10-Q 1 midpenn-10q_52578.txt MID PENN 10-Q EDGAR FILING 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, 2001 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. 3,036,181 shares of Common Stock, $1.00 par value per share, were outstanding as of September 30, 2001. MID PENN BANCORP, INC. CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in thousands)
Sept. 30, Dec. 31, 2001 2000 -------- -------- ASSETS: Cash and due from banks 7,210 5,986 Interest-bearing balances 52,227 42,376 Available-for-sale securities 55,395 73,885 Federal funds sold 0 0 Loans 200,425 184,211 Less, Allowance for loan losses 2,896 2,815 ------- ------- Net loans 197,529 181,396 ------- ------- Bank premises and equip't, net 3,449 3,581 Other real estate 193 70 Accrued interest receivable 2,144 2,502 Cash surrender value of life insurance 4,448 4,288 Deferred income taxes 892 1,069 Other assets 242 431 ------- ------- Total Assets 323,729 315,584 ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY: Deposits: Demand 25,257 23,274 NOW 30,164 28,293 Money Market 26,497 17,494 Savings 25,444 25,912 Time 137,797 136,435 ------- ------- Total deposits 245,159 231,408 ------- ------- Short-term borrowings 9,698 22,738 Accrued interest payable 2,417 1,546 Other liabilities 2,059 1,025 Long-term debt 32,612 29,241 ------- ------- Total Liabilities 291,945 285,958 ------- ------- STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; authorized 10,000,000 shares; issued 3,056,501 shares at Sept. 30, 2001 and December 31, 2000 3,057 3,057 Additional paid-in capital 20,368 20,368 Retained earnings 8,307 7,078 Accumulated other comprehensive inc(loss) 607 (344) Treasury stock at cost (20,320 and 19,057 shs., resp.) (555) (533) ------- ------- Total Stockholders' Equity 31,784 29,626 ------- ------ Total Liabilities & Equity 323,729 315,584 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. Note: The balance sheet at December 31, 2000, has been derived from the audited financial statements at that date but does not include all the information and notes required by generally accepted accounting principles for complete financial statements.
MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited; dollars in thousands)
Three Months Nine Months Ended Sept 30, Ended Sept 30, 2001 2000 2001 2000 ----- ----- ------ ------ INTEREST INCOME: Interest & fees on loans 4,047 3,933 12,276 11,654 Int.-bearing balances 786 616 2,314 1,613 Treas. & Agency securities 268 581 1,151 1,692 Municipal securities 470 377 1,320 1,082 Other securities 45 57 160 160 Fed funds sold and repos 55 0 75 0 ----- ----- ------ ------ Total Int. Income 5,671 5,564 17,296 16,201 ----- ----- ------ ------ INTEREST EXPENSE: Deposits 2,306 2,325 7,061 6,551 Short-term borrowings 36 202 416 593 Long-term borrowings 543 403 1,578 1,181 ----- ----- ------ ------ Total Int. Expense 2,885 2,930 9,055 8,325 ----- ----- ------ ------ Net Int. Income 2,786 2,634 8,241 7,876 PROVISION FOR LOAN LOSSES 100 75 250 250 ----- ----- ------ ------ Net Int. Inc. after Prov. 2,686 2,559 7,991 7,626 ----- ----- ------ ------ NON-INTEREST INCOME: Trust dept 24 60 93 158 Service chgs. on deposits 228 143 662 440 Investment sec. gains (losses), net 4 0 (14) (4) Gain on sale of loans 0 0 0 31 Other 223 171 613 560 ----- ----- ------ ------ Total Non-Interest Income 479 374 1,354 1,185 ----- ----- ------ ------ NON-INTEREST EXPENSE: Salaries and benefits 1,044 971 3,080 2,862 Occupancy, net 97 93 308 274 Equipment 126 137 364 384 PA Bank Shares tax 66 68 196 203 Other 465 437 1,439 1,320 ----- ----- ------ ------ Tot. Non-int. Exp. 1,798 1,706 5,387 5,043 ----- ----- ------ ------ Income before income taxes 1,367 1,227 3,958 3,768 INCOME TAX EXPENSE 303 280 906 904 ----- ----- ------ ------ NET INCOME 1,064 947 3,052 2,864 ===== ===== ====== ====== NET INCOME PER SHARE 0.35 0.31 1.00 .94 ===== ===== ====== ====== DIVIDENDS PER SHARE 0.20 0.20 .60 .60 ===== ===== ====== ====== Weighted Average No. of Shares Outstanding 3,036,843 3,038,401 3,036,387 3,035,665 The accompanying notes are an integral part of these consolidated financial statements.
MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in thousands)
For the nine months ended: Sept. 30, Sept. 30, 2001 2000 -------- -------- Operating Activities: Net Income 3,052 2,864 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 250 250 Depreciation 275 318 Incr. in cash-surr. value of life ins. (160) (148) Loss (gain) on sale of investment securities 14 4 Loss (gain) on sale/disposal of bank premises and equipment 0 0 Loss (gain) on the sale of foreclosed assets (16) (40) Loss (gain) on the sale of loans 0 (31) Change in interest receivable 358 (75) Change in other assets (124) (205) Change in interest payable 871 1,136 Change in other liabilities 1,034 671 ------- ------- Net cash provided by operating activities: 5,554 4,744 ------- ------- Investing Activities: Net (incr)decr in int-bearing balances (9,851) (6,616) Incr. in federal funds sold 0 0 Proceeds from sale of securities 11,284 3,515 Proceeds from the maturity of secs. 19,071 2,315 Purchase of investment securities (10,438) (8,709) Proceeds from the sale of loans 0 3,622 Net increase in loans (16,571) (11,525) Purchases of fixed assets (143) (523) Proceeds from sale of other real estate 81 68 Capitalized additions - ORE 0 0 ------- ------- Net cash used in investing activities (6,629) (17,853) ------- ------- Financing Activities: Net (decr)incr in demand & svngs deps. 12,389 (4,389) Net incr(decr) in time deposits 1,362 16,163 Net decrease in sh-term borrowings (13,040) (6,305) Net incr(decr) in long-term borrowings 3,371 7,882 Cash dividend declared (1,823) (1,821) Net sale of treasury stock (22) 15 ------- ------- Net cash provided by(used in) financing activities 2,237 11,545 ------- ------- Net increase in cash & due from banks 1,224 (1,564) Cash & due from banks, beg of period 5,986 7,474 ------- ------- Cash & due from banks, end of period 7,210 5,910 ======= ======= Supplemental Noncash Disclosures: Loan charge-offs 193 60 Transfers to other real estate 188 35 The accompanying notes are an integral part of these consolidated financial statements.
Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements 1. The consolidated interim financial statements have been prepared by the Corporation, without audit, according to the rules and regulations of the Securities and Exchange Commission with respect to Form 10-Q. The financial information 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 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 Corporation's most recent Form 10-K. 2. Interim statements are subject to possible adjustments in connection with the annual audit of the Corporation'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. 5. Short-term borrowings as of Sept. 30, 2001, and December 31, 2000, consisted of: (Dollars in thousands) 9/30/01 12/31/00 ------- ------- Federal funds purchased $6,100 $20,800 Repurchase agreements 2,594 1,459 Treasury, tax and loan note 1,004 479 ------ ------- $9,698 $22,738 ====== ======= 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. 6. Long-term debt as of the quarter ended Sept. 30, 2001, and the year ended December 31, 2000, was $32,612,000 and $29,241,000, respectively. 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. The Bank entered into one long-term borrowing with the FHLB during the period: $5,000,000 in a three-year fixed-rate borrowing at 5.20% with a final maturity of March 12, 2004. 7. Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each of the periods presented, giving retroactive effect to stock dividends and stock splits, if any. The Corporation's basic and diluted earnings per share are the same since there are no dilutive securities outstanding. 8. The purpose of reporting comprehensive income (loss) is to report a measure of all changes in the Corporation's equity resulting from economic events other than transactions with stockholders in their capacity as stockholders. For the Corporation, "comprehensive income(loss)" includes traditional income statement amounts as well as unrealized gains and losses on certain investments in debt and equity securities (i.e. available for sale securities). Because unrealized gains and losses are part of comprehensive income (loss), comprehensive income (loss) may vary substantially between reporting periods due to fluctuations in the market prices of securities held. (In thousands) Three Months Six Months Ended Sept 30, Ended Sept 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net Income $1,064 $947 $3,052 $2,864 ------ ------ ------ ------ Other comprehensive income(loss): Unrealized holding gains(losses) on securities arising during the period 566 991 1,455 287 Less: reclassification adjustments for (gains) losses included in net income (4) 0 14 4 ------ ------ ------ ------ Other comprehensive income(loss) before income tax (provision) benefit 570 991 1,441 283 Income tax (provision) benefit related to other comprehensive income(loss) (194) (337) (490) (96) ------ ------ ------ ------ Other comprehensive inc(loss) 376 654 951 187 ------ ------ ------ ------ Comprehensive Income(Loss) $1,440 $1,601 $4,003 $3,051 ====== ====== ====== ====== Mid Penn Bancorp, Inc. Millersburg, Pennsylvania Management's Discussion of Consolidated Financial Condition as of Sept. 30, 2001, compared to year-end 2000 and the Results of Operations for the third quarter and the first nine months of 2001 compared to the same periods in 2000. CONSOLIDATED FINANCIAL CONDITION Total assets as of June 30, 2001, increased to $323,729,000, from $315,584,000 as of December 31, 2000. During the first three quarters of 2001, net loans outstanding increased by $16,133,000, or 9% from year end. Total deposits increased by $13,751,000 during the first nine months of 2001. Money market accounts increased by $9 million over year end largely due to the popularity of a new indexed money market product offered by the bank. It appears that many depositors are currently uneasy about investing in the stock market and are thus depositing into bank money market and other more conservative investments. Short-term borrowings decreased by $13 million from year end. These borrowings were decreased largely through funds generated by operations and through funds generated by the sale, maturity and call of investment securities. 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. As of Sept. 30, 2001, 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. As of July 2, 2001, the Bancorp formed a new subsidiary, Mid Penn Insurance Services, LLC, in order to sell title insurance. The subsidiary will allow the bank to provide title insurance, currently through United General Insurance Company, to our borrowers and generate fee income for the Corporation through the sales. The subsidiary is expected to be profitable by year end. RESULTS OF OPERATIONS Net income for the first nine months of 2001 was $3,052,000, compared with $2,864,000 earned in the same period of 2000. Net income per share for the same period of 2001 and 2000 was $1.00 and $.94, respectively. Net income as a percentage of stockholders' equity, also known as return on equity, (ROE), was 13.3% on an annualized basis for the nine months of 2001 as compared to 14.1% for the same period in 2000. The decrease in ROE is due largely to the increase in shareholders equity resulting from the unrealized gain on investment securities arising in the current rate environment. Net income for the third quarter of 2001 was $1,064,000, compared with $947,000 earned in the same quarter of 2000. Net income per share for the third quarters of 2001 and 2000 was $.35 and $.31, respectively. Net interest income of $2,786,000 for the quarter ended Sept. 30, 2001, increased by 5.8% compared to the $2,634,000 earned in the same quarter of 2000. This rise indicates an increase in interest spread during the quarter despite keen interest rate competition. During the second quarter of 2001, we analyzed interest rate risk using the Vining Sparks Asset-Liability Management Model. Using the computerized model, management reviews interest rate risk on a periodic basis. This analysis includes an earnings scenario whereby interest rates are increased by 200 basis points (2 percentage points) and another whereby they are decreased by 200 basis points. At July 31, 2001, 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. The Bank made a provision for loan losses of $100,000 during the third quarter of 2001 and $75,000 during the third quarter of 2000. On a quarterly basis, senior management reviews potentially unsound loans taking into consideration judgments regarding risk of error, economic conditions, trends and other factors in determining a reasonable provision for the period. Non-interest income amounted to $479,000 for the third quarter of 2001 compared to $374,000 earned during the same quarter of 2000. Service charges on deposits grew by more than 50% during the third quarter of 2001 compared to the same period of 2000 as the bank continues to focus on fee and service charge income. One significant contributor to non-interest income is insufficient fund (NSF) fee income. NSF fee income contributed in excess of $546,000 during the first nine months of 2001, as compared to $339,000 for the same period of 2000. Due mainly to the addition of a new Harrisburg branch office in August of 2000, non-interest expense during the third quarter of 2001 of $1,798,000 increased slightly as compared to an expense of $1,706,000 during the same period of 2000 as we continue to strive to maintain low overhead. 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 2001. The major source of funds came from the net decrease in investment securities of $19 million due to the sale, call and maturity of bonds. As the current rate environment has dropped to very low levels, many callable securities have been called during the period. Other major sources of funds included a net increase in money market funds of $9 million mainly in the area of our new indexed money market, and a net increase in other demand and savings deposits of $3 million. A major use of funds during the period was a net decrease in short-term borrowings of $13 million. Other major uses of funds included a net increase in loans of $16 million and a net increase of $10 million in interest bearing balances purchased in anticipation of falling interest rates. CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES Total non-performing assets increased to $2,700,000, representing 0.83% of total assets at Sept. 30, 2001, from $2,312,000 or 0.73% of total assets at December 31, 2000. Most non-performing assets are supported by collateral value that appears to be adequate at September 30, 2001. The allowance for loan losses at Sept. 30, 2001, was $2,896,000 or 1.44% of loans, net of unearned interest, as compared to $2,815,000 or 1.53% of loans, net of unearned interest, at December 31, 2000. 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. MID PENN BANCORP, INC.
Sept. 30, Dec. 31, 2001 2000 -------- -------- Non-Performing Assets: Non-accrual loans 1,555 1,116 Past due 90 days or more 414 504 Restructured loans 538 622 ----- ----- Total non-performing loans 2,507 2,242 Other real estate 193 70 ----- ----- Total 2,700 2,312 ===== ===== Percentage of total loans outstanding 1.35 1.26 Percentage of total assets 0.83 0.73 Analysis of the Allowance for Loan Losses: Balance beginning of period 2,815 2,505 Loans charged off: Commercial real estate, construction and land development 30 1 Commercial, industrial and agricultural 70 12 Real estate - residential mortgage 0 0 Consumer 93 61 ----- ----- Total loans charged off 193 74 ----- ----- Recoveries of loans previously charged off: Commercial real estate, construction and land development 0 28 Commercial, industrial and agricultural 1 5 Real estate - residential mortgage 2 0 Consumer 21 26 ----- ----- Total recoveries 24 59 ----- ----- Net (charge-offs) recoveries (169) (15) ----- ----- Current period provision for loan losses 250 325 ----- ----- Balance end of period 2,896 2,815 ===== =====
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 - None. 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/ Alan W. Dakey /s/ Kevin W. Laudenslager By: Alan W. Dakey By: Kevin W. Laudenslager President & CEO Treasurer Date: November 8, 2001 Date: November 8, 2001