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 June 30, 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. 3,188,393 shares of Common Stock, $1.00 par value per share, were outstanding as of June 30, 2003. MID PENN BANCORP, INC. CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in thousands)
June 30, Dec. 31 2003 2002 -------- -------- ASSETS: Cash and due from banks $6,809 $8,095 Interest-bearing balances 67,730 65,487 Available-for-sale securities 55,583 58,859 Federal funds sold 0 0 Loans 222,583 221,353 Less, Allowance for loan losses 3,049 3,051 ------- ------- Net loans 219,534 218,302 ------- ------- Bank premises and equip't, net 3,997 3,317 Foreclosed assets held for sale 678 781 Accrued interest receivable 1,877 2,007 Cash surrender value of life insurance 4,844 4,743 Deferred income taxes 177 456 Other assets 813 1,237 ------- ------- Total Assets 362,042 363,284 ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY: Deposits: Demand 29,588 28,011 NOW 33,296 33,645 Money Market 44,279 40,515 Savings 28,439 26,705 Time 139,889 145,827 ------- ------- Total deposits 275,491 274,703 ------- ------- Short-term borrowings 9,051 18,156 Accrued interest payable 1,472 1,187 Other liabilities 1,803 1,651 Long-term debt 37,285 32,383 ------- ------- Total Liabilities 325,102 328,080 ------- ------- STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; authorized 10,000,000 shares; issued 3,207,912 and 3,056,501 shares at June 30, 2003 and December 31, 2002, resp. 3,208 3,057 Additional paid-in capital 23,472 20,368 Retained earnings 8,790 10,944 Accumulated other comprehensive inc(loss) 2,012 1,357 Treasury Stock at cost (19,519 and 19,065 shs., resp.) -542 -522 ------- ------- Total Stockholders' Equity 36,940 35,204 ------- ------- Total Liabilities & Equity 362,042 363,284 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. Note: The balance sheet at December 31, 2002, has been derived from the audited financial statements at that date but does not include all the information and notes required by generally accepted accounting principles for complete financial statements. MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited; dollars in thousands)
ThreeMonths SixMonths EndedJune 30, EndedJune 30, 2003 2002 2003 2002 INTEREST INCOME: ----- ----- ----- ----- Interest & fees on loans $3,924 $3,882 $7,824 $7,881 Int.-bearing balances 557 685 1,152 1,401 Treas. & Agency securities 132 170 283 352 Municipal securities 455 507 932 999 Other securities 21 22 37 50 Fed funds sold and repos 0 8 0 11 ----- ----- ----- ----- Total Int. Income 5,089 5,274 10,228 10,694 ----- ----- ----- ----- INTEREST EXPENSE: Deposits 1,524 1,958 3,233 3,937 Short-term borrowings 46 8 111 30 Long-term borrowings 538 517 1,045 1,027 ----- ----- ----- ----- Total Int. Expense 2,108 2,483 4,389 4,994 ----- ----- ----- ----- Net Int. Income 2,981 2,791 5,839 5,700 PROVISION FOR LOAN LOSSES 25 100 215 200 ----- ----- ----- ----- Net Int. Inc. after Prov. 2,956 2,691 5,624 5,500 ----- ----- ----- ----- NON-INTEREST INCOME: Trust dept 50 43 98 86 Service chgs. on deposits 317 253 604 503 Investment securities Gains(losses), net 170 0 170 5 Income on life insurance 40 60 100 121 Other 163 98 365 207 ----- ----- ----- ----- Total Non-Interest Income 740 454 1,337 922 ----- ----- ----- ----- NON-INTEREST EXPENSE: Salaries and benefits 1,176 1,036 2,238 2,063 Occupancy, net 102 95 235 191 Equipment 157 132 288 258 PA Bank Shares tax 65 65 132 128 Other 525 582 1,079 1,114 ----- ----- ----- ----- Tot. Non-int. Exp. 2,025 1,910 3,972 3,754 ----- ----- ----- ----- Income before income taxes 1,671 1,235 2,989 2,668 INCOME TAX EXPENSE 404 259 670 586 ----- ----- ----- ----- NET INCOME $1,267 $976 $2,319 $2,082 ===== ===== ===== ===== NET INCOME PER SHARE $0.40 $0.31 $0.73 $0.65 ===== ===== ===== ===== DIVIDENDS PER SHARE $0.20 $0.20 $0.40 $0.40 ===== ===== ===== ===== Weighted Average No. of Shares Outstanding 3,188,572 3,186,605 3,188,645 3,187,771
< The accompanying notes are an integral part of these consolidated financial statements. MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in thousands)
For the Six Months Ended June 30, 2003 2002 -------- -------- Operating Activities: Net Income $2,319 $2,082 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 215 200 Depreciation 202 182 Incr. in cash-surr. value of life insurance -100 -121 Investment securities gains, net -170 -5 Loss (gain) on sale/disposal of bank premises and equipment 0 0 Loss (gain) on the sale of foreclosed assets -20 -3 Deferred income taxes 279 -423 Change in accrued interest receivable 130 32 Change in other assets 80 261 Change in accrued interest payable 285 413 Change in other liabilities 152 182 ------- ------- Net cash provided by operating activities 3,372 2,800 ------- ------- Investing Activities: Net increase in int-bearing balances -2,243 -2,000 Incr. in federal funds sold 0 -600 Proceeds from sale of securities 2,802 1,730 Proceeds from the maturity of secs. 6,224 3,227 Purchases of investment securities -4,581 -5,331 Net increase in loans -1,592 -7,288 Purchases of bank premises & equip't -883 -134 Proceeds from sale of foreclosed assets 268 71 Capitalized additions - ORE 0 -80 ------- ------- Net cash provided by(used in) investing activities -5 -10,405 ------- ------- Financing Activities: Net incr. in deposits 788 13,602 Net decrease in short-term borrowings -9,105 -5,871 Long-term debt repayments -98 -91 Increase in long-term borrowings 5,000 0 Cash dividend paid -1,218 -1,216 Purchase of treasury stock -20 -17 ------- ------- Net cash (used in)provided by financing activities -4,653 6,407 ------- ------- Net decrease in cash & due from banks -1,286 -1,198 Cash & due from banks, beg of period 8,095 9,028 ------- ------- Cash & due from banks, end of period 6,809 7,830 ======= ======= Supplemental Disclosures of Cash Flow Information: Interest paid 4,104 4,581 Income taxes paid 530 727 Supplemental Noncash Disclosures: Loan charge-offs 262 140 Transfers to other real estate 145 0 The accompanying notes are an integral part of these consolidated financial statements.
Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements 1. The consolidated interim financial statements have been prepared by the Corporation, without audit, according to the rules and regulations of the Securities and Exchange Commission with respect to Form 10-Q. The financial information reflects all adjustments (consisting only of normal recurring adjustments) which are, in our opinion, necessary for a fair statement of results for the periods covered. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted according to these rules and regulations. We believe, however, that the disclosures are adequate so that the information is not misleading. You should read these interim financial statements along with the financial statements including the notes included in the Corporation's most recent Form 10-K. 2. Interim statements are subject to possible adjustments in connection with the annual audit of the Corporation's accounts for the full fiscal year. In our opinion, all necessary adjustments have been included so that the interim financial statements are not misleading. 3. The results of operations for the interim periods presented are not necessarily an indicator of the results expected for the full year. 4. Management considers the allowance for loan losses to be adequate at this time. 5. Short-term borrowings as of June 30, 2003, and December 31, 2002, consisted of: (Dollars in thousands) 6/30/03 12/31/02 ------- -------- Federal funds purchased $5,500 $14,200 Repurchase agreements 2,520 2,550 Treasury, tax and loan note 1,031 1,058 Due to broker 0 348 ------- -------- $9,051 $18,156 ======= ======= 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 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 Six Months Ended June 30: Ended June 30: 2003 2002 2003 2002 -------- -------- -------- -------- Net Income $1,267 $976 $2,319 $2,082 -------- -------- -------- -------- Other comprehensive income(loss): Unrealized holding gains (losses) on securities arising during the period 974 1,488 1,162 1,241 Less: reclassification adjs for losses(gains) included in net income -170 0 -170 -5 -------- -------- -------- -------- Other comprehensive income(loss) before income tax (provision) benefit 771 1,488 992 1,236 Income tax (provision) benefit related to other comp.income (loss) 262 -506 -337 -420 -------- -------- -------- -------- Other comprehensive inc(loss) 509 982 655 816 -------- -------- -------- -------- Comprehensive Income 1,776 1,958 2,974 2,898 ===== ===== ===== =====
Mid Penn Bancorp, Inc. Millersburg, Pennsylvania Management's Discussion of Consolidated Financial Condition as of June 30, 2003, compared to year-end 2002 and the Results of Operations for the second quarter and the first six months of 2003 compared to the same periods in 2002. CONSOLIDATED FINANCIAL CONDITION Total assets as of June 30, 2003, were $362,042,000, compared to $363,284,000 as of December 31, 2002. Asset growth has been challenged this year by both the general economic downturn and the competitive environment with more banks chasing a smaller amount of commercial borrowing activity. It is currently our stance to only pursue growth that makes sense from the standpoint of both profitability and interest-rate risk. During the first half of 2003, net loans outstanding increased by $1,232,000 from year end. Total deposits increased by $788,000 during the first six months of 2003. Money market accounts increased by $3,764,000 over year end largely due to the popularity of an indexed money market product offered by the bank. Time deposits decreased by $5,938,000 as a three-year CD special matured and a portion of these rate-sensitive deposits were not reinvested. Short-term borrowings decreased by $9,105,000 from year end. Five million of these short-term borrowings were replaced with a long-term, five-year fixed rate borrowing with the FHLB so as to extend the benefit of the current forty-year lows in interest rates, and this maturity closely matches the repricing of loans currently being booked. The remainder of these borrowings was decreased largely through funds generated by operations. All components of long-term debt are advances from the FHLB. Long-term debt advances were initiated in order to secure an adequate spread on certain pools of loans and investments of the Bank. As of June 30, 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. RESULTS OF OPERATIONS Net income for the first six months of 2003 was $2,319,000, compared with $2,082,000 earned in the same period of 2002. Net income per share for the same period of 2003 and 2002 was $.73 and $.65, respectively. Net income as a percentage of stockholders' equity, also known as return on equity, (ROE), was 13.0% on an annualized basis for the first half of 2003 and 13.1% for the same period of 2002. Net income for the second quarter of 2003 was $1,267,000, compared with $976,000 earned in the same quarter of 2002. Net income per share for the second quarters of 2003 and 2002 was $.40 and $.31, respectively. The increase in net income was largely due to a lower quarterly provision for loan losses (following a higher than normal provision in the first quarter), an increase in net interest margin, and a $112,000 net gain on the sale of investment securities. Net interest income of $2,981,000 for the quarter ended June 30, 2003, increased slightly over the $2,791,000 earned in the same quarter of 2002, an increase of 6.8%. Year-to-date, we have managed to maintain the bank's interest spread despite the drastic reduction in interest rates and keen interest rate competition. During the second quarter of 2003, we analyzed interest rate risk using the Profitstar Asset-Liability Management Model. Using the computerized model, management reviews interest rate risk on a periodic basis. This analysis includes an earnings scenario whereby interest rates are increased by 200 basis points (2 percentage points) and another whereby they are decreased by 200 basis points. At June 30, 2003, these scenarios indicate that there would be a variance of less than +/- 6.0% in net interest income at the one-year time frame due to interest rate changes; however, actual results could vary significantly from the calculations prepared by management. The Bank made provisions for loan losses of $25,000 and $100,000 during the second 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. Non-interest income amounted to $740,000 for the second quarter of 2003 compared to $454,000 earned during the same quarter of 2002. The sale of several municipal bonds resulted in a gain of $112,000, after tax. The bonds were sold in order to realize some of the record level profits on these fixed-income securities and to reduce average maturities in the securities portfolio in light of possible future rate increases. Service charges on deposits grew by 25% during the second quarter of 2003 compared to the same period of 2002 as the bank continues to focus on fee and service charge income. One significant contributor to non-interest income is insufficient fund (NSF) fee income. NSF fee income contributed in excess of $490,000 during the first half of 2003. Non-interest expense increased by 6.0% during the second quarter of 2003 compared to the same quarter of 2002. The main increase was $140,000 in salaries and benefits expense, due largely to the addition of a commercial loan officer and the increase in benefit costs. LIQUIDITY The Bank's objective is to maintain adequate liquidity while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding Corporate operations. Sources of liquidity include maturing investment securities, overnight borrowings of federal funds (and Flex Line), payments received on loans, and increases in deposit liabilities. Funds generated from operations contributed a major source of funds for the first half of 2003. Also a major source of funds came from the net increase in money market funds of $3,764,000 mainly in the area of the indexed money market. Another source of funds was the net decrease in investment securities of $3,276,000, reflecting the sale of over $2 million in municipal securities to realize a gain in market value. A major use of funds during the period was a net increase in loans of $1,232,000. Another major use of funds was the net increase in interest-bearing balances, investments in insured certificates of deposit of other banks, of $2,243,000 purchased in maturities of two years or less in order to provide liquidity and positioning for possible future increases in interest rates. CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES Total non-performing assets increased slightly to $3,422,000 representing 0.95% of total assets at June 30, 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 June 30, 2003. The allowance for loan losses at June 30, 2003, was $3,049,000 or 1.37% 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. MID PENN BANCORP, INC.
June 30, Dec. 31, 2003 2002 -------- -------- Non-Performing Assets: Non-accrual loans 1,259 1,164 Past due 90 days or more 1,485 808 Restructured loans 0 0 -------- -------- Total non-performing loans 2,744 1,972 Other real estate 678 781 -------- -------- Total 3,422 2,753 ===== ===== Percentage of total loans outstanding 1.54% 1.24% Percentage of total assets 0.95% 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 82 113 Real estate - residential mortgage 0 0 Consumer 49 148 -------- -------- Total loans charged off 262 302 -------- -------- Recoveries of loans previously charged off: Commercial real estate, construction and land development 0 17 Commercial, industrial and agricultural 13 0 Real estate - residential mortgage 0 0 Consumer 32 55 -------- -------- Total recoveries 45 72 -------- -------- Net (charge-offs) recoveries -217 -230 -------- -------- Current period provision for loan losses 215 425 -------- -------- Balance end of period 3,049 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: At the Annual Meeting of Shareholders held on April 22, 2003, a vote was held for the election of Class B directors: Jere M. Coxon, Alan W. Dakey, Charles F. Lebo, Guy J. Snyder, Jr. to serve for a three-year term, and to ratify the selection of Parente Randolph as external auditors for the corporation for the year ending December 31, 2003. Jere Coxon received 2,770,563 votes for and 17,129 votes withheld. Alan Dakey received 2,773,994 votes for and 13,698 votes withheld. Charles Lebo received 2,768,234 votes for and 19,457 votes withheld. Guy Snyder received 2,773,994 votes for and 13,698 withheld. The selection of external auditors received 2,779,223 votes for, 4,395 votes against, and 4,074 votes abstaining. Item 5. Other Information - Nothing to report Item 6. Exhibits and Reports on Form 8-K a. Exhibits - None. b. Reports on Form 8-K - None. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mid Penn Bancorp, Inc. Registrant /s/ Alan W. Dakey /s/ Kevin W. Laudenslager By: Alan W. Dakey By: Kevin W. Laudenslager President & CEO Treasurer Date: August 12, 2003 Date: August 12, 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: August 12, 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: August 12, 2003 By: /s/Kevin W. Laudenslager -------------------------- Kevin W. Laudenslager Treasurer