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Section 1: 8-K (8-K_092018_ER)

mpb-8k_20181024.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  October 24, 2018

 

MID PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

 



 

 

 

 

 

Pennsylvania

1-13677

25-1666413

(State or Other Jurisdiction of

Incorporation or Organization)

(Commission File Number)

(I.R.S. Employer

Identification Number)

 

 

349 Union Street

Millersburg, Pennsylvania

1.866.642.7736

17061

(Address of Principal Executive Offices)

( Registrant’s telephone number, including area code)

(Zip Code)

 

 

 

 

Not Applicable

 

(Former Name or Former Address, if Changed Since Last Report)

 

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b) )

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4( c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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. 

 

 


 

 

MID PENN BANCORP, INC.

CURRENT REPORT ON FORM 8-K

 

ITEM 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 25, 2018, Mid Penn Bancorp, Inc. (the “Corporation”) issued a press release discussing its financial results for the quarter ended September 30, 2018.  Attached hereto as Exhibit 99.1 is a copy of the Corporation’s press release dated October 25, 2018.

ITEM 8.01OTHER EVENTS

 

On October 24, 2018, the Board of Directors of the Corporation declared a quarterly cash dividend of $0.15 per share of common stock payable November 26, 2018 to shareholders of record as of November 7, 2018.

ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS

(d) Exhibits.

99.1Press release, dated October 25, 2018, of Mid Penn Bancorp, Inc.


SIGNATURES

 

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 hereunto duly authorized.

 

 

 

 

MID PENN BANCORP, INC.

(Registrant)

 

 

 

Date:  October 25, 2018

By:

/s/ Rory G. Ritrievi

 

Rory G. Ritrievi

 

President and Chief Executive Officer

 

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Section 2: EX-99.1 (EX-99.1)

mpb-ex991_6.htm

Exhibit 99.1

PRESS RELEASE

Mid Penn Bancorp, Inc.

349 Union Street

Millersburg, PA  17061

1-866-642-7736

CONTACTS

 

Rory G. Ritrievi

President & Chief Executive Officer

Michael D. Peduzzi, CPA

Chief Financial Officer

 

MID PENN BANCORP, INC. REPORTS THIRD QUARTER 2018 EARNINGS AND

DECLARES QUARTERLY DIVIDEND

 

October 25, 2018 – Millersburg, PA – Mid Penn Bancorp, Inc. (“Mid Penn”) (NASDAQ: MPB), the parent company of Mid Penn Bank (the “Bank”), today reported net income to common shareholders (earnings) for the quarter ended September 30, 2018, of $2,126,000 or $0.28 per common share basic and diluted, compared to earnings of $2,249,000 or $0.53 per common share basic and diluted for the quarter ended September 30, 2017. Earnings for the nine months ended September 30, 2018, were $5,909,000 or $0.89 per common share basic and diluted, compared to earnings of $6,588,000 or $1.56 per common share basic and diluted for the nine months ended September 30, 2017.

 

The results for the three and nine months ended September 30, 2018 and 2017 included merger and acquisition expenses resulting from Mid Penn’s acquisitions of (i) First Priority Financial Corp. (“First Priority”), which was announced on January 16, 2018 and legally closed on July 31, 2018, and (ii) The Scottdale Bank & Trust Company (“Scottdale”), which was announced during the first quarter of 2017 and legally closed on January 8, 2018.  Please refer to the discussion under “Merger and Acquisition Activities” for more information on Mid Penn’s acquisitions of First Priority and Scottdale.  

 

Adjusted earnings, when excluding the after-tax impact of the merger expenses (with such adjusted earnings being a non-GAAP measure), were $4,588,000 or $0.60 per share basic and diluted for the three months ended September 30, 2018, compared to adjusted earnings for the three months ended September 30, 2017 of $2,474,000 or $0.58 per share basic and diluted.  For the nine months ended September 30, 2018, adjusted earnings were $10,016,000 or $1.52 per common share basic and diluted, compared to adjusted earnings of $7,020,000 or $1.66 per share basic and diluted for the nine months ended September 30, 2017.  Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Measures (Unaudited)” for a discussion of our use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for the quarters ended September 30, 2018 and 2017 and other periods.

 

In addition to the merger expenses, Mid Penn recorded an additional non-cash expense of $310,000 and $759,000 for the three and nine months ended September 30, 2018, respectively, related to the amortization of the core deposit intangible assets which were recorded as a result of the Scottdale and First Priority acquisitions.  

 

Mid Penn’s tangible book value per common share, a non-GAAP measure that is regularly reported in the banking industry, increased to $17.50 as of September 30, 2018, compared to $16.82 as of December 31, 2017, and $17.22 as of September 30, 2017.  Book value per share, the most directly comparable GAAP measure to tangible book value per common share, increased to $25.83 as of September 30, 2018 compared to $17.85 at December 31, 2017, and $18.25 at September 30, 2017.

 

Mid Penn also reported total assets of $2,044,280,000 as of September 30, 2018, reflecting an increase of $873,926,000 or 75 percent compared to total assets of $1,170,354,000 as of December 31, 2017.  Total assets as of September 30, 2018 reflect an increase of $890,907,000 or 77 percent compared to total assets of $1,153,373,000 as of September 30, 2017.  Asset growth during the nine months ended September 30, 2018 includes the acquired loans, investments, cash, facilities, goodwill and core deposit intangibles recorded from the legal closing of the Scottdale and First Priority transactions as well as organic growth from our legacy markets.

 

In general, the results of operations and the financial condition as of and for the periods ended September 30, 2018, as compared to prior periods and certain period-end dates in 2017, have been materially impacted by Mid Penn’s January 8, 2018 acquisition of Scottdale and July 31, 2018 acquisition of First Priority.

 

Mid Penn also reported that its Board of Directors, at a meeting held on October 24, 2018, declared a dividend per common share of $0.15 payable on November 26, 2018 to shareholders of record as of November 7, 2018.

1


MERGER & ACQUISITION ACTIVITIES

 

 

On January 8, 2018, Mid Penn announced the successful completion of the legal acquisition of The Scottdale Bank & Trust Company, pursuant to which each share of Scottdale common stock issued and outstanding immediately prior to January 8, 2018 converted into the right to receive either (i) $1,166 in cash without interest, or (ii) 38.88 shares of Mid Penn common stock. As a result of the elections of the Scottdale shareholders, Mid Penn issued 1,878,827 shares of Mid Penn common stock and cash of $2,790,000 in merger consideration. Mid Penn also recorded goodwill of $19,189,000 and a core deposit intangible asset of $4,940,000 as a result of the Scottdale acquisition.  The acquisition expanded Mid Penn’s footprint into Westmoreland and Fayette counties in western Pennsylvania.  

 

Additionally, Mid Penn completed its acquisition of First Priority Financial Corp., through the merger of First Priority with and into Mid Penn effective after the close of business on July 31, 2018. In connection with this acquisition, First Priority Bank, First Priority’s wholly owned bank subsidiary, was merged with and into Mid Penn Bank.  Pursuant to the merger agreement between Mid Penn and First Priority, the common shareholders of First Priority received 0.3481 shares of Mid Penn common stock for each share of First Priority common stock owned.  Additionally, outstanding options to purchase First Priority common stock at the time of the merger were converted to the right to receive cash at a per-option value of $11.07 less the exercise price, without interest.  As a result of the acquisition, Mid Penn’s fulfillment of the merger consideration requirements resulted in the issuance of 2,320,800 shares of Mid Penn common stock and the payment $3,807,000 related to cashing out the stock options.  Mid Penn also issued 3,404 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series D, having a fixed dividend rate of 9 percent per annum, in exchange for the 3,404 shares of First Priority preferred shares outstanding as of the closing of the merger.  Additionally, Mid Penn recorded $39,659,000 of goodwill, a core deposit intangible of $2,832,000, and a trade name intangible of $205,000 related to the First Priority acquisition.  The acquisition expanded Mid Penn’s presence in southeastern Pennsylvania, including Chester, Berks, Montgomery, and Bucks counties.

 

The assets purchased and liabilities assumed in the Scottdale and First Priority transactions were recorded at their estimated fair values as of the respective date of acquisition, and may be adjusted for up to one year subsequent to legal closing.

 

PRESIDENT’S STATEMENT

 

With the closing of our acquisition of First Priority Financial Corporation during the third quarter, Mid Penn reached another important milestone in our franchise’s history by surpassing $2 billion in total assets.  During September, we celebrated Mid Penn Bank’s 150th anniversary in business, and I am pleased that we can honor our founders, our current and former employees, and our long-term shareholders and customers, with a profitably growing institution.  We remain rooted in our founding principles of providing safe and secure financial services to consumers and businesses while supporting the economic vitality of our communities and markets. We administer these principles with personalized customer-focused services, supported by exceptional products and delivery systems, leading to win-win banking and wealth management relationships that ultimately result in sound returns and increasing value to our shareholders.

 

The third quarter operating results reflect the substantial portion of merger-related costs associated with our completed acquisition of First Priority, which expanded Mid Penn’s operating profile into very attractive markets in several southeastern Pennsylvania counties. Shortly after the end of the third quarter, we successfully completed the conversion of the data from First Priority’s loan and deposit records to Mid Penn’s core system, and have transitioned First Priority’s locations and information technology and networking infrastructure to Mid Penn’s operating and security platform.  Now we focus on providing our new customers with the same caring attention and financial solutions and services that have been, and will continue to be, the operating standard for Mid Penn.  

 

While giving the necessary attention to managing our acquisitions, we continued to realize consistent organic growth of loans and deposits.  With the addition of the quality customer relationships from Scottdale and First Priority, we are well positioned to realize favorable increases in net interest income, and continued growth in fee-based and noninterest income sources, to support our overall profitability.  Our third quarter results, particularly when looking at our core performance excluding the nonrecurring merger expenses, reflect the early stages of this accretive potential.  With the majority of our merger expenses behind us, we look forward to the fourth quarter and the coming year when we can more fully realize the growth potential, efficiencies, and increasing profitability of these acquisitions.  In consideration of our confidence in the infrastructure and soundness of this Company and its potential, we are delighted to announce a continued dividend for our shareholders.

 


2


OPERATING RESULTS

 

Net Interest Income and Net Interest Margin

 

Net interest income was $15,911,000 for the three months ended September 30, 2018, an increase of $6,395,000 or 67 percent compared to net interest income of $9,516,000 for the three months ended September 30, 2017.  Through the first nine months of 2018, net interest income was $38,203,000, an increase of $10,102,000 or 36 percent compared to net interest income of $28,101,000 for the same period in 2017.  The primary source of the revenue growth was an increase in interest and fees on loans, as total loans increased $689,173,000 or over 79 percent since September 30, 2017.  Of this substantial year-over-year increase in total loans outstanding, $118,453,000 was from organic loan growth and $570,720,000 reflects the outstanding balance of loans acquired from Scottdale and First Priority.

 

For the three months ended September 30, 2018, Mid Penn’s tax-equivalent net interest margin was 3.75% compared to 3.64% for the three months ended September 30, 2017, as increases in quarterly yields on earning assets, and increases in noninterest-bearing deposits, more than offset the impact of the rising cost of funds as a result of recent Federal Open Market Committee (“FOMC”) rate increases, and the assumption of some higher-cost wholesale funding sources in the First Priority transaction. For the nine months ended September 30, 2018, Mid Penn’s tax-equivalent net interest margin was 3.62% versus 3.73% for the nine months ended September 30, 2017.  The decrease was attributed primarily to the increases in the cost of funds for the first half of 2018 being accelerated compared to the repricing of earning assets, though, as noted above, that trend changed favorably in the third quarter.

 

Noninterest Income

 

During the three months ended September 30, 2018, noninterest income was $2,165,000, reflecting an increase of $601,000 or 38 percent compared to noninterest income of $1,564,000 for the three months ended September 30, 2017.  For the nine months ended September 30, 2018, noninterest income totaled $5,371,000, an increase of $1,009,000 or 23 percent, compared to noninterest income of $4,362,000 for the same period in 2017.  Several components of noninterest income increased as a result of higher account and transaction volume due to both the First Priority and Scottdale acquisitions and organic growth.

 

Income from fiduciary activities was $851,000 for the nine months ended September 30, 2018, an increase of $238,000 or 39 percent compared to fiduciary income of $613,000 for the nine months ended September 30, 2017. These additional revenues were attributed to continued growth in trust assets under management, and increased sales of retail investment products, as a result of successful business development efforts by Mid Penn’s trust and wealth management team.

 

For the nine months ended September 30, 2018, service charges on deposits were $667,000, an increase of $113,000 or 20 percent, compared to service charges of $554,000 for the nine months ended September 30, 2017.  This increase was driven by an increase in collected charges on a higher volume of transactional deposit accounts, including deposit accounts assumed in both the Scottdale and First Priority acquisitions.

 

Net gains on sales of securities were $132,000 for the nine months ended September 30, 2018, an increase of $90,000 compared to net gains on sales of securities of $42,000 during the same period of 2017. Some investment securities acquired from Scottdale and First Priority were subsequently sold to ensure the overall portfolio was in greater alignment with Mid Penn’s investment management objectives.

 

ATM debit card interchange income was $908,000 for the nine months ended September 30, 2018, an increase of $219,000 or over 31 percent compared to interchange income of $689,000 for the same period in 2017. The additional income is a result of an increased volume of checking accounts, and an increase in Mid Penn Bank ATM and debit card activity, which included an increase in transaction volume resulting from accounts acquired in the Scottdale and First Priority transactions.

 

Other income was $1,312,000 for the nine months ended September 30, 2018, an increase of $643,000 compared to other income of $669,000 for the same period of 2017.  The increase in other income was primarily driven by $497,000 of settlement gains recognized in the first nine months of 2018 as a result of certain lump sum payouts to participants of the defined benefit pension plan assumed during the Scottdale acquisition.  Increases in letter of credit renewal fees and other service fees and commissions also contributed to the year-over-year growth in other income.

 

Mortgage banking income was $558,000 for the nine months ended September 30, 2018, a decrease of $88,000 or 14 percent compared to the nine months ended September 30, 2017. Rising longer-term interest rates have resulted in a lower volume of mortgage refinance activity in the first nine months of 2018 when compared to the same period in 2017.

 

Net gain on sales of SBA loans was $477,000 for the nine months ended September 30, 2018, a decrease of $226,000 when compared to the same period in 2017.  Tighter market pricing has resulted in lower levels of income realized on loan sales in 2018 versus the prior year.

 


3


Noninterest Expense

 

During the three months ended September 30, 2018, noninterest expenses totaled $15,264,000, an increase of $7,304,000 or 92 percent compared to noninterest expenses of $7,960,000 for the three months ended September 30, 2017.  Noninterest expense for the nine months ended September 30, 2018 totaled $36,189,000, an increase of $12,869,000 or 55 percent compared to noninterest expenses of $23,320,000 for the first nine months of 2017.  Noninterest expenses incurred as a result of franchise expansion through the First Priority and Scottdale acquisitions were the primary sources of the significant increase, with some expenses being incurred in connection with the opening of two new retail offices (Halifax, PA and Pillow, PA) after September 2017.

 

Included in the noninterest expense variances above, during the nine months ended September 30, 2018, merger and acquisition expenses were $4,955,000 and included investment banking fees, merger-related legal expenses, professional fees related to the preparation and filing of merger documents, severance costs, and information technology conversion/termination costs incurred in connection with (i) the acquisition of First Priority effective on July 31, 2018, and (ii) the acquisition of Scottdale effective on January 8, 2018.  Merger and acquisition expenses of $467,000 recorded during the nine months ended September 30, 2017 consisted primarily of investment banking fees and legal fees, as well as professional fees related to the preparation and filing of merger documents, related to the Scottdale acquisition.

 

Salaries and employee benefits expense increased $3,620,000 or 29 percent during the nine months ended September 30, 2018, versus the same period in 2017, with the increase attributable to (i) the retail staff additions at the five retail locations added through the Scottdale acquisition and the opening of the Halifax, PA branch, all effective January 8, 2018, (ii) the retail staff additions at the eight retail locations added through the First Priority acquisition, effective July 31, 2018, (iii) the retail staff additions as a result of the opening of the Pillow, PA branch, effective September 10, 2018, and (iv) the addition of commercial lending and credit administration personnel and other staff additions in alignment with Mid Penn’s core banking growth.

 

Occupancy expenses increased $858,000 or 46 percent during the first nine months of 2018 compared to the same period in 2017.  Similarly, equipment expense increased $382,000 or 33 percent during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.  These increases were driven by (i) the facility operating costs and increased depreciation expense for building, furniture, and equipment associated with the addition of the above-noted Scottdale market, First Priority market, and Halifax and Pillow branch offices, and (ii) depreciation and occupancy costs related to Mid Penn’s addition of  certain facilities in the Capital Region to increase administrative and operations support services for the growing franchise.  

 

FDIC assessment expense was $508,000 for the nine months ended September 30, 2018, a decrease of $77,000 or 13 percent compared to $585,000 for the nine months ended September 30, 2017.  As a result of the acquisitions, the favorable asset quality of both legacy portfolio loan assets and acquired portfolios, and successful workouts of non-performing assets, Mid Penn has reported more favorable capital and asset quality ratios, resulting in a lower overall FDIC assessment rate for 2018.

 

Legal and professional fees for the nine months ended September 30, 2018 increased by $168,000 or 29 percent compared to the same period in 2017 due to increased third-party services for wealth management, audit, and public relations activities given the expanded franchise operating profile.

 

Marketing and advertising expense increased 84 percent, from $377,000 for the nine months ended September 30, 2017 to $693,000 for the same period in 2018.  The increased costs were a result of marketing and branding initiatives implemented at the recently acquired Scottdale and First Priority locations, and market-specific business development promotions across Mid Penn’s footprint.  

 

Software licensing costs were $1,628,000 during the nine months ended September 30, 2018, an increase of $532,000 or 49 percent compared to $1,096,000 for the nine months ended September 30, 2017. The increase is a result of additional costs to license (i) all of the Scottdale and First Priority locations and the new Halifax and Pillow branches, (ii) upgrades to internal systems to enhance data management and storage capabilities given the larger company profile, and (iii) increases in certain core processing fees as our customer base and transaction volume continue to grow.

 

Intangible amortization increased from $78,000 during the nine months ended September 30, 2017 to $837,000 during the same period in 2018. In the first quarter of 2018, Mid Penn recorded a core deposit intangible (CDI) asset related to the Scottdale acquisition of $4,940,000.  On July 31, 2018, Mid Penn recorded an additional CDI asset of $2,832,000 as a result of the First Priority acquisition.  These CDI assets will amortize using the sum of the years’ digit method over a ten year period. During the nine months ended September 30, 2018, the CDI amortization recorded related to the Scottdale and First Priority acquisitions totaled $759,000, of which $673,000 was related to the amortization of the Scottdale CDI and $86,000 was related to the amortization of the First Priority CDI.

 

Other expense was $5,268,000 during the nine months ended September 30, 2018, an increase of $1,789,000 or 51 percent compared to other expense of $3,479,000 for the same period in 2017.  As both the Scottdale and First Priority acquisitions and organic growth have increased the organization’s geographic profile and employee base, several categories within other expense experienced increases, including insurance costs, stationary and supplies, printing, postage, loan collection costs and foreclosed real estate expenses, and employee travel costs.

4


FINANCIAL CONDITION

 

Loans

 

Total loans at September 30, 2018 were $1,567,286,000 compared to $910,404,000 at December 31, 2017, an increase of $656,882,000 or over 72 percent since year-end 2017.  A large portion of this increase was from loans acquired during 2018.  As of September 30, 2018, including the impact of the fair value acquisition adjustments, the outstanding balances of First Priority and Scottdale acquired loans combined were $570,720,000.  The majority of Mid Penn’s $86,162,000 of organic loan growth year to date continues to be commercial loans, including both commercial and industrial financing, and commercial real estate credits.

 

Deposits

 

Total deposits increased $738,897,000 or 72 percent, from $1,023,568,000 at December 31, 2017 to $1,762,465,000 at September 30, 2018.  Deposits assumed from the First Priority and Scottdale acquisitions accounted for $674,689,000 of the increase in total deposits since year end 2017, while organic deposit growth totaled $64,208,000 with most occurring in interest-bearing accounts as customers have taken advantage of more favorable money market and time deposit rates in response to FOMC rate increases.  

 

Investments

 

During the nine months ended September 30, 2018, the portfolio of held-to-maturity securities increased over 69 percent to $171,521,000 as of September 30, 2018, as compared to $101,356,000 as of December 31, 2017 (held-to-maturity investments are recorded at amortized cost).  Mid Penn’s total available-for-sale securities portfolio increased $17,062,000 or 18 percent, from $93,465,000 at December 31, 2017 to $110,527,000 at September 30, 2018. The increase to the investment securities during the nine months of 2018 was primarily due to investments acquired from Scottdale and First Priority.  Some acquired available-for-sale securities were sold after the mergers and the proceeds reinvested in held-to-maturity securities, both to support pledging requirements, and to ensure greater portfolio alignment with Mid Penn’s investment management objectives.  

 

Capital

 

Shareholders’ equity more than doubled, from $75,703,000 at December 31, 2017 to $221,835,000 at September 30, 2018, primarily due to (i) the issuance of 1,878,827 shares of common stock on January 8, 2018 in connection with the acquisition of Scottdale; (ii) the issuance of 2,320,800 shares of Mid Penn common stock on July 31, 2018, in connection with the acquisition of First Priority; and  (iii) the issuance of 3,404 shares of Series D Mid Penn preferred stock ($1,000 per share liquidation value) which replaced the First Priority preferred stock outstanding as of July 31, 2018.  Additionally, shareholders’ equity reflects the growth in retained earnings through year-to-date net income available to common shareholders.  These increases were partially offset by other comprehensive losses, primarily due to the after-tax impact of the unrealized reduction in market value within the available-for-sale investment portfolio since December 31, 2017.  Regulatory capital ratios for both Mid Penn and the Bank exceeded regulatory “well-capitalized” levels at both September 30, 2018 and 2017.

 

ASSET QUALITY

 

The allowance for loan and lease losses as a percentage of total loans was 0.53% at September 30, 2018, compared to 0.84% at December 31, 2017, and 0.86% at September 30, 2017. Loan loss reserves as a percentage of nonperforming loans were 76% at September 30, 2018, compared to 68% at December 31, 2017, and 88% at September 30, 2017.  The ratios as of September 30, 2018, were affected by the addition of the Scottdale and First Priority acquired loans, which, in accordance with purchase accounting principles, were recorded at fair value at the time of acquisition with no related allowance for loan losses.  Total nonperforming assets were $11,978,000 at September 30, 2018, compared to $11,308,000 at December 31, 2017, and $8,523,000 at September 30, 2017. The ratio of nonperforming assets to total loans plus other real estate assets was 0.76% as of September 30, 2018, compared to 1.24% as of December 31, 2017, and 0.97% as of September 30, 2017.

For the nine months ended September 30, 2018, Mid Penn had net recoveries of $398,000 compared to net recoveries of $94,000 during the same period of 2017.  The primary reason for the favorable net recovery amount through the first nine months of 2018 was Mid Penn’s workout and recovery of $777,000 of principal from a commercial real estate relationship that was subject to a restructuring and partial charge-off in 2009.  During the first nine months of 2017, Mid Penn’s net recovery position was attributed to the recovery of $318,000 of principal from the successful workout of a different commercial real estate relationship that was partially charged-off in 2010.  

Management performs a monthly evaluation of the adequacy of the loan and lease loss allowance, and based on these evaluations during the third quarter of 2018, a loan loss provision of $100,000 was recorded for the three months ended September 30, 2018.  No loan loss provision was recorded for the three months ended September 30, 2017. The provision for loan and lease losses was $225,000 for each of the nine months ended September 30, 2018 and 2017.  Management believes, based on information currently available, that the allowance for loan and lease losses of $8,229,000 is adequate as of September 30, 2018 to cover probable and estimated loan losses in the portfolio.

5


FINANCIAL HIGHLIGHTS (Unaudited):

 

(Dollars in thousands, except

 

Sept. 30,

 

 

June 30,

 

 

March 31,

 

 

Dec. 31,

 

 

Sept. 30,

 

per share data)

 

2018

 

 

2018

 

 

2018

 

 

2017

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

2,044,280

 

 

$

1,415,647

 

 

$

1,391,217

 

 

$

1,170,354

 

 

$

1,153,373

 

Total Loans

 

 

1,567,286

 

 

 

1,036,479

 

 

 

1,007,138

 

 

 

910,404

 

 

 

877,386

 

Total Deposits

 

 

1,762,465

 

 

 

1,236,518

 

 

 

1,212,423

 

 

 

1,023,568

 

 

 

1,026,675

 

Total Equity

 

 

221,835

 

 

 

141,775

 

 

 

139,124

 

 

 

75,703

 

 

 

77,391

 

Book Value per Common Share

 

 

25.83

 

 

 

23.15

 

 

 

22.72

 

 

 

17.85

 

 

 

18.25

 

Tangible Book Value per Common Share *

 

 

17.50

 

 

 

18.58

 

 

 

18.21

 

 

 

16.82

 

 

 

17.22

 

* Non-GAAP measure; see Reconciliation of Non-GAAP Measures

 

OPERATING HIGHLIGHTS (Unaudited):

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands, except

 

Sept. 30,

 

 

June 30,

 

 

March 31,

 

 

Dec. 31,

 

 

Sept. 30,

 

 

Sept. 30,

 

per share data)

 

2018

 

 

2018

 

 

2018

 

 

2017

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

$

15,911

 

 

$

11,414

 

 

$

10,878

 

 

$

9,487

 

 

$

9,516

 

 

$

38,203

 

 

$

28,101

 

Net Income Available to Common Shareholders

 

$

2,126

 

 

$

2,779

 

 

$

1,004

 

 

$

501

 

 

$

2,249

 

 

$

5,909

 

 

$

6,588

 

Basic Earnings per Common Share

 

$

0.28

 

 

$

0.45

 

 

$

0.17

 

 

$

0.12

 

 

$

0.53

 

 

$

0.89

 

 

$

1.56

 

Adjusted Earnings per Common Share *

 

$

0.60

 

 

$

0.49

 

 

$

0.41

 

 

$

0.43

 

 

$

0.58

 

 

$

1.52

 

 

$

1.66

 

Return on Average Equity

 

 

4.26

%

 

 

7.90

%

 

 

2.78

%

 

 

2.58

%

 

 

11.61

%

 

 

4.94

%

 

 

11.90

%

* Non-GAAP measure; see Reconciliation of Non-GAAP Measures

CAPITAL RATIOS (Unaudited):

 

Sept. 30,

 

 

June 30,

 

 

March 31,

 

 

Dec. 31,

 

 

Sept. 30,

 

 

 

2018

 

 

2018

 

 

2018

 

 

2017

 

 

2017

 

Leverage Ratio

 

7.7%

 

 

8.4%

 

 

8.5%

 

 

6.5%

 

 

6.8%

 

Common Tier 1 Capital (to Risk Weighted Assets)

 

10.1%

 

 

11.4%

 

 

11.6%

 

 

8.4%

 

 

8.9%

 

Tier 1 Capital (to Risk Weighted Assets)

 

10.1%

 

 

11.4%

 

 

11.6%

 

 

8.4%

 

 

8.9%

 

Total Capital (to Risk Weighted Assets)

 

12.4%

 

 

13.9%

 

 

14.1%

 

 

11.3%

 

 

10.7%

 

 


6


RECONCILIATION OF NON-GAAP MEASURES (Unaudited:)

This press release contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is our book value.  We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets.  Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.   We believe earnings per share excluding the after-tax impact of merger-related expenses and the adjustment of the deferred tax asset provides important supplemental information in evaluating Mid Penn’s operating results because these charges are not incurred as a result of ongoing operations.  Income tax effects of non-GAAP adjustments are calculated using the applicable statutory tax rate for the jurisdictions in which the charges (benefits) are incurred, while taking into consideration any valuation allowances or non-deductible portions of the non-GAAP adjustments. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Mid Penn’s results and financial condition as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information will be helpful in understanding Mid Penn’s ongoing operating results. This supplemental presentation should not be construed as an inference that Mid Penn’s future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

RECONCILIATION OF NON-GAAP MEASURES, CONTINUED (Unaudited:)

Tangible Book Value Per Share

 

(Dollars in thousands, except

 

Sept. 30,

 

 

June 30,

 

 

March 31,

 

 

Dec. 31,

 

 

Sept. 30,

 

per share data)

 

2018

 

 

2018

 

 

2018

 

 

2017

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholder's Equity

 

$

221,835

 

 

$

141,775

 

 

$

139,124

 

 

$

75,703

 

 

$

77,391

 

Less: Preferred Stock

 

 

3,404

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Less: Goodwill

 

 

62,767

 

 

 

23,107

 

 

 

22,528

 

 

 

3,918

 

 

 

3,918

 

Less: Core Deposit and Other Intangibles

 

 

7,708

 

 

 

4,879

 

 

 

5,126

 

 

 

434

 

 

 

460

 

Tangible Equity

 

$

147,956

 

 

$

113,789

 

 

$

111,470

 

 

$

71,351

 

 

$

73,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares Issued and Outstanding

 

 

8,457,023

 

 

 

6,124,517

 

 

 

6,122,717

 

 

 

4,242,216

 

 

 

4,240,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tangible Book Value per Share

 

$

17.50

 

 

$

18.58

 

 

$

18.21

 

 

$

16.82

 

 

$

17.22

 

Adjusted Earnings Per Common Share Excluding Non-Recurring Expenses

 

(Dollars in thousands, except

 

Three Months Ended

 

 

Nine Months Ended

 

per share data)

 

Sept. 30,

 

 

June 30,

 

 

March 31,

 

 

Dec. 31,

 

 

Sept. 30,

 

 

Sept. 30,

 

 

 

2018

 

 

2018

 

 

2018

 

 

2017

 

 

2017

 

 

2018

 

 

2017

 

Net Income Available to Common Shareholders

 

$

2,126

 

 

$

2,779

 

 

$

1,004

 

 

$

501

 

 

$

2,249

 

 

$

5,908

 

 

$

6,588

 

Plus: Merger and Acquisition Expenses

 

 

3,038

 

 

 

222

 

 

 

1,694

 

 

 

152

 

 

 

225

 

 

 

4,955

 

 

 

467

 

Less: Tax Effect of Merger and Acquisition Expenses

 

 

576

 

 

 

(3

)

 

 

274

 

 

 

2

 

 

 

-

 

 

 

847

 

 

 

35

 

Plus: Adjustment of Deferred Tax Asset

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,169

 

 

 

-

 

 

 

-

 

 

 

-

 

Net Income Excluding Non-Recurring Expenses

 

$

4,588

 

 

$

3,004

 

 

$

2,424

 

 

$

1,820

 

 

$

2,474

 

 

$

10,016

 

 

$

7,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding - denominator

 

 

7,695,469

 

 

 

6,122,757

 

 

 

5,974,949

 

 

 

4,240,802

 

 

 

4,237,965

 

 

 

6,604,027

 

 

 

4,236,604

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Earnings Per Common Share Excluding Non-Recurring Expenses

 

$

0.60

 

 

$

0.49

 

 

$

0.41

 

 

$

0.43

 

 

$

0.58

 

 

$

1.52

 

 

$

1.66

 

7


CONSOLIDATED BALANCE SHEETS (Unaudited):

(Dollars in thousands, except share data)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

31,110

 

 

$

19,795

 

 

$

25,122

 

Interest-bearing balances with other financial institutions

 

 

5,241

 

 

 

3,028

 

 

 

2,490

 

Federal funds sold

 

 

25,734

 

 

 

691

 

 

 

28,572

 

Total cash and cash equivalents

 

 

62,085

 

 

 

23,514

 

 

 

56,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale, at fair value

 

 

110,527

 

 

 

93,465

 

 

 

96,513

 

Investment securities held to maturity, at amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

(fair value $169,382, $100,483, and $82,716)

 

 

171,521

 

 

 

101,356

 

 

 

82,625

 

Loans held for sale

 

 

3,181

 

 

 

1,040

 

 

 

1,778

 

Loans and leases, net of unearned interest

 

 

1,567,286

 

 

 

910,404

 

 

 

877,386

 

Less:  Allowance for loan and lease losses

 

 

(8,229

)

 

 

(7,606

)

 

 

(7,502

)

Net loans and leases

 

 

1,559,057

 

 

 

902,798

 

 

 

869,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

25,467

 

 

 

16,168

 

 

 

14,260

 

Cash surrender value of life insurance

 

 

16,610

 

 

 

13,042

 

 

 

12,977

 

Restricted investment in bank stocks

 

 

3,373

 

 

 

4,384

 

 

 

3,735

 

Foreclosed assets held for sale

 

 

1,101

 

 

 

189

 

 

 

33

 

Accrued interest receivable

 

 

7,491

 

 

 

4,564

 

 

 

4,159

 

Deferred income taxes

 

 

4,432

 

 

 

1,888

 

 

 

2,321

 

Goodwill

 

 

62,767

 

 

 

3,918

 

 

 

3,918

 

Core deposit and other intangibles, net

 

 

7,708

 

 

 

434

 

 

 

460

 

Other assets

 

 

8,960

 

 

 

3,594

 

 

 

4,526

 

Total Assets

 

$

2,044,280

 

 

$

1,170,354

 

 

$

1,153,373

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

271,142

 

 

$

163,714

 

 

$

155,574

 

Interest-bearing demand

 

 

438,928

 

 

 

349,241

 

 

 

359,236

 

Money Market

 

 

356,729

 

 

 

246,220

 

 

 

242,077

 

Savings

 

 

224,746

 

 

 

62,770

 

 

 

62,258

 

Time

 

 

470,920

 

 

 

201,623

 

 

 

207,530

 

Total Deposits

 

 

1,762,465

 

 

 

1,023,568

 

 

 

1,026,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

1,771

 

 

 

34,611

 

 

 

20,000

 

Long-term debt

 

 

18,064

 

 

 

12,352

 

 

 

13,409

 

Subordinated debt

 

 

27,088

 

 

 

17,338

 

 

 

7,421

 

Accrued interest payable

 

 

2,262

 

 

 

645

 

 

 

940

 

Other liabilities

 

 

10,795

 

 

 

6,137

 

 

 

7,537

 

Total Liabilities

 

 

1,822,445

 

 

 

1,094,651

 

 

 

1,075,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Series D preferred stock, par value $1.00; liquidation value $1,000;

 

 

 

 

 

 

 

 

 

 

 

 

authorized 3,404 shares; 9% cumulative dividend; 3,404 and 0 shares issued and

 

 

 

 

 

 

 

 

 

 

 

 

outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

3,404

 

 

 

 

 

 

 

Common stock, par value $1.00; authorized 10,000,000 shares;

 

 

 

 

 

 

 

 

 

 

 

 

8,457,023, 4,242,216, and 4,240,754 shares issued and outstanding at

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018, December 31, 2017 and at September 30, 2017, respectively

 

 

8,457

 

 

 

4,242

 

 

 

4,241

 

Additional paid-in capital

 

 

177,421

 

 

 

40,970

 

 

 

40,846

 

Retained earnings

 

 

36,244

 

 

 

32,565

 

 

 

33,334

 

Accumulated other comprehensive loss

 

 

(3,691

)

 

 

(2,074

)

 

 

(1,030

)

Total Shareholders’ Equity

 

 

221,835

 

 

 

75,703

 

 

 

77,391

 

Total Liabilities and Shareholders' Equity

 

$

2,044,280

 

 

$

1,170,354

 

 

$

1,153,373

 

8


CONSOLIDATED STATEMENTS OF INCOME (Unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans and leases

 

$

17,715

 

 

$

10,213

 

 

$

41,125

 

 

$

29,864

 

Interest on interest-bearing balances

 

 

26

 

 

 

5

 

 

 

52

 

 

 

12

 

Interest on federal funds sold

 

 

78

 

 

 

23

 

 

 

399

 

 

 

97

 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government agencies

 

 

965

 

 

 

617

 

 

 

2,601

 

 

 

1,636

 

State and political subdivision obligations, tax-exempt

 

 

636

 

 

 

240

 

 

 

1,695

 

 

 

820

 

Other securities

 

 

163

 

 

 

52

 

 

 

411

 

 

 

159

 

Total Interest Income

 

 

19,583

 

 

 

11,150

 

 

 

46,283

 

 

 

32,588

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

3,183

 

 

 

1,425

 

 

 

6,960

 

 

 

3,906

 

Interest on short-term borrowings

 

 

38

 

 

 

30

 

 

 

50

 

 

 

43

 

Interest on long-term and subordinated debt

 

 

451

 

 

 

179

 

 

 

1,070

 

 

 

538

 

Total Interest Expense

 

 

3,672

 

 

 

1,634

 

 

 

8,080

 

 

 

4,487

 

Net Interest Income

 

 

15,911

 

 

 

9,516

 

 

 

38,203

 

 

 

28,101

 

PROVISION FOR LOAN AND LEASE LOSSES

 

 

100

 

 

 

 

 

 

225

 

 

 

225

 

Net Interest Income After Provision for Loan and Lease Losses

 

 

15,811

 

 

 

9,516

 

 

 

37,978

 

 

 

27,876

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from fiduciary activities

 

 

325

 

 

 

217

 

 

 

851

 

 

 

613

 

Service charges on deposits

 

 

242

 

 

 

175

 

 

 

667

 

 

 

554

 

Net gain on sales of investment securities

 

 

30

 

 

 

22

 

 

 

132

 

 

 

42

 

Earnings from cash surrender value of life insurance

 

 

76

 

 

 

65

 

 

 

205

 

 

 

196

 

Mortgage banking income

 

 

197

 

 

 

230

 

 

 

558

 

 

 

646

 

ATM debit card interchange income

 

 

317

 

 

 

233

 

 

 

908

 

 

 

689

 

Merchant services income

 

 

90

 

 

 

84

 

 

 

261

 

 

 

250

 

Net gain on sales of SBA loans

 

 

68

 

 

 

262

 

 

 

477

 

 

 

703

 

Other income

 

 

820

 

 

 

276

 

 

 

1,312

 

 

 

669

 

Total Noninterest Income

 

 

2,165

 

 

 

1,564

 

 

 

5,371

 

 

 

4,362

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

6,680

 

 

 

4,277

 

 

 

16,286

 

 

 

12,666

 

Occupancy expense, net

 

 

1,063

 

 

 

631

 

 

 

2,730

 

 

 

1,872

 

Equipment expense

 

 

579

 

 

 

398

 

 

 

1,531

 

 

 

1,149

 

Pennsylvania bank shares tax expense

 

 

131

 

 

 

170

 

 

 

473

 

 

 

500

 

FDIC Assessment

 

 

187

 

 

 

197

 

 

 

508

 

 

 

585

 

Legal and professional fees

 

 

272

 

 

 

218

 

 

 

752

 

 

 

584

 

Marketing and advertising expense

 

 

274

 

 

 

139

 

 

 

693

 

 

 

377

 

Software licensing

 

 

602

 

 

 

397

 

 

 

1,628

 

 

 

1,096

 

Telephone expense

 

 

177

 

 

 

120

 

 

 

480

 

 

 

379