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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, 2006
Commission file number 1-13677
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 by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act)
[ ] Large accelerated [ X ] Accelerated [ ] Non-accelerated
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
[ ] Yes [ X ] No
Indicate the number of shares outstanding of each of the classes of common
stock, as of the latest practical date.
3,348,063 shares of Common Stock, $1.00 par value per share, were outstanding as
of May 5, 2006.
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PART I
ITEM I: FINANCIAL INFORMATION
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Mar. 31 Mar. 31
2006 2005
--------- ---------
(Unaudited) (Audited)
ASSETS:
Cash and due from banks
$ 6,952 $ 6,350
Interest-bearing balances 48,180 54,549
Available-for-sale securities 53,822 50,878
Federal funds sold 0 0
Loans 317,399 311,837
Less,
Allowance for loan and lease losses 3,770 3,704
--------- ---------
Net loans 313,629 308,133
--------- ---------
Bank premises and equip't, net 6,367 6,334
Foreclosed assets held for sale 642 458
Accrued interest receivable 2,209 2,269
Cash surrender value of life insurance 6,458 6,402
Deferred income taxes 1,422 1,392
Other assets 1,690 1,345
--------- ---------
Total Assets 441,371 438,110
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Demand 42,722 41,719
NOW 31,310 31,686
Money Market 62,051 61,421
Savings 25,630 26,825
Time 161,105 163,623
--------- ---------
Total deposits 322,818 325,274
--------- ---------
Short-term borrowings 12,460 12,342
Accrued interest payable 1,677 1,535
Other liabilities 2,295 2,260
Long-term debt 64,807 59,838
--------- ---------
Total Liabilities 404,057 401,249
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,367,119 shares at March 31, 2006 and
3,207,912 shares at December 31, 2005 3,367 3,208
Additional paid-in capital 27,452 23,472
Retained earnings 6,858 10,486
Accumulated other comprehensive inc (loss) 173 231
Treasury Stock at cost (19,056 shs.) (536) (536)
--------- ---------
Total Stockholders' Equity 37,314 36,861
--------- ---------
Total Liabilities & Equity 441,371 438,110
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; Dollars in thousands)
For the quarter
Ended March 31,
2006 2005
---------- ----------
INTEREST INCOME:
Interest & fees on loans $ 5,462 $ 4,424
Int.-bearing balances 537 464
Treas. & Agency securities 236 172
Municipal securities 295 264
Other securities 50 20
Fed funds sold and repos 0 4
---------- ----------
Total Int. Income 6,580 5,348
---------- ----------
INTEREST EXPENSE:
Deposits 1,922 1,385
Short-term borrowings 145 44
Long-term borrowings 740 674
---------- ----------
Total Int. Expense 2,807 2,103
---------- ----------
Net Int. Income 3,773 3,245
PROVISION FOR LOAN AND LEASE LOSSES 135 60
---------- ----------
Net Int. Inc. after Prov. for Loan & Lease Losses 3,638 3,185
---------- ----------
NON-INTEREST INCOME:
Trust dept 65 61
Service chgs. on deposits 329 322
Investment securities
Gains(losses), net 0 0
Income on life insurance 56 53
Mortgage banking income 30 28
Income from sale of other real estate 152 0
Other 193 268
---------- ----------
Total Non-Interest Income 825 732
---------- ----------
NON-INTEREST EXPENSE:
Salaries and benefits 1,584 1,481
Occupancy, net 159 146
Equipment 207 168
PA Bank Shares tax 70 67
ATM/Debit card expenses 34 12
Professional fees 115 71
Director fees and benefits 53 50
Computer software licenses and maintenance 49 55
Stationery and supplies 52 50
Early withdrawal penalty on interest bearing balances 92 0
Other 499 440
---------- ----------
Tot. Non-int. Exp 2,914 2,540
---------- ----------
Income before income tax provision 1,549 1,377
INCOME TAX PROVISION 394 360
---------- ----------
NET INCOME $ 1,155 $ 1,017
========== ==========
NET INCOME PER SHARE $ 0.34 $ 0.30
========== ==========
DIVIDENDS PER SHARE $ 0.20 $ 0.20
========== ==========
Weighted Average No. of
Shares Outstanding 3,348,063 3,348,063
Earnings per share has been adjusted to reflect
the 5% stock dividend paid in February of 2006.
The accompanying notes are an integral part
of these consolidated financial statements.
3
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in thousands)
For the Quarter
Ended March 31,
2006 2005
-------- --------
Operating Activities:
Net Income $ 1,155 $ 1,017
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan & lease losses 135 60
Depreciation 160 123
Incr. in cash-surr. value of life insurance (56) (53)
Investment securities gains, net 0 0
Amortization 9 9
Gain on sale/disposal of bank
premises and equipment (9) 0
Gain on the sale of foreclosed
assets (152) 0
Deferred income taxes (30) (146)
Change in accrued interest receivable 60 (10)
Change in other assets (324) (255)
Change in accrued interest payable 142 208
Change in other liabilities 35 (86)
-------- --------
Net cash provided by
operating activities 1,125 862
-------- --------
Investing Activities:
Net decr(incr) in int-bearing balances 6,369 492
Proceeds from sale of securities 0 0
Proceeds from sale of bank premises & equip't 9 0
Proceeds from the maturity of secs 654 1,573
Purchases of investment securities (3,686) (161)
Net increase in loans (5,815) (1,836)
Purchases of bank premises & equip't (193) (366)
Proceeds from sale of foreclosed assets 152 0
-------- --------
Net cash provided by(used in)
investing activities (2,510) (298)
-------- --------
Financing Activities:
Net incr.(decr.) in demand and savings 62 (3,118
Net (decr.)incr. in time deposits (2,518) 692
Net decrease in federal funds sold 0 0
Net incr.(decr.) in short-term borrowings 118 (8,315)
Long-term debt repayments (5,031) (29)
Long-term borrowings 10,000 10,000
Cash dividend paid (644) (638)
Purchase of treasury stock 0 (158)
-------- --------
Net cash provided by(used in)
financing activities 1,987 (1,566)
-------- --------
Net incr(decr) in cash & due from banks 602 (1,002)
Cash & due from banks, beg of period 6,350 6,679
-------- --------
Cash & due from banks, end of period 6,952 5,677
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid 2,665 1,895
Income taxes paid 0 0
Supplemental Noncash Disclosures:
Loan charge-offs 87 29
Transfers to foreclosed assets held for sale 184 0
4
Mid Penn Bancorp, Inc.
Notes to Consolidated Financial Statements
1. The consolidated interim financial statements with the exception of the
consolidated balance sheet dated December 31, 2005, are unaudited and have been
prepared 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
of the United States of America 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 and lease losses to be adequate
at this time.
5. Short-term borrowings as of March 31, 2006, and December 31, 2005, consisted
of:
(Dollars in thousands)
3/31/06 12/31/05
------- --------
Federal funds purchased $6,000 $ 5,000
Repurchase agreements 6,408 6,899
Treasury, tax and loan note 52 443
Due to broker 0 0
------- --------
$12,460 $12,342
======= =======
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. During the first quarter, Mid Penn Bank ("MPB") entered into a $5 million,
five-year, long-term borrowing with the FHLB at a fixed rate of 5.13% and a $5
million, three-year, long-term borrowing with the FHLB at a fixed rate of 5.18%
7. MPB has an unfunded noncontributory defined benefit pension plan for
directors. The plan provides defined benefits based on years of service. MPB
also has other postretirement benefit plans covering full-time employees. These
health care and life insurance plans are noncontributory. MPB uses a December 31
measurement date for its plans.
5
The components of net periodic benefit costs from these benefit plans are as
follows:
Three months ended March 31:
(Dollars in thousands)
Pension Benefits
Other Benefits
2006 2005 2006 2005
---- ---- ---- ----
Service cost $ 10 $ 6 $ 5 $ 9
Interest cost 7 10 9 8
Expected return on plan assets 0 0 0 0
Amortization of transition obligation 4 0 0 4
Amortization of prior service cost 0 6 0 0
Amortization of net (gain) loss (1) 0 0 0
---- ---- ---- ----
Net periodic benefit cost $ 20 $ 22 $ 14 $ 21
---- ---- ---- ----
8. 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.
9. 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.
Three Months
Ended March 31:
(In thousands)
2006 2005
------- -------
Net Income $ 1,155 $ 1,017
------- -------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period (88) (432)
Less: reclassification
adjs for losses(gains) included
in net income 0 0
------- -------
Other comprehensive income(loss)
before income tax (provision)
benefit (88) (432)
Income tax (provision) benefit
related to other comp.income (loss) 30 147
------- -------
Other comprehensive inc(loss) (580 (285)
------- -------
Comprehensive Income 1,097 732
======= =======
6
Mid Penn Bancorp, Inc.
Millersburg, Pennsylvania
ITEM 2: Management's Discussion of Consolidated Financial Condition
Management's Discussion of Consolidated Financial Condition
as of March 31, 2006, compared to year-end 2005 and the Results of Operations
for the first quarter of 2006 compared to the same period in 2005.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of March 31, 2006, were $441,371,000 compared to $438,110,000 as
of December 31, 2005.
During the first quarter of 2006, net loans outstanding
increased by $5,496,000, or 1.8%. Interest-bearing balances, insured
certificates of deposits in other financial institutions and investment
securities, decreased by $6,396,000 as we continue to reinvest a portion of
these maturing funds into higher yielding loans.
Total deposits balances remained fairly flat during the first quarter with
continued competition for deposit dollars in our market.
Short-term borrowings also remained fairly constant during the quarter. We
entered into two long-term borrowings during the quarter in anticipation of
rising interest rates. All components of long-term debt are advances from the
FHLB.
These long-term debt advances match nicely with the average terms of the loans
granted on the asset side of the balance sheet.
As of March 31, 2006, 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. In September of 2005, Mid Penn Bancorp's Board of Directors
approved a Stock Repurchase Program under which the Corporation could buy back
up to 250,000 shares of Mid Penn Bancorp common stock. No shares have been
repurchased to date.
RESULTS OF OPERATIONS
Net income for the first quarter of 2006 was $1,155,000, compared with
$1,017,000 earned in the same quarter
of 2005, an increase of 13.6%. Net income per share for the first quarter of
2006 and 2005 was $.34 and $.30, respectively. Net income as a percentage of
stockholders' equity, also known as return on equity, (ROE), was 12.5% on an
annualized basis for the first quarter of 2006 as compared to 11.5% for the same
period in 2005.
Net interest income increased due to both higher interest rates as well as a
larger base of earning assets as compared to the first quarter of 2005. Net
interest income of $3,773,000 for the quarter ended March 31, 2006, increased by
16.3% compared to the $3,245,000 earned in the same quarter of 2005. We continue
to closely monitor net interest income, positioning the balance sheet so as to
benefit in a rising rate environment. According to recent statements by the
Federal Reserve, it would appear that interest rates will continue to rise at
least through the second quarter of 2006.
During the first quarter of 2006, MPB 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 March 31, 2006, these scenarios were within the policy limits of +/-
15% in net interest income for the next twelve months; however, actual results
could vary significantly from the calculations prepared by management.
7
Based on Management's analysis of the loan portfolio, the Bank recorded a
$135,000 provision for possible loan and lease losses during the first quarter
of 2006, compared to a provision of $60,000 made during the first quarter of
2005. On a quarterly basis, senior management reviews potentially unsound loans
taking into consideration judgments regarding risk of loss, economic conditions,
trends and other factors in determining a reasonable provision for the period. A
portion of the allowance for loan and lease losses is based on applying
historical loss ratios to the existing loan portfolio. As a result, the increase
in the loan portfolio caused an increase in the provision.
Non-interest income amounted to $825,000 for the first quarter of 2006 compared
to $732,000 earned during the same
quarter of 2005. The most significant change to non-interest income during the
quarter was a $152,000 gain realized on the sale of a long-standing parcel of
other real estate. Another significant contribution to non-interest income
continues to be insufficient fund (NSF) fee income. NSF fee income contributed
approximately $270,000 during the first quarter of 2006.
Non-interest expense amounted to $2,914,000 for the first quarter of 2006
compared to $2,540,000 incurred during the same quarter of 2005. The largest
increase in non- interest expense during the first quarter of 2006 as compared
to the same period in 2005, was the $103,000
increase in salary and benefits expense, which is largely attributable to the
addition of five full-time equivalent personnel at our two newest offices in
Harrisburg. Both of these offices opened in the second quarter of 2005. We also
paid approximately $92,000 in early withdrawal penalties on a block of five-year
interest bearing balances. The proceeds from these jumbo certificates of deposit
were reinvested at current rates to increase the Bank's interest income going
forward. The increased cash flow will more than offset the penalties paid over
the remaining lives of the balances. Professional fees increased by
approximately $44,000 during the first quarter of 2006, largely due to
recruiting fees paid for two officer-level personnel hired during the quarter.
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 was a major source of funds during the quarter.
Another significant source of funds came from the net decrease in interest
bearing balances that were liquidated during the first quarter, which generated
over $6.3 million in funds. These funds were reinvested in higher-yielding loans
and investments during the quarter. Another source of funds during the quarter
was a $10 million long-term borrowing entered into with the FHLB, $5 million of
which replaced a borrowing that matured during the quarter. These fixed-rate
borrowings were consummated in anticipation of higher borrowing costs later in
the year.
A major use of funds during the period was the net
increase in loans of $5.5 million, particularly in the area
of commercial loans secured by real estate. Another major use of cash during the
first quarter was the purchase of available for sale securities of $3 million.
CREDIT RISK AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Total non-performing assets were $3,384,000, representing 0.77% of total assets
at March 31, 2006, compared to $3,317,000, or 0.76% of total assets at December
31, 2005. Most non-performing assets are supported by collateral value that
appears to be adequate at March 31, 2006.
The allowance for loan losses at March 31, 2006, was $3,770,000 or 1.19% of
loans, net of unearned interest, as compared to $3,704,000 or 1.19% of loans,
net of unearned interest, at December 31, 2005.
8
Based upon the ongoing analysis of the Bank's loan portfolio by the loan review
department, the latest quarterly analysis
of potentially uncollectible loans and non-performing assets, we consider the
Allowance for Loan Losses to be adequate to absorb any foreseeable loan or lease
losses.
Mar. 31, Dec. 31,
2006 2005
------ ------
Non-Performing Assets:
Non-accrual loans 1,887 1,773
Past due 90 days or more 855 1,086
Restructured loans 0 0
------ ------
Total non-performing loans 2,742 2,859
Other real estate 642 458
------ ------
Total 3,384 3,317
====== ======
Percentage of total loans outstanding 1.07% 1.06%
Percentage of total assets 0.77% 0.76%
Analysis of the Allowance for Loan Losses:
Balance beginning of period 3,704 3,643
Loans charged off:
Commercial real estate, construction
and land development 0 32
Commercial, industrial and agricultural 32 29
Real estate - residential mortgage 0 0
Consumer 55 138
------ ------
Total loans charged off 87 199
------ ------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 0
Commercial, industrial and agricultural 1 12
Real estate - residential mortgage 0 0
Consumer 17 23
------ ------
Total recoveries 18 35
------ ------
Net (charge-offs) recoveries (69) (164)
------ ------
Current period provision for
loan losses 135 225
------ ------
Balance end of period 3,770 3,704
====== ======
9
Item 3: Quantitative and Qualitative Disclosure about Market Risk
Item 4: Controls and Procedures:
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, Mid Penn Bancorp
updated its evaluation, under the supervision and with the participation of the
Mid Penn Bancorp's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
corporation's disclosure controls and procedures pursuant to the Securities
Exchange Act of 1934 ("Exchange Act") Rule 13a-15e. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that Mid Penn
Bancorp's disclosure controls and procedures are effective in timely alerting
them to material information relating to Mid Penn Bancorp (including its
consolidated subsidiaries) required to be included in our periodic SEC filings.
Changes in Internal Controls Over Financial Reporting
There were no significant changes in Mid Penn Bancorp's internal
controls or, to its knowledge, in other factors that could significantly affect
internal controls during the fiscal quarter ended March 31, 2006.
10
Mid Penn Bancorp, Inc.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Management is not aware of any litigation that would
have a material adverse effect on the consolidated financial position of Mid
Penn Bancorp. There are no proceedings pending other than ordinary routine
litigation incident to the business of Mid Penn Bancorp and of Mid Penn Bank. In
addition, management does not know of any material proceedings contemplated by
governmental authorities against Mid Penn Bancorp or Mid Penn Bank or any of its
properties.
Item 1A. Risk Factors - There are no material changes from the risk factors as
previously disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - 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 -
3(i) The Registrant's Articles of Incorporation. (Incorporated by reference
to Registrant's Annual Report on Form 10-K filed with the SEC on March
29, 2002.)
3(ii) The Registrant's By-laws. (Incorporated by reference to Registrant's
Annual Report on Form 10-K filed with the SEC on March 29, 2002.)
10.1 Mid Penn Bank's Profit Sharing Retirement Plan. (Incorporated by
reference to Registrant's Annual Report on Form 10-K filed with the SEC
on March 29, 2002.)
10.2 Mid Penn Bank's Employee Stock Ownership Plan. (Incorporated by
reference to Registrant's Annual Report on Form 10-K filed with the SEC
on March 29, 2002.)
10.3 The Registrant's Dividend Reinvestment Plan, as amended and restated.
(Incorporated by reference to Registrant's Registration Statement on
Form S-3, filed with the SEC on October 12, 2005.)
10.4 Salary Continuation Agreement between Mid Penn Bank and Alan W. Dakey.
(Incorporated by reference to Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28, 2003.)
10.5 Split Dollar Agreement between Mid Penn Bank and Eugene F. Shaffer
(Incorporated by reference to Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 14, 2005)
10.6 Death Benefit Plan and Agreement between Mid Penn Bank and the Trustee
of the Eugene F. Shaffer Irrevocable Trust (Incorporated by reference
to Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 14, 2005)
14 The Registrant's Code of Ethics. (Incorporated by reference to
Registrant's Form 8-K filed with the Securities and Exchange Commission
on March 9, 2005)
21 Subsidiaries of Registrant. (Incorporated by reference to Registrant's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 14, 2005)
11
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1 Chief Executive Officer's ss.1350 Certification.
32.2 Chief Financial Officer's ss.1350 Certification
12
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
By: /s/ Alan W. Dakey By: /s/ Kevin W. Laudenslager
------------------------- -------------------------
Alan W. Dakey Kevin W. Laudenslager
President & CEO Treasurer
Date: May 5, 2006 Date: May 5, 2006