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 June 30, 1998
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.
[ ] Yes [ X ] No
Indicate the number of shares outstanding of each of the
classes of common stock, as of the latest practical date.
2,607,549 shares of Common Stock, $1.00 par value per share,
were outstanding as of June 30, 1998.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
<CAPTION>
June 30, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks 4,635 4,409
Interest bearing balances 39,397 35,727
Available-for-sale securities 43,801 39,501
Federal funds sold 0 400
Loans 149,267 145,629
Less:
Unearned discount 1,921 1,943
Allowance for loan losses 2,244 2,176
------- -------
Net loans 145,102 141,510
------- -------
Bank premises and equip't, net 3,445 3,186
Other real estate 428 1,355
Accrued interest receivable 1,690 1,594
Other assets 990 1,093
------- -------
Total Assets 239,488 228,775
======= =======
LIABILITIES & STOCKHOLDERS EQUITY:
Deposits:
Demand 19,123 19,612
NOW 23,874 23,086
Money Market 15,462 11,675
Savings 18,569 17,454
Time 112,597 120,412
------- -------
Total deposits 189,625 192,239
------- -------
Short-term borrowings 4,029 2,234
Accrued interest payable 1,645 1,178
Other liabilities 880 553
Long-term debt 15,620 5,688
------- -------
Total Liabilities 211,799 201,892
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
2,626,608 shares at June 30, 1998 and
December 31, 1997 2,627 2,627
Surplus 13,872 13,872
Undivided profits 11,435 10,605
Unrealized holding gain on securities,
net of estimated tax effect 288 318
Less: Treasury Stock at cost
(19,059 and 19,241 shares) 533 539
------- -------
Total Stockholders Equity 27,689 26,883
------- ------
Total Liabilities & Equity 239,488 228,775
======= =======
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; dollars in thousands)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans 3,355 3,419 6,629 6,694
Int.-bearing balances 626 453 1,217 897
Treas. & Agency securities 407 261 773 486
Municipal securities 226 186 446 371
Other securities 12 19 23 32
Fed funds sold and repos 9 9 9 9
----- ----- ----- -----
Total Int. Income 4,635 4,347 9,097 8,489
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 1,952 1,798 3,898 3,577
Short-term borrowings 26 41 112 110
Long-term borrowings 213 79 329 129
----- ----- ----- -----
Total Int. Expense 2,191 1,918 4,339 3,816
----- ----- ----- -----
Net Int. Income 2,444 2,429 4,758 4,673
PROVISION FOR LOAN LOSSES 25 25 50 50
----- ----- ----- -----
Net Int. Inc. after Prov. 2,419 2,404 4,708 4,623
----- ----- ----- -----
NON-INTEREST INCOME:
Trust Dept 47 34 55 38
Service Chgs. on Deposits 107 73 202 143
Investment sec. gains, net 2 0 2 -1
Gain on sale of loans 23 64 23 64
Other 100 80 399 175
----- ----- ----- -----
Total Non-Interest Income 279 251 681 419
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 753 666 1,457 1,305
Occupancy, net 76 75 151 149
Equipment 112 92 215 179
PA Bank Shares tax 60 60 134 121
Other 459 390 904 689
----- ----- ----- -----
Tot. Non-int. Exp. 1,460 1,283 2,861 2,443
----- ----- ----- -----
Income before income taxes 1,238 1,372 2,528 2,599
INCOME TAX EXPENSE 341 410 708 764
----- ----- ----- -----
NET INCOME 897 962 1,820 1,835
===== ===== ===== =====
Other Comprehensive Income, net
of tax:
Unrealized holding losses on
securities arising during the
period 9 174 -28 -44
Less: reclassification
adjustments for gains included
in net income 2 0 2 -1
---- ---- ---- ----
Other comprehensive income 7 174 -30 -43
---- ---- ---- ----
Comprehensive Income 904 1,136 1,790 1,792
===== ===== ===== =====
NET INCOME PER SHARE 0.34 0.37 .70 .70
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 2,605,552 2,605,843
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 six months ended:
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net Income 1,820 1,835
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 50 50
Depreciation 177 166
Change in interest receivable -96 -69
Change in other assets 103 -179
Change in interest payable 467 420
Change in other liabilities 327 209
Other, net 0 0
------- -------
Net cash provided by
operating activities: 2,848 2,432
------- -------
Investing Activities:
Net decrease in int-bearing balances -3,670 -2,271
Proceeds from sale of securities 0 3,267
Proceeds from the maturity of secs. 4,953 2,926
Purchase of investment securities -9,327 -10,003
Proceeds from the sale of loans 1,574 2,338
Net decrease in loans -5,402 -1,984
Net purchases of fixed assets -436 -55
Proceeds from sale of other real estate 1,163 153
Capitalized additions - ORE 0 0
------- -------
Net cash provided by
investing activities -11,145 -5,629
------- -------
Financing Activities:
Net increase in demand and savings 5,201 551
Net increase in time deposits -7,815 -1,458
Net increase in sh-term borrowings 1,795 5,523
Net increase in long-term borrowings 9,932 44
Cash dividend declared -990 -955
------- -------
Net cash provided by
financing activities 8,123 3,705
------- -------
Net increase in cash & equivalents -174 508
Cash & cash equivalents, beg of period 4,809 4,442
------- -------
Cash & cash equivalents, end of period 4,635 4,950
======= =======
Supplemental Noncash Disclosures:
Loan charge-offs 27 138
Transfers to other real estate 0 326
</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 six months ended June 30, 1998 compared to year end
1997 and the Results of Operations for the second quarter
and first half of 1998 compared to the same periods in 1997.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of June 30, 1998, amounted to $239,488,000,
an increase of $9,886,000 or 4.9% over the total assets as
of December 31, 1997.
During the first quarter of 1998, insured jumbo certificates
of deposit of other institutions, interest bearing balances,
were yielding a higher return than other comparable
investments. Management took this opportunity to increase
the Bank's investment in interest bearing balances by
approximately $5 million. These balances were funded with a
10 year/1 year convertible FHLB borrowing securing a
positive spread.
Available for sale securities were also increased during the
first half in response to favorable return opportunities on
certain agency and municipal bonds.
Loan demand, particularly in the area of commercial real
estate, showed some renewed strength during the first half
of 1998. Even though the Bank experienced some large
payoffs in the commercial loan portfolio along with a
continued competitive pricing environment, net loans
increased by more than $3 million during the six-month
period.
Foreclosed assets held for sale decreased to $428,000 during
the first half of 1998 due to the sale of one residential
property, one commercial property, and several lots of
undeveloped land. These sales of other real estate resulted
in an after-tax gain of approximately $137,000. As of June
30, 1998, the balance of foreclosed assets held for sale
consisted of undeveloped land including farmland, one single
family residence and one commercial property.
Total deposits decreased by $2,614,000 during the first half
of 1998. This decrease was largely due to the run-off of
some short-term jumbo certificates of deposit issued to
municipalities. Lower costing demand and savings deposits
actually increased by $5,201,000 during the first half
largely due to a new money market deposit account offered by
the Bank.
Short-term borrowings, consisting of overnight borrowings,
increased by $1.8 million from year end.
All components of long-term debt are advances from the FHLB.
Long-term debt advances were initiated in order to secure an
adequate spread on certain pools of loans and investments of
the Bank.
RESULTS OF OPERATION
Net income for the first half of 1998 was $1,820,000,
compared to $1,835,000 earned in the same period of 1997.
Net income per share for both the six months ended June 30,
1998 and the same period of 1997 was $.70. Net income on an
annualized basis at June 30, 1998, as a percent of total
average assets, also known as return on assets (ROA)
was 1.5% as compared to 1.8% for the same period in 1997.
Net income as a percentage of stockholders' equity, also
known as return on equity, (ROE), was 13.6% on an annualized
basis for the first half of 1998 as compared to 14.9% for
the same period in 1997.
Second quarter net income was $897,000, or $.34 per share,
in 1998 as compared to $962,000, or $.37 per share, during
the same period of 1997.
Net interest income for the six month period ended June 30,
1998, was $4,758,000 an increase of $85,000 over the same
period of 1997. The net interest margin on average earning
assets was 4.5% at June 30, 1998, compared to 4.9% at June
30, 1997 as margins continued to be challenged by strong
rate competition for loans. A significant contribution to
the increase in net interest income was an increase in
volume in earning assets as the corporation poises to use
increased leverage, in light of a very strong equity
position, to increase earnings.
The Bank made a provision for loan losses of $50,000 during
the first half of 1998 and 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 during the present period
of economic strength. 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 $681,000 for the first half
of 1998 as compared to $419,000 earned during the same
period of 1997. The major increase in non-interest income
came from the gain on several parcels of other real estate
which were sold during the first half of 1998. The pretax
gain on these sales amounted to $207,000. Another
significant contribution to non-interest income is NSF fee
income. NSF fee income contributed in excess of $143,000
during the first half of 1998. The Corporation has also
implemented service charges for non-customer usage of Mid
Penn Bank owned cash machines. Expected income from ATM
service charging should yield in excess of $60,000 by year
end.
Non-interest expense during the first half of 1998 increased
significantly over the same period of 1997 due to several
factors. The Corporation spent $35,000 additional dollars
in 1998 on advertising. The additional advertising was used
to promote the Bank's free business checking account and the
Bank's IRA program in light of the new IRA options including
Roth and educational IRAs. The additional advertising was
also spurred by the bank merger activity in our market area
which created opportunities for attracting new customers who
were unhappy with their former banks' mergers. The
Corporation also incurred $71,000 in legal and
administrative costs associated with the Bancorp's upcoming
merger with Miners Bank of Lykens, a one office bank with
approximately $28 million in assets at December 31, 1997.
Also the Bank incurred $31,000 additionally in the first
half of 1998 on losses on the residential mortgages sold to
FNMA. These losses are offset by both up-front origination
fees and ongoing servicing fees associated with these loans.
Additionally, the Corporation incurred $25,000 in costs
associated with the property held for sale as other real
estate, and in excess of $15,000 in finder's fees for the
hire of additional Bank management talent.
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 six months of 1998. Another major
source of funds came from borrowings from the FHLB. Net
short-term borrowings increased by $1,795,000, and long-term
borrowings by $9,932,000. A new money market deposit
account helped generate a net increase in demand and savings
deposits of $5,201,000. Proceeds from the sale of student
loans and other real estate provided additional funds of
$1,574,000 and $1,163,000, respectively.
The major uses of funds during the period included a net
decrease in time deposits -- largely high-cost short-term
jumbo certificates of deposit. Commercial loan demand,
particularly in the area of commercial real estate, led to
the net use of funds for loans of $5,402,000. Other major
uses included a net increase of $3,670,000 in interest
bearing balances and a net increase of $4,374,000 in
investments, purchased to realize a spread over the cost of
corresponding funding.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets were $2,095,000 representing
0.87% of total assets at June 30, 1998, compared to
$2,086,000 or 0.91% of total assets at December 31, 1997.
Most non-performing assets are supported by collateral value
that appears to be adequate at June 30, 1998.
The Allowance for Loan Losses at June 30, 1998, was
$2,224,000 or 1.51% of loans, net of unearned interest, as
compared to $2,176,000 also 1.51% of loans, net of unearned
interest, at December 31, 1997.
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.
MERGER WITH MINERS BANK OF LYKENS
Mid Penn Bancorp will be merging with Miners Bank of Lykens,
in a pooling of interests transaction, after close of
business on July 10, 1998. Mid Penn Bancorp will be the
surviving entity. Miners Bank will be contributing
approximately $27,900,000 in total assets, $24,900,000 in
deposits and $2,848,000 in capital to the corporation.
Miners Bank of Lykens earned $37,000 in net income for the
year 1998 through the date of the merger.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
<CAPTION>
June 30, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
Non-Performing Assets:
Non-accrual loans 489 312
Past due 90 days or more 273 207
Restructured loans 905 212
------- -------
Total non-performing loans 1,667 731
Other real estate 428 1,355
------- -------
Total 2,095 2,086
======= =======
Percentage of total loans outstanding 1.40 1.43
Percentage of total assets 0.87 0.91
Analysis of the Allowance for Loan Losses:
Balance beginning of period 2,176 2,173
Loans charged off:
Commercial real estate, construction
and land development 0 4
Commercial, industrial and agricultural 0 32
Real estate - residential mortgage 8 12
Consumer 19 194
------- -------
Total loans charged off 27 242
------- -------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 7 4
Commercial, industrial and agricultural 25 107
Real estate - residential mortgage 0 3
Consumer 13 31
------- -------
Total recoveries 45 145
------- -------
Net charge-offs (recoveries) 18 -97
------- -------
Current period provision for
loan losses 50 100
------- -------
Balance end of period 2,244 2,176
======= ======
</TABLE>
<PAGE>
Mid Penn Bancorp, Inc.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Nothing to report
Item 2. Changes in Securities - Nothing to report
Item 3. Defaults Upon Senior Securities - Nothing to report
Item 4. Submission of Matters to a Vote of Security Holders
- - At the Annual Meeting of Shareholders held on April 28,
1998, a vote was held for the election of Class C directors:
Earl R. Etzweiler and William G. Nelson to serve for a
three-year term, and to ratify the selection of Parente,
Randolph, Orlando, Carey and Associates as external auditors
for the corporation for the year ending December 31, 1998.
Earl R. Etzweiler received 2,253,534 votes for and 6,251
votes withheld. William G. Nelson received 2,259,785 votes
for and zero votes withheld. The selection of
external auditors received 2,253,459 votes for, 4158 votes
against, and 2167 votes abstaining.
Item 5. Other Information - Nothing to report
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/ Kevin W. Laudenslager
By: Eugene F. Shaffer By: Kevin W. Laudenslager
Chairman, Pres. & CEO Treasurer
Date: July 27, 1998 Date: July 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4635
<INT-BEARING-DEPOSITS> 39397
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43801
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 147346
<ALLOWANCE> 2244
<TOTAL-ASSETS> 239488
<DEPOSITS> 189625
<SHORT-TERM> 4029
<LIABILITIES-OTHER> 2525
<LONG-TERM> 15620
0
0
<COMMON> 2627
<OTHER-SE> 25062
<TOTAL-LIABILITIES-AND-EQUITY> 239488
<INTEREST-LOAN> 6629
<INTEREST-INVEST> 2459
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9097
<INTEREST-DEPOSIT> 3898
<INTEREST-EXPENSE> 4339
<INTEREST-INCOME-NET> 4758
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 2861
<INCOME-PRETAX> 2528
<INCOME-PRE-EXTRAORDINARY> 2528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1820
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<YIELD-ACTUAL> 8.1
<LOANS-NON> 489
<LOANS-PAST> 273
<LOANS-TROUBLED> 905
<LOANS-PROBLEM> 774
<ALLOWANCE-OPEN> 2176
<CHARGE-OFFS> 27
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 2244
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
