UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 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. 3,037,390 shares of Common Stock, $1.00 par value per share, were outstanding as of September 30, 2002. MID PENN BANCORP, INC. CONSOLIDATED BALANCE SHEET (Unaudited; Dollars in thousands) Sept. 30, Dec. 31, 2002 2001 -------- -------- ASSETS: Cash and due from banks 7,518 9,028 Interest-bearing balances 63,012 53,042 Available-for-sale securities 56,069 55,348 Federal funds sold 4,150 0 Loans 210,831 202,836 Less, Allowance for loan losses 3,032 2,856 ------- ------- Net loans 207,799 199,980 ------- ------- Bank premises and equip't, net 3,323 3,395 Other real estate 1,697 1,693 Accrued interest receivable 1,966 2,091 Cash surrender value of life insurance 4,683 4,504 Deferred income taxes 115 1,037 Other assets 917 517 ------- ------- Total Assets 351,249 330,635 ======= ======= LIABILITIES & STOCKHOLDERS' EQUITY: Deposits: Demand 29,255 29,226 NOW 31,977 30,795 Money Market 40,700 27,734 Savings 26,593 26,398 Time 148,225 139,952 ------- ------- Total deposits 276,750 254,105 ------- ------- Short-term borrowings 3,442 9,610 Accrued interest payable 2,140 1,292 Other liabilities 1,575 1,344 Long-term debt 32,431 32,568 ------- ------- Total Liabilities 316,338 298,919 ------- ------- STOCKHOLDERS' EQUITY: Common stock, par value $1 per share; authorized 10,000,000 shares; issued 3,056,501 shares at Sept. 30, 2002 and December 31, 2001 3,057 3,057 Additional paid-in capital 20,368 20,368 Retained earnings 10,284 8,880 Accumulated other comprhnsive inc(loss) 1,735 -56 Treasury stock at cost (19,111 and 19,065 shs., resp.) -533 -533 ------- ------- Total Stockholders' Equity 34,911 31,716 ------- ------ Total Liabilities & Equity 351,249 330,635 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. Note: The balance sheet at December 31, 2001, has been derived from the audited financial statements at that date but does not include all the information and notes required by generally accepted accounting principles for complete financial statements. MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited; dollars in thousands) Three Months Nine Months Ended Sept 30, Ended Sept 30, 2002 2001 2002 2001 INTEREST INCOME: ----- ----- ----- ----- Interest & fees on loans 3,997 4,047 11,877 12,276 Int.-bearing balances 663 786 2,064 2,314 Treas. & Agency securities 159 268 511 1,151 Municipal securities 515 470 1,514 1,320 Other securities 14 45 65 160 Fed funds sold and repos 31 55 42 75 ----- ----- ----- ----- Total Int. Income 5,379 5,671 16,073 17,296 ----- ----- ----- ----- INTEREST EXPENSE: Deposits 2,022 2,306 5,960 7,061 Short-term borrowings 7 36 36 416 Long-term borrowings 521 543 1,548 1,578 ----- ----- ----- ----- Total Int. Expense 2,550 2,885 7,544 9,055 ----- ----- ----- ----- Net Int. Income 2,829 2,786 8,529 8,241 PROVISION FOR LOAN LOSSES 100 100 300 250 ----- ----- ----- ----- Net Int. Inc. after Prov. 2,729 2,686 8,229 7,991 ----- ----- ----- ----- NON-INTEREST INCOME: Trust dept 44 24 130 93 Service chgs. on deposits 272 228 774 662 Investment sec. gains (losses), net 55 4 60 -14 Gain on sale of loans 0 0 0 0 Other 182 223 510 613 ----- ----- ----- ----- Total Non-Interest Income 553 479 1,474 1,354 ----- ----- ----- ----- NON-INTEREST EXPENSE: Salaries and benefits 1,078 1,044 3,142 3,080 Occupancy, net 85 97 276 308 Equipment 126 126 383 364 PA Bank Shares tax 66 66 193 196 Other 452 465 1,566 1,439 ----- ----- ----- ----- Tot. Non-int. Exp. 1,807 1,798 5,560 5,387 ----- ----- ----- ----- Income before income taxes 1,475 1,367 4,143 3,958 INCOME TAX EXPENSE 330 303 916 906 ----- ----- ----- ----- NET INCOME 1,145 1,064 3,227 3,052 ===== ===== ===== ===== NET INCOME PER SHARE 0.38 0.35 1.06 1.00 ===== ===== ===== ===== DIVIDENDS PER SHARE 0.20 0.20 .60 .60 ===== ===== ===== ===== Weighted Average No. of Shares Outstanding 3,036,334 3,036,094 3,036,843 3,038,401 The accompanying notes are an integral part of these consolidated financial statements. MID PENN BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; Dollars in thousands) For the nine months ended: Sept. 30, Sept. 30, 2002 2001 ------------ ----------- Operating Activities: Net Income 3,227 3,052 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 300 250 Depreciation 275 275 Incr. in cash-surr. value of life ins. -179 -160 Loss (gain) on sale of investment securities -60 14 Loss (gain) on sale/disposal of bank premises and equipment 0 0 Loss (gain) on the sale of foreclosed assets 52 -16 Loss (gain) on the sale of loans 0 0 Change in accrued interest receivable 125 358 Change in other assets -400 -124 Change in accrued interest payable 848 871 Change in other liabilities 231 1,034 ------- ------- Net cash provided by operating activities: 4,419 5,554 ------- ------- Investing Activities: Net (incr)decr in int-bearing balances -9,970 -9,851 Incr. in federal funds sold -4,150 0 Proceeds from sale of securities 3,176 11,284 Proceeds from the maturity of secs. 6,681 19,071 Purchase of investment securities -7,805 -10,438 Proceeds from the sale of loans 0 0 Net increase in loans -8,119 -16,571 Purchases of fixed assets -203 -143 Proceeds from sale of other real estate 107 81 Capitalized additions - ORE -163 0 ------- ------- Net cash used in investing activities -20,446 -6,629 ------- ------- Financing Activities: Net (decr)incr in demand & svngs deps. 14,372 12,389 Net incr(decr) in time deposits 8,273 1,362 Net decrease in sh-term borrowings -6,168 -13,040 Net incr(decr) in long-term borrowings -137 3,371 Cash dividend declared -1,823 -1,823 Net sale of treasury stock 0 -22 ------- ------- Net cash provided by(used in) financing activities 14,517 2,237 ------- ------- Net (decr)incr in cash & due from banks -1,510 1,224 Cash & due from banks, beg of period 9,028 5,986 ------- ------- Cash & due from banks, end of period 7,518 7,210 ======= ======= Supplemental Noncash Disclosures: Loan charge-offs 189 193 Transfers to other real estate 0 188 The accompanying notes are an integral part of these consolidated financial statements. Mid Penn Bancorp, Inc. Notes to Consolidated Financial Statements 1. The consolidated interim financial statements have been prepared by the Corporation, without audit, according to the rules and regulations of the Securities and Exchange Commission with respect to Form 10-Q. The financial information reflects all adjustments (consisting only of normal recurring adjustments) which are, in our opinion, necessary for a fair statement of results for the periods covered. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted according to these rules and regulations. We believe, however, that the disclosures are adequate so that the information is not misleading. You should read these interim financial statements along with the financial statements including the notes included in the Corporation's most recent Form 10-K. 2. Interim statements are subject to possible adjustments in connection with the annual audit of the Corporation's accounts for the full fiscal year. In our opinion, all necessary adjustments have been included so that the interim financial statements are not misleading. 3. The results of operations for the interim periods presented are not necessarily an indicator of the results expected for the full year. 4. Management considers the allowance for loan losses to be adequate at this time. 5. Short-term borrowings as of Sept. 30, 2002, and December 31, 2001, consisted of: (Dollars in thousands) 9/30/02 12/31/01 ------- -------- Federal funds purchased $0 $5,800 Repurchase agreements 2,417 2,666 Treasury, tax and loan note 1,025 196 Due to broker 0 948 ------- -------- $3,442 $9,610 ======= ======= 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 and stock splits, if any. 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 Nine Months Ended Sept 30, Ended Sept 30, 2002 2001 2002 2001 ----- ------ ------ ------ Net Income $1,145 $1,064 $3,227 $3,052 ------ ------ ------ ------ Other comprehensive income(loss): Unrealized holding gains(losses) on securities arising during the period 1,418 566 2,654 1,455 Less: reclassification adjustments for (gains) losses included in net income -55 -4 -60 14 ----- ------ ------ ------ Other comprehensive income(loss) before income tax (provision)benefit 1,473 570 2,714 1,441 Income tax (provision)benefit related to other comprehensive income(loss) -501 -194 -923 -490 ----- ------ ------ ------ Other comprehensive inc(loss) 972 376 1,791 951 ----- ------ ------ ------ Comprehensive Income(Loss) $2,117 $1,440 $5,018 $4,003 ====== ====== ====== ====== Mid Penn Bancorp, Inc. Millersburg, Pennsylvania Management's Discussion of Consolidated Financial Condition as of Sept. 30, 2002, compared to year-end 2001 and the Results of Operations for the third quarter and the first nine months of 2002 compared to the same periods in 2001. CONSOLIDATED FINANCIAL CONDITION Total assets as of September 30, 2002, increased to $351,249,000, from $330,635,000 as of December 31, 2001. During the first three quarters of 2002, net loans outstanding increased by $7,818,000, or 4% from year end. Total deposits increased by $22,645,000 during the first nine months of 2002. Money market accounts increased by $13 million over year end largely due to the popularity of a new indexed money market product offered by the bank. It appears that many depositors are currently uneasy about investing in the stock market and are thus depositing into bank money market and other more conservative investments. Short-term borrowings decreased by $6 million from year end. These borrowings were decreased largely through funds generated by operations and through increased deposit liabilities. All components of long-term debt are advances from the FHLB. Long-term debt advances were initiated prior to 2002 in order to secure an adequate spread on certain pools of loans and investments of the Bank. As of Sept. 30, 2002, 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 nine months of 2002 was $3,227,000, compared with $3,052,000 earned in the same period of 2001. Net income per share for the same period of 2002 and 2001 was $1.06 and $1.00, respectively. Net income as a percentage of stockholders' equity, also known as return on equity, (ROE), was 13.3% on an annualized basis for the nine months of 2002 as well as for the same period in 2001. The reason that ROE did not increase with the higher earnings was the increase in shareholders equity resulting from the unrealized gain on investment securities arising in the current rate environment. Net income for the third quarter of 2002 was $1,145,000, compared with $1,064,000 earned in the same quarter of 2001. Net income per share for the third quarters of 2002 and 2001 was $.38 and $.35, respectively. Net interest income of $2,829,000 for the quarter ended Sept. 30, 2002, increased by 1.5% compared to the $2,786,000 earned in the same quarter of 2001. This rise indicates an increase in interest spread during the quarter despite keen interest rate competition. During the third quarter of 2002, 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 Sept. 30, 2002, these scenarios indicate that there would not be a significant variance in net interest income at the one-year time frame due to interest rate changes; however, actual results could vary significantly from the calculations prepared by management. The Bank made a provision for loan losses of $100,000 during the third quarters of both 2002 and 2001. 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 increased by more than 15% to $553,000 for the third quarter of 2002 compared to $479,000 earned during the same quarter of 2001. Service charges on deposits grew by more than 19% during the third quarter of 2002 compared to the same period of 2001 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 $616,000 during the first nine months of 2002, as compared to $547,000 for the same period of 2001. Non-interest expense during the third quarter of 2002 of $1,807,000 increased by less than 1% as compared to an expense of $1,798,000 during the same period of 2001 as we continue to strive to maintain low overhead. LIQUIDITY The Bank's objective is to maintain adequate liquidity while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding Corporate operations. Sources of liquidity include maturing investment securities, overnight borrowings of federal funds (and Flex Line), payments received on loans, and increases in deposit liabilities. Funds generated from operations contributed a major source of funds for the first nine months of 2002. Other major sources of funds included a net increase in demand and savings deposit liabilities of $14 million mainly in the area of our indexed money market account, and a net increase in time deposits of $8 million. Major uses of funds included a net increase in loans of $8 million and a net increase of $10 million in short-term interest bearing balances purchased as investment alternatives, which provide monthly income and maturities of two years or less. CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES Total non-performing assets decreased to $4,042,000, representing 1.15% of total assets at Sept. 30, 2002, from $4,744,000 or 1.44% of total assets at December 31, 2001. Most non-performing assets are supported by collateral value that appears to be adequate at September 30, 2002. The allowance for loan losses at Sept. 30, 2002, was $3,032,000 or 1.44% of loans, net of unearned interest, as compared to $2,856,000 or 1.41% of loans, net of unearned interest, at December 31, 2001. Based upon the ongoing analysis of the Bank's loan portfolio by the loan review department, the latest quarterly analysis of potentially unsound loans and non-performing assets, we consider the Allowance for Loan Losses to be adequate to absorb any reasonable, foreseeable loan losses. MID PENN BANCORP, INC. Sept. 30, Dec. 31, 2002 2001 -------- -------- Non-Performing Assets: Non-accrual loans 1,576 1,686 Past due 90 days or more 769 828 Restructured loans 0 537 ------- ------- Total non-performing loans 2,345 3,051 Other real estate 1,697 1,693 ------- ------- Total 4,042 4,744 ======= ======= Percentage of total loans outstanding 1.92 2.34 Percentage of total assets 1.15 1.44 Analysis of the Allowance for Loan Losses: Balance beginning of period 2,856 2,815 Loans charged off: Commercial real estate, construction and land development 0 249 Commercial, industrial and agricultural 73 118 Real estate - residential mortgage 0 0 Consumer 116 122 ------- ------- Total loans charged off 189 489 ------- ------- Recoveries of loans previously charged off: Commercial real estate, construction and land development 17 0 Commercial, industrial and agricultural 0 1 Real estate - residential mortgage 0 0 Consumer 48 29 ------- ------- Total recoveries 65 30 ------- ------- Net (charge-offs) recoveries -124 -459 ------- ------- Current period provision for loan losses 300 500 ------- ------- Balance end of period 3,032 2,856 ======= ====== CONTROLS AND PROCEDURES: (a) Evaluation of disclosure controls and procedures. The company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days prior to the filing date of this report, the Chief Executive and Chief Financial Officers of the Company concluded that the Company's disclosure controls and procedures were adequate. (b) Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of the controls by the Chief Executive and Chief Financial Officers. Mid Penn Bancorp, Inc. PART II - OTHER INFORMATION: Item 1. Legal Proceedings - Nothing to report Item 2. Changes in Securities - Nothing to report Item 3. Defaults Upon Senior Securities - Nothing to report Item 4. Submission of Matters to a Vote of Security Holders - Nothing to report Item 5. Other Information - Nothing to report Item 6. Exhibits and Reports on Form 8-K a. Exhibits - None. b. Reports on Form 8-K - None. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mid Penn Bancorp, Inc. Registrant /s/ Alan W. Dakey /s/ Kevin W. Laudenslager By: Alan W. Dakey By: Kevin W. Laudenslager President & CEO Treasurer Date: November 8, 2002 Date: November 8, 2002 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: November 8, 2002 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: November 8, 2002 By: /s/ Kevin W. Laudenslager ----------------------------- Kevin W. Laudenslager Treasurer