UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-20141
Mid Penn Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1666413
(State or other jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
349 Union Street, Millersburg, PA 17061
(Address of principal executive offices) (Zip Code)
(717) 692-2133
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the
classes of common stock, as of the latest practical date.
2,607,552 shares of Common Stock, $1.00 par value per share,
were outstanding as of September 30, 1997.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks 4,140 4,442
Interest bearing balances 34,270 28,433
Available-for-sale securities 37,068 28,733
Federal funds sold 0 0
Loans 144,096 146,393
Less:
Unearned discount 1,985 1,879
Allowance for loan losses 2,167 2,173
------- -------
Net loans 139,944 142,341
------- -------
Bank premises and equip't, net 3,217 3,397
Other real estate 717 548
Accrued interest receivable 1,590 1,335
Other assets 1,080 943
------- -------
Total Assets 222,026 210,172
======= =======
LIABILITIES & STOCKHOLDERS EQUITY:
Deposits:
Demand 16,443 15,350
NOW 22,213 24,211
Money Market 11,690 11,575
Savings 17,029 17,061
Time 113,010 106,474
------- -------
Total deposits 180,385 174,671
------- -------
Short-term borrowings 7,351 4,512
Accrued interest payable 1,787 1,020
Other liabilities 1,279 609
Long-term debt 4,721 4,710
------- -------
Total Liabilities 195,523 185,522
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
2,626,608 and 1,261,029 shares at
Sept. 30, 1997 and December 31, 1996 2,627 1,261
Surplus 13,872 11,817
Undivided profits 10,290 11,937
Unrealized holding gain on securities,
net of estimated tax effect 247 168
Less: Treasury Stock at cost
(19,056 shares) 533 533
------- -------
Total Stockholders Equity 26,503 24,650
------- ------
Total Liabilities & Equity 222,026 210,172
======= =======
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; dollars in thousands)
<CAPTION>
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans 3,259 3,257 9,953 9,329
Int.-bearing balances 518 474 1,415 1,483
Treas. & Agency securities 332 230 818 647
Municipal securities 196 184 567 541
Other securities 10 11 42 40
Fed funds sold and repos 0 0 9 3
----- ----- ----- -----
Total Int. Income 4,315 4,156 12,804 12,043
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 1,854 1,810 5,431 5,350
Short-term borrowings 96 37 206 166
Long-term borrowings 78 49 207 109
----- ----- ----- -----
Total Int. Expense 2,028 1,896 5,844 5,625
----- ----- ----- -----
Net Int. Income 2,287 2,260 6,960 6,418
PROVISION FOR LOAN LOSSES 25 0 75 0
----- ----- ----- -----
Net Int. Inc. after Prov. 2,262 2,260 6,885 6,418
----- ----- ----- -----
NON-INTEREST INCOME:
Trust Dept 12 6 50 44
Service Chgs. on Deposits 75 61 218 185
Investment sec. gains, net 0 0 -1 12
Gain on sale of loans 862 0 926 0
Other 78 85 253 273
----- ----- ----- -----
Total Non-Interest Income 1,027 152 1,446 514
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 691 635 1,996 1,878
Occupancy, net 74 73 223 224
Equipment 96 90 275 270
PA Bank Shares tax 60 58 181 172
Other 357 301 1,046 1,030
----- ----- ----- -----
Tot. Non-int. Exp. 1,278 1,157 3,721 3,574
----- ----- ----- -----
Income before income taxes 2,011 1,255 4,610 3,358
INCOME TAX EXPENSE 634 360 1,398 965
----- ----- ----- -----
NET INCOME 1,377 895 3,212 2,393
===== ===== ===== =====
NET INCOME PER SHARE 0.53 0.34 1.23 .92
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 2,607,552 2,607,552
2,607,552 2,607,552
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
<CAPTION>
For the nine months ended:
Sept 30, Sept 30,
1997 1996
-------- --------
<S> <C> <C>
Operating Activities:
Net Income 3,212 2,393
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 75 0
Depreciation 251 253
Change in interest receivable -255 23
Change in other assets -137 -76
Change in interest payable 767 679
Change in other liabilities 670 62
Other, net 0 0
------- -------
Net cash provided by
operating activities: 4,583 3,334
------- -------
Investing Activities:
Net decrease in int-bearing balances -5,837 2,592
Proceeds from sale of securities 3,370 3,336
Proceeds from the maturity of secs. 4,433 3,041
Purchase of investment securities -16,123 -9,648
Proceeds from the sale of loans 7,454 0
Net decrease in loans -5,383 -8,312
Purchase of loans 0 0
Net purchases of fixed assets -71 -293
Proceeds from sale of other real estate 157 372
Capitalized additions - ORE 0 -13
------- -------
Net cash provided by
investing activities -12,000 -8,925
------- -------
Financing Activities:
Net increase in demand and savings -822 1,371
Net increase in time deposits 6,536 8,530
Net increase in sh-term borrowings 2,839 -2,683
Net increase in long-term borrowings 11 1,412
Cash dividend declared -1,449 -1,183
------- -------
Net cash provided by
financing activities 7,115 7,447
------- -------
Net increase in cash & equivalents -302 1,856
Cash & cash equivalents, beg of period 4,442 3,389
------- -------
Cash & cash equivalents, end of period 4,140 5,245
======= =======
Supplemental Noncash Disclosures:
Loan charge-offs 193 348
Transfers to other real estate 433 14
</TABLE>
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements
1. The consolidated interim financial statements included
herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission with respect to Form 10-Q. The
financial information included herein reflects all
adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim
periods. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the
disclosures made herein are adequate to make the information
not misleading. It is suggested that these interim
financial statements be read in conjunction with the
financial statements and the notes thereto included in the
Company's most recent Form 10-K.
2. Interim statements are subject to possible adjustments
in connection with the annual audit of the Company's
accounts for the full fiscal year. In the Company's
opinion, all adjustments necessary in order to make the
interim financial statements not misleading have been
included.
3. The results of operations for the interim periods
presented are not necessarily indicative of the results
expected for the full year.
4. Management considers the Allowance for Loan Losses to be
adequate at this time.
<PAGE>
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition
for the nine months ended Sept 30, 1997 compared to year end
1996 and the Results of Operations for the third quarter and
first nine months of 1997 compared to the same period in
1996.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of September 30, 1997, amounted to
$222,026,000, an increase of $11,854,000 or 5.3% over the
total assets as of December 31, 1996.
Due to the growth of the economy during the first quarter of
1997, the Federal Open market Committee, at its March 25th
meeting, raised the overnight bank rate target by a quarter
point to 5.50%. In anticipation of the expected increase,
rates on short to intermediate U.S. Treasury securities
increased approximately 50 to 75 basis points during the
quarter. Because of the lag time involved between the time
when Treasury rates increase and financial institutions
increase rates on deposits, $1,161,000 in maturing interest
bearing balances was not re-invested during the first
quarter. In addition, in anticipation of possible further
action being taken by the Federal Open Market Committee to
increase interest rates, $893,000 from the maturity, call or
sale of available-for-sale securities was not re-invested.
Shortly after the end of the first quarter, economic
statistics seemed to indicate that growth for the year
peaked in the first quarter, and, along with great inflation
news, caused a substantial rally in the bond market. At
June 30, 1997, the net result in the bond market was
interest rates within 10 basis points of what they were at
December 31, 1996.
During this unanticipated rally, in May and June, interest
bearing deposits with other financial institutions were
increased by more than $2.7 million, taking advantage of the
same lag time as previously described. These purchases were
funded by short-term borrowings. In addition, in early May,
the Bank sold over $2.3 million of student loans and those
funds along with approximately $2.4 million in short-term
borrowings were invested in available-for-sale securities,
mostly in short-term to intermediate term Agency securities
with call features.
During the third quarter, funds continued to be invested in
intermediate term available-for-sale securities in
anticipation of the sale of the credit card portfolio. Upon
the sale of the portfolio, the generated funds including the
associated gain were used to repay some of the short-term
borrowings used for the advance purchase of securities. The
third quarter also offered an attractive rate environment
for insured interest bearing balances of other financial
institutions, which also yielded rewards for intermediate
maturities.
Loan demand remained sporadic during the first three
quarters of 1997 as the banking industry continues to
aggressively pursue borrowers by offering very competitive
long-term, fixed-interest-rate loans. Net loans decreased
to $139,944,000 during the first nine months of 1997. The
net decrease was due to the $2.3 million sale of student
loans and the $5.1 million sale of the credit card
portfolio. Excluding the sale of student and credit card
loan portfolios, other loans increased approximately five
million dollars. This increase resulted largely in the
commercial loan area.
Foreclosed assets held for sale increased $173,000 to
$717,000 during the first nine months of 1997. Two
properties totaling $326,000 were added while previously
held properties totaling $157,000 were sold. As of
September 30, 1997, the balance of foreclosed assets held
for sale consisted of undeveloped land, farmland and a
single family residential property.
Total deposits increased by 3.3% to $180,385,000 compared to
$174,671,000 at December 31, 1996. The increase resulted
largely from an influx of time deposits which were attracted
during a late summer 25-month-maturity certificate of
deposit.
Short-term borrowings, including funds borrowed from the US
Treasury and Fed funds, increased by $2.9 million from year
end.
All components of long-term debt are advances from the FHLB.
Long-term debt advances were initiated in order
to insure an adequate spread on several recent loans written
by the Bank.
RESULTS OF OPERATION
Net income for the third quarter was $1,377,000, or $.53 per
share, in 1997 as compared to $895,000, or $.34 per share,
earned in the same quarter of 1996, while net income for the
first nine months was $3,212,00, a $819,000 or 34.2%
increase from the $2,393,000 earned in the same period of
1996. Net income per share for the nine months ended
September 30, 1997, increased to $1.23 from $.92 earned in
the same period of 1996. Net income on an annualized basis
at September 30, 1997, as a percent of total average assets,
also known as return on assets (ROA) was 2.0% as compared to
1.6% for the same period in 1996. Net income as a
percentage of stockholders' equity, also known as return
on equity (ROE), was 17.0% on an annualized basis for
the first nine months of 1997 as compared to 13.7% for the
same period in 1996.
The major contributor to net income was the $862,000 gain on
the sale of the Bank's credit card portfolio. Management
decided to sell the portfolio as a result of increasing
delinquencies and consumer bankruptcies. These factors
reduced the yield on the credit card portfolio below an
acceptable level.
Third quarter income excluding the gain on sale of the
credit card portfolio would have decreased by $87,000.
Initially, the funds received from the sale of the portfolio
which had a gross yield of nearly 11%, not factoring in
associated costs, were reinvested largely in investment
securities yielding approximately 6.5%. The sale, however,
did provide the Bank with an investable gain of $569,000,
net of income tax, and a reduction of the charge-offs and
ongoing costs associated with a credit card portfolio.
An additional factor in the increase in net income was the
increase of net interest income. Net interest income as of
September 30, 1997, was $6,960,000 as compared to $6,418,000
for the first nine months of 1996. The net interest margin
on average earning assets was 4.79% at September 30,1997,
compared to 4.74% at September 30, 1996. A significant
contribution to the increase in net interest income was an
increase in volume in addition to the increase in yield.
The Bank made a provision for loan losses of $75,000 during
the first three quarters of 1997. Due to the cyclical
nature of the economy coupled with the Bank's substantial
involvement in commercial loans and the record number of
nationwide consumer bankruptcies, management thought it
prudent to make this allocation now during stronger economic
times. On a quarterly basis, senior management reviews
potentially unsound loans, taking into consideration
judgments regarding risk or error, economic conditions,
trends and other factors.
Non-interest income increased to $1,446,000 for
the first nine months of 1997 as compared to $514,000 for
the same period of 1996. The major component of the increase
is a gain of $862,000 on the sale of the credit card
portfolio and $64,000 on the sale of a block of student
loans. Another significant contributor to non-interest
income is NSF fee income. NSF fee income contributed in
excess of $140,000 during the first nine months of 1997.
Non-interest expense increased by $147,000, or 4.0%, from
$3,574,000 at September 30, 1996, to $3,721,000 at September
30, 1997. The major factor contributing to the increase was
an increase in salaries and employee benefits expense, which
increased $118,000 during the first nine months of 1997 over
the same period of 1996.
As part of the fiscal year 1997 Omnibus Appropriations Bill
signed into law by the President on September 30, 1996,
beginning on January 1, 1997, the banking industry is now
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 $21,930. The current annual statutory minimum
assessment of $2,000 has been repealed. So long as the Bank
Insurance Fund (BIF) remains fully capitalized, healthy
banks will pay no premium for the BIF fund. They will only
pay the FICO assessment.
LIQUIDITY
The Bank's objective is to maintain adequate liquidity while
minimizing interest rate risk. Adequate liquidity provides
resources for credit needs of borrowers, for depositor
withdrawals, and for funding Corporate operations. Sources
of liquidity include maturing investment securities,
overnight borrowings of federal funds (and Flex Line),
payments received on loans, and increases in deposit
liabilities.
Funds generated from operations contributed a major source
of funds for the first nine months of 1997. Another major
source of funds came from the sale of loans in the amount of
$7,454,000, a net increase of $6,536,000 in time deposits,
and a net increase of $2,839,000 in short-term borrowings.
The major uses of these funds included a net increase in
investment securities of $8,320,000, a net increase in
interest-bearing balances of $5,837,000 and a net increase
in loans, excluding the sales, of $5,383,000.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
The total non-performing assets of $3,057,000 representing
1.38% of total assets at September 30, 1997, increased
slightly from $2,395,000 or 1.14% of total assets at
December 31, 1996. Most non-performing assets
are supported by collateral value that appears to be
adequate at September 30, 1997.
The Allowance for Loan Losses at September 30, 1997, was
$2,167,000 or 1.52% of loans, net of unearned interest, as
compared to $2,173,000 or 1.50% of loans, net of unearned
interest, at December 31, 1996.
Based upon the ongoing analysis of the Bank's loan portfolio
by the loan review department, the latest quarterly analysis
of potentially unsound loans and non-performing assets,
Management considers the Allowance for Loan Losses to be
adequate to absorb any reasonable, foreseeable loan losses.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
-------- --------
<S> <C> <C>
Non-Performing Assets:
Non-accrual loans 1,661 1,183
Past due 90 days or more 566 519
Restructured loans 113 145
------- -------
Total non-performing loans 2,340 1,847
Other real estate 717 548
------- -------
Total 3,057 2,395
======= =======
Percentage of total loans outstanding 2.12 1.64
Percentage of total assets 1.38 1.14
Analysis of the Allowance for Loan Losses:
Balance beginning of period 2,173 2,347
Loans charged off:
Commercial real estate, construction
and land development 0 25
Commercial, industrial and agricultural 7 213
Real estate - residential mortgage 12 0
Consumer 174 226
------- -------
Total loans charged off 193 464
------- -------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 4 38
Commercial, industrial and agricultural 76 106
Real estate - residential mortgage 3 35
Consumer 29 61
------- -------
Total recoveries 112 240
------- -------
Net charge-offs (recoveries) 81 224
------- -------
Current period provision for
loan losses 75 50
------- -------
Balance end of period 2,167 2,173
======= ======
</TABLE>
<PAGE>
Mid Penn Bancorp, Inc.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Nothing to report
Item 2. Changes in Securities - A 100% stock dividend was
paid on the common shares of Mid Penn Bancorp on August 25,
1997.
Item 3. Defaults Upon Senior Securities - Nothing to report
Item 4. Submission of Matters to a Vote of Security Holders
- - Nothing to report
Item 5. Other Information - The Bank received permission
from the Pennsylvania Department of Banking and the FDIC to
operate a mobile branch in the counties of Dauphin and
Cumberland for the purpose of collecting deposits from
commercial customers. The mobile branch is scheduled to
begin operation by year end. In addition, the corporation
is pursuing and has received a positive preliminary opinion
on the listing of its common stock on the American Stock
Exchange in New York, New York. The final application for
listing is expected to be submitted by the corporation to
AMEX by mid-November 1997.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - (27) Financial Data Schedule
b. Reports on Form 8-K - None
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Mid Penn Bancorp, Inc.
Registrant
/s/ Eugene F. Shaffer /s/ Gerald D. Schoffstall
By:Eugene F. Shaffer By:Gerald D. Schoffstall
Chairman, Pres. & CEO Treasurer
Date: November 1, 1997 Date: November 1, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4140
<INT-BEARING-DEPOSITS> 34270
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37067
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 142111
<ALLOWANCE> 2167
<TOTAL-ASSETS> 222026
<DEPOSITS> 180385
<SHORT-TERM> 7351
<LIABILITIES-OTHER> 3066
<LONG-TERM> 4721
0
0
<COMMON> 2627
<OTHER-SE> 23876
<TOTAL-LIABILITIES-AND-EQUITY> 222026
<INTEREST-LOAN> 9953
<INTEREST-INVEST> 2842
<INTEREST-OTHER> 9
<INTEREST-TOTAL> 12804
<INTEREST-DEPOSIT> 5431
<INTEREST-EXPENSE> 5844
<INTEREST-INCOME-NET> 6960
<LOAN-LOSSES> 75
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 3721
<INCOME-PRETAX> 4610
<INCOME-PRE-EXTRAORDINARY> 3212
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3212
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 8.63
<LOANS-NON> 1661
<LOANS-PAST> 566
<LOANS-TROUBLED> 113
<LOANS-PROBLEM> 2065
<ALLOWANCE-OPEN> 2173
<CHARGE-OFFS> 193
<RECOVERIES> 112
<ALLOWANCE-CLOSE> 2167
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
