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Section 1: 10-Q (10-Q)

mpb-10q_20180930.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, 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 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 6, 2018, the registrant had 8,457,023 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 September 30, 2018 and December 31, 2017 (Unaudited)

2

 

 

 

 

 

 

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

3

 

 

 

 

 

 

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

4

 

 

 

 

 

 

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

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and September 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

42

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

60

 

 

 

 

Item 4 – Controls and Procedures

60

 

 

PART II – OTHER INFORMATION

61

 

 

 

 

Item 1 – Legal Proceedings

61

 

 

 

 

Item 1A – Risk Factors

61

 

 

 

 

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

62

 

 

 

 

Item 3 – Defaults upon Senior Securities

62

 

 

 

 

Item 4 – Mine Safety Disclosures

62

 

 

 

 

Item 5 – Other Information

62

 

 

 

 

Item 6 – Exhibits

62

 

 

 

 

Signatures

63

 

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)

 

September 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

31,110

 

 

$

19,795

 

Interest-bearing balances with other financial institutions

 

 

5,241

 

 

 

3,028

 

Federal funds sold

 

 

25,734

 

 

 

691

 

Total cash and cash equivalents

 

 

62,085

 

 

 

23,514

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale, at fair value

 

 

110,527

 

 

 

93,465

 

Investment securities held to maturity, at amortized cost (fair value $167,120 and $100,483)

 

 

171,521

 

 

 

101,356

 

Loans held for sale

 

 

3,181

 

 

 

1,040

 

Loans and leases, net of unearned interest

 

 

1,567,286

 

 

 

910,404

 

Less:  Allowance for loan and lease losses

 

 

(8,229

)

 

 

(7,606

)

Net loans and leases

 

 

1,559,057

 

 

 

902,798

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

25,467

 

 

 

16,168

 

Cash surrender value of life insurance

 

 

16,610

 

 

 

13,042

 

Restricted investment in bank stocks

 

 

3,373

 

 

 

4,384

 

Foreclosed assets held for sale

 

 

1,101

 

 

 

189

 

Accrued interest receivable

 

 

7,491

 

 

 

4,564

 

Deferred income taxes

 

 

4,432

 

 

 

1,888

 

Goodwill

 

 

62,767

 

 

 

3,918

 

Core deposit and other intangibles, net

 

 

7,708

 

 

 

434

 

Other assets

 

 

8,960

 

 

 

3,594

 

Total Assets

 

$

2,044,280

 

 

$

1,170,354

 

 

 

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

271,142

 

 

$

163,714

 

Interest-bearing demand

 

 

438,928

 

 

 

349,241

 

Money Market

 

 

356,729

 

 

 

246,220

 

Savings

 

 

224,746

 

 

 

62,770

 

Time

 

 

470,920

 

 

 

201,623

 

Total Deposits

 

 

1,762,465

 

 

 

1,023,568

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

1,771

 

 

 

34,611

 

Long-term debt

 

 

18,064

 

 

 

12,352

 

Subordinated debt

 

 

27,088

 

 

 

17,338

 

Accrued interest payable

 

 

2,262

 

 

 

645

 

Other liabilities

 

 

10,795

 

 

 

6,137

 

Total Liabilities

 

 

1,822,445

 

 

 

1,094,651

 

 

 

 

 

 

 

 

 

 

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 and 4,246,216

 

 

 

 

 

 

 

 

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

 

 

8,457

 

 

 

4,242

 

Additional paid-in capital

 

 

177,421

 

 

 

40,970

 

Retained earnings

 

 

36,244

 

 

 

32,565

 

Accumulated other comprehensive loss

 

 

(3,691

)

 

 

(2,074

)

Total Shareholders’ Equity

 

 

221,835

 

 

 

75,703

 

Total Liabilities and Shareholders' Equity

 

$

2,044,280

 

 

$

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 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

 

Loss on sale or write-down of foreclosed assets

 

 

45

 

 

 

 

 

 

48

 

 

 

88

 

Intangible amortization

 

 

341

 

 

 

25

 

 

 

837

 

 

 

78

 

Merger and acquisition expense

 

 

3,039

 

 

 

243

 

 

 

4,955

 

 

 

467

 

Other expenses

 

 

1,874

 

 

 

1,145

 

 

 

5,268

 

 

 

3,479

 

Total Noninterest Expense

 

 

15,264

 

 

 

7,960

 

 

 

36,189

 

 

 

23,320

 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

 

2,712

 

 

 

3,120

 

 

 

7,160

 

 

 

8,918

 

Provision for income taxes

 

 

548

 

 

 

871

 

 

 

1,213

 

 

 

2,330

 

NET INCOME

 

$

2,164

 

 

$

2,249

 

 

$

5,947

 

 

$

6,588

 

Series D preferred stock dividends

 

 

38

 

 

 

 

 

 

38

 

 

 

 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

 

$

2,126

 

 

$

2,249

 

 

$

5,909

 

 

$

6,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Common Share

 

$

0.28

 

 

$

0.53

 

 

$

0.89

 

 

$

1.56

 

Cash Dividends Paid

 

$

0.15

 

 

$

0.13

 

 

$

0.55

 

 

$

0.49

 

 

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 September 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,164

 

 

$

2,249

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

securities, net of income taxes of ($157) and ($1), respectively

 

 

(589

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

included in net income, net of income taxes of ($6) and ($7), respectively  (a)

 

 

(23

)

 

 

(15

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of $66 and ($2), respectively  (b)

 

 

247

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

of ($25) and $0, respectively   (c)

 

 

(92

)

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss)

 

 

(457

)

 

 

(19

)

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

1,707

 

 

$

2,230

 

 

(Dollars in thousands)

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,947

 

 

$

6,588

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

securities, net of income tax impact of ($730) and $956, respectively

 

 

(2,746

)

 

 

1,858

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

(104

)

 

 

(28

)

 

 

 

 

 

 

 

 

 

Change in defined benefit plans, net of income tax impact of $423 and ($2), respectively  (b)

 

 

1,591

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

of ($104) and $0, respectively   (c)

 

 

(393

)

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss) income

 

 

(1,652

)

 

 

1,823

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

4,295

 

 

$

8,411

 

 

 

(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, and amortization of prior service costs.  Please reference Note 9 – 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.

 

 

4


 

 

 

 

MID PENN BANCORP, INC.

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

 

For the Nine Months Ended September 30, 2018 and 2017

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Preferred

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Stock

 

 

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

 

 

 

 

 

 

 

 

 

 

 

5,947

 

 

 

 

 

 

5,947

 

Total other comprehensive loss, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,652

)

 

 

(1,652

)

Series D preferred stock issued in connection with the First Priority acquisition

 

 

3,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,404

 

Series D preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

(38

)

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(2,186

)

 

 

 

 

 

(2,186

)

Common stock issued to Scottdale shareholders

(1,878,827 shares) (b)

 

 

 

 

 

1,879

 

 

 

62,302

 

 

 

 

 

 

 

 

 

64,181

 

Common stock issued to First Priority shareholders

(2,320,800 shares) (c)

 

 

 

 

 

2,321

 

 

 

73,801

 

 

 

 

 

 

 

 

 

76,122

 

Employee Stock Purchase Plan (2,640 shares)

 

 

 

 

 

2

 

 

 

82

 

 

 

 

 

 

 

 

 

84

 

Director Stock Purchase Plan (2,893 shares)

 

 

 

 

 

 

3

 

 

 

89

 

 

 

 

 

 

 

 

 

92

 

Restricted stock activity (9,647 shares)

 

 

 

 

 

10

 

 

 

177

 

 

 

 

 

 

 

 

 

187

 

Balance, September 30, 2018

 

$

3,404

 

 

$

8,457

 

 

$

177,421

 

 

$

36,244

 

 

$

(3,691

)

 

$

221,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2017

 

$

 

 

$

4,233

 

 

$

40,688

 

 

$

28,399

 

 

$

(2,853

)

 

$

70,467

 

Net income

 

 

 

 

 

 

 

 

 

 

 

6,588

 

 

 

 

 

 

6,588

 

Total other comprehensive income, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,823

 

 

 

1,823

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(1,653

)

 

 

 

 

 

(1,653

)

Employee Stock Purchase Plan (2,747 shares)

 

 

 

 

 

3

 

 

 

73

 

 

 

 

 

 

 

 

 

76

 

Director Stock Purchase Plan (714 shares)

 

 

 

 

 

 

1

 

 

 

20

 

 

 

 

 

 

 

 

 

21

 

Restricted stock activity (3,996 shares)

 

 

 

 

 

4

 

 

 

65

 

 

 

 

 

 

 

 

 

69

 

Balance, September 30, 2017

 

$

 

 

$

4,241

 

 

$

40,846

 

 

$

33,334

 

 

$

(1,030

)

 

$

77,391

 

 

 

(a)

Represents the impact of adopting Accounting Standard Update ASU 2016-01. See Note 4 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 3 to the consolidated financial statements for more information.

 

(c)

Shares issued on July 31, 2018 as a result of the acquisition of First Priority Financial Corp. (“First Priority”).  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)

 

Nine Months Ended September 30,

 

 

 

 

2018

 

 

 

2017

 

Operating Activities:

 

 

 

 

 

 

 

 

Net Income