UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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.
2,893,203 shares of Common Stock, $1.00 par value per share,
were outstanding as of June 30, 1999.
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
<CAPTION>
June 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks 5,768 5,651
Interest bearing balances 40,913 42,883
Available-for-sale securities 66,239 67,933
Federal funds sold 0 0
Loans 155,083 152,993
Less:
Allowance for loan losses 2,439 2,313
------- -------
Net loans 152,644 150,680
------- -------
Bank premises and equip't, net 3,362 3,498
Other real estate 53 347
Accrued interest receivable 2,180 1,907
Cash surrender value of life insurance 3,993 3,900
Other assets 1,775 1,028
------- -------
Total Assets 276,927 277,827
======= =======
LIABILITIES & STOCKHOLDERS EQUITY:
Deposits:
Demand 21,815 20,971
NOW 26,994 28,234
Money Market 20,684 17,158
Savings 26,802 25,305
Time 124,935 125,134
------- -------
Total deposits 221,230 216,802
------- -------
Short-term borrowings 11,082 12,159
Accrued interest payable 1,711 1,240
Other liabilities 1,031 540
Long-term debt 15,477 15,550
------- -------
Total Liabilities 250,531 246,291
------- -------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
2,912,267 shares at June 30, 1999 and
December 31, 1998 2,912 2,912
Surplus 17,181 17,181
Undivided profits 8,097 11,640
Unrealized holding gain on securities,
net of estimated tax effect -1,261 344
Less: Treasury Stock at cost
(19,059 and 19,241 shares) 533 541
------- -------
Total Stockholders Equity 26,396 31,536
------- ------
Total Liabilities & Equity 276,927 277,827
======= =======
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; dollars in thousands)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME: ----- ----- ----- -----
Interest & fees on loans 3,341 3,591 6,688 7,099
Int.-bearing balances 622 662 1,255 1,277
Treas. & Agency securities 618 602 1,243 1,171
Municipal securities 330 236 654 465
Other securities 35 14 64 26
Fed funds sold and repos 0 17 0 25
----- ----- ----- -----
Total Int. Income 4,946 5,122 9,904 10,063
----- ----- ----- -----
INTEREST EXPENSE:
Deposits 2,083 2,185 4,194 4,361
Short-term borrowings 63 26 143 112
Long-term borrowings 223 213 435 329
----- ----- ----- -----
Total Int. Expense 2,369 2,424 4,772 4,802
----- ----- ----- -----
Net Int. Income 2,577 2,698 5,132 5,261
PROVISION FOR LOAN LOSSES 75 25 150 54
----- ----- ----- -----
Net Int. Inc. after Prov. 2,502 2,673 4,982 5,207
----- ----- ----- -----
NON-INTEREST INCOME:
Trust Dept 55 47 73 55
Service Chgs. on Deposits 119 111 244 211
Investment sec. gains, net 0 3 50 8
Gain on sale of loans 0 23 0 23
Other 397 106 658 414
----- ----- ----- -----
Total Non-Interest Income 571 290 1,025 711
----- ----- ----- -----
NON-INTEREST EXPENSE:
Salaries and benefits 960 883 1,939 1,720
Occupancy, net 78 81 167 163
Equipment 115 133 230 256
PA Bank Shares tax 69 65 138 144
Other 553 517 956 1,042
----- ----- ----- -----
Tot. Non-int. Exp. 1,775 1,679 3,430 3,325
----- ----- ----- -----
Income before income taxes 1,298 1,284 2,577 2,593
INCOME TAX EXPENSE 326 344 653 712
----- ----- ----- -----
NET INCOME 972 940 1,924 1,881
===== ===== ===== =====
Other Comprehensive Income, net
of tax:
Unrealized holding losses on
securities arising during the
period -1,122 7 -1,605 -30
Less: reclassification
adjustments for gains included
in net income 0 3 50 8
---- ---- ---- ----
Other comprehensive income -1,122 4 -1,655 -38
---- ---- ---- ----
Comprehensive Income -150 944 269 1,843
===== ===== ===== =====
NET INCOME PER SHARE 0.34 0.33 .66 .65
===== ===== ===== =====
Weighted Average No. of
Shares Outstanding 2,894,672 2,893,963
2,891,492 2,891,798
</TABLE>
<PAGE>
<TABLE>
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
<CAPTION>
For the six months ended:
June 30, June 30,
1999 1998
-------- --------
<S> <C> <C>
Operating Activities:
Net Income 1,924 1,881
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 150 54
Depreciation 201 196
Change in interest receivable -273 -69
Change in other assets -130 118
Change in interest payable 471 463
Change in other liabilities 491 271
Other, net 0 0
------- -------
Net cash provided by
operating activities: 2,834 2,914
------- -------
Investing Activities:
Net decrease in int-bearing balances 1,970 -6,274
Proceeds from sale of securities 3,811 0
Proceeds from the maturity of secs. 4,773 7,933
Purchase of investment securities -9,160 -9,327
Proceeds from the sale of loans 0 1,574
Net decrease in loans -2,324 -5,847
Net purchases of fixed assets -65 -459
Proceeds from sale of other real estate 504 1,163
Capitalized additions - ORE 0 0
------- -------
Net cash provided by
investing activities -491 -11,237
------- -------
Financing Activities:
Net increase in demand and savings 4,627 4,285
Net increase in time deposits -199 -6,935
Net increase in sh-term borrowings -1,077 1,795
Net increase in long-term borrowings -73 9,932
Cash dividend declared -5,504 -990
------- -------
Net cash provided by
financing activities -2,226 8,087
------- -------
Net increase in cash & equivalents 117 -236
Cash & cash equivalents, beg of period 5,651 6,998
------- -------
Cash & cash equivalents, end of period 5,768 6,762
======= =======
Supplemental Noncash Disclosures:
Loan charge-offs 99 51
Transfers to other real estate 0 0
</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 six months ended June 30, 1999, compared to year-
end 1998 and the Results of Operations for the second
quarter and first half of 1999 compared to the same periods
in 1998.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of June 30, 1999, amounted to $276,927,000,
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 of June 30, 1999. 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 1.80 percentage points in the past nine
months, our existing securities are valued lower in
comparison. This difference in value, or unrealized loss,
amounted to $1,261,000, 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.
Loans remained fairly flat during the first half due to
some large payoffs in the commercial loan portfolio along
with a continued competitive pricing environment
Foreclosed assets held for sale (real estate owned by the
Corporation resulting from loan transactions) decreased to
$294,000 during the first half of 1999 due to the sale of
a commercial property and several lots of undeveloped land.
These sales of other real estate resulted in an after-tax
gain of approximately $215,000. As of June 30, 1999, the
balance of foreclosed assets held for sale consisted
exclusively of undeveloped land.
Total deposits increased by $4,428,000 during the first
six months of 1999. This increase was seen mainly in our
money market deposit and savings accounts.
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 performance measures that investors
utilize.
RESULTS OF OPERATION
Net income for the first half of 1999 was $1,924,000,
compared with $1,881,000 earned in the same period
of 1998. Net income per share for the first half of
1999 and 1998 was $.66 and $.65, respectively. . Net income
as a percentage of stockholders' equity, also known as
return on equity,(ROE), was 14.5% on an annualized basis for
the first half of 1999 as compared to 12.0% for the same
period in 1998.
Second quarter net income was $972,000 or $.34 per share, in
1999 as compared to $940,000, or $.33 per share, during the
same period of 1998.
Net interest income of $5,132,000 for the period ended
June 30, 1999, decreased 2.5% from the $5,261,000
earned in the same period of 1998. Margins continued to
be challenged by strong rate competition for loans.
The Bank made a provision for loan losses of $150,000 and
$54,000 during the first half 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 increased to $571,000 for the second
quarter of 1999 over $290,000 earned during the same period
of 1998. Gains resulting from the sale of other real estate
amounted to $325,000 during the first half of 1999 in
comparison to the $207,000 earned during the same period of
1998. A significant contribution to non-interest income
is insufficient fund (NSF) fee income. NSF fee income
contributed in excess of $180,000 during the first half of
1999
Non-interest expense has remained fairly constant at
$3,430,000 for the first six months of 1999 compared to
$3,325,000 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 half of 1999. The major source of
funds came from the increase in demand and savings deposits,
mainly the $3,526,000 increase in money market deposit
accounts. Other major sources of funds included
the $1,970,000 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 $2,324,000. The other major use of funds was
for the payment of the first two quarter regular dividends
and the February special dividend of $1.50 per share, having
a combined total of $5,504,000.
CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES
Total non-performing assets increased to $3,373,000
representing 1.22% of total assets at June 30, 1999, from
$3,064,000 or 1.10% of total assets at December 31, 1998.
Included in the past-due category is a commercial loan of
which we are a participant with another bank with our
outstanding principal balance exceeding $500,000 as of June
30, 1999. This loan was paid to us in full subsequent to
the end of the quarter. Most non-performing assets are
supported by collateral value that appears to be adequate at
June 30, 1999.
The Allowance for Loan Losses at June 30, 1999, was
$2,439,000 or 1.57% of loans, net of unearned interest, as
compared to $2,313,000 or 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>
June 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
Non-Performing Assets:
Non-accrual loans 911 376
Past due 90 days or more 1,522 844
Restructured loans 887 1,497
------- -------
Total non-performing loans 3,320 2,717
Other real estate 53 347
------- -------
Total 3,373 3,064
======= =======
Percentage of total loans outstanding 2.17 2.00
Percentage of total assets 1.22 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 70 200
Real estate - residential mortgage 0 40
Consumer 29 37
------- -------
Total loans charged off 99 317
------- -------
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 19 29
------- -------
Total recoveries 75 95
------- -------
Net charge-offs (recoveries) -24 -222
------- -------
Current period provision for
loan losses 150 254
------- -------
Balance end of period 2,439 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
- - At the Annual Meeting of Shareholders held on April 29,
1999, a vote was held for the election of Class A directors:
Gregory M. Kerwin, Warren A. Miller, Edwin D. Schlegel, and
Eugene F. Shaffer to serve for a three-year term, and to
ratify the selection of Parente, Randolph, Orlando, Carey
and Associates as external auditors for the corporation for
the year ending December 31, 1999. Gregory M. Kerwin
received 2,426,595 votes for and 12,407 votes withheld.
Warren A. Miller received 2,423,059 votes for and 15,943
votes withheld. Edwin D. Schlegel received 2,430,515 votes
for and 8,487 votes withheld. Eugene F. Shaffer received
2,425,365 votes for and 13,637 votes withheld. The
selection of external auditors received 2,429,650 votes for,
2,711 votes against, and 6,641 votes abstaining.
Item 5. Other Information - Nothing to report
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - (27) Financial Data Schedule
b. Reports on Form 8-K - None
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Mid Penn Bancorp, Inc.
Registrant
/s/ Eugene F. Shaffer /s/ Kevin W. Laudenslager
By: Eugene F. Shaffer By: Kevin W. Laudenslager
Chairman, Pres. & CEO Treasurer
Date: July 28, 1999 Date: July 28, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5768
<INT-BEARING-DEPOSITS> 40913
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66239
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 155083
<ALLOWANCE> 2439
<TOTAL-ASSETS> 276927
<DEPOSITS> 221230
<SHORT-TERM> 11082
<LIABILITIES-OTHER> 2742
<LONG-TERM> 15477
0
0
<COMMON> 2912
<OTHER-SE> 23484
<TOTAL-LIABILITIES-AND-EQUITY> 276927
<INTEREST-LOAN> 6688
<INTEREST-INVEST> 3216
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9904
<INTEREST-DEPOSIT> 4194
<INTEREST-EXPENSE> 4772
<INTEREST-INCOME-NET> 5132
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 50
<EXPENSE-OTHER> 3430
<INCOME-PRETAX> 2577
<INCOME-PRE-EXTRAORDINARY> 2577
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1924
<EPS-BASIC> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 8.1
<LOANS-NON> 911
<LOANS-PAST> 1522
<LOANS-TROUBLED> 887
<LOANS-PROBLEM> 1922
<ALLOWANCE-OPEN> 2313
<CHARGE-OFFS> 99
<RECOVERIES> 75
<ALLOWANCE-CLOSE> 2439
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
