share certificate duly endorsed
by the person named in the certificate or by attorney duly appointed in writing
and accompanied where necessary by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto and the old certificate canceled and the transfer recorded upon the
transfer books for shares of the Corporation. No transfer shall be made if it
would be inconsistent with the provisions of Article 8 of the Pennsylvania
Uniform Commercial Code.
Article 27
LOST CERTIFICATES
Section 27.1 Where a shareholder of the Corporation alleges the loss,
theft or destruction of one or more certificates for shares of the Corporation
and requests the issuance of a substitute certificate therefor, the Board of
Directors may direct a new certificate of the same tenor and for the same number
of shares to be issued to such person upon such person's making of an affidavit
in form satisfactory to the Board of Directors setting forth the facts in
connection therewith, provided that prior to the receipt of such request the
Corporation shall not have either registered a transfer of such certificate or
received notice that such certificate has been acquired by a bona fide
purchaser. When authorizing such issue of a new certificate the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or
such owner's heirs or legal representatives, as the case may be, to advertise
the same in such manner as it shall require and/or give the Corporation a bond
in such
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form and with surety or sureties, with fixed or open penalty, as shall be
satisfactory to the Board of Directors, as indemnity for any liability or
expense which it may incur by reason of the original certificate remaining
outstanding.
Article 28
DIVIDENDS
Section 28.1 The Board of Directors may, from time to time, at any duly
convened regular or special meeting or by unanimous consent in writing, declare
and pay dividends upon the outstanding shares of capital stock of the
Corporation in cash, property or shares of the Corporation, so long as any
dividend shall not be in violation of law and the Articles of Incorporation.
Section 28.2 Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the Board of Directors shall believe to be for the best interests of
the Corporation, and the Board of Directors may reduce or abolish any such
reserve in the manner in which it was created.
Article 29
FINANCIAL REPORT TO SHAREHOLDERS
Section 29.1 The Chairman of the Board, the President and the Board of
Directors shall present prior to each annual meeting of the shareholders a full
and complete statement of the business and affairs of the Corporation for the
preceding year.
Article 30
INSTRUMENTS
Section 30.1 All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other persons as
the President or the Board of Directors may from time to time designate.
Section 30.2 Any note, mortgage, evidence of indebtedness, contract or
other document, or any assignment or endorsement thereof, executed or entered
into between the Corporation and any other person, when signed by one or more
officers or agents having actual or apparent authority to sign it, or by the
Chairman of the Board, the President or the Vice President and
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Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
Corporation, shall be held to have been properly executed for and in behalf of
the Corporation.
Section 30.3 The affixation of the corporate seal shall not be
necessary to the valid execution, assignment or endorsement by the Corporation
of any instrument or other document.
Article 31
FISCAL YEAR
Section 31.1 The fiscal year of the Corporation shall be the calendar
year.
Article 32
SEAL
Section 32.1 The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its organization and the works "Corporate Seal,
Pennsylvania." Such seal may be used by causing it or a facsimile thereof to be
impressed or affixed in any manner reproduced.
Article 33
NOTICES AND WAIVERS THEREOF
Section 33.1 Whenever written notice is required to be given to any
person under the provisions of applicable law, by the Articles of Incorporation
or of these By-laws, it may be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger service specified), telex or TWX (with answer back
received) or courier service, charges prepaid or by telecopier, to such person's
address (or to such person's telex, TWX, telecopier or telephone number)
appearing on the books of the Corporation or, in the case of directors, supplied
by such person to the Corporation for the purpose of notice. If the notice is
sent by mail, telegraph or courier service, it shall be deemed to have been
given to the person entitled thereto when deposited in the United States mail or
with a telegraph office or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched. A notice of meeting shall specify the
place, day and hour of the meeting and any other information required by any
other provision of these By-laws.
Section 33.2 Whenever any written notice is required to be given under
the provisions of applicable law, the Articles of Incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to the notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of the notice. Except as otherwise required by these
By-laws, neither the business to be transacted at, nor the purpose of, a meeting
need be
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specified in the waiver of notice of the meeting. In the case of a special
meeting of shareholders, the waiver of notice shall specify the general nature
of the business to be transacted.
Section 33.3 Attendance of a person at any meeting shall constitute a
waiver of notice of the meeting except where a person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
Section 33.4 Whenever any notice or communication is required to be
given to any person under the provisions of applicable law, the Articles of
Incorporation, these By-laws, the terms of any agreement and any other
instrument or as a condition precedent to taking any corporate action, and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required and there shall be no duty to
apply for a license or other permission to do so. Any action or meeting that is
taken or held without notice or communication to that person shall have the same
validity as if the notice or communication had been duly given. If the action
taken is such as to require the filing of any document with respect thereto
under any provision of law or any agreement or other instrument, it shall be
sufficient, if such is the fact and if notice or communication in required, to
state therein that notice or communication was given to all persons entitled to
receive notice or communication except persons with whom communication was
unlawful.
Section 33.5 Section 33.4 shall also be applicable to any shareholder
with whom the Corporation has been unable to communicate for more than
twenty-four (24) consecutive months because communications to the shareholder
are returned unclaimed or the shareholder has otherwise failed to provide the
Corporation with a current address. Whenever the shareholder provides the
Corporation with a current address, Section 33.4 shall cease to be applicable to
the shareholder under this Section 33.5.
Article 34
EMERGENCIES
Section 34.1 The Board of Directors may adopt emergency By-laws,
subject to repeal or change by action of the shareholders, which shall,
notwithstanding any different provisions of law, of the Articles of
Incorporation or of these By-laws, be effective during any emergency resulting
from an attack on the United States, a nuclear disaster or another catastrophe
as a result of which a quorum of the Board of Directors cannot readily be
assembled. The emergency By-laws may make any provision that may be appropriate
for the circumstances of the emergency including, procedures for calling
meetings of the Board of Directors, quorum requirements for meetings and
procedures for designating additional or substitute directors.
Section 34.2 The Board of Directors, either before or during any
emergency, may provide, and from time to time modify, lines of succession in the
event that during the emergency any or all officers or agents of the Corporation
shall for any reason be rendered incapable of
20
<PAGE>
discharging their duties and may, effective in the emergency, change the head
offices or designate several alternative head offices or regional offices of the
Corporation or authorize the officers to do so.
Section 34.3 A representative of the Corporation acting in accordance
with any emergency By-laws shall not be liable except for willful misconduct and
shall not be liable for any action taken by such representative in good faith in
an emergency in furtherance of the ordinary business affairs of the Corporation
even though not authorized by the emergency or other By-laws then in effect.
Section 34.4 To the extent not inconsistent with any emergency By-laws
so adopted, the By-laws of the Corporation shall remain in effect during any
emergency and, upon its termination, the emergency By-laws shall cease to be
effective.
Section 34.5 Unless otherwise provided in emergency By-laws, notice of
any meeting of the Board of Directors during an emergency shall be given only to
those directors to whom it is feasible to reach at the time and by such means as
are feasible at the time, including publication, radio or television. To the
extent required to constitute a quorum at any meeting of the Board of Directors
during any emergency, the officers of the Corporation who are present shall,
unless otherwise provided in emergency By-laws, be deemed, in order of rank and
within the same rank in order of seniority, directors for the meeting.
Article 35
AMENDMENTS
Section 35.1 These By-laws may be altered, amended or repealed by the
affirmative vote of the holders of eighty percent (80%) of the outstanding
shares of Common Stock at any regular or special meeting duly convened after
notice to the shareholders of that purpose, or by a majority vote of the members
of the Board of Directors at any regular or special meeting thereof duly
convened after notice to the directors of that purpose, subject always to the
power of the shareholders to change such action of the Board of Directors by the
affirmative vote of the holders of eighty percent (80%) of the outstanding
shares of Common Stock.
21
EXHIBIT 10
Retirement Bonus Plan for the Board
of Directors of Mid Penn Bank
<PAGE>
RETIREMENT BONUS PLAN
FOR THE BOARD OF DIRECTORS
OF MID PENN BANK
DECLARATION OF PURPOSE
Mid Penn Bank, a Pennsylvania banking company existing under the laws
of the Commonwealth, with its primary office at 349 Union Street, Millersburg,
Pennsylvania, desires to provide an annual retirement bonus to qualified retired
members of its Board of Directors. The purpose of this bonus is not intended as
a comprehensive plan of retirement benefits, but rather as a gratuitous payment
for meritorious years of service. This Plan does not, by its terms, confer any
express rights or obligations on either part, nor does it alter any rights that
may be in, or come into existence, by virtue of any retirement plan that may be
authorized by the Board.
ELIGIBILITY
This plan applies to all persons presently designated and subsequently
named as a member or Chairman of the Board of Directors of Mid Penn Bank, who
have voluntarily retired from service on the Board, or have attained the
mandatory retirement age. In the event that a Board Member is involuntarily
terminated of his or her position as a member of the Board, the provisions of
this plan shall not apply.
BONUS TERMS
Mid Penn Bank, acting by and through its duly appointed Board of
Directors, hereby declares that it does provide eligible Directors with a
gratuitous retirement bonus to be computed on an annual basis. Said bonus under
this plan will be paid quarterly at the end of each calendar quarter. This bonus
will begin at the end of the first full calendar quarter immediately following
retirement and will continue such time as mandated under this plan.
COMPUTATION OF RETIREMENT BONUS
The Director's bonus to be paid under this plan will be determined by
multiplying the base retirement bonus for the member's position by the number of
full years the eligible member served in that position. No credit shall be given
for any portion of any year of service in that position. No credit shall be
given for any portion of any year of service in that position. The first full
year shall be the anniversary date from becoming a member of the Board or
assuming the office of Chairman of the Board. The base retirement bonus figures
shall be as follows:
1. Chairman of the Board $400.00
2. All other Board Members $200.00
1
<PAGE>
INFLATIONARY ADJUSTMENT
At the conclusion of the year 1996, and every year thereafter, the
retirement bonus payable under this Agreement shall be the greater of the base
retirement bonus amount times the number of full years of service, and the base
retirement bonus amount times the number of full years of service adjusted for
inflation according to the method outlined below.
The adjusted minimum retirement bonus payment shall be determined by
applying fluctuations in the Consumer Price Index-City Average Percentage Change
for the months of December through December for the
Philadelphia-Wilmington-Trenton, PA-DE-NJ-MD area.
The method of calculation of the adjusted retirement bonus shall be as
follows:
The adjusted bonus shall equal the base retirement bonus for the
particular position times the number of full years served in that position plus
an amount equal to the percentage of change in the city average Consumer Price
Index for the preceding year, as measured from December of one year through
December of the following year, rounded to the next highest whole dollar amount.
TERMINATION OF PAYMENTS
Payments made under this plan are gratuitous payments for the sole
benefit of the retired Board Member. No portion of this Agreement may be
assigned or devised in any way. Bonus payments to individual members shall
terminate upon the death of the eligible Board Member. No payment shall be made
for any portion of the quarter in which the benefits are terminated.
EFFECTIVE DATE
This plan shall become effective immediately upon adoption of its terms
by the Board of Directors of Mid Penn Bank.
2
EXHIBIT 13
Excerpts from Annual Report to Shareholders
for the year ended December 31, 1996
Mid Penn Bancorp, Inc.
Financial Highlights
AS OF AND FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in thousands, except per share data.)
Percent
1996 1995 Change
---- ---- --------
Total Assets .................................. $210,172 194,711 + 7.94
Total Deposits ................................ 174,671 162,268 + 7.64
Net Loans ..................................... 142,341 129,589 + 9.84
Total Investments and Interest Bearing
Balances..................................... 57,166 55,243 + 3.48
Stockholders' Equity .......................... 24,650 22,694 + 8.62
Net Income .................................... 3,329 2,970 +12.09
Net Income Per Share .......................... 2.68 2.39 +12.13
Cash Dividend Per Share on Weighted Average
Number of Shares Outstanding ................ .96 1.37 -29.93
Book Value Per Share .......................... $ 19.85 18.27 + 8.65
Mid Penn Bancorp, Inc.
Stockholders' Information
1996 1995
---- ----
High Low High Low Quarter
---- --- ---- --- -------
Market Value Per Share $ 35.25 33.33 35.00 31.00 1st
35.25 32.61 34.00 33.00 2nd
35.25 32.14 35.00 33.00 3rd
35.25 33.50 33.50 33.00 4th
Market Value Information: The market share information was provided by
National Quotation Bureau, Inc., 11 Penn Plaza, New York, NY 1001.
The following brokerage firms make a market in Mid Penn Bancorp, Inc. stock:
<TABLE>
<S> <C> <C> <C> <C>
F. J. Morrissey & Company Janney Montgomery Scott Ryan Beck & Company Hopper Soliday & Co Legg Mason Wood
1700 Market Street 1801 Market Street 80 Main Street 1825 Oregon Pike Walker, Inc.
Suite 1420 Philadelphia, PA 19103-2473 West Orange, NJ 07052 Lancaster, PA 17601 100 Pine Street
Philadelphia, PA 19103-3913 1-800-526-6397 1-800-342-2325 1-800-456-9234 Harrisburg, PA 17101
1-800-842-8928 1-800-433-8186
</TABLE>
Transfer Agent: Mid Penn Bank, Trust Department, 349 Union Street, Millersburg,
Pennsylvania 17061
Telephone: (717) 692-2133
Number of Stockholders: At December 31, 1996, there were 664 stockholders.
Dividends: Dividends have been paid semi-annually, in the middle of March
and the middle of September. Cash dividends of $.50 were declared in March and
September in 1996 and 1995. A special cash dividend of $.50 per share was
declared in December of 1995 and 1994, payable in January of 1996 and 1995,
respectively. Beginning in 1997, Mid Penn Bancorp, Inc is planning quarterly
dividends payable in February, May, August and November.
Dividend Reinvestment and Stock Purchases: Stockholders of Mid Penn Bancorp,
Inc. may acquire additional shares of common stock by reinvesting their cash
dividends under the Dividend Reinvestment Plan without paying a brokerage fee.
Voluntary cash contributions may also be made under the Plan. For additional
information about the Plan, contact the Transfer Agent.
Form 10-K: A Copy of Mid Penn Bancorp, Inc.'s Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, will be provided to
stockholders without charge upon written request to: Secretary, Mid Penn
Bancorp, Inc., 349 Union Street, Millersburg, PA 17061.
Annual Meeting: The Annual Meeting of the Stockholders of Mid Penn Bancorp,
Inc. will be held at 10:00 a.m. on Tuesday, April 22, 1997, at 349 Union Street,
Millersburg, Pennsylvania.
2
<PAGE>
Report of Independent
Certified Public Accountants
[LOGO]
The Board of Directors and Stockholders
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
We have audited the accompanying consolidated balance sheets of Mid Penn
Bancorp, Inc. and subsidiary as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mid Penn Bancorp,
Inc. and subsidiary as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Parente, Randolph, Orlando, Carey & Associates
PARENTE o RANDOLPH o ORLANDO o CAREY & ASSOCIATES
Williamsport, Pennsylvania
January 17, 1997
4
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Balance Sheets
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) 1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks ......................................... $ 4,442 3,389
Interest bearing balances ....................................... 28,433 30,059
Available-for-sale securities ................................... 28,733 25,184
Loans ........................................................... 146,393 133,665
Less:
Unearned income ................................. (1,879) (1,729)
Allowance for loan losses ....................... (2,173) (2,347)
--------- -------
Net Loans ..................................... 142,341 129,589
--------- -------
Bank premises and equipment, net ................................ 3,397 3,451
Foreclosed assets held for sale ................................. 548 507
Accrued interest receivable ..................................... 1,335 1,386
Deferred income taxes ........................................... 536 484
Other assets .................................................... 407 662
--------- -------
Total Assets $ 210,172 194,711
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand .................................................. $ 15,350 11,766
NOW ..................................................... 24,211 25,223
Money market ............................................ 11,575 10,298
Savings ................................................. 17,061 17,412
Time .................................................... 106,474 97,569
--------- -------
Total Deposits 174,671 162,268
Short-term borrowings ........................................... 4,512 4,314
Accrued interest payable ........................................ 1,020 1,052
Other liabilities ............................................... 609 1,054
Long-term debt .................................................. 4,710 3,329
--------- -------
Total Liabilities 185,522 172,017
--------- -------
Stockholders' Equity:
Common stock, par value $1 per share; authorized
10,000,000 shares; 1,261,029 and 1,202,161 shares
issued in 1996 and 1995 respectively ............ 1,261 1,202
Surplus ................................................. 11,817 9,889
Undivided profits ....................................... 11,937 11,788
Net unrealized holding gain on securities ............... 168 348
Treasury stock at cost (19,056 shares) .................. (533) (533)
--------- -------
Stockholders' Equity, Net 24,650 22,694
--------- -------
Total Liabilities and Stockholders' Equity $ 210,172 194,711
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Statements of Income
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ........................................ $ 12,557 11,561 10,808
Interest on interest-bearing balances ............................. 1,938 1,681 1,195
Interest and dividends on investment securities:
U.S. Treasury and government agencies ..................... 878 680 412
State and political subdivision obligations, taxable ...... 6 12 17
State and political subdivision obligations, tax-exempt ... 720 822 944
Other securities .......................................... 51 39 37
Interest on federal funds sold and securities purchased
under agreement to resell ................................. 16 53 70
---------- ---------- ----------
Total Interest Income ............................. 16,166 14,848 13,483
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits .............................................. 7,145 6,403 5,436
Interest on short-term borrowings ................................. 182 121 100
Interest on long-term debt ........................................ 185 197 204
---------- ---------- ----------
Total Interest Expense ............................ 7,512 6,721 5,740
---------- ---------- ----------
Net Interest Income ............................... 8,654 8,127 7,743
---------- ---------- ----------
PROVISION FOR LOAN LOSSES ................................................. 50 0 0
---------- ---------- ----------
Net Interest Income After Provision for Loan Losses 8,604 8,127 7,743
---------- ---------- ----------
NONINTEREST INCOME
Trust department income ........................................... 83 68 75
Service charges on deposits ....................................... 252 249 184
Investment securities gains, net .................................. 12 15 5
Other income ...................................................... 453 363 358
---------- ---------- ----------
Total Noninterest Income .......................... 800 695 622
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits .................................... 2,419 2,373 2,278
Occupancy expense, net ............................................ 299 278 206
Equipment expense ................................................. 389 353 341
Pennsylvania bank shares tax expense .............................. 229 215 201
FDIC insurance premium ............................................ 2 171 323
Marketing and advertising ......................................... 141 152 129
Loss on mortgage sales ............................................ 26 3 91
Other expenses .................................................... 1,211 1,180 1,077
---------- ---------- ----------
Total Noninterest Expense ......................... 4,716 4,725 4,646
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES .................................. 4,688 4,097 3,719
Provision for income taxes ........................................ 1,359 1,127 983
---------- ---------- ----------
Net Income ........................................ $ 3,329 2,970 2,736
========== ========== ==========
Net Income Per Share (1) .......................... $ 2.68 2.39 2.20
========== ========== ==========
Weighted Average Number of Shares Outstanding ..... 1,241,973 1,241,973 1,241,973
</TABLE>
(1) Earnings per share for all periods presented have been restated to reflect
5% stock dividends effective October 7, 1996, December 15, 1995, and
December 15, 1994.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Net
Unrealized
Holding
Common Undivided Gain (Loss) Treasury
Stock Surplus Profits on Securities Stock Total
----- -------- ------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 .......................... $ 1,093 6,289 13,107 682 (533) 20,638
Net income .................................. 0 0 2,736 0 0 2,736
Cash dividends ($ 1.44 per share, historical) 0 0 (1,618) 0 0 (1,618)
5% stock dividend (additional 53,425 shares) 53 1,777 (1,830) 0 0 0
Net unrealized holding loss ................. 0 0 0 (774) 0 (774)
------- ------ ------ ----- ---- ------
Balance, December 31, 1994 .......................... $ 1,146 8,066 12,395 (92) (533) 20,982
Net income .................................. 0 0 2,970 0 0 2,970
Cash dividends ($1.44 per share, historical) 0 0 (1,698) 0 0 (1,698)
5% stock dividend (additional 56,085 shares) 56 1,823 (1,879) 0 0 0
Net unrealized holding gain ................. 0 0 0 440 0 440
------- ------ ------ ----- ---- ------
Balance, December 31, 1995 .......................... $ 1,202 9,889 11,788 348 (533) 22,694
Net income .................................. 0 0 3,329 0 0 3,329
Cash dividends ($.96 per share) ............. 0 0 (1,193) 0 0 (1,193)
5% stock dividend (additional 58,868 shares) 59 1,928 (1,987) 0 0 0
Net unrealized holding gain ................. 0 0 0 (180) 0 (180)
------- ------ ------ ----- ---- ------
Balance, December 31, 1996 .......................... $ 1,261 11,817 11,937 168 (533) 24,650
======= ====== ====== ===== ==== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
[GRAPHIC OMITTED]
7
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Statement of Cash Flows
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
Operating Activities:
Net income .......................................................... $ 3,329 2,970 2,736
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses ............................... 50 0 0
Depreciation ............................................ 361 319 272
Loss (gain) on sales of investment securities ........... (12) (15) (7)
Loss (gain) on sale/disposal of bank premises and
equipment ...................................... (3) (8) 40
Loss (gain) on sale of foreclosed assets ................ (189) 11 (116)
Deferred income taxes ................................... (52) 67 48
Change in interest receivable ........................... 51 (172) (154)
Change in other assets .................................. 255 (387) (80)
Change in interest payable .............................. (32) 302 (5)
Change in other liabilities ............................. (445) 217 416
Other, net .............................................. 0 0 (78)
-------- ------ ------
Net Cash Provided By Operating Activities ... 3,313 3,304 3,072
-------- ------ ------
Investing Activities:
Net (increase) decrease in interest-bearing balances ................ 1,626 (6,178) 1,665
Proceeds from the maturity of investment securities ................. 4,133 6,788 3,548
Proceeds from the sale of investment securities ..................... 3,786 3,017 3,008
Proceeds from the sale of bank premises and equipment ............... 12 10 0
Purchases of investment securities .................................. (11,636) (8,278) (13,485)
Net (increase) decrease in loans .................................... (13,196) (14,756) 1,448
Net purchases of bank premises and equipment ........................ (316) (1,305) (406)
Proceeds from the sale of foreclosed assets ......................... 555 109 331
Capitalized additions - foreclosed assets ........................... (13) (166) (35)
-------- ------ ------
Net Cash Used In Investing Activities ....... (15,049) (20,759) (3,926)
-------- ------ ------
Financing Activities:
Net increase (decrease) in demand and savings deposits .............. 3,498 (396) 5,338
Net increase (decrease) in time deposits ............................ 8,905 13,364 215
Assumption of deposit liabilities ................................... 0 2,342 0
Net increase (decrease) in short-term borrowings .................... 198 2,578 (2,774)
Long-term borrowings ................................................ 1,500 0 1,500
Long-term debt repayment ............................................ (119) (110) (369)
Cash dividends ...................................................... (1,193) (1,698) (1,618)
-------- ------ ------
Net Cash Provided By Financing Activities ... 12,789 16,080 2,292
-------- ------ ------
Net increase (decrease) in cash and cash equivalents ........................ 1,053 (1,375) 1,438
Cash and cash equivalents at January 1 ...................................... 3,389 4,764 3,326
-------- ------ ------
Cash and cash equivalents at December 31 .................................... $ 4,442 3,389 4,764
======== ====== ======
Supplemental Disclosures of Cash Flow Information:
Cash payments of interest expense ................................... $ 7,544 6,419 4,907
Cash payments of income taxes ....................................... $ 1,177 1,186 1,193
Supplemental Noncash Disclosures:
Loan charge-offs .................................................... $ 464 366 207
Transfers to foreclosed assets held for sale ........................ $ 394 341 45
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
8
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements for 1996 Report
(1) Nature of Business
Mid Penn Bancorp, Inc. (Corporation), is a one-bank holding
company with a wholly owned subsidiary, Mid Penn Bank (Bank). All significant
intercompany transactions have been eliminated.
The Bank engages in a full-service commercial banking and trust
business, making available to the community a wide range of financial services,
including, but not limited to, installment loans, VISA credit cards, mortgage
and home equity loans, secured and unsecured commercial and consumer loans,
lines of credit, construction financing, farm loans, community development
loans, loans to non-profit entities and local government loans and various types
of time and demand deposits, including but not limited to, checking accounts,
savings accounts, clubs, money market deposit accounts, certificates of deposit
and IRAs. In addition, the Bank provides a full range of trust services through
its Trust Department. Deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) to the extent provided by law.
The financial services are provided to individuals,
partnerships, non-profit organizations and corporations through its nine
offices located in the northern portion of Dauphin County, Swatara Township in
the lower portion of Dauphin County, the southern portion of Northumberland
County, the western portion of Schuylkill County and Hampden Township in
Cumberland County.
At the end of the second quarter of 1996, Mid Penn Bancorp, Inc.
contracted the services of Invest Financial Corporation, a third-party provider
of investment services headquartered in Tampa, Florida. Invest provides
financial planning and investment services, particularly mutual fund and
annuity-type investments, through an office leased from the Bank.
(2) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reporting amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results may differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination for the allowance for loan losses
and the valuation of real estate acquired through, or in lieu of, foreclosure in
settlement of debt.
While it is reasonably possible that the estimate of the effect
on the financial statements of a condition, situation, or set of circumstances
that existed at the date of the financial statements will change in the near
term due to one or more future confirming events, based on current information
known to management, management is not aware of a condition, situation, or set
of circumstances whereby the effect of the change would be material to the
financial statements.
(3) Summary of Significant Accounting Policies
The accounting and reporting policies of the Corporation
conform to generally accepted accounting principles and to general practice
within the banking industry. The following is a description of the more
significant accounting policies.
(a) Investment Securities
The Corporation has adopted the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" for accounting and reporting for investment
securities. In accordance with the provisions of SFAS No. 115,
such investments are accounted for as follows:
Held-to-Maturity Securities - includes debt securities that
the Corporation has the positive intent and ability to hold to
maturity. These securities are reported at amortized cost. At
December 31, 1996 and 1995, the Corporation did not have any
held-to-maturity securities.
Available-for-Sale Securities - includes debt and equity
securities not classified as held-to-maturity securities. Such
securities are reported at fair value, with unrealized holding
gains and losses excluded from earnings and reported, net of
deferred income taxes, as a separate component of
stockholders's equity.
9
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements for 1996 Report (cont'd)
(b) Loans
Interest on loans is recognized on a method which approximates a
level yield basis over the life of the loans. The accrual of
interest on loans, including impaired loans, is discontinued
when principal or interest has consistently been in default for
a period of 90 days or more, or because of a deterioration in
the financial condition of the borrower, payment in full of
principal or interest is not expected except when loans are
well-secured and in the process of collection. Interest income
is subsequently recognized only to the extent cash payments are
received. The placement of a loan on the nonaccrual basis for
revenue recognition does not necessarily imply a potential
charge-off of loan principal. Loan origination fees and certain
direct origination costs are capitalized and recognized as an
adjustment of the yield of the related loan.
(c) Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses that may
become uncollectible. Management's judgment is based upon
evaluation of individual loans, risk characteristics of
categories of loans, credit loss experience, economic
conditions, appraisals and other relevant factors which in
management's judgment deserve recognition. The allowance for
loan losses is established by a charge to operations. Loan
losses and recoveries on previously charged-off loans are
charged or credited directly to the allowance.
(d) Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on the straightline
basis. Maintenance and repairs are charged to expense when
incurred. Gains and losses on dispositions are reflected in
current operations.
(e) Foreclosed Assets Held for Sale
Foreclosed assets held for sale consist of real estate acquired
through, or in lieu of, foreclosure in settlement of debt and
are recorded at fair market value at the date of transfer. Any
valuation adjustments required at the date of transfer are
charged to the allowance for loan losses. Subsequent to
acquisition, foreclosed assets are carried at the lower of cost
or fair market value less costs of disposal, based upon periodic
evaluations that consider changes in market conditions and
development and disposition costs. Operating results from
assets acquired in satisfaction of debt, including rental income
less operating costs and gains or losses on the sale of or the
periodic evaluation of foreclosed assets, are recorded in
noninterest income and/or noninterest expense.
(f) Income Taxes
Certain items of income and expense are recognized in different
accounting periods for financial reporting purposes than for
income tax purposes. Deferred income tax assets and liabilities
are provided in recognition of these timing differences at
currently enacted income tax rates. As changes in tax laws or
rates are enacted, deferred income tax assets and liabilities
are adjusted through the provision for income taxes.
(g) Benefit Plans
A funded contributory profit-sharing plan is maintained for
substantially all employees. The cost of the Bank's
profit-sharing plan is charged to current operating expenses
and is funded annually. In addition to providing a
profit-sharing plan, the Bank provides health care coverage for
employees who retire with twenty years or more of full-time
service with the Bank, for a period up to five years from the
date of retirement under the group plan of the other employees,
provided the Bank is providing such health care coverage for
other employees. The Bank also provides continued coverage on
group life insurance for those employees who retire with twenty
years or more of full-time service with the Bank. Substantially
all of the Bank's employees may become eligible for those
benefits if they continue working for the Bank until retirement
age. The Bank currently does not offer post-employment benefits.
During 1995, the Board of Directors adopted a defined benefit
retirement bonus plan to qualified members of the Board of
Directors who either voluntarily retire from service or attain
mandatory retirement age (age 70). The benefit is based on years
of service and is funded based on the expected future years of
service of active participants consistent with the requirements
of SFAS No. 87 "Employers' Accounting for Pensions."
(h) Trust Assets and Income
Assets held by the Bank in a fiduciary or agency capacity for
customers of the Trust Department are not included in the
financial statements since such items are not assets of the
Bank. Trust income is recognized on the cash basis which is not
materially different than if it were reported on the accrual
basis.
10
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
(i) Net Income Per Share
Net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during
each of the years presented giving retroactive effect to stock
dividends.
(j) Statement of Cash Flows
For purposes of the statement of cash flows, the Corporation
considers cash and due from banks to be cash equivalents.
(k) Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year's classifications.
(4) Restrictions on Cash and Due from Bank Accounts
The Bank is required to maintain required reserve balances. The
amount of those required reserve balances at December 31, 1996 and 1995 was
approximately $1,227,000 and $1,185,000, respectively.
(5) Investment Securities
At December 31, 1996 and 1995, the face amount, amortized cost,
fair value, and gross unrealized gains and losses on investment securities are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Gross Gross
Face Amortized Unrealized Unrealized Fair
December 31, 1996 Amount Cost Gains Losses Value
------ --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies .... $ 12,850 12,833 48 60 12,821
Mortgage Backed U.S.
Government Agencies ..... 1,184 1,178 0 12 1,166
State and Political
Subdivision Obligations . 13,218 13,218 289 10 13,497
Equity Securities ............... 1,249 1,249 0 0 1,249
-------- ------ ----- ----- ------
$ 28,501 28,478 337 82 28,733
======== ====== ===== ===== ======
December 31, 1995
U.S. Treasury and U.S.
Government Agencies .... $ 9,750 9,776 135 0 9,911
Mortgage Backed U.S.
Government Agencies ..... 1,454 1,439 18 0 1,457
State and Political
Subdivision Obligations . 12,878 12,906 391 17 13,280
Equity Securities ............... 536 536 0 0 536
-------- ------ ----- ----- ------
$ 24,618 24,657 544 17 25,184
======== ====== ===== ===== ======
</TABLE>
Estimated fair values of debt securities are based on quoted
market prices, where applicable. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments,
adjusted for differences between the quoted instruments and the instruments
being valued.
Equity securities consist of stock in the Federal Home Loan Bank
of Pittsburgh and Atlantic Central Bankers Bank and do not have a readily
determinable fair value for purposes of SFAS No. 115, because their ownership is
restricted and they lack a market. Therefore, these securities are classified as
restricted investment securities, carried at cost, and evaluated for impairment.
Investment securities and interest bearing balances having a
fair value of $12,952,000 and $10,649,000 at December 31, 1996 and 1995,
respectively, were pledged, as required by law, to secure public and trust
deposits and other borrowings.
Proceeds from the sale of investment securities in 1996 amounted
to $3,786,000. Gross gains from such sales of investment securities, as
determined on the basis of specific identification of the adjusted cost of each
security sold, amounted to $12,000. Gross gains of $15,000 were realized in
1995 on the sale of investment securities amounting to $3,017,000.
11
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
The following is a schedule of the maturity distribution of investment
securities at amortized cost and fair value as of December 31, 1996:
<TABLE>
<CAPTION>
December 31, 1996
(Dollars in thousands) Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in 1 year or less .................................... $3,476 3,487
Due after 1 year but within 5 years ...................... 10,843 10,935
Due after 5 years but within 10 years .................... 8,419 8,508
Due after 10 years ....................................... 3,313 3,388
-------- ------
26,051 26,318
Mortgage-Backed Securities ............................... 1,178 1,166
Equity Securities ........................................ 1,249 1,249
-------- ------
$ 28,478 28,733
======== ======
</TABLE>
The Corporation has no derivative financial instruments requiring
disclosure under SFAS No. 119.
(6) Loans
A summary of loans at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Commercial real estate, construction and land development... $ 75,200 65,671
Commercial, industrial and agricultural..................... 18,588 16,682
Real estate - residential .................................. 26,718 27,821
Consumer ................................................... 25,874 23,473
Lease financing ............................................ 13 18
--------- -------
$ 146,393 133,665
========= =======
</TABLE>
Included within the loan portfolio are loans on which the Bank
has ceased the accrual of interest. These loans amounted to $1,183,000 as of
December 31, 1996 and $1,753,000 as of December 31, 1995. Income recognized on
nonaccrual loans in 1996 and 1995 was $144,000 and $79,000, respectively.
Interest income which would have been recognized in 1996 and 1995 in accordance
with the contractual terms would have been $248,000 and $159,000, respectively.
In addition, loans which were past due 90 days or more for which interest
continued to be accrued as of December 31, 1996 and 1995, amounted to
approximately $519,000 and $195,000, respectively.
During 1996, $1,022,000 in commercial real estate loans and
$420,000 in agricultural loans were restructured compared to none in 1995. The
restructurings were done on terms and conditions available at current market
rates and did not have an impact on net income.
Loans to Bank executive officers, directors, and corporations in
which such executive officers and directors are beneficially interested as
stockholders, executive officers, or directors aggregated approximately
$1,123,000 and $1,228,000 at December 31, 1996 and 1995, respectively. New loans
extended were $230,000 and $199,000 and repayments on these loans were $335,000
and $146,000 during 1996 and 1995, respectively. These loans were made on
substantially the same basis, including interest rates and collateral as those
prevailing for comparable transactions with other borrowers at the same time.
(7) Allowance for Loan Losses
Changes in the allowance for loan losses for the years 1996,
1995, and 1994 are summarized as follows:
(Dollars in thousands) 1996 1995 1994
---- ---- ----
Balance, January 1 ............ $2,347 2,511 2,646
Provision charged to operations 50 0 0
Loans charge off............... (464) (366) (207)
Recoveries on loans charged off 240 202 72
------ ----- -----
Balance, December 31 .......... $2,173 2,347 2,511
====== ===== =====
12
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
The recorded investment in loans that are considered impaired amounted
to $220,000 (all in nonaccrual) and $809,000 ($659,000, of which, in nonaccrual)
on December 31, 1996 and December 31, 1995, respectively. By definition,
impairment of a loan is considered when, based on current information and
events, it is probable that all amounts due will not be collected according to
the contractural terms of the loan agreement. The allowance for loan losses
related to loans classified as impaired amounted to approximately $298,000 at
December 31, 1995. The average balances of these loans amounted to approximately
$464,000 and $794,000 for the years 1996 and 1995, respectively. Due to the low
levels of loans classified as impaired and the fact that the majority of such
impaired loans are adequately collateralized by real estate, impaired loans
should not have a material effect on the allowance for loan losses or the
earnings of the Bank. The Bank recognizes interest income on impaired loans on a
cash basis. The following is a summary of cash receipts on these loans and how
they were applied in 1996 and 1995.
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Cash receipts applied to reduce principal balance........... $ 60 84
Cash receipts recognized as interest income................. 0 14
----- ----
Total cash receipts......................................... $ 60 98
===== ====
</TABLE>
In addition, at December 31, 1996 and 1995, the Bank had other
nonaccrual loans of approximately $963,000 and $1,094,000, for which impairment
had not been recognized.
The Bank has no commitments to loan additional funds to
borrowers with impaired or nonaccrual loans.
(8) Bank Premises and Equipment
At December 31, 1996 and 1995, bank premises and equipment are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- -----
<S> <C> <C>
Land ...................................................... $ 545 554
Buildings ................................................. 3,396 3,247
Furniture and Fixtures .................................... 2,442 2,274
------ -----
6,383 6,075
Less accumulated depreciation.............................. 2,986 2,624
----- -----
$3,397 3,451
====== =====
</TABLE>
Depreciation expense amounted to $361,000, $319,000 and $272,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
(9) Deposits
At December 31, 1996 and 1995, certificates of deposit in
denominations of $100,000 or more amounted to $14,527,000 and $10,065,000,
respectively. Interest expense on such certificates of deposit amounted to
approximately $754,000, $501,000 and $333,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
(10) Short-term Borrowings
Short-term borrowings and the related interest expense as of
December 31, 1996 and 1995 consisted of:
(Dollars in thousands) 1996 1995
---- ----
Interest Interest
Balance Expense Balance Expense
------- -------- ------- --------
Federal funds purchased .... $3,700 132 2,100 44
Repurchase agreements ...... 18 32 1,814 56
Treasury, tax and loan notes 794 18 400 21
------- ---- ----- ----
$4,512 182 4,314 121
====== ==== ===== ====
Federal funds purchased represent overnight funds. Securities
sold under repurchase agreements generally mature between one day and one year.
Discount window borrowings represent short-term borrowings from the Federal
Reserve Bank. Treasury, tax and loan notes are open-ended interest bearing
notes payable to the U.S. Treasury upon call. All tax deposits
13
<PAGE>
accepted by the Bank are placed in the Treasury note option account. The Bank
also has unused lines of credit with several banks amounting to $9.5 million
dollars at December 31, 1996.
(11) Long-term Debt
The Bank is a member of the Federal Home Loan Bank of Pittsburgh
(FHLB) and through its membership, the Bank can access a number of credit
products which are utilized to provide various forms of liquidity. As of
December 31, 1996, the Bank had long-term debt in the amount of $4,710,000
outstanding to the FHLB consisting of a $1,500,000 term loan at 6.67% due
September 4, 2001, a $1,210,000 loan at 7.30% due April 5, 2004, amortized in
equal monthly payments and a $2,000,000 bullet loan which will mature on August
4, 1997. The aggregate amounts of maturities of long-term debt for the five
years subsequent to December 31, 1996 are $2,128,000 (1997), $137,000 (1998),
$147,000 (1999), $159,000 (2000), and $1,671,000 (2001). As of December 31,
1995, the Bank had long-term debt in the amount of $3,329,000.
Most of the Bank's investments and mortgage loans are pledged
to secure FHLB borrowings.
(12) Lease Commitments
The Bank leases certain premises under long-term lease
agreements which are classified as operating leases. Commitments under these
agreements are not material. Rental expense for 1996, 1995 and 1994 was
approximately $35,000, $33,000 and $21,000, respectively.
(13) Benefit Plans
The Bank has a funded contributory profit-sharing plan covering
substantially all employees. The total employee benefits expense related to the
Bank's contribution to the plan for 1996, 1995 and 1994 was $229,000, $213,000
and $190,000, respectively. In addition, the Bank sponsors two defined benefit
postretirement plans that cover all full-time employees. One plan provides
health insurance benefits, and the other provides life insurance benefits.
Health Insurance
For full-time employees who retire after at least 20 years of
service, the Bank will pay premiums for major medical insurance (as provided to
active employees) for a period ending on the earlier of the date the participant
obtains other employment where major medical coverage is available or the date
of the participant's death; however, payment of medical premiums by the Bank
will cease after five years. If the retiree becomes eligible for Medicare within
the five year period beginning on his retirement date, the Bank will pay, at its
discretion, premiums for 65 Special coverage or a similar supplemental coverage.
After the five year period has expired, all employer-paid benefits will cease;
the employee may continue coverage through the employer at his/her own expense.
Life Insurance
Full-time employees will be provided with term life insurance.
The amounts of coverage are determined as follows:
At retirement after 20 or more years of service, the insurance
amount prior to age 65 will be the lesser of three times the participant's
annual salary at retirement or $50,000. After age 65, the insurance amount will
decrease by 10% of the age 65 amount per year, subject to a minimum amount of
$2,000.
The following table sets forth the plans' combined funded status
reconciled with the amount included in other liabilities in the balance sheet
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ..................................................... $ (32) (38)
Fully eligible active plan participants ...................... (99) (92)
Other active plan participants ............................... (173) (177)
----- ----
(304) (307)
Plan assets at fair value ..................................... 0 0
----- ----
Accumulated postretirement benefit obligation in excess of
plan assets................................................. (304) (307)
Unrecognized net gain ......................................... (97) (60)
Unrecognized transition obligation ............................ 235 250
----- ----
Accrued postretirement benefit cost ........................... $(166) (117)
===== ====
</TABLE>
14
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
The Bank's postretirement health insurance plan is not funded;
the accumulated benefit obligation for the health plan is $209,810 and $214,462
at December 31, 1996 and 1995, respectively.
Net periodic postretirement benefit cost for 1996, 1995 and 1994
included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits attributed to service during the period $22 19 20
Interest cost on accumulated postretirement benefit obligation 21 20 19
Actual return on plan assets .................................. 0 0 0
Amortization of transition obligation over 20 years ........... 13 12 15
--- --- --
Net periodic postretirement benefit cost ...................... $56 51 54
=== === ==
</TABLE>
For measurement purposes, a 10.5 percent annual rate of increase
in the per capita cost of covered health care benefits was assumed for 1996; the
rate was assumed to decrease gradually to 6.5 percent for 2000 and remain at
that level thereafter. The health care cost trend assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rate by 1 percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996, by
$36,275 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $6,542. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent.
Retirement Plan
On May 24, 1995, the Bank adopted an unfunded defined benefit
retirement plan for directors with benefits based on years of service. The
adoption of this plan generated unrecognized prior service cost of $273,675
which is being amortized based on the expected future years of service of active
participants.
The following table sets forth the plan's funded status and
amounts recognized in the Corporation's consolidated balance sheet at December
31, 1996:
(Dollars in thousands) 1996 1995
---- ----
Actuarial present value of benefit obligations:
Accumulated vested benefit obligation ............. $(317) (291)
===== ====
Projected benefit obligation ...................... $(317) (291)
Plan assets at fair value ........................... 0 0
----- ----
Projected benefit obligation in excess of fair value (317) (291)
Unrecognized prior service cost ..................... 235 261
Unrecognized net gain ............................... (9) 0
Adjustment to recognize additional minimum liability (153) (190)
----- ----
Pension Liability .................... $(244) (220)
===== ====
Net pension cost included the following components for 1996:
(Dollars in thousands)
Service cost ........................................ $ 18 8
Interest cost ....................................... 20 10
Actual return on plan assets ........................ 0 0
Amortization of transition obligation over 10.5 years 26 13
----- ----
Net Pension Cost .................... $ 64 31
===== ====
The weighted-average discount rate used in determining the
actuarial present value of the projected benefit obligation was 7% in 1996 and
in 1995.
15
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
The following temporary differences gave rise to the deferred tax asset
at December 31, 1996 and 1995:
(Dollars in thousands) 1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses ........... $ 610 682
Nonaccrual interest ................. 78 75
Benefit plans ....................... 87 50
Deferred income ..................... 38 43
Other ............................... 5 0
----- -----
Total ............... $ 818 850
----- -----
Deferred tax liabilities:
Unrealized gains on securities........ $ (87) (179)
Depreciation ......................... (141) (159)
Loan fees ............................ (37) (19)
Bond accretion ....................... (17) (9)
----- -----
Total ................ $(282) (366)
----- -----
Deferred tax asset, net ................. $ 536 484
===== =====
The provision for income taxes consists of the following:
(Dollars in thousands) Year Ended December 31,
1996 1995 1994
---- ---- ----
Current provision................... $ 1,319 1,060 935
Deferred provision.................. 40 67 48
-------- ----- ---
Provision for income taxes.......... $ 1,359 1,127 983
======== ===== ===
A reconciliation of income tax at the statutory rate to the
Corporation's effective rate is as follows:
(Dollars in thousands) 1996 1995 1994
---- ---- ----
Provision at the expected statutory
rate............................ $ 1,594 1,393 1,264
Effect of tax-exempt income........ (266) (300) (341)
Nondeductible interest............. 35 36 35
Other items........................ (4) (2) 25
-------- ----- -----
Provision for income taxes........ $ 1,359 1,127 983
======== ===== =====
(15) Regulatory Matters
The Pennsylvania Banking Code restricts the availability of Bank
retained earnings for dividend purposes. At December 31, 1996 and 1995,
$11,817,000 and $9,889,000, respectively, was not available for dividends to
the Corporation.
The Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. The regulations require
the Bank to meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier I capital (as defined in the regulations) to
total average assets (as defined), and minimum ratios of Tier I and total
capital (as defined) to risk-weighted assets (as defined). To be considered
adequately capitalized (as defined) under the regulatory framework for prompt
corrective action, the Bank must maintain minimum Tier I leverage, Tier I
risk-based and total risk-based ratios as set forth in the table. The Bank's
actual capital amounts and ratios are also presented in the table.
16
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>
(Dollars in thousands) To Be Well Capitalized
As of December 31, 1996: Capital Adequacy Under Prompt Corrective
---------------- Action Provisions:
Actual Required ------------------
Amount (Ratio) Amount (Ratio) Amount (Ratio)
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital (to Average Assets) ......... $24,266 (12.0%) 8,082 (4.0%) 10,103 (5.0%)
Tier I Capital (to Risk Weighted Assets).... 24,266 (16.1%) 6,041 (4.0%) 9,062 (6.0%)
Total Capital (to Risk Weighted Assets)..... 26,159 (17.3%) 12,082 (8.0%) 15,103 (10.0%)
As of December 31, 1995:
Tier I Capital (to Average Assets) ......... $22,320 (12.3%) 7,256 (4.0%) 9,070 (5.0%)
Tier I Capital (to Risk Weighted Assets).... 22,320 (14.9%) 5,980 (4.0%) 8,970 (6.0%)
Total Capital (to Risk Weighted Assets)..... 24,195 (16.2%) 11,960 (8.0%) 14,950 (10.0%)
</TABLE>
As of December 31, 1996, the Bank's capital ratios are well in
excess of the minimum and well-capitalized guidelines. The Corporation,s capital
ratios are not materially different from those of the Bank.
(16) Concentration of Risk and Off-Balance Sheet Risk
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets.
The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral held varies but may include accounts receivable,
inventory, property, plant, and equipment, and income-producing commercial
properties. The Bank's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit written is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The term of these standby
letters of credit is generally one year or less.
As of December 31, 1996, commitments to extend credit amounted
to $29,956,000 and standby letters of credit amounted to $2,062,000.
Significant concentration of credit risk may occur when the
obligations of the same or affiliated parties engage in similar activities or
have similar economic characteristics that would cause those parties to be
similarly affected by changes in economic or other conditions.
In analyzing the Bank's exposure to significant concentration of
credit risk, management set a parameter of 10% or more of the Bank's total net
loans outstanding as the threshold in determining whether the obligations of the
same or affiliated parties would be classified as significant concentration of
credit risk. Concentrations by industry, product line, type of collateral, etc.,
were also considered. U.S. Treasury securities, obligations of U.S. government
agencies and corporations, and any assets collateralized by the same were
excluded.
17
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
As of December 31, 1996, there were no similar activities that
met the requirements to be classified as significant concentration of credit
risk. However, there is a geographical concentration in that most of the
Bank's business activity is with customers located in Central Pennsylvania,
specifically within the Bank's trading area made up of Dauphin County, lower
Northumberland County, western Schuylkill County and Hampden Township in
Cumberland County.
The Bank's highest concentrations of credit are in the areas of
mobile home park land and commercial real estate office financing. Outstanding
credit to these sectors amounted to $12,700,000 or 8.9% and $10,800,000 or 7.6%
of total net loans outstanding as of December 31, 1996. These concentrations,
however, are less than the Bank's parameter of 10% of total net loans
outstanding.
(17) Commitments and Contingencies
In the ordinary course of business, the Bank has various
outstanding commitments and contingent liabilities that are not reflected in
the accompanying consolidated financial statements. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated financial condition of the Bank.
(18) Parent Company Statements
The condensed balance sheet, statement of income and statement
of cash flows for Mid Penn Bancorp, Inc., (parent only), are presented below:
CONDENSED BALANCE SHEET
As of December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash .............................................. $ 19 588 549
Investment in Subsidiary .......................... 24,631 22,669 20,970
-------- ------ ------
Total Assets ...................... $ 24,650 23,257 21,519
======== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities ................................. $ 0 563 537
Stockholders' Equity .............................. 25,183 23,227 21,515
Less Treasury Stock ............................... (533) (533) (533)
-------- ------ ------
Total Liabilities and Equity .................... $ 24,650 23,257 21,519
======== ====== ======
CONDENSED STATEMENT OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands) 1996 1995 1994
---- ---- ----
Dividends from Bank ............................... $ 1,212 1,728 1,657
Other income from Bank ............................ 13 8 0
Undistributed Earnings of Bank .................... 2,142 1,259 1,079
Other Expenses .................................... (38) (25) 0
-------- ------ ------
Net Income ............................... $ 3,329 2,970 2,736
======== ====== ======
</TABLE>
[GRAPHIC OMITTED]
18
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
CONDENSED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ......................................... $ 3,329 2,970 2,736
Net Change in Other Liabilities .................... (563) 26 503
Undistributed Earnings of Subsidiary ............... (2,142) (1,259) (1,079)
------- ------ ------
Net Cash Provided By Operating Activities .. 624 1,737 2,160
------- ------ ------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Declared ................................. (1,193) (1,698) (1,618)
Purchase of Treasury Stock ......................... 0 0 0
------- ------ ------
Net Cash used By Financing Activities .. (1,193) (1,698) (1,618)
------- ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents (569) 39 542
Cash and Cash Equivalents at Beginning of Period ... 588 549 7
------- ------ ------
Cash and Cash Equivalents at End of Period ......... $ 19 588 549
======= ====== ======
</TABLE>
(19) Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of Financial Instruments" requires disclosures
of fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practical to estimate that value. In cases
where quoted market values are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets, and in many
cases, could not be realized in immediate settlement of the instrument.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation.
The following methodologies and assumptions were used to
estimate the fair value of the Corporation's financial instruments:
Cash and due from banks:
The carrying value of cash and due from banks was considered to
be a reasonable estimate of fair value.
Interest bearing balances with other financial institutions:
The estimate of fair value was determined by comparing the
present value of quoted interest rates on like deposits with the weighted
average yield and weighted average maturity of the balances.
Investment securities:
As indicated in Note 5, estimated fair values of investment
securities are based on quoted market prices, where applicable. If quoted
market prices are not available, fair values are based on quoted market prices
for comparable instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
Loans:
The loan portfolio was segregated into pools of loans with
similar economic characteristics and was further segregated into fixed rate and
variable rate and each pool was treated as a single loan with the estimated fair
value based on the discounted value of expected future cash flows. Fair value of
loans with significant collectibility concerns (that is, problem loans and
potential problem loans) was determined on an individual basis using an internal
rating system and appraised values of each loan. Assumptions regarding problem
loans are judgmentally determined using specific borrower information.
Deposits:
The fair value for demand deposits (e.g., interest and
noninterest checking, savings and money market deposit accounts) are by
definition, equal to the amount payable on demand at the reporting date (i.e.
their carrying amounts). Fair value for fixed-rate certificates of deposit was
estimated using a discounted cash flow calculation by combining all fixed-rate
certificates into a pool with a weighted average yield and a weighted average
maturity for the pool and comparing the pool with interest rates currently
being offered on a similar maturity.
19
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
Short-term borrowed funds:
Because of time to maturity, the estimated fair value of
short-term borrowings approximates the book value.
Long-term debt:
The estimated fair values of long-term debt was determined using
discounted cash flow analysis, based on borrowing rates for similar types of
borrowing arrangements.
Accrued interest:
The carrying amounts of accrued interest approximates their
fair values.
Off-balance-sheet financial instruments:
There are no unearned fees outstanding on off-balance-sheet
financial instruments and the fair values are determined to be equal to the
carrying values.
The following table summarizes the book value and fair value of
financial instruments at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
(Dollars in thousands) Book Fair Book Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks ........ $ 4,442 4,442 3,389 3,389
Interest bearing balances ...... 28,433 28,632 30,059 30,493
Investment securities .......... 28,478 28,733 24,657 25,184
Net loans ...................... 142,341 141,581 129,589 129,731
Financial liabilities
Deposits ....................... $ 174,671 175,420 162,268 163,932
Short-term borrowed funds ...... 4,512 4,512 4,314 4,314
Long-term debt ................. 4,710 4,751 3,329 3,314
Off-balance sheet financial instruments:
Commitments to extend credit ... $ 29,956 29,956 31,425 31,425
Standby letters of credit ...... 2,062 2,062 2,686 2,686
</TABLE>
(20) Common Stock:
The Corporation has reserved 50,000 authorized, but unissued
shares of its common stock for issuance under a Stock Bonus Plan (the "Plan").
Shares issued under the Plan are at the discretion of the board of directors.
Shares reserved will be reduced by any shares issued under the Plan which come
from treasury stock or are obtained in the open market. At December 31, 1996, no
shares have been awarded under the Plan.
[GRAPHIC OMITTED]
20
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The purpose of this discussion is to further detail the
financial condition and results of operations of Mid Penn Bancorp, Inc. (the
Corporation). The Corporation is not aware of any known trends, events,
uncertainties or of any current recommendations by the regulatory authorities
which, if they were to be implemented, would have a material effect on the Corp-
oration's liquidity, capital resources or operations. This discussion should be
read in conjunction with the financial statements appearing elsewhere in this
report.
Financial Summary
The consolidated earnings of the Corporation are derived
primarily from the operations of its wholly-owned subsidiary, Mid Penn Bank.
The Corporation achieved record net income of $3,329,000 for the
year 1996, an increase of $359,000 or 12.09% over 1995's net income of
$2,970,000, which was an increase of $234,000 or 8.55% over 1994's net income of
$2,736,000. This represents net income in 1996 of $2.68 per share compared to
$2.39 per share in 1995 and $2.20 per share in 1994. The increase in earnings
was primarily due to growth in net interest income, a 15.1% increase in
noninterest income and a slight decrease in noninterest expense. Per share data
has been restated to reflect the effect of stock dividends.
Total assets of the Corporation continued to grow in 1996,
exceeding two hundred million dollars for the first time, reaching the level of
$210,172,000, an increase of $15,461,000 or 7.94% over $194,711,000 at year end
1995. The growth can be attributed to an increase of $12,728,000 or 9.52% in
loans. The loan growth was funded primarily through an increase in demand and
time deposits.
The Corporation continued to achieve an excellent return of
average assets, (ROA), a widely recognized performance indicator in the
financial industry. The ROA was 1.65% in 1996, 1.64% in 1995 and 1.58% in 1994.
Return on average stockholders' equity (ROE), another performance indicator,
was 14.32% in 1996, 13.57% in 1995 and 13.09% in 1994.
Tier one capital (to risk weighted assets) of $24,266,000 or
16.07% and total capital (to risk weighted assets) of $26,159,000 or 17.32% at
December 31, 1996 are well above the December 31, 1996 requirement, which is 4%
for tier one capital and 8% for total capital. Tier one capital consists
primarily of stockholders' equity. Total capital includes qualifying
subordinated debt, if any, and the allowance for loan losses, within permitted
limits. Risk-weighted assets are determined by assigning various levels of risk
to different categories of assets and off-balance-sheet activities.
At the end of the second quarter, the Corporation contracted the
services of Invest Financial Corporation, a third-party provider of investment
services headquartered in Tampa, Florida. Invest provides financial planning
and investment services, particularly mutual fund and annuity-type investments
through an office leased from the Bank.
Net Interest Income
Net interest income, the Corporation's primary source of
revenue, represents the difference between interest income and interest expense.
Net interest income is affected by changes in interest rates and changes in
average balances (volume) in the various interest-sensitive assets and
liabilities.
During 1996, net interest income increased $527,000 or 6.48% as
compared to $384,000 or 4.96% in 1995 and $290,000 or 3.89% in 1994. The
average balances, effective interest differential and interest yields for the
years ended December 31, 1996, 1995 and 1994, the components of net interest
rate growth, are presented in Table 1. A comparative presentation of the changes
in net interest income for 1996 compared to 1995, and 1995 compared to 1994, is
given in Table 2. This analysis indicates the changes in interest income and
interest expense caused by the volume and rate components of interest earning
assets and interest bearing liabilities.
Although the yield on earning assets decreased to 8.65% in 1996
from 8.89% in 1995, interest income increased by $1,318,000 or 8.88% during
1996, reflecting the growth in total earning assets during the year. The yield
on earning assets for 1994 was 8.49%. The decrease in the yield on earning
assets for 1996 as compared to 1995 and the increase for 1995 as compared to
1994 was due primarily to changes in the "prime rate." The average "prime rate"
for 1996 was 8.29% as compared to 8.81% for 1995 and 7.33% for 1994.
21
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
Interest expense increased by $791,000 or 11.77% in 1996
compared to $981,000 or 17.09% in 1995 and a decrease of $226,000 or 3.79% in
1994. The increases in 1996 and 1995 were due primarily to the increase in the
total of interest bearing liabilities and the increase in the cost of those
supporting liabilities.
Primarily resulting from the fluctuations in interest rates, the
net interest margin, on a tax equivalent basis, in 1996 was 4.73% compared to
4.99% in 1995 and 5.01% in 1994. Management continues to closely monitor the net
interest margin and is encouraged by the increase in demand deposits, from
$11,766,000 in 1995 to $15,350,000 in 1996, providing additional funds for
earning assets.
A provision of $50,000 for loan losses was made in 1996. There
was no provision for loan losses expenses in 1995 or 1994.
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS
INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in thousands) 1996
Average Interest Average Rates
Balance Income/Expense Earned/Paid
-------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Interest Bearing Balances ........... $ 29,939 1,938 6.47%
Investment Securities:
Taxable ............................. 14,330 935 6.52%
Tax-Exempt .......................... 12,630 1,091 8.64%
--------
Total Investment Securities . 26,960
--------
Assets Held in Trading Account ...... 0 0 0
Federal Funds Sold .................. 297 16 5.39%
Loans, Net .......................... 134,489 12,592 9.36%
-------- ------
Total Earning Assets ................ 191,685 16,572 8.65%
-------- ------
Cash and Due from Banks ............. 3,594
Other Assets ........................ 6,781
--------
Total Assets ........ $202,060
========
LIABILITIES & STOCKHOLDERS'
EQUITY:
Interest Bearing Deposits:
NOW ............................. $ 25,264 661 2.62%
Money Market .................... 11,061 265 2.40%
Savings ......................... 17,315 437 2.52%
Time ............................ 102,683 5,782 5.63%
Short-term Borrowings ........... 3,380 182 5.38%
Long-term Debt ...................... 2,860 185 6.47%
-------- ------
Total Interest Bearing Liabilities .. 162,563 7,512 4.62%
------
Demand Deposits ..................... 13,781
Other Liabilities ................... 2,476
Stockholders' Equity ................ 23,240
--------
Total Liabilities and
Stockholders' Equity $202,060
========
Net Interest Income ......................... $ 9,060
========
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets ....... 8.65%
Rate on Supporting Liabilities ...... 3.92%
Net Interest Margin ................. 4.73%
</TABLE>
22
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST
YIELDS (cont'd)
INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS FOR YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in thousands) 1995
Average Interest Average Rates
Balance Income/Expense Earned/Paid
------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Interest Bearing Balances ........... $ 26,685 1,681 6.30%
Investment Securities:
Taxable ......................... 11,212 746 6.65%
Tax-Exempt ...................... 13,277 1,223 9.21%
--------
Total Investment Securities . 24,489
--------
Assets Held in Trading Account ...... 0 0 0
Federal Funds Sold .................. 902 53 5.88%
Loans, Net .......................... 120,026 11,597 9.66
-------- ------
Total Earning Assets ................ 172,102 15,300 8.89%
-------- ------
Cash and Due from Banks ............. 3,429
Other Assets ........................ 5,874
--------
Total Assets ........ $181,405
========
LIABILITIES & STOCKHOLDERS'
EQUITY:
Interest Bearing Deposits:
NOW ......................... $ 20,261 449 2.22%
Money Market ................ 11,387 273 2.40%
Savings ..................... 17,414 439 2.52%
Time ........................ 90,377 5,241 5.80%
Short-term Borrowings ............... 2,211 121 5.47%
Long-term Debt ...................... 3,380 197 5.83%
-------- ------
Total Interest Bearing Liabilities .. 145,030 6,720 4.63%
------
Demand Deposits ..................... 12,493
Other Liabilities ................... 1,988
Stockholders' Equity ................ 21,894
--------
Total Liabilities and
Stockholders' Equity $181,405
========
Net Interest Income ......................... $ 8,580
=======
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets ....... 8.89%
Rate on Supporting Liabilities ...... 3.90%
Net Interest Margin ................. 4.99%
</TABLE>
[GRAPHIC OMITTED]
23
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST
YIELDS (cont'd)
INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(In thousands) 1994
Average Interest Average Rates
Balance Income/Expense Earned/Paid
------- -------------- -------------
<S> <C> <C> <C>
ASSETS:
Interest Bearing Balances ................. $ 23,785 1,195 5.02%
Investment Securities:
Taxable ........................... 8,040 465 5.78%
Tax-Exempt ........................ 14,004 1,430 10.21%
--------
Total Investment Securities 22,044
--------
Assets Held in Trading Account ............ 0 0 0
Federal Funds Sold ........................ 1,563 70 4.48%
Loans, Net ................................ 117,582 10,846 9.22%
-------- ------
Total Earning Assets ...................... 164,974 14,006 8.49%
------
Cash and Due from Banks ................... 3,092
Other Assets .............................. 4,978
--------
Total Assets .............. $173,044
========
LIABILITIES & STOCKHOLDERS'
EQUITY:
Interest Bearing Deposits:
NOW ............................... $ 18,776 343 1.83%
Money Market ...................... 13,675 318 2.33%
Savings ........................... 17,526 436 2.49%
Time .............................. 82,293 4,339 5.27%
Short-term Borrowings ..................... 2,415 100 4.14%
Long-term Debt ............................ 3,401 204 6.00%
-------- ------
Total Interest Bearing Liabilities ....... 138,086 5,740 4.16%
------
Demand Deposits ........................... 12,174
Other Liabilities ......................... 1,889
Stockholders' Equity ...................... 20,895
--------
Total Liabilities and
Stockholders' Equity ...... $173,044
========
Net Interest Income ............................... $ 8,266
======
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets ............. 8.49%
Rate on Supporting Liabilities ............ 3.48%
Net Interest Margin ....................... 5.01%
</TABLE>
Interest and average rates are presented on a fully taxable
equivalent basis, using an effective tax rate of 34%. For purposes of
calculating loan yields, average loan balances include non-accrual loans.
Loan fees of $138,000, $292,000 and $112,000 are included with
interest income above for the years 1996, 1995 and 1994, respectively.
24
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 2: VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
Due to Change In: Due to Change In:
Taxable Equivalent Basis Volume Rate Net Volume Rate Net
------ ---- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest Bearing Balances ..................... $ 205 52 257 146 340 486
Investment Securities:
Taxable ....................................... 207 (18) 189 183 98 281
Tax-Exempt .................................... (60) (72) (132) (74) (133) (207)
------- ---- ----- --- --- -----
Total Investment Securities ... 147 (90) 57 109 (35) 74
Funds Sold .................................... (36) (1) (37) (30) 13 (17)
Loans, Net .................................... 1,397 (402) 995 225 526 751
------- ---- ----- --- --- -----
Total Interest Income ......... $ 1,713 (441) 1,272 450 844 1,294
------- ---- ----- --- --- -----
INTEREST EXPENSE:
Interest Bearing Deposits:
NOW ................................... $ 111 101 212 27 79 106
Money Market .......................... (8) 0 (8) (53) 8 (45)
Savings ............................... (2) 0 (2) (3) 6 3
Time .................................. 714 (173) 541 426 476 902
------- ---- ----- --- --- -----
Total Interest Bearing Deposits........ 815 (72) 743 397 569 966
Short-term Borrowings ......................... 64 (3) 61 (8) 29 21
Long-term Debt ................................ (30) 18 (12) (1) (6) (7)
------- ---- ----- --- --- -----
Total Interest Expense......... $ 849 (57) 792 388 592 980
------- ---- ----- --- --- -----
NET INTEREST INCOME: .................................. $ 864 (384) 480 62 252 314
======= ==== ==== === === =====
</TABLE>
The effect of changing volume and rate has been allocated
entirely to the rate column. Tax-exempt income is shown on a tax equivalent
basis assuming a federal income tax rate of 34%.
Provision for Loan Losses
The provision for loan losses charged to operating expense
represents the amount deemed appropriate by management to maintain an adequate
allowance for possible loan losses. 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 bankruptcy's in 1996, management thought
it purdent to make a $50,000 allocation now during stronger economic times. Due
to the relative strength of unallocated reserves, $835,000 in 1995 and
$1,068,000 in 1994, and the favorable trend in non-performing assets, no
provision for loan losses was charged to expense during 1995 or 1994. The
allowance for loan losses as a percentage of average total loans was 1.67% at
December 31, 1996, compared to 2.09% and 2.21% for the years ended December 31,
1995 and 1994, which continues to be higher than peer financial institutions. A
summary of charge-offs and recoveries of loans is presented in Table 3.
[GRAPHIC OMITTED]
25
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 3: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance beginning of period ................... $2,347 2,511 2,646 2,755 2,301
Loans charged-off:
Commercial real estate, construction
and land development .......... 25 86 0 33 492
Commercial, industrial and agricultural 213 55 14 157 285
Real estate-residential ............... 0 0 34 30 18
Consumer .............................. 226 225 159 116 85
------ ----- ----- ----- -----
Total loans charged off 464 366 207 336 880
------ ----- ----- ----- -----
Recoveries on loans previously
charged-off:
Commercial real estate, construction
and land development .......... 39 33 8 71 253
Commercial, industrial and agricultural 105 111 33 26 53
Real estate-residential ............... 35 4 1 30 0
Consumer .............................. 61 54 30 25 28
------ ----- ----- ----- -----
Total recoveries ...... 240 202 72 152 334
------ ----- ----- ----- -----
Net charge-offs ............................... 224 164 135 184 546
------ ----- ----- ----- -----
Current period provision for
loan losses ........................... 50 0 0 75 1,000
------ ----- ----- ----- -----
Balance end of period ......................... $2,173 2,347 2,511 2,646 2,755
====== ===== ===== ===== =====
Ratio of net charge-offs during the period
to average loans outstanding during the
period, net of unearned discount ...... 0.16% 0.13 0.11 0.16 0.49
====== ===== ===== ===== =====
</TABLE>
Noninterest Income
During 1996, the Corporation earned $800,000 in noninterest
income, an increase of $105,000 or 15.11% over the 1995 total of $695,000, which
was $73,000 or 11.74% over the 1994 total of $622,000. The bulk of the increase
in 1996 reflected nonrecurring gains of $137,000 from the sale of other real
estate as compared to a noninterest expense of $22,000 in other real estate in
1995 and noninterest income of $85,000 in 1994.
Trust department income for 1996 was $83,000, a $15,000 or
22.06% increase over $68,000 in 1995, which was $7,000 or 9.33% less than the
$75,000 earned in 1994. Trust Department income fluctuates from year to year,
primarily due to the number of estates being settled during the year.
Service charges on deposit accounts was $252,000 for 1996,
basically unchanged from $249,000 for 1995, which was $65,000 or 35.33% higher
than the $184,000 for 1994. The majority of this increase resulted from an
increase in NSF charges in 1995.
The Corporation also earned $16,000 in fees from Invest, the
third-party provider of investments whose services the Bank has contracted.
Other operating income increased to $453,000 in 1996 from $363,000 and $358,000
in 1995 and 1994, respectively.
Noninterest Expense
A summary of the major components of noninterest expense for the
years ended December 31, 1996, 1995 and 1994 is reflected in Table 4.
Noninterest expense decreased $9,000 to $4,716,000 in 1996 from $4,725,000 in
26
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
1995 which increasing $79,000 from $4,646,000 in 1994. The major component of
noninterest expense is salaries and employee benefits which increased $46,000 or
1.94% in 1996. Increases of $95,000, or 4.17% and $81,000, or 3.69% were
recorded in 1995 and 1994, respectively. Prior to 1996, the Bank's Performance
Bonus Plan cash payment was paid in December based upon an estimate of the
current years performance compared to its peer group based upon the June 30th
federally compiled uniform bank performance report. To use a more conservative
approach, beginning in 1996, most of the performance bonus payment will be paid
in May of the following year when the final year end performance information is
available. This change resulted in a decrease of $103,000 or 42.21%, from
$244,000 paid in 1995 to $141,000 paid in 1996.
The largest component of decrease in noninterest expense was due
to an FDIC premium for deposit insurance of only $2,000 in 1996 as compared to
$171,000 in 1995 and $323,000 in 1994. As part of the fiscal year 1997 Omnibus
Appropriations Bill signed into law on September 30, 1996, beginning on January
1, 1997, the banking industry will be required to help pay the annual $780
million Financing Corporation (FICO) bond obligation. It is currently estimated
that for three years, until January 1, 2000, banks will be required to pay 1.29
cents per $100 in deposits as FICO assessment. After January 1, 2000, the FICO
assessment on bank deposits is anticipated to be 2.4 cents per $100 in deposits.
Based on the Bank's current FDIC assessment base of $170,000,000, at 1.29 cents
per $100 in deposits, the projected annual FICO assessment for 1997 would be
approximately $22,000. As long as the current annual statutory minimum Insurance
Fund (BIF) remains fully capitalized, healthy banks will pay no premium for the
BIF fund. They will only pay the FICO assessment. During 1995, the Corporation
received a refund of FDIC insurance premium of approximately $92,000.
Net occupancy expenses increased $21,000 or 7.55% in 1996
compared to $72,000 or 34.95% in 1995 and $32,000 or 18.39% in 1994. The
additional expenses in 1996 and especially in 1995 were associated with the
Dauphin and Carlisle Pike offices, which were added in 1995. Equipment expense
increased $36,000 or 10.19% in 1996 compared to $12,000 or 3.52% in 1995 and
$32,000 or 10.36% in 1994. The increase in 1996 is due to additional
depreciation expense on equipment purchased. Other expenses, including postage
and supplies, marketing and advertising, PA shares tax, professional services,
telephone, loss on mortgage sales and other expenses increased $79,000 or 5.17%
in 1996 compared to a decrease of $55,000 or 3.47% in 1995 and an increase of
$74,000 or 4.90% in 1994. The loss on mortgage sales of $91,000 during 1994
resulted from the rapid escalation of mortgage interest rates during the year.
The losses of $26,000 and $3,000 during 1996 and 1995, respectively, were offset
by origination fees earned on these loans.
TABLE 4: NONINTEREST EXPENSE
(Dollars in thousands)
Years ended December 31,
1996 1995 1994
---- ---- ----
Salaries and employee benefits $2,419 2,373 2,278
Occupancy, net ............... 299 278 206
Equipment .................... 389 353 341
Postage and supplies ......... 239 252 169
FDIC assessments ............. 2 171 323
Marketing and advertising .... 141 152 129
Other real estate, net ....... 0 22 (85)
Pennsylvania bank shares tax . 229 215 201
Professional services ........ 82 88 93
Telephone .................... 46 45 45
Loss on mortgage sales ....... 26 3 91
Other ........................ 844 773 855
------ ----- -----
Total Noninterest Expense .. $4,716 4,725 4,646
====== ===== =====
Investments
The Corporation investment portfolio is utilized to improve
earnings through investments of funds in high-yielding assets which provide
the necessary balance sheet liquidity for the Corporation.
27
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
At December 31, 1996, SFAS No. 115 resulted in an increase in
shareholders' equity of $168,000 (unrealized gain on securities of $255,000,
less estimated income tax effect of $87,000). SFAS No. 115 as of December 31,
1995 resulted in an increase in stockholders' equity of $348,000 (unrealized
gain on securities of $527,000, less estimated income tax effect of $179,000)
compared to a decrease in stockholders' equity of $92,000 (unrealized loss on
securities of $139,000, less estimated income tax benefit of $47,000) as of
December 31, 1994.
Proceeds from the sale of investment securities during 1996 were
$3,786,000. Net gains of $12,000 were realized on those sales. Proceeds from
the sale of investment securities during 1995 were $3,017,000. Net gains of
$15,000 were realized on those sales. Proceeds from the maturities of
investment securities were $4,133,000 in 1996 compared with $6,758,000 in 1995
and $3,548,000 in 1994.
The Corporation does not have any significant concentrations of
investment securities.
Table 5 provides a history of the amortized cost of investment
securities at December 31, for each of the past three years. The gross
unrealized gains and losses on investment securities are outlined in Note 5 to
the Consolidated Financial Statements.
TABLE 5: BOOK VALUES OF INVESTMENT SECURITIES
(Dollars in thousands) December 31,
1996 1995 1994
---- ---- ----
U. S. Treasury and U.S. government agencies $ 12,833 9,776 9,323
Mortgage backed U.S. government agencies .. 1,178 1,439 1,624
State and political subdivision obligations 13,218 12,906 14,702
Corporate bonds ........................... 0 0 0
Equity securities ......................... 1,249 536 520
-------- ------- ------
Total ............. $ 28,478 $24,657 26,169
======== ======= ======
Loans
At December 31, 1996, net loans totaled $142,341,000, a
$12,752,000 or 9.84% increase over December 31, 1995. During 1996, the
Corporation experienced an increase in commercial real estate loan demand
during the third and fourth quarters. Nearly $10 million of this increase was
generated through the Swatara Twp., Dauphin County office. These loans
contributed to the $9,529,000 net increase in the commercial real estate loan
category from December 31, 1995 to December 31, 1996.
During 1996, consumer loans increased approximately $2,401,000
with the growth in the areas of installment loans and student loans. The current
environment in lending is extremely competitive with financial institutions
aggressively pursuing potential borrowers. At December 31, 1996, loans, net of
unearned income, represented 70.1% of earning assets as compared to 70.5% on
December 31, 1995 and 71.3% on December 31, 1994.
The Bank's loan portfolio is diversified among individuals,
farmers, and small and medium-sized businesses generally located within the
Bank's trading area of Dauphin County, lower Northumberland County, western
Schuylkill County and eastern Cumberland County. Commercial real estate,
construction and land development loans are collateralized mainly by mortgages
on the income-producing real estate or land involved. Commercial, financial and
agricultural loans are made to business entities and may be secured by business
assets, including commercial real estate, or may be unsecured. Residential real
estate loans are secured by liens on the residential property. Consumer loans
include installment, credit card, lines of credit and home equity loans.
A distribution of the Bank's loan portfolio according to major
loan classification is shown in Table 6.
28
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 6: LOAN PORTFOLIO
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial real estate, construction
and land development ............... $ 75,200 65,671 54,225 54,148 56,521
Commercial, industrial and agricultural 18,588 16,682 19,397 21,506 18,634
Real estate-residential mortgage ...... 26,718 27,821 25,142 25,407 24,454
Consumer .............................. 25,874 23,473 20,409 19,595 17,653
Lease financing ....................... 13 18 0 9 21
-------- ------- ------- ------- -------
Total Loans ...................... 146,393 133,665 119,173 120,665 117,283
Unearned income ....................... (1,879) (1,729) (1,488) (1,353) (1,572)
-------- ------- ------- ------- -------
Loans net of unearned discount ........ 144,514 131,936 117,685 119,312 115,711
Allowance for loan losses ............. (2,173) (2,347) (2,511) (2,646) (2,755)
-------- ------- ------- ------- -------
Net Loans ........................ $142,341 129,589 115,174 116,666 112,956
======== ======= ======= ======= =======
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed
adequate by Management to absorb potential loan losses in the loan portfolio.
The Corporation has a loan review department that is charged with establishing a
"watchlist" of potential unsound loans, identifying unsound credit practices and
suggesting corrective actions. A quarterly review and reporting process is in
place for monitoring those loans that are on the "watchlist." Each credit on the
"watchlist" is evaluated to estimate potential losses. In addition, estimates
for each category of credit are provided based on Management's judgment which
considers past experience, current economic conditions and other factors. For
installment and real estate mortgages, specific allocations are based on past
loss experience adjusted for recent portfolio growth and economic trends. The
total of reserves resulting from this analysis are "allocated" reserves. The
amounts not specifically provided for individual classes of loans are considered
"unallocated." This unallocated amount is determined and based on judgments
regarding risk of error, economic conditions, trends and other factors.
The allocation of the allowance for loan losses among the major
classifications is shown in Table 7 as of December 31 of each of the past five
years. The allowance for loan losses at December 31, 1996, was $2,173,000 or
1.50% of total loans less unearned discount as compared to $2,347,000 or 1.78%
at December 31, 1995, and $2,511,000 or 2.13% at December 31, 1994.
TABLE 7: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1996 1995 1994 1993 1992
---- ---- ----- ---- ----
Percent Percent Percent Percent Percent
Amount of Loans Amount of Loans Amount of Loans Amount of Loans Amount of Loans
------ -------- ------ -------- ------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate,
construction and land
development............ $ 666 51.3% 574 49.1% 776 45.5 1,148 44.9 1,477 48.2
Commercial, industrial and
agricultural ......... 375 12.7% 573 12.5% 301 16.3 437 17.8 369 16.0
Real estate-residential
mortgage ............. 172 18.3% 120 20.8% 118 21.1 114 21.1 133 20.8
Consumer...................... 303 17.7% 245 17.6% 248 17.1 214 16.2 187 15.0
Unallocated................... 657 - 835 - 1,068 733 - 589 -
------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total loans $ 2,173 100.0% 2,347 100.0% 2,511 100.0 2,646 100.0 2,755 100.0
======= ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Nonperforming Assets
Nonperforming assets, other than consumer loans and 1-4 family
residential mortgages, include impaired and nonaccrual loans, loans past due 90
days or more, restructured loans and other real estate (including residential
property). A loan is generally classified as nonaccrual when principal or
interest has consistently been in default for a period of 90 days or more, or
because of a deterioration in the financial condition of the borrower, payment
in full of principal or interest is not expected. Loans past due 90 days or more
and still accruing interest are loans that are generally well-secured and in the
process of collection or repayment. Restructured loans are those loans whose
terms have been modified to
29
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
provide for a reduction of interest or principal payments because of borrower
financial difficulties. Foreclosed assets held for sale include those assets
that have been acquired through foreclosure for debts previously contracted, in
settlement of debt.
Consumer loans are generally recommended for charge-off when
they become 150 days delinquent. All 1-4 family residential mortgages 90 days or
more past due are reviewed quarterly by Management, and collection decisions
are made in light of the analysis of each individual loan. The amount of
consumer and residential mortgage loans past due 90 days or more at year-end was
$89,000, $103,000, and $80,000 in 1996, 1995, and 1994, respectively.
A presentation of nonperforming assets as of December 31, for
each of the past five years is given in Table 8. Nonperforming assets at
December 31, 1996, totaled $2,395,000 or 1.14% of total assets compared to
$2,455,000 or 1.26% of total assets in 1995, and $2,553,000 or 1.46% of total
assets in 1994. The increase in non-accrual loans in 1994 was due to a large
commercial real estate loan going into Chapter 11 bankruptcy in 1994. In
addition, a $400,000 non-accrual loan was paid in full in January, 1 995. The
foreclosed assets held for sale consist of two pieces of commercial real estate,
one agricultural parcel, one commercial property and one multi-family residence
that the Corporation had available for sale.
The improvement in nonperforming assets can be attributed to the
current improved economic climate, including commercial real estate, and the
Corporation's ongoing commitment to controlling credit risk. Nonperforming
assets are taken into consideration by Management when assessing the adequacy of
the Allowance for Loan Losses.
TABLE 8: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
Dollars in thousands) December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans ................ $ 1,183 1,753 2,181 1,347 1,479
Past due 90 days or more ......... 519 195 252 191 508
Restructured loans ............... 145 0 0 1,885 3,025
------- ----- ----- ----- -----
Total nonperforming loans 1,847 1,948 2,433 3,423 5,012
Foreclosed assets held for sale .. 548 507 120 256 764
------- ----- ----- ----- -----
Total nonperforming assets $ 2,395 2,455 2,553 3,679 5,776
======= ====== ===== ===== =====
Percent of total loans outstanding 1.64% 1.84 2.14 3.05 4.91
Percent of total assets .......... 1.14% 1.26 1.46 2.16 3.51
</TABLE>
There are no loans classified for regulatory purposes that have
not been included in Table 8. At December 31, 1996, no loans were considered
impaired because management is aware of information which causes doubt as to the
ability of the borrower to comply with loan repayment terms except for those
identified as non-accrual loans. There are no trends or uncertainties which
management expects will materially impact future operating results, liquidity or
capital resources or no other material credits about which management is aware
of any information which causes management to have serious doubts as to the
ability of such borrowers to comply with loan repayment terms.
Deposits and Other Funding Sources
The Corporation's primary source of funds is its deposits.
Deposits at December 31, 1996 were $174,671,000, which increased $12,403,000 or
7.64% from December 31, 1995, compared to an increase of $15,513,000 or 10.42%
in 1995. A limited-time, special-rate certificate of deposit offer in the spring
of 1996 aided the bank in attaining the increase. The Corporation's newest
office on the Carlisle Pike in Hampden Township contributed $4,207,000 in
increased deposits during 1996. Time deposits accounted for the majority of
deposit growth in 1995 as depositors moved funds from the lower-yielding demand
and savings accounts. A limited-time, special rate NOW account promotion at
this office attracted $4,783,000 in interest-bearing transaction account
balances during the last quarter of 1995. Average balances and average interest
rates applicable to the major classifications of deposits for the years ended
December 31, 1996, 1995, and 1994 are presented in Table 9.
30
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
Average short-term borrowings for 1996 were $3,380,000 as
compared to $2,211,000 in 1995. These borrowings included customer repurchase
agreements, treasury tax and loan option borrowings, and federal funds
purchased.
TABLE 9: DEPOSITS BY MAJOR CLASSIFICATION
<TABLE>
<CAPTION>
(Dollars in thousands) Years ended December 31,
1996 1995 1994
---- ---- ----
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 13,781 0.00% 12,493 0.00 12,174 0.00
Interest bearing demand deposits ... 25,264 2.62% 20,261 2.22 18,776 1.83
Money market ....................... 11,061 2.40% 11,387 2.40 13,675 2.33
Savings ............................ 17,315 2.52% 17,414 2.52 17,526 2.49
Time ............................... 102,683 5.63% 90,377 5.80 82,293 5.27
--------- ---- ------- ---- ------- ----
Total ..... $ 170,104 4.20% 151,932 4.21 144,444 3.76
========= ==== ======= ==== ======= ====
</TABLE>
Capital Resources
Stockholders' equity, or capital, is evaluated in relation to
total assets and the risk associated with those assets. The greater the capital
resources, the more likely a corporation is to meet its cash obligations and
absorb unforeseen losses. For these reasons capital adequacy has been, and will
continue to be, of paramount importance.
In 1996, capital grew $1,956,000 or 8.62% above 1995.
Comparatively, 1995 capital grew $1,712,000 or 8.16% above 1994. Capital growth
in both periods was achieved through earnings retention.
The Corporation's normal dividend payout allows for semi-annual
cash returns to its stockholders and provides earnings retention at a level
sufficient to finance future Corporation growth. The regular semi-annual cash
dividend payment in 1996 was $1,193,000, and $1,127,000 in 1995. Beginning in
1997, the Corporation is planning quarterly dividends payable in February, May,
August and November.
A special cash dividend of $.50 per share was declared in
November of 1995, bringing the total cash dividends declared in 1995 to
$1,698,000. The Board declared the special dividend in light of the
Corporation's capital position in excess of that of peer group banks. The
special dividend still left the Corporation with a strong capital position
while enhancing the Corporation's return on equity. The dividend payout ratio,
which represents the percentage of annual net income returned to the
stockholders in the form of cash dividends, was 36% for 1996 compared to 57% for
1995 and 59% for 1994.
The Pennsylvania Banking Code restricts the availability of
retained earnings for dividend purposes. At December 31, 1996, and 1995,
$11,817,000 and $9,889,000, respectively, was not available for dividends.
Federal Income Taxes
Federal income tax expense for 1996 was $1,359,000 compared to
$1,127,000 and $983,000 in 1995 and 1994, respectively. The effective tax rate
was 29% for 1996, 28% for 1995 and 26% for 1994.
Liquidity
The Corporation's asset-liability management policy addresses
the management of the Corporation's liquidity position and its ability to raise
sufficient funds to meet deposit withdrawals, fund loan growth and meet other
operational needs. The Corporation utilizes its investment portfolio as a source
of liquidity, along with deposit growth and increases in repurchase agreements
and other short-term borrowings. (See Deposits and Other Funding Sources which
appears earlier in this discussion.) Liquidity from investments is provided
primarily through investments and interest bearing balances with maturities of
one year or less. Funds are available to the Corporation through loans from the
Federal Home Loan Bank and established federal funds lines of credit. The
Corporation's major source of funds is its core deposit base as well as its
capital resources.
31
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
During 1996, the major sources of cash were provided by
operations, the sale and maturity of investment securities of $7,919,000, a net
increase in demand and savings deposits of $3,498,000 and a net increase in time
deposits of $8,905,000. As noted, the increase in deposits arose primarily
through the Carlisle Pike office which opened in September of 1995. The
increase was further aided by a limited-time special rate certificate of deposit
offer in the spring of 1996. Additionally, interest bearing balances were
decreased by $1,626,000 during the year.
Major uses of funds again included the funding of commercial
loans primarily during the latter half of 1996, which resulted in a net
increase of $13,196,000 in outstanding loans. Purchases of investment securities
were $11,636,000 yielding a net increase of $3,717,000 in securities during the
year. Borrowings were increased by $1,579,000 to generate the additional funds
needed to meet the loan demand.
In 1995, the major sources of cash were provided by operations,
maturities and sales of investment securities of $9,775,000 and a net increase
in time deposits of $13,364,000 as depositors took advantage of higher time
deposit rates during 1995. The increase in deposits was positively impacted by
a special-rate time deposit promotion in the spring of 1995 and the opening of
two new offices during the year, namely the Dauphin office and the Carlisle Pike
office. The major uses of these funds included the following: funding of a
marked increase in commercial loan demand during the third and fourth quarters
which resulted in a net increase in loans of $11,951,000, the purchase of
investment securities of $8,278,000 to partially replace those which matured and
were called during 1995, and the funding of the net increase of $6,178,000 in
interest-bearing balances in anticipation of lower interest rates in 1996.
Short-term borrowings increased by $2,578,000 to generate the additional funds
needed to meet the loan demand.
Asset-Liability Management and Interest Rate Sensitivity
Interest rate sensitivity is a function of the repricing
characteristics of the Corporation's portfolio of assets and liabilities. Each
asset and liability reprices either at maturity or during the life of the
instrument. Interest rate sensitivity is measured as the difference between the
volume of assets and liabilities that are subject to repricing in a future
period of time. These differences are known as interest sensitivity gaps.
The Corporation manages the interest rate sensitivity of its
assets and liabilities. The principal purpose of asset-liability management is
to maximize net interest income while avoiding significant fluctuations in the
net interest margin and maintaining adequate liquidity. Net interest income is
increased by increasing the net interest margin and by increasing earning
assets.
The Corporation utilizes asset-liability management models to
measure the impact of interest rate movements on its interest rate sensitivity
position. The traditional maturity gap analysis is also reviewed regularly by
the Corporation's management. The Corporation does not attempt to achieve an
exact match between interest sensitive assets and liabilities because it
believes that a controlled amount of interest risk is desirable.
The maturity distribution and weighted average yields of
investments is presented in Table 10. The maturity distribution and repricing
characteristics of the Corporation's loan portfolio is shown in Table 11. The
Corporation's gap position is presented in Table 12. The maturity distribution
of time deposits of $100,000 or more is shown in Table 13.
TABLE 10: INVESTMENT MATURITY AND YIELD
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996
After One After Five
One Year Year thru Years thru After Ten
and Less Five Years Ten Years Years Total
-------- ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.government agencies ........................... $ 2,503 6,730 3,600 0 12,833
State and political subdivision obligations ......................... 973 4,113 4,819 3,313 13,218
Mortgage-backed U.S. government agencies ............................ 21 661 0 496 1,178
Equity securities ................................................... 0 0 0 0 1,249
------- ------ ----- ----- ------
Total ....................................... $ 3,497 11,504 8,419 3,809 28,478
======= ====== ===== ===== ======
</TABLE>
32
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 10: INVESTMENT MATURITY AND YIELD (cont'd)
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996
After One After Five
One Year Year thru Years thru After Ten
and Less Five Years Ten Years Years Total
-------- ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Weighted Average Yields
U.S. Treasury and U.S. government agencies .......................... 6.33 6.31 6.94 0 6.49
State and political subdivision obligations ......................... 6.53 7.98 8.58 8.71 8.27
Mortgage-backed U.S. government agencies ............................ 9.50 6.35 0 7.34 6.82
Equity securities ................................................... 0 0 0 0 6.12
---- ---- ---- ---- ----
Total ................................................. 6.40 6.90 7.88 8.53 7.31
==== ==== ==== ==== ====
</TABLE>
TABLE 11: LOAN MATURITY AND INTEREST SENSITIVITY
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996
After One
One Year Year thru After Five
and Less Five Years Years Total
-------- ---------- ----------- ------
<S> <C> <C> <C> <C>
Commercial, real estate, construction
and land development ................. $ 28,758 38,597 7,641 74,996
Commercial, industrial and agricultural 12,388 4,746 1,653 18,787
Real estate-residential mortgages .... 7,219 7,455 12,066 26,740
Consumer .............................. 15,178 9,939 753 25,870
-------- ------ ------ -------
Total Loans ............... $ 63,543 60,737 22,113 146,393
======== ====== ====== =======
Rate Sensitivity
Predetermined rate .................... $ 5,763 21,870 19,014 46,647
Floating or adjustable rate ........... 57,780 38,867 3,099 99,746
-------- ------ ------ -------
Total ......... $ 63,543 60,737 22,113 146,393
======== ====== ====== =======
</TABLE>
TABLE 12: INTEREST RATE SENSITIVITY GAP
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996
After Three After One
Three Months Thru Twelve Year Thru After Five
and Less Months Five Years Years Total
-------- ---------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest bearing balances ....................... $ 3,170 10,102 15,161 0 28,433
Securities ...................................... 2,184 1,306 11,504 13,484 28,478
Loans ........................................... 51,548 16,678 56,054 22,113 146,393
-------- ------ ------ ------ -------
Total Interest-Earning Assets $ 56,902 28,086 82,719 35,597 203,304
-------- ------ ------ ------ -------
</TABLE>
[GRAPHIC OMITTED]
33
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 12: INTEREST RATE SENSITIVITY GAP (cont'd)
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996
After Three After One
Three Months Thru Twelve Year Thru After Five
and Less Months Five Years Years Total
---------- -------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits .................. $ 49,313 32,279 68,213 9,516 159,321
Short-term borrowed funds .................. 4,512 0 0 0 4,512
Long-term debt ............................. 31 2,097 2,114 468 4,710
-------- ------ ------- ----- -------
Total Interest-Bearing Liabilities $ 53,856 34,376 70,327 9,984 168,543
-------- ------ ------- ----- -------
Rate sensitive gap:
Periodic gap............................. $ 3,046 -6,290 12,392 25,613
Cumulative gap........................... $ 3,046 -3,244 9,148 34,761
Cumulative gap as a percentage of total assets 1.45% -1.54% 4.35%
</TABLE>
TABLE 13: MATURITY OF TIME DEPOSITS $100,000 OR MORE
(Dollars in thousands) December 31,
1996 1995 1994
---- ---- ----
Three months or less ............. $ 3,996 3,607 3,458
Over three months to twelve months 5,575 2,725 1,984
Over twelve months ............... 4,956 3,733 2,438
------- ------ -----
Total ............ $14,527 10,065 7,880
======= ====== =====
Effects of Inflation
A bank's asset and liability structure is substantially
different from that of an industrial company in that virtually all assets and
liabilities of a bank are monetary in nature. Management believes the impact of
inflation on its financial results depends principally upon the Corporation's
ability to react to changes in interest rates and, by such reaction, reduce the
inflationary impact on performance. Interest rates do not necessarily move in
the same direction or at the same magnitude as the prices of other goods and
services. As discussed previously, Management seeks to manage the relationship
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.
Information shown elsewhere in this Annual Report will assist in
the understanding of how the Corporation is positioned to react to changing
interest rates and inflationary trends. In particular, the summary of net
liabilities, the composition of loans, investments and deposits should be
considered.
Off-Balance-Sheet Items
The Corporation makes contractual commitments to extend credit
and extends lines of credit which are subject to the Corporation's credit
approval and monitoring procedures.
As of December 31, 1996, commitments to extend credit amounted
to $29,956,000 as compared to $31,425,000 as of December 31, 1995.
The Corporation also issues standby letters of credit to its
customers. The risk associated with standby letters of credit is essentially the
same as the credit risk involved in loan extensions to customers. Standby
letters of credit decreased to $2,062,000 at December 31, 1996, from $2,686,000
at December 31, 1995.
34
<PAGE>
Mid Penn Bancorp, Inc.
Summary of Selected Financial Data
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME:
Total Interest Income ............. $ 16,166 14,848 13,483 13,419 14,495
Total Interest Expense ............ 7,512 6,721 5,740 5,966 6,907
Net Interest Income ............... 8,654 8,127 7,743 7,453 7,588
Provision for Possible Loan Losses 50 0 0 75 1,000
Non-Interest Income ............... 800 695 622 681 400
Non-Interest Expense .............. 4,716 4,725 4,646 4,388 3,926
Income Before Income Taxes ........ 4,688 4,097 3,719 3,671 3,062
Income Tax Expense ................ 1,359 1,127 983 958 715
Extraordinary Income, Net of Tax.. 0 0 0 108 0
Net Income ....................... 3,329 2,970 2,736 2,821 2,347
COMMON STOCK DATA PER SHARE:*
Net Income Per Share ............. 2.68 2.39 2.20 2.25 1.86
Cash Dividends Declared .......... .96 1.37 1.30 .86 .86
Stockholders' Equity ............. $ 19.85 18.27 16.89 16.43 14.82
AVERAGE SHARES OUTSTANDING ............... 1,241,973 1,241,973 1,241,973 1,256,008 1,264,880
AT YEAR-END:
Investments** ................... $ 28,733 25,184 26,030 20,188 19,722
Loans, Net of Unearned Discount 144,514 131,936 117,685 119,312 115,711
Allowance for Loan Losses ....... 2,173 2,347 2,511 2,646 2,755
Total Assets .................... 210,172 194,711 174,702 170,037 164,614
Total Deposits .................. 174,671 162,268 146,958 141,405 138,720
Long-term Debt .................. 4,710 3,329 3,439 2,308 308
Stockholders' Equity ............ $ 24,650 22,694 20,982 20,638 18,740
RATIOS:
Return on Average Assets ........ 1.65 1.64 1.58 1.70 1.43
Return on Average Stockholders'
Equity 14.32 13.57 13.09 14.90 12.91
Cash Dividend Payout Ratio ....... 35.84 57.17 59.14 38.25 44.43
Allowance for Loan Losses to Loans 1.50 1.78 2.13 2.22 2.38
Average Stockholders' Equity to
Average Assets ................... 11.50 12.07 12.07 11.39 11.05
</TABLE>
* Per share figures are based on weighted
average shares outstanding for the
respective years as restated after giving
effect to stock splits.
** Beginning with 1993, investments are
listed at fair value rather than
amortized cost the method used in prior years.
35
EXHIBIT 21
Subsidiaries of the Registrant
<PAGE>
Exhibit 21
Subsidiaries of Mid Penn Bancorp, Inc.
Mid Penn Bank, a Pennsylvania commercial banking institution.
EXHIBIT 23
Consent of Parente, Randolph, Orlando, Carey & Associates, independent auditors
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, of Mid Penn Bancorp, Inc.
of our report dated January 17, 1997, included in the 1996 Annual Report to
Shareholders of Mid Penn Bancorp, Inc.
/s/Parente, Randolph, Orlando
Carey & Associates
Williamsport, Pennsylvania PARENTE, RANDOLPH, ORLANDO
March 26, 1997 CAREY & ASSOCIATES
Certified Public Accountants
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,442
<INT-BEARING-DEPOSITS> 28,433
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,733
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 144,512
<ALLOWANCE> 2,173
<TOTAL-ASSETS> 210,172
<DEPOSITS> 174,671
<SHORT-TERM> 4,512
<LIABILITIES-OTHER> 1,629
<LONG-TERM> 4,710
0
0
<COMMON> 1,261
<OTHER-SE> 23,389
<TOTAL-LIABILITIES-AND-EQUITY> 210,172
<INTEREST-LOAN> 12,557
<INTEREST-INVEST> 3,593
<INTEREST-OTHER> 16
<INTEREST-TOTAL> 16,166
<INTEREST-DEPOSIT> 7,145
<INTEREST-EXPENSE> 7,512
<INTEREST-INCOME-NET> 8,654
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 4,716
<INCOME-PRETAX> 4,688
<INCOME-PRE-EXTRAORDINARY> 4,688
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,329
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.68
<YIELD-ACTUAL> 8.65
<LOANS-NON> 1,183
<LOANS-PAST> 519
<LOANS-TROUBLED> 145
<LOANS-PROBLEM> 1,725
<ALLOWANCE-OPEN> 2,347
<CHARGE-OFFS> 464
<RECOVERIES> 240
<ALLOWANCE-CLOSE> 2,173
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
