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Section 1: 10-Q (10-Q)

mpb-10q_20190630.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 June 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 August 7, 2019, the registrant had 8,475,815 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 June 30, 2019 and December 31, 2018 (Unaudited)

3

 

 

 

 

 

 

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

4

 

 

 

 

 

 

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

5

 

 

 

 

 

 

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

6

 

 

 

 

 

 

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

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

9

 

 

 

 

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)

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

33,177

 

 

$

24,600

 

Interest-bearing balances with other financial institutions

 

 

4,623

 

 

 

4,572

 

Federal funds sold

 

 

10,345

 

 

 

10,893

 

Total cash and cash equivalents

 

 

48,145

 

 

 

40,065

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale, at fair value

 

 

83,404

 

 

 

111,923

 

Investment securities held to maturity, at amortized cost (fair value $162,863 and $166,582)

 

 

160,182

 

 

 

168,370

 

Loans held for sale, at fair value

 

 

8,139

 

 

 

1,702

 

Loans and leases, net of unearned interest

 

 

1,688,173

 

 

 

1,624,067

 

Less:  Allowance for loan and lease losses

 

 

(8,771

)

 

 

(8,397

)

Net loans and leases

 

 

1,679,402

 

 

 

1,615,670

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

23,583

 

 

 

25,303

 

Bank premises and equipment held for sale

 

 

1,274

 

 

 

 

Operating lease right of use asset

 

 

10,834

 

 

 

 

Finance lease right of use asset

 

 

3,537

 

 

 

 

Cash surrender value of life insurance

 

 

16,725

 

 

 

16,691

 

Restricted investment in bank stocks

 

 

6,480

 

 

 

6,646

 

Accrued interest receivable

 

 

8,883

 

 

 

8,244

 

Deferred income taxes

 

 

3,917

 

 

 

4,696

 

Goodwill

 

 

62,840

 

 

 

62,840

 

Core deposit and other intangibles, net

 

 

6,464

 

 

 

7,221

 

Foreclosed assets held for sale

 

 

390

 

 

 

1,017

 

Other assets

 

 

11,923

 

 

 

7,593

 

Total Assets

 

$

2,136,122

 

 

$

2,077,981

 

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

287,183

 

 

$

269,870

 

Interest-bearing demand

 

 

404,651

 

 

 

384,834

 

Money Market

 

 

451,667

 

 

 

375,648

 

Savings

 

 

183,019

 

 

 

209,345

 

Time

 

 

451,881

 

 

 

486,329

 

Total Deposits

 

 

1,778,401

 

 

 

1,726,026

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

13,000

 

 

 

43,100

 

Long-term debt

 

 

65,035

 

 

 

48,024

 

Subordinated debt

 

 

27,070

 

 

 

27,082

 

Operating lease liability

 

 

11,983

 

 

 

 

Accrued interest payable

 

 

2,696

 

 

 

2,262

 

Other liabilities

 

 

6,675

 

 

 

8,278

 

Total Liabilities

 

 

1,904,860

 

 

 

1,854,772

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

Common stock, par value $1.00 per share; 20,000,000 shares authorized; 8,465,178 shares issued and outstanding at June 30, 2019; 10,000,000 shares authorized, 8,459,918 shares issued and outstanding at December 31, 2018

 

 

8,465

 

 

 

8,460

 

Additional paid-in capital

 

 

177,850

 

 

 

177,565

 

Retained earnings

 

 

44,721

 

 

 

39,562

 

Accumulated other comprehensive income (loss)

 

 

226

 

 

 

(2,378

)

Total Shareholders’ Equity

 

 

231,262

 

 

 

223,209

 

Total Liabilities and Shareholders' Equity

 

$

2,136,122

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans and leases

 

$

22,214

 

 

$

12,073

 

 

$

43,292

 

 

$

23,410

 

Interest on interest-bearing balances

 

 

27

 

 

 

17

 

 

 

57

 

 

 

26

 

Interest on federal funds sold

 

 

130

 

 

 

153

 

 

 

198

 

 

 

321

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

 

839

 

 

 

884

 

 

 

1,732

 

 

 

1,636

 

State and political subdivision obligations, tax-exempt

 

 

584

 

 

 

517

 

 

 

1,203

 

 

 

1,059

 

Other securities

 

 

204

 

 

 

76

 

 

 

382

 

 

 

248

 

Total Interest Income

 

 

23,998

 

 

 

13,720

 

 

 

46,864

 

 

 

26,700

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

5,276

 

 

 

1,997

 

 

 

9,862

 

 

 

3,777

 

Interest on short-term borrowings

 

 

157

 

 

 

 

 

 

389

 

 

 

12

 

Interest on long-term and subordinated debt

 

 

795

 

 

 

309

 

 

 

1,537

 

 

 

619

 

Total Interest Expense

 

 

6,228

 

 

 

2,306

 

 

 

11,788

 

 

 

4,408

 

Net Interest Income

 

 

17,770

 

 

 

11,414

 

 

 

35,076

 

 

 

22,292

 

PROVISION FOR LOAN AND LEASE LOSSES

 

 

465

 

 

 

 

 

 

590

 

 

 

125

 

Net Interest Income After Provision for Loan and Lease Losses

 

 

17,305

 

 

 

11,414

 

 

 

34,486

 

 

 

22,167

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from fiduciary activities

 

 

347

 

 

 

286

 

 

 

706

 

 

 

526

 

Service charges on deposits

 

 

218

 

 

 

222

 

 

 

435

 

 

 

425

 

ATM debit card interchange income

 

 

380

 

 

 

326

 

 

 

714

 

 

 

591

 

Mortgage banking income

 

 

1,077

 

 

 

205

 

 

 

1,514

 

 

 

361

 

Net gain on sales of SBA loans

 

 

233

 

 

 

152

 

 

 

435

 

 

 

409

 

Merchant services income

 

 

104

 

 

 

93

 

 

 

189

 

 

 

171

 

Earnings from cash surrender value of life insurance

 

 

79

 

 

 

65

 

 

 

157

 

 

 

129

 

Net gain on sales of investment securities

 

 

17

 

 

 

4

 

 

 

24

 

 

 

102

 

Other income

 

 

419

 

 

 

560

 

 

 

749

 

 

 

846

 

Total Noninterest Income

 

 

2,874

 

 

 

1,913

 

 

 

4,923

 

 

 

3,560

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,786

 

 

 

4,832

 

 

 

15,545

 

 

 

9,896

 

Occupancy expense, net

 

 

1,344

 

 

 

870

 

 

 

2,745

 

 

 

1,667

 

Equipment expense

 

 

658

 

 

 

544

 

 

 

1,285

 

 

 

952

 

Pennsylvania bank shares tax expense

 

 

245

 

 

 

171

 

 

 

381

 

 

 

342

 

FDIC Assessment

 

 

314

 

 

 

93

 

 

 

673

 

 

 

321

 

Legal and professional fees

 

 

471

 

 

 

256

 

 

 

893

 

 

 

480

 

Marketing and advertising expense

 

 

226

 

 

 

230

 

 

 

405

 

 

 

419

 

Software licensing and utilization

 

 

1,111

 

 

 

861

 

 

 

2,132

 

 

 

1,684

 

Telephone expense

 

 

161

 

 

 

156

 

 

 

315

 

 

 

303

 

Loss on sale or write-down of foreclosed assets

 

 

18

 

 

 

1

 

 

 

14

 

 

 

3

 

Intangible amortization

 

 

360

 

 

 

248

 

 

 

723

 

 

 

496

 

Merger and acquisition expense

 

 

 

 

 

222

 

 

 

 

 

 

1,916

 

Other expenses

 

 

2,102

 

 

 

1,612

 

 

 

3,988

 

 

 

2,800

 

Total Noninterest Expense

 

 

14,796

 

 

 

10,096

 

 

 

29,099

 

 

 

21,279

 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

 

5,383

 

 

 

3,231

 

 

 

10,310

 

 

 

4,448

 

Provision for income taxes

 

 

980

 

 

 

452

 

 

 

1,830

 

 

 

665

 

NET INCOME

 

$

4,403

 

 

$

2,779

 

 

$

8,480

 

 

$

3,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Common Share

 

$

0.52

 

 

$

0.45

 

 

$

1.00

 

 

$

0.63

 

Cash Dividends Paid

 

$

0.18

 

 

$

0.15

 

 

$

0.43

 

 

$

0.40

 

 

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 June 30,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,403

 

 

$

2,779

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

securities, net of income taxes of $313 and ($98), respectively

 

 

1,179

 

 

 

(368

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

included in net income, net of income taxes of ($4) and ($1), respectively  (a)

 

 

(14

)

 

 

(3

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of ($90) and $357, respectively  (b)

 

 

(339

)

 

 

1,343

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for settlement gains on benefit plans, net of income taxes

 

 

 

 

 

 

 

 

of ($8) and ($80), respectively   (c)

 

 

(29

)

 

 

(300

)

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

797

 

 

 

672

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

5,200

 

 

$

3,451

 

 

 

(Dollars in thousands)

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8,480

 

 

$

3,783

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

securities, net of income taxes of $796 and ($564), respectively

 

 

2,998

 

 

 

(2,156

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

included in net income, net of income taxes of ($5) and $(21), respectively  (a)

 

 

(19

)

 

 

(81

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income tax impact of ($91) and $357, respectively  (b)

 

 

(346

)

 

 

1,342

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for settlement gains on benefit plans, net of income taxes

 

 

 

 

 

 

 

 

of ($8) and ($80), respectively   (c)

 

 

(29

)

 

 

(300

)

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

2,604

 

 

 

(1,195

)

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

11,084

 

 

$

2,588

 

 

 

 

(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 includes several components of net periodic benefit costs, including service costs, interest costs, expected return on plan assets, amortization of prior service costs, and amortization of net gain or loss.  Please reference Note 12 – Defined Benefit Plans, for the classification of these components on Consolidated Statements of Income.

 

(c)

Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.

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)

 

For the Six Months Ended June 30, 2019 and 2018

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2018

 

 

$

4,242

 

 

$

40,970

 

 

$

32,565

 

 

$

(2,074

)

 

$

75,703

 

Impact of adoption of new accounting standard (b)

 

 

 

 

 

 

 

 

 

(44

)

 

 

35

 

 

 

(9

)

Balance at January 1, 2018, adjusted

 

 

 

4,242

 

 

 

40,970

 

 

 

32,521

 

 

 

(2,039

)

 

 

75,694

 

Net income

 

 

 

 

 

 

 

 

 

1,004

 

 

 

 

 

 

1,004

 

Total other comprehensive loss, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

(1,867

)

 

 

(1,867

)

Common stock issued to Scottdale shareholders

(1,878,827 shares) (c)

 

 

 

1,879

 

 

 

62,302

 

 

 

 

 

 

 

 

 

64,181

 

Employee Stock Purchase Plan (736 shares)

 

 

 

1

 

 

 

23

 

 

 

 

 

 

 

 

 

24

 

Director Stock Purchase Plan (938 shares)

 

 

 

1

 

 

 

29

 

 

 

 

 

 

 

 

 

30

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock activity

 

 

 

 

 

 

58