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Section 1: 10-Q (10-Q)

mpb-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

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

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

 

349 Union Street

Millersburg, Pennsylvania

 

17061

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code 1.866.642.7736

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $1.00 par value per share

 

MPB

 

The NASDAQ Stock Market LLC

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.    Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes     No 

As of November 7, 2019, the registrant had 8,478,461 shares of common stock outstanding.

 

1


FORM 10-Q

TABLE OF CONTENTS

 

PART 1 – FINANCIAL INFORMATION

3

 

 

 

 

Item 1 – Financial Statements

3

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited)

3

 

 

 

 

 

 

Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2019 and September 30, 2018 (Unaudited)

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended
September 30, 2019 and September 30, 2018 (Unaudited)

5

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended
September 30, 2019 and September 30, 2018 (Unaudited)

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2019 and September 30, 2018 (Unaudited)

8

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

10

 

 

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

47

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

63

 

 

 

 

Item 4 – Controls and Procedures

63

 

 

PART II – OTHER INFORMATION

64

 

 

 

 

Item 1 – Legal Proceedings

64

 

 

 

 

Item 1A – Risk Factors

64

 

 

 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

 

Item 3 – Defaults upon Senior Securities

64

 

 

 

 

Item 4 – Mine Safety Disclosures

64

 

 

 

 

Item 5 – Other Information

64

 

 

 

 

Item 6 – Exhibits

64

 

 

 

 

Signatures

65

 

Unless the context otherwise requires, the terms “Mid Penn”, “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. and its consolidated wholly-owned banking subsidiary.

 

2


 

MID PENN BANCORP, INC.

 

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data)

 

September 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

54,756

 

 

$

24,600

 

Interest-bearing balances with other financial institutions

 

 

4,393

 

 

 

4,572

 

Federal funds sold

 

 

101,730

 

 

 

10,893

 

Total cash and cash equivalents

 

 

160,879

 

 

 

40,065

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale, at fair value

 

 

52,419

 

 

 

111,923

 

Investment securities held to maturity, at amortized cost (fair value $173,722 and $166,582)

 

 

170,472

 

 

 

168,370

 

Loans held for sale, at fair value

 

 

7,115

 

 

 

1,702

 

Loans and leases, net of unearned interest

 

 

1,710,434

 

 

 

1,624,067

 

Less:  Allowance for loan and lease losses

 

 

(9,316

)

 

 

(8,397

)

Net loans and leases

 

 

1,701,118

 

 

 

1,615,670

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

23,357

 

 

 

25,303

 

Bank premises and equipment held for sale

 

 

1,274

 

 

 

 

Operating lease right of use asset

 

 

10,416

 

 

 

 

Finance lease right of use asset

 

 

3,492

 

 

 

 

Cash surrender value of life insurance

 

 

16,804

 

 

 

16,691

 

Restricted investment in bank stocks

 

 

6,105

 

 

 

6,646

 

Accrued interest receivable

 

 

8,414

 

 

 

8,244

 

Deferred income taxes

 

 

3,922

 

 

 

4,696

 

Goodwill

 

 

62,840

 

 

 

62,840

 

Core deposit and other intangibles, net

 

 

6,109

 

 

 

7,221

 

Foreclosed assets held for sale

 

 

130

 

 

 

1,017

 

Other assets

 

 

14,033

 

 

 

7,593

 

Total Assets

 

$

2,248,899

 

 

$

2,077,981

 

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

298,885

 

 

$

269,870

 

Interest-bearing demand

 

 

465,745

 

 

 

384,834

 

Money Market

 

 

486,131

 

 

 

375,648

 

Savings

 

 

180,927

 

 

 

209,345

 

Time

 

 

458,405

 

 

 

486,329

 

Total Deposits

 

 

1,890,093

 

 

 

1,726,026

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

12,000

 

 

 

43,100

 

Long-term debt

 

 

62,971

 

 

 

48,024

 

Subordinated debt

 

 

27,067

 

 

 

27,082

 

Operating lease liability

 

 

11,534

 

 

 

 

Accrued interest payable

 

 

2,823

 

 

 

2,262

 

Other liabilities

 

 

7,799

 

 

 

8,278

 

Total Liabilities

 

 

2,014,287

 

 

 

1,854,772

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

Common stock, par value $1.00 per share; 20,000,000 shares authorized; 8,478,461 shares issued and outstanding at September 30, 2019; 10,000,000 shares authorized, 8,459,918 shares issued and outstanding at December 31, 2018

 

 

8,478

 

 

 

8,460

 

Additional paid-in capital

 

 

177,994

 

 

 

177,565

 

Retained earnings

 

 

48,009

 

 

 

39,562

 

Accumulated other comprehensive income (loss)

 

 

131

 

 

 

(2,378

)

Total Shareholders’ Equity

 

 

234,612

 

 

 

223,209

 

Total Liabilities and Shareholders' Equity

 

$

2,248,899

 

 

$

2,077,981

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

MID PENN BANCORP, INC.

 

 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans and leases

 

$

22,573

 

 

$

17,715

 

 

$

65,865

 

 

$

41,125

 

Interest on interest-bearing balances

 

 

23

 

 

 

26

 

 

 

80

 

 

 

52

 

Interest on federal funds sold

 

 

506

 

 

 

78

 

 

 

704

 

 

 

399

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

 

701

 

 

 

965

 

 

 

2,433

 

 

 

2,601

 

State and political subdivision obligations, tax-exempt

 

 

495

 

 

 

636

 

 

 

1,698

 

 

 

1,695

 

Other securities

 

 

215

 

 

 

163

 

 

 

597

 

 

 

411

 

Total Interest Income

 

 

24,513

 

 

 

19,583

 

 

 

71,377

 

 

 

46,283

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

5,830

 

 

 

3,183

 

 

 

15,692

 

 

 

6,960

 

Interest on short-term borrowings

 

 

69

 

 

 

38

 

 

 

458

 

 

 

50

 

Interest on long-term and subordinated debt

 

 

847

 

 

 

451

 

 

 

2,384

 

 

 

1,070

 

Total Interest Expense

 

 

6,746

 

 

 

3,672

 

 

 

18,534

 

 

 

8,080

 

Net Interest Income

 

 

17,767

 

 

 

15,911

 

 

 

52,843

 

 

 

38,203

 

PROVISION FOR LOAN AND LEASE LOSSES

 

 

565

 

 

 

100

 

 

 

1,155

 

 

 

225

 

Net Interest Income After Provision for Loan and Lease Losses

 

 

17,202

 

 

 

15,811

 

 

 

51,688

 

 

 

37,978

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from fiduciary activities

 

 

386

 

 

 

325

 

 

 

1,092

 

 

 

851

 

Service charges on deposits

 

 

230

 

 

 

242

 

 

 

665

 

 

 

667

 

ATM debit card interchange income

 

 

434

 

 

 

317

 

 

 

1,148

 

 

 

908

 

Mortgage banking income

 

 

1,091

 

 

 

197

 

 

 

2,605

 

 

 

558

 

Net gain on sales of SBA loans

 

 

275

 

 

 

68

 

 

 

710

 

 

 

477

 

Merchant services income

 

 

115

 

 

 

90

 

 

 

304

 

 

 

261

 

Earnings from cash surrender value of life insurance

 

 

79

 

 

 

76

 

 

 

236

 

 

 

205

 

Net gain on sales of investment securities

 

 

46

 

 

 

30

 

 

 

70

 

 

 

132

 

Other income

 

 

347

 

 

 

826

 

 

 

1,096

 

 

 

1,382

 

Total Noninterest Income

 

 

3,003

 

 

 

2,171

 

 

 

7,926

 

 

 

5,441

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

8,425

 

 

 

6,680

 

 

 

23,970

 

 

 

16,286

 

Occupancy expense, net

 

 

1,232

 

 

 

1,063

 

 

 

3,977

 

 

 

2,730

 

Equipment expense

 

 

671

 

 

 

579

 

 

 

1,956

 

 

 

1,531

 

Pennsylvania bank shares tax expense

 

 

359

 

 

 

131

 

 

 

740

 

 

 

473

 

FDIC Assessment

 

 

(131

)

 

 

187

 

 

 

542

 

 

 

508

 

Legal and professional fees

 

 

311

 

 

 

272

 

 

 

1,204

 

 

 

752

 

Marketing and advertising expense

 

 

238

 

 

 

274

 

 

 

643

 

 

 

693

 

Software licensing and utilization

 

 

1,150

 

 

 

949

 

 

 

3,282

 

 

 

2,634

 

Telephone expense

 

 

150

 

 

 

177

 

 

 

465

 

 

 

480

 

(Gain) loss on sale or write-down of foreclosed assets

 

 

(36

)

 

 

45

 

 

 

(22

)

 

 

48

 

Intangible amortization

 

 

355

 

 

 

341

 

 

 

1,078

 

 

 

837

 

Merger and acquisition expense

 

 

 

 

 

3,039

 

 

 

 

 

 

4,955

 

Other expenses

 

 

1,959

 

 

 

1,533

 

 

 

5,947

 

 

 

4,332

 

Total Noninterest Expense

 

 

14,683

 

 

 

15,270

 

 

 

43,782

 

 

 

36,259

 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

 

5,522

 

 

 

2,712

 

 

 

15,832

 

 

 

7,160

 

Provision for income taxes

 

 

709

 

 

 

548

 

 

 

2,539

 

 

 

1,213

 

NET INCOME

 

 

4,813

 

 

 

2,164

 

 

 

13,293

 

 

 

5,947

 

Series D preferred stock dividends

 

 

 

 

 

38

 

 

 

 

 

 

38

 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

 

$

4,813

 

 

$

2,126

 

 

$

13,293

 

 

$

5,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Common Share

 

$

0.57

 

 

$

0.28

 

 

$

1.57

 

 

$

0.89

 

Cash Dividends Paid

 

$

0.18

 

 

$

0.15

 

 

$

0.61

 

 

$

0.55

 

 

The accompanying notes are an integral part of these consolidated financial statements. 

4


 

MID PENN BANCORP, INC.

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

(Dollars in thousands)

 

Three Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,813

 

 

$

2,164

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized income (losses) arising during the period on available-for-sale

 

 

 

 

 

 

 

 

securities, net of income taxes of $51 and ($157), respectively

 

 

190

 

 

 

(589

)

 

 

 

 

 

 

 

 

 

Reclassification adjustment for net gain on sales of available-for-sale securities

 

 

 

 

 

 

 

 

included in net income, net of income taxes of ($9) and ($6), respectively  (a)

 

 

(37

)

 

 

(23

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of ($61) and $66, respectively  (b)

 

 

(231

)

 

 

248

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for settlement gains and activity related to benefit plans, net

 

 

 

 

 

 

 

 

of income taxes of ($4) and ($25), respectively   (c)

 

 

(17

)

 

 

(93

)

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(95

)

 

 

(457

)

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

4,718

 

 

$

1,707

 

 

 

(Dollars in thousands)

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,293

 

 

$

5,947

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized income (losses) arising during the period on available-for-sale

 

 

 

 

 

 

 

 

securities, net of income taxes of $847 and ($730), respectively

 

 

3,188

 

 

 

(2,746

)

 

 

 

 

 

 

 

 

 

Reclassification adjustment for net gain on sales of available-for-sale securities

 

 

 

 

 

 

 

 

included in net income, net of income taxes of ($14) and $(28), respectively  (a)

 

 

(56

)

 

 

(104

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income tax impact of ($145) and $422, respectively  (b)

 

 

(545

)

 

 

1,592

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for settlement gains and activity related to benefit plans, net

 

 

 

 

 

 

 

 

of income taxes of ($21) and ($105), respectively   (c)

 

 

(78

)

 

 

(394

)

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

2,509

 

 

 

(1,652

)

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

15,802

 

 

$

4,295

 

 

 

 

(a)

Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income.

 

(b)

The change in defined benefit plans consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period.

 

(c)

The reclassification adjustment for benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss.  Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.  Please reference Note 12 – Defined Benefit Plans, for more information.

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


 

 

MID PENN BANCORP, INC.

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Preferred

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balance, January 1, 2019

 

$

 

 

$

8,460

 

 

$

177,565

 

 

$

39,562

 

 

$

(2,378

)

 

$

223,209

 

Impact of adoption of new accounting standard (a)

 

 

 

 

 

 

 

 

 

 

 

316

 

 

 

 

 

 

316

 

Balance at January 1, 2019, adjusted

 

 

 

 

 

8,460

 

 

 

177,565

 

 

 

39,878

 

 

 

(2,378

)

 

 

223,525

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,077

 

 

 

 

 

 

4,077

 

Total other comprehensive income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,807

 

 

 

1,807

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(2,113

)

 

 

 

 

 

(2,113

)

Employee Stock Purchase Plan (1,152 shares)

 

 

 

 

 

1

 

 

 

27

 

 

 

 

 

 

 

 

 

28

 

Director Stock Purchase Plan (1,361 shares)

 

 

 

 

 

1

 

 

 

32

 

 

 

 

 

 

 

 

 

33

 

Restricted stock activity

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Balance, March 31, 2019

 

$

 

 

$

8,462

 

 

$

177,704

 

 

$

41,842

 

 

$

(571

)

 

$

227,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,403

 

 

 

 

 

 

4,403

 

Total other comprehensive income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

797

 

 

 

797

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(1,524

)

 

 

 

 

 

(1,524

)

Employee Stock Purchase Plan (1,411 shares)

 

 

 

 

 

2

 

 

 

34

 

 

 

 

 

 

 

 

 

36

 

Director Stock Purchase Plan (1,336 shares)

 

 

 

 

 

1

 

 

 

32

 

 

 

 

 

 

 

 

 

33

 

Restricted stock activity

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Balance, June 30, 2019

 

$

 

 

$

8,465

 

 

$

177,850

 

 

$

44,721

 

 

$

226

 

 

$

231,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,813

 

 

 

 

 

 

4,813

 

Total other comprehensive loss, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(95

)

 

 

(95

)

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(1,525

)

 

 

 

 

 

(1,525

)

Employee Stock Purchase Plan (1,249 shares)

 

 

 

 

 

1

 

 

 

30

 

 

 

 

 

 

 

 

 

31

 

Director Stock Purchase Plan (1,397 shares)

 

 

 

 

 

1

 

 

 

34

 

 

 

 

 

 

 

 

 

35

 

Restricted stock activity (10,637 shares)

 

 

 

 

 

11