10-Q 1 midpenn_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 Commission file number 0-20141 Mid Penn Bancorp, Inc. (Exact name of registrant as specified in its charter) Pennsylvania 25-1666413 (State or other jurisdiction of (IRS Employer ID No) Incorporation or Organization) 349 Union Street, Millersburg, PA 17061 (Address of principal executive offices) (Zip Code) (717) 692-2133 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate the number of shares outstanding of each of the classes of common stock, as of the latest practical date. 3,037,395 shares of Common Stock, $1.00 par value per share, were outstanding as of March 31, 2003. MID PENN BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited; Dollars in thousands)
March 31, Dec. 31 2003 2002 -------- -------- ASSETS: Cash and due from banks $7 ,837 $8,095 Interest-bearing balances 67,847 65,487 Available-for-sale securities 57,985 58,859 Federal funds sold 0 0 Loans 224,654 221,353 Less, Allowance for loan losses 3,014 3,051 ------- ------- Net loans 221,640 218,302 ------- ------- Bank premises and equip't, net 4,051 3,317 Foreclosed assets held for sale 746 781 Accrued interest receivable 1,989 2,007 Cash surrender value of life insurance 4,803 4,743 Deferred income taxes 392 456 Other assets 953 1,237 ------- ------- Total Assets 368,243 363,284 ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY: Deposits: Demand 30,992 28,011 NOW 32,319 33,645 Money Market 44,183 40,515 Savings 27,466 26,705 Time 143,776 145,827 ------- ------- Total deposits 278,736 274,703 ------- ------- Short-term borrowings 18,000 18,156 Accrued interest payable 1,522 1,187 Other liabilities 1,888 1,651 Long-term debt 32,334 32,383 ------- ------- Total Liabilities 332,480 328,080 ------- ------- STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; authorized 10,000,000 shares; issued 3,056,501 shares at March 31, 2002 and December 31, 2001 3,057 3,057 Additional paid-in capital 20,368 20,368 Retained earnings 11,390 10,944 Accumulated other comprehensive inc(loss) 1,481 1,357 Treasury Stock at cost (19,137 and 19,065 shs., resp.) -533 -522 ------- ------- Total Stockholders' Equity 35,763 35,204 ------- ------- Total Liabilities & Equity 368,243 363,284 ======= ======= The accompanying notes are an integral part of these consolidated financial statements.
MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited; dollars in thousands) For the Quarter Ended Mar. 31, 2002 2003 ---- ---- INTEREST INCOME: Interest & fees on loans $3,900 $3,999 Int.-bearing balances 595 716 Treas. & Agency securities 151 182 Municipal securities 477 492 Other securities 16 29 Fed funds sold and repos 0 2 ------ ------ Total Int. Income 5,139 5,420 ------ ------ INTEREST EXPENSE: Deposits 1,709 1,979 Short-term borrowings 64 22 Long-term borrowings 508 510 Total Int. Expense 2,281 2,511 Net Int. Income 2,858 2,909 PROVISION FOR LOAN LOSSES 190 100 ------ ------ Net Int. Inc. after Prov. 2,668 2,809 NON-INTEREST INCOME: Trust dept 48 42 Service chgs. on deposits 288 250 Investment securities Gains(losses), net 0 5 Income on life insurance 60 62 Other 202 108 ------ ------ Total Non-Interest Income 598 467 ------ ------ NON-INTEREST EXPENSE: Salaries and benefits 1,062 1,028 Occupancy, net 134 96 Equipment 132 126 PA Bank Shares tax 67 62 Other 553 531 ------ ------ Tot. Non-int. Exp. 1,948 1,843 ------ ------ Income before income taxes 1,318 1,433 INCOME TAX EXPENSE 266 327 ------ ------ NET INCOME $1,052 $1,106 ====== ====== NET INCOME PER SHARE $0.35 $0.36 ====== ====== DIVIDENDS PER SHARE $0.20 $0.20 ====== ====== Weighted Average No. of Shares Outstanding 3,036,874 3,037,095 The accompanying notes are an integral part of these consolidated financial statements. MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
For the Quarter Ended March 31, 2003 2002 ------ ------ Operating Activities: Net Income $1,052 $1,106 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 190 100 Depreciation 91 91 Incr. in cash-surr. value of life insurance -60 -62 Investment securities gains, net 0 -5 Gain on sale of foreclosed assets -20 -3 Deferred income taxes 64 -84 Change in accrued interest receivable 18 18 Change in other assets 213 -222 Change in accrued interest payable 335 479 Change in other liabilities 237 115 ------ ------ Net cash provided by operating activities 2,120 1,533 ------ ------ Investing Activities: Net (incr)decr in int-bearing balances -2,360 474 Proceeds from sale of securities 0 1,730 Proceeds from the maturity of secs. 3,735 1,907 Purchases of investment securities -2,666 -2,491 Net increase in loans -3,528 -5,365 Purchases of bank premises & equip't -825 -105 Proceeds from sale of foreclosed assets 55 71 ------ ------ Net cash used in investing activities -5,589 -3,779 ------ ------ Financing Activities: Net increase in deposits 4,033 6,397 Net decrease in federal funds sold 0 -1,600 Net decrease in short-term borrowings -156 -4,656 Long-term debt repayments -49 -45 Cash dividend paid -606 -608 Purchase of treasury stock -11 -1 ------ ------ Net cash provided by(used in) financing activities 3,211 -513 ------ ------ Net decrease in cash & due from banks -258 -2,759 Cash & due from banks, beg of period 8,095 9,028 ------ ------ Cash & due from banks, end of period 7,837 6,269 ====== ====== Supplemental Cash Flow Information: Interest paid 1,947 2,032 Income taxes paid 0 0 Supplemental Noncash Disclosures: Loan charge-offs 241 69 The accompanying notes are an integral part of these consolidated financial statements.
Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements 1. The consolidated interim financial statements have been prepared by the Corporation, with the exception of the consolidated balance sheet dated December 31, 2002, without audit, according to the rules and regulations of the Securities and Exchange Commission with respect to Form 10- Q. The financial information reflects all adjustments (consisting only of normal recurring adjustments) which are, in our opinion, necessary for a fair statement of results for the periods covered. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted according to these rules and regulations. We believe, however, that the disclosures are adequate so that the information is not misleading. You should read these interim financial statements along with the financial statements including the notes included in the Corporation's most recent Form 10-K. 2. Interim statements are subject to possible adjustments in connection with the annual audit of the Corporation's accounts for the full fiscal year. In our opinion, all necessary adjustments have been included so that the interim financial statements are not misleading. 3. The results of operations for the interim periods presented are not necessarily an indicator of the results expected for the full year. 4. Management considers the allowance for loan losses to be adequate at this time. 5. Short-term borrowings as of March 31, 2003, and December 31, 2002, consisted of: (Dollars in thousands) 3/31/03 12/31/02 ------- -------- Federal funds purchased $15,600 $14,200 Repurchase agreements 2,104 2,550 Treasury, tax and loan note 153 1,058 Due to broker 143 348 ------- -------- $18,000 $18,156 ======= ======= Federal funds purchased represent overnight funds. Securities sold under repurchase agreements generally mature between one day and one year. Treasury, tax and loan notes are open-ended interest bearing notes payable to the U.S. Treasury upon call. All tax deposits accepted by the Bank are placed in the Treasury note option account. The due to broker balance represents previous day balances transferred from deposit accounts under a sweep account agreement. 6. Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each of the periods presented, giving retroactive effect to stock dividends. The Corporation's basic and diluted earnings per share are the same since there are no dilutive shares of securities outstanding. 7. The purpose of reporting comprehensive income (loss) is to report a measure of all changes in the Corporation's equity resulting from economic events other than transactions with stockholders in their capacity as stockholders. For the Corporation, "comprehensive income(loss)" includes traditional income statement amounts as well as unrealized gains and losses on certain investments in debt and equity securities (i.e. available for sale securities). Because unrealized gains and losses are part of comprehensive income (loss), comprehensive income (loss) may vary substantially between reporting periods due to fluctuations in the market prices of securities held. (In thousands) Three Months Ended March 31: 2003 2002 ------ ----- Net Income $1,052 $1,106 ------ ------ Other comprehensive income(loss) Unrealized holding gains (losses) on securities arising during the period 188 242 Less: reclassification adjs for losses(gains) included in net income 0 5 ------ ------ Other comprehensive income(loss) before income tax (provision) benefit 188 -247 Income tax (provision) benefit related to other comp.income (loss) -64 84 ------ ------ Other comprehensive inc(loss) 124 -163 ------ ------ Comprehensive Income 1,176 943 ====== ====== Mid Penn Bancorp, Inc. Millersburg, Pennsylvania Management's Discussion of Consolidated Financial Condition for the three months ended March 31, 2003, compared to year- end 2002 and the Results of Operations for the first quarter of 2003 compared to the same period in 2002. CONSOLIDATED FINANCIAL CONDITION Total assets as of March 31, 2003, increased to $368,243,000 from $363,284,000 as of December 31,2002. During the first quarter of 2003, net loans outstanding increased by $3,338,000, or 1.5%. Interest-bearing balances, insured certificates of deposits in other financial institutions, increased by $2,360,000 as we continue to invest in these short-term instruments to remain poised for rates to again rebound from their present levels, which are at forty-year low levels. Total deposits increased by $4,033,000 during the first three months of 2003. The most significant component of this increase in deposits was money market accounts, which increased by $3,668,000. This increase comes in response to the promotion of our indexed rate, which offered a competitive variable rate of up to 2.53%. The competitive rate and liquid accessibility of this account was very attractive to investors looking for an alternative to the stock market during the first quarter of the year. Short-term borrowings decreased by approximately $156,000 from year end through funds generated from operations and deposit growth. All components of long-term debt are advances from the FHLB. Long-term debt advances were initiated in order to secure an adequate spread on certain pools of loans and investments of the Bank. No new advances were initiated during the quarter. As of March 31, 2003, the Bank's capital ratios are well in excess of the minimum and well-capitalized guidelines and the Corporation's capital ratios are in excess of the Bank's capital ratios. While we retain a significant portion of our original market (the rural areas north of Harrisburg in Dauphin County), we are experiencing most of our growth and opportunity in the Harrisburg (Capital) metropolitan region. Thus, we feel that additional offices in the Capital region will afford us greater exposure and opportunities to reach new customers in this market. Thus, we continue to research sites in the greater Harrisburg area for further branch locations that may add value for our bank and its shareholders. In addition to our brick-and-mortar offices, Mid Penn Bank offers complete online banking services through our website at www.midpennbank.com. RESULTS OF OPERATIONS Net income for the first quarter of 2003 was $1,052,000, compared with $1,106,000 earned in the same quarter of 2002. Net income per share for the first quarters of 2003 and 2002 was $.35 and $.36, respectively. Net income as a percentage of stockholders' equity, also known as return on equity, (ROE), was 11.9% on an annualized basis for the first quarter of 2003 as compared to 13.9% for the same period in 2002. A portion of the decrease in net income is due to a decrease in net interest income as it becomes very difficult for banks to reduce the cost of funds at a rate which keeps pace with the reduction in our return on assets. Net interest income of $2,858,000 for the quarter ended March 31, 2003, declined by 1.8% compared to the $2,909,000 earned in the same quarter of 2002. We continue to closely monitor net interest income, seeing some opportunity for improvement in the second quarter as certificates of deposit mature and reprice at lower interest rates. The major reason for the decrease in net income was the level of provision for loan losses made during the first quarter. The Bank made a provision of $190,000 and $100,000 during the first quarters of 2003 and 2002, respectively. On a quarterly basis, senior management reviews potentially unsound loans taking into consideration judgments regarding risk of error, economic conditions, trends and other factors in determining a reasonable provision for the period. Due to the current economic conditions and higher than normal charge offs resulting from the resolution of two troubled commercial real estate loan relationships, our analysis led us to the provision that was $90,000 more than that of the same time period in 2002. Non-interest income amounted to $598,000 for the first quarter of 2003 compared to $467,000 earned during the same quarter of 2002. A significant contribution to non-interest income continues to be insufficient fund (NSF) fee income. NSF fee income contributed in excess of $227,000 during the first quarter of 2003. Non-interest expense amounted to $1,948,000 for the first quarter of 2003 compared to $1,843,000 incurred during the same quarter of 2002. The largest increase in non- interest expense during the first quarter of 2003 as compared to the same period in 2002, was the $38,000 increase in occupancy expense, which is largely attributable to snow removal and increased heating costs as a result of the harsh winter. LIQUIDITY The Bank's objective is to maintain adequate liquidity while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding Corporate operations. Sources of liquidity include maturing investment securities, overnight borrowings of federal funds (and Flex Line), payments received on loans, and increases in deposit liabilities. Funds generated from operations contributed a major source of funds for the first quarter of 2003. Another major source of funds came from the $4 million increase in deposits, the majority of which came from growth in the indexed money market product. The major use of funds during the period was the net increase in loans of $3.5 million, particularly in the area of commercial loans secured by real estate, and the $2.4 million increase in interest bearing-balances. CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES Total non-performing assets decreased to $2,659,000 representing 0.72% of total assets at March 31, 2003, from $2,753,000 or 0.76% of total assets at December 31, 2002. Most non-performing assets are supported by collateral value that appears to be adequate at March 31, 2003. The allowance for loan losses at March 31, 2003, was $3,014,000 or 1.34% of loans, net of unearned interest, as compared to $3,051,000 or 1.38% of loans, net of unearned interest, at December 31, 2002. Based upon the ongoing analysis of the Bank's loan portfolio by the loan review department, the latest quarterly analysis of potentially unsound loans and non-performing assets, we consider the Allowance for Loan Losses to be adequate to absorb any reasonable, foreseeable loan losses.
March 31, Dec. 31, 2003 2002 -------- -------- Non-Performing Assets: Non-accrual loans 954 1,164 Past due 90 days or more 959 808 Restructured loans 0 0 -------- ------- Total non-performing loans 1,913 1,972 Other real estate 746 781 -------- ------- Total 2,659 2,753 ======== ======= Percentage of total loans outstanding 1.18% 1.23% Percentage of total assets 0.72% 0.76% Analysis of the Allowance for Loan Losses: Balance beginning of period 3,051 2,856 Loans charged off: Commercial real estate, construction and land development 131 41 Commercial, industrial and agricultural 79 113 Real estate - residential mortgage 0 0 Consumer 31 148 -------- ------- Total loans charged off 241 302 -------- ------- Recoveries of loans previously charged off: Commercial real estate, construction and land development 0 17 Commercial, industrial and agricultural 10 0 Real estate - residential mortgage 0 0 Consumer 4 55 -------- ------- Total recoveries 14 72 -------- ------- Net (charge-offs) recoveries -227 -230 -------- ------- Current period provision for loan losses 190 425 -------- ------- Balance end of period 3,014 3,051 ======= =======
Mid Penn Bancorp, Inc. PART II - OTHER INFORMATION: Item 1. Legal Proceedings - Nothing to report Item 2. Changes in Securities - Nothing to report Item 3. Defaults Upon Senior Securities - Nothing to report Item 4. Submission of Matters to a Vote of Security Holders -Nothing to report Item 5. Other Information - Nothing to report Item 6. Exhibits and Reports on Form 8-K a. Exhibits - None. b. Reports on Form 8-K - None. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mid Penn Bancorp, Inc. Registrant /s/ Alan W. Dakey /s/ Kevin W. Laudenslager By: Alan W. Dakey By: Kevin W. Laudenslager Pres.& CEO Treasurer Date: May 9, 2003 Date: May 9, 2003 CERTIFICATION I, Alan W. Dakey, President and CEO, certify, that: -------------------------------- 1. I have reviewed this quarterly report on Form 10-Q of Mid Penn Bancorp. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 8, 2003 By:/s/ Alan W. Dakey -------------------- Alan W. Dakey Pres. And CEO CERTIFICATION I, Kevin W. Laudenslager, Treasurer, certify, that: -------------------------------- 1. I have reviewed this quarterly report on Form 10-Q of Mid Penn Bancorp. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 8, 2003 By: /s/Kevin W. Laudenslager ---------------------------- Kevin W. Laudenslager Treasurer