-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TE7IFHH9fmSa8WpPyujzWUEuQTNz4uLNTzTqCI49I6ORkMGnmCUcCH6HzjSqFxYO RuLrQkpyJUN+nMP0hc8pzQ== 0001036050-00-000472.txt : 20000329 0001036050-00-000472.hdr.sgml : 20000329 ACCESSION NUMBER: 0001036050-00-000472 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MID PENN BANCORP INC CENTRAL INDEX KEY: 0000879635 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251666413 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13677 FILM NUMBER: 581456 BUSINESS ADDRESS: STREET 1: 349 UNION ST CITY: MILLERSBURG STATE: PA ZIP: 17061 BUSINESS PHONE: 7176922133 MAIL ADDRESS: STREET 1: 349 UNION STREET STREET 2: 349 UNION STREET CITY: MILLERSBURG STATE: PA ZIP: 17061 10-K405 1 ANNUAL REPORT FOR MID-PENN BANK 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, 1999 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 --------------- MID PENN BANCORP, INC. ---------------------- (Exact Name of Registrant as Specified in its Charter) Pennsylvania 25-1666413 ------------ ---------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 349 Union Street Millersburg, Pennsylvania 17601 ------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (717) 692-2133 -------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $1.00 Par Value ----------------------------- (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 _____ ----- 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 $46,022,900 at February 25, 2000 (a date within 60 days of the date hereof). As of February 25, 2000, the Registrant had 3,031,505shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Excerpts from the Registrant's 1999 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 1999 Annual Meeting of Shareholders is incorporated herein by reference in partial response to Part III, hereof. MID PENN BANCORP, INC. FORM 10-K INDEX
PAGE PART I Item 1 - Business................................................. 1 Item 2 - Properties............................................... 11 Item 3 - Legal Proceedings........................................ 13 Item 4 - Submission of Matters to a Vote of Security Holders................................. 13 PART II Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters.............................. 14 Item 6 - Selected Financial Data.................................. 14 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation................................................ 14 Item 7A - Quantitative and Qualitative Disclosure About Market Risk 14 Item 8 - Financial Statements and Supplementary Data.............. 14 Item 9 - Changes In and Disagreements With Accountants on Accounting and Financial Disclosure................... 14 PART III Item 10 - Directors and Executive Officers of the Registrant........................................... 15 Item 11 - Executive Compensation................................... 15 Item 12 - Security Ownership of Certain Beneficial Owners and Management.................................... 15 Item 13 - Certain Relationships and Related Transactions..................................... 15 PART IV Item 14 - Exhibits, Financial Statements, Schedules and Reports on Form 8-K.................................. 16 Signatures............................................................. 18
i PART I ------ ITEM 1. BUSINESS. - ------ -------- General. Mid Penn Bancorp, Inc. is a one bank holding company, ------- incorporated in the Commonwealth of Pennsylvania in August, 1991. On December 31, 1991, the Registrant acquired, as part of the holding company formation, all of the outstanding common stock of Mid Penn 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 Mid Penn 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. Effective July 10, 1998, the Registrant acquired Miners Bank of Lykens, which was merged into the bank. The addition of Miners approximately $28 million in assets increased the Registrants total assets, liabilities and shareholders' equity, on a pro forma basis, on the date of merger to approximately $262 million, $215 million and $25 million. The bank is supervised by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. The Registrant's and the bank's legal headquarters is located at 349 Union Street, Millersburg, Pennsylvania 17061. The bank presently has 10 offices, including the Miners office, at 550 Main Street, Lykens, added July 10, 1998. The bank, headquartered in Millersburg, Dauphin County, Pennsylvania, offices are in Dauphin, Northumberland, Schuylkill, and Cumberland Counties, Pennsylvania with total assets of approximately $280 million as of December 31, 1999. At December 31, 1999, the Registrant's consolidated assets, deposits and shareholders' equity were approximately $287,542,000, $217,840,000 and $26,565,000, 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 of the FDIC to the maximum extent provided by law. 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 1 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, 1999, the Registrant had 87 full-time and 33 --------- 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 of this report. Environmental Laws. Neither the Registrant nor the bank anticipate that ------------------ 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 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 2 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 ------------------------------------------- the provisions of the Bank Holding Company Act of 1956 and to supervision and regulation by the Board of Governors of the Federal Reserve System. The Bank 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 % of the voting shares or substantially all of the assets of any institution, including another bank. The Holding Company Act prohibits acquisition by the Registrant of more than 5 % 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. 3 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 the 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 % 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 Federal Reserve, 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 %, at least 4% of which 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 39 of the Registrant's 1998 Annual Report to Shareholders, which page is included at Exhibit 13 hereto and incorporated herein by reference. We include a detailed discussion of the bank's regulatory capital requirements in "Supervision and Regulation--The Bank," below. Under the Pennsylvania Banking Code of 1965, 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 was amended by The Riegle-Neal Interstate Banking and Branching Act of 1994 to authorize bank holding companies, subject to certain limitations and restrictions, to acquire banks located in any state. 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 % of the deposits in the United States, or 30 % of the deposits in the target bank's state. The legislation permits states to waive the concentration limits and require that the target institution 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 was permitted after September 29, 1998, if the bank is adequately capitalized and demonstrates good management. The Riegle-Neal Act also amended the International Banking Act to allow a foreign bank to 4 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. 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 Federal Reserve have had, and will likely continue to have, an impact on the operating results of commercial banks because of the Federal Reserve's power to implement national monetary policy, to, among other things, curb inflation or combat recession. The Federal Reserve has a major impact on the levels of bank loans, investments and deposits through its open market operations in United States 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. 5 Federal Taxation. The Registrant and the bank are subject to those rules ---------------- 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 imposes a corporate alternative minimum tax. 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 Code Sections 56 and 58 and tax preference items, as provided in Code 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 --------- 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 ------------------------------------ the FDIC. The bank is not a member of the Federal Reserve System. The bank is subject to supervision, regulation and examination by the Pennsylvania Department of Banking 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: . Require the maintenance of certain reserves against deposits; . Limit the type and amount of loans that may be made and the interest that may be charged thereon; . Restrict investments and other activities; . Set limits on the payment of dividends; and . Regulate activities of the bank with respect to mergers and consolidations and the establishment of branches. 6 The amount of funds that the bank may lend to a single borrower is limited, generally, under Pennsylvania law, to 15 % of the aggregate of its capital, surplus, undivided profits and loan loss reserves and capital securities, all as defined by statute and by regulation. 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 its subsidiaries; . Investments in the stock or other securities of the Registrant or its subsidiaries; and . Taking such stock or securities as collateral for loans. The Federal Reserve Act and Federal Reserve 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, federal regulatory agencies classify institutions into one of five defined capital categories: . Well capitalized, . Adequately capitalized, . Undercapitalized, . Significantly undercapitalized and . Critically undercapitalized. The table below illustrates these capital categories.
Total Tier 1 Under a Risk- Risk- Tier 1 Capital Based Based Leverage Order or Ratio Ratio Ratio Directive ----- ------ --------- --------- CAPITAL CATEGORY Well capitalized *10.0 *6.0 *5.0 No Adequately capitalized *8.0 *4.0 *4.0* Undercapitalized *8.0 *4.0 *4.0* Significantly undercapitalized *6.0 *3.0 *3.0 Critically undercapitalized *2.0
*mean less than and greater than or equal too... *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: 7 . The banks institution of a capital restoration plan and a guarantee of the plan by a parent institution; and . 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, the 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. Under the Federal Deposit Insurance Act, 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 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 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 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 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, 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, 8 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 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" . "satisfactory" . "needs to improve" or . "substantial noncompliance" and . a statement describing the basis for the rating. These ratings are publicly disclosed. Under the Bank Secrecy Act, 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, included the legislation which: . imposes certain restrictions on transactions between banks and their affiliates; . expands the powers available to Federal bank regulators in assisting failed or failing banks; . limits the amount of time banks may hold certain deposits prior to making such funds available for withdrawal and any interest thereon; and . 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. On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act of 1999, the Financial Services Modernization Act. The Financial Services Modernization Act repeals the two affiliation provisions of the Glass-Steagall Act: . Section 20, which restricted the affiliation of Federal Reserve Member Banks with firms "engaged principally" in specified securities activities; and 9 . Section 32, which restricts officer, director, or employee interlocks between a member bank and any company or person "primarily engaged" in specified securities activities. In addition, the Financial Services Modernization Act contains provisions that expressly preempt any state insurance law. The law establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers. It revises and expands the framework of the Bank Holding Company Act framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company. "Financial activities" is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In general, the Financial Services Modernization Act: . Repeals historical restrictions on, and eliminates many federal and state law barriers to, affiliations among banks, securities firms, insurance companies, and other financial service providers; . Provides a uniform framework for the functional regulation of the activities of banks, savings institutions and their holding companies; . Broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries; . Provides an enhanced framework for protecting the privacy of consumer information; . Adopts a number of provisions related to the capitalization, membership, corporate governance, and the other measures designed to modernize the Federal Home Loan Bank system; . Modifies the laws governing the implementation of the Community Reinvestment Act; and . Addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. In order for the Registrant to take advantage of the ability to affiliate with other financial services providers, the Registrant must become a "Financial Holding Company" as permitted under an amendment to the Bank Holding Company Act. To become a Financial holding Company, a company must file a declaration with the Federal Reserve, electing to engage in 10 activities permissible for Financial Holding Companies and certifying that it is eligible to do so because all of its insured depository institution subsidiaries are well-capitalized and well-managed. In addition, the Federal Reserve must determine that each insured depository institution subsidiary of the company has at least a satisfactory" CRA rating. The Registrant currently meets the requirements to make an election to become a Financial Holding Company. The Registrant's management has not determined at this time whether it will seek an election to become a Financial Holding Company. The Registrant is examining its strategic business plan to determine whether, based on market conditions, the relative financial conditions of the Registrant and its subsidiaries, regulatory capital requirements, general economic conditions, and other factors, the Registrant desires to utilize any of its expanded powers provided in the Financial Service Modernization Act. The Financial Services Modernization Act also includes a new section of the Federal Deposit Insurance Act governing subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. It expressly preserves the ability of a state bank to retain all existing subsidiaries. Because Pennsylvania permits commercial banks chartered by the state to engage in any activity permissible for national banks, the bank will be permitted to form subsidiaries to engage in the activities authorized by the Financial Services Modernization Act, to the same extent as a national bank. In order to form a financial subsidiary, the bank must be well-capitalized, and the bank would be subject to the same capital deduction, risk management and affiliate transaction rules as applicable to national banks. The Registrant and the bank do not believe that the Financial Services Modernization Act will have a material adverse effect on our operations in the near-term. However, to the extent that it permits banks, securities firms, and insurance companies to affiliate, the financial services industry may experience further consolidation. The Financial Services Modernization Act is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis. Nevertheless, this act may have the result of increasing the amount of competition that the Registrant and the bank face from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than the Registrant and the bank. 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. 11 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 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 Lykens Branch Office Branch Bank 550 Main Street 12 Lykens, PA 17048 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. 13 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 3 of the Registrant's Annual Report to Shareholders, which page is included at Exhibit 13 hereto, and incorporated herein by reference. As of March 10, 2000, there were approximately 979 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 39 of the Registrant's Annual Report to Shareholders, which page is 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 24 through 39 of the Registrant's Annual Report to Shareholders, which page is 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 35 through 38 of the Registrant'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 23 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. 14 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 4 through 9 of the Registrant's Proxy Statement to be used in connection with the 2000 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 % 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. Officers, directors and greater than 10 % 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, 1999 through December 31, 1999, its officers and directors were in compliance with all filing requirements applicable to them. ITEM 11. EXECUTIVE COMPENSATION. - ------- ---------------------- The information required by this Item, relating to executive compensation, is set forth in pages 9 through 12, 14 through 17 of the Registrant's Proxy Statement to be used in connection with the 2000 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 14 and 15 of the Registrant's Proxy Statement to be used in connection with the 2000 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 14 of the Registrant's Proxy Statement to be used in connection with the 2000 Annual Meeting of Shareholders, which page is incorporated herein by reference. 15 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.) 11 Statement re: Computation of Earnings per share. (Included herein at Exhibit 13, at page 7 of Registrant's Annual Report to Shareholders.) 16 12 Statements re: Computation of Ratios. (Included herein at Exhibit 13, at page 39 of Registrant's Annual Report to Shareholders.) 13 Excerpts from Registrant's Annual Report to Shareholders. 21 Subsidiaries of the Registrant. 23 Consent of Parente, Randolph, Orlando Carey & Associates, independent auditors. 27 Financial Data Schedule. (b) Reports on Form 8-K. No Current Report on Form 8-K was filed by the Registrant during the fourth quarter of the fiscal year ended December 31, 1998. (c) The exhibits required herein are included at Item 14(a), above. (d) Not Applicable. 17 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 27, 2000 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 27, 2000 --------------------------------- -------------- Eugene F. Shaffer Chairman of the Board of Directors, President, Chief Executive Officer and Director (principal executive officer) By /s/ Kevin W. Laudenslager March 27, 2000 --------------------------------- -------------- Kevin W. Laudenslager Treasurer (principal financial and accounting officer) By _________________________________ ______________ Jere M. Coxon, Director By /s/ Alan W. Dakey March 27, 2000 --------------------------------- -------------- Alan W. Dakey, Director By /s/ Earl R. Etzweiler March 27, 2000 --------------------------------- -------------- Earl R. Etzweiler, Director By /s/ Gregory M. Kerwin March 27, 2000 --------------------------------- -------------- Gregory M. Kerwin, Director By /s/ Charles F. Lebo March 27, 2000 --------------------------------- -------------- Charles F. Lebo, Director By _________________________________ ______________ Warren A. Miller, Director By _________________________________ ______________ William G. Nelson, Director By _________________________________ ______________ Edwin D. Schlegel, Director By /s/ Guy J. Snyder, Jr. March 27, 2000 --------------------------------- -------------- Guy J. Snyder, Jr., Director By _________________________________ ______________ Donald E. Sauve, Director 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.) 11 Statement re: Computation of Earnings per share. (Included herein at Exhibit 13, at page 7 of Registrant's Annual Report to Shareholders.) 12 Statements re: Computation of Ratios. (Included herein at Exhibit 13, at page 39 of Registrant's Annual Report to Shareholders.) 13 Excerpts from Registrant's Annual Report to Shareholders. 21 Subsidiaries of the Registrant. 23 Consent of Parente, Randolph, Orlando Carey & Associates, independent auditors. 27 Financial Data Schedule.
EX-13 2 ANNUAL REPORT TO THE SHAREHOLDERS Mid Penn Bancorp, Inc. Financial Highlights AS OF AND FOR YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except per share data.) Percent 1999 1998 Change ---- ---- ------- Total Assets .................................... $ 287,542 277,827 +3.50% Total Deposits .................................. 217,840 216,802 +0.48% Net Loans ....................................... 169,789 150,680 +12.68% Total Investments and Interest Bearing Balances.. 98,669 110,816 -10.96% Stockholders' Equity ............................ 26,565 31,536 -15.76% Net Income ...................................... 3,884 3,865 +0.49% Earnings Per Share .............................. 1.28 1.27 +0.79% Cash Dividend Per Share on Weighted Average Number of Shares Outstanding ................. 2.18 .69 +215.94% Book Value Per Share ............................ $ 8.74 10.38 -15.80% Mid Penn Bancorp, Inc. Stockholders' Information 1999 1998 ---- ---- High Low High Low Quarter ---- --- ---- --- ------- Market Value Per Share .......................... $ 26.50 24.50 32.00 28.00 1st 25.75 24.38 30.13 28.13 2nd 26.38 23.38 30.50 25.25 3rd 27.25 22.50 27.00 22.75 4th
Market Value Information: The market share information was provided by the - ------------------------ American Stock Exchange, New York, NY. Mid Penn Bancorp, Inc. common stock trades on the American Stock Exchange under the symbol: MBP. Transfer Agent: Norwest Shareowner Services, P.O. Box 64854, St. Paul, MN - -------------- 55164-0854. Phone: 1-800-468-9716. Number of Stockholders: At December 31, 1999, there were 979 stockholders. - ---------------------- Dividends: A dividend of $.19 as well as a special dividend of $1.50 per share - --------- was paid during the first quarter of 1999; a dividend of $.20 per share was paid during each subsequent quarter of the year. A dividend of $.19 per share was paid during each quarter of 1998. 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. This information is also available via the Internet at www.sec.gov. Annual Meeting: The Annual Meeting of the Stockholders of Mid Penn Bancorp, Inc. - -------------- will be held at 10:00 a.m. on Tuesday, April 25, 2000, at 349 Union Street, Millersburg, Pennsylvania. www.midpennbank.com 1 Independent Auditors' Report The Board of Directors and Stockholders Mid Penn Bancorp, Inc. Millersburg, Pennsylvania We have audited the accompanying consolidated balance sheet of Mid Penn Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998 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, 1999. These financial statements are the responsibility of the Corporation'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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. PARENTE RANDOLPH, PC Williamsport, Pennsylvania January 21, 2000 2 www.midpennbank.com Mid Penn Bancorp, Inc. Consolidated Balance Sheet DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except share data) 1999 1998 ---- ---- ASSETS Cash and due from banks ............................................ $ 7,474 5,651 Interest bearing balances .......................................... 34,570 42,883 Available-for-sale investment securities ........................... 64,099 67,933 Loans .............................................................. 174,812 155,024 Less: Unearned income ............................................. (2,518) (2,031) Allowance for loan losses ................................... (2,505) (2,313) ------- ------- Net loans ................................................... 169,789 150,680 ------- ------- Bank premises and equipment, net ................................... 3,307 3,498 Foreclosed assets held for sale .................................... 63 347 Accrued interest receivable ........................................ 2,120 1,907 Deferred income taxes .............................................. 1,676 436 Cash surrender value of life insurance ............................. 4,089 3,900 Other assets ....................................................... 355 592 ------- ------- Total Assets $ 287,542 277,827 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand ..................................... $ 22,331 20,971 Interest-bearing demand ........................................ 26,962 28,234 Money market ................................................... 22,899 17,158 Savings ........................................................ 25,815 25,305 Time ........................................................... 119,833 125,134 ------- ------- Total Deposits 217,840 216,802 Short-term borrowings .............................................. 24,636 12,159 Accrued interest payable ........................................... 1,202 1,240 Other liabilities .................................................. 899 540 Long-term debt ..................................................... 16,400 15,550 ------- ------- Total Liabilities 260,977 246,291 ------- ------- Stockholders' Equity: Common stock, par value $1 per share; authorized 10,000,000 shares; 3,056,501 and 2,912,267 shares issued in 1999 and 1998 respectively ........................ 3,057 2,912 Additional paid-in capital ..................................... 20,368 17,181 Retained earnings .............................................. 5,557 11,640 Accumulated other comprehensive (loss) income .................. (1,861) 344 Treasury stock at cost (19,996 and 19,337 shares, in 1999 and 1998, respectively) ..................................... (556) (541) ------- ------- Stockholders' Equity, Net 26,565 31,536 ------- ------- Total Liabilities and Stockholders' Equity $ 287,542 277,827 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 3 www.midpennbank.com Mid Penn Bancorp, Inc. Consolidated Statement of Income FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except share data) 1999 1998 1997 ---- ---- ---- INTEREST INCOME Interest and fees on loans ................................... $ 13,829 14,330 14,297 Interest on interest-bearing balances ........................ 2,409 2,574 2,014 Interest and dividends on investment securities: U.S. Treasury and government agencies .................... 2,426 2,385 2,062 State and political subdivision obligations, taxable ..... 0 0 1 State and political subdivision obligations, tax-exempt .. 1,311 1,032 813 Other securities ......................................... 136 70 59 Interest on federal funds sold and securities purchased under agreement to resell ................................ 1 45 66 --------- --------- --------- Total Interest Income 20,112 20,436 19,312 --------- --------- --------- INTEREST EXPENSE Interest on deposits ......................................... 8,302 8,627 8,296 Interest on short-term borrowings ............................ 516 203 186 Interest on long-term debt ................................... 856 763 371 --------- --------- --------- Total Interest Expense .. 9,674 9,593 8,853 --------- --------- --------- Net Interest Income .. 10,438 10,843 10,459 PROVISION FOR LOAN LOSSES ......................................... 325 254 109 --------- --------- --------- Net Interest Income After Provision for Loan Losses ... 10,113 10,589 10,350 --------- --------- --------- NONINTEREST INCOME Trust department income ...................................... 127 104 90 Service charges on deposits .................................. 554 450 328 Investment securities gains (losses), net .................... 50 13 (2) Gain on sale of loans ........................................ 0 65 924 Income on cash surrender value of life insurance ............. 189 0 0 Other income ................................................. 769 766 432 --------- --------- --------- Total Noninterest Income .. 1,689 1,398 1,772 --------- --------- --------- NONINTEREST EXPENSE Salaries and employee benefits ............................... 3,741 3,383 3,474 Occupancy expense, net ....................................... 318 323 319 Equipment expense ............................................ 510 565 477 Pennsylvania bank shares tax expense ......................... 279 274 261 FDIC insurance premium ....................................... 26 26 25 Marketing and advertising .................................... 121 160 151 Loss on mortgage loan sales .................................. 47 64 18 Other expenses ............................................... 1,623 1,811 1,507 --------- --------- --------- Total Noninterest Expense .. 6,665 6,606 6,232 --------- --------- --------- INCOME BEFORE PROVISION FOR INCOME TAXES .......................... 5,137 5,381 5,890 Provision for income taxes ................................... 1,253 1,516 1,721 --------- --------- --------- Net Income ... $ 3,884 3,865 4,169 ========= ========= ========= Earnings Per Share (1) .. $ 1.28 1.27 1.37 ========= ========= ========= Weighted Average Number of Shares Outstanding .. 3,037,976 3,037,037 3,040,188
(1) Earnings per share for all periods presented have been restated to reflect a 5% stock dividend effective November 22, 1999, a 5% stock dividend effective November 23, 1998, a stock split effected in the form of a 100% stock dividend effective August 25, 1997 and a 5% stock dividend effective May 26, 1997. The accompanying notes are an integral part of these consolidated financial statements. 4 www.midpennbank.com Mid Penn Bancorp, Inc. Consolidated Statement of Changes in Stockholders' Equity FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except share data) Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Stock Capital Earnings (Loss) Income Stock Total ----- ------- -------- ------------- ----- ----- Balance, December 31, 1996 .................................. $ 1,411 12,017 14,375 168 (533) 27,438 ------- Comprehensive income: Net income ............................................. 0 0 4,169 0 0 4,169 Change in net unrealized gain on securities available for sale, net of reclassification adjustment and tax effects ...................................... 0 0 0 150 0 150 ------- Total comprehensive income . 4,319 ------- Cash dividends ($.76 per share, historical) .............. 0 0 (1,992) 0 0 (1,992) 5% stock dividend (additional 61,803 shares) ............. 62 2,055 (2,117) 0 0 0 Stock split effected in the form of a 100% stock dividend (additional 1,303,776 shares) ........... 1,304 0 (1,304) 0 0 0 Common stock retired ..................................... (2) 0 (27) 0 0 (29) Purchase of treasury stock (185 shares) .................. 0 0 0 0 (6) (6) ------- ------- ------- ------ ------- ------- Balance, December 31, 1997 .................................. 2,775 14,072 13,104 318 (539) 29,730 ------- Comprehensive income: Net income ............................................. 0 0 3,865 0 0 3,865 Change in net unrealized gain on securities available for sale, net of reclassification adjustment and tax effects ...................................... 0 0 0 26 0 26 ------- Total comprehensive income . 3,891 ------- Cash dividends ($.76 per share, historical) .............. 0 0 (2,083) 0 0 (2,083) 5% stock dividend (additional 137,409 shares) ............ 137 3,109 (3,246) 0 0 0 Purchase of treasury stock (96 shares) ................... 0 0 0 0 (2) (2) ------- ------- ------- ------ ------- ------- Balance, December 31, 1998 .................................. 2,912 17,181 11,640 344 (541) 31,536 ------- Comprehensive income: Net income ............................................. 0 0 3,884 0 0 3,884 Change in net unrealized loss on securities available for sale, net of reclassification adjustment and tax effects ...................................... 0 0 0 (2,205) 0 (2,205) ------- Total comprehensive income . 1,679 ------- Cash dividends ($2.29 per share, historical) ............. 0 0 (6,635) 0 0 (6,635) 5% stock dividend (additional 144,234 shares) ............ 145 3,187 (3,332) 0 0 0 Purchase of treasury stock (659 shares) .................. 0 0 0 0 (15) (15) ------- ------- ------- ------- ------- ------- Balance, December 31, 1999 .................................. $ 3,057 20,368 5,557 (1,861) (556) 26,565 ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 5 www.midpennbank.com Mid Penn Bancorp, Inc. Consolidated Statement of Cash Flows
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars in thousands) 1999 1998 1997 ---- ---- ---- Operating Activities: Net income .............................................. $ 3,884 3,865 4,169 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ........................... 325 254 109 Depreciation ........................................ 404 426 372 Increase in cash surrender value of life insurance .. (189) 0 0 Investment securities (gains) losses, net ........... (50) (13) 2 Gain on sale of foreclosed assets ................... (229) (273) (41) Gain on sale of loans ............................... 0 (65) (924) Deferred income taxes ............................... (105) (61) 78 Change in accrued interest receivable ............... (213) (21) (259) Change in other assets .............................. 238 157 (286) Change in accrued interest payable .................. (38) (35) 158 Change in other liabilities ......................... 359 (114) (36) Other ............................................... 0 0 10 ------- ------- ------- Net Cash Provided By Operating Activities 4,386 4,120 3,352 ------- ------- ------- Investing Activities: Net decrease (increase) in interest-bearing balances .... 8,313 (6,879) (7,307) Decrease (Increase) in federal funds sold ............... 0 1,000 (300) Proceeds from the maturity of investment securities ..... 9,663 19,707 12,402 Proceeds from the sale of investment securities ......... 3,811 5,290 4,370 Purchases of investment securities ...................... (12,931) (39,279) (27,398) Proceeds from sale of loans ............................. 0 6,174 8,378 Net increase in loans ................................... (19,434) (4,917) (8,143) Net purchases of bank premises and equipment ............ (213) (471) (181) Proceeds from the sale of foreclosed assets ............. 523 1,450 324 Capitalized additions - foreclosed assets ............... (10) 0 (4) Purchase of cash surrender value of life insurance ...... 0 (3,900) 0 ------- ------- ------- Net Cash Used In Investing Activities (10,278) (21,825) (17,859) ------- ------- ------- Financing Activities: Net increase in demand and savings deposits ............. 6,339 7,074 3,452 Net (decrease) increase in time deposits ................ (5,301) (7,418) 14,023 Net increase (decrease) in short-term borrowings ........ 12,477 9,925 (2,278) Long-term borrowings .................................... 12,000 10,000 3,106 Long-term debt repayment ................................ (11,150) (138) (2,128) Cash dividends .......................................... (6,635) (2,083) (1,992) Purchase of treasury stock .............................. (15) (2) (6) Common stock retired .................................... 0 0 (29) ------- ------- ------- Net Cash Provided By Financing Activities 7,715 17,358 14,148 ------- ------- ------- Net increase (decrease) in cash and due from banks ........... 1,823 (347) (359) Cash and due from banks at January 1 ......................... 5,651 5,998 6,357 ------- ------- ------- Cash and due from banks at December 31 ....................... $ 7,474 5,651 5,998 ======= ======= ======= Supplemental Disclosures of Cash Flow Information: Cash payments of interest ............................... $ 9,636 9,628 8,705 Cash payments of income taxes ........................... $ 1,149 1,723 1,736 Supplemental Noncash Disclosures: Loan charge-offs ........................................ $ 224 317 253 Transfers to foreclosed assets held for sale ............ $ 0 169 1,086
The accompanying notes are an integral part of these consolidated financial statements. 6 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements for 1999 Report (1) Basis of Presentation --------------------- 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 "MPB"). All significant intercompany balances and transactions have been eliminated. On July 13, 1998, Miners Bank of Lykens was merged with and into Mid Penn Bank, and 148,250 shares of MPB's common stock were issued in exchange for all the outstanding stock of Miners Bank of Lykens. The merger was accounted for as a pooling of interests, and, accordingly, the accompanying financial statements have been restated to include the accounts and operations of Miners Bank of Lykens for all periods prior to the merger. The separate company financial statements of Miners Bank of Lykens were immaterial in relation to MPB. (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, 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 ten 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 MPB 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 reported 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 could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired through, or in lieu of, foreclosure in settlement of debt. While management uses available information to recognize losses on loans and foreclosed assets, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for loan losses and foreclosed assets. Such agencies may require the bank to recognize changes to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for loan losses and foreclosed assets may change materially in the near term. (b) Investment Securities --------------------- Investments are accounted for as follows: Held-to-Maturity Securities - includes debt securities that MPB --------------------------- has the positive intent and ability to hold to maturity. These securities are reported at amortized cost. 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 7 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) for a period of 90 days or more, payment in full of scheduled 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. (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. The Bank also has a defined benefit retirement bonus plan for 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. (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. MPB's basic and diluted earnings per share are the same since there are no dilutive shares of potential common stock outstanding. 8 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) (k) Statement of Cash Flows ----------------------- For purposes of the statement of cash flows, MPB 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. (4) Comprehensive Income -------------------- The components of other comprehensive (loss) income and related tax effects are as follows:
(Dollars in thousands) Years Ended December 31, 1999 1998 1997 ---- ---- ---- Unrealized holding gains (losses) on available-for-sale securities ...... $(3,291) 52 225 Less reclassification adjustment for (gains) losses realized in income .. (50) (13) 2 ------- ------- ------- Net unrealized gains (losses) ........................................... (3,341) 39 227 Tax effect .............................................................. 1,136 (13) (77) ------- ------- ------- Net-of-tax amount ....................................................... $(2,205) 26 150 ======= ======= =======
(5) 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, 1999 and 1998 was approximately $1,871,000 and $1,403,000, respectively. (6) Investment Securities --------------------- At December 31, 1999 and 1998, amortized cost, fair value, and gross unrealized gains and losses on investment securities are as follows:
(Dollars in thousands) Gross Gross Amortized Unrealized Unrealized Fair December 31, 1999 Cost Gains Losses Value ---- ----- ------ ----- Available for sale securities: U.S. Treasury and U.S. government agencies ......................... $33,778 57 1,851 31,984 Mortgage-backed U.S. government agencies .......................... 1,799 0 35 1,764 State and political subdivision obligations ...................... 28,061 144 1,135 27,070 Restricted equity securities ................... 3,281 0 0 3,281 ------ ------ ------ ------ $66,919 201 3,021 64,099 ====== ====== ====== ======
Gross Gross Amortized Unrealized Unrealized Fair December 31, 1998 Cost Gains Losses Value ---- ----- ------ ----- Available for sale securities: U.S. Treasury and U.S. government agencies ......................... $36,922 318 126 37,114 Mortgage-backed U.S. government agencies .......................... 2,285 32 0 2,317 State and political subdivision obligations ...................... 26,020 450 153 26,317 Restricted equity securities ................... 2,185 0 0 2,185 ------ ------ ------ ------ $67,412 800 279 67,933 ====== ====== ====== ======
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 9 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) and do not have a readily determinable fair value for purposes of Statement of Financial Accounting Standards (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 $42,161,000 at December 31, 1999, were pledged to secure public and trust deposits and other borrowings. Proceeds from the sale of investment securities in 1999 amounted to $3,811,000. Gross gains from such sales of investment securities, as determined on the basis of specific identification of the adjusted cost of each security sold, amounted to $50,000. A gross gain of $13,000 and a gross loss of $2,000 were realized on the sale of investment securities amounting to $5,290,000 and $4,370,000 in 1998 and 1997, respectively. The following is a schedule of the maturity distribution of investment securities at amortized cost and fair value as of December 31, 1999:
December 31, 1999 December 31, 1998 (Dollars in thousands) Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in 1 year or less ........................... $ 1,680 1,681 4,234 4,265 Due after 1 year but within 5 years ............. 8,674 8,563 9,578 9,709 Due after 5 years but within 10 years ........... 23,243 22,542 26,245 26,630 Due after 10 years .............................. 28,242 26,268 22,885 22,827 ------ ------ ------ ------ 61,839 59,054 62,942 63,431 Mortgage-backed securities ...................... 1,799 1,764 2,285 2,317 Restricted equity securities .................... 3,281 3,281 2,185 2,185 ------ ------ ------ ------ $66,919 64,099 67,412 67,933 ====== ====== ====== ======
MPB has no derivative financial instruments requiring disclosure under SFAS No. 119. (7) Loans ----- A summary of loans at December 31, 1999 and 1998 is as follows:
(Dollars in thousands) 1999 1998 ---- ---- Commercial real estate, construction and land development ....... $105,328 88,263 Commercial, industrial and agricultural ......................... 20,118 20,401 Real estate - residential ....................................... 32,586 30,325 Consumer ........................................................ 16,780 16,034 Lease financing ................................................. 0 1 ------- ------- $174,812 155,024 ======= =======
Net unamortized loan fees deducted from loans were $119,000 and $410,000 at December 31, 1999 and 1998, respectively. 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 $1,353,000 and $923,000 at December 31, 1999 and 1998, respectively. New loans extended were $277,000 and $1,006,000 during 1999 and 1998, respectively. Draws exceeded repayments on these loans by $153,000 during 1999 while net repayments in 1998 amounted to $1,736,000. 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. 10 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) (8) Allowance for Loan Losses ------------------------- Changes in the allowance for loan losses for the years 1999, 1998, and 1997 are summarized as follows:
(Dollars in thousands) 1999 1998 1997 ---- ---- ---- Balance, January 1 ......................................... $ 2,313 2,281 2,278 Provision charged to operations ............................ 325 254 109 Loans charged off .......................................... (224) (317) (253) Recoveries on loans charged off ............................ 91 95 147 -------- -------- -------- Balance, December 31 ....................................... $ 2,505 2,313 2,281 ======== ======== ========
The recorded investment in loans that are considered impaired amounted to $890,000 and $744,000 (all in nonaccrual) on December 31, 1999 and December 31, 1998, 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 as impaired amounted to approximately $235,000 at December 31, 1999 and $40,000 at December 31, 1998. The average balances of these loans amounted to approximately $873,000, $861,000 and $204,000 for the years 1999, 1998, and 1997 respectively. 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 1999 and 1998.
(Dollars in thousands) 1999 1998 1997 ---- ---- ---- Cash receipts applied to reduce principal balance .......... $ 63 0 8 Cash receipts recognized as interest income ................ 28 27 9 -------- -------- -------- Total cash receipts ........................................ $ 91 27 17 ======== ======== ========
In addition, at December 31, 1999 and 1998, the Bank had other nonaccrual loans of approximately $15,000 and $256,000, for which impairment had not been recognized because of collateral values. Loans which were past due 90 days or more for which interest continued to be accrued as of December 31, 1999 and 1998, amounted to approximately $386,000 and $844,000, respectively. The Bank has no commitments to loan additional funds to borrowers with impaired or nonaccrual loans. (9) Bank Premises and Equipment --------------------------- At December 31, 1999 and 1998, bank premises and equipment are as follows:
(Dollars in thousands) 1999 1998 ---- ---- Land ....................................................... $ 626 626 Buildings .................................................. 3,645 3,632 Furniture and fixtures ..................................... 3,213 3,012 -------- -------- 7,484 7,270 Less accumulated depreciation .............................. 4,177 3,772 -------- -------- $ 3,307 3,498 ======== ========
(10) Deposits -------- At December 31, 1999 and 1998, time deposits in denominations of $100,000 or more amounted to $16,216,000 and $16,736,000, respectively. Interest expense on such certificates of deposit amounted to approximately $1,103,000, $1,102,000 and $954,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Time deposits at December 31, 1999, mature as follows: (in thousands) 2000, $56,610; 2001, $29,882; 2002, $12,691; 2003, $7,804; 2004, $5,519; thereafter, $7,327. (11) Short-term Borrowings --------------------- Short-term borrowings and the related interest expense as of December 31, 1999 and 1998 consisted of: www.midpennbank.com 11 Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) (Dollars in thousands) 1999 1998 ---- ---- Federal funds purchased ..................... $ 22,300 11,700 Repurchase agreements ....................... 1,313 426 Treasury, tax and loan note ................. 1,023 33 --------- --------- $ 24,636 12,159 ========= ========= Federal funds purchased represent overnight funds. The federal funds balance as of December 31, 1999, also includes $16,000,000 in short-term borrowings from the FHLB which mature in the first week of January 2000. 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 $20.5 million dollars at December 31, 1999. (12) 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, 1999, the Bank had long-term debt in the amount of $16,400,000 outstanding to the FHLB consisting of a $1,500,000 five (5) year fixed advance at 6.67% due September 4, 2001, a $2,000,000 bullet loan at 6.08% which will mature on March 19, 2002, a $5,000,000 bullet loan at 6.21% which will mature on December 2, 2002, a $797,000 loan at 7.30% due April 5, 2004, amortized in equal monthly payments, a $5,000,000 bullet loan at 6.42% which will mature on December 3, 2004, a $1,000,000 ten (10) year fixed advance at 7.06% due December 9, 2009, a $1,000,000 ten (10) year fixed advance at 7.24% due December 17, 2009 and a $103,000 amortizing note at 6.71% maturing on February 22, 2027. The aggregate amounts of maturities of long-term debt subsequent to December 31, 1999 are $160,000 (2000), $1,672,000 (2001), $7,185,000 (2002), $200,000 (2003), $5,088,000 (2004) and $2,096,000 thereafter. Most of the Bank's investments and mortgage loans are pledged to secure FHLB borrowings. (13) 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 1999, 1998 and 1997 was approximately $42,000, $49,000 and $35,000, respectively. (14) 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 1999, 1998 and 1997 was $310,000, $281,000 and $258,000, 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. 12 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of plan assets for the years ended December 31, 1999 and 1998 and a statement of the funded status at December 31, 1999 and 1998: (Dollars in thousands) 1999 1998 ---- ---- Change in benefit obligations: Benefit obligations, January 1............ $ 404 311 Service cost............................ 20 24 Interest cost........................... 23 20 Actuarial loss (gain)................... (104) 61 Benefit payments........................ (14) (12) ------ ------ Benefit obligations, December 31.......... $ 329 404 ====== ====== December 31, 1999 1998 ---- ---- Change in fair value of plan assets: Fair value of plan assets, January 1...... $ 0 0 Employer contributions.................. 14 12 Benefit payments........................ (14) (12) ------ ------ Fair value of plan assets, December 31.... $ 0 0 ====== ====== Funded status: Funded status........................... $ (329) (404) Unrecognized transition obligation...... 192 206 Unrecognized gain....................... (162) (61) ------ ------ Net amount recognized................... $ (299) (259) ====== ====== Amount recognized in the balance sheet at December 31, 1999 and 1998 is as follows: (Dollars in thousands) 1999 1998 ---- ---- Accrued benefit liability............... $ (299) (259) ====== ====== The components of net periodic pension cost for 1999, 1998 and 1997 are as follows: (Dollars in thousands) 1999 1998 1997 ---- ---- ---- Service cost............................ $ 20 24 24 Interest cost........................... 23 20 21 Amortization of transition obligation... 15 15 15 Amortization of net gain................ (4) (5) (4) ------ ------ ------ Net periodic pension cost............... $ 54 54 56 ====== ====== ====== Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement medical benefits plan. A one-percentage-point change in assumed health care cost trend rates would have the following effect: (Dollars in thousands) One-Percentage Point Increase Decrease -------- -------- Effect on total of service and interest cost components.............. $ 6 5 Effect on postretirement benefit obligation........................ $ 33 27 13 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) Assumptions used in the measurement of MPB's benefit obligations at December 31, 1999 and 1998 are as follows: 1999 1998 ---- ---- Weighted-average assumptions: Discount rate................................... 7.0% 6.5% Rate of compensation increase................... 5.0% 4.5% For measurement purposes, a one percent annual decrease in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease to 6 percent for 2000 and remain at that level thereafter. Retirement Plan --------------- The Bank has 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 tables provide a reconciliation of the changes in the plan's benefit obligations and fair value of plan assets for the years ended December 31, 1999 and 1998 and a statement of the funded status at December 31, 1999 and 1998: (Dollars in thousands) 1999 1998 ---- ---- Change in benefit obligations: Benefit obligations, January 1............. $ 405 378 Service cost............................. 20 17 Interest cost............................ 26 24 Actuarial gain........................... (29) (6) ------- ------- Benefit payments......................... (8) (8) ======= ======= Benefit obligations, December 31........... $ 414 405 Change in fair value of plan assets: Fair value of plan assets, January 1....... $ 0 0 Employer contributions................... 8 8 ------- ------- Benefit payments......................... (8) (8) ======= ======= Fair value of plan assets, December 31..... $ 0 0 1999 1998 ---- ---- Funded status: Funded status.............................. $ (414) (405) Unrecognized prior-service cost............ 156 183 ------- ------- Unrecognized (gain) loss................... (14) 14 ======= ======= Net amount recognized...................... $ (272) (208) (Dollars in thousands) 1999 1998 ---- ---- Accrued benefit liability.................. $ (334) (319) ------- ------- Intangible asset........................... 62 111 ======= ======= Net amount recognized...................... $ (272) (208) The components of net periodic pension cost for 1999, 1998 and 1997 are as follows: (Dollars in thousands) 1999 1998 1997 ---- ---- ---- Service cost............................. $ 20 17 15 Interest cost............................ 26 24 22 ------- ------- ------- Amortization of prior-service cost....... 26 26 26 ======= ======= ======= 14 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) Net periodic pension cost................ $ 72 67 63 Assumptions used in the measurement of MPB's benefit obligations at December 31, 1999 and 1998 are as follows: 1999 1998 ---- ---- Weighted-average assumptions: Discount rate.......................... 7.0% 6.5% The Bank is the owner and beneficiary of insurance policies on the lives of the executive officers and directors which informally fund the benefit obligations. The aggregate cash surrender value of these policies was approximately $1,444,000 at December 31, 1999. Deferred Compensation Plans --------------------------- During 1999, the Bank adopted an executive deferred compensation plan which allows an executive officer to defer bonus compensation for a specified period in order to provide future retirement income. At December 31, 1999, the Bank has accrued a liability of approximately $10,000 for this plan. During 1999, the Bank adopted a director's deferred compensation plan which allows a director to defer receipt of monthly director's fees for a specified period in order to provide future retirement income. At December 31, 1999, the Bank has accrued a liability of approximately $36,000 for this plan. The Bank is the owner and beneficiary of insurance policies on the lives of the participating executive officer and directors which informally fund the benefit obligations. The aggregate cash surrender value of these policies was approximately $1,174,000 at December 31, 1999. Salary Continuation Plan ------------------------ During 1999, the Board of Directors adopted a Salary Continuation Agreement for an executive officer. The Salary Continuation Agreement provides the executive officer with a fixed annual benefit. The benefit is payable beginning at age 65 for a period of 15 years. If the executive officer terminates employment before the normal retirement date for reasons other than death, the annual benefit payable will be based on the vesting schedule as defined in the Salary Continuation Agreement. Upon death or a change of control of the Bank, the executive officer or his beneficiary is entitled to the full fixed annual benefit. At December 31, 1999, the Bank has accrued a liability of approximately $22,000 for this plan. The Bank is the owner and beneficiary of an insurance policy on the life of the participating executive officer which informally funds the benefit obligation. The aggregate cash surrender value of this policy was approximately $688,000 at December 31, 1999. Employee Stock Ownership Plan ----------------------------- The Bank has an Employee Stock Ownership Plan (ESOP) covering substantially all employees. Contributions to the plan are made at the discretion of the Board of Directors. Total employee benefits expense related to the Bank's contribution to the plan for 1999 and 1998 was approximately $103,000 and $87,000 respectively. The ESOP held 3,732 shares of MPB stock as of December 31, 1999, all of which were allocated to plan participants. Shares held by the ESOP are considered outstanding for purposes of calculating earnings per share. Other ----- At December 31, 1999, the Bank had a Split Dollar Life Insurance Plan for two executives for which the aggregate cash surrender value is approximately $783,000. 15 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) (15) Federal Income Taxes -------------------- The following temporary differences gave rise to the deferred tax asset at December 31, 1999 and 1998: (Dollars in thousands) 1999 1998 ---- ---- Deferred tax assets: Allowance for loan losses............ $ 697 635 Benefit plans........................ 218 158 Nonaccrual interest.................. 26 2 Deferred income...................... 8 17 ------- ------- Unrealized losses on securities...... 959 0 ------- ------- Total $ 1,908 812 Deferred tax liabilities: Unrealized gains on securities....... $ 0 (177) Depreciation......................... (103) (101) Loan fees............................ (98) (81) ------- ------- Bond accretion....................... (32) (17) ------- ------- Total $ (233) (376) ======= ======= Deferred tax asset, net................ $ 1,676 436 The provision for income taxes consists of the following: (Dollars in thousands) 1999 1998 1997 ---- ---- ---- Current provision...................... $ 1,358 1,577 1,643 ------- ------- ------- Deferred provision..................... (105) (61) 78 ======= ======= ======= Provision for income taxes............. $ 1,253 1,516 1,721 A reconciliation of income tax at the statutory rate to MPB's effective rate is as follows: (Dollars in thousands) 1999 1998 1997 ---- ---- ---- Provision at the expected statutory rate.................................. $ 1,747 1,829 2,003 Effect of tax-exempt income............ (536) (380) (302) Nondeductible interest................. 50 43 39 ------- ------- ------- Other items............................ (8) 24 (19) ======= ======= ======= Provision for income taxes............. $ 1,253 1,516 1,721 (16) Regulatory Matters ------------------ The Pennsylvania Banking Code restricts the availability of Bank retained earnings for dividend purposes. At December 31, 1999 and 1998, $119,000 and $5,404,000, respectively, was available for dividends to Mid Penn Bancorp, Inc. 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 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd)
(Dollars in thousands) To Be Well Capitalized As of December 31, 1999: Capital Adequacy Under Prompt Corrective ---------------- Action Provisions: Actual Required ------------------ Amount (Ratio) Amount (Ratio) Amount (Ratio) ------ ------- ------ ------- ------ ------- Tier I Capital (to Average Assets) ................... $ 19,307 (7.1%) 10,812 (4.0%) 13,515 (5.0%) Tier I Capital (to Risk Weighted Assets) ............. 19,307 (9.9%) 7,768 (4.0%) 11,653 (6.0%) Total Capital (to Risk Weighted Assets) .............. 21,736 (11.2%) 15,537 (8.0%) 19,421 (10.0%) As of December 31, 1998: Tier I Capital (to Average Assets) ................... $ 22,417 (8.4%) 10,659 (4.0%) 13,324 (5.0%) Tier I Capital (to Risk Weighted Assets) ............. 22,417 (12.8%) 6,981 (4.0%) 10,471 (6.0%) Total Capital (to Risk Weighted Assets) .............. 24,600 (14.1%) 13,962 (8.0%) 17,452 (10.0%)
As of December 31, 1999, the Bank's capital ratios are well in excess of the minimum and well-capitalized guidelines and MPB's capital ratios are in excess of the Bank's capital ratios. (17) 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 sheet. 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, 1999, commitments to extend credit amounted to $29,648,000 and standby letters of credit amounted to $2,336,000. 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. As of December 31, 1999, commercial real estate financing was the only similar activity 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 17 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) 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 $15,049,000 or 8.9% and $20,900,000 or 12.3% of net loans outstanding as of December 31, 1999. (18) Commitments and Contingencies ----------------------------- In the ordinary course of business, MPB 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 MPB. (19) 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, 1999, 1998 and 1997 (Dollars in thousands) 1999 1998 1997 ---- ---- ---- ASSETS Cash .............................................................. $ 867 485 320 --------- --------- --------- Investment in Subsidiaries ........................................ 25,698 31,051 29,410 ========= ========= ========= Total Assets $ 26,565 31,536 29,730 LIABILITIES AND STOCKHOLDERS' EQUITY Stockholders' Equity .............................................. $ 27,121 32,077 30,269 --------- --------- --------- Less Treasury Stock ............................................... (556) (541) (539) ========= ========= ========= Total Liabilities and Equity $ 26,565 31,536 29,730 CONDENSED STATEMENT OF INCOME For the Years Ended December 31, 1999, 1998 and 1997 (Dollars in thousands) 1999 1998 1997 ---- ---- ---- Dividends from Subsidiaries ....................................... $ 7,080 2,304 2,385 Other Income from Subsidiaries .................................... 24 27 25 Undistributed Earnings of Subsidiaries ............................ (3,148) 1,615 1,841 --------- --------- --------- Other Expenses .................................................... (72) (81) (82) ========= ========= ========= Net Income $ 3,884 3,865 4,169 CONDENSED STATEMENT OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997 (Dollars in thousands) 1999 1998 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Income ........................................................ $ 3,884 3,865 4,169 --------- --------- --------- Undistributed Earnings of Subsidiaries ............................ 3,148 (1,615) (1,841) --------- --------- --------- Net Cash Provided By Operating Activities 7,032 2,250 2,328 CASH FLOWS FROM FINANCING ACTIVITIES Dividends Paid .................................................... (6,635) (2,083) (1,992) Common Stock Retired .............................................. 0 0 (29) --------- --------- --------- Purchase of Treasury Stock ........................................ (15) (2) (6) --------- --------- --------- Net Cash Used In Financing Activities (6,650) (2,085) (2,027) Net Increase in Cash .............................................. 382 165 301 --------- --------- --------- Cash at Beginning of Period ....................................... 485 320 19 ========= ========= ========= Cash at End of Period ............................................. $ 867 485 320
18 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) (20) Fair Value of Financial Instruments ----------------------------------- 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 MPB. The following methodologies and assumptions were used to estimate the fair value of MPB'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. 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. 19 www.midpennbank.com Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements (cont'd) The following table summarizes the book or notional value and fair value of financial instruments at December 31, 1999 and 1998.
December 31, 1999 December 31, 1998 (Dollars in thousands) Book or Book or Notional Fair Notional Fair Value Value Value Value ----- ----- ----- ----- Financial assets: Cash and due from banks ...................................... $ 7,474 7,474 5,651 5,651 Interest bearing balances .................................... 34,570 34,570 42,883 42,883 Investment securities ........................................ 64,099 64,099 67,933 67,933 Net loans .................................................... 169,789 172,678 150,680 159,643 Financial liabilities: Deposits ..................................................... $217,840 217,107 216,802 219,301 Short-term borrowings ........................................ 24,636 24,636 12,159 12,159 Long-term debt ............................................... 16,400 16,842 15,550 16,254 Off-balance sheet financial instruments: Commitments to extend credit ................................. $ 29,648 29,648 20,697 20,697 Standby letters of credit .................................... 2,336 2,336 2,480 2,480
(21) Common Stock: ------------- MPB has reserved 50,000 of authorized, but unissued shares of its common stock for issuance under the ESOP Plan. Shares issued under the ESOP Plan are at the discretion of the board of directors. In November, 1997 MPB amended and restated its dividend reinvestment plan, (DRIP). Two hundred thousand shares of MPB'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. 20 www.midpennbank.com 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. (MPB). MPB 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 MPB's liquidity, capital resources or operations. This discussion should be read along with the financial statements also appearing in this report. Per share data has been restated to reflect the effect of stock dividends and splits. The prior year financial data has been restated to reflect the 1998 merger of Miners Bank of Lykens as if the two banks had always been one. Financial Summary ----------------- The consolidated earnings of MPB are derived primarily from the operations of its wholly-owned subsidiary, Mid Penn Bank. MPB earned net income of $3,884,000 for the year 1999, compared to $3,865,000 in 1998, which was an increase of $19,000 or 0.5%. This represents net income in 1999 of $1.28 per share compared to $1.27 per share in 1998 and $1.37 per share in 1997. 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 MPB continued to grow in 1999, reaching the level of $287,542,000, an increase of $9,715,000 or 3.50% over $277,827,000 at year end 1998. The majority of the asset growth in 1999 was due to an increase in commercial loans. MPB continued to achieve an excellent return on average shareholders' equity, (ROE), a widely recognized performance indicator in the financial industry. The ROE was 14.68% in 1999, 12.81% in 1998 and 14.76% in 1997. Return on average assets (ROA), another performance indicator, was 1.40% in 1999, 1.45% in 1998 and 1.71% in 1997. 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 regular dividends in the future. The special dividend was declared to reduce the capital levels of Mid Penn Bancorp, Inc., increase ROE, and enhance shareholder value. We have enjoyed a very solid capital position due to strong financial performance. In the banking industry, there has been a general shift from ROA to ROE as a measure of financial performance since ROE is a truer measure of a company's earnings on its shareholders' ownership. By lowering capital through this special dividend, we will be improving ROE, thus improving this ratio important to bank stock analysis. After payment of this special dividend, Mid Penn Bank will maintain capital levels well above regulatory requirements. Tier one capital (to risk weighted assets) of $19,307,000 or 9.9% and total capital (to risk weighted assets) of $21,736,000 or 11.2% at December 31, 1999, are well above the December 31, 1999 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, 1998, MPB transferred an additional $3,000,000 in investment securities from the Bank to a wholly-owned investment company, Mid Penn Investment Corporation in Wilmington, Delaware, as the state of Delaware offers a beneficial state tax environment for these assets. During 1998, MPB acquired all the outstanding common stock of Miners Bank of Lykens (MBL) in exchange for 148,250 shares of MPB's common stock. MBL was a one office, full service bank with total assets of approximately $27,915,000 at July 13, 1998, the date of the acquisition. MBL earned net income of $163,000 in 1997 and $148,000 in 1996. This acquisition allows Mid Penn Bank to bridge a gap between its Elizabethville and Tower City offices. Net Interest Income ------------------- Net interest income, MPB'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 1999 net interest income decreased $405,000 or 3.74% as compared to an increase of $384,000 or 3.67% in 1998. The 1999 decrease was caused primarily by the lower yield on loans during the year due to the decrease in average prime rate and pressure in the competitive environment to reprice existing loans. The average balances, effective interest differential and interest yields for the years ended December 31, 1999, 1998 and 1997, the components of net interest rate growth, are presented 21 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) in Table 1. A comparative presentation of the changes in net interest income for 1999 compared to 1998, and 1998 compared to 1997, 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. The yield on earning assets decreased to 7.91% in 1999 from 8.33% in 1998. The yield on earning assets for 1997 was 8.54%. The change in the yield on earning assets was due primarily to the repricing of commercial loans in a very competitive rate environment, the $3,900,000 purchase of life insurance, which yields income but not interest income, and changes in the "prime rate." The average "prime rate" for 1999 was 7.98% as compared to 8.38% for 1998 and 8.44% for 1997. Interest expense increased by $81,000 or 0.84% in 1999 as compared to $740,000 or 8.36% in 1998. The increase in 1998 was due primarily to the increase in the total of interest bearing liabilities including the greater reliance on borrowings from the Federal Home Loan Bank of Pittsburgh. Primarily resulting from the fluctuations in interest rates, the net interest margin on a tax equivalent basis, in 1999 was 4.24% compared to 4.52% in 1998 and 4.72% in 1997. 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, 1999 (Dollars in thousands) Average Interest Average Rates Balance Income/Expense Earned/Paid --------- -------------- ------------ ASSETS: Interest Bearing Balances........ $ 39,671 2,409 6.07% Investment Securities: Taxable 40,672 2,562 6.30% Tax-Exempt 26,609 1,988 7.47% -------- Total Investment Securities 67,281 -------- Federal Funds Sold............... 12 1 5.00% Loans, Net....................... 156,518 13,884 8.87% -------- -------- Total Earning Assets............. 263,482 20,844 7.91% Cash and Due from Banks.......... 5,174 -------- Other Assets..................... 9,646 -------- Total Assets $ 278,302 ======== LIABILITIES & STOCKHOLDERS' EQUITY: Interest Bearing Deposits: NOW............................. $ 27,669 380 1.37% Money Market.................... 20,734 705 3.40% Savings......................... 26,259 586 2.23% Time............................ 125,782 6,631 5.27% Short-term Borrowings............ 10,683 517 4.84% Long-term Debt................... 14,453 855 5.92% -------- -------- Total Interest Bearing Liabilities..................... 225,580 9,674 4.29% Demand Deposits.................. 23,338 -------- Other Liabilities................ 2,934 Stockholders' Equity............. 26,450 -------- Total Liabilities and Stockholders' Equity $ 278,302 ======== Net Interest Income............... $ 11,170 Net Yield on Interest Earning Assets: ======== Total Yield on Earning Assets.......................... 7.91% Rate on Supporting Liabilities..................... 3.67% Net Interest Margin............. 4.24% 22 www.midpennbank.com 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, 1998 (Dollars in thousands) Average Interest Average Rates Balance Income/Expense Earned/Paid -------- -------------- ------------- ASSETS: Interest Bearing Balances....... $ 40,056 2,574 6.43% Investment Securities: Taxable........................ 37,832 2,455 6.49% Tax-Exempt..................... 19,868 1,564 7.87% --------- Total Investment Securities 57,700 --------- Federal Funds Sold.............. 819 45 5.50% Loans, Net...................... 153,344 14,357 9.36% --------- --------- Total Earning Assets............ 251,919 20,995 8.33% Cash and Due from Banks......... 5,806 --------- Other Assets.................... 7,945 --------- Total Assets $ 265,670 ========= LIABILITIES & STOCKHOLDERS' EQUITY: Interest Bearing Deposits: NOW............................ $ 27,649 500 1.81% Money Market................... 14,882 449 3.02% Savings........................ 25,112 622 2.48% Time........................... 126,123 7,056 5.59% Short-term Borrowings........... 3,801 203 5.34% Long-term Debt.................. 13,573 763 5.62% Total Interest Bearing --------- --------- Liabilities.................... 211,140 9,593 4.54% Demand Deposits................. 21,024 --------- Other Liabilities............... 3,328 Stockholders' Equity............ 30,178 --------- Total Liabilities and Stockholders' Equity $ 265,670 ========= Net Interest Income.............. $ 11,402 Net Yield on Interest Earning ========= Assets: Total Yield on Earning Assets......................... 8.33% Rate on Supporting Liabilities ................... 3.81% Net Interest Margin ............ 4.52% 23 www.midpennbank.com 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, 1997 (In thousands) Average Interest Average Rates Balance Income/Expense Earned/Paid -------- -------------- ------------- ASSETS: Interest Bearing Balances....... $ 31,709 2,014 6.35% Investment Securities: Taxable........................ 32,169 2,122 6.60% Tax-Exempt 14,844 1,226 8.26% --------- Total Investment Securities 47,013 --------- Federal Funds Sold.............. 1,138 66 5.80% Loans, Net...................... 151,759 14,344 9.45% --------- --------- Total Earning Assets............ 231,619 19,772 8.54% Cash and Due from Banks......... 4,957 --------- Other Assets.................... 7,488 --------- Total Assets $ 244,064 ========= LIABILITIES & STOCKHOLDERS' EQUITY: Interest Bearing Deposits: NOW............................ $ 26,804 567 2.12% Money Market................... 11,821 295 2.50% Savings........................ 25,360 641 2.53% Time........................... 121,117 6,793 5.61% Short-term Borrowings........... 3,415 186 5.45% Long-term Debt.................. 5,719 371 6.49% Total Interest Bearing --------- --------- Liabilities.................... 194,236 8,853 4.56% Demand Deposits................. 18,547 --------- Other Liabilities............... 2,985 Stockholders' Equity............ 28,296 --------- Total Liabilities and Stockholders' Equity $ 244,064 ========= Net Interest Income.............. $ 10,919 Net Yield on Interest Earning ========= Assets: Total Yield on Earning Assets.. 8.54% Rate on Supporting Liabilities. 3.82% Net Interest Margin............ 4.72% 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 $258,000, $275,000 and $304,000 are included with interest income in Table 1 for the years 1999, 1998 and 1997, respectively. 24 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) TABLE 2: VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME (Dollars in thousands) 1999 Compared to 1998 1998 Compared to 1997 Increase (Decrease) Due Increase (Decrease) to Change In: Due to Change In: Taxable Equivalent Basis Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- INTEREST INCOME: Interest Bearing Balances.............. $ (25) (140) (165) 530 30 560 Investment Securities: Taxable................ 184 (77) 107 374 (41) 333 Tax-Exempt............. 531 (107) 424 415 (77) 338 ------- ------- ------ ------ ------ ----- Total Investment Securities 715 (184) 531 789 (118) 671 Federal Funds Sold..... (44) 0 (44) (18) (3) (21) Loans, Net............. 297 (770) (473) 15 (2) 13 ------- ------- ------ ------ ------ ----- Total Interest Income $ 943 (1,094) (151) 1,316 (93) 1,223 ------- ------- ------ ------ ------ ----- INTEREST EXPENSE: Interest Bearing Deposits: NOW.................. $ 0 (120) (120) 18 (85) (67) Money Market......... 177 79 256 77 77 154 Savings.............. 28 (64) (36) (6) (13) (19) Time................. (19) (406) (425) 281 (18) 263 ------- ------- ------ ------ ------ ----- Total Interest Bearing Deposits 186 (511) (325) 370 (39) 331 Short-term Borrowings.. 367 (53) 314 21 (4) 17 Long-term Debt......... 49 43 92 510 (118) 392 ------- ------- ------ ------ ------ ----- Total Interest Expense $ 602 (521) 81 901 (161) 740 ------- ------- ------ ------ ------ ----- NET INTEREST INCOME $ 341 (573) (232) 415 68 483 ======= ======= ====== ====== ====== ===== 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, management thought it prudent to make a $325,000 allocation in 1999 as well as a provision of $254,000 during 1998. The 1998 provision included a specific allocation of $150,000 related to one impaired commercial loan. The allowance for loan losses as a percentage of total loans was 1.43% at December 31, 1999, compared to 1.49% and 1.46% for the years ended December 31, 1998 and 1997, which continues to be higher than that of peer financial institutions due to a higher level of loans to finance commercial real estate. A summary of charge-offs and recoveries of loans is presented in Table 3. 25 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) TABLE 3: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (Dollars in thousands) Years ended December 31, 1999 1998 1997 1996* 1995* ------ ------ ------ ------- ------- Balance beginning of period........... $ 2,313 2,281 2,278 2,457 2,511 ------ ------ ------ ------- ------- Loans charged-off: Commercial real estate, construction and land development................ 0 40 4 25 86 Commercial, industrial and agricultural........................ 146 200 32 213 55 Real estate-residential.............. 0 40 20 4 0 Consumer............................. 78 37 197 234 225 ------ ------ ------ ------- ------- Total loans charged-off 224 317 253 476 366 ------ ------ ------ ------- ------- Recoveries on loans previously charged-off: Commercial real estate, construction and land development................ 55 10 4 39 33 Commercial, industrial and agricultural........................ 1 56 107 105 111 Real estate-residential.............. 0 0 3 38 4 Consumer............................. 35 29 33 63 54 ------ ------ ------ ------- ------- Total recoveries 91 95 147 245 202 ------ ------ ------ ------- ------- Net charge-offs....................... 133 222 106 231 164 ------ ------ ------ ------- ------- Current period provision for loan losses.......................... 325 254 109 52 0 ------ ------ ------ ------- ------- Balance end of period................. $2,505 2,313 2,281 2,278 2,347 ====== ====== ====== ======= ======= Ratio of net charge-offs during the period to average loans outstanding during the period, net of unearned discount............................. 0.08% 0.14% 0.07% 0.16% 0.13% ====== ====== ====== ======= ======= Allowance for loan losses as a percentage of average total loans.... 1.43% 1.49% 1.46% - - *Mid Penn Bank only, Miners Bank of Lykens information not readily available Noninterest Income ------------------ During 1999, MPB earned $1,689,000 in noninterest income, compared to $1,398,000 earned in 1998, and $1,772,000 earned in 1997. Noninterest income in 1999 and 1998 included nonrecurring gains of $336,000 and $323,000, respectively, from the sale of other real estate. 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. Trust department income for 1999 was $127,000, a $23,000 or 22.1% increase over $104,000 in 1998, which was $14,000 or 15.6% more than the $90,000 earned in 1997. 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 $554,000 for 1999, an increase of $104,000 over $450,000 for 1998, which showed a 37.2% increase over 1997. The majority of this increase resulted from the increasing revenues from NSF charges. On December 31, 1998, MPB purchased cash surrender value life insurance policies that provide funding for director retirement and salary continuation plans. The income on these policies amounted to $189,000 during the year 1999. MPB also earned $102,000 in commissions from INVEST, the third-party provider of investments whose services the Bank has contracted. Other operating income amounted to $481,000 (net of gains on other real estate) in 1999, $443,000 and $432,000 in 1998 and 1997, respectively. 26 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) Noninterest Expense ------------------- A summary of the major components of noninterest expense for the years ended December 31, 1999, 1998 and 1997 is reflected in Table 4. Noninterest expense increased to $6,665,000 in 1999 from $6,606,000 in 1998 and $6,232,000 in 1997. The major component of noninterest expense is salaries and employee benefits. Noninterest expense in 1999 increased less than 1% over that of 1998. This expense in 1999 includes approximately $126,000 of supplemental employee bonuses for the year 1998. Noninterest expense of $6,606,000 in 1998 represents an increase of 6.00% over that of the prior year. The majority of the increase deals with costs of the merger with MBL including the related legal, advertising and conversion expenses. TABLE 4: NONINTEREST EXPENSE (Dollars in thousands) Years ended December 31, 1999 1998 1997 ------ ------ ------ Salaries and employee benefits............ $ 3,741 3,383 3,474 Occupancy, net............................ 318 323 319 Equipment................................. 510 565 477 Postage and supplies...................... 275 356 306 FDIC assessments.......................... 26 26 25 Marketing and advertising................. 121 160 151 Pennsylvania bank shares tax.............. 279 274 261 Professional services..................... 124 126 101 Telephone................................. 74 70 61 Loss on mortgage sales.................... 47 64 18 Other..................................... 1,150 1,259 1,039 -------- -------- -------- Total Noninterest Expense $ 6,665 6,606 6,232 ======== ======== ======== Investments ----------- MPB's investment portfolio is utilized to improve earnings through investments of funds in high-yielding assets which provide the necessary balance sheet liquidity for MPB. 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 more than 2 percentage points in the past twelve months, our existing securities are valued lower in comparison. The difference in value, or unrealized loss, amounted to $1,861,000, net of tax, as of the end of the year. 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. At December 31, 1999, SFAS No. 115 resulted in a decrease of shareholders' equity of $1,861,000 (unrealized loss on securities of $2,820,000, less estimated income tax effect of $959,000). As of December 31, 1998, SFAS No. 115 resulted in an increase in shareholders' equity of $344,000 (unrealized gain on securities of $521,000, less estimated income tax effect of $177,000), compared to in an increase in stockholders' equity of $318,000 (unrealized gain on securities of $481,000, less estimated income tax effect of $163,000) as of December 31, 1997. MPB does not have any significant concentrations of investment securities. 27 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) 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 6 to the Consolidated Financial Statements. TABLE 5: AMORTIZED COST OF INVESTMENT SECURITIES (Dollars in thousands) December 31, 1999 1998 1997 ---- ---- ---- U. S. Treasury and U.S. government agencies.............. $ 33,778 36,922 32,236 Mortgage-backed U.S. government agencies......................... 1,799 2,285 3,869 State and political subdivision obligations...................... 28,061 26,020 16,276 Restricted equity securities...... 3,281 2,185 737 ------- ------ ------ Total $ 66,919 67,412 53,118 ======= ====== ====== Loans ----- At December 31, 1999, net loans totaled $169,789,000, a $19,109,000 or 12.7% increase from December 31, 1998. During 1998, MPB experienced an increase in commercial real estate loans of approximately $17,065,000, the majority of which was generated in the greater Harrisburg region. 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, 1999, loans, net of unearned income, represented 63.2% of earning assets as compared to 57.6% on December 31, 1998 and 62.7% on December 31, 1997. 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, 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 (Dollars in thousands) December 31, 1999 1998 1997 1996 1995* -------- -------- -------- -------- -------- Commercial real estate, construction and land development...... $ 105,328 88,263 81,191 75,200 65,671 Commercial, industrial and agricultural.............. 20,118 20,401 20,107 19,925 16,682 Real estate-residential mortgage.................. 32,586 30,325 34,195 34,391 27,821 Consumer................... 16,780 16,034 21,018 27,420 23,473 Lease financing............ 0 1 8 13 18 -------- -------- -------- -------- -------- Total Loans 174,812 155,024 156,519 156,949 133,665 Unearned income............ (2,518) (2,031) (1,943) (1,879) (1,729) -------- -------- -------- -------- -------- Loans net of unearned discount.................. 172,294 152,993 154,576 155,070 131,936 Allowance for loan losses.. (2,505) (2,313) (2,281) (2,278) (2,347) -------- -------- -------- -------- -------- Net Loans $ 169,789 150,680 152,295 152,792 129,589 ======== ======== ======== ======== ======== *Mid Penn Bank only, Miners Bank of Lykens information not readily available 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 28 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) loan portfolio. MPB 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 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 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, 1999, was $2,505,000 or 1.45% of total loans less unearned discount as compared to $2,313,000 or 1.51% at December 31, 1998, and $2,281,000 or 1.48% at December 31, 1997. TABLE 7: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) December 31, 1999 1998 1997 1996 1995* ---- ---- ---- ---- ---- Percent Percent Percent Percent Percent Amount of Loans Amount of Loans Amount of Loans Amount of Loans Amount of Loans ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- Commercial real estate, construction and land development................... $ 927 60.3% 861 56.8% 596 50.6% 666 47.9% 574 49.1% Commercial, industrial and agricultural.................. 782 11.5% 693 13.5% 369 14.0% 381 12.7% 573 12.5% Real estate-residential mortgage...................... 198 18.6% 219 19.4% 207 21.9% 184 21.9% 120 20.8% Consumer....................... 114 9.6% 127 10.3% 146 13.5% 309 17.5% 245 17.6% Unallocated.................... 484 - 413 - 963 - 738 - 835 - ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- Total loans $ 2,505 100% 2,313 100.0% 2,281 100.0% 2,278 100.0% 2,347 100.0% ====== ======== ====== ======== ====== ======== ====== ======== ====== ======== *Mid Penn Bank only, Miners Bank of Lykens information not readily available
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). Nonaccrual loans are loans on which we no longer recognize daily interest income. 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 lower 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 $266,000, $66,000 and $123,000 in 1999, 1998, and 1997, 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, 1999, totaled $2,217,000 or 0.77% of total assets compared to $3,064,000 or 1.10% of total assets in 1998, and $2,112,000 or .82% of total assets in 1997. The foreclosed assets held for sale at December 31, 1999, consist of one piece of commercial real estate and residential building lots that MPB has available for sale. 29 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) Nonperforming assets are taken into consideration by management when assessing the adequacy of the Allowance for Loan Losses. TABLE 8: NONPERFORMING ASSETS (Dollars in thousands) December 31, 1999 1998 1997 1996 1995* ------ ------ ------ ------ ------ Nonaccrual loans.................. $ 890 376 333 1,183 1,753 Past due 90 days or more.......... 386 844 212 544 195 Restructured loans................ 878 1,497 212 145 0 ------- ------ ------ ------ ------ Total nonperforming loans 2,154 2,717 757 1,872 1,948 Foreclosed assets held for sale... 63 347 1,355 548 507 ------- ------ ------ ------ ------ Total nonperforming assets....... $ 2,217 3,064 2,112 2,420 2,455 ======= ====== ====== ====== ====== Percent of total loans outstanding...................... 1.29% 2.00% 1.38% 1.54% 1.84% Percent of total assets........... .77% 1.10% .82% 1.02% 1.26% *Mid Penn Bank only, Miners Bank of Lykens information not readily available There are no loans classified for regulatory purposes that have not been included in Table 8. 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 ---------------------------------- MPB's primary source of funds is its deposits. Deposits at December 31, 1999, were $217,840,000, which increased slightly by $1,038,000 or 0.48% from December 31, 1998, compared to a slight decrease of $344,000 or 0.16% in 1998. A limited-time, special-rate certificate of deposit offer in the fall of 1997 aided the Bank in attaining these increases. Deposits did not change significantly during 1999 and 1998. Included in the 1997 deposit growth are in excess of $10 million in jumbo certificates of deposit issued to municipalities. Average balances and average interest rates applicable to the major classifications of deposits for the years ended December 31, 1999, 1998, and 1997 are presented in Table 9. Average short-term borrowings for 1999 were $10,683,000 as compared to $3,801,000 in 1998. These borrowings included customer repurchase agreements, treasury tax and loan option borrowings and federal funds purchased. TABLE 9: DEPOSITS BY MAJOR CLASSIFICATION
(Dollars in thousands) Years ended December 31, 1999 1998 1997 ---- ---- ---- Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate ------- ---- ------- ---- ------- ---- Noninterest bearing demand deposits.............. $ 23,338 0.00% 21,024 0.00% 18,547 0.00% Interest bearing demand deposits................. 27,669 1.37% 27,649 1.81% 26,804 2.12% Money market..................................... 20,734 3.40% 14,882 3.02% 11,821 2.50% Savings.......................................... 26,259 2.23% 25,112 2.48% 25,360 2.52% Time............................................. 125,782 5.27% 126,123 5.59% 121,117 5.61% -------- ------- --------- --------- -------- ------- Total $ 223,782 3.71% 214,790 4.02% 203,649 4.07% ======== ======= ========= ========= ======== =======
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. Too much capital, however, indicates that not enough of the company's earnings have been paid to shareholders, and the buildup makes it difficult for a company to offer a competitive return on the shareholders' capital going forward. For these reasons capital adequacy has been, and will continue to be, of paramount importance. 30 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) In 1999, capital was decreased by $4,971,000 or 15.8% compared to 1998. Comparatively, 1998 capital grew $1,806,000 or 6.0% above 1997. Capital growth is achieved by retaining more in earnings than we pay out to our shareholders. MPB'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. The dividend payout ratio, which represents the percentage of annual net income returned to the stockholders in the form of cash dividends, was 171% for 1999 compared to 54% for 1998 and 48% for 1997. The reason for the special dividend payout in 1999, as outlined in the first section of this discussion, was to increase ROE and enhance shareholder value. Until 1997, MPB 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, MPB's dividend reinvestment plan was changed in 1997 to allow for the use of authorized, but unissued shares of common stock under the plan. MPB has been approved by the Internal Revenue Service to offer an employee stock ownership plan. At December 31, 1999, 19,996 shares of MPB's common stock have been purchased back by MPB, 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 for the employee stock ownership plan. Federal Income Taxes -------------------- Federal income tax expense for 1999 was $1,253,000 compared to $1,516,000 and $1,721,000 in 1998 and 1997, respectively. The effective tax rate was 24% for 1999, 28% for 1998 and 29% for 1997. Liquidity --------- MPB's asset-liability management policy addresses the management of MPB's liquidity position and its ability to raise sufficient funds to meet deposit withdrawals, fund loan growth and meet other operational needs. MPB 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 MPB through loans from the Federal Home Loan Bank and established federal funds (overnight) lines of credit. MPB's major source of funds is its core deposit base as well as its capital resources. The major sources of cash in 1999 came from operations, increased short- term borrowings of $12,477,000, and the net decrease of $8,313,000 in interest-bearing balances. Net deposits increased by $1,038,000 contributing another source of cash. The major area of deposit increase was in a high- balance money market account known as the Prime Investment account, while certificate of deposit balances decreased during the year in the face of a very competitive price environment. The sources of cash were used primarily to fund loan growth. Net loan funding in 1999 used $19,434,000 of cash. While loan growth was very sluggish during the first half of the year, MPB experienced substantial loan growth with the portfolio growing more than 12% by year end. The majority of the loan growth was in loans to fund commercial real estate in the Greater Harrisburg area. Other uses of cash for the year included the $6,635,000 paid to shareholders in dividends, and the increase in cash balances of $1,823,000 related to our preparedness for increased cash needs in light of Y2K concerns. During 1998, the major sources of cash came from operations and the maturity and sale of investment securities, which accelerated in the decreasing rate environment to $24,997,000. MPB also borrowed $10,000,000 in 10 year/1 year putable advances from the Federal Home Loan Bank. These advances with an average rate of 4.96% were used to fund the purchase of interest bearing balances and investment securities of which the Bank is able to generate a spread and increase net earnings. By continuing to promote free checking products, MPB was able to realize a net increase of $7,074,000 in low-cost demand and savings deposits. As loan demand remained very competitive, MPB realized a net increase in loans of $4,917,000 during the year 1998. Additional cash was used to purchase $39,279,000 in investment securities, largely high quality U.S. Government Agency securities which offered a significant spread over U.S. Treasury securities. In the falling rate environment, interest bearing balances, 31 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) and insured jumbo certificates of deposit of other banks continued to offer attractive interest rates relative to Treasury investment alternatives. In light of this opportunity, MPB increased the portfolio of interest bearing balances by $6,879,000 during the year. On December 31, 1998, MPB also purchased $3,900,000 single premium life insurance policies, which will be used to fund director retirement benefits, and in the meantime, will generate a stream of tax-free income to MPB. Time deposits decreased during the year as jumbo certificates of deposit issued in 1997 matured and were not replaced. Market Risk - Asset-Liability Management and Interest Rate Sensitivity ---------------------------------------------------------------------- Interest rate sensitivity is a function of the repricing characteristics of MPB'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. MPB 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. MPB 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 MPB's management. MPB 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 MPB's loan portfolio is shown in Table 11. Table 12 provides expected maturity information about MPB'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. MPB 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
(Dollars in thousands) December 31, 1999 After One After Five One Year Year thru Years thru After Ten and Less Five Years Ten Years Years Total -------- ---------- --------- ----- ----- U.S. Treasury and U.S. government agencies....... $ 500 6,530 15,547 11,201 33,778 State and political subdivision obligations... 1,180 2,015 7,796 17,070 28,061 Mortgage-backed U.S. government agencies....... 0 905 0 894 1,799 Equity securities.......... 0 0 0 3,281 3,281 ------- -------- -------- -------- -------- Total $ 1,680 9,450 23,343 32,446 66,919 ======= ======== ======== ======== ======== December 31, 1999 After One After Five One Year Year thru Years thru After Ten and Less Five Years Ten Years Years Total -------- ---------- --------- ----- ----- Weighted Average Yields - ----------------------- U.S. Treasury and U.S. government agencies....... 5.75% 6.01% 6.44% 6.47% 6.36% State and political subdivision obligations... 7.52% 8.83% 7.39% 6.77% 7.12% Mortgage-backed U.S. government agencies....... - 6.29% - 6.69% 6.49% Equity securities.......... - - - 6.49% 6.49% ------- -------- -------- -------- -------- Total 6.99% 6.64% 6.76% 6.64% 6.69% ======= ======== ======== ======== ========
32 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) TABLE 11: LOAN MATURITY AND INTEREST SENSITIVITY (Dollars in thousands) December 31, 1999 After One One Year Year thru After Five and Less Five Years Years Total -------- ---------- ----- ----- Commercial, real estate, construction and land development..... $ 13,037 69,247 23,044 105,328 Commercial, industrial and agricultural......... 11,700 6,751 1,667 20,118 Real estate - residential mortgages................ 7,803 10,297 14,486 32,586 Consumer.................. 5,524 7,793 945 14,262 -------- -------- -------- -------- Total Loans $ 38,064 94,088 40,142 172,294 ======== ======== ======== ======== After One One Year Year thru After Five and Less Five Years Years Total -------- ---------- ----- ----- Rate Sensitivity ---------------- Predetermined rate........ $ 4,427 25,176 34,897 64,500 Floating or adjustable rate..................... 33,637 68,912 5,245 107,794 -------- -------- -------- -------- Total $ 38,064 94,088 40,142 172,294 ======== ======== ======== ======== TABLE 12: INTEREST RATE SENSITIVITY GAP
(Dollars in thousands) Expected Maturity Year Ending December 31, (As of December 31, 1999) 2000 2001 2002 2003 2004 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Assets: Interest bearing balances....... $ 19,315 13,271 1,587 298 99 0 34,570 34,570 Average interest rate......... 6.19 5.84 5.74 6.25 7.00 - 6.04 Debt securities................. $ 1,681 2,645 1,589 995 3,233 50,675 60,818 60,818 Average interest rate......... 7.00 6.46 7.43 5.87 6.83 6.71 6.72 Adjustable rate loans........... $ 34,019 17,839 18,870 13,506 19,175 3,750 107,159 107,159 Average interest rate......... 8.75 8.69 8.52 8.48 8.00 8.35 8.51 Fixed rate loans................ $ 6,495 8,317 8,943 8,813 7,576 24,991 65,135 68,024 Average interest rate......... 8.55 8.94 9.15 8.67 8.38 8.31 8.52 -------- -------- -------- -------- -------- --------- -------- -------- Total $ 61,510 42,072 30,989 23,612 30,083 79,416 267,682 270,571 ======== ======== ======== ======== ======== ========= ======== ======== Interest liabilities: Variable rate savings and transaction accounts........... $ 38,464 0 0 0 0 61,914 100,378 100,378 Average interest rate......... 2.87 - - - - 1.13 1.79 Certificates of deposit and IRAs....................... $ 54,239 29,882 12,691 7,804 5,519 7,327 117,462 116,729 Average interest rate........... 5.07 5.63 5.54 5.63 5.35 5.94 5.36 Short-term borrowings........... $ 24,636 0 0 0 0 0 24,636 24,636 Average interest rate......... 5.79 - - - - - 5.79 Long-term fixed rate borrowings..................... $ 200 1,700 7,200 200 5,017 2,083 16,400 16,842 Average interest rate......... 7.29 6.74 6.20 7.29 6.42 7.13 6.47 -------- -------- -------- -------- -------- --------- -------- -------- Total $ 117,539 31,582 19,891 8,004 10,536 71,324 258,876 258,585 ======== ======== ======== ======== ======== ========= ======== ========
33 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) Rate sensitive gap: Periodic gap.............. $(56,029) 10,490 11,098 15,608 19,547 8,115 Cumulative gap............ $(56,029) (45,539) (34,441) (18,823) 714 8,806 Cumulative gap as a percentage of total assets........... -19.5% -15.8% -12.0% -6.5% -0.2% +3.1%
(Dollars in thousands) Expected Maturity Year Ending December 31, (As of December 31, 1998) 1999 2000 2001 2002 2003 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Assets: Interest bearing balances. $ 18,533 15,236 8,519 297 298 0 42,883 42,883 Average interest rate... 6.24 6.32 5.86 5.90 6.25 - 6.19 Debt securities........... $ 4,265 3,159 2,289 2,638 1,624 51,773 65,748 65,748 Average interest rate... 6.64 7.38 7.29 7.28 6.05 6.89 6.91 Adjustable rate loans..... $ 49,496 9,606 20,161 7,431 11,009 1,040 98,743 98,743 Average interest rate... 8.59 9.18 8.66 9.02 8.54 8.44 8.68 Fixed rate loans.......... $ 8,422 6,094 9,585 8,094 6,714 15,341 54,250 63,213 Average interest rate... 8.65 9.32 9.05 9.16 8.72 8.68 8.83 -------- -------- -------- -------- -------- --------- -------- -------- Total $ 80,716 34,095 40,554 18,460 19,645 68,154 261,624 270,587 -------- -------- -------- -------- -------- --------- -------- -------- Interest liabilities: Variable rate savings and transaction accounts..... $ 32,962 0 0 0 0 61,227 94,189 94,189 Average interest rate... 2.64 - - - - 1.22 1.72 Certificates of deposit and IRAs................. $ 73,961 16,636 11,005 5,425 7,507 8,079 122,613 125,112 Average interest rate... 5.27 5.79 5.74 5.95 5.64 6.02 5.48 Short-term borrowings..... $ 12,159 0 0 0 0 0 12,159 12,159 Average interest rate... 5.50 - - - - - 5.50 Long-term fixed rate borrowings............... $ 1,149 160 1,672 2,185 10,384 0 15,550 16,254 Average interest rate... 6.19 7.28 6.74 6.18 4.97 - 5.44 -------- -------- -------- -------- -------- --------- -------- -------- Total $120,231 16,796 12,677 7,610 17,891 69,306 244,511 247,714 -------- -------- -------- -------- -------- --------- -------- -------- Rate sensitive gap: Periodic gap.............. $(39,515) 17,299 27,877 10,850 1,754 (1,152) Cumulative gap............ $(39,515) (22,216) 5,661 16,511 18,265 17,113 Cumulative gap as a percentage of total assets........... -14.2% -8.0% 2.0% 5.9% 6.6% 6.2%
On December 31, 1999, 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, 1999, 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, 1999, 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. 34 www.midpennbank.com Mid Penn Bancorp, Inc. Management's Discussion and Analysis (cont'd) TABLE 13: MATURITY OF TIME DEPOSITS $100,000 OR MORE (Dollars in thousands) December 31, 1999 1998 1997 ---- ---- ---- Three months or less.................... $ 3,525 4,933 15,186 Over three months to twelve months...... 4,960 5,921 4,046 Over twelve months...................... 7,731 5,882 7,486 -------- -------- -------- Total $ 16,216 16,736 26,718 ======== ======== ======== 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 MPB'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 MPB is positioned to react to changing interest rates and inflationary trends, in particular market risk tables and discussion. Off-Balance-Sheet Items ----------------------- MPB makes contractual commitments to extend credit and extends lines of credit which are subject to MPB's credit approval and monitoring procedures. As of December 31, 1999, commitments to extend credit amounted to $29,648,000 as compared to $20,697,000 as of December 31, 1998. MPB 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 $2,336,000 at December 31, 1999, from $2,480,000 at December 31, 1998. Year 2000 Compliance: Management Information Systems ---------------------------------------------------- The Board of Directors had established a Year 2000 compliance committee to address the risks of the critical internal bank systems that could have been 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 approached. 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 were approximately $50,000. Preconversion testing demonstrated that the new hardware and software are Year 2000 compliant. In addition, MPB has hired a third-party Year 2000 consultant, BNP, Inc. With the aid of BNP, MPB has developed a Year 2000 testing master plan, organization chart and detailed work plan. MPB proved its readiness for the new millennium with no problems encountered as we moved into the new year. Comprehensive Income -------------------- Comprehensive Income is a measure of all changes in equity of a corporation, excluding transactions with owners in their capacity as owners (such as proceeds from issuances of stock and dividends). The difference between Net Income and Comprehensive Income is termed "Other Comprehensive Income." For MPB, Other Comprehensive Income consists of unrealized gains and losses on available-for-sale securities, net of deferred income tax. Comprehensive Income should not be construed to be a measure of net income. The effect of Other Comprehensive Income would only be reflected in the income statement if the entire portfolio of available-for-sale securities were sold on the statement date. The amount of unrealized gains or losses reflected in Comprehensive Income may vary widely at statement dates depending on the markets as a whole and how the portfolio of available-for-sale securities is affected by interest rate movements. Other Comprehensive Income (Loss) for the periods ended December 31, 1999, 1998 and 1997 was ($2,205,000), $26,000 and $150,000, respectively. 35 www.midpennbank.com Mid Penn Bancorp, Inc. Summary of Selected Financial Data (Dollars in thousands, except per share data)
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- INCOME: Total Interest Income.................... $ 20,112 20,436 19,312 18,171 16,789 Total Interest Expense................... 9,674 9,593 8,853 8,428 7,604 Net Interest Income...................... 10,438 10,843 10,459 9,743 9,185 Provision for Possible Loan Losses....... 325 254 109 52 6 Noninterest Income....................... 1,689 1,398 1,772 841 734 Noninterest Expense...................... 6,665 6,606 6,232 5,658 5,621 Income Before Income Taxes............... 5,137 5,381 5,890 4,874 4,292 Income Tax Expense....................... 1,253 1,516 1,721 1,397 1,171 Net Income............................... 3,884 3,865 4,169 3,477 3,121 COMMON STOCK DATA PER SHARE:* Earnings Per Share....................... $ 1.28 1.27 1.37 1.14 1.03 Cash Dividends Declared.................. 2.18 .69 .66 .42 .58 Stockholders' Equity..................... 8.74 10.90 10.27 9.48 8.78 AVERAGE SHARES OUTSTANDING.................. 3,037,976 3,037,037 3,040,188 3,040,202 3,040,202 AT YEAR-END: Investments.............................. $ 64,099 67,933 53,599 42,740 37,592 Loans, Net of Unearned Discount.......... 172,294 152,993 154,576 155,070 142,322 Allowance for Loan Losses................ 2,505 2,313 2,281 2,278 2,457 Total Assets............................. 287,542 277,827 256,728 238,103 221,786 Total Deposits........................... 217,840 216,802 217,146 199,673 186,472 Short-term Borrowings.................... 24,636 12,159 2,234 4,512 4,314 Long-term Debt........................... 16,400 15,550 5,688 4,710 3,329 Stockholders' Equity..................... 26,565 31,536 29,730 27,438 25,409 RATIOS: Return on Average Assets................. 1.40 1.45 1.71 1.52 1.50 Return on Average Stockholders' Equity... 14.68 12.81 14.76 13.37 12.71 Cash Dividend Payout Ratio............... 170.91 53.73 47.92 36.67 56.48 Allowance for Loan Losses to Loans....... 1.45 1.51 1.48 1.47 1.73 Average Stockholders' Equity to Average Assets........................... 9.50 11.36 11.56 11.34 11.81 * Per share figures are based on weighted average shares outstanding for the respective years as restated after giving effect to stock dividends and splits.
36 www.midpennbank.com EX-21 3 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Name State of Incorporation ---- ---------------------- Mid Penn Bank Commonwealth of Pennsylvania Mid Penn Investment Corp. Delaware EX-23 4 CONSENT OF PARENTE, RANDOLPH INDEPENDENT ACCOUNTANT EXHIBIT 23 Consent Of Independent Auditors We consent to the incorporation by reference in this Annual Report on Form 10-K for the year ended December 31, 1999, in Registration Statement No. 333-51485 on Form S-4 and Registration Statement No. 333-39341 on Form S-3, all of Mid Penn Bancorp, Inc., of our report dated January 21, 2000, included in Mid Penn Bancorp, Inc.'s 1999 Annual Report to Shareholders. /s/ PARENTE RANDOLPH, PC Williamsport, Pennsylvania March 27, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 7,474 34,570 0 0 64,099 0 0 172,294 2,505 287,542 217,840 24,636 2,101 16,400 0 0 3,057 23,508 287,542 13,829 6,282 1 20,112 8,302 9,674 10,438 325 50 6,665 5,137 3,884 0 0 3,884 1.28 1.28 7.91 890 386 878 640 2,313 224 91 2,505 2,505 0 60
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