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, 2000 Commission file number 0-20141 Mid Penn Bancorp, Inc. (Exact name of registrant as specified in its charter) Pennsylvania 25-1666413 (State or other jurisdiction of (IRS Employer ID No) Incorporation or Organization) 349 Union Street, Millersburg, PA 17061 (Address of principal executive offices) (Zip Code) (717) 692-2133 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate the number of shares outstanding of each of the classes of common stock, as of the latest practical date. 3,036,762 shares of Common Stock, $1.00 par value per share, were outstanding as of March 31, 2000. Independent Auditors' Report The Board of Directors and Stockholders Mid Penn Bancorp, Inc. Millersburg, Pennsylvania We have reviewed the accompanying consolidated balance sheet of Mid Penn Bancorp, Inc. and subsidiaries (collectively, the "Corporation") as of March 31, 2000, and the related consolidated statements of income and cash flows for the three-month period then ended. These financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 21, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. PARENTE RANDOLPH, PC Williamsport, Pennsylvania May 3, 2000 MID PENN BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited; Dollars in thousands) March 31, Dec. 31, 2000 1999 -------- -------- ASSETS: Cash and due from banks 5,561 7,474 Interest-bearing balances 32,083 34,570 Available-for-sale securities 63,333 64,099 Federal funds sold 0 0 Loans 179,195 172,294 Less: Allowance for loan losses 2,570 2,505 ------- ------- Net loans 176,625 169,789 ------- ------- Bank premises and equip't, net 3,216 3,307 Other real estate 54 63 Accrued interest receivable 2,111 2,120 Cash surrender value of life insurance 4,137 4,089 Deferred income taxes 1,923 1,676 Other assets 671 355 ------- ------- Total Assets 289,714 287,542 ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY: Deposits: Demand 21,556 22,331 NOW 28,412 26,962 Money Market 18,154 22,899 Savings 25,749 25,815 Time 125,896 119,833 ------- ------- Total deposits 219,767 217,840 ------- ------- Short-term borrowings 16,195 24,636 Accrued interest payable 1,634 1,202 Other liabilities 1,321 899 Long-term debt 24,362 16,400 ------- ------- Total Liabilities 263,279 260,977 ------- ------- STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; authorized 10,000,000 shares; issued 3,056,501 shares at March 31, 2000 and December 31, 1999 3,057 3,057 Additional paid-in capital 20,368 20,368 Retained earnings 5,898 5,557 Accumulated other comprehensive income -2,340 -1,861 Less: Treasury Stock at cost (19,739 and 19,996 shs., resp.) 548 556 ------- ------- Total Stockholders Equity 26,435 26,565 ------- ------ Total Liabilities & Equity 289,714 287,542 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. Note: The balance sheet at December 31, 1999, 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 STATEMENTS OF INCOME (Unaudited; dollars in thousands) Three Months Ended March 31, 2000 1999 INTEREST INCOME: ----- ----- Interest & fees on loans 3,775 3,347 Int.-bearing balances 499 633 Treas. & Agency securities 564 625 Municipal securities 345 324 Other securities 47 29 Fed funds sold and repos 0 0 ----- ----- Total Int. Income 5,230 4,958 ----- ----- INTEREST EXPENSE: Deposits 2,035 2,111 Short-term borrowings 239 80 Long-term borrowings 378 212 ----- ----- Total Int. Expense 2,652 2,403 ----- ----- Net Int. Income 2,578 2,555 PROVISION FOR LOAN LOSSES 75 75 ----- ----- Net Int. Inc. after Prov. 2,503 2,480 ----- ----- NON-INTEREST INCOME: Trust Dept 53 18 Service Chgs. on Deposits 153 125 Investment sec. gains, net 0 50 Income on life insurance 48 55 Other 160 206 ----- ----- Total Non-Interest Income 414 454 ----- ----- NON-INTEREST EXPENSE: Salaries and benefits 927 979 Occupancy, net 101 89 Equipment 118 115 PA Bank Shares tax 67 69 Other 440 403 ----- ----- Tot. Non-int. Exp. 1,653 1,655 ----- ----- Income before income taxes 1,264 1,279 INCOME TAX EXPENSE 316 327 ----- ----- NET INCOME 948 952 ===== ===== CASH DIVIDENDS PER SHARE 0.20 1.61 ===== ===== NET INCOME PER SHARE 0.31 0.31 ===== ===== Weighted Average No. of Shares Outstanding 3,035,170 3,037,908 The accompanying notes are an integral part of these consolidated financial statements. MID PENN BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; Dollars in thousands) For the three months ended: March 31, March 31, 2000 1999 -------- -------- Operating Activities: Net Income 948 952 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 75 75 Depreciation 106 100 Incr. in cash-surr. value of life insurance-48 -47 Loss (gain) on sale of investment securities 0 -50 Loss (gain) on sale/disposal of bank premises and equipment 0 0 Loss (gain) on the sale of foreclosed assets -15 -59 Change in accrued interest receivable 9 -144 Change in other assets -316 -257 Change in accrued interest payable 432 354 Change in other liabilities 422 853 ------- ------- Net cash provided by operating activities: 1,613 1,777 ------- ------- Investing Activities: Net decrease in int-bearing balances 2,487 2,974 Proceeds from sale of securities 0 3,811 Proceeds from the maturity of secs. 1,272 1,463 Purchases of investment securities -1,232 -7,642 Net (increase)decrease in loans -6,911 436 Purchases of fixed assets -15 -38 Proceeds from sale of other real estate 24 232 Capitalized additions - ORE 0 0 ------- ------- Net cash provided by(used in) investing activities -4,375 1,236 ------- ------- Financing Activities: Net (decr)incr. in demand and savings -4,136 2,644 Net increase in time deposits 6,063 4,497 Net decrease in sh-term borrowings -8,441 -6,311 Net incr.(decr) in lg-term borrowings 7,962 -37 Cash dividend declared -607 -4,889 Net (purchase)sale of treasury stock 8 7 ------- ------- Net cash provided by(used in) financing activities 849 -4,089 ------- ------- Net decrease in cash & due from banks -1,913 -1,076 Cash & due from banks, beg of period 7,474 5,651 ------- ------- Cash & due from banks, end of period 5,561 4,575 ======= ======= Supplemental Noncash Disclosures: Loan charge-offs 19 42 Transfers to other real estate 0 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 included here 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 included here reflects all adjustments (consisting only of normal recurring adjustments) which are, in our opinion, necessary for a fair statement of results for the periods covered. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted according to these rules and regulations. We believe, however, that the disclosures made here are adequate so that the information is not misleading. You should read these interim financial statements along with the financial statements including the notes included in the Corporation's most recent Form 10-K. The unaudited financial data included herein as of March 31, 2000, and for the three-month period then ended, has been reviewed by the registrant's independent public accountants. 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, 2000, and December 31, 1999, consisted of: (Dollars in thousands) 3/31/00 12/31/99 ------- -------- Federal funds purchased $13,200 $22,300 Repurchase agreements 2,612 1,313 Treasury, tax and loan note 383 1,023 ------- -------- $16,195 $24,636 ======= ======= Federal funds purchased represent overnight funds as of March 31, 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. 6. Long-term debt as of the quarter ended March 31, 2000, and the year ended December 31, 1999, was $24,362,000 and $16,400,000, respectively. The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB) and through its membership, the Bank can access a number of credit products which are utilized to provide various forms of liquidity. The Bank entered into two long-term borrowings with the FHLB during the period: $5,000,000 in five year/two year convertible borrowing at 6.28% with a final maturity of January 14, 2010; and a $5,000,000 ten year/three year convertible borrowing at 6.71% with a final maturity of February 22, 2010. 7. Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each of the periods presented, giving retroactive effect to stock dividends and stock splits. The Corporation's basic and diluted earnings per share are the same since there are no dilutive shares of potential common stock outstanding. 8. The purpose of reporting comprehensive income (loss) is to report a measure of all changes in the Corporation's equity resulting from economic events other than transactions with stockholders in their capacity as stockholders. For the Corporation "comprehensive income(loss)" includes traditional income statement amounts as well as unrealized gains and losses on certain investments in debt and equity securities (i.e. available for sale securities). Because unrealized gains and losses are part of comprehensive income (loss), comprehensive income (loss) may vary substantially between reporting periods due to fluctuations in the market prices of securities held. This is evidenced by the fact that the Corporation's net income decreased for the three months ended March 2000 compared to the corresponding period in 1999, but comprehensive income (loss) over the same period has increased. (In thousands) Three Months Ended March 31, 2000 1999 ---- ---- Net Income $948 $952 ---- ---- Other comprehensive income(loss): Unrealized holding losses on securities arising during the period -726 -758 Less: reclassification adjustments for gains included in net income 0 50 ----- ----- Other comprehensive loss before income tax provision -726 -808 Income tax benefit related to other comprehensive loss 247 275 ----- ----- Other comprehensive loss -479 -533 ----- ----- Comprehensive Income $ 469 $ 419 ===== ===== Mid Penn Bancorp, Inc. Millersburg, Pennsylvania Management's Discussion of Consolidated Financial Condition for the three months ended March 31, 2000, compared to year- end 1999 and the Results of Operations for the first quarter of 2000 compared to the same period in 1999. CONSOLIDATED FINANCIAL CONDITION Total assets as of March 31, 2000, increased to $289,714,000, from $287,542,000 as of December 31,1999. During the first quarter of 2000, loans outstanding increased by $6,836,000, or 4%. Cash balances, which were higher than normal levels at December 31, 1999 due to projected cash needs in conjunction with Y2K, decreased by $1,913,000 by March 31, 2000. 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 assigned 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 eighteen months, our existing securities are valued lower in comparison. This difference in value, or unrealized loss, amounted to $2,340,000, net of tax, as of March 31, 2000. However, the investments are all high credit quality securities that if held to maturity are expected to yield no loss to the bank. Total deposits increased by $1,927,000 during the first three months of 2000. Certificates of deposit increased by $6,063,000 while money market balances decreased by $4,745,000 indicating a movement toward time deposits at this point in the interest rate cycle. Short-term borrowings, consisting mainly of overnight borrowings, decreased by $8.4 million from year end. These borrowings had been increased during the fourth quarter of 1999 to fund the strong loan growth, and to allow for sufficient liquidity to meet Y2K needs. In the first quarter of 2000, we have refinanced approximately 8 million of short-term funds using longer term borrowings in light of rising interest rates. 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. Funds from maturing interest-bearing balances were also used to fund loan growth; thus, balances decreased from $34,670,000 at year-end to $32,083,000 on March 31. As of March 31, 2000, 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. We launched a comprehensive interactive, internet banking package during the first quarter of 2000. Our internet banking program has been well received by our customers who are using the service in increasing numbers. The web site and online banking program can be found at www.midpennbank.com. In addition to the complete online banking product, we continue to research sites in the greater Harrisburg area for an additional branch location that may add value for our bank and its shareholders. RESULTS OF OPERATIONS Net income for the first quarter of 2000 was $948,000, compared with $952,000 earned in the same quarter of 1999. Net income per share for the first quarters of both 2000 and 1999 was $.31. Net income as a percentage of stockholders' equity, also known as return on equity, (ROE), was 14.3% on an annualized basis for the first quarter of 2000 as compared to 13.6% for the same period in 1999. Net interest income of $2,578,000 for the quarter ended March 31, 2000, remained flat compared to the $2,555,000 earned in the same quarter of 1999. Margins continue to be challenged by strong rate competition for both loans and deposits. During the first quarter of 2000, we analyzed interest rate risk using the Vining Sparks Asset-Liability Management Model. Using the computerized model, management reviews interest rate risk on a periodic basis. This analysis includes an earnings scenario whereby interest rates are increased by 200 basis points (2 percentage points) and another whereby they are decreased by 200 basis points. At February 28, 2000, these scenarios indicate that there would not be a significant variance in net interest income at the one-year time frame due to interest rate changes; however, actual results could vary significantly from the calculations prepared by management. The Bank made a provision for loan losses of $75,000 during the first quarters of both 2000 and 1999. On a quarterly basis, senior management reviews potentially unsound loans taking into consideration judgments regarding risk or error, economic conditions, trends and other factors in determining a reasonable provision for the period. Non-interest income amounted to $414,000 for the first quarter of 2000 compared to $454,000 earned during the same quarter of 1999. In the first quarter of 1999, we realized a gain of $50,000 on the sale of investment securities. A significant contribution to non-interest income is insufficient fund (NSF) fee income. NSF fee income contributed in excess of $106,000 during the first quarter of 2000. Gains resulting from the sale of other real estate amounted to $15,000 during the first quarter of 2000 in comparison to the $59,000 earned during the same period of 1999. Non-interest expense during the first quarter of 2000 of $1,653,000 changed little compared to an expense of $1,655,000 during the same period of 1999. Additional advertising dollars were spent during the first quarter of 2000 to promote several certificate of deposit specials of the bank. 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 2000 The major source of funds came from the increase in time deposits of $6,063,000 mainly an increase in certificates of deposits. Other major sources of funds included the $7,962,000 net increase in net long-term borrowings, and the $2,487,000 net decrease in interest bearing balances. The major use of funds during the period was a net decrease in short-term borrowings of $8,441,000. The other major use of funds was for the net increase in loans of $6,911,000. YEAR 2000 COMPLIANCE: MANAGEMENT INFORMATION SYSTEMS In 1998 we established a Year 2000 compliance committee to address the risks of the critical internal bank systems that may 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. Testing demonstrated that the new hardware and software were Year 2000 compliant. In addition, the Corporation hired a third-party Year 2000 consultant. With the aid of the consultant, we developed a testing master plan, organization chart and detailed work plan. The testing plan included several phases of testing in accordance with regulatory guidelines. We successfully completed the testing of all systems critical to the operation of the bank on February 3, 1999. Mid Penn Bank proved its readiness for the new millennium with no problems encountered as we moved into the current year, nor do we expect any problems with critical dates in the future. CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES Total non-performing assets decreased to $2,065,000 representing 0.71% of total assets at March 31, 2000, from $2,217,000 or 0.77% of total assets at December 31, 1999. Most non-performing assets are supported by collateral value that appears to be adequate at March 31, 2000. The allowance for loan losses at March 31, 2000, was $2,570,000 or 1.43% of loans, net of unearned interest, as compared to $2,505,000 or 1.45% of loans, net of unearned interest, at December 31, 1999. 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. March 31, Dec. 31, 2000 1999 -------- -------- Non-Performing Assets: Non-accrual loans 730 890 Past due 90 days or more 384 386 Restructured loans 897 878 ------- ------- Total non-performing loans 2,011 2,154 Other real estate 54 63 ------- ------- Total 2,065 2,217 ======= ======= Percentage of total loans outstanding 1.15 1.29 Percentage of total assets 0.71 0.77 Analysis of the Allowance for Loan Losses: Balance beginning of period 2,505 2,313 Loans charged off: Commercial real estate, construction and land development 0 0 Commercial, industrial and agricultural 0 146 Real estate - residential mortgage 0 0 Consumer 19 78 ------- ------- Total loans charged off 19 224 ------- ------- Recoveries of loans previously charged off: Commercial real estate, construction and land development 0 55 Commercial, industrial and agricultural 0 1 Real estate - residential mortgage 0 0 Consumer 9 35 ------- ------- Total recoveries 9 91 ------- ------- Net (charge-offs) recoveries -10 -133 ------- ------- Current period provision for loan losses 75 325 ------- ------- Balance end of period 2,570 2,505 ======= ====== 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 - (27) Financial Data Schedule Reports on Form 8-K - None. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mid Penn Bancorp, Inc. Registrant /s/ Eugene F. Shaffer /s/ Kevin W. Laudenslager By:Eugene F. Shaffer By:Kevin W. Laudenslager Chairman, Pres. & CEO Treasurer Date: May 10, 2000 Date: May 10, 2000