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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, 1997
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:
Common Stock, $1.00 Par Value
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
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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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 $52,128,147 at March 20, 1998 (a
date within 60 days of the date hereof). As of March 20, 1998, the Registrant
had 2,607,289 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Excerpts from the Registrant's 1997 Annual Report to Shareholders are
incorporated herein by reference in response to Part II, hereof. The
Registrant's Proxy Statement to be used in connection with the 1998 Annual
Meeting of Shareholders is incorporated herein by reference in partial response
to Part III, hereof.
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PART I
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ITEM 1. BUSINESS.
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General. Mid Penn Bancorp, Inc. (the "Registrant"), was incorporated in
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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.
As of January 9, 1998, the Registrant entered into an Agreement and Plan of
Reorganization (the "Agreement") with Miners Bank of Lykens ("Miners"), pursuant
to which Miners will merge with, into and under the Charter of the Bank. Under
the terms of the Agreement, shareholders of Miners will receive ten (10) shares
of the Registrant's Common Stock for each share of Miners common stock.
Management of the Registrant estimates that the aggregate value of the
transaction is approximately $4,595,750. Management believes that the
acquisition is an excellent opportunity for the Registrant and will result in
substantial benefit to shareholders, the community and the Bank's customers.
Miners, headquartered in Lykens, Dauphin County, Pennsylvania, had total assets
of approximately $28 million as of December 31, 1997. Under the terms of the
Agreement, the Miners Bank at 550 Main Street, Lykens, will operate as a branch
office of the Bank and all employees of Miners will be employed by the Bank.
The Bank, which is headquartered in Millersburg, Dauphin County, Pennsylvania,
presently has 9 offices in Dauphin, Northumberland, Schuylkill, and Cumberland
Counties, Pennsylvania with total assets of approximately $229 million as of
December 31, 1997. Subject to receipt of required regulatory approvals,
including the approval of the Federal Deposit Insurance Corporation and the
Department of Banking of the Commonwealth of Pennsylvania, management
anticipates consummation of the transaction in late spring, 1998.
At December 31, 1997, the Registrant's consolidated assets, deposits and
shareholders' equity were approximately $228,755,000, $192,239,000 and
$26,883,000, 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.
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The Registrant may include forward-looking statements relating to such
matters as anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters in this and other filings with the Commission. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Registrant notes that a variety of factors could cause the Registrant's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Registrant's forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development and results of the Registrant's business include the following:
general economic conditions, including their impact on capital expenditures;
business conditions in the banking industry; the regulatory environment; rapidly
changing technology and evolving banking industry standards; competitive
factors, including increased competition with community, regional and national
financial institutions; new service and product offerings by competitors and
price pressures; and similar items.
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, 1997, the Registrant had 71 full-time and 30
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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 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
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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
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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.
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
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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
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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
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 17 of the Registrant's 1997
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
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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
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
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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
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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 tentative 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, as
provided in IRC Sections 56 and 58 and tax preference items, as provided in IRC
Section 57 ("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). The excess of the tentative AMT over the regular tax for the
taxable year is the tax payer's net minimum tax liability.
State Tax. The Registrant is subject to the Pennsylvania Corporate Net
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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 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 .0125%.
Supervision and Regulation--The Bank The Bank's deposits are insured by
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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).
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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
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<S> <C> <C> <C> <C>
CAPITAL CATEGORY
Well capitalized greater than or equal to 10.0 greater than or equal to 6.0 greater than or equal to 5.0 No
Adequately capitalized greater than or equal to 8.0 greater than or equal to 4.0 greater than or equal to 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 or equal to 2.0
</TABLE>
*3.0 for those banks having the highest available regulatory rating.
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
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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 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",
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"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.
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.
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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.
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
10
<PAGE>
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.
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.
11
<PAGE>
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 20, 1998, there were approximately 715 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 page 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 pages 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
- -------- ----------------------------------------------------------
The information required by this Item is set forth on pages 32 through 34
of theRegistrant's Annual Report to Shareholders, which page is 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 5 through 20 of
the Registrant's Annual Report to Shareholders, which pages are included at
Exhibit 13 hereto, and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
12
<PAGE>
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 5 through 7 and 13 and 14 of the
Registrant's Proxy Statement to be used in connection with the 1998 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, with the exception
of Mr. Dakey, who inadvertently filed one late form to report one transaction.
ITEM 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
The information required by this Item, relating to executive compensation,
is set forth in pages 8 through 12 of the Registrant's 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
Proxy Statement to be used in connection with the 1998 Annual Meeting of
Shareholders, which pages are incorporated herein by reference.
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 13, of the Registrant's Proxy Statement to be
used in connection with the 1998 Annual Meeting of Shareholders, which page is
incorporated herein by reference.
13
<PAGE>
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. (Incorporated by
Reference to Exhibit 3(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, and filed
with the Commission on March 31, 1997.)
3(ii) Registrant's By-laws. (Incorporated by Reference to Exhibit
3(ii) to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, and filed with the Commission
on March 31, 1997.)
10.1 Retirement Bonus Plan for the Board of Directors of Mid Penn
Bank. (Incorporated by Reference to Exhibit 10 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, and filed with the Commission on March
31, 1997.)
10.2 Agreement and Plan of Reorganization, dated as of January 9,
1998, among Mid Penn Bancorp, Inc., Mid Penn Bank and Miners
Bank of Lykens, (Lykens, PA.).
14
<PAGE>
11 Statement re: Computation of Earnings per share. (Included
herein at Exhibit 13, at page 6 of Registrant's Annual
Report to Shareholders.)
12 Statements re: Computation of Ratios. (Included herein at
Exhibit 13, at page 17 of Registrant's Annual Report to
Shareholders.)
13 Excerpts from Registrant's 1997 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, 1997.
(c) The exhibits required herein are included under Item 14(a), above.
(d) NOT APPLICABLE.
15
<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, 1998
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, 1998
----------------------------------- ----------------------
Eugene F. Shaffer
Chairman of the Board of Directors,
President, Chief Executive Officer
and Director (principal executive officer)
By /s/ Kevin W. Laudenslager March 25, 1998
----------------------------------- ----------------------
Kevin W. Laudenslager
Treasurer (principal financial and
accounting officer)
By /s/ Jere M. Coxon March 25, 1998
----------------------------------- ----------------------
Jere M. Coxon, Director
By /s/ Alan W. Dakey March 25, 1998
----------------------------------- ----------------------
Alan W. Dakey, Director
16
<PAGE>
By /s/ Earl R. Etzweiler March 25, 1998
----------------------------------- ----------------------
Earl R. Etzweiler, Director
By /s/ Charles F. Lebo March 25, 1998
----------------------------------- ----------------------
Charles F. Lebo, Director
By /s/ Warren A. Miller March 25, 1998
----------------------------------- ----------------------
Warren A. Miller, Director
By /s/ William G. Nelson March 25, 1998
----------------------------------- ----------------------
William G. Nelson, Director
By /s/ Edwin D. Schlegel March 25, 1998
----------------------------------- ----------------------
Edwin D. Schlegel, Director
By /s/ Guy J. Snyder, Jr. March 25, 1998
----------------------------------- ----------------------
Guy J. Snyder, Jr., Director
17
<PAGE>
EXHIBIT INDEX
Page Number
in Manually Signed
Exhibit No. Original
- ----------- --------
3(i) Registrant's Articles of Incorporation. (Incorporated by
Reference to Exhibit 3(i) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996,
and filed with the Commission on March 31, 1997.)
3(ii) Registrant's By-laws. (Incorporated by Reference to
Exhibit 3(ii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, and filed with the
Commission on March 31, 1997.)
10.1 Retirement Bonus Plan for the Board of Directors of Mid Penn
Bank. (Incorporated by Reference to Exhibit 10 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, and filed
with the Commission on March 31, 1997.)
10.2 Agreement and Plan of Reorganization, dated as of January 9, 1998,
among Mid Penn Bancorp, Inc., Mid Penn Bank and Miners Bank of
Lykens, (Lykens, PA.).
11 Statement re: Computation of Earnings per share. (Included herein at
Exhibit 13, at page 6 of Registrant's Annual Report to Shareholders.)
12 Statements re: Computation of Ratios. (Included herein at Exhibit 13,
at page 17 of Registrant's Annual Report to Shareholders.)
13 Excerpts from Registrant's 1997 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Parente, Randolph, Orlando Carey & Associates,
independent auditors.
27 Financial Data Schedule.
18
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
MID PENN BANCORP, INC.
MID PENN BANK
AND
MINERS BANK OF LYKENS (LYKENS, PA.)
January 9, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I AGREEMENT AND PLAN OF MERGER.............................. 1
1.1 Agreement and Plan of Merger......................... 1
ARTICLE II CONVERSION OF SHARES AND EXCHANGE
OF STOCK CERTIFICATES..................................... 2
2.1 Conversion of Shares................................. 2
2.2 Exchange of Stock Certificates....................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF MINERS BANK OF LYKENS.................................. 5
3.1 Authority............................................ 5
3.2 Organization and Standing............................ 6
3.3 No Subsidiaries...................................... 6
3.4 Capitalization....................................... 6
3.5 Articles of Incorporation, Bylaws and Minute Books... 6
3.6 Consents............................................. 6
3.7 Financial Statements and Regulatory Reports.......... 7
3.8 Absence of Undisclosed Liabilities................... 7
3.9 Absence of Changes................................... 7
3.10 Dividends, Distributions and Stock Purchases......... 7
3.11 Taxes................................................ 8
3.12 Title to and Condition of Assets..................... 8
3.13 Contracts............................................ 8
3.14 Litigation and Governmental Directives............... 9
3.15 Compliance with Laws; Governmental Authorizations... 9
3.16 Insurance............................................ 10
3.17 Financial Institutions Bonds......................... 10
3.18 Labor Relations...................................... 10
3.19 Employee Benefit Plans............................... 11
3.20 Related Party Transactions........................... 11
3.21 Deleted.............................................. 12
3.22 Deleted.............................................. 12
3.23 Complete and Accurate Disclosure..................... 12
3.24 Beneficial Ownership of Mid Penn Bancorp, Inc.
Common Stock......................................... 12
3.25 Environmental Matters................................ 12
ii
<PAGE>
3.26 Proxy Statement/Prospectus........................... 14
3.27 Non-Registration Under the 1934 Act.................. 14
3.28 Deposit Insurance.................................... 14
3.29 Repurchase Agreements................................ 15
3.30 Assumability of Contracts and Leases................. 15
3.31 Loans................................................ 15
3.32 Materiality.......................................... 15
3.33 Deleted.............................................. 15
3.34 Deleted.............................................. 15
3.35 Adjustable Rate Mortgages............................ 15
3.36 CRA Compliance....................................... 15
3.37 Deleted.............................................. 16
3.38 Loan Loss Reserve.................................... 16
3.39 Deleted.............................................. 16
3.40 Deleted.............................................. 16
3.41 Deleted.............................................. 16
3.42 Accuracy of Representations.......................... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MID PENN
BANCORP, INC.............................................. 16
4.1 Authority............................................ 16
4.2 Organization and Standing............................ 16
4.3 Capitalization....................................... 17
4.4 Deleted.............................................. 17
4.5 Financial Statements................................. 17
4.6 Absence of Undisclosed Liabilities................... 17
4.7 Absence of Changes................................... 18
4.8 Litigation........................................... 18
4.9 Proxy Statement/Prospectus........................... 18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
MID PENN BANK............................................. 18
5.1 Capital Structure of Mid Penn Bank................... 18
5.2 Organization and Standing............................ 19
5.3 Authorized and Effective Agreement................... 19
ARTICLE VI COVENANTS OF MINERS BANK OF LYKENS........................ 19
6.1 Conduct of Business.................................. 19
6.2 Best Efforts......................................... 22
6.3 Access to Properties and Records..................... 23
iii
<PAGE>
6.4 Subsequent Financial Statements...................... 23
6.5 Board and Committee Minutes.......................... 23
6.6 Update Schedule...................................... 23
6.7 Notice............................................... 23
6.8 Other Proposals...................................... 24
6.9 Dividends............................................ 24
6.10 Core Deposits........................................ 24
6.11 Affiliate Letters.................................... 24
6.12 No Purchases or Sales of Mid Penn Bancorp, Inc.
Common Stock During Price Determination Period....... 24
6.13 Accounting Treatment
6.14 Press Releases....................................... 25
6.15 Deleted.............................................. 25
6.16 Phase I Environmental Audit.......................... 25
6.17 Deleted.............................................. 25
ARTICLE VII COVENANTS OF MID PENN BANCORP, INC. AND
MID PENN BANK............................................. 25
7.1 Best Efforts......................................... 25
7.2 Access to Properties and Records..................... 26
7.3 Subsequent Financial Statements...................... 26
7.4 Update Schedule...................................... 26
7.5 Notice............................................... 26
7.6 No Purchase or Sales of Mid Penn Bancorp, Inc.
Common Stock During Price Determination Period....... 26
ARTICLE VIII CONDITIONS PRECEDENT...................................... 27
8.1 Common Conditions.................................... 27
8.2 Conditions Precedent to Obligations
of Mid Penn Bancorp, Inc. and Mid Penn Bank.......... 28
8.3 Conditions Precedent to the Obligations
of Miners Bank of Lykens............................. 30
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER......................... 31
9.1 Termination.......................................... 31
9.2 Effect of Termination................................ 32
9.3 Amendment............................................ 32
9.4 Waiver............................................... 33
iv
<PAGE>
ARTICLE X RIGHTS OF DISSENTING SHAREHOLDERS OF
MINERS BANK OF LYKENS..................................... 33
10.1 Rights of Dissenting Shareholders
of Miners Bank of Lykens............................. 33
ARTICLE XI CLOSING AND EFFECTIVE DATE................................ 33
11.1 Closing.............................................. 33
11.2 Effective Date....................................... 33
ARTICLE XII NO SURVIVAL OF REPRESENTATIONS
AND WARRANTIES............................................ 34
12.1 No Survival.......................................... 34
ARTICLE XIII POST-MERGER AGREEMENTS.................................... 34
13.1 Employees............................................ 34
13.2 Miners Office Board.................................. 35
13.3 Additional Commitments of MP Corp. and MP Bank....... 36
13.4 Merger of Profit Sharing Plans....................... 36
ARTICLE XIV GENERAL PROVISIONS........................................ 36
14.1 Expenses............................................. 36
14.2 Other Mergers and Acquisitions....................... 36
14.3 Access; Confidentiality.............................. 37
14.4 Notices.............................................. 37
14.5 Captions............................................. 38
14.6 Counterparts......................................... 38
14.7 Severability......................................... 38
14.8 Parties in Interest.................................. 38
14.9 Entire Agreement..................................... 38
14.10Governing Law........................................ 38
EXHIBITS: AGREEMENT AND PLAN OF MERGER..............................A-1
("BANK MERGER AGREEMENT")
SUPPORT AGREEMENT.........................................B-1
<PAGE>
EXHIBIT 10.2
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization (hereinafter "Agreement") is
dated and made this 9th day of January, 1998, by and among MID PENN BANCORP,
INC., a Pennsylvania business corporation having its corporate headquarters at
349 Union Street, P.O. Box 111, Millersburg, Pennsylvania 17061 ("MP Corp."),
Mid Penn Bank, a Pennsylvania state-chartered banking institution and the
wholly-owned subsidiary of MP Corp., having its corporate headquarters at 349
Union Street, P.O. Box 111, Millersburg, Pennsylvania 17061 ("MP Bank"); and
Miners Bank of Lykens (Lykens, PA.), a Pennsylvania state-chartered banking
institution having its corporate headquarters at 550 Main Street, P.O. Box 38,
Lykens, Pennsylvania 17048-0038 ("Miners").
Background:
----------
MP Corp. is a Pennsylvania business corporation and a registered bank
holding company. MP Bank is a Pennsylvania state-chartered banking institution
and a wholly-owned subsidiary of MP Corp. Miners is a Pennsylvania state-
chartered banking institution. MP Corp. wishes to acquire Miners, and Miners
wishes to merge with and into MP Bank. Subject to the terms and conditions of
this Agreement, the foregoing transaction will be accomplished by means of a
reorganization and merger under which Miners will be merged with and into MP
Bank. MP Bank will survive the merger, and all of the outstanding shares of the
$5.00 par value common stock of Miners ("Miners Common Stock") will be converted
into shares of the $1.00 par value common stock of MP Corp. ("MP Corp. Common
Stock") in the manner, on the terms, and subject to the conditions of this
Agreement.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the premises, mutual promises,
covenants, agreements, representations and warranties hereinafter set forth, and
of other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
AGREEMENT AND PLAN OF MERGER
----------------------------
Section 1.1. Agreement and Plan of Merger. Subject to the terms and
----------- ----------------------------
conditions of this Agreement, Miners shall merge with and into MP Bank (the
"Merger") in accordance with the Agreement and Plan of Merger attached hereto as
Exhibit "A" ("Bank Merger Agreement") and pursuant to the provisions of the
Pennsylvania Banking Code of 1965, as amended (the "Banking Code").
1
<PAGE>
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
------------------------------
Section 2.1. Conversion of Shares. On the Effective Date (as defined in
----------- --------------------
Section 11.2 of this Agreement) the shares of Miners Common Stock then
outstanding shall be converted into shares of MP Corp. Common Stock, as follows:
(a) General. Subject to the provisions of Section 2.1(b); 2.1(c) and
-------
2.1(d) of this Article II, each share of Miners Common Stock issued and
outstanding immediately before the Effective Date shall, on the Effective
Date, be converted into and become, without any action on the part of the
holder thereof, ten (10) shares of MP Corp. Common Stock. Subject to the
provisions of Section 2.1(b), the aggregate number of shares of MP Corp.
Common Stock to be issued under this Agreement shall not exceed 148,250
shares.
(b) Anti-dilution Provision. In the event that MP Corp. shall at any
-----------------------
time before the Effective Date: (i) declare or pay a dividend in shares of
MP Corp. Common Stock, (ii) combine the outstanding shares of MP Corp.
Common Stock into a smaller number of shares, or (iii) subdivide the
outstanding shares of MP Corp. Common Stock into a greater number of
shares, or (iv) reclassify the shares of MP Corp. Common Stock, then the
exchange provisions of Section 2.1 (a) of this Article II shall be
proportionately adjusted accordingly.
(c) No Fractional Shares. No fractional shares of MP Corp. Common
--------------------
Stock , and no scrip or certificates therefor, shall be issued in
connection with the Merger. In lieu of the issuance of any fractional
share to which he would otherwise be entitled, each former shareholder of
Miners shall receive in cash an amount equal to the fair market value of
his fractional interest, which fair market value shall be determined by
multiplying such fraction by the closing market price of MP Corp. Common
Stock.
(d) Miners Treasury Stock. Each share of Miners Common Stock issued
---------------------
and held in the treasury of Miners as of the Effective Date, if any, shall
be canceled, and no cash, stock, or other property shall be delivered in
exchange therefor.
(e) MP Corp. Common Stock.
---------------------
(i) Each share of MP Corp. Common Stock issued and outstanding
immediately prior to the Effective Date, shall, on and after the
Effective Date, continue to be issued and outstanding as an identical
share of MP Corp. Common Stock.
2
<PAGE>
(ii) Each share of MP Corp. Common Stock issued and held in the
treasury of MP Corp. as of the Effective Date, if any, shall, on and
after the Effective Date, continue to be issued and held in the
treasury of MP Corp.
Section 2.2. Exchange of Stock Certificates. Miners Common Stock
----------- ------------------------------
certificates shall be exchanged for MP Corp. Common Stock certificates in
accordance with the following procedures:
(a) Exchange Agent. The transfer agent of MP Corp. shall act as
--------------
exchange agent (the "Exchange Agent") to receive Miners Common Stock
certificates from the holders thereof and to exchange such stock
certificates for MP Corp. Common Stock certificates and (if applicable) to
pay cash for fractional shares of Miners Common Stock pursuant to Section
2.1(c) above. The Exchange Agent shall, on or promptly after the Effective
Date, mail to each former shareholder of Miners a notice specifying the
procedures to be followed in surrendering such shareholder's Miners Common
Stock certificates.
(b) Surrender of Certificates. As promptly as possible after receipt
-------------------------
of the Exchange Agent's notice, each former shareholder of Miners shall
surrender his Miners Common Stock certificates to the Exchange Agent;
provided, that if any former shareholder of Miners shall be unable to
surrender his Miners Common Stock certificates due to loss or mutilation
thereof, he may make a constructive surrender by following procedures
comparable to those customarily used by MP Corp. for issuing replacement
certificates to MP Corp. shareholders whose MP Corp. Common Stock
certificates have been lost or mutilated. Upon receiving a proper actual
or constructive surrender of Miners Common Stock certificates from a former
Miners shareholder, the Exchange Agent shall issue to such shareholder, in
exchange therefor, a MP Corp. Common Stock certificate representing the
whole number of shares of MP Corp. Common Stock into which such
shareholder's shares of Miners Common Stock have been converted in
accordance with this Article II, together with a check in the amount of any
cash to which such shareholder is entitled, pursuant to Section 2.1(c) of
this Agreement, in lieu of the issuance of a fractional share.
(c) Dividend Withholding. Dividends, if any, payable by MP Corp.
--------------------
after the Effective Date to any former shareholder of Miners who has not,
prior to the payment date, surrendered his Miners Common Stock certificates
may, at the option of MP Corp., be withheld. Any dividends so withheld
shall be paid, without interest, to such former shareholder of Miners upon
proper surrender of his Miners Common Stock certificates.
(d) Failure to Surrender Certificates. All Miners Common Stock
---------------------------------
certificates must be surrendered to the Exchange Agent within two (2) years
after the Effective Date. In the event that any former shareholder of
Miners shall not have properly surrendered his Miners Common Stock
certificates within two (2) years after the Effective Date, the shares of
MP Corp. Common Stock that would otherwise have been issued to him may, at
the option of MP Corp., be sold and the net proceeds of such sale, together
with the cash (if any) to which he is entitled in lieu of the issuance of a
fractional share and any previously accrued dividends, shall be held in a
non-interest bearing account for his benefit. From and after any
3
<PAGE>
such sale, the sole right of such former shareholder of Miners shall be the
right to collect such net proceeds, cash and accumulated dividends. Subject
to all applicable laws of escheat, such net proceeds, cash and accumulated
dividends shall be paid to such former shareholder of Miners, without
interest, upon proper surrender of his Miners Common Stock certificates.
(e) Expenses of Share Surrender and Exchange. All costs and expenses
----------------------------------------
associated with the foregoing surrender and exchange procedure shall be
borne by MP Corp. Notwithstanding the foregoing, no party hereto will be
liable to any holder of Miners Common Stock for any amount paid in good
faith to a public official or agency pursuant to any applicable abandoned
property, escheat or similar law.
(f) Exchange Procedures. Each certificate for shares of Miners Common
-------------------
Stock delivered for exchange under this Article II must be endorsed in
blank by the registered holder thereof or be accompanied by a power of
attorney to transfer such shares endorsed in blank by such holder. If more
than one certificate is surrendered at one time and in one transmittal
package for the same shareholder account, the number of whole shares of MP
Corp. Common Stock for which certificates will be issued pursuant to this
Article II will be computed on the basis of the aggregate number of shares
represented by the certificates so surrendered. If shares of Miners Common
Stock or payments of cash are to be issued or made to a person other than
the one in whose name the surrendered certificate is registered, the
certificate so surrendered must be properly endorsed in blank, with
signature(s) guaranteed, or otherwise in proper form for transfer, and the
person to whom certificates for shares of MP Corp. Common Stock is to be
issued or to whom cash is to be paid shall pay any transfer or other taxes
required by reason of such issuance or payment to a person other than the
registered holder of the certificate for shares of Miners Common Stock
which are surrendered. As promptly as practicable after the Effective
Date, MP Corp. shall send or cause to be sent to each shareholder of record
of Miners Common Stock transmittal materials for use in exchanging
certificates representing Miners Common Stock for certificates representing
MP Corp. Common Stock into which the former have been converted in the
Reorganization and Merger.
(g) Closing of Stock Transfer Books; Cancellation of Miners
-------------------------------------------------------
Certificates. Upon the Effective Date, the stock transfer books for Miners
------------
Common Stock will be closed and no further transfers of shares of Miners
Common Stock will thereafter be made or recognized. All certificates for
shares of Miners Common Stock surrendered pursuant to this Article II will
be canceled by MP Corp.
(h) Rights Evidenced by Certificate. Each certificate for shares of
-------------------------------
MP Corp. Common Stock issued in exchange for certificates for Miners Common
Stock pursuant to Section 2.2(f) hereof will be dated as of the Effective
Date and be entitled to dividends and all other rights and privileges
pertaining to such shares of MP Corp. Common Stock from and after the
Effective Date. Until surrendered, each certificate theretofore evidencing
shares of Miners Common Stock will, from and after the Effective Date,
evidence solely the right
4
<PAGE>
to receive certificates for shares of MP Corp. Common Stock pursuant to
Section 2.2(f) hereof. If certificates for shares of Miners Common Stock
are exchanged for MP Corp. Common Stock at a date following one or more
record dates for the payment of dividends or of any other distribution on
the shares of MP Corp. Common Stock subsequent to the Effective Date, MP
Corp. will pay cash in an amount equal to dividends theretofore payable on
such MP Corp. Common Stock and pay or deliver any other distribution to
which holders of shares of MP Corp. Common Stock have theretofore become
entitled. No interest will accrue or be payable in respect of dividends or
cash otherwise payable under this Section 2.2 upon surrender of
certificates for shares of MP Corp. Common Stock. Notwithstanding the
foregoing, no party hereto will be liable to any holder of Miners Common
Stock for any amount paid in good faith to a public official or agency
pursuant to any applicable abandoned property, escheat or similar law.
Until such time as certificates for shares of Miners Common Stock are
surrendered by a Miners shareholder to MP Corp. for exchange, MP Corp.
shall have the right to withhold dividends or any other distributions,
without interest, on the shares of the MP Corp. Common Stock issuable to
such shareholder.
(i) Payment Procedures. As soon as practical after the Effective
------------------
Date, MP Corp. shall make payment of the cash consideration provided for in
Section 2.1(c) to each person entitled thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MINERS
----------------------------------------
Miners represents and warrants to MP Corp. and MP Bank as of even date
herewith as follows:
Section 3.1. Authority. Miners has all requisite corporate power and
----------- ---------
authority to enter into and perform all of its obligations under this Agreement
and the Bank Merger Agreement. The execution and delivery of this Agreement and
the Bank Merger Agreement and the performance of the transactions contemplated
herein and therein have been duly and validly authorized by the Board of
Directors of Miners and, except for the approval of this Agreement and the Bank
Merger Agreement by its shareholders, Miners has taken all corporate action
necessary on its part to authorize this Agreement and the Bank Merger Agreement
and the performance of the transactions contemplated herein and therein. This
Agreement and the Bank Merger Agreement have been duly executed and delivered by
Miners and, assuming due authorization, execution and delivery by MP Corp. and
MP Bank, constitute valid and binding obligations of Miners, in each case
enforceable against it in accordance with their respective terms, subject to
bankruptcy, insolvency, and other laws of general applicability relating to or
affecting creditors' rights and general equity principles. Neither the
execution and delivery of this Agreement and the Bank Merger Agreement, nor
consummation of the transactions contemplated hereby or thereby, nor compliance
by Miners with any of the provisions hereof or thereof shall (i) conflict with
or result in a breach of any provisions of the Articles of Incorporation or By-
laws of Miners, (ii) constitute or result in a material breach of any
5
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term, condition or provisions of, or constitute a default under or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any lien, charge, security interest or other
encumbrance upon any property or asset of Miners pursuant to any note, bond,
mortgage, indenture, deed of trust, license, agreement or other instrument or
obligation, or (iii) violate any order, writ, injunction, decree, statute, code,
ordinance, rule, regulation or judgment applicable to Miners.
Section 3.2. Organization and Standing. Miners is a duly organized bank,
----------- -------------------------
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Miners (i) has full power and authority to carry out its business
as now conducted and (ii) is duly qualified to do business in the states of the
United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to so qualify would have a material adverse effect on the financial
condition, results of operations, business or prospects of Miners.
Section 3.3. No Subsidiaries. Miners owns no subsidiaries, directly or
----------- ---------------
indirectly.
Section 3.4. Capitalization. The authorized capital stock of Miners
----------- --------------
consists solely of 15,000 shares of common stock, par value five dollars ($5.00)
per share ("Miners Common Stock"), of which, at the date hereof, 14,825 shares
are issued and outstanding. All outstanding shares of Miners Common Stock have
been duly issued and are validly outstanding, fully paid and nonassessable.
None of the shares of Miners Common Stock have been issued in violation of the
preemptive rights of any person or entity. There are no authorized, issued, or
outstanding options, convertible securities, warrants or other rights to
purchase or acquire any of the Miners Common Stock from Miners, and there is no
commitment of Miners to issue the same. There are no outstanding agreements,
restrictions, contracts, commitments or demands of any character to which Miners
is a party, which relate to the transfer or restrict the transfer of any shares
of Miners Common Stock. Except as previously disclosed, to the knowledge of
Miners, there are no shareholder agreements, understandings or commitments
relating to the right of Miners to vote or dispose of its shares.
Section 3.5. Articles of Incorporation, Bylaws and Minute Books. The
----------- --------------------------------------------------
copies of the Articles of Incorporation and Bylaws of Miners which have been
delivered to MP Corp. and MP Bank are true, correct and complete. Except as
previously disclosed, all minute books of Miners have been made available to MP
Corp. and MP Bank for inspection and are true, correct and complete in all
material respects and record the actions taken by the Board of Directors of
Miners at the meetings documented in the minutes.
Section 3.6. Consents. Except for the consents, approvals, filings and
----------- --------
registrations contemplated by Sections 8.1(b) and (d) hereof, and compliance
with any conditions contained therein, and the approval of this Agreement and
the Bank Merger Agreement by the Board of Directors and shareholders of Miners,
no consents or approvals of, or filings or registrations with, any public body
or authority are necessary, and no consents or approvals of any third parties
are necessary, or will be, in connection with (i) the execution and delivery of
this Agreement or the Bank
6
<PAGE>
Merger Agreement by Miners, and (ii) the consummation by Miners of the
transactions contemplated hereby. Miners has no reason to believe that any
required consents or approvals will not be received or will be received with
conditions, limitations or restrictions unacceptable to it or which would
adversely impact Miners's ability to consummate the transactions contemplated by
this Agreement.
Section 3.7. Financial Statements and Regulatory Reports. Miners has
----------- -------------------------------------------
delivered to MP Corp. and MP Bank its (i) Balance Sheets, Statements of Income,
and Statements of Stockholders' Equity for the years ended December 31, 1996 and
December 31, 1995, and (ii) Call Reports, Consolidated Reports of Condition and
Income, (the aforementioned consolidated report of condition and income as of
September 30, 1997, is referred to herein as the "Bank Balance Sheet") and
accompanying schedules, filed by Miners with any regulatory authority for each
calendar quarter, beginning with the quarter ended September 30, 1997, through
the Closing Date ("Miners Regulatory Reports"). Each of the foregoing financial
statements fairly presents the financial condition, assets and liabilities, and
results of operations of Miners at their respective dates and for the respective
periods then ended and have been prepared in accordance with generally accepted
accounting principles consistently applied, except as otherwise noted in a
footnote thereto. The books and records of Miners are maintained in accordance
with generally accepted accounting principles consistently applied. The Miners
Regulatory Reports have been, or will be, prepared in accordance with applicable
regulatory accounting principles and practices applied on a consistent basis
throughout the periods issued by such statements, and fairly present, or will
fairly present, the financial position, results of operations and changes in
shareholders' equity of Miners as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles applied
on a consistent basis.
Section 3.8. Absence of Undisclosed Liabilities. Except as previously
----------- ----------------------------------
disclosed, or as reflected, noted or adequately reserved against in the Bank
Balance Sheet, as at September 30, 1997, Miners had no liabilities (whether
accrued, absolute, contingent or otherwise) or asset impairment which are
required to be reflected, noted or reserved against therein under generally
accepted accounting principles or which are in any case or in the aggregate
material. Except as previously disclosed, since September 30, 1997, Miners has
not incurred any such liability, other than liabilities of the same nature as
those set forth in the Bank Balance Sheet, all of which have been reasonably
incurred in the ordinary course of business consistent with customary business
practices of prudently managed banks (hereinafter referred to as "Ordinary
Course of Business").
Section 3.9. Absence of Changes. Since September 30, 1997, Miners has
----------- ------------------
conducted its business in the Ordinary Course of Business and, except as
previously disclosed, Miners has not undergone any change in condition
(financial or otherwise), assets, liabilities, business or operations, other
than changes in the Ordinary Course of Business which have not been, either in
any case or in the aggregate, materially adverse.
Section 3.10. Dividends, Distributions and Stock Purchases. Except as
------------ --------------------------------------------
previously disclosed, since September 30, 1997, Miners has not declared, set
aside, made or paid any dividend or other distribution in respect of the Miners
Common Stock, or purchased, issued or sold any shares of Miners Common Stock.
7
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Section 3.11. Taxes. Miners has filed all federal, state, county,
------------ -----
municipal and foreign tax returns, reports and declarations which are required
to be filed by Miners. Except as previously disclosed, (i) Miners has paid all
taxes, penalties and interest which have become due pursuant thereto or which
became due pursuant to assessments, and (ii) Miners has not received any notice
of deficiency or assessment of additional taxes and no tax audits are in
process. The Internal Revenue Service ("IRS") has not, to the knowledge of
Miners, commenced, or given notice of its intention to commence any examination
or audit of the federal income tax returns of Miners for any year through and
including the year ended December 31, 1996. Miners has not granted any waiver
of any statute of limitations or otherwise agreed to any extension of a period
for the assessment of any federal, state, county, municipal or foreign income
tax. Except as previously disclosed, the accruals and reserves reflected in the
Bank Balance Sheet are adequate to cover all taxes (including interest and
penalties, if any, thereon) payable or accrued as a result of its operations for
all periods prior to the date of the Bank Balance Sheet.
Section 3.12. Title to and Condition of Assets. Miners has good and
------------ --------------------------------
marketable title to all real and personal properties and assets reflected in the
Bank Balance Sheet or acquired subsequent to September 30, 1997 (other than
property and assets disposed of in the Ordinary Course of Business), free and
clear of all liens or encumbrances of any kind whatsoever other than: (i) as
reflected in the Bank Balance Sheet; (ii) liens of current taxes not yet due;
and (iii) such imperfections of title, encumbrances and easements, if any, as
are not substantial in character, amount or extent and do not materially detract
from the value, or interfere with the present or pro posed use, of the
properties and assets subject thereto. The structures and other improvements to
real estate, furniture, fixtures and equipment reflected in the Bank Balance
Sheet or acquired subsequent to September 30, 1997, are in good operating
condition and repair (ordinary wear and tear excepted) and comply in all
material respects with all applicable laws, ordinances and regulations,
including without limitation all building codes, zoning ordinances and other
similar laws. Miners owns or has the right to use all real and personal
properties and assets necessary to the conduct of its business as now conducted.
Section 3.13. Contracts. All contracts, agreements, leases, licenses and
------------ ---------
other commitments are valid and in full force and effect, and all parties
thereto have in all material respects performed all obligations required to be
performed by them to date and are not in default in any material respect.
Miners is not a party to or subject to (i) any employment, consulting or
severance contract or arrangement with any past or present officer, director or
employee, except for "at will" arrangements (ii) any plan, arrangement or
contract providing for bonuses, options, deferred compensation, profit sharing
or similar arrangements for or with any past or present officers, directors or
employees of Miners; (iii) any collective bargaining agreement with any labor
union relating to employees of Miners; (iv) any agreement which by its terms
limits the payment of dividends by Miners; (v) any instrument evidencing or
related to indebtedness for borrowed money in excess of $20,000, whether
directly or indirectly, by way of purchase money obligation, conditional sale,
lease purchase, guaranty or otherwise, in respect of which Miners is an obligor
to any person, which instrument evidences or relates to indebtedness other than
deposits, repurchase
8
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agreements, bankers acceptances and "treasury tax and loan" accounts established
in the Ordinary Course of Business and transactions in federal funds or which
contains financial covenants or other restrictions (other than those relating to
the payment of principal and interest when due) which would be applicable on or
after the Closing Date to MP Corp. or any MP Corp. subsidiary; (vi) any contract
(other than this Agreement) limiting the freedom of Miners to engage in any type
of banking or banking-related business permissible under law; or (vii) any
contract, plan or arrangement which provides for payments or benefits in certain
circumstances which, together with other payments or benefits payable to any
participant therein or party thereto, might render any portion of any such
payments or benefits subject to disallowance of deduction therefor as a result
of the application of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code").
No party to any material contract, plan, arrangement or instrument that
requires annual payments in excess of $10,000 will have the right to terminate
any or all of the provisions of any such contract, plan, arrangement or
instrument as a result of the transactions contemplated by this Agreement, and
none of the employees of Miners possess the right to terminate their employment
as a result of the execution of this Agreement. No plan, employment agreement,
termination agreement, or similar agreement or arrangement to which Miners is a
party or under which Miners may be liable contains provisions which permit an
employee or independent contractor to terminate it without cause and continue to
accrue future benefits thereunder. No such agreement, plan or arrangement
provides for acceleration in the vesting of benefits or payments due thereunder
upon the occurrence of a change in ownership or control of Miners absent the
occurrence of a subsequent event; provides for benefits which may cause the
disallowance of a federal income tax deduction under Section 280G of the Code;
or requires Miners to provide a benefit in the form of Miners Common Stock or
determined by reference to the value of Miners Common Stock.
Section 3.14. Litigation and Governmental Directives. There is no
------------ --------------------------------------
litigation, investigation or proceeding pending, or to the knowledge of Miners
threatened, that involves Miners or its properties and that, if determined
adversely, would materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or future prospects of
Miners; there are no outstanding orders, writs, injunctions, judgments,
decrees, regulations, directives, consent agreements or memoranda of
understanding issued by any federal, state or local court or governmental
authority or arbitration tribunal issued against or with the consent of Miners
that materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business, operations or future prospects of Miners or that
in any manner restrict Miners's right to conduct its business as presently
conducted, or challenge the validity or propriety of any of the transactions
contemplated by the Agreement, or which could adversely affect the ability of
Miners to perform under this Agreement; and Miners is not aware of any fact or
condition presently existing that might give rise to any litigation,
investigation or proceeding which, if determined adversely to Miners, would
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of Miners.
Section 3.15. Compliance with Laws; Governmental Authorizations. Miners is
------------ -------------------------------------------------
in compliance with all statutes, laws, ordinances, rules, regulations,
judgments, orders, decrees, directives, consent agreements, memoranda of
understanding, permits, concessions, grants,
9
<PAGE>
franchises, licenses, and other governmental authorizations or approvals
applicable to Miners or to any of its properties; all permits, concessions,
grants, franchises, licenses and other governmental authorizations and approvals
necessary for the conduct of the business of Miners as presently conducted have
been duly obtained and are in full force and effect, and there are no
proceedings pending, or to the knowledge of Miners threatened, which may result
in the revocation, cancellation, suspension or materially adverse modification
of any thereof; and Miners has not received any notification or communication
from any regulatory authority (A) asserting that it is not in substantial
compliance with any of the statues, regulations or ordinances which such
regulatory authorities enforce; (B) requiring or threatening to require Miners,
or indicating that Miners may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other agreement
restricting or limiting, or purporting to restrict or limit, in any manner the
operations of Miners, including without limitation, any restriction on the
payment of dividends (any such notice, communication, memorandum, agreement or
order described herein is referred to as a "Regulatory Agreement"); (C)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to Miners; Miners has not consented to or
entered into any Regulatory Agreement; (D) requesting board resolutions be
adopted pursuant to regulatory action.
Section 3.16. Insurance. All policies of insurance, including all
------------ ---------
policies of title insurance and financial institutions bonds, held by or on
behalf of Miners are in full force and effect and no notices of cancellation
have been received in connection therewith. All such policies of insurance have
been issued by reputable insurers which in respect of amounts, types and risks,
such insurance is customary with industry practices for the business conducted
by Miners.
Section 3.17. Financial Institutions Bonds. Since January 1, 1991, Miners
------------ ----------------------------
has continuously maintained in full force and effect a financial institutions
bond insuring Miners against acts of dishonesty by each of its employees.
Except as previously disclosed, no claim has been made under any such bond, and
Miners is not aware of any fact or condition presently existing which might form
the basis of a claim under any such bond. Miners has no reason to believe that
its present financial institutions bond will not be renewed by its carrier on
substantially the same terms and at the same rate as now in effect.
Section 3.18. Labor Relations. Miners is not a party to or bound by any
------------ ---------------
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is Miners the subject of a
proceeding asserting that Miners has committed an unfair labor practice or
seeking to compel Miners to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor dispute
involving Miners pending, or to the knowledge of Miners, threatened, that might
materially adversely affect the condition (financial or otherwise), assets,
liabilities, business or operations of Miners. Miners is not subject to or a
party in any Complaint or action before the Pennsylvania Human Relations
Commission, the Equal Employment Opportunity Commission, or the Department of
Labor. There are no labor disputes pending, or to the knowledge of Miners
threatened, that might materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business or operations of Miners.
10
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Section 3.19. Employee Benefit Plans. Each "employee benefit plan", as
------------ ----------------------
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that now covers any employee of Miners, its predecessors
or affiliates, complies in all material respects with all applicable
requirements of ERISA, the Code and other applicable laws. Neither Miners nor
any of its predecessors or affiliates has engaged in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) or
any breach of fiduciary responsibility under Part 4 of Title I of ERISA, with
respect to any such plan which prohibited transaction is likely to result in any
material penalties or taxes under Section 502 of ERISA or Section 4975 of the
Code, or any material liability to any participant or beneficiary of such plan.
No material liability to the Pension Benefit Guaranty Corporation has been or is
expected to be incurred by Miners with respect to itself or its predecessors or
affiliates with respect to any such plan which is subject to Title IV of ERISA,
or with respect to any "single employer plan" (as defined in Section 4001(a)(15)
of ERISA) currently or formerly maintained. No such plan had an "accumulated
funding deficiency" (as defined in Section 302 of ERISA) (whether or not waived)
as of the last day of the end of the most recent plan year ending prior to the
date hereof. The fair market value of the assets of each such plan exceeds the
present value of the "benefit liabilities" (as defined in Section 4001(a)(16) of
ERISA) under each such plan as of the end of the most recent plan year,
calculated on the basis of the actuarial assumptions used in the most recent
actuarial valuation for each such plan. No notice of a "reportable event" (as
defined in Section 4043 of ERISA) for which the 30-day reporting requirement has
not been waived has been required to be filed for any of such plans within the
12-month period ending on the date hereof. Neither Miners, its predecessors or
affiliates has provided, or is required to provide, security to any such plans
pursuant to Section 401(a)(29) of the Code. Miners, its predecessors and
affiliates have contributed to no "multi-employer plan", as defined in Section
3(37) of ERISA, on or after September 26, 1980. All actuarial valuations and
other documents and information concerning benefit plans delivered or made
available in connection with this Agreement are true and correct as of the
date(s) shown thereon, and all actuarial methods and assumptions are appropriate
for such plans, and are consistent with the methods and assumptions permitted by
the Code and ERISA. All such plans are funded to such level as assets of each
such plan would then be sufficient to pay all vested accrued benefits
thereunder, and there would be no employer liability under Title IV of ERISA.
Since 1990, there has been no audit of any benefit plan of Miners by the
Department of Labor, the IRS or the Pension Benefit Guaranty Corporation
("PBGC"). There has not been any audit of the Pension Plan or any of Miners's
other employee benefit plans by the Department of Labor, the IRS or the PBGC
since 1988. Miners, its predecessors and affiliates, have no obligation for
retiree health and life benefits under any benefit plan, contract, or
arrangement. Miners has no obligation for any post-retirement benefits under
any plan, contract or arrangement except as previously disclosed.
Section 3.20. Related Party Transactions. Except as previously disclosed,
------------ --------------------------
Miners has no contract, extension of credit, business arrangement or other
relationship of any kind with any of the following persons: (i) any present or
former officer or director of Miners; (ii) any shareholder owning five percent
or more of the outstanding Miners Common Stock; and (iii) any "associate" (as
defined in SEC Rule 405) of the foregoing persons or any business in which any
of the foregoing persons is an officer, director, employee or five percent or
greater equity owner. Each such extension of credit previously disclosed has
been made in the Ordinary Course of Business on
11
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substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable arms' length transactions with other
persons that do not involve more than a normal risk of collectibility or present
other unfavorable features.
Section 3.21. DELETED.
------------
Section 3.22. DELETED.
------------
Section 3.23. Complete and Accurate Disclosure. Neither this Agreement
------------ --------------------------------
(insofar as it relates to Miners, Miners Common Stock and Miners's involvement
in the transactions contemplated hereby) nor any financial statement, schedule,
certificate, or other statement or document delivered by Miners to MP Corp. and
MP Bank in connection herewith contains any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact or omits to state any material fact necessary to
make the statements contained herein or therein not false or misleading. In
particular, without limiting the generality of the foregoing sentence, the
information provided and the representations made by Miners to MP Corp. and MP
Bank in connection with the Registration Statement (as defined in Section 7.1(b)
of this Agreement), both at the time such information and representations are
provided and made and at the time of the Closing, will be true and accurate in
all material respects and will not contain any false or misleading statement
with respect to any material fact or omit to state any material fact necessary
(i) to make the statements made therein not false or misleading, or (ii) to
correct any statement contained in an earlier communication with respect to such
information or representations which has become false or misleading.
Section 3.24. Beneficial Ownership of MP Corp. Common Stock. Prior to the
------------ ---------------------------------------------
Effective Date, Miners and its officers and directors will not beneficially own,
in the aggregate, (within the meaning of SEC Rule 13d-3(d)(1)) more than five
percent of the outstanding shares of MP Corp. Common Stock.
Section 3.25. Environmental Matters. For purposes of this Section 3.25,
------------ ---------------------
the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any governmental entity relating to: the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource); and
the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
Hazardous Substances. The term Environmental Law includes without
limitation: the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. (S)9601, et seq., the Resource
-- ---
Conservation and Recovery Act, as amended, 42 U.S.C. (S)6901, et seq., the
-- ---
Clean Air Act, as amended, 42 U.S.C.
12
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(S)7401, et seq., the Federal Water Pollution Control Act, as amended, 33
-- ---
U.S.C. (S)1251, et seq., the Toxic Substances Control Act, as amended, 15
-- ---
U.S.C. (S)9601, et seq., the Emergency Planning and Community Right to Know
-- ---
Act, 42 U.S.C. (S)11001, et seq., the Safe Drinking Water Act, 42 U.S.C.
-- ---
(S)300f, et seq., and all comparable state and local laws; and any common
-- ---
law (including without limitation common law that may impose strict
liability) that may impose liability or obligation for injuries or damages
due to, or threatened as a result of, the presence of or exposure to any
Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous or
otherwise regulated under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a
component. Hazardous Substances include, without limitation, petroleum or
any derivative or by-product thereof, asbestos, radioactive material, and
polychlorinated biphenyls.
"Miners Loan Portfolio Properties and Other Properties Owned" means
those properties serving as collateral for loans in Miners' loan portfolio,
or properties owned or operated by Miners (including, without limitation,
in a fiduciary capacity).
Except as previously disclosed:
(a) Miners has not been and is not in violation of or liable under any
Environmental Law.
(b) To the knowledge of Miners, after reasonable investigation, none
of the Miners Loan Portfolio Properties and Other Properties Owned have
been or are in violation of or liable under any Environmental Law.
(c) After reasonable investigation, Miners has no knowledge that any
environmental contaminant, pollutant, toxic or hazardous waste or other
similar substance has been generated, used, stored, processed, disposed of
or discharged onto any of the real estate now or previously owned or
acquired (including without limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's right) or leased by Miners,
except as previously disclosed. In particular, without limiting the
generality of the foregoing sentence, except as previously disclosed,
Miners has no knowledge that: (i) any materials containing asbestos have
been used or incorporated in any building or other structure or improvement
located on any of the real estate now or previously owned or acquired
(including without limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's right) or leased by Miners;
(ii) any electrical transformers, fluorescent light fixtures with ballasts
or other equipment containing PCB's are or have been located on any of the
real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of
any other
13
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creditor's right) or leased by Miners; (iii) any underground storage tanks
for the storage of gasoline, petroleum products or other toxic or hazardous
substances are or have ever been located on any of the real estate now or
previously owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other creditor's right)
or leased by Miners.
(d) Except as previously disclosed, there is no legal, administrative,
arbitration or other proceeding, claim, action, or to the knowledge of
Miners cause of action or governmental investigation of any nature seeking
to impose, or that could result in the imposition, on Miners of any
liability arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
pending or to the knowledge of Miners threatened against Miners; there is
no reasonable basis for any such proceeding, claim, action or governmental
investigation; and Miners is not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
Section 3.26. Proxy Statement/Prospectus. At the time the Proxy
------------ --------------------------
Statement/ Prospectus (as defined in Section 7.1(b) of this Agreement) is mailed
to the shareholders of Miners, and at all times subsequent to such mailing, up
to and including the Effective Date, such Proxy Statement/Prospectus (including
any pre- and post-effective amendments and supplements thereto), with respect to
all information relating to Miners, Miners Common Stock, and actions taken and
statements made by Miners in connection with the transactions contemplated
herein (except for information provided by MP Corp. and MP Bank to Miners) will:
(i) comply in all material respects with applicable provisions of the Securities
Act of 1933, as amended (the "1933 Act"), and the pertinent rules and
regulations thereunder; and (ii) not contain any statement which, at the time
and in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact that is
necessary to be stated therein in order (A) to make the statements therein not
false or misleading, or (B) to correct any statement in an earlier communication
with respect to the Proxy Statement/Prospectus which has become false or
misleading.
Section 3.27. Non-Registration Under the 1934 Act. Miners Common Stock is
------------ -----------------------------------
neither registered nor required to be registered under Section 12 of the
Securities Exchange Act of 1934 (the "1934 Act") and is not subject to the
periodic reporting requirements imposed by Section 13 or 15(d) of the 1934 Act.
Section 3.28. Deposit Insurance. The deposits of Miners are insured by
------------ -----------------
the Bank Insurance Fund, as administered by the Federal Deposit Insurance
Corporation ("FDIC") in accordance with the Federal Deposit Insurance Act, and
Miners has paid all assessments and filed all reports required by the Federal
Deposit Insurance Act.
14
<PAGE>
Section 3.29. Repurchase Agreements. With respect to any agreement,
------------ ---------------------
pursuant to which Miners has purchased securities subject to an agreement to
resell, if any, Miners has a valid, perfected first lien or security interest in
the government securities or other collateral securing the repurchase agreement,
and the value of such collateral equals or exceeds the amount of the debt
secured thereby.
Section 3.30. Assumability of Contracts and Leases. Except as previously
------------ ------------------------------------
disclosed, all Material Contracts between Miners and any other entity or person
are assumable and assignable and do not contain any term or provision that would
accelerate or increase payments that would otherwise be due by Miners to such
person or entity, or change or modify the provisions or terms of such leases,
contracts and agreements by reason of this Agreement or the transactions
contemplated hereby. Except as previously disclosed, each lease pursuant to
which Miners, as lessee, leases real or personal property is valid and in effect
in accordance with its respective terms, and there is not, under any of such
leases, on the part of the lessee any material existing default or any event
which, with notice or lapse of time, or both, would constitute such a default,
other than defaults which would not individually or in the aggregate have a
material adverse effect on the financial condition, business, prospects, or
operating results of Miners.
Section 3.31. Loans. Except as previously disclosed, each loan reflected
------------ -----
as an asset on Miners's financial statements as of September 30, 1997, or
acquired since that date, is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles. All such loans,
and the collateral and other security therefor, and the documentation for the
same, meet the requirements, rules, regulations or directives of the FDIC, or
other applicable governmental authorities.
Section 3.32. Materiality. For purposes of this Article III, unless
------------ -----------
otherwise defined, the term "material" or "materially" refers to amounts in
excess of $20,000.
Section 3.33. DELETED.
------------
Section 3.34. DELETED.
------------
Section 3.35. Adjustable Rate Mortgages. Miners has made all interest
------------ -------------------------
rate adjustments to any mortgage loan according to the terms of said mortgage
loan and has complied and is in compliance in all material respects with all
federal, state and other applicable laws, rules and regulations, including
orders, writs, decrees, injunctions and other requirements of any court or
governmental authorities having jurisdiction over adjustable rate mortgages.
Section 3.36. CRA Compliance. Miners has received a satisfactory
------------ --------------
compliance rating and has received a satisfactory Community Reinvestment Act
rating. Miners has no knowledge of any facts or circumstances which would
prevent it from receiving such satisfactory ratings upon its next appropriate
examination.
15
<PAGE>
Section 3.37. DELETED.
------------
Section 3.38. Loan Loss Reserve. The loan loss reserve of Miners is and
------------ -----------------
shall remain adequate in light of generally accepted accounting principles,
directives of governmental authorities, and all regulations, rules and
directives of the Banking Department and the FDIC. No regulatory authority
requested Miners to increase the allowance for loan losses during 1997, 1996,
1995 or 1994.
Section 3.39. DELETED.
------------
Section 3.40. DELETED.
------------
Section 3.41. DELETED.
------------
Section 3.42. Accuracy of Representations. Miners will promptly notify MP
------------ ---------------------------
Corp. if any of the representations contained in this Article III cease to be
true and correct subsequent to the date hereof. Further, no representations
made by Miners pursuant to this Agreement contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MP CORP.
------------------------------------------
MP Corp. represents and warrants to Miners, as of even date herewith, as
follows:
Section 4.1. Authority. The execution and delivery of this Agreement and
----------- ---------
the Bank Merger Agreement and the consummation of the transactions contemplated
herein and therein have been duly and validly authorized by the Board of
Directors of MP Corp., and no other corporate action on the part of MP Corp. is
necessary to authorize the approval of this Agreement and the Bank Merger
Agreement or the consummation of the transactions contemplated herein and
therein. This Agreement and the Bank Merger Agreement have been duly executed
and delivered by MP Corp. and, assuming due authorization, execution and
delivery by Miners, and receipt of all required regulatory and shareholder
approvals, constitutes a valid and binding obligation of MP Corp. Assuming
regulatory and shareholder approval, the execution, delivery and consummation of
this Agreement will not constitute a violation or breach of or default under the
Articles of Incorporation or the Bylaws of MP Corp. or any statute, rule,
regulation, order, decree, directive, agreement, indenture or other instrument
to which MP Corp. is a party or by which MP Corp. or any of its properties are
bound.
Section 4.2. Organization and Standing. MP Corp. is a business
----------- -------------------------
corporation that is duly organized, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. MP Corp. is a registered bank
holding company under the Bank Holding Company
16
<PAGE>
Act of 1956, as amended, and has full power and lawful authority to own and hold
its properties and to carry on its present business. MP Corp. owns all of the
issued and outstanding shares of capital stock of Mid Penn Bank. Mid Penn Bank
is a Pennsylvania state-chartered banking institution validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania and of the
United States, and is duly authorized to engage in the banking business as an
insured bank under the Federal Deposit Insurance Act, as amended.
Section 4.3. Capitalization. The authorized capital stock of MP Corp.
----------- --------------
consists of Ten Million (10,000,000) shares of common stock, par value one
dollar ($1.00) per share ("MP Corp. Common Stock") of which, at September 30,
1997, 2,607,552 shares were issued and outstanding. All outstanding shares of MP
Corp. Common Stock have been duly issued and are validly outstanding, fully paid
and nonassessable. The shares of MP Corp. Common Stock to be issued in
connection with the Bank Merger have been duly authorized and, when issued in
accordance with the terms of this Agreement and the Bank Merger Agreement, will
be validly issued, fully paid and nonassessable.
Section 4.4. DELETED.
-----------
Section 4.5. Financial Statements. MP Corp. has delivered to Miners the
----------- --------------------
following financial statements: (i) Consolidated Balance Sheets, Consolidated
Statements of Income, Consolidated Statements of Shareholders' Equity, and
Consolidated Statements of Cash Flows as of and for the years ended December 31,
1996 and December 31, 1995, certified by Parente, Randolph, Orlando, Carey and
Associates and set forth in the Annual Report to the shareholders of MP Corp.
for the year ended on December 31, 1996; and (ii) a Consolidated Statement of
Condition, a Consolidated Statement of Income and a Consolidated Statement of
Changes in Shareholders' Equity for the three-month period ended September 30,
1997, set forth in a "Quarterly Report" to the shareholders of MP Corp. (the
foregoing Consolidated Statement of Condition being hereinafter referred to as
the "MP Corp. Balance Sheet"). Each of the foregoing financial statements
fairly presents the consolidated financial position, assets, liabilities and
results of operations of MP Corp. at their respective dates and for the
respective periods then ended and has been prepared in accordance with generally
accepted accounting principles consistently applied, except as otherwise noted
in a footnote thereto and subject, in the case of the interim financial
statements contained in the aforesaid Quarterly Report, to normal recurring
year-end adjustments, which are not material in any case or in the aggregate.
Section 4.6. Absence of Undisclosed Liabilities. Except as previously
----------- ----------------------------------
disclosed, or as reflected, noted or adequately reserved against in the MP Corp.
Balance Sheet, at September 30, 1997, MP Corp. had no material liabilities
(whether accrued, absolute, contingent or otherwise) which are required to be
reflected, noted or reserved against therein under generally accepted accounting
principles or which are in any case or in the aggregate material. Except as
previously disclosed, since September 30, 1997, MP Corp. has not incurred any
such liability other than liabilities of the same nature as those set forth in
the MP Corp. Balance Sheet, all of which have been reasonably incurred in the
Ordinary Course of Business.
17
<PAGE>
Section 4.7. Absence of Changes. Since September 30, 1997, there has not
----------- ------------------
been any material and adverse change in the condition (financial or otherwise),
assets, liabilities, business or operations of MP Corp. or MP Bank.
Section 4.8. Litigation. Except as previously disclosed: (i) there is no
----------- ----------
litigation, investigation or proceeding pending, or to the knowledge of MP Corp.
threatened, that involves MP Corp. or its properties and that, if determined
adversely to MP Corp., would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations or future
prospects of MP Corp.; (ii) there are no outstanding orders, writs, injunctions,
decrees, consent agreements, memoranda of understanding or other directives of
any federal, state or local court or governmental authority or of any
arbitration tribunal against MP Corp. which materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business, operations or
future prospects of MP Corp., or restrict in any manner the right of MP Corp. to
conduct its business as presently conducted; and (iii) MP Corp. is not aware of
any fact or condition presently existing that might give rise to any litigation,
investigation or proceeding which, if determined adversely to MP Corp., would
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business or operations of MP Corp. For purposes of this Section
4.8, MP Corp. shall be deemed to include MP Bank.
Section 4.9. Proxy Statement/Prospectus. At the time the Proxy
----------- --------------------------
Statement/ Prospectus (as defined in Section 7.1(b) of this Agreement) is mailed
to the shareholders of Miners, and at all times subsequent to such mailing, up
to and including the Effective Date, the Proxy Statement/Prospectus (including
any pre- and post-effective amendments and supplements thereto), with respect to
all information relating to MP Corp. and MP Bank, MP Corp. Common Stock, and
actions taken and statements made by MP Corp. and MP Bank in connection with the
transactions contemplated herein (other than information provided by Miners to
MP Corp. and MP Bank), will: (i) comply in all material respects with applicable
provisions of the 1933 Act and the 1934 Act and the pertinent rules and
regulations thereunder; and (ii) not contain any statement which, at the time
and in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact that is
necessary to be stated therein in order (A) to make the statements therein not
false or misleading, or (B) to correct any statement in an earlier communication
with respect to the Proxy Statement/Prospectus which has become false or
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MP BANK
-----------------------------------------
MP Bank represents and warrants to Miners, as of even date herewith, as
follows:
Section 5.1. Capital Structure of MP Bank. MP Bank is authorized to
----------- ----------------------------
issue ten million (10,000,000) shares of capital stock, par value one dollar
($1.00) per share, of which all shares outstanding are owned by MP Corp.
18
<PAGE>
Section 5.2. Organization and Standing. MP Bank is a Pennsylvania state-
----------- -------------------------
chartered banking institution which is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania and of the
United States. MP Bank has full power and lawful authority to own and hold its
properties and to carry on its present business.
Section 5.3. Authorized and Effective Agreement. The execution, delivery
----------- ----------------------------------
and performance of this Agreement and the Bank Merger Agreement have been duly
and validly authorized by the Board of Directors of MP Bank. Subject to
appropriate shareholder and regulatory approvals, neither the execution and
delivery of this Agreement or the Bank Merger Agreement nor the consummation of
the transactions provided for herein or therein will violate any agreement to
which MP Bank is a party or by which it is bound or any law, regulation, order,
decree or any provision of its Articles of Incorporation or By-laws.
ARTICLE VI
COVENANTS OF MINERS
-------------------
From the date of this Agreement until the Effective Date (as defined in
Section 11.2 of this Agreement), Miners covenants and agrees to do the
following:
Section 6.1. Conduct of Business. Except as otherwise consented to by MP
----------- -------------------
Corp. and MP Bank in writing, Miners shall:
(a) use all reasonable efforts to carry on its business in, and only
in, the Ordinary Course of Business, consistent with past practices and
written policies;
(b) to the extent consistent with prudent business judgment, use all
reasonable efforts to preserve its present business organization, to retain
the services of its present officers and employees, to maintain good
relationships with its employees, and to maintain its relationships with
customers, suppliers and others having business dealings with Miners;
(c) maintain all of Miners's structures, equipment and other real
property and tangible personal property in good repair, order and
condition, except for ordinary wear and tear and damage by unavoidable
casualty;
(d) use all reasonable efforts to preserve or collect all material
claims and causes of action belonging to Miners;
(e) keep in full force and effect all insurance policies now carried
by Miners;
(f) perform in all material respects each of Miners's obligations
under all material agreements, contracts, instruments and other commitments
to which Miners is a party or by which Miners may be bound or which relate
to or affect its properties, assets and business;
19
<PAGE>
(g) maintain its books of account and other records in the Ordinary
Course of Business;
(h) comply in all material respects with all statutes, laws,
ordinances, rules and regulations, decrees, orders, consent agreements,
examination reports, memoranda of understanding and other federal, state,
county, local and municipal governmental directives applicable to Miners
and to the conduct of its business;
(i) not amend Miners's Articles of Incorporation or Bylaws;
(j) not enter into or assume any material contract, incur any material
liability or obligation, make any material commitment, acquire or dispose
of any property or asset or engage in any transaction or subject any of
Miners's properties or assets to any material lien, claim, charge, or
encumbrance of any kind whatsoever;
(k) not take or permit to be taken any action which would constitute a
breach of any representation, warranty or covenant set forth in this
Agreement;
(l) not declare, set aside or pay any dividend or make any other
distribution in respect of Miners Common Stock, except as provided in
Section 6.9 of this Article VI;
(m) not authorize, purchase, issue or sell (or authorize, issue or
grant options, warrants or rights to purchase or sell) any shares of Miners
Common Stock or any other equity or debt securities of Miners or any
securities convertible into Miners Common Stock;
(n) not increase the rate of compensation of, pay a bonus or severance
compensation to, or enter into any employment, severance, deferred
compensation or other agreement with any officer, director, employee or
consultant of Miners;
(o) not enter into any related party transaction of the kind
contemplated in Section 3.20 of Article III of this Agreement except such
related party transactions relating to extensions of credit made in
accordance with all applicable laws, regulations and rules and in the
Ordinary Course of Business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable arms' length transactions with other persons that do not involve
more than the normal risk of collectibility or present other unfavorable
features and after disclosure of such to MP Corp.;
(p) not change the presently outstanding number of shares or declare
or effect any capitalization, reclassification, stock dividend, stock split
or like change in capitalization;
(q) not enter into or substantially modify (except as may be required
by applicable law) any pension, retirement, stock option, stock warrant,
stock purchase, stock appreciation right, savings, profit sharing, deferred
compensation, severance, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, or plan or
20
<PAGE>
arrangement, or any trust agreement related thereto, in respect to any of
its directors, officers, or other employees;
(r) not merge with or into, or consolidate with, or be purchased or
acquired by, any other corporation, financial institution, entity, or
person (or agree to any such merger, consolidation, affiliation, purchase
or acquisition) or permit (or agree to permit) any other corporation,
financial institution, entity or person to be merged with it or consolidate
or affiliate with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial institution,
corporation or organization or create any subsidiary; acquire, liquidate,
sell or dispose (or agree to acquire, liquidate, sell or dispose) of any
assets, other than in the Ordinary Course of Business and consistent with
prior practice;
(s) not solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning any acquisition or purchase of all or a substantial
equity interest or portion of the assets in or of Miners or any business
combination with Miners, other than as contemplated by this Agreement, or
authorize or permit any officer, director, agent or affiliate of it to do
any of the above; or fail to notify MP Corp. immediately if any such
inquiries or proposals are received by, any such information is requested
from, or any such negotiations are sought to be initiated with Miners;
(t) not change any method, practice or principle of accounting except
as may be required by generally accepted accounting principles or any
applicable regulator or take any action that would preclude satisfaction of
the condition to closing contained in Section 8.1(c) relating to financial
accounting treatment of the Merger;
(u) DELETED.
(v) DELETED.
(w) DELETED.
(x) take any action which would result in any of the representations
and warranties of Miners set forth in this Agreement becoming untrue as of
any date after the date hereof;
(y) not sell, exchange or otherwise dispose of any investment
securities or loans that are held for sale, prior to scheduled maturity and
other than pursuant to policies agreed upon from time to time by the
parties;
(z) not purchase any security for its investment portfolio not rated
"A" or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc.;
21
<PAGE>
(aa) not waive, release, grant or transfer any rights of value or
modify or change in any material respect any existing agreement to which
Miners is a party, other than in the ordinary course of business consistent
with past practice;
(bb) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory agency, materially
or adversely affect the ability of any party to this Agreement to obtain
any required approvals for consummation of the transaction; and
(cc) not agree to any of the foregoing items (i) through (bb).
Section 6.2. Best Efforts. Miners shall cooperate with MP Corp. and MP
----------- ------------
Bank and shall use its best efforts to do or cause to be done all things
necessary or appropriate on its part in order to fulfill the conditions
precedent set forth in Article VIII of this Agreement and to consummate this
Agreement. In particular, without limiting the generality of the foregoing
sentence, Miners shall:
(a) cooperate with MP Corp. and MP Bank in the preparation of all
required applications for regulatory approval of the transactions
contemplated by this Agreement and in the preparation of the Registration
Statement (as defined in Section 7.1(b) of this Agreement);
(b) call a special or annual meeting of its shareholders and take, in
good faith, all actions which are necessary or appropriate on its part in
order to secure the approval and adoption of this Agreement and the Bank
Merger Agreement by its shareholders at that meeting, including
recommending the approval of such agreements by the shareholders of Miners;
(c) cooperate with MP Corp. and MP Bank in making Miners's employees
reasonably available for training by MP Corp. and MP Bank prior to the
Effective Date, to the extent that such training is deemed reasonably
necessary by MP Corp. and MP Bank to ensure that Miners's office will be
properly operated as a part of MP Bank after the Merger;
(d) make additions to loan loss reserves and make loan write-offs,
write-downs and other adjustments that reasonably should be made by Miners
in light of generally accepted accounting principles, directives of
governmental authorities, and all regulations, rules and directives of the
FDIC, Department of Banking, and Federal Reserve, prior to the closing of
Miners's books of account for its fiscal year ending December 31, 1997, and
for the period from that date until the Effective Date;
(e) suspend any dividend reinvestment and/or stock repurchase plan, as
soon as practicable;
22
<PAGE>
(f) modify the Articles of Incorporation or Bylaws or any other
documents of Miners reasonably requested by MP Corp. necessary to
effectuate the transactions contemplated hereby; and
(g) use its best efforts to assure that the directors of Miners shall
have executed and delivered the Support Agreement in the form attached
hereto as Exhibit "B".
Section 6.3. Access to Properties and Records. Miners shall give to MP
----------- --------------------------------
Corp., MP Bank and their authorized representatives (including, without
limitation, their counsel, accountants, economic and environmental consultants
and other designated representatives) reasonable access during normal business
hours to all properties, books, contracts, documents and records of Miners as MP
Corp. or MP Bank may reasonably request, subject to the obligation of MP Corp.,
MP Bank and their authorized representatives to maintain the confidentiality of
all non-public information concerning Miners obtained by reason of such access.
Section 6.4. Subsequent Financial Statements. Between the date of
----------- -------------------------------
execution of this Agreement and the Effective Date, Miners shall promptly
prepare and deliver to MP Corp. and MP Bank, as soon as practicable, all
internal monthly and quarterly financial statements, reports to shareholders and
reports to regulatory authorities prepared by or for Miners, including all audit
reports submitted to Miners by independent auditors in connection with each
annual, interim or special audit of the books of Miners made by such
accountants. In particular, without limiting the generality of the foregoing
sentence, Miners shall deliver to MP Corp. and MP Bank, as soon as practicable,
a balance sheet as of December 31, 1997, and a related statement of income for
the twelve (12) months then ended (which financial statements are hereinafter
referred to as the "December 31, 1997 Bank Financial Statements"). The
representations and warranties set forth in Sections 3.7, 3.8 and 3.9 of this
Agreement shall apply to the December 31, 1997 Bank Financial Statements.
Section 6.5. Board and Committee Minutes. Miners shall provide to MP
----------- ---------------------------
Corp., within 10 days after any meeting of the Board of Directors, or any
committee thereof, or any senior or executive management committee, a copy of
the minutes of such meeting.
Section 6.6. Update Information. Miners shall promptly disclose to MP
----------- ------------------
Corp. and MP Bank, in writing, any change, addition, deletion or other
modification to the information previously disclosed.
Section 6.7. Notice. Miners shall promptly notify MP Corp. and MP Bank,
----------- ------
in writing, of any actions, claims, investigations, proceedings or other
developments which, if pending or in existence on the date of this Agreement,
would have been required to be disclosed to MP Corp. and MP Bank in order to
ensure the accuracy of the representations and warranties set forth in this
Agreement or which otherwise could materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business operations or future
prospects of Miners.
23
<PAGE>
Section 6.8. Other Proposals. Miners shall not, nor shall it permit any
----------- ---------------
officer, director, employee, agent, consultant, counsel or other representative,
to directly or indirectly solicit, encourage, initiate or engage in discussions
or negotiations with, or respond to requests for information, inquiries or other
communications from, any person, other than MP Corp., concerning the fact of, or
the terms and conditions of, this Agreement, or concerning any acquisition of
Miners, or any assets or business thereof (except that Miners' officers may
respond to inquiries from analysts, regulatory authorities and holders of Miners
Common Stock in the Ordinary Course of Business); and Miners shall notify MP
Corp. immediately if any such discussions or negotiations are sought to be
initiated with Miners by any such person other than MP Corp. or if any such
requests for information, inquiries, proposals or communications are received
from any person other than MP Corp.
Section 6.9. Dividends. Between the date of this Agreement and the
----------- ---------
Effective Date, Miners shall only declare and pay cash dividends as provided
herein. Miners shall only pay regular semi-annual cash dividends in amounts and
on dates consistent with past practices.
Section 6.10. Core Deposits. Miners shall use commercially reasonable
------------ -------------
efforts to maintain deposits.
Section 6.11. Affiliate Letters. Miners shall deliver or cause to be
------------ -----------------
delivered to MP Corp. and MP Bank, at or before the Closing (as defined in
Section 11.1 of this Agreement), a letter or agreement from each officer,
director and shareholder of Miners who may be deemed to be an "affiliate" (as
that term is defined for purposes of Rules 145 and 405 promulgated by the SEC
under the 1933 Act) of Miners, in form and substance satisfactory to MP Corp.
and MP Bank, under the terms of which each such officer, director or shareholder
acknowledges and agrees to abide by all limitations imposed by the 1933 Act and
by all rules, regulations and releases promulgated thereunder with respect to
the sale or other disposition of the shares of MP Corp. Common Stock to be
received by such person pursuant to this Agreement.
Section 6.12. No Purchases or Sales of MP Corp. Common Stock During Price
------------ -----------------------------------------------------------
Determination Period. Neither Miners nor any executive officer or director of
- --------------------
Miners nor any shareholder of Miners who may be deemed to be an "affiliate" (as
that term is defined for purposes of Rules 145 and 405 promulgated by the SEC
under the 1933 Act) of Miners shall purchase or sell or submit a bid to purchase
or an offer to sell directly or indirectly, any shares of MP Corp. Common Stock
or any options, rights or other securities convertible into shares of MP Corp.
Common Stock
within 20 days of the Effective Date.
Section 6.13. Accounting Treatment. Miners acknowledges that MP Corp. and
------------ --------------------
MP Bank intend to treat the business combination contemplated by this Agreement
as a "pooling of interests" for financial reporting purposes. Miners shall not
take (and shall use its best efforts not to permit any of its directors,
officers, employees, shareholders, agents, consultants or other representatives
to take) any action which would preclude MP Corp. and MP Bank from treating such
business combination as a "pooling of interests" for financial reporting
purposes.
24
<PAGE>
Section 6.14. Press Releases. Miners shall not issue any press release
------------ --------------
related to this Agreement and the Bank Merger Agreement or the transactions
contemplated hereby or thereby as to which MP Corp. has not given its prior
written consent, and shall consult with MP Corp. as to the form and substance of
other public disclosures related thereto.
Section 6.15. DELETED.
------------
Section 6.16. Phase I Environmental Audit. Miners shall permit, if MP
------------ ---------------------------
Corp. elects to do, at its own expense, a "phase I environmental audit" to be
performed at any physical location owned or occupied by Miners on the date
hereof.
Section 6.17. DELETED.
------------
ARTICLE VII
COVENANTS OF MP CORP. AND MP BANK
---------------------------------
From the date of this Agreement until the Effective Date (as defined in
Section 11.2 of this Agreement), MP Corp. and MP Bank covenant and agree to do
the following:
Section 7.1. Best Efforts. MP Corp. and MP Bank shall cooperate with
----------- ------------
Miners and shall use their best efforts to do or cause to be done all things
necessary or appropriate on their part in order to fulfill the conditions
precedent set forth in Article VIII of this Agreement and to consummate this
Agreement. In particular, without limiting the generality of the foregoing
sentence, MP Corp. and MP Bank agree to do the following:
(a) Applications for Regulatory Approval. MP Corp. and MP Bank shall
------------------------------------
promptly prepare and file, with the cooperation and assistance of Miners,
all required applications for regulatory approval of the transactions
contemplated by this Agreement and the Bank Merger Agreement.
(b) Registration Statement. MP Corp. shall promptly prepare, with the
----------------------
cooperation and assistance of Miners, and file with the SEC a registration
statement under the 1933 Act (the "Registration Statement") for the purpose
of registering the shares of MP Corp. Common Stock to be issued under the
provisions of this Agreement. MP Corp. may rely upon all information
provided to it by Miners in this connection, and MP Corp. shall not be
liable for any untrue statement of a material fact or any omission to state
a material fact in the Registration Statement or in the proxy statement and
prospectus (the "Proxy Statement/Prospectus") which is prepared as a part
thereof, if such statement is made by MP Corp. in reliance upon any
information provided to MP Corp. by Miners or by its agents and
representatives. MP Corp. will advise Miners, after it receives notice
thereof, of the time when the Registration Statement or any Pre- or Post-
Effective Amendment thereto has become effective or any supplement or
amendment, thereto has been filed.
25
<PAGE>
(c) State Securities Laws. MP Corp. and MP Bank, with the cooperation
---------------------
of Miners, shall promptly take all such actions as may be necessary or
appropriate in order to comply with all applicable securities laws of any
state having jurisdiction over the transactions contemplated by this
Agreement.
Section 7.2. Access to Properties and Records. MP Corp. and MP Bank
----------- --------------------------------
shall give to Miners and to its authorized representatives (including without
limitation Miners's counsel, accountants, economic and environmental consultants
and other designated representatives) reasonable access during normal business
hours to all properties, books, contracts, documents and records of MP Corp. and
MP Bank as Miners may reasonably request, subject to the obligation of Miners
and its authorized representatives to maintain the confidentiality of all non-
public information concerning MP Corp. or MP Bank obtained by reason of such
access.
Section 7.3. Subsequent Financial Statements. Between the date of
----------- -------------------------------
execution of this Agreement and the Effective Date, MP Corp. shall promptly
prepare and deliver to Miners, as soon as practicable, each Quarterly Report to
MP Corp.'s shareholders and any Annual Report to MP Corp.'s shareholders
normally prepared by MP Corp. The representations and warranties set forth in
Sections 4.5, 4.6 and 4.7 of this Agreement shall apply to the financial
statements set forth in the foregoing Quarterly Reports and any Annual Report to
MP Corp.'s shareholders.
Section 7.4. Update Information. MP Corp. and MP Bank shall promptly
----------- ------------------
disclose to Miners, in writing, any change, addition, deletion or other
modification to the information previously disclosed.
Section 7.5. Notice. MP Corp. and MP Bank shall promptly notify Miners,
----------- ------
in writing, of any actions, claims, investigations or other developments which,
if pending or in existence on the date of this Agreement, would have been
required to be disclosed to Miners in order to ensure the accuracy of the
representations and warranties set forth in this Agreement or which otherwise
could materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business or operations of MP Corp. or MP Bank.
Section 7.6. No Purchase or Sales of MP Corp. Common Stock During Price
----------- ----------------------------------------------------------
Determination Period. Neither MP Corp. nor any subsidiary of MP Corp., nor any
- --------------------
executive officer or director of MP Corp. or any subsidiary of MP Corp., nor any
shareholder of MP Corp. who may be deemed to be an "affiliate" (as that term is
defined for purposes of Rules 145 and 405 promulgated by the SEC under the 1933
Act) of MP Corp., shall purchase or sell on AMEX, or submit a bid to purchase or
an offer to sell on AMEX, directly or indirectly, any shares of MP Corp. Common
Stock or any options, rights or other securities convertible into shares of MP
Corp. Common Stock within 20 days of the Effective Date; provided, however, that
MP Corp. may purchase shares of MP Corp. Common Stock in the Ordinary Course of
Business during this period pursuant to MP Corp.'s employee benefit plans or MP
Corp.'s dividend reinvestment plan.
26
<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT
--------------------
Section 8.1. Common Conditions. The obligations of the parties to
----------- -----------------
consummate this Agreement shall be subject to the satisfaction of each of the
following common conditions prior to or as of the Closing, except to the extent
that any such condition shall have been waived in accordance with the provisions
of Section 9.4 of this Agreement:
(a) Shareholder and Regulatory Approvals. The Parties hereto are not
------------------------------------
under any obligation to consummate the Agreement until the approval of the
FRB (or waiver thereof), the Banking Department and any other approvals
that may be necessary or required by the federal or state regulators has
been received, and all conditions and waiting periods required by such
approvals, if any, have been satisfied or have expired, and until any other
approvals required under the Articles of Incorporation or Bylaws of Miners,
MP Corp. or MP Bank, or from the shareholders of Miners or MP Corp., as the
case may be, have been received. Provided, however, that no such approval
shall have imposed any condition or requirement which, in the opinion of
the Board of Directors of MP Corp., renders consummation of the
transactions contemplated herein inadvisable.
(c) Tax Matters. There shall have been received an opinion of counsel
-----------
from Shumaker Williams, P.C., reasonably satisfactory in form and substance
to MP Corp. and MP Bank and to Miners, to the effect that:
(i) The transactions contemplated by this Agreement and by the
Bank Merger Agreement will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended;
(ii) No gain or loss will be recognized by MP Corp. or MP Bank or
by Miners as a result of the reorganization;
(iii) No gain or loss will be recognized by the shareholders of
Miners upon receipt of MP Corp. Common Stock in exchange for Miners
Common Stock pursuant to the provisions of this Agreement (except in
respect of cash which is received in lieu of the issuance of
fractional shares of MP Corp. Common Stock and any shareholder of
Miners who receives payment in cash as a dissenting shareholder);
(iv) The tax basis of the MP Corp. Common Stock to be received by
the shareholders of Miners pursuant to the provisions of this
Agreement will be the same as the tax basis of the Miners Common Stock
surrendered in exchange therefor;
(v) The holding periods of the MP Corp. Common Stock to be
received by the shareholders of Miners pursuant to the provisions of
this Agreement will include the holding periods of the Miners Common
Stock surrendered in exchange
27
<PAGE>
therefor, provided that such Miners Common Stock is held as a capital
asset on the Effective Date; and
(vi) MP Bank, as the surviving bank to the Bank Merger, will
carry-over and take into account all accounting items and tax
attributes of Miners, including, but not limited, to earnings and
profits, methods of accounting, and tax basis and holding periods of
the assets of Miners.
(d) Registration Statement. The Registration Statement (as defined in
----------------------
Section 7.1(b) of this Agreement, including any amendments thereto) shall
have been declared effective by the SEC; the information contained therein
shall be true, complete and correct in all material respects as of the date
of mailing of the Proxy Statement/Prospectus (as defined in Section 7.1(b)
of this Agreement) to the shareholders of Miners; regulatory clearance for
the offering contemplated by the Registration Statement (the "Offering")
shall have been received from each federal and state regulatory authority
having jurisdiction over the Offering, and no stop order shall have been
issued or proceedings instituted or threatened by any federal or state
regulatory authority to suspend or terminate the effectiveness of the
Registration Statement or the Offering.
(e) No Suits. No action, suit or proceeding shall be pending or
--------
threatened before any federal, state or local court or governmental
authority or before any arbitration tribunal which seeks to modify, enjoin
or prohibit or otherwise adversely and materially affect the transactions
contemplated by this Agreement.
(f) Statutes; Orders. No statute, rule, regulation, order, injunction
----------------
or decree shall have been enacted, entered, promulgated or enforced by any
governmental authority which prohibits, restricts or makes illegal the
consummation of the transactions contemplated by this Agreement.
(g) Antitrust Laws. All applicable notifications, statutory and
--------------
regulatory Antitrust Law requirements have been met.
(h) Other Requirements. All other requirements prescribed by law, and
------------------
the Articles of Incorporation, Bylaws and Contracts of the parties hereto
which are necessary to the consummation of the transactions contemplated by
this Agreement shall have been satisfied.
Section 8.2. Conditions Precedent to Obligations of MP Corp. and MP Bank.
----------- -----------------------------------------------------------
The obligations of MP Corp. and MP Bank to consummate this Agreement shall be
subject to the satisfaction of each of the following conditions prior to or as
of the Closing, except to the extent that any such condition shall have been
waived by MP Corp. and MP Bank in accordance with the provisions of Section 9.4
of this Agreement:
28
<PAGE>
(a) Accuracy of Representations and Warranties. All of the
------------------------------------------
representations and warranties of Miners, as set forth in this Agreement
and the information contained in all Bank Closing Documents (as defined in
Section 8.2(j) of this Agreement), shall be true and correct in all
material respects as of the Closing as if made on such date (or on the date
to which it relates in the case of any representation or warranty which
expressly relates to an earlier date).
(b) Covenants Performed. Miners shall have performed or complied in
-------------------
all material respects with each of the covenants required by this Agreement
to be performed or complied with by it.
(c) DELETED.
(d) Financial Confirmation. Within sixty (60) days of the execution
----------------------
of this Agreement, MP Corp. and MP Bank (and their accountants if the
advice of such accountants is deemed necessary or desirable by MP Corp. and
MP Bank) shall have established to their satisfaction that the Bank Balance
Sheet fairly presents the financial condition, assets and liabilities of
Miners as at September 30, 1997, and that, since September 30, 1997, there
has not been any material and adverse change in the condition (financial or
otherwise), assets, liabilities, business, operations or future prospects
of Miners.
(e) DELETED.
(f) Accounting Treatment. MP Corp., MP Bank and their accountants
--------------------
shall have established to their satisfaction that, as of the Closing, the
transactions contemplated by this Agreement can be accounted for as a
"pooling of interests" for financial reporting purposes.
(g) Federal and State Securities and Antitrust Laws. MP Corp., MP
-----------------------------------------------
Bank and their counsel shall have determined to their satisfaction that, as
of the Closing, all applicable securities and antitrust laws of the federal
government and of any state government having jurisdiction over the
transactions contemplated by this Agreement shall have been complied with.
(h) DELETED.
(i) Environmental Matters. No environmental problem of the kind
---------------------
contemplated in Section 3.25 of Article III of this Agreement, and not
previously disclosed shall have been discovered which would, or which
potentially could, materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business, operations or future
prospects of Miners. The result of any "Phase I environmental audit"
conducted pursuant to Section 6.16 with respect to owned or occupied bank
premises shall be reasonably satisfactory to MP Corp.
29
<PAGE>
(j) Closing Documents. Miners shall have delivered to MP Corp. and MP
-----------------
Bank: (i) a certificate signed by Miners' Chairman of the Board or
President and by its Secretary, or such other designated and authorized
officers, verifying that, to the best of their knowledge after reasonable
investigation, all of the representations and warranties of Miners set
forth in this Agreement are true and correct in all material respects as of
the Closing and that Miners has performed in all material respects each of
the covenants required to be performed by it under this Agreement; (ii) all
consents and authorizations of landlords and other persons that are
necessary to permit this Agreement to be consummated without violation of
any lease or other agreement to which Miners is a party or by which Miners
or any of its properties are bound; and (iii) such other certificates and
documents as MP Corp., MP Bank and their counsel may reasonably request
(all of the foregoing certificates and other documents being herein
referred to as the "Bank Closing Documents").
(k) DELETED.
(l) DELETED.
(m) Support Agreement. Each of the Directors of Miners shall have
-----------------
executed and delivered to MP Corp. a "Support Agreement" in the form
attached hereto as Exhibit "B".
(n) Shareholder Approval. MP Corp. shareholders, if required, have
--------------------
approved and/or adopted this Agreement and the transactions contemplated
thereby.
Section 8.3. Conditions Precedent to the Obligations of Miners. The
----------- -------------------------------------------------
obligation of Miners to consummate this Agreement shall be subject to the
satisfaction of each of the following conditions prior to or as of the Closing,
except to the extent that any such condition shall have been waived by Miners in
accordance with the provisions of Section 9.4 of this Agreement:
(a) Accuracy of Representations and Warranties. All of the
------------------------------------------
representations and warranties of MP Corp. and MP Bank, as set forth in
this Agreement and the information contained in Schedule II and all MP
Corp./MP Bank Closing Documents (as defined in Section 8.3(e) of this
Agreement), shall be true and correct in all material respects as of the
Closing as if made on such date (or on the date to which it relates in the
case of any representation or warranty which expressly relates to an
earlier date).
(b) Covenants Performed. MP Corp. and MP Bank shall have performed or
-------------------
complied in all material respects with each of the covenants required by
this Agreement to be performed or complied with by them.
(c) DELETED.
(d) DELETED.
30
<PAGE>
(e) Closing Documents. MP Corp. shall have delivered to Miners: (i) a
-----------------
certificate signed by its Chairman of the Board or President and its
Secretary verifying that, to the best of their knowledge after reasonable
investigation, all of the representations and warranties of MP Corp. and MP
Bank set forth in this Agreement are true and correct in all material
respects as of the Closing and that MP Corp. and MP Bank have performed in
all material respects each of the covenants required to be performed by
them; and (ii) such other certificates and documents as Miners and its
counsel may reasonably request (all of the foregoing certificates and
documents being herein referred to as the "MP Corp./MP Bank Closing
Documents").
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
Section 9.1. Termination. This Agreement may be terminated at any time
----------- -----------
before the Effective Date (whether before or after the authorization, approval
and adoption of this Agreement by the shareholders) as follows:
(a) Mutual Consent. This Agreement may be terminated by mutual
--------------
consent of the parties upon the affirmative vote of a majority of each of
the Boards of Directors of Miners, MP Corp. and MP Bank, followed by
written notices given to each of the other parties.
(b) Unilateral Action by MP Corp. and MP Bank. This Agreement may be
-----------------------------------------
terminated unilaterally by the affirmative vote of each of the Boards of
Directors of MP Corp. and MP Bank, followed by written notice given to
Miners, if: (i) there has been a material breach by Miners of any
representation, warranty or covenant set forth in this Agreement and such
breach has not been cured within thirty (30) days after written notice of
such breach has been given by MP Corp. and MP Bank to Miners; or (ii) any
condition precedent to MP Corp.'s and MP Bank's obligations, as set forth
in Article VIII of this Agreement, remains unsatisfied, through no fault of
MP Corp. or MP Bank, on December 31, 1998.
(c) Unilateral Action By Miners. This Agreement may be terminated
---------------------------
unilaterally by the affirmative vote of a majority of the Board of
Directors of Miners, followed by written notice given to MP Corp. and MP
Bank, if: (i) there has been a material breach by MP Corp. or MP Bank of
any representation, warranty or covenant set forth in this Agreement and
such breach has not been cured within thirty (30) days after written notice
of such breach has been given to MP Corp. and MP Bank; or (ii) any
condition precedent to Miners's obligations as set forth in Article VIII of
this Agreement remains unsatisfied, through no fault of Miners, on December
31, 1998.
31
<PAGE>
(d) Automatic Termination. If, for any reason, this transaction shall
---------------------
not have been consummated by December 31, 1998, this Agreement shall
terminate automatically as of that date unless extended, in writing, prior
to said date by mutual action of the Boards of Directors of the parties
hereto.
(e) Due Diligence Termination. MP Corp. and MP Bank may terminate
-------------------------
this Agreement by giving written notice to Miners, if any matter or thing
has come to the attention of MP Corp. in the course of its due diligence
investigation or otherwise with respect to Miners that, in its sole
opinion, leads it to believe that any such matter or thing materially and
adversely affects the financial or business performance or prospects of
Miners so that it would be inadvisable for MP Corp., in its sole and
exclusive judgment, exercised in a commercial and reasonable manner, to
proceed with this transaction.
Section 9.2. Effect of Termination.
----------- ---------------------
(a) Effect. In the event of termination, this Agreement shall become
------
null and void and the transactions contemplated herein shall thereupon be
abandoned, except that the provisions relating to limited liability and
confidentiality set forth in Sections 9.2(b) and 9.2(c) of this Agreement
shall survive.
(b) Limited Liability. The termination of this Agreement in
-----------------
accordance with the terms of Section 9.1 shall create no liability on the
part of any party, or on the part of any party's directors, officers,
shareholders, agents or representatives, except that if this Agreement is
terminated by MP Corp. and MP Bank by reason of a material breach by
Miners, or if this Agreement is terminated by Miners by reason of a
material breach by MP Corp. or MP Bank, and such breach involves an
intentional, willful or grossly negligent misrepresentation or breach of
covenant, the breaching party shall be liable to the non-breaching party or
parties for all costs and expenses reasonably incurred by the non-breaching
party or parties in connection with the preparation, execution and
consummation of this Agreement, including the fees of its or their counsel,
accountants, consultants and other representatives.
(c) Confidentiality. In the event of the termination of this
---------------
Agreement, neither MP Corp. nor MP Bank nor Miners shall use or disclose to
any other person any confidential information obtained by it during the
course of its investigation of the other party or parties.
Section 9.3. Amendment. To the extent permitted by law, this Agreement
----------- ---------
may be amended at any time before the Effective Date (whether before or after
the authorization, approval and adoption of this Agreement by the shareholders
of Miners) by a written instrument duly authorized, executed and delivered by MP
Corp. and MP Bank and by Miners; provided, however, that any amendment to the
provisions of Article II of this Agreement relating to the consideration to be
received by the former shareholders of Miners in exchange for their shares of
Miners Common Stock shall not take effect until such amendment has been
approved, adopted or ratified by the shareholders of Miners in accordance with
applicable federal and state law.
32
<PAGE>
Section 9.4. Waiver. Any term or condition of this Agreement may be
----------- ------
waived, to the extent permitted by law, by the party or parties entitled to the
benefit thereof at any time before the Effective Date (whether before or after
the authorization, approval and adoption of this Agreement by the shareholders
of Miners) by a written instrument duly authorized, executed and delivered by
such party or parties.
ARTICLE X
RIGHTS OF DISSENTING SHAREHOLDERS OF MINERS
-------------------------------------------
Section 10.1. Rights of Dissenting Shareholders of Miners. The
------------ -------------------------------------------
shareholders of Miners shall be entitled to and may exercise dissenters' rights
if and to the extent they are entitled to do so under the provisions of the
Banking Code or applicable law.
ARTICLE XI
CLOSING AND EFFECTIVE DATE
--------------------------
Section 11.1. Closing. Provided that all conditions precedent set forth
------------ -------
in Article VIII of this Agreement shall have been satisfied or shall have been
waived in accordance with Section 9.4 of this Agreement, the parties shall hold
a closing (the "Closing") at the offices of MP Corp. at 349 Union Street, P. O.
Box 111 Millersburg, Pennsylvania, or such other mutually agreed upon location,
within sixty (60) days after the receipt of all required regulatory approvals
and after the expiration of all applicable waiting periods, at which time the
parties shall deliver the Miners Closing Documents, the MP Corp./MP Bank Closing
Documents, and such other documents and instruments as may be necessary or
appropriate to effectuate the purposes of this Agreement.
Section 11.2. Effective Date. The Merger of Miners with and into MP Bank
------------ --------------
shall become effective and this Agreement and the Bank Merger Agreement shall be
consummated on the date upon which Articles of Merger shall be filed with the
Pennsylvania Department of State, or such later date as shall be specified as
the Effective Date in the Articles of Merger pursuant to the mutual agreement of
MP Corp., MP Bank and Miners and in accordance with the Pennsylvania Banking
Code ("Effective Date"). At the Effective Date, Miners shall cease to exist as
a separate banking institution, and MP Bank shall become the surviving
institution of the Merger.
33
<PAGE>
ARTICLE XII
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
---------------------------------------------
Section 12.1. No Survival. The representations and warranties of Miners
------------ -----------
and of MP Corp. and MP Bank set forth in this Agreement shall expire and be
terminated on the Effective Date by consummation of this Agreement, and no such
representation or warranty shall thereafter survive.
ARTICLE XIII
POST-MERGER AGREEMENTS
----------------------
Section 13.1. Employees.
------------ ---------
(a) Immediately after the Effective Date, MP Bank shall employ all of
the former Miners employees who are employed by Miners immediately prior to
the Effective Date. The aggregate cost of the compensation and benefit
package of such employees shall not be less after the Effective Date than
immediately prior to the Effective Date and will not be reduced during
their employment.
(b) Immediately following the Effective Date, former Miners employees
who are employed by MP Bank shall be entitled to participate in all
benefit, health, incentive, retirement, life insurance, disability, eye and
dental, performance award, vacation, leave and personal days plans,
policies and programs in effect at such time for employees of MP Bank,
subject, however, to the terms of such plans. Former Miners employees who
are employed by MP Bank shall receive service credit from their respective
hire dates for employment at Miners for purposes of eligibility and vesting
requirements under MP Bank's benefit plans and vacation plans.
(c) Immediately after the Effective Date, Allen Trawitz shall be
employed by MP Bank as Executive Vice President, with the aggregate cost of
his compensation and benefits package to be no less than the cost of his
total compensation and benefits package in effect immediately prior to the
date of this Agreement.
(d) Immediately after the Effective Date, Greg Kerwin shall be
employed by MP Bank as Vice President and Chairman of the Salary and Human
Resource Committee of MP Bank, with the aggregate cost of his compensation
and benefits package to be no less than the cost of his total compensation
and benefits package in effect immediately prior to the date of this
Agreement.
34
<PAGE>
Section 13.2. Miners Office Board.
------------ -------------------
(a) Composition; Term; Duties. Immediately following the Effective
-------------------------
Date and until fewer than three (3) of the original members remain, there
shall be established an advisory board (the "Miners Office Board")
comprised of the following members of the Board of Directors of Miners as
of the date of this Agreement and for the position on the Board as
indicated, if any: Allen Trawitz, Franklin Ruth (Chairman and President),
Greg Kerwin, Raymond Donley (Vice Chairman and Secretary), Don Sauve,
Richard Klinger, Harold Jury, and Terrence Kerwin. Except as provided
herein, the Board of Directors of MP Bank shall determine from time to
time, the duties, obligations and responsibilities of the Miners Office
Board. Members of the Miners Office Board who are age 66 or older shall be
grandfathered for a five (5) year period commencing on the Effective Date
from the MP Bank mandatory retirement policy at age 70.
(b) Fees of Miners Office Board Members. Following the Effective
-----------------------------------
Date, members of the Miners Office Board shall receive fees for services no
less than those currently received as a Miners Board member for service as
a Miners Office Board member and as a member of the MP Bank Board, as may
be the case. Miners Office Board members who also serve on the MP Bank
Board of Directors shall receive the full fees paid to MP Bank Board
members. In no case, however, shall the fees paid to any Miners Office
Board member who serves on both Boards, for his service as a member of the
Miners Office Board, exceed $1,800. Miners Office Board salaried members
shall have salaries and bonuses continued for a five (5) year period
following the Effective Date.
(c) Benefits. Members of the Miners Office Board shall continue to
--------
receive the benefits received by them in their capacity as Miners'
Directors immediately before the Effective Date for service on the Miners
Office Board, and such benefits, subject to the terms and conditions of MP
Bank's Plans, shall be continued for a period of five (5) years following
the Effective Date, as follows:
1. For five years following the Effective Date, members of the
Miners Office Board who, prior to the Effective Date, were enrolled
in the Blue Cross/Blue Shield Plan of Miners shall be entitled to
have 100% of the premiums paid by MP Bank for participation in MP
Bank's current Blue Cross/Blue Shield health insurance plan, subject
to the terms and conditions of the plans.
2. For five years following the Effective Date, medical insurance
for widows and retired employees, covered by Miners as of the date of
this Agreement, will, subject to the terms and conditions of those
plans, be provided by MP Bank, at MP Bank's expense.
3. For five years following the Effective Date, MP Bank shall use
its best efforts to obtain eye and dental insurance coverage for the
members of the Miners Office Board, who prior to the Effective Date
were covered under the Miners eye and dental plan, under the MP Bank
Blue Cross/Blue Shield Plan. If such plan is not
35
<PAGE>
available, MP Bank will include the members of the Miners Office
Board in its eye and dental plan, subject to the terms and conditions
of the Plans.
4. For five years following the Effective Date, MP Bank shall
pay 100% of the premiums for the current group life insurance
policies for the members of the Miners Office Board, subject to the
availability of such continued participation.
If such participation or Plan is not available, MP Bank will use its best
efforts to obtain coverage in another group health, life, eye and dental,
insurance plan, the benefits and terms of which are comparable, for the
remainder of the five-year period.
Section 13.3. Board Appointments.
------------ ------------------
Immediately after the Effective Date, the following persons shall be
appointed to serve as members of the Board of Directors of MP Bank until
the 1999 Annual Meeting of Shareholders, and until their successors are
elected and qualified: Greg Kerwin and Don Sauve. Mr. Kerwin shall also
serve as a member of the Trust Committee of MP Bank. Mr. Sauve shall serve
as a member of the Executive Committee of MP Bank.
Section 13.4. Merger of Profit Sharing Plans.
------------ ------------------------------
Miners Profit Sharing Retirement Plan shall be merged into MP Bank's
Profit Sharing Retirement Plan as soon as practicable.
ARTICLE XIV
GENERAL PROVISIONS
------------------
Section 14.1. Expenses. Except as provided in Section 9.2(b) of this
------------ --------
Agreement, each party shall pay its own expenses incurred in connection with
this Agreement and the consummation of the transactions contemplated herein.
For purposes of this Section 14.1, the cost of printing the Proxy
Statement/Prospectus shall be deemed to be an expense of MP Corp. and MP Bank.
Section 14.2. Other Mergers and Acquisitions. Subject to the right of
------------ ------------------------------
Miners to not consummate this Agreement pursuant to Section 9.1(c) of this
Agreement, nothing set forth in this Agreement or any Exhibit hereto shall be
construed:
(a) to preclude MP Corp. from acquiring, or to limit in any way the
right of MP Corp. to acquire, prior to or following the Effective Date, the
stock or assets of any other financial services institution or other
corporation or entity, whether by issuance or exchange of MP Corp. Common
Stock or otherwise;
36
<PAGE>
(b) to preclude MP Corp. from issuing, or to limit in any way the
right of MP Corp. to issue, prior to or following the Effective Date, MP
Corp. Common Stock or other securities;
(c) to preclude MP Corp. from granting options at any time with
respect to MP Corp. Common Stock or other securities;
(d) to preclude option holders of MP Corp. from exercising options at
any time with respect to MP Corp. Common Stock or other securities; or
(e) to preclude MP Corp. from taking, or to limit in any way the right
of MP Corp. to take, any other action not expressly and specifically
prohibited by the terms of this Agreement.
Section 14.3. Access; Confidentiality. The parties hereby agree to
------------ -----------------------
conduct the investigations and discussions contemplated by Section 6.3 and
Section 7.2 of this Agreement in a manner so as to not interfere unreasonably
with normal operations and customer and employee relationships. If the
transactions contemplated by this Agreement are not consummated, the parties
hereby agree to destroy or return all documents and records obtained from the
other or their respective representatives, during the course of any
investigation and will cause all information with respect to the other party
obtained pursuant to this Agreement or preliminarily thereto to be kept
confidential, except to the extent such information becomes public through no
fault of the party which has obtained such information or any of its respective
representatives or agents and except to the extent disclosure of any such
information is legally required. Each party hereby agrees to give the other
party prompt notice of any contemplated disclosure where such disclosure is so
legally required.
Section 14.4. Notices. All notices, claims, requests, demands and other
------------ -------
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly delivered if delivered
in person, transmitted by facsimile machine (but only if receipt is acknowledged
in writing), mailed by registered or certified mail, return receipt requested or
sent by recognized overnight delivery service guaranteeing next day delivery
addressed as follows:
(a) If to Mid Penn Bancorp, Inc. and/or Mid Penn Bank, to:
Mr. Eugene F. Shaffer
Chairman, President & Chief Executive Officer
MID PENN BANCORP, INC.
349 Union Street, P. O. Box 111
Millersburg, Pennsylvania 17061
37
<PAGE>
(b) If to Miners Bank of Lykens to:
Mr. Franklin W. Ruth
President and Chief Executive Officer
MINERS BANK OF LYKENS
550 Main Street, P. O. Box 38
Lykens, Pennsylvania 17048
Section 14.5. Captions. The captions contained in this Agreement are for
------------ --------
reference purposes only and are not part of this Agreement.
Section 14.6. Counterparts. This Agreement may be executed simultaneously
------------ ------------
in several counterparts, each of which shall be deemed an original, but all such
counterparts together shall be deemed to be one and the same instrument.
Section 14.7. Severability. If any provision of this Agreement or the
------------ ------------
application thereof to any party or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other parties or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 14.8. Parties in Interest. This Agreement shall be binding upon
------------ -------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that the rights and obligations of any party
under this Agreement may not be assigned or delegated by that party without the
prior written consent of each other party.
Section 14.9. Entire Agreement. This Agreement, including the documents
------------ ----------------
and other writings referred to herein or delivered pursuant hereto, sets forth
the entire understanding and agreement of the parties hereto and supersedes any
and all prior agreements, arrangements and understandings, oral or written,
relating to the subject matter hereof.
Section 14.10. Governing Law. This Agreement shall be governed by and
------------- -------------
construed in accordance with the domestic internal laws of the Commonwealth of
Pennsylvania, without regard to the conflict laws principles thereof.
38
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound hereby, this Agreement is
executed as of the day and year first above written.
ATTEST: MID PENN BANCORP, INC.
By: ______________________ By: ______________________________________
Cindy L. Wetzel Eugene F. Shaffer, Chairman
Secretary President, and Chief Executive Officer
[CORPORATE SEAL]
ATTEST: MID PENN BANK
By: ______________________ By: ______________________________________
Cindy L. Wetzel Alan W. Dakey, President and
Secretary Chief Executive Officer
[BANK SEAL]
ATTEST: MINERS BANK OF LYKENS
By: ______________________ By: ______________________________________
Raymond C. Donley Franklin W. Ruth, Jr., President and
Secretary Chief Executive Officer
[BANK SEAL]
39
<PAGE>
Taken from Section 13.2:
(d) Liability Insurance. For a period of two years following the Effective
-------------------
Date, MP Corp. shall purchase for the benefit of the former directors of Miners,
liability insurance, commonly referred to as tail coverage on terms comparable
to the Miners insurance plan currently in effect, so long as said insurance can
be purchased from a reputable insurer at commercially reasonable rates and
terms, including the term that such policy be on a "claims made" basis.
Taken from page 2, Section 2.1 - (d):
Closing Market Price. For purposes of this Agreement, the Closing Market
--------------------
Price shall be the arithmetic average of the per share closing prices for MP
Corp. Common Stock for the twenty (20) trading days immediately preceding the
date which is five (5) business days before the Effective Date, as reported on
the American Stock Exchange ("AMEX"), the foregoing twenty (20) trading days
being hereinafter sometimes referred to as the "Price Determination Period".
(For example, if January 30, 1998 were to be the Effective Date, then the Price
Determination Period would be January 22, 21, 20, 16, 15, 14, 13, 12, 9, 8, 7,
6, 5, 2, December 31, 30, 29, 26, 24, 23.) In the event that AMEX shall fail to
report a closing price for MP Corp. Common Stock for any trading day during the
Price Determination Period, then the closing price for that day shall be equal
to the average of the closing bid price and the closing asked price as quoted on
AMEX for that day. In the event that AMEX shall fail to report a closing price,
closing bid price and closing asked price, respectively, for MP Corp. Common
Stock for any trading day during the Price Determination Period, then the
closing price for that day shall be equal to the average of the closing bid
prices and the closing asked prices as quoted: (i) by _________________________
and by _____________________________; or, in the event that neither of these
firms is then making a market in MP Corp. Common Stock, (ii) by two brokerage
firms then making a market in MP Corp. Common Stock to be selected by MP Corp.
and approved by Miners.
3.21 No Finder. Except as previously disclosed, Miners has not paid or become
-------
obligated to pay any fee or commission of any kind whatsoever to any broker,
finder or other intermediary for, on account of or in connection with the
transactions contemplated in this Agreement.
3.22 Significant Customers. All significant customers of Miners have been
----------
previously identified. For purposes of this Section 3.22, a "significant
customer" shall mean any customer who, at any time between January 1, 1997 and
the date of this Agreement, had or has (i) aggregate outstanding loans in the
amount of $50,000 or more, or (ii) aggregate daily deposits in the amount of
$50,000 or more.
3.33 Absence of Questionable Payments. Miners has not, nor, to the knowledge of
-------------------------
Miners, has any director, officer, agent, employee, consultant or other person
associated with or acting on behalf of Miners (i) used any Miners corporate
funds for unlawful contributions, gifts, entertainment or unlawful expenses
relating to political activity; or (ii) made any direct or indirect unlawful
payments to governmental officials from any Miners corporate funds, or
established or maintained any unlawful or unrecorded accounts with funds
received from Miners.
40
<PAGE>
3.34 Powers of Attorney; Guarantees. Except as previously disclosed, Miners
------------------------------
does not have any power of attorney outstanding, or any obligation or liability
either actual, construing or contingent, as guarantor, surety, cosigner,
endorser, co-maker or indemnitor in respect of the obligation of any person,
corporation, partnership, joint venture, association, organization or other
entity, except for letters of credit issued in the ordinary course of business
which have been previously disclosed.
3.37 Derivatives. Except as previously disclosed, Miners does not own or hold
-----------
any derivatives, "caps", or "floors", in its investment portfolio.
3.39 Loan Portfolio. Except as previously disclosed, all evidences of
--------------
indebtedness reflected as assets of Miners are in all respects binding
obligations of the respective primary obligors associated therewith, and no
material amount thereof is subject to any defenses known to Miners which may be
asserted against Miners. Except as previously disclosed, Miners has delivered
to MP Corp. a true and correct list and brief description of all real property
(other than personal residences) in which Miners has an interest as a creditor
or mortgagee securing an amount or amounts greater than $25,000 to one borrower
or a series of related borrowers. Except as set forth in such list (i) there
are no outstanding loans by Miners with an unpaid balance of $10,000 or more on
which a default has occurred, and (ii) Miners has no loans reflected as assets
in such financial statements which have principal balances in excess of $10,000
except for fully-secured mortgage loans. For purposes hereof, "default" shall
include, but not be limited, to a failure of an obligor to make payments with
respect to any loans for 30 days or more past the due date for such payment.
3.40 Annual Meeting Documents. Miners has delivered, or will deliver, to MP
- ---- ------------------------
Corp. copies of its (i) annual reports to shareholders for the three years ended
December 31, 1997, 1996 and 1995, (ii) semi-annual reports to shareholders for
the period ended September 30, 1997, and (iii) proxy materials used or for use
in connection with its meetings of shareholders held in 1997, 1996 and 1995.
3.41 Trust Department and Fiduciary Relationships. Miners has established,
--------------------------------------------
maintained and administered all fiduciary and custodian relationships, accounts
and agreements; and undertaken and performed all fiduciary and custodian duties,
obligations, and responsibilities in compliance with all applicable laws,
statutes, rules, regulations and the governing instruments of such fiduciary and
custodian relationships.
4.4 Articles of Incorporation and Bylaws. The copies of the Articles of
----------------------------
Incorporation, as amended, and of the Bylaws, as amended, of MP Corp. which have
been delivered to Miners are true, correct, and complete in all material
respects.
6.1 (u) not make any loan or other credit facility commitment in excess of
$100,000 (including without limitation, lines of credit and letters of credit)
to any affiliate or compromise, expend, renew or modify any such outstanding
commitment;
41
<PAGE>
(v) not enter into any swap or similar commitment, agreement or
arrangement which is not consistent with past practice and which increases
the credit or interest rate risk over the levels existing at September 30,
1997;
(w) not enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the Ordinary Course of Business and
consistent with past practices;
6.15 Professional Fees. Miners shall not incur professional expenses in
-----
connection with the transactions contemplated by this Agreement in excess of
$30,000, unless Miners and MP Corp. mutually agree, in writing, to increase such
amount because of unique and unforeseen circumstances. Such professional
expenses shall include those paid and payable to attorneys, accountants,
consultants and investment bankers.
6.17 Loan Loss Reserves. Miners shall increase its Loan Loss Reserves by
--------------
$_______ from the date hereof to Closing.
8.1(C) Opinion of Counsel for Miners. Miners shall have delivered to MP
----------------------
Corp. and MP Bank an opinion of its counsel in form and substance reasonably
satisfactory to MP Corp. and MP Bank, to the effect that, as of the Closing:
(i) Miners is a Pennsylvania state-chartered banking institution,
duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania and has full power and lawful
authority to own and hold its properties and to carry on its present
business;
(ii) Miners is an insured bank under the provisions of the
Federal Deposit Insurance Act, as amended;
(iii) the authorized capital of Miners consists exclusively of
15,000 shares of common stock of the par value of five dollars ($5.00)
par value per share, of which 15,000 shares are validly issued, 14,825
shares are outstanding, fully paid and non-assessable and 175 shares
are held as treasury shares; and, to the knowledge of such counsel
after reasonable inquiry, there are no outstanding obligations,
options or rights of any kind entitling other persons to purchase or
sell any such shares, and there are no outstanding securities or other
instruments of any kind convertible into such shares;
(iv) Miners has full corporate power and authority to execute and
deliver this Agreement and to carry out the transactions contemplated
herein, and all corporate actions required to be taken by Miners to
authorize the execution and delivery of this Agreement and the
performance of the transactions contemplated herein have been taken;
42
<PAGE>
(v) this Agreement has been duly executed and delivered by Miners
and, assuming due authorization, execution and delivery by MP Corp.
and MP Bank, constitutes a valid and binding obligation of Miners and
is enforceable against Miners in accordance with its terms, subject to
bankruptcy, insolvency, and other laws of general applicability
relating to or affecting creditors' rights and general equity
principles;
(vi) the performance of this Agreement by Miners will not violate
the Articles of Incorporation or the Bylaws of Miners or, to the
knowledge of such counsel after reasonable inquiry, any applicable
statute, rule, regulation, order, decree, directive, consent
agreement, memorandum of understanding, contract, indenture or other
instrument to which Miners is a party or by which its properties are
bound;
(vii) to the knowledge of such counsel after reasonable inquiry,
there is no action, suit or proceeding, pending or threatened, of the
kind contemplated under Section 8.1(e) of this Agreement;
(viii) to the knowledge of such counsel after reasonable
inquiry, there is no action, suit or proceeding pending or threatened
against Miners (except as previously disclosed or in such counsel's
opinion) that, if determined adversely to Miners, would have a
material and adverse effect upon the condition (financial or
otherwise), assets, liabilities, business or operations of Miners;
(ix) no consent, approval, authorization or order of any federal,
state or local court or governmental authority is required to be
obtained by Miners in connection with the consummation of the
transactions contemplated in this Agreement, other than such consents,
approvals, authorizations and orders as have been obtained prior to
the Closing; and
(x) such other legal matters incident to the matters contemplated
hereby as may reasonably be requested by MP Corp. and MP Bank.
For purposes of Clause (viii) above, any action, suit or proceeding
seeking to recover from Miners damages, fines, penalties or other relief
having a monetary value of $10,000 or more shall be deemed to be
"material". In giving the foregoing opinion, such counsel may rely as to
matters of fact without independent investigation, to the extent such
counsel deems such reliance necessary, appropriate, and reasonable,
provided, however, that such reliance is expressly noted in such opinion,
and on certificates of federal, state or local governmental officials and
on certificates of officers and directors of Miners. Such counsel may
expressly exclude any opinions as to choice of law matters and antitrust
matters and may add other qualifications and explanations of the basis of
its opinions as are reasonably acceptable to MP Corp. and MP Bank.
43
<PAGE>
[The opinion of Miners' counsel shall be governed by the Legal Opinion
Accord ("Accord") of the American Bar Association Section of Business Law
(1991). The term "Actual Knowledge" as used herein shall have the meaning
set forth in the Accord. In addition, such opinion may be limited to
present statutes, regulations, rulings and formal agency and judicial
interpretations and to facts as they presently exist; in rendering such
opinion, such counsel need assume no obligation to revise or supplement it
should the present laws be changed by the legislative or regulatory action,
judicial decision or otherwise after such opinion is rendered. Such
counsel may assume that any agreement is the valid and binding obligation
of any parties to such agreement other than Miners. In giving such
opinion, such counsel may rely as to all matters of facts or certificates
of officers or directors of Miners and certificates of public officials, so
long as such reliance and the facts thereunder are expressly stated. Such
counsel's opinion shall be limited to matters governed by federal laws and
by the laws of the Commonwealth of Pennsylvania. With respect to matters
involving the application of Pennsylvania law, such counsel may rely, to
the extent it deems proper and as specified in its opinion, upon the
opinion of local counsel.]
8.1(E) Accountants' Comfort Letter. MP Corp. shall have received "comfort"
---------------
letters from Miners' independent certified public accountants dated (i) the date
of the mailing of the Proxy Statement and (ii) the Effective Date, in each case
substantially to the effect that:
(A) it is a firm of independent public accountants with respect
to Miners within the rules and regulations of the SEC;
(B) in its opinion, the audited financial statements of Miners
examined by it and included in the Proxy Statement comply as to form
in all material respects with the applicable rules and regulations of
the SEC; and
(C) on the basis of specified procedures (which do not constitute
an examination in accordance with generally accepted auditing
standards), nothing has come to its attention which causes it to
believe: (1) that the financial statements, if any, of Miners
included in such Proxy Statement do not comply in all material
respects with the applicable accounting requirements and with the
rules and regulations of the SEC and (2) that any such unaudited
financial statements of Miners from which unaudited, quarterly
financial information set forth in such Proxy Statement has been
derived, are not fairly presented in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the audited financial statements.
8.1 (h) Dissenting Shareholders. Holders of no more than five percent (5%)
-----------------------
of the issued and outstanding shares of Miners shall have exercised their
statutory appraisal or Dissenters' Rights.
8.1 (k) Miners's Shareholders Equity. The total shareholders equity of Miners
----------------------------
(excluding the reserve for loan losses), on a generally accepted accounting
basis, on the Effective Date shall be no less than
___________________________________ Dollars ($__00,000).
44
<PAGE>
8.1 (l) Benefit Plans. MP Corp. and MP Bank shall have determined, within 60
-------------
days of the execution of this Agreement, that the medical, health, insurance,
and employee benefit plans or programs of Miners shall not contain any provision
or term which, upon assumption by MP Corp. or MP Bank, on the Effective Date
would require MP Corp. or MP Bank to provide benefits or incur cost in excess of
those provided or paid by MP Corp. or MP Bank to or on behalf of its existing
employees.
8.3 (c) Opinion of Counsel for MP Corp. and MP Bank. MP Corp. and MP Bank shall
-------------------------------------------
have delivered to Miners an opinion of its special counsel, Shumaker Williams,
P.C., in form and substance reasonably satisfactory to Miners, to the effect
that, as of the Closing:
(i) MP Corp. is a business corporation that is duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania;
(ii) MP Corp. is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, and has full corporate power
and authority to own and hold its properties and to carry on its
present business;
(iii) MP Bank is a Pennsylvania state-chartered banking
institution that is duly organized and validly existing under the laws
of the Commonwealth of Pennsylvania and of the United States and has
full corporate power and authority to own and hold its properties and
to carry on its present business;
(iv) MP Corp. and MP Bank have full corporate power and authority
to execute and deliver this Agreement and to carry out the
transactions contemplated herein, and all corporate actions required
to be taken by MP Corp. and MP Bank to authorize the execution and
delivery of this Agreement and the performance of the transactions
contemplated herein have been taken;
(v) this Agreement has been duly authorized, executed and
delivered by MP Corp. and MP Bank and, assuming due authorization,
execution and delivery by Miners, constitutes a valid and binding
obligation of each of MP Corp. and MP Bank and is enforceable against
MP Corp. in accordance with its terms, subject to bankruptcy,
insolvency, and other laws of general applicability relating to or
affecting creditors' rights and general equity principles;
(vi) to the knowledge of such counsel, there is no action, suit,
or proceeding pending or threatened against MP Corp. or MP Bank
(except as described in Schedule II to this Agreement or in such
counsel's opinion) that, if determined adversely to MP Corp. or MP
Bank, would have a material and adverse affect upon the condition
(financial or otherwise), assets, liabilities, business or operations
of MP Corp. or MP Bank;
45
<PAGE>
(vii) to the knowledge of such counsel after reasonable
investigation, there is no action, suit or proceeding pending or
threatened of the kind contemplated under Section 8.1(e) of this
Agreement;
(viii) the shares of MP Corp. Common Stock to be issued under
this Agreement have been duly authorized and, when issued, will be
validly issued, fully paid and non-assessable;
(ix) no consent, approval, authorization or order of any federal,
state or local court or governmental authority is required to be
obtained by MP Corp. or MP Bank in connection with the consummation of
the transactions contemplated in this Agreement, other than such
consents, approvals, authorizations and orders as have been obtained
prior to the Closing; and
(x) such other legal matters incident to the matters contemplated
hereby as may reasonably be requested by Miners.
In giving the foregoing opinion, such counsel may rely as to matters
of fact without reasonable investigation, to the extent such counsel deems
such reliance necessary, appropriate and reasonable, provided, however,
that such reliance is expressly noted on such opinion, and on certificates
of federal, state or local governmental officials and on certificates of
officers and directors of MP Corp. and MP Bank. Such counsel may exclude
any opinions as to choice of law matters and antitrust matters and may add
other qualifications and explanations of the basis of its opinions as are
reasonably acceptable to Miners.
8.3 (d) Fairness Opinion. Miners shall have obtained from an independent
----------------
financial advisor selected by the Board of Directors of Miners, an opinion,
dated as of the date of the Proxy Statement/Prospectus for the special or annual
meeting of Miners' shareholders, contemplated by Section 6.2(b) of this
Agreement, stating that the consideration to be received by the holders of
Miners Common Stock is fair, from a financial point of view, to such
shareholders.
46
<PAGE>
Mid Penn Bancorp, Inc.
Financial Highlights
AS OF AND FOR YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data.) Percent
1997 1996 Change
---- ---- -------
<S> <C> <C> <C>
Total Assets....................................... $ 228,775 210,172 + 8.9%
Total Deposits..................................... 192,239 174,671 + 10.1%
Net Loans.......................................... 141,510 142,341 - 0.6%
Total Investments and Interest Bearing Balances.... 75,228 57,166 + 31.6%
Stockholders' Equity............................... 26,883 24,650 + 9.1%
Net Income......................................... 4,006 3,329 + 20.3%
Net Income Per Share............................... 1.54 1.28 + 20.3%
Cash Dividend Per Share on Weighted Average
Number of Shares Outstanding.................... .76 .46 + 65.2%
Book Value Per Share............................... $ 10.31 9.45 + 9.1%
</TABLE>
Mid Penn Bancorp, Inc.
Stockholders' Information
<TABLE>
<CAPTION>
1997 1996
---- ----
High Low High Low Quarter
---- --- ---- --- -------
<S> <C> <C> <C> <C> <C>
Market Value Per Share........................... $ 16.19 15.95 16.07 15.95 1st
16.31 15.36 16.07 15.71 2nd
18.00 17.38 16.07 16.07 3rd
32.50 21.25 16.07 15.95 4th
</TABLE>
Market Value Information: The market share information was provided by National
- ------------------------
Quotation Bureau, Inc., 11 Penn Plaza, New York, NY 1001. Beginning in December
of 1997, Mid Penn Bancorp, Inc. common stock trades on the American Stock
Exchange under the symbol: MBP.
The following brokerage firms make a market in Mid Penn Bancorp, Inc. stock:
F. J. Morrissey & Company Janney Montgomery Scott
1700 Market Street 1801 Market Street
Suite 1420 Philadelphia PA 19103-2473
Philadelphia PA 19103-3913 1-800-526-6397
1-800-842-8928
Ryan Beck & Company Hopper Soliday & Co Legg Mason Wood
80 Main Street 1825 Oregon Pike Walker, Inc.
West Orange NJ 07052 Lancaster PA 17601 214 Senate Avenue
1-800-342-2325 1-800-456-9234 Camp Hill PA 17011
1-800-433-8186
Transfer Agent: Norwest Shareholder Services, P.O. Box 64854, St. Paul, MN
- --------------
55164-0854. Phone: 1-800-468-9716.
Number of Stockholders: At December 31, 1997, there were 713 stockholders.
- ----------------------
Dividends: A dividend of $.19 per share was paid during each quarter of 1997.
- ---------
Cash dividends of $ .50 were declared in March and September in 1996. A special
cash dividend of $ .50 per share was declared in December of 1995, payable in
January of 1996. Mid Penn Bancorp, Inc. plans to continue a quarterly dividend
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 28, 1998, at 349 Union Street,
Millersburg, Pennsylvania.
2
<PAGE>
Report of Independent
Certified Public Accountants
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 subsidiaries as of December 31, 1997 and 1996 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, 1997. 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 subsidiaries as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
PARENTE, RANDOLPH, ORLANDO, CAREY & ASSOCIATES
Williamsport, Pennsylvania
January 13, 1998
4
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Balance Sheets
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) 1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks............................................. $ 4,409 4,442
Interest bearing balances........................................... 35,727 28,433
Available-for-sale securities....................................... 39,501 28,733
Federal funds sold.................................................. 400 0
Loans............................................................... 145,629 146,393
Less:
Unearned income.............................................. (1,943) (1,879)
Allowance for loan losses.................................... (2,176) (2,173)
-------- --------
Net loans.................................................... 141,510 142,341
-------- --------
Bank premises and equipment, net ................................... 3,186 3,397
Foreclosed assets held for sale..................................... 1,355 548
Accrued interest receivable......................................... 1,594 1,335
Deferred income taxes............................................... 387 536
Other assets........................................................ 706 407
-------- --------
Total Assets $ 228,775 210,172
======== ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.......................................................... $ 19,612 15,350
NOW............................................................. 23,086 24,211
Money market.................................................... 11,675 11,575
Savings......................................................... 17,454 17,061
Time............................................................ 120,412 106,474
-------- --------
Total Deposits 192,239 174,671
Short-term borrowings............................................... 2,234 4,512
Accrued interest payable............................................ 1,178 1,020
Other liabilities................................................... 553 609
Long-term debt...................................................... 5,688 4,710
-------- --------
Total Liabilities 201,892 185,522
-------- --------
Stockholders' Equity:
Common stock, par value $1 per share; authorized
10,000,000 shares; 2,626,608 and 1,261,029 shares
issued in 1997 and 1996 respectively......................... 2,627 1,261
Surplus......................................................... 13,872 11,817
Undivided profits............................................... 10,605 11,937
Net unrealized holding gain on securities....................... 318 168
Treasury stock at cost (19,241 and 19,056 shares, in 1997 and
1996, respectively).......................................... (539) (533)
-------- --------
Stockholders' Equity, Net 26,883 24,650
-------- --------
Total Liabilities and Stockholders' Equity $ 228,775 210,172
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Statement of Income
FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................................. $ 13,317 12,557 11,561
Interest on interest-bearing balances...................... 1,978 1,938 1,681
Interest and dividends on investment securities:
U.S. Treasury and government agencies.................. 1,198 878 680
State and political subdivision obligations, taxable... 0 6 12
State and political subdivision obligations, tax-exempt 770 720 822
Other securities....................................... 53 51 39
Interest on federal funds sold and securities purchased
under agreement to resell.............................. 9 16 53
--------- --------- ---------
Total Interest Income 17,325 16,166 14,848
--------- --------- ---------
INTEREST EXPENSE
Interest on deposits....................................... 7,385 7,145 6,403
Interest on short-term borrowings.......................... 186 182 121
Interest on long-term debt................................. 371 185 197
--------- --------- ---------
Total Interest Expense 7,942 7,512 6,721
--------- --------- ---------
Net Interest Income 9,383 8,654 8,127
PROVISION FOR LOAN LOSSES....................................... 100 50 0
--------- --------- ---------
Net Interest Income After Provision for Loan Losses 9,283 8,604 8,127
--------- --------- ---------
NONINTEREST INCOME
Trust department income.................................... 90 83 68
Service charges on deposits................................ 300 252 249
Investment securities (losses) gains, net.................. (2) 12 15
Gain on sale of loans...................................... 924 0 0
Other income............................................... 409 453 363
--------- --------- ---------
Total Noninterest Income 1,721 800 695
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits............................. 2,923 2,419 2,373
Occupancy expense, net..................................... 293 299 278
Equipment expense.......................................... 390 389 353
Pennsylvania bank shares tax expense ...................... 242 229 215
FDIC insurance premium..................................... 22 2 171
Marketing and advertising.................................. 139 141 152
Loss on mortgage sales..................................... 18 26 3
Other expenses............................................. 1,295 1,211 1,180
--------- --------- ---------
Total Noninterest Expense 5,322 4,716 4,725
--------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES........................ 5,682 4,688 4,097
Provision for income taxes................................. 1,676 1,359 1,127
--------- --------- ---------
Net Income $ 4,006 3,329 2,970
========= ========= =========
Earnings Per Share (1) $ 1.54 1.28 1.14
========= ========= =========
Weighted Average Number of Shares Outstanding 2,607,540 2,607,552 2,607,552
</TABLE>
(1) Earnings per share for all periods presented have been restated to reflect a
stock split effected in the form of a 100% stock dividend effective August 25,
1997, a 5% stock dividend effective May 26, 1997, a 5% stock dividend effective
October 7, 1996, and a 5% stock dividend effective December 15, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MidPenn Bancorp, Inc.
Consolidated Statement of Changes in Stockholders' Equity
FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in thousands, except 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, 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, historical)........... 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 loss........................... 0 0 0 (180) 0 (180)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1996................................. 1,261 11,817 11,937 168 (533) 24,650
Net income............................................ 0 0 4,006 0 0 4,006
Cash dividends ($.76 per share)....................... 0 0 (1,917) 0 0 (1,917)
5% stock dividend (additional 61,803 shares).......... 62 2,055 (2,117) 0 0 0
Stock split effected in the form of a 100%
stock dividend (additional 1,303,776 shares)........ 1,304 0 (1,304) 0 0 0
Purchase of treasury stock (185 shares)............... 0 0 0 0 (6) (6)
Net unrealized holding gain........................... 0 0 0 150 0 150
-------- -------- -------- -------- -------- --------
Balance, December 31, 1997................................. $ 2,627 13,872 10,605 318 (539) 26,883
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Mid Penn Bancorp, Inc.
Consolidated Statement of Cash Flows
FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income............................................. $ 4,006 3,329 2,970
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses.......................... 100 50 0
Depreciation....................................... 330 361 319
Investment securities (losses) gains, net.......... 2 (12) (15)
Gain on sale/disposal of bank premises and
equipment....................................... 0 (3) (8)
(Gain) Loss on sale of foreclosed assets........... (41) (189) 11
Gain on sale of loans.............................. (924) 0 0
Deferred income taxes.............................. 73 40 67
Change in interest receivable...................... (259) 51 (172)
Change in other assets............................. (299) 255 (387)
Change in interest payable......................... 158 (32) 302
Change in other liabilities........................ (56) (445) 217
---------- ---------- ---------
Net Cash Provided By Operating Activities 3,090 3,405 3,304
---------- ---------- ---------
Investing Activities:
Net (increase) decrease in interest-bearing balances... (7,294) 1,626 (6,178)
Increase in federal funds sold......................... (400) 0 0
Proceeds from the maturity of investment securities.... 8,989 4,041 6,788
Proceeds from the sale of investment securities........ 4,370 3,786 3,017
Proceeds from the sale of bank premises and equipment.. 0 12 10
Purchases of investment securities..................... (23,903) (11,636) (8,278)
Proceeds from sale of loans............................ 8,378 0 0
Net increase in loans.................................. (7,809) (13,196) (14,756)
Net purchases of bank premises and equipment........... (119) (316) (1,305)
Proceeds from the sale of foreclosed assets............ 324 555 109
Capitalized additions - foreclosed assets.............. (4) (13) (166)
---------- ---------- ---------
Net Cash Used In Investing Activities (17,468) (15,141) (20,759)
---------- ---------- ---------
Financing Activities:
Net increase (decrease) in demand and savings deposits. 3,630 3,498 (396)
Net increase in time deposits.......................... 13,938 8,905 13,364
Assumption of deposit liabilities...................... 0 0 2,342
Net increase (decrease) in short-term borrowings....... (2,278) 198 2,578
Long-term borrowings................................... 3,106 1,500 0
Long-term debt repayment............................... (2,128) (119) (110)
Cash dividends......................................... (1,917) (1,193) (1,698)
Purchase of treasury stock............................. (6) 0 0
---------- ---------- ---------
Net Cash Provided By Financing Activities 14,345 12,789 16,080
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents........ (33) 1,053 (1,375)
Cash and cash equivalents at January 1...................... 4,442 3,389 4,764
---------- ---------- ---------
Cash and cash equivalents at December 31.................... $ 4,409 4,442 3,389
========== ========== =========
Supplemental Disclosures of Cash Flow Information:
Cash payments of interest expense...................... $ 7,784 7,544 6,419
Cash payments of income taxes.......................... $ 1,694 1,177 1,186
Supplemental Noncash Disclosures:
Loan charge-offs....................................... $ 242 464 366
Transfers to foreclosed assets held for sale........... $ 1,086 394 341
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements for 1997 Report
(1) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Mid Penn Bancorp, Inc. and its wholly-owned subsidiaries Mid Penn Bank
("Bank") and Mid Penn Investment Corporation (collectively the
"Corporation"). All significant intercompany balances and transactions
have been eliminated.
(2) Nature of Business
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.
Mid Penn Investment Corporation is engaged in investing activities.
(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) 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 a 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.
(b) Investment Securities
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, 1997 and 1996, 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' equity.
(c) 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.
9
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
(d) 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.
(e) 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.
(f) 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 expense.
(g) 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.
(h) 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."
(i) 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.
(j) Earnings Per Share
Earnings 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 and
stock splits.
(k) Statement of Cash Flows
For purposes of the statement of cash flows, the Corporation
considers cash and due from banks to be cash equivalents.
(l) Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year's classifications.
10
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
(4) Restrictions on Cash and Due from Bank Accounts
The Bank is required to maintain reserve balances. The amount of those
required reserve balances at December 31, 1997 and 1996 was approximately
$1,284,000 and $1,227,000, respectively.
(5) Investment Securities
At December 31, 1997 and 1996, 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
Amount Cost Gains Losses Value
------ --------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury and U.S.
Government Agencies...................... $ 19,300 19,294 125 21 19,398
Mortgage-Backed U.S.
Government Agencies....................... 3,579 3,556 13 13 3,556
State and Political
Subdivision Obligations................... 15,555 15,527 378 1 15,904
Restricted Equity Securities................ 643 643 0 0 643
------ ------ ---- --- ------
$ 39,077 39,020 516 35 39,501
====== ====== ==== === ======
December 31, 1996
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
Restricted Equity Securities................ 1,249 1,249 0 0 1,249
------ ------ ---- --- ------
$ 28,501 28,478 337 82 28,733
====== ====== ==== === ======
</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.
Restricted 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 $18,742,000 at December 31, 1997, were pledged to secure public and
trust deposits and other borrowings.
Proceeds from the sale of investment securities in 1997 amounted to
$4,370,000. Gross losses from such sales of investment securities, as
determined on the basis of specific identification of the adjusted cost of
each security sold, amounted to $2,000. Gross gains of $12,000 and $15,000
were realized on the sale of investment securities amounting to $3,786,000
and $3,017,000 in 1996 and 1995, respectively.
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, 1997:
<TABLE>
<CAPTION>
December 31, 1997
(Dollars in thousands) Amortized Fair
Cost Value
--------- ------
<S> <C> <C>
Due in 1 year or less............................................ $ 3,744 3,752
Due after 1 year but within 5 years.............................. 11,402 11,689
Due after 5 years but within 10 years............................ 13,424 13,545
Due after 10 years 6,251 6,316
------ ------
34,821 35,302
Mortgage-Backed Securities....................................... 3,556 3,556
Restricted Equity Securities..................................... 643 643
------ ------
$ 39,020 39,501
====== ======
</TABLE>
The Corporation has no derivative financial instruments requiring
disclosure under SFAS No. 119.
(6) Loans
A summary of loans at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Commercial real estate, construction and land development........ $ 79,240 75,200
Commercial, industrial and agricultural.......................... 20,001 18,588
Real estate - residential........................................ 27,009 26,718
Consumer......................................................... 19,371 25,874
Lease financing.................................................. 8 13
------- -------
$ 145,629 146,393
======= =======
</TABLE>
Included within the loan portfolio are loans on which the Bank has
ceased the accrual of interest. These loans amounted to $312,000 as of
December 31, 1997 and $1,183,000 as of December 31, 1996. Income
recognized on nonaccrual loans in 1997 and 1996 was $19,000 and $144,000,
respectively. Interest income which would have been recognized in 1997 and
1996 in accordance with the contractual terms would have been $22,000 and
$248,000, respectively. In addition, loans which were past due 90 days or
more for which interest continued to be accrued as of December 31, 1997
and 1996, amounted to approximately $207,000 and $519,000, respectively.
During 1997, $212,000 in commercial loans were restructured compared to
$1,442,000 in 1996. The restructurings were done on terms and conditions
available at current market rates.
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
$1,173,000 and $1,123,000 at December 31, 1997 and 1996, respectively. New
loans extended were $404,000 and $230,000 and repayments on these loans
were $354,000 and $335,000 during 1997 and 1996, 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. Net unamortized loan fees deducted from loans
was $381,957 and $315,545 at December 31, 1997 and 1996, respectively.
(7) Allowance for Loan Losses
Changes in the allowance for loan losses for the years 1997, 1996, and
1995 are summarized as follows:
(Dollars in thousands)
1997 1996 1995
---- ---- ----
Balance, January 1........................ $ 2,173 2,347 2,511
Provision charged to operations........... 100 50 0
Loans charged off......................... (242) (464) (366)
Recoveries on loans charged off........... 145 240 202
----- ----- -----
Balance, December 31...................... $ 2,176 2,173 2,347
===== ===== =====
12
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
The recorded investment in loans that are considered impaired amounted
to $120,000 (all in nonaccrual) and $220,000 (all in nonaccrual) on
December 31, 1997 and December 31, 1996, 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 contractual terms of the loan agreement. The allowance
for loan losses related to loans classified impaired amounted to
approximately $40,000 at December 31, 1997. The average balances of these
loans amounted to approximately $204,000 and $464,000 for the years 1997
and 1996, respectively. Due to the low levels of loans classified as
impaired, 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 1997
and 1996.
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Cash receipts applied to reduce principal balance................ $ 8 60
Cash receipts recognized as interest income...................... 9 0
------- --------
Total cash receipts.............................................. $ 17 60
======= ========
</TABLE>
In addition, at December 31, 1997 and 1996, the Bank had other
nonaccrual loans of approximately $193,000 and $963,000, 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, 1997 and 1996, bank premises and equipment are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Land ............................................. $ 545 545
Buildings ....................................... 3,419 3,396
Furniture and Fixtures............................ 2,506 2,442
------- -------
6,470 6,383
Less accumulated depreciation..................... 3,284 2,986
------- -------
$ 3,186 3,397
======= =======
</TABLE>
Depreciation expense amounted to $330,000, $361,000 and $319,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
(9) Deposits
--------
At December 31, 1997 and 1996, time deposits in denominations of
$100,000 or more amounted to $25,504,000 and $14,527,000, respectively.
Interest expense on such certificates of deposit amounted to approximately
$911,000, $754,000 and $501,000 for the years ended December 31, 1997,
1996 and 1995, respectively. Time deposits at December 31, 1997, mature as
follows: (in thousands) 1998, $58,519; 1999, $29,063; 2000, $10,584; 2001,
$7,525; 2002, $5,120; thereafter, $9,601.
(10) Short-term Borrowings
---------------------
Short-term borrowings and the related interest expense as of December
31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
Interest Interest
Balance Expense Balance Expense
------- -------- ------- --------
<S> <C> <C> <C> <C>
Federal funds purchased $ 1,200 163 3,700 132
Repurchase agreements 0 0 18 32
Treasury, tax and loan notes 1,034 23 794 18
------- ----- ------ ------
$ 2,234 186 4,512 182
======= ===== ====== ======
</TABLE>
Federal funds purchased represent overnight funds. Securities sold
under repurchase agreements generally mature between one day and one year.
Treasury, tax and loan notes are open-ended interest bearing notes payable
to the U.S. Treasury upon call. All tax deposits 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 $17.3 million dollars at
December 31, 1997.
13
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
(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, 1997, the Bank had long-term debt in the amount of $5,688,000
outstanding to the FHLB consisting of a $1,500,000 term loan at 6.67% due
September 4, 2001, a $1,082,000 loan at 7.30% due April 5, 2004 amortized
in equal monthly payment, a $2,000,000 bullet loan at 6.08% which will
mature on March 19, 2002, a $1,000,000 bullet loan at 6.03% maturing
October 4, 1999, and a $106,000 amortizing note at 6.71% maturing on
February 22, 2027. The aggregate amounts of maturities of long-term debt
subsequent to December 31, 1997 are $138,000 (1998), $1,149,000 (1999),
$160,000 (2000), $1,672,000 (2001), $2,185,000 (2002), and $384,000
thereafter. As of December 31, 1996, the Bank had long-term debt in the
amount of $4,710,000.
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 1997, 1996 and 1995 was approximately
$35,000, $35,000 and $33,000, 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 1997, 1996 and 1995 was
$258,000, $229,000 and $213,000, 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, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................. $ (53) (32)
Fully eligible active plan participants.............................. (72) (99)
Other active plan participants....................................... (186) (173)
--------- -------
(311) (304)
Plan assets at fair value.............................................. 0 0
--------- -------
Accumulated postretirement benefit obligation in excess of plan assets. (311) (304)
Unrecognized net gain.................................................. (127) (97)
Unrecognized transition obligation..................................... 221 235
--------- -------
Accrued postretirement benefit cost.................................... $ (217) (166)
========= =======
</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 $215,000 and
$210,000 at December 31, 1997 and 1996, respectively.
Net periodic postretirement benefit cost for 1997, 1996 and 1995
included the following components:
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits attributed to service during the period.. $ 24 22 19
Interest cost on accumulated postretirement benefit obligation... 21 21 20
Actual return on plan assets..................................... 0 0 0
Amortization of transition obligation over 20 years.............. 11 13 12
--------- --------- ---------
Net periodic postretirement benefit cost......................... $ 56 56 51
========= ========= =========
</TABLE>
For measurement purposes, a 9.5 percent annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1997; 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, 1997, by $37,359 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
the year then ended by $6,545. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 6.75
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,
1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated vested benefit obligation....................... $ (378) (317)
======== ========
Projected benefit obligation................................ $ (378) (317)
Plan assets at fair value..................................... 0 0
-------- --------
Projected benefit obligation in excess of fair value.......... (378) (317)
Unrecognized prior service cost............................... 209 235
Adjustments................................................... 19 (9)
Adjustment to recognize additional minimum liability.......... (142) (153)
-------- --------
Pension Liability $ (292) (244)
======== ========
<CAPTION>
Net pension cost included the following components for 1997 and 1996:
(Dollars in thousands)
<S> <C> <C>
Service cost.................................................. $ 15 18
Interest cost................................................. 22 20
Actual return on plan assets.................................. 0 0
Amortization of transition obligation over 10.5 years......... 26 26
-------- --------
Net Pension Cost $ 63 64
======== ========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 6.75% in 1997 and 7.00% in
1996.
15
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
(14) Federal Income Taxes
--------------------
The following temporary differences gave rise to the deferred tax asset
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................... $ 610 610
Nonaccrual interest......................................... 1 78
Benefit plans............................................... 124 87
Deferred income............................................. 19 38
Other....................................................... 8 5
------- --------
Total $ 762 818
------- --------
Deferred tax liabilities:
Unrealized gains on securities.............................. $ (163) (87)
Depreciation ............................................... (123) (141)
Loan fees................................................... (71) (37)
Bond accretion.............................................. (18) (17)
------- --------
Total $ (375) (282)
------- --------
Deferred tax asset, net....................................... $ 387 536
======= ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current provision............................................. $ 1,603 1,319 1,060
Deferred provision............................................ 73 40 67
------- ------- -------
Provision for income taxes.................................... $ 1,676 1,359 1,127
======= ======= =======
</TABLE>
A reconciliation of income tax at the statutory rate to the
Corporation's effective rate is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provision at the expected statutory rate...................... $ 1,932 1,594 1,393
Effect of tax-exempt income................................... (284) (266) (300)
Nondeductible interest........................................ 37 35 36
Other items................................................... (9) (4) (2)
------- ------- -------
Provision for income taxes.................................... $ 1,676 1,359 1,127
======= ======= =======
</TABLE>
(15) Regulatory Matters
------------------
The Pennsylvania Banking Code restricts the availability of Bank
retained earnings for dividend purposes. At December 31, 1997 and 1996,
$13,872,000 and $11,817,000, 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. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. 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, 1997: Capital Adequacy Under Prompt Corrective
---------------- Action Provisions:
Actual Required -----------------
Amount (Ratio) Amount (Ratio) Amount (Ratio)
------------- ------------- -------------
<S> <C> <C> <C> <C>
Tier I Capital (to Average Assets) $ 21,041 (9.8%) 8,606 (4.0%) 10,757 (5.0%)
Tier I Capital (to Risk Weighted Assets) 21,041 (13.7%) 6,130 (4.0%) 9,195 (6.0%)
Total Capital (to Risk Weighted Assets) 22,960 (15.0%) 12,260 (8.0%) 15,325 (10.0%)
As of December 31, 1996:
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%)
</TABLE>
As of December 31, 1997, the Bank's capital ratios are well in excess
of the minimum and well-capitalized guidelines and the Corporation's
capital ratios are in excess of the Bank's capital ratios.
(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
nonperformance 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, 1997, commitments to extend credit amounted to
$21,426,500 and standby letters of credit amounted to $1,323,000.
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, 1997, 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 $12,815,000 or 9.1% and $11,869,000 or
8.4% of total net loans outstanding as of December 31, 1997. 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, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash.......................................................... $ 320 19 588
Investment in Subsidiaries..................................... 26,563 24,631 22,669
--------- --------- ---------
Total Assets $ 26,883 24,650 23,257
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities............................................. $ 0 0 563
Stockholders' Equity.......................................... 27,422 25,183 23,227
Less Treasury Stock........................................... (539) (533) (533)
--------- --------- ---------
Total Liabilities and Equity $ 26,883 24,650 23,257
========= ========= =========
CONDENSED STATEMENT OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands) 1997 1996 1995
---- ---- ----
Dividends from Bank........................................... $ 2,310 1,212 1,728
Other income from Bank........................................ 28 13 8
Undistributed Earnings of Bank................................ 1,750 2,142 1,259
Other Expenses................................................ (82) (38) (25)
--------- --------- ---------
Net Income $ 4,006 3,329 2,970
========= ========= =========
</TABLE>
18
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements (cont'd)
CONDENSED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................... $ 4,006 3,329 2,970
Net Change in Other Liabilities.............................. 0 (563) 26
Undistributed Earnings of Subsidiary......................... (1,750) (2,142) (1,259)
------- ------- -------
Net Cash Provided By Operating Activities 2,256 624 1,737
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Declared............................................ (1,949) (1,193) (1,698)
Purchase of Treasury Stock.................................... (6) 0 0
------- ------- -------
Net Cash Used By Financing Activities (1,955) (1,193) (1,698)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents.......... 301 (569) 39
Cash and Cash Equivalents at Beginning of Period.............. 19 588 549
------- ------- -------
Cash and Cash Equivalents at End of Period.................... $ 320 19 588
======= ======= =======
</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 or notional value and fair
value of financial instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
(Dollars in thousands) Book or Book or
Notional Fair Notional Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks....................................... $ 4,409 4,409 4,442 4,442
Interest bearing balances and federal funds sold.............. 36,127 35,727 28,433 28,632
Investment securities......................................... 39,501 39,501 28,733 28,733
Net loans..................................................... 141,510 144,858 142,341 141,581
Financial liabilities
Deposits...................................................... $ 192,239 193,095 174,671 175,420
Short-term borrowings......................................... 2,234 2,234 4,512 4,512
Long-term debt................................................ 5,688 5,494 4,710 4,751
Off-balance sheet financial instruments:
Commitments to extend credit $ 21,427 21,427 29,956 29,956
Standby letters of credit..................................... 1,323 1,323 2,062 2,062
</TABLE>
(20) Common Stock:
The Corporation has reserved 50,000 of 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, 1997, no shares have been awarded under the plan.
In November, 1997, the Corporation amended and restated its dividend
reinvestment plan, (DRIP). Two hundred thousand shares of the
Corporation's authorized but unissued common stock are reserved for
issuance under the DRIP. The DRIP also allows for voluntary cash payments
within specified limits, for the purchase of additional shares.
(21) Earnings Per Share:
Earnings per share is based on the weighted-average number of shares of
common stock outstanding. Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," simplifies the computation of
earnings per share (EPS) and requires presentation of two new amounts,
basic and diluted earnings per share, and additional informational
disclosures. The adoption of SFAS No. 128 is required for all reporting
periods after December 15, 1997 and requires the restatement of EPS for
all prior periods. The adoption of SFAS No. 128 did not affect previously
reported amounts of EPS. The Bank's basic and diluted are the same since
there are no dilutive potential shares of common stock outstanding.
(22) Subsequent Event:
On January 9, 1998, the Corporation entered into an agreement to
acquire, subject to regulatory approval, all of the outstanding common
stock of Miners Bank of Lykens in exchange for 148,250 shares of the
Corporation's common stock, in a business combination expected to be
accounted for as a pooling of interests.
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 Corporation's liquidity, capital resources or operations.
This discussion should be read in conjunction with the financial
statements appearing elsewhere in this report. Per share data has been
restated to reflect the effect of stock dividends and splits.
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 $4,006,000 for the year
1997, an increase of $677,000 or 20.34% over 1996's net income of
$3,329,000, which was an increase of $359,000 or 12.09% over 1995's net
income of $2,970,000. This represents net income in 1997 of $1.54 per
share compared to $1.28 per share in 1996 and $1.14 per share in 1995.
Approximately $568,000 of the earnings of 1997 were the result of the net
gain on the sale of the Mid Penn Bank credit card portfolio.
Total assets of the Corporation continued to grow in 1997, reaching the
level of $228,775,000, an increase of $18,603,000 or 8.89% over
$210,172,000 at year end 1996. The growth can be attributed to an increase
of $18,062,000 in interest-bearing balances and investment securities
purchased in anticipation of falling interest rates.
The Corporation continued to achieve an excellent return of average
assets, (ROA), a widely recognized as performance indicator in the
financial industry. The ROA was 1.85% in 1997, 1.65% in 1996 and 1.64% in
1995. Return on average stockholders' equity (ROE), another performance
indicator, was 15.75% in 1997, 14.32% in 1996 and 13.57% in 1995.
Tier one capital (to risk weighted assets) of $21,041,000 or 13.70% and
total capital (to risk weighted assets) of $22,960,000 or 15.00% at
December 31, 1997 are well above the December 31, 1997 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. On December 31, 1997, the Corporation
transferred approximately $5,000,000 in investment securities from the
Bank to a wholly-owned investment company, Mid Penn Investment Corporation
in Wilmington, Delaware. The state of Delaware offers a beneficial state
tax environment for these assets.
On January 9, 1998, the Corporation entered into an agreement to
acquire, subject to regulatory approval, all outstanding common stock of
Miners Bank of Lykens in exchange for 148,250 shares of the Corporation's
common stock, in a business combination expected to be accounted for a
pool of interests. Miners Bank of Lykens (MBL) is a one office, full
service bank with total assets of approximately $27,950,000 at December
31, 1997. MBL earned net income of $163,000 in 1997 and $148,000 in 1996.
This pooling would allow Mid Penn Bank to bridge a gap between its
Elizabethville and Tower City offices. Management anticipates that Mid
Penn Bank will be able to reduce the operating expenses of the MBL
location through the elimination of duplicate cost areas.
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 1997, net interest income increased $729,000 or 8.42% as
compared to $527,000 or 6.48% in 1996 and $384,000 or 4.96% in 1995. The
average balances, effective interest differential and interest yields for
the years ended December 31, 1997, 1996 and 1995, the components of net
interest rate growth, are presented in Table 1. A comparative presentation
of the changes in net interest income for 1997 compared to 1996, and 1996
compared to 1995, 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.
21
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
The yield on earning assets remained fairly constant at 8.64% in 1997
from 8.65% in 1996. The yield on earning assets for 1995 was 8.89%. The
change in the yield on earning assets was due primarily to changes in the
"prime rate." The average "prime rate" for 1997 was 8.44% as compared to
8.29% for 1996 and 8.81% for 1995.
Interest expense increased by $430,000 or 5.72% in 1997 as compared to
$791,000 or 11.77% in 1996 and $981,000 or 17.09% in 1995. The increases
were due primarily to the increase in the total of interest bearing
liabilities. The average yield on NOW accounts dropped to 2.10% from 2.62%
in 1996 due to the expiration of a special introductory rate at our
Carlisle Pike office.
Primarily resulting from the fluctuations in interest rates, the net
interest margin, on a tax equivalent basis, in 1997 was 4.78% compared to
4.73% in 1996 and 4.99% in 1995. Management continues to closely monitor
the net interest margin.
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST
YIELDS
INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS
FOR YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Average Interest Average Rates
Balance Income/Expense Earned/Paid
------- -------------- -----------
<S> <C> <C> <C>
ASSETS:
Interest Bearing Balances............. $ 31,165 1,978 6.35%
Investment Securities:
Taxable............................. 18,978 1,251 6.59%
Tax-Exempt ......................... 13,999 1,167 8.34%
----------
Total Investment Securities 32,977
----------
Federal Funds Sold.................... 173 9 5.20%
Loans, Net............................ 141,249 13,355 9.45%
---------- -------
Total Earning Assets.................. 205,564 17,760 8.64%
Cash and Due from Banks............... 3,679 -------
Other Assets.......................... 6,876
----------
Total Assets $ 216,119
==========
LIABILITIES & STOCKHOLDERS'
EQUITY:
Interest Bearing Deposits:
NOW ................................ $ 23,770 498 2.10%
Money Market........................ 11,821 295 2.50%
Savings............................. 17,315 432 2.49%
Time................................ 109,312 6,160 5.64%
Short-term Borrowings................. 3,415 186 5.45%
Long-term Debt........................ 5,719 371 6.49%
---------- -------
Total Interest Bearing Liabilities.... 171,352 7,942 4.64%
Demand Deposits....................... 16,514 -------
Other Liabilities..................... 2,812
Stockholders' Equity.................. 25,441
----------
Total Liabilities and
Stockholders' Equity $ 216,119
==========
Net Interest Income...................... $ 9,818
=======
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets......... 8.64%
Rate on Supporting Liabilities........ 3.86%
Net Interest Margin................... 4.78%
</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 YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
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
-----------
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>
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 YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
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
-----------
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>
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 nonaccrual loans.
Loan fees of $254,000, $138,000 and $292,000 are included with
interest income in Table 1 for the years 1997, 1996 and 1995, respectively.
24
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 2: VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Change In: Increase (Decrease) 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........ $ 79 (39) 40 205 52 257
Investment Securities:
Taxable.......................... 303 13 316 207 (18) 189
Tax-Exempt....................... 118 (42) 76 (60) (72) (132)
------ ------ ------ ------ ------ ------
Total Investment Securities 421 (29) 392 147 (90) 57
Funds Sold....................... (7) 0 (7) (36) (1) (37)
Loans, Net....................... 633 130 763 1,397 (402) 995
------ ------ ------ ------ ------ ------
Total Interest Income $ 1,126 62 1,188 1,713 (441) 1,272
------ ------ ------ ------ ------ ------
INTEREST EXPENSE:
Interest Bearing Deposits:
NOW ........................... $ (39) (124) (163) 111 101 212
Money Market................... 18 12 30 (8) 0 (8)
Savings........................ 0 (5) (5) (2) 0 (2)
Time........................... 373 5 378 714 (173) 541
------ ------ ------ ------ ------ ------
Total Interest Bearing Deposits 352 (112) 240 815 (72) 743
Short-term Borrowings............ 2 2 4 64 (3) 61
Long-term Debt................... 185 1 186 (30) 18 (12)
------ ------ ------ ------ ------ ------
Total Interest Expense $ 539 (109) 430 849 (57) 792
------ ------ ------ ------ ------ ------
NET INTEREST INCOME: $ 587 171 758 864 (384) 480
====== ====== ====== ====== ====== ======
</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 bankruptcies in 1997,
management thought it prudent to make a $100,000 allocation in 1997 as
well as a provision of $50,000 during 1996. Due to the relative economic
strength of our market area and the favorable trend in nonperforming
assets, no provision for loan losses was charged to expense during 1995.
The allowance for loan losses as a percentage of average total loans was
1.54% at December 31, 1997, compared to 1.67% and 2.09% for the years
ended December 31, 1996 and 1995, which continues to be higher than that
of peer financial institutions. A summary of charge-offs and recoveries of
loans is presented in Table 3.
25
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 3: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance beginning of period................. $ 2,173 2,347 2,511 2,646 2,755
------- ------ ----- ----- -----
Loans charged-off:
Commercial real estate, construction
and land development................... 4 25 86 0 33
Commercial, industrial and agricultural.. 32 213 55 14 157
Real estate-residential.................. 12 0 0 34 30
Consumer................................. 194 226 225 159 116
------- ------ ----- ----- -----
Total loans charged off 242 464 366 207 336
------- ------ ----- ----- -----
Recoveries on loans previously
charged-off:
Commercial real estate, construction
and land development................... 4 39 33 8 71
Commercial, industrial and agricultural.. 107 105 111 33 26
Real estate-residential.................. 3 35 4 1 30
Consumer................................. 31 61 54 30 25
------- ------ ----- ----- -----
Total recoveries 145 240 202 72 152
------- ------ ----- ----- -----
Net charge-offs............................. 97 224 164 135 184
------- ------ ----- ----- -----
Current period provision for
loan losses.............................. 100 50 0 0 75
------- ------ ----- ----- -----
Balance end of period....................... $ 2,176 2,173 2,347 2,511 2,646
======= ====== ===== ===== =====
Ratio of net charge-offs during the period
to average loans outstanding during the
period, net of unearned discount......... 0.07 0.16 0.13 0.11 0.16
======= ====== ===== ===== =====
</TABLE>
Noninterest Income
------------------
During 1997, the Corporation earned $1,721,000 in noninterest income,
an increase of $921,000 or 115.13% over the 1996 total of $800,000, which
was $105,000 or 15.11% over the 1995 total of $695,000. The major
contributor to noninterest income in 1997 was the one-time gain on the
sale of the Bank's credit card portfolio that amounted to $860,000. The
bulk of the increase in 1996 reflected nonrecurring gains of $189,000 from
the sale of other real estate as compared to a noninterest expense of
$22,000 in other real estate in 1995.
Trust department income for 1997 was $90,000, a $7,000 or 8.43%
increase over $83,000 in 1996, which was $15,000 or 22.06% more than the
$68,000 earned in 1995. 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 amounted to $300,000 for 1997, an
increase of $48,000 over $252,000 for 1996, which was basically unchanged
from 1995. The majority of this increase resulted from the $55,000
increase in NSF charges in 1997.
The Corporation also earned $31,000 in fees from Invest, the
third-party provider of investments whose services the Bank has
contracted. Other operating income amounted to $409,000 in 1997, $453,000
and $363,000 in 1996 and 1995, respectively.
Noninterest Expense
-------------------
A summary of the major components of noninterest expense for the years
ended December 31, 1997, 1996 and 1995 is reflected in Table 4.
Noninterest expense increased to $5,322,000 in 1997 from $4,716,000 in
1996 and $4,725,000 in 1995. The major component of noninterest expense is
salaries and employee benefits which increased $504,000 or 20.84% in 1997.
This expense includes approximately $198,000 of supplemental employee
bonuses and incentives.
26
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
The largest component of decrease in noninterest expense during the
past two years was due to an FDIC assessment of $22,000 in 1997 and $2,000
in 1996 as compared to $171,000 in 1995. 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. 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.
Other noninterest expense increased by $84,000 in 1997. Included in
this increase was $20,000 in costs and fees associated with the revision
of the Corporation's Dividend Reinvestment Plan to make the Plan more
accessible to shareholders. In addition, the Corporation incurred a
$20,000 fee for listing on the American Stock Exchange.
TABLE 4: NONINTEREST EXPENSE
(Dollars in thousands)
Years ended December 31,
1997 1996 1995
---- ---- ----
Salaries and employee benefits........... $ 2,923 2,419 2,373
Occupancy, net........................... 293 299 278
Equipment................................ 390 389 353
Postage and supplies..................... 240 239 252
FDIC assessments......................... 22 2 171
Marketing and advertising................ 139 141 152
Other real estate, net................... 0 0 22
Pennsylvania bank shares tax............. 242 229 215
Professional services.................... 101 82 88
Telephone................................ 50 46 45
Loss on mortgage sales................... 18 26 3
Other.................................... 904 844 773
----- ----- -----
Total Noninterest Expense $ 5,322 4,716 4,725
===== ===== =====
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.
At December 31, 1997, SFAS No. 115 resulted in an increase in
shareholders' equity of $318,000 (unrealized gain on securities of
$482,000, less estimated income tax effect of $164,000). SFAS No. 115 as
of December 31, 1996 resulted in an increase in stockholders' equity of
$168,000 (unrealized gain on securities of $255,000, less estimated income
tax effect of $87,000) compared to an increase in stockholders' equity of
$348,000 (unrealized loss on securities of $527,000, less estimated income
tax effect of $179,000) as of December 31, 1995.
Proceeds from the sale of investment securities during 1997 were
$4,370,000. A net loss of $2,000 was realized on those sales. 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
maturities of investment securities were $8,989,000 in 1997 compared with
$4,041,000 in 1996 and $6,758,000 in 1995.
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.
27
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 5: BOOK VALUES OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U. S. Treasury and U.S. government agencies............... $ 19,294 12,833 9,776
Mortgage backed U.S. government agencies.................. 3,556 1,178 1,439
State and political subdivision obligations............... 15,527 13,218 12,906
Corporate bonds........................................... 0 0 0
Restricted equity securities.............................. 643 1,249 536
------- ------- -------
Total $ 39,020 28,478 24,657
======= ======= =======
</TABLE>
Loans
At December 31, 1997, net loans totaled $141,510,000, a $831,000 or
0.6% decrease from December 31, 1996. During 1997, the Corporation
experienced an increase in commercial real estate loans of approximately
$4,000,000, the majority of which were generated through the Carlisle Pike
and Derry Street offices.
In August of 1997, Mid Penn Bank sold its credit card portfolio of
$5,100,000, generating a gain net of tax of $568,000. The portfolio was
sold in light of the record number of consumer bankruptcies and the rising
incidence of credit card fraud that were detrimentally affecting the
overall return of the portfolio.
The current environment in lending is extremely competitive with
financial institutions aggressively pursuing potential borrowers. At
December 31, 1997, loans, net of unearned income, represented 65.5% of
earning assets as compared to 70.1% on December 31, 1996 and 70.5% on
December 31, 1995.
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.
TABLE 6: LOAN PORTFOLIO
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial real estate, construction
and land development....................... $ 79,240 75,200 65,671 54,225 54,148
Commercial, industrial and agricultural...... 20,001 18,588 16,682 19,397 21,506
Real estate-residential mortgage............. 27,009 26,718 27,821 25,142 25,407
Consumer..................................... 19,371 25,874 23,473 20,409 19,595
Lease financing.............................. 8 13 18 0 9
------- ------- ------- ------- -------
Total Loans 145,629 146,393 133,665 119,173 120,665
Unearned income.............................. (1,943) (1,879) (1,729) (1,488) (1,353)
------- ------- ------- ------- -------
Loans net of unearned discount............... 143,686 144,514 131,936 117,685 119,312
Allowance for loan losses.................... (2,176) (2,173) (2,347) (2,511) (2,646)
------- ------- ------- ------- -------
Net Loans $ 141,510 142,341 129,589 115,174 116,666
======= ======= ======= ======= =======
</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
28
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
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, 1997, was
$2,176,000 or 1.51% of total loans less unearned discount as compared to
$2,173,000 or 1.50% at December 31, 1996, and $2,347,000 or 1.78% at
December 31, 1995.
TABLE 7: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
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.................. $ 596 54.4% 666 51.3% 574 49.1% 776 45.5 1,148 44.9
Commercial, industrial and
agricultural................. 362 13.7% 375 12.7% 573 12.5% 301 16.3 437 17.8
Real estate-residential
mortgage..................... 193 18.6% 172 18.3% 120 20.8% 118 21.1 114 21.1
Consumer....................... 140 13.3% 303 17.7% 245 17.6% 248 17.1 214 16.2
Unallocated.................... 885 - 657 - 835 - 1,068 - 733 -
------- ------ ----- ------ ----- ------ ----- ----- ----- ------
Total loans $ 2,176 100.0% 2,173 100.0% 2,347 100.0% 2,511 100.0% 2,646 100.0%
====== ====== ===== ====== ===== ====== ===== ===== ===== ======
</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
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 $118,000, $89,000 and $103,000 in 1997, 1996, and 1995,
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, 1997, totaled $2,086,000 or .91% of total assets compared to
$2,395,000 or 1.14% of total assets in 1996, and $2,455,000 or 1.26% of
total assets in 1995. The increase in nonaccrual loans in 1994 was due to a
large commercial real estate loan going into Chapter 11 bankruptcy in 1994.
The foreclosed assets held for sale at December 31, 1997, consist of four
pieces of commercial real estate, two parcels of residential building lots,
two one-family dwellings, 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.
29
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 8: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................. $ 312 1,183 1,753 2,181 1,347
Past due 90 days or more..................... 207 519 195 252 191
Restructured loans........................... 212 145 0 0 1,885
Total nonperforming loans 731 1,847 1,948 2,433 3,423
------ ------ ------ ------ ------
Foreclosed assets held for sale.............. 1,355 548 507 120 256
------ ------ ------ ------ ------
Total nonperforming assets $ 2,086 2,395 2,455 2,553 3,679
====== ====== ====== ====== ======
Percent of total loans outstanding........... 1.43% 1.64% 1.84% 2.14% 3.05%
Percent of total assets...................... .91% 1.14% 1.26% 1.46% 2.16%
</TABLE>
There are no loans classified for regulatory purposes that have not
been included in Table 8. At December 31, 1997, 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, 1997 were $192,239,000, which increased $17,568,000 or
10.06% from December 31, 1996, compared to an increase of $12,403,000 or
7.64% in 1996. A limited-time, special-rate certificate of deposit offer in
both the spring of 1996 and the fall of 1997 aided the bank in attaining
these increases. Included in the 1997 deposit growth are in excess of $10
million in jumbo certificates of deposit issued to municipalities. The
Corporation's newest office on the Carlisle Pike in Hampden Township
contributed $4,207,000 in increased deposits during 1996. Average balances
and average interest rates applicable to the major classifications of
deposits for the years ended December 31, 1997, 1996, and 1995 are
presented in Table 9.
Average short-term borrowings for 1997 were $3,415,000 as compared to
$3,380,000 in 1996. 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,
1997 1996 1995
---- ---- ----
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits..... $ 16,514 0.00% 13,781 0.00% 12,493 0.00%
Interest bearing demand deposits........ 23,770 2.10% 25,264 2.62% 20,261 2.22%
Money market............................ 11,821 2.50% 11,061 2.40% 11,387 2.40%
Savings................................. 17,315 2.49% 17,315 2.52% 17,414 2.52%
Time.................................... 109,312 5.64% 102,863 5.63% 90,377 5.80%
------- ------ ------- ------ ------- ------
Total $ 178,732 4.13% 170,104 4.20% 151,932 4.21%
======= ====== ======= ====== ======= ======
</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.
30
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
In 1997, capital grew $2,233,000 or 9.06% above 1996. Comparatively,
1996 capital grew $1,956,000 or 8.62% above 1995. Capital growth in both
periods was achieved through earnings retention.
The Corporation's normal dividend payout allows for quarterly cash
returns to its stockholders and provides earnings retention at a level
sufficient to finance future Corporation growth and to enhance 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 48% for 1997 compared to 36% for 1996 and 57%
for 1995.
Until 1997, the Corporation acquired shares of its stock in the open
market to meet the needs of its dividend reinvestment plan. The
availability of shares for purchase has decreased significantly in recent
years, and, as a result, the Corporations dividend reinvestment plan was
changed in 1997 to allow for the use of authorized, but unissued shares of
common stock under the plan.
In December, 1997, the Corporation filed an application with the
Internal Revenue Service to approve a employee stock ownership plan.
At December 31, 1997, 19,241 shares of the Corporation's common stock
are held as treasury stock and are available for issuance under the
dividend reinvestment plan or the stock bonus plan. The treasury stock may
also be used or available for the proposed employee stock ownership plan.
Federal Income Taxes
Federal income tax expense for 1997 was $1,676,000 compared to
$1,359,000 and $1,127,000 in 1996 and 1995, respectively. The effective tax
rate was 29% for 1997 and 1996, and 28% for 1995.
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.
In 1997, the major sources of cash were provided by operations, the
sale and maturity of investments of $13,359,000 and an increase in deposits
of $17,568,000. Included in the time deposit increase is approximately
$10,000,000 in short-term certificates issued to local municipalities. A
special rate certificate of deposit promotion in the early fall of the year
also aided in attracting additional deposit funds. Another major one-time
source of funds was the $8,378,000 contributed by the sale of the Bank's
entire credit card portfolio and a portion of its student loans. These
funds included a gross gain on the sales of $924,000.
The major use of funds during 1997 was the purchase of investment
securities. Purchases of investment securities included largely agency and
municipal securities of intermediate term. The large investment in
securities was made initially to invest the funds generated from the loan
sales. Purchases continued in the fourth quarter in an effort to lock in
yields in anticipation of falling interest rates. Interest-bearing
balances, jumbo certificates of deposit of other financial institutions,
also offered favorable rates over treasury securities during the last half
of 1997. These balances which also provide steady liquidity for the bank
showed a net increase of $7,294,000 during the year. Loan growth while
sporadic in a very competitive rate environment provided a net use of funds
of $7,809,000. The majority of the loan growth occurring in commercial real
estate and development loans particularly in the Harrisburg and Camp Hill
markets.
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.
31
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
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 $3,549,000 in securities
during the year. Borrowings were increased by $1,579,000 to generate the
additional funds needed to meet the loan demand.
Market Risk - 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 rate 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.
Table 12 provides expected maturity information about the Corporation's
financial instruments that are sensitive to changes in interest rates.
Except for the effects of prepayments on mortgage related assets, the
table presents principal cash flows and related average interest rates on
interest bearing assets by contractual maturity. Residential loans are
assumed to have annual payment rates between 12% and 18% of the portfolio.
Loan and mortgage backed securities balances are not adjusted for unearned
discounts, premiums, and deferred loan fees. The Corporation assumes that
75% of savings and NOW accounts are core deposits and are, therefore,
expected to roll-off after 5 years. Transaction accounts, excluding money
market accounts, are assumed to roll-off after five years. Money market
accounts are assumed to be variable accounts and are reported as maturing
within the first twelve months. No roll-off is applied to certificates of
deposit. Fixed maturity deposits reprice at maturity. 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, 1997
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...... $ 2,995 6,491 8,558 1,250 19,294
State and political subdivision obligations.... 749 4,911 4,866 5,001 15,527
Mortgage-backed U.S. government agencies....... 505 481 1,264 1,306 3,556
Equity securities.............................. 0 0 0 643 643
------ ------ ------ ------ ------
Total $ 4,249 11,883 14,688 8,200 39,020
====== ====== ====== ====== ======
<CAPTION>
(Dollars in thousands) December 31, 1997
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..... 5.63 6.44 6.85 6.19 6.46
State and political subdivision obligations.... 6.32 7.71 8.20 7.85 7.84
Mortgage-backed U.S. government
agencies................................... 6.32 6.66 6.28 6.74 6.51
Equity securities.............................. 0 0 0 0 6.50
----- ----- ----- ---- -----
Total 5.83 6.93 7.25 7.38 7.01
===== ===== ===== ==== =====
</TABLE>
32
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
TABLE 11: LOAN MATURITY AND INTEREST SENSITIVITY
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1997
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................... $ 30,428 38,906 9,906 79,240
Commercial, industrial and agricultural... 11,799 6,870 1,340 20,009
Real estate- residential mortgages........ 8,195 7,593 11,221 27,009
Consumer.................................. 8,157 10,662 552 19,371
-------- ------- ------- -------
Total Loans $ 58,579 64,031 23,019 145,629
======== ======= ======= =======
<CAPTION>
After One
One Year Year thru After Five
and Less Five Years Years Total
-------- ---------- ----- -----
<S> <C> <C> <C> <C>
Rate Sensitivity
Predetermined rate........................ $ 6,624 22,864 19,792 49,280
Floating or adjustable rate............... 51,955 41,167 3,227 96,349
-------- ------- ------- -------
Total $ 58,579 64,031 23,019 145,629
======== ======= ======= =======
</TABLE>
TABLE 12: INTEREST RATE SENSITIVITY GAP
<TABLE>
<CAPTION>
(Dollars in thousands) Expected Maturity
Year Ended December 31,
1998 1999 2000 2001 2002 Thereafter Total Fair Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing balances.......... $ 12,081 13,759 9,689 99 99 0 35,727 35,727
Average interest rate............ 6.35 6.38 6.55 6.75 6.70 - 6.42
Debt securities.................... $ 9,639 7,380 6,186 895 1,006 13,752 38,858 38,858
Average interest rate............ 6.47 6.51 7.00 8.36 8.26 7.64 7.08
Adjustable rate loans.............. $ 49,178 14,986 12,950 5,940 8,809 4,486 96,349 96,349
Average interest rate............ 9.17 9.25 9.37 8.82 9.10 8.67 9.16
Fixed rate loans................... $ 8,724 8,158 7,365 7,475 6,767 10,791 49,280 48,509
Average interest rate............ 8.66 9.34 9.48 9.04 9.25 8.88 9.08
Federal funds sold................. $ 400 0 0 0 0 0 400 400
6.31 - - - - - 6.31
-------- ------ ------ ------ ------ ------ ------- -------
Total $ 80,022 44,283 36,190 14,409 16,681 29,029 220,614 219,843
-------- ------ ------ ------ ------ ------ ------- -------
Interest liabilities:
Variable rate savings and
transaction accounts............. $ 23,900 0 0 0 0 50,342 74,242 74,242
Average interest rate............ 2.53 - - - - 1.39 1.76
Certificates of deposit and IRAs... $ 57,865 28,162 10,515 7,517 4,587 9,351 117,997 118,853
Average interest rate............ 5.40 5.89 6.10 5.91 6.08 6.02 5.69
Short term borrowings.............. $ 2,234 0 0 0 0 0 2,234 2,234
Average interest rate............ 5.57 - - - - - 5.57
Long term fixed rate borrowings.... $ 138 1,149 160 1,672 2,185 384 5,688 5,494
Average interest rate............ 7.28 6.19 7.28 6.74 6.18 7.28 6.48
-------- ------- ------- ------- -------- ------- ------- -------
Total $ 84,137 29,311 10,675 9,189 6,772 60,077 200,161 200,823
-------- ------- ------- ------- -------- ------- ------- -------
Rate sensitive gap:
Periodic gap....................... $(4,115) 14,973 25,515 5,220 9,909 (31,048)
Cumulative gap..................... $(4,115) 10,857 36,372 41,592 51,501 20,453
Cumulative gap as a percentage
of total assets.................... -1.80% 4.75% 15.90% 18.18% 22.51% 8.94%
</TABLE>
33
<PAGE>
Mid Penn Bancorp, Inc.
Management's Discussion and Analysis (cont'd)
On December 31, 1997, management analyzed interest rate risk using the
Vining Sparks Asset-Liability Management Model. Using the computerized
model, management reviews interest rate risk on a monthly basis. This
analysis includes an earnings scenario whereby interest rates are increased
by 200 basis points and another whereby they are decreased by 200 basis
points. At December 31, 1997, these scenarios indicate that there would not
be a significant variance in net interest income at the one-year time frame
due to interest rate changes; however, actual results could vary
significantly from the calculations prepared by management. At December 31,
1997, all interest rate risk levels according to our model were within the
tolerance guidelines set by management. The model noted above utilized by
management to create the reports used for Table 12 makes various
assumptions and estimates. Actual results could differ significantly from
these estimates which would result in significant differences in cash
flows. In addition, the table does not take into consideration changes
which management would make to realign its portfolio in the event of a
changing rate environment.
TABLE 13: MATURITY OF TIME DEPOSITS $100,000 OR MORE
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Three months or less................................... $ 14,657 3,996 3,607
Over three months to twelve months..................... 3,738 5,575 2,725
Over twelve months..................................... 7,109 4,956 3,733
------- ------ -------
Total $ 25,504 14,527 10,065
======= ====== =======
</TABLE>
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, 1997, commitments to extend credit amounted to
$21,427,000 as compared to $29,956,000 as of December 31, 1996.
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 $1,323,000 at December 31, 1997, from
$2,062,000 at December 31, 1996.
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. Preconversion testing demonstrated that the new hardware and
software are Year 2000 compliant. Further testing will be performed as
needed to ensure future hardware upgrades or software additions meet the
same level of compliance.
34
<PAGE>
Mid Penn Bancorp, Inc.
Summary of Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME:
Total Interest Income.................... $ 17,325 16,166 14,848 13,483 13,419
Total Interest Expense................... 7,942 7,512 6,721 5,740 5,966
Net Interest Income...................... 9,383 8,654 8,127 7,743 7,453
Provision for Possible Loan Losses....... 100 50 0 0 75
Non-Interest Income...................... 1,721 800 695 622 681
Non-Interest Expense..................... 5,322 4,716 4,725 4,646 4,388
Income Before Income Taxes............... 5,682 4,688 4,097 3,719 3,671
Income Tax Expense....................... 1,676 1,359 1,127 983 958
Extraordinary Income, Net of Tax......... 0 0 0 0 108
Net Income............................... 4,006 3,329 2,970 2,736 2,821
COMMON STOCK DATA PER SHARE:*
Earnings Per Share....................... 1.54 1.28 1.14 1.05 1.07
Cash Dividends Declared.................. .76 .46 .65 .62 .41
Stockholders' Equity..................... $ 10.31 9.45 8.70 8.04 7.82
AVERAGE SHARES OUTSTANDING.................. 2,607,540 2,607,552 2,607,552 2,607,552 2,637,617
AT YEAR-END:
Investments.............................. $ 39,501 28,733 25,184 26,030 20,188
Loans, Net of Unearned Discount.......... 143,686 144,514 131,936 117,685 119,312
Allowance for Loan Losses................ 2,176 2,173 2,347 2,511 2,646
Total Assets............................. 228,775 210,172 194,711 174,702 170,037
Total Deposits........................... 192,239 174,671 162,268 146,958 141,405
Long-term Debt........................... 5,688 4,710 3,329 3,439 2,308
Stockholders' Equity..................... $ 26,883 24,650 22,694 20,982 20,638
RATIOS:
Return on Average Assets................. 1.85 1.65 1.64 1.58 1.70
Return on Average Stockholders' Equity... 15.75 14.32 13.57 13.09 14.90
*Cash Dividend Payout Ratio.............. 47.85 35.84 57.17 59.14 38.25
Allowance for Loan Losses to Loans....... 1.51 1.50 1.78 2.13 2.22
Average Stockholders' Equity to
Average Assets........................... 11.77 11.50 12.07 12.07 11.39
</TABLE>
* Per share figures are based on weighted
average shares outstanding for the
respective years as restated after
giving effect to stock dividends and
splits.
35
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Name State of Incorporation
---- ----------------------
Mid Penn Bank Commonwealth of Pennsylvania
Mid Penn Investment Corp. Delaware
<PAGE>
[LOGO OF PARENTE, RANDOLPH, ORLANDO,
CAREY & ASSOCIATES] Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Mid Penn Bancorp, Inc. of our report dated January 13, 1998, included
in the 1997 Annual Report to Stockholders of Mid Penn Bancorp, Inc.
/s/ Parente, Randolph, Orlando, Carey
& Associates
Wilkes-Barre, Pennsylvania
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,409
<INT-BEARING-DEPOSITS> 35,727
<FED-FUNDS-SOLD> 400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,501
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 143,686
<ALLOWANCE> 2,176
<TOTAL-ASSETS> 228,775
<DEPOSITS> 192,239
<SHORT-TERM> 2,234
<LIABILITIES-OTHER> 1,731
<LONG-TERM> 5,688
<COMMON> 2,627
0
0
<OTHER-SE> 24,256
<TOTAL-LIABILITIES-AND-EQUITY> 228,775
<INTEREST-LOAN> 13,317
<INTEREST-INVEST> 3,999
<INTEREST-OTHER> 9
<INTEREST-TOTAL> 17,325
<INTEREST-DEPOSIT> 7,385
<INTEREST-EXPENSE> 7,942
<INTEREST-INCOME-NET> 9,383
<LOAN-LOSSES> 100
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 5,322
<INCOME-PRETAX> 5,682
<INCOME-PRE-EXTRAORDINARY> 4,006
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,006
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
<YIELD-ACTUAL> 8.64
<LOANS-NON> 312
<LOANS-PAST> 207
<LOANS-TROUBLED> 212
<LOANS-PROBLEM> 2,797
<ALLOWANCE-OPEN> 2,173
<CHARGE-OFFS> 242
<RECOVERIES> 145
<ALLOWANCE-CLOSE> 2,176
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
