Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

mpb-10q_20180630.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, 2018

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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. (Check One).

 

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, 2018, the registrant had 8,450,893 shares of common stock outstanding.

 

 

 


MID PENN BANCORP, INC.

 

FORM 10-Q

TABLE OF CONTENTS

 

PART 1 – FINANCIAL INFORMATION

2

 

 

 

 

Item 1 – Financial Statements

2

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 (Unaudited)

2

 

 

 

 

 

 

Consolidated Statements of Income for the Three and  Six Months Ended June 30, 2018 and June 30, 2017 (Unaudited)

3

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and  Six Months Ended June 30, 2018 and June 30, 2017 (Unaudited)

4

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2018 and June 30, 2017 (Unaudited)

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and June 30, 2017 (Unaudited)

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

 

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

38

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

55

 

 

 

 

Item 4 – Controls and Procedures

55

 

 

PART II – OTHER INFORMATION

56

 

 

 

 

Item 1 – Legal Proceedings

56

 

 

 

 

Item 1A – Risk Factors

56

 

 

 

 

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

57

 

 

 

 

Item 3 – Defaults upon Senior Securities

57

 

 

 

 

Item 4 – Mine Safety Disclosures

57

 

 

 

 

Item 5 – Other Information

57

 

 

 

 

Item 6 – Exhibits

57

 

 

 

 

Signatures

58

 

Unless the context otherwise requires, the terms “Mid Penn”, “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. and its consolidated subsidiaries.

 

1


 

MID PENN BANCORP, INC.

 

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

(Dollars in thousands, except share data)

 

June 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

25,436

 

 

$

19,795

 

Interest-bearing balances with other financial institutions

 

 

4,775

 

 

 

3,028

 

Federal funds sold

 

 

9,196

 

 

 

691

 

Total cash and cash equivalents

 

 

39,407

 

 

 

23,514

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale, at fair value

 

 

111,691

 

 

 

93,465

 

Investment securities held to maturity, at amortized cost (fair value $150,016 and $100,483)

 

 

153,321

 

 

 

101,356

 

Loans held for sale

 

 

1,185

 

 

 

1,040

 

Loans and leases, net of unearned interest

 

 

1,036,479

 

 

 

910,404

 

Less:  Allowance for loan and lease losses

 

 

(8,189

)

 

 

(7,606

)

Net loans and leases

 

 

1,028,290

 

 

 

902,798

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

23,905

 

 

 

16,168

 

Cash surrender value of life insurance

 

 

13,171

 

 

 

13,042

 

Restricted investment in bank stocks

 

 

2,765

 

 

 

4,384

 

Foreclosed assets held for sale

 

 

912

 

 

 

189

 

Accrued interest receivable

 

 

5,372

 

 

 

4,564

 

Deferred income taxes

 

 

2,540

 

 

 

1,888

 

Goodwill

 

 

23,107

 

 

 

3,918

 

Core deposit and other intangibles, net

 

 

4,878

 

 

 

434

 

Other assets

 

 

5,103

 

 

 

3,594

 

Total Assets

 

$

1,415,647

 

 

$

1,170,354

 

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

207,013

 

 

$

163,714

 

Interest-bearing demand

 

 

349,109

 

 

 

349,241

 

Money Market

 

 

273,215

 

 

 

246,220

 

Savings

 

 

171,845

 

 

 

62,770

 

Time

 

 

235,336

 

 

 

201,623

 

Total Deposits

 

 

1,236,518

 

 

 

1,023,568

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

 

 

 

34,611

 

Long-term debt

 

 

12,241

 

 

 

12,352

 

Subordinated debt

 

 

17,342

 

 

 

17,338

 

Accrued interest payable

 

 

1,186

 

 

 

645

 

Other liabilities

 

 

6,585

 

 

 

6,137

 

Total Liabilities

 

 

1,273,872

 

 

 

1,094,651

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

Common stock, par value $1.00; authorized 10,000,000 shares; 6,124,517 and 4,246,216

 

 

 

 

 

 

 

 

shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

6,125

 

 

 

4,242

 

Additional paid-in capital

 

 

103,498

 

 

 

40,970

 

Retained earnings

 

 

35,386

 

 

 

32,565

 

Accumulated other comprehensive loss

 

 

(3,234

)

 

 

(2,074

)

Total Shareholders’ Equity

 

 

141,775

 

 

 

75,703

 

Total Liabilities and Shareholders' Equity

 

$

1,415,647

 

 

$

1,170,354

 

 

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

 

2


 

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,

 

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans and leases

 

$

12,073

 

 

$

9,949

 

 

$

23,410

 

 

$

19,651

 

Interest on interest-bearing balances

 

 

17

 

 

 

5

 

 

 

26

 

 

 

7

 

Interest on federal funds sold

 

 

153

 

 

 

23

 

 

 

321

 

 

 

74

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

 

884

 

 

 

574

 

 

 

1,636

 

 

 

1,019

 

State and political subdivision obligations, tax-exempt

 

 

517

 

 

 

264

 

 

 

1,059

 

 

 

580

 

Other securities

 

 

76

 

 

 

64

 

 

 

248

 

 

 

107

 

Total Interest Income

 

 

13,720

 

 

 

10,879

 

 

 

26,700

 

 

 

21,438

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

1,997

 

 

 

1,277

 

 

 

3,777

 

 

 

2,481

 

Interest on short-term borrowings

 

 

 

 

 

13

 

 

 

12

 

 

 

13

 

Interest on long-term and subordinated debt

 

 

309

 

 

 

179

 

 

 

619

 

 

 

359

 

Total Interest Expense

 

 

2,306

 

 

 

1,469

 

 

 

4,408

 

 

 

2,853

 

Net Interest Income

 

 

11,414

 

 

 

9,410

 

 

 

22,292

 

 

 

18,585

 

PROVISION FOR LOAN AND LEASE LOSSES

 

 

 

 

 

100

 

 

 

125

 

 

 

225

 

Net Interest Income After Provision for Loan and Lease Losses

 

 

11,414

 

 

 

9,310

 

 

 

22,167

 

 

 

18,360

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from fiduciary activities

 

 

286

 

 

 

200

 

 

 

526

 

 

 

396

 

Service charges on deposits

 

 

222

 

 

 

174

 

 

 

425

 

 

 

379

 

Net gain on sales of investment securities

 

 

4

 

 

 

12

 

 

 

102

 

 

 

20

 

Earnings from cash surrender value of life insurance

 

 

65

 

 

 

66

 

 

 

129

 

 

 

131

 

Mortgage banking income

 

 

205

 

 

 

225

 

 

 

361

 

 

 

416

 

ATM debit card interchange income

 

 

326

 

 

 

232

 

 

 

591

 

 

 

456

 

Merchant services income

 

 

93

 

 

 

92

 

 

 

171

 

 

 

166

 

Net gain on sales of SBA loans

 

 

152

 

 

 

157

 

 

 

409

 

 

 

441

 

Other income

 

 

206

 

 

 

204

 

 

 

492

 

 

 

393

 

Total Noninterest Income

 

 

1,559

 

 

 

1,362

 

 

 

3,206

 

 

 

2,798

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,542

 

 

 

4,159

 

 

 

9,606

 

 

 

8,389

 

Occupancy expense, net

 

 

870

 

 

 

593

 

 

 

1,667

 

 

 

1,241

 

Equipment expense

 

 

544

 

 

 

370

 

 

 

952

 

 

 

751

 

Pennsylvania bank shares tax expense

 

 

171

 

 

 

160

 

 

 

342

 

 

 

330

 

FDIC Assessment

 

 

93

 

 

 

194

 

 

 

321

 

 

 

388

 

Legal and professional fees

 

 

256

 

 

 

189

 

 

 

480

 

 

 

366

 

Marketing and advertising expense

 

 

230

 

 

 

131

 

 

 

419

 

 

 

238

 

Software licensing

 

 

512

 

 

 

370

 

 

 

1,026

 

 

 

699

 

Telephone expense

 

 

156

 

 

 

133

 

 

 

303

 

 

 

259

 

Loss on sale or write-down of foreclosed assets

 

 

1

 

 

 

6

 

 

 

3

 

 

 

88

 

Intangible amortization

 

 

248

 

 

 

24

 

 

 

496

 

 

 

53

 

Merger and acquisition expense

 

 

222

 

 

 

14

 

 

 

1,916

 

 

 

224

 

Other expenses

 

 

1,897

 

 

 

1,215

 

 

 

3,394

 

 

 

2,334

 

Total Noninterest Expense

 

 

9,742

 

 

 

7,558

 

 

 

20,925

 

 

 

15,360

 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

 

3,231

 

 

 

3,114

 

 

 

4,448

 

 

 

5,798

 

Provision for income taxes

 

 

452

 

 

 

769

 

 

 

665

 

 

 

1,459

 

NET INCOME

 

$

2,779

 

 

$

2,345

 

 

$

3,783

 

 

$

4,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Common Share

 

$

0.45

 

 

$

0.55

 

 

$

0.63

 

 

$

1.02

 

Cash Dividends Paid

 

$

0.15

 

 

$

0.13

 

 

$

0.40

 

 

$

0.36

 

 

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

3


 

MID PENN BANCORP, INC.

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

(Dollars in thousands)

 

Three Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,779

 

 

$

2,345

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses arising during the period on available-for-sale

 

 

 

 

 

 

 

 

securities, net of income taxes of ($88) and $763, respectively

 

 

(333

)

 

 

1,480

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

(3

)

 

 

(8

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of $277 and ($1), respectively  (b)

 

 

1,043

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

707

 

 

 

1,471

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

3,486

 

 

$

3,816

 

 

(Dollars in thousands)

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,783

 

 

$

4,339

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

securities, net of income tax impact of ($564) and $958, respectively

 

 

(2,156

)

 

 

1,859

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

included in net income, net of income tax impact of $(21) and $(7), respectively  (a)

 

 

(81

)

 

 

(13

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income tax impact of $277 and ($2), respectively  (b)

 

 

1,042

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss) income

 

 

(1,195

)

 

 

1,842

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

2,588

 

 

$

6,181

 

 

 

(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)

Amounts are included in the computation of net periodic benefit cost and are included in salaries and employee benefits on the Consolidated Statements of Income as a separate element within total noninterest expense.

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

 

 

4


 

 

 

 

MID PENN BANCORP, INC.

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

 

For the Six Months Ended June 30, 2018 and 2017

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, January 1, 2018

 

$

4,242

 

 

$

40,970

 

 

$

32,565

 

 

$

(2,074

)

 

$

75,703

 

Impact of adoption of new accounting standard (a)

 

 

 

 

 

 

 

 

(44

)

 

 

35

 

 

 

(9

)

Balance at January 1, 2018, adjusted

 

 

4,242

 

 

 

40,970

 

 

 

32,521

 

 

 

(2,039

)

 

 

75,694

 

Net income

 

 

 

 

 

 

 

 

3,783

 

 

 

 

 

 

3,783

 

Total other comprehensive loss, net of taxes

 

 

 

 

 

 

 

 

 

 

 

(1,195

)

 

 

(1,195

)

Common stock issued to Scottdale shareholders

(1,878,827 shares) (b)

 

 

1,879

 

 

 

62,302

 

 

 

 

 

 

 

 

 

64,181

 

Employee Stock Purchase Plan (1,655 shares)

 

 

2

 

 

 

54

 

 

 

 

 

 

 

 

 

56

 

Director Stock Purchase Plan (1,819 shares)

 

 

2

 

 

 

59

 

 

 

 

 

 

 

 

 

61

 

Common stock dividends declared

 

 

 

 

 

 

 

 

(918

)

 

 

 

 

 

(918

)

Restricted stock activity

 

 

 

 

 

113

 

 

 

 

 

 

 

 

 

113

 

Balance, June 30, 2018

 

$

6,125

 

 

$

103,498

 

 

$

35,386

 

 

$

(3,234

)

 

$

141,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2017

 

$

4,233

 

 

$

40,688

 

 

$

28,399

 

 

$

(2,853

)

 

$

70,467

 

Net income

 

 

 

 

 

 

 

 

4,339

 

 

 

 

 

 

4,339

 

Total other comprehensive income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

1,842

 

 

 

1,842

 

Employee Stock Purchase Plan (1,940 shares)

 

 

2

 

 

 

50

 

 

 

 

 

 

 

 

 

52

 

Common stock dividends declared

 

 

 

 

 

 

 

 

(1,101

)

 

 

 

 

 

(1,101

)

Restricted stock activity

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

37

 

Balance, June 30, 2017

 

$

4,235

 

 

$

40,775

 

 

$

31,637

 

 

$

(1,011

)

 

$

75,636

 

 

 

(a)

Represents the impact of adopting Accounting Standard Update ASU 2016-01. See Note 3 to the consolidated financial statements for more information.

 

(b)

Shares issued on January 8, 2018 as a result of the acquisition of The Scottdale Bank & Trust Company (“Scottdale”).  See Note 2 to the consolidated financial statements for more information.

 

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

 

 

 

5


MID PENN BANCORP, INC.

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

(Dollars in thousands)

 

Six Months Ended June 30,

 

 

 

 

2018

 

 

 

2017

 

Operating Activities:

 

 

 

 

 

 

 

 

Net Income

 

$

3,783

 

 

$

4,339

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan and lease losses

 

 

125

 

 

 

225

 

Depreciation

 

 

1,000

 

 

 

715

 

Amortization of intangibles

 

 

496

 

 

 

53

 

Net amortization (accretion) of security discounts/premiums

 

 

451

 

 

 

(742

)

Gain on sales of investment securities

 

 

(102

)

 

 

(20

)

Earnings on cash surrender value of life insurance

 

 

(129

)

 

 

(131

)

Mortgage loans originated for sale

 

 

(22,596

)

 

 

(23,234

)

Proceeds from sales of mortgage loans originated for sale

 

 

22,812

 

 

 

23,240

 

Gain on sale of mortgage loans

 

 

(361

)

 

 

(416

)

SBA loans originated for sale

 

 

(5,056

)

 

 

(5,605

)

Proceeds from sales of SBA loans originated for sale

 

 

5,465

 

 

 

6,046

 

Gain on sale of SBA loans

 

 

(409

)

 

 

(441

)

Loss on disposal of property, plant, and equipment

 

 

64

 

 

 

26

 

Loss on sale or write-down of foreclosed assets

 

 

3

 

 

 

88

 

Stock compensation expense

 

 

113

 

 

 

37

 

Deferred income tax benefit (expense)

 

 

1,981

 

 

 

(65

)

Decrease (increase) in accrued interest receivable

 

 

181

 

 

 

(63

)

Increase in other assets

 

 

(1,242

)

 

 

(193

)

Increase in accrued interest payable

 

 

525

 

 

 

273

 

(Decrease) increase in other liabilities

 

 

(2,186

)

 

 

381

 

Net Cash Provided By Operating Activities

 

 

4,918

 

 

 

4,513

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Proceeds from the sale of available-for-sale securities

 

 

102,816

 

 

 

37,667

 

Proceeds from the maturity or call of available-for-sale securities

 

 

5,654

 

 

 

3,579

 

Purchases of available-for-sale securities

 

 

(21,533

)

 

 

(13,827

)

Proceeds from the maturity or call of held-to-maturity securities

 

 

11,625

 

 

 

 

Purchases of held-to-maturity securities

 

 

(57,850

)

 

 

(72,684

)

Net cash received from acquisition

 

 

65,025

 

 

 

 

Redemptions (purchases) of restricted investment in bank stock

 

 

1,716

 

 

 

(1,542

)

Net increase in loans and leases

 

 

(55,732

)