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, 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.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the
classes of common stock, as of the latest practical date.
2,755,479 shares of Common Stock, $1.00 par value per share,
were outstanding as of September 30, 1998.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks 4,063 5,998
Interest bearing balances 40,389 36,004
Available-for-sale securities 60,572 39,595
Held-to-maturity securities (FMV: 14,204) 0 14,004
Federal funds sold 1,600 1,000
Loans 157,031 156,519
Less:
Unearned discount 2,062 1,943
Allowance for loan losses 2,359 2,281
------- -------
Net loans 152,610 152,295
------- -------
Bank premises and equip't, net 3,601 3,453
Other real estate 392 1,355
Accrued interest receivable 1,834 1,886
Other assets 868 1,138
------- -------
Total Assets 265,929 256,728
======= =======
LIABILITIES & STOCKHOLDERS EQUITY:
Deposits:
Demand 22,073 25,057
NOW 26,131 26,663
Money Market 15,514 11,675
Savings 24,663 21,199
Time 126,502 132,552
------- -------
Total deposits 214,883 217,146
------- -------
Short-term borrowings 707 2,234
Accrued interest payable 2,059 1,275
Other liabilities 1,216 654
Long-term debt 15,585 5,688
------- -------
Total Liabilities 234,450 226,997
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
2,774,858 shares at Sept. 30, 1998
and December 31, 1997 2,775 2,775
Surplus 14,072 14,072
Undivided profits 14,516 13,105
Unrealized holding gain on securities,
net of estimated tax effect 658 318
Less: Treasury Stock at cost
(19,379 and 19,056 shares) 542 539
------- -------
Total Stockholders Equity 31,479 29,731
------- ------
Total Liabilities & Equity 265,929 256,728
======= =======
</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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans 3,698 3,507 10,797 10,692
Int.-bearing balances 639 527 1,916 1,430
Treas. & Agency securities 599 546 1,770 1,464
Municipal securities 250 207 715 601
Other securities 18 17 44 58
Fed funds sold and repos 15 16 40 55
----- ----- ----- -----
Total Int. Income 5,219 4,820 15,282 14,300
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 2,164 2,086 6,525 6,110
Short-term borrowings 27 96 139 206
Long-term borrowings 217 78 546 207
----- ----- ----- -----
Total Int. Expense 2,408 2,260 7,210 6,523
----- ----- ----- -----
Net Int. Income 2,811 2,560 8,072 7,777
PROVISION FOR LOAN LOSSES 50 25 104 80
----- ----- ----- -----
Net Int. Inc. after Prov. 2,761 2,535 7,968 7,697
----- ----- ----- -----
NON-INTEREST INCOME:
Trust Dept 8 12 63 50
Service Chgs. on Deposits 125 81 336 236
Investment sec. gains, net 3 0 11 -2
Gain on sale of loans 42 862 65 926
Other 226 81 640 268
----- ----- ----- -----
Total Non-Interest Income 404 1,036 1,115 1,478
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 798 823 2,518 2,387
Occupancy, net 84 82 247 245
Equipment 119 122 375 351
PA Bank Shares tax 69 65 213 196
Other 510 419 1,552 1,228
----- ----- ----- -----
Tot. Non-int. Exp. 1,580 1,511 4,905 4,407
----- ----- ----- -----
Income before income taxes 1,585 2,060 4,178 4,768
INCOME TAX EXPENSE 523 636 1,213 1,419
----- ----- ----- -----
NET INCOME 1,062 1,424 2,965 3,349
===== ===== ===== =====
Other Comprehensive Income, net
of tax:
Unrealized holding losses on
securities arising during the
period 373 122 351 77
Less: reclassification
adjustments for gains included
in net income 3 0 11 -2
---- ---- ---- ----
Other comprehensive income 370 122 340 79
---- ---- ---- ----
Comprehensive Income 1,432 1,546 3,305 3,428
===== ===== ===== =====
NET INCOME PER SHARE 0.39 0.52 1.07 1.22
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 2,755,285 2,754,495
2,755,802 2,755,802
</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,
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net Income 2,965 3,349
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 104 75
Depreciation 304 251
Change in interest receivable 52 -255
Change in other assets 270 -137
Change in interest payable 784 767
Change in other liabilities 562 670
Other, net 0 -137
------- -------
Net cash provided by
operating activities: 5,041 4,583
------- -------
Investing Activities:
Net decrease in int-bearing balances -4,385 -5,837
Proceeds from sale of securities 2,150 3,370
Proceeds from the maturity of secs. 19,096 4,433
Purchase of investment securities -27,986 -16,123
Proceeds from the sale of loans 6,132 7,454
Net decrease in loans -6,852 -5,383
Purchase of loans 0 0
Net purchases of fixed assets -452 -71
Proceeds from sale of other real estate 1,368 157
Capitalized additions - ORE 0 0
------- -------
Net cash provided by
investing activities -10,929 -12,000
------- -------
Financing Activities:
Net increase in demand and savings 3,787 -822
Net increase in time deposits -6,050 6,536
Net increase in sh-term borrowings -1,527 2,839
Net increase in long-term borrowings 9,897 11
Cash dividend declared -1,554 -1,449
------- -------
Net cash provided by
financing activities 4,553 7,115
------- -------
Net increase in cash & equivalents -1,335 -302
Cash & cash equivalents, beg of period 6,998 4,442
------- -------
Cash & cash equivalents, end of period 5,663 4,140
======= =======
Supplemental Noncash Disclosures:
Loan charge-offs 107 193
Transfers to other real estate 169 433
</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 September 30, 1998 compared to
year end 1997 and the Results of Operations for the third
quarter and first nine months of 1998 compared to the same
periods in 1997.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of September 30, 1998, amounted to
$265,929,000, an increase of $9,201,000 or 3.6% over the
total assets as of December 31, 1997.
Mid Penn Bancorp merged with Miners Bank of Lykens, after
close of business on July 10, 1998, in a pooling of
interests transaction meaning that all financial information
will be restated as though the two institutions had always
been together. Mid Penn Bancorp is the surviving entity.
Miners Bank contributed 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.
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 three quarters 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 three
quarters of 1998. Even though the Bank experienced some
large payoffs in the commercial loan portfolio along with a
continued competitive pricing environment, net loans
showed a modest increase of $315,000 during the nine-month
period. However, this increase is net of the sales of a
portion of the Bank's student loan portfolio, which
generated proceeds of $6,132,000.
Foreclosed assets held for sale decreased to $392,000 during
the first nine months of 1998 due to the sale of two
residential properties, one commercial property, and several
lots of undeveloped land. These sales of other real estate
resulted in a net after-tax gain of approximately $138,000.
As of September 30, 1998, the balance of foreclosed assets
held for sale consisted of undeveloped land including
farmland, one single family residence and two commercial
properties.
Total deposits decreased by $2,263,000 during the first nine
months of 1998. This decrease was largely due to the run-
off of some short-term jumbo certificates of deposit issued
to municipalities prior to year-end 1997. Lower costing
demand and savings deposits actually increased by $3,787,000
during the same period largely due to a new money market
deposit account offered by the Bank.
Short-term borrowings, consisting mainly of overnight
borrowings, decreased by $1.5 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 three quarters of 1998 was
$2,965,000, compared to $3,349,000 earned in the same period
of 1997. Excluding the net gain on the sale of the Bank's
credit card portfolio in 1997, earnings for the first nine
months of 1998 exceeded the first nine months of 1997 by
$187,000 or 6.7%. Net income per share for the nine months
ended September 30, 1998 was $1.07, and for the same period
of 1997 was $1.22. Net income on an annualized basis at
September 30, 1998, as a percent of total average assets,
also known as return on assets (ROA) was 1.5% as compared to
2.3% for the same period in 1997. Net income as a
percentage of stockholders' equity, also known as return on
equity, (ROE), was 13.3% on an annualized basis for the
first nine months of 1998 as compared to 15.0% for
the same period in 1997.
Third quarter net income was $1,062,000, or $.39 per share,
in 1998 as compared to $1,424,000, or $.52 per share, during
the same period of 1997. Net earnings during the third
quarter of 1997 without the sale of the credit card
portfolio were $853,000. Excluding this net gain on sale,
earnings for the third quarter of 1998 exceeded those of the
same quarter of 1997 by $209,000 or 24.9%.
Net interest income for the nine month period ended
September 30, 1998, was $8,072,000 an increase of $295,000
over the same period of 1997. The net interest margin on
average earning assets was 4.5% at September 30, 1998,
compared to 4.8% at September 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 $104,000 during
the first nine months of 1998 compared to $75,000 made
during the same period 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 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 amounted to $1,115,000 during the first
nine months of 1998 as compared to $1,478,000 earned during
the same period of 1997 which included a pre-tax gain of
$862,000 on the sale of the Bank's credit card loan
portfolio. A major component of 1998 non-interest income
came from the gain on several parcels of other real estate
which were sold during the first nine months of 1998. The
pretax gain on these sales amounted to $291,000. Another
significant contribution to non-interest income is NSF fee
income. NSF fee income contributed in excess of $236,000
during the first three quarters 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 nine months 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 $86,000 in legal and
administrative costs associated with the Bancorp's
merger with Miners Bank of Lykens, a one office bank with
approximately $28 million in assets at December 31, 1997.
Also the Bank incurred $34,000 additionally in the first
nine months 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 $82,000
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 nine months of 1998. Another major
source of funds came from borrowings from the FHLB. Net
long-term borrowings increased by $9,897,000. A new money
market deposit account helped generate a net increase in
demand and savings deposits of $3,787,000. Proceeds from
the sale of student loans and other real estate provided
additional funds of $6,132,000 and $1,368,000, respectively.
Management decided on the sale of a portion of the student
loan portfolio in order to reinvest these funds at a better
return elsewhere in the loan portfolio.
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 $6,852,000. Other major
uses included a net increase of $4,385,000 in interest
bearing balances and a net increase of $6,736,000 in
investments, purchased to realize a spread over the cost of
corresponding funding. Jumbo certificates of deposit of
other banks have been particularly attractive investments in
the current falling-interest-rate environment due to a
greater time lag in rate movements on these instruments
compared to the majority of other investment alternatives.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets were $2,203,000 representing
0.83% of total assets at September 30, 1998, compared to
$2,091,000 or 0.81% of total assets at December 31, 1997.
Most non-performing assets are supported by collateral value
that appears to be adequate at September 30, 1998.
The Allowance for Loan Losses at September 30, 1998, was
$2,359,000 or 1.52% of loans, net of unearned interest, as
compared to $2,281,000 or 1.48% 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.
YEAR 2000 COMPLIANCE: MANAGEMENT INFORMATION SYSTEMS
The Board of Directors has established a Year 2000
compliance committee to address the risks of the critical
internal bank systems that are affected by date sensitive
applications, as well as external systems provided by third
parties. A comprehensive Year 2000 Business Action Plan was
developed detailing the sequence of events and actions to be
taken as the Year 2000 approaches.
In November 1997, the Company purchased and installed an
upgrade to its current systems to improve efficiencies of
operations and position itself for future growth. The cost
of the new system was approximately $284,000. Anticipated
additional costs prior to year 2000 are estimated to be
$47,000 Preconversion testing demonstrated that the new
hardware and software are Year 2000 compliant. In addition,
the corporation has hired a third-part Year-2000 consultant,
Steve Carroll, BNP, Inc. With the aid of BNP, the
corporation has developed a Year-2000 testing master plan,
organization chart and detailed work plan. The testing plan
includes several phases of testing with all mission critical
testing scheduled for completion by December 10, 1998.
The corporation's software provider, ITI, has determined to
be Year 2000 ready. This readiness is being confirmed by
internal testing at Mid Penn Bancorp in accordance with the
Year-2000 testing master plan. With both software and
hardware readiness, the corporation anticipates minimal risk
in mission critical operations. External risks are also
being assessed in conjunction with the corporation's Year
2000 Business Action Plan.
The corporation is in the process of developing contingency
planning with the aid of BNP consulting. Further detail
concerning our Year-2000 readiness, and the master and
testing plans are available by contacting Mid Penn Bancorp.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
Non-Performing Assets:
Non-accrual loans 119 312
Past due 90 days or more 287 212
Restructured loans 1,405 212
------- -------
Total non-performing loans 1,811 736
Other real estate 392 1,355
------- -------
Total 2,203 2,091
======= =======
Percentage of total loans outstanding 1.40 1.34
Percentage of total assets 0.83 0.81
Analysis of the Allowance for Loan Losses:
Balance beginning of period 2,281 2,278
Loans charged off:
Commercial real estate, construction
and land development 0 4
Commercial, industrial and agricultural 40 32
Real estate - residential mortgage 40 20
Consumer 27 197
------- -------
Total loans charged off 107 253
------- -------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 7 4
Commercial, industrial and agricultural 50 107
Real estate - residential mortgage 0 3
Consumer 24 33
------- -------
Total recoveries 81 147
------- -------
Net charge-offs (recoveries) 26 -106
------- -------
Current period provision for
loan losses 104 109
------- -------
Balance end of period 2,359 2,281
======= ======
</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
- - Nothing to report
Item 5. Other Information - Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - (27) Financial Data Schedule
b. Reports on Form 8-K - The corporation filed a current
report on Form 8-K dated July 10, 1998, with respect to
items 2 and 7, the acquisition of Miners Bank of Lykens,
which Report was filed with the Commission on July 13, 1998.
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Mid Penn Bancorp, Inc.
Registrant
/s/ Eugene F. Shaffer /s/ Kevin W. Laudenslager
By:Eugene F. Shaffer By:Kevin W. Laudenslager
Chairman, Pres. & CEO Treasurer
Date: November 12, 1998 Date: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4063
<INT-BEARING-DEPOSITS> 40389
<FED-FUNDS-SOLD> 1600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60572
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 154969
<ALLOWANCE> 2359
<TOTAL-ASSETS> 265929
<DEPOSITS> 214883
<SHORT-TERM> 707
<LIABILITIES-OTHER> 3275
<LONG-TERM> 15585
0
0
<COMMON> 2775
<OTHER-SE> 28704
<TOTAL-LIABILITIES-AND-EQUITY> 265929
<INTEREST-LOAN> 10797
<INTEREST-INVEST> 4485
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15282
<INTEREST-DEPOSIT> 6525
<INTEREST-EXPENSE> 7210
<INTEREST-INCOME-NET> 8072
<LOAN-LOSSES> 104
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 4905
<INCOME-PRETAX> 4178
<INCOME-PRE-EXTRAORDINARY> 4178
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2965
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 8.2
<LOANS-NON> 119
<LOANS-PAST> 287
<LOANS-TROUBLED> 1405
<LOANS-PROBLEM> 1486
<ALLOWANCE-OPEN> 2281
<CHARGE-OFFS> 107
<RECOVERIES> 81
<ALLOWANCE-CLOSE> 2359
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
