UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-20141
Mid Penn Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1666413
(State or other jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
349 Union Street, Millersburg, PA 17061
(Address of principal executive offices) (Zip Code)
(717) 692-2133
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the
classes of common stock, as of the latest practical date.
2,892,988 shares of Common Stock, $1.00 par value per share,
were outstanding as of September 30, 1999.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks 5,869 5,651
Interest bearing balances 38,222 42,883
Available-for-sale securities 63,159 67,933
Federal funds sold 0 0
Loans 162,426 152,993
Less:
Allowance for loan losses 2,454 2,313
------- -------
Net loans 159,972 150,680
------- -------
Bank premises and equip't, net 3,385 3,498
Other real estate 53 347
Accrued interest receivable 2,050 1,907
Cash surrender value of life insurance 4,040 3,900
Other assets 1,864 1,028
------- -------
Total Assets 278,614 277,827
======= =======
LIABILITIES & STOCKHOLDERS EQUITY:
Deposits:
Demand 22,249 20,971
NOW 26,866 28,234
Money Market 21,768 17,158
Savings 26,010 25,305
Time 122,247 125,134
------- -------
Total deposits 219,140 216,802
------- -------
Short-term borrowings 14,371 12,159
Accrued interest payable 1,959 1,240
Other liabilities 1,191 540
Long-term debt 15,439 15,550
------- -------
Total Liabilities 252,100 246,291
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
2,912,267 shares at Sept. 30, 1999 and
December 31, 1998 2,912 2,912
Surplus 17,181 17,181
Undivided profits 8,448 11,640
Unrealized holding gain on securities,
net of estimated tax effect -1,489 344
Less: Treasury Stock at cost
(19,279 and 19,337 shares) 538 541
------- -------
Total Stockholders Equity 26,514 31,536
------- ------
Total Liabilities & Equity 278,614 277,827
======= =======
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; dollars in thousands)
<CAPTION>
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans 3,402 3,698 10,090 10,797
Int.-bearing balances 598 639 1,853 1,916
Treas. & Agency securities 610 599 1,853 1,770
Municipal securities 333 250 987 715
Other securities 35 18 99 44
Fed funds sold and repos 0 15 0 40
----- ----- ----- -----
Total Int. Income 4,978 5,219 14,882 15,282
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 2,048 2,164 6,242 6,525
Short-term borrowings 118 27 261 139
Long-term borrowings 220 217 655 546
----- ----- ----- -----
Total Int. Expense 2,386 2,408 7,158 7,210
----- ----- ----- -----
Net Int. Income 2,592 2,811 7,724 8,072
PROVISION FOR LOAN LOSSES 100 50 250 104
----- ----- ----- -----
Net Int. Inc. after Prov. 2,492 2,761 7,474 7,968
----- ----- ----- -----
NON-INTEREST INCOME:
Trust Dept 9 8 82 63
Service Chgs. on Deposits 129 125 373 336
Investment sec. gains, net 0 3 50 11
Gain on sale of loans 0 42 0 65
Other 190 226 848 640
----- ----- ----- -----
Total Non-Interest Income 328 404 1,353 1,115
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 919 798 2,858 2,518
Occupancy, net 81 84 248 247
Equipment 124 119 354 375
PA Bank Shares tax 70 69 208 213
Other 399 510 1,355 1,552
----- ----- ----- -----
Tot. Non-int. Exp. 1,593 1,580 5,023 4,905
----- ----- ----- -----
Income before income taxes 1,227 1,585 3,804 4,178
INCOME TAX EXPENSE 297 523 950 1,213
----- ----- ----- -----
NET INCOME 930 1,062 2,854 2,965
===== ===== ===== =====
Other Comprehensive Income, net
of tax:
Unrealized holding losses on
securities arising during the
period -228 373 -1,833 351
Less: reclassification
adjustments for gains included
in net income 0 3 50 11
---- ---- ---- ----
Other comprehensive income -228 370 -1,883 340
---- ---- ---- ----
Comprehensive Income 702 1,432 971 3,305
===== ===== ===== =====
NET INCOME PER SHARE 0.32 0.37 .99 1.03
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 2,893,197 2,893,705
2,893,049 2,892,220
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
<CAPTION>
For the nine months ended:
Sept 30, Sept 30,
1999 1998
-------- --------
<S> <C> <C>
Operating Activities:
Net Income 2,854 2,965
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 250 104
Depreciation 303 304
Change in interest receivable -143 52
Change in other assets -146 270
Change in interest payable 719 784
Change in other liabilities 651 562
Other, net 0 0
------- -------
Net cash provided by
operating activities: 4,488 5,041
------- -------
Investing Activities:
Net decrease in int-bearing balances 4,661 -4,385
Proceeds from sale of securities 3,811 2,150
Proceeds from the maturity of secs. 7,998 19,096
Purchase of investment securities -9,905 -27,986
Proceeds from the sale of loans 0 6,132
Net decrease in loans -9,542 -6,852
Purchase of loans 0 0
Net purchases of fixed assets -190 -452
Proceeds from sale of other real estate 504 1,368
Capitalized additions - ORE 0 0
------- -------
Net cash provided by
investing activities -2,663 -10,929
------- -------
Financing Activities:
Net increase in demand and savings 5,225 3,787
Net increase in time deposits -2,887 -6,050
Net increase in sh-term borrowings 2,212 -1,527
Net increase in long-term borrowings -111 9,897
Cash dividend declared -6,046 -1,554
------- -------
Net cash provided by
financing activities -1,607 4,553
------- -------
Net increase in cash & equivalents 218 -1,335
Cash & cash equivalents, beg of period 5,651 6,998
------- -------
Cash & cash equivalents, end of period 5,869 5,663
======= =======
Supplemental Noncash Disclosures:
Loan charge-offs 189 107
Transfers to other real estate 0 169
</TABLE>
<PAGE>
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements
1. The consolidated interim financial statements included
here have been prepared by the Company, without audit,
according to the rules and regulations of the Securities and
Exchange Commission with respect to Form 10-Q. The
financial information included here reflects all
adjustments (consisting only of normal recurring
adjustments) which are, in our opinion,
necessary for a fair statement of results for the
periods covered. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted according to these
rules and regulations. We believe, however, that the
disclosures made here are adequate so that the information
is not misleading. You should read these interim financial
statements along with the financial statements including the
notes included in the Company's most recent Form 10-K.
2. Interim statements are subject to possible adjustments
in connection with the annual audit of the Company's
accounts for the full fiscal year. In our opinion, all
necessary adjustments have been included so that the interim
financial statements are not misleading.
3. The results of operations for the interim periods
presented are not necessarily an indicator of the results
expected for the full year.
4. Management considers the Allowance for Loan Losses to be
adequate at this time.
<PAGE>
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
Management's Discussion of Consolidated Financial Condition
for the nine months ended September 30, 1999, compared to
year-end 1998 and the Results of Operations for the third
quarter and first nine months of 1999 compared to the
same periods in 1998.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of September 30, 1999, amounted to
$278,614,000, compared to $277,827,000 the total assets as
of December 31, 1998.
Our entire portfolio of investment securities is considered
available for sale. As such, the investments are recorded
on our Balance Sheet at market value. Our investments: US
Treasury, Agency and Municipal securities are given a market
price relative to investments of the same type with similar
maturity dates. Since the interest rate environment of
these securities has increased by as much as 2.10 percentage
points in the past twelve months, our existing securities
are valued lower in comparison. This difference in value,
or unrealized loss, amounted to $1,489,000, net of tax, as
of the end of the quarter. However, the investments are all
high quality United States and municipal securities that if
held to maturity are expected to yield no loss to the bank.
Despite some large payoffs in the commercial loan portfolio
along with a continuing competitive pricing environment,
loans increased by $9,433,000 during the first three
quarters of 1999. The majority of this growth occurred
during the third quarter in the commercial loan portfolio.
Loan demand remains strong into the fourth quarter.
Foreclosed assets held for sale (real estate owned by the
Corporation resulting from loan transactions) decreased to
$53,000 during the first three quarters of 1999 due to the
sale of a commercial property and several lots of
undeveloped land. These sales of other real estate resulted
in a net after-tax gain of approximately $183,000. As of
September 30, 1999, the balance of foreclosed assets held
for sale consisted exclusively of undeveloped land.
Total deposits increased by $2,338,000 during the first
nine months of 1999. This increase was seen mainly in our
money market deposit and demand accounts. During the third
quarter of this year, we experienced heightened competition
in the deposit area, particularly in the area of
certificates of deposit. This competitive deposit
environment continues into the fourth quarter as well.
All components of long-term debt are advances from the FHLB.
Long-term debt advances were initiated in order to secure an
adequate spread on certain pools of loans and investments of
the Bank.
During the first quarter of 1999 our Board of Directors
declared a special cash dividend of $1.50 per share. This
special dividend is not expected to affect future regular
dividends. The special dividend was declared to reduce the
capital levels of Mid Penn Bancorp, Inc., increase return on
equity (ROE), and enhance shareholder value. We have
enjoyed a very solid capital position due to strong
financial performance. After payment of this special
dividend, Mid Penn will maintain capital levels well above
regulatory requirements. In the banking industry, there has
been a general shift from return on assets (ROA) to ROE as a
measure of financial performance. By lowering capital
through this special dividend, we will be improving ROE,
thus improving this ratio important to bank stock analysis.
We have also modified our employee performance incentives to
encourage activities that will emphasize earnings per share
and return on equity instead of our traditional return on
assets approach. We believe over time this change in
emphasis will improve the bank's performance measures
that are utilized by investors in bank stocks.
RESULTS OF OPERATION
Net income for the first three quarters of 1999 was
$2,854,000, compared with $2,965,000 earned in the same
period of 1998. Net income per share for the first half of
1999 and 1998 was $.99 and $1.03, respectively. Net income
as a percentage of stockholders' equity, also known as
return on equity,(ROE), was 14.2% on an annualized basis for
the first nine months of 1999 as compared to 13.2% for the
same period in 1998.
Third quarter net income was $930,000 or $.32 per share, in
1999 as compared to $1,062,000, or $.37 per share, during
the same period of 1998.
Net interest income of $7,724,000 for the period ended
September 30, 1999, decreased 4.3% from the $8,072,000
earned in the same period of 1998. Margins continued to
be challenged by strong rate competition for loans. In
addition, this decrease reflects the effect of a commercial
loan that was entered into a non-accrual status. As such,
all interest earned by the bank on this loan that was not
yet collected, approximately $49,000, was deducted from the
bank's income in the third quarter. Due to the competitive
pressures that continue to challenge net interest income,
management is actively pursuing alternative sources of fee
income for the bank.
The Bank made a provision for loan losses of $250,000 and
$104,000 during the first nine months of 1999 and 1998,
respectively. Due to the cyclical nature of the economy
coupled with the Bank's substantial involvement in
commercial loans and the record number of nationwide
consumer bankruptcies, management thought it prudent to make
this allocation now during stronger economic times. On a
quarterly basis, senior management reviews potentially
unsound loans taking into consideration judgments regarding
risk or error, economic conditions, trends and other
factors.
Non-interest income was $328,000 for the third
quarter of 1999 compared with $404,000 earned during the
same period of 1998. Gains resulting from the sale of
student loans amounted to $68,000 during the first nine
months of 1998. These gains realized last year account, in
part, for the difference in non-interest income as no such
sale occurred during the same period of 1998. A
significant contribution to non-interest income is non-
sufficient funds (NSF) fee income. NSF fee income
contributed in excess of $283,000 during the first nine
months of 1999.
Non-interest expense increased slightly to $5,023,000 for
the first nine months of 1999 compared to $4,905,000 for the
same period of 1998. We do anticipate higher non-interest
expense in the upcoming quarters as we update our technology
so as to be able to provide internet banking services to our
customers by yearend or the beginning of next year. We
have also hired a business development officer for our trust
department in order to increase our market penetration and
fee income potential in the areas of asset management and
trust services.
LIQUIDITY
The Bank's objective is to maintain adequate liquidity while
minimizing interest rate risk. Adequate liquidity provides
resources for credit needs of borrowers, for depositor
withdrawals, and for funding Corporate operations. Sources
of liquidity include maturing investment securities,
overnight borrowings of federal funds (and Flex Line),
payments received on loans, and increases in deposit
liabilities.
Funds generated from operations contributed a major source
of funds for the first nine months of 1999. The major
source of funds came from the increase in demand and savings
deposits, mainly the $4,610,000 increase in money market
deposit accounts. Other major sources of funds included
the $4,661,000 net decrease in investment certificates of
deposit, and the proceeds of the sale of other real estate
of $504,000.
The major use of funds during the period was a net increase
in loans of $9,542,000. The other major use of funds was
for the payment of the first three quarter regular dividends
and the February special dividend of $1.50 per share, having
a combined cash outflow of $6,046,000.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets decreased to $2,765,000
representing 0.99% of total assets at September 30, 1999,
from $3,064,000 or 1.10% of total assets at December 31,
1998. Included in the past-due category at September 30,
1999 is a commercial loan relationship loan with an
outstanding principal balance exceeding $600,000. This loan
relationship is fully secured by marketable securities, and
a work-out plan continues into the fourth quarter. Most
non-performing assets are supported by collateral value that
appears to be adequate at September 30, 1999.
The Allowance for Loan Losses at September 30, 1999, was
$2,454,000 or 1.51% of loans, net of unearned interest, as
compared to $2,313,000 also 1.51% of loans, net of unearned
interest, at December 31, 1998.
Based upon the ongoing analysis of the Bank's loan portfolio
by the loan review department, the latest quarterly analysis
of potentially unsound loans and non-performing assets,
we consider the Allowance for Loan Losses to be
adequate to absorb any reasonable, foreseeable loan losses.
YEAR 2000 COMPLIANCE: MANAGEMENT INFORMATION SYSTEMS
We have 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 computer systems to improve
efficiencies of operations and position itself for future
growth. The cost of the new system was approximately
$284,000. Anticipated additional costs prior to year 2000
are estimated to be $47,000. Testing demonstrated that the
new hardware and software are Year 2000 compliant. In
addition, the Corporation has hired a third-party Year 2000
consultant. With the aid of the consultant, we have
developed a Year 2000 testing master plan, organization
chart and detailed work plan. The testing plan includes
several phases of testing in accordance with regulatory
guidelines. We successfully completed the testing of all
systems critical the operation of the bank on February 3,
1999.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
Non-Performing Assets:
Non-accrual loans 1,017 376
Past due 90 days or more 813 844
Restructured loans 882 1,497
------- -------
Total non-performing loans 2,712 2,717
Other real estate 53 347
------- -------
Total 2,765 3,064
======= =======
Percentage of total loans outstanding 1.70 2.00
Percentage of total assets 0.99 1.10
Analysis of the Allowance for Loan Losses:
Balance beginning of period 2,313 2,281
Loans charged off:
Commercial real estate, construction
and land development 0 40
Commercial, industrial and agricultural 144 200
Real estate - residential mortgage 0 40
Consumer 45 37
------- -------
Total loans charged off 189 317
------- -------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 55 10
Commercial, industrial and agricultural 1 56
Real estate - residential mortgage 0 0
Consumer 24 29
------- -------
Total recoveries 80 95
------- -------
Net charge-offs (recoveries) -109 -222
------- -------
Current period provision for
loan losses 250 254
------- -------
Balance end of period 2,454 2,313
======= ======
</TABLE>
<PAGE>
Mid Penn Bancorp, Inc.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Nothing to report
Item 2. Changes in Securities - Nothing to report
Item 3. Defaults Upon Senior Securities - Nothing to report
Item 4. Submission of Matters to a Vote of Security Holders
- - Nothing to report
Item 5. Other Information - Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - (27) Financial Data Schedule
Reports on Form 8-K - None
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Mid Penn Bancorp, Inc.
Registrant
/s/ Eugene F. Shaffer /s/ Kevin W. Laudenslager
By:Eugene F. Shaffer By:Kevin W. Laudenslager
Chairman, Pres. & CEO Treasurer
Date: November 1, 1999 Date: November 1, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5869
<INT-BEARING-DEPOSITS> 38222
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63159
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 162426
<ALLOWANCE> 2454
<TOTAL-ASSETS> 278614
<DEPOSITS> 219140
<SHORT-TERM> 14371
<LIABILITIES-OTHER> 3150
<LONG-TERM> 15439
0
0
<COMMON> 2912
<OTHER-SE> 23602
<TOTAL-LIABILITIES-AND-EQUITY> 278614
<INTEREST-LOAN> 10090
<INTEREST-INVEST> 4792
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14882
<INTEREST-DEPOSIT> 6242
<INTEREST-EXPENSE> 7158
<INTEREST-INCOME-NET> 7724
<LOAN-LOSSES> 250
<SECURITIES-GAINS> 50
<EXPENSE-OTHER> 5023
<INCOME-PRETAX> 3804
<INCOME-PRE-EXTRAORDINARY> 3804
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2854
<EPS-BASIC> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 7.8
<LOANS-NON> 1017
<LOANS-PAST> 813
<LOANS-TROUBLED> 882
<LOANS-PROBLEM> 1600
<ALLOWANCE-OPEN> 2313
<CHARGE-OFFS> 109
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 2454
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
