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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
Form 10-Q
-----------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
Commission file number 001-13677
Mid Penn Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1666413
(State or other jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
349 Union Street, Millersburg, PA 17061
(Address of principal executive offices) (Zip Code)
(717) 692-2133
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated [X] Accelerated
[ ] Non-accelerated [ ] Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the classes of common
stock, as of the latest practical date.
3,486,095 shares of Common Stock, $1.00 par value per share, were outstanding as
of May 1, 2008.
================================================================================
PART I
MID PENN BANCORP, INC.
ITEM I: FINANCIAL STATEMENTS
MID PENN BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
MAR. 31 DEC. 31
2008 2007
--------- ---------
(UNAUDITED) (AUDITED)
ASSETS:
Cash and due from banks $ 9,663 $ 10,599
Interest-bearing balances 61,061 46,830
Available-for-sale securities 55,945 54,072
Federal funds sold 0 0
Loans 389,178 377,128
Less,
Allowance for loan and lease losses 4,867 4,790
--------- ---------
Net loans 384,311 372,338
--------- ---------
Bank premises and equip't, net 10,746 10,638
Foreclosed assets held for sale 445 529
Accrued interest receivable 2,645 2,818
Goodwill 1,016 1,016
Core deposit intangible, net 346 362
Cash surrender value of life insurance 7,023 6,961
Deferred income taxes 1,933 2,053
Other assets 840 1,541
--------- ---------
Total Assets 535,974 509,757
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Non-interest Bearing Demand 48,473 46,478
Interest Bearing Demand 36,848 36,627
Money Market 68,434 62,596
Savings 25,256 24,844
Time 227,195 202,272
--------- ---------
Total deposits 406,206 372,817
--------- ---------
Short-term borrowings 37,828 37,349
Accrued interest payable 2,737 1,990
Other liabilities 3,069 2,576
Long-term debt 45,343 54,581
--------- ---------
Total Liabilities 495,183 469,313
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued
3,533,340 shares at March 31, 2008
and December 31, 2007 3,533 3,533
Additional paid-in capital 31,107 31,107
Retained earnings 6,859 6,660
Accumulated other comprehensive inc (loss) 519 284
Treasury Stock, at cost (47,084 and 43,706
shares at Mar. 31, 2008 and Dec. 31, 2007) (1,227) (1,140)
--------- ---------
Total Stockholders' Equity 40,791 40,444
--------- ---------
Total Liabilities & Equity 535,974 509,757
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; In thousands, except per share data)
FOR THE QUARTER ENDED
MARCH 31,
------------------------
2008 2007
---------- ----------
INTEREST INCOME:
Interest & fees on loans $ 6,777 $ 6,414
Int.-bearing balances 672 626
Treas. & Agency securities 232 260
Municipal securities 345 329
Other securities 51 52
Fed funds sold and repos 0 24
---------- ----------
Total Int. Income 8,077 7,705
---------- ----------
INTEREST EXPENSE:
Deposits 2,987 2,799
Short-term borrowings 262 199
Long-term borrowings 628 729
---------- ----------
Total Int. Expense 3,877 3,727
---------- ----------
Net Int. Income 4,200 3,978
PROVISION FOR LOAN AND LEASE LOSSES 100 75
---------- ----------
Net Int. Inc. after Prov. for Loan & Lease Losses 4,100 3,903
---------- ----------
NON-INTEREST INCOME:
Trust dept 67 81
Service chgs. on deposits 408 366
Investment securities
Gains(losses), net 0 0
Increase in cash surrndr value of life insurance 62 70
Mortgage banking income 39 35
Income from sale of other real estate 0 0
ATM/Debit card income 115 99
Financial Network 40 34
Merchant Services 25 21
Safety deposit rental income 26 23
Other 112 108
---------- ----------
Total Non-Interest Income 894 837
---------- ----------
NON-INTEREST EXPENSE:
Salaries and benefits 1,817 1,723
Occupancy, net 288 216
Equipment 318 265
PA Bank Shares tax 92 82
Legal and professional expense 175 189
Marketing and advertising expense 78 84
ATM/Debit card processing expense 41 44
Director fees and benefits expense 76 80
Computer expense 138 148
Stationary and supplies 72 62
Trust department expense 11 16
Postage expense 39 43
Leasing department expense 14 12
Meals, travel, and lodging expense 25 23
Donations expense 15 33
Internet banking expense 14 12
Courier expense 30 26
Insurance expense 16 17
Merchant services expense 13 3
Core deposit intangible expense 33 33
Dues and subscriptions expense 17 13
Ongoing education expense 17 15
Service charge expense 22 22
Credit report expense 14 12
Other 69 118
---------- ----------
Tot. Non-int. Exp 3,444 3,291
---------- ----------
Income before income tax provision 1,550 1,449
INCOME TAX PROVISION 377 365
---------- ----------
NET INCOME $ 1,173 $ 1,084
========== ==========
NET INCOME PER SHARE $ 0.34 $ 0.31
========== ==========
DIVIDENDS PER SHARE $ 0.20 $ 0.20
========== ==========
Weighted Average No. of
Shares Outstanding 3,488,826 3,508,721
The accompanying notes are an integral part of these
consolidated financial statements.
3
MID PENN BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in thousands)
FOR THE QUARTER ENDED
MARCH 31,
------------------
2008 2007
------- -------
Operating Activities:
Net Income $ 1,173 $ 1,084
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan & lease losses 100 75
Depreciation 210 185
Incr. in cash-surr. value of life insurance -62 -69
Investment securities gains, net 0 0
Amortization 16 33
(Gain) loss on sale/disposal of bank
premises and equipment 0 0
Loss (gain) on the sale of foreclosed
assets 32 9
Change in deferred income taxes 0 93
Change in accrued interest receivable 173 117
Change in other assets 701 -653
Change in accrued interest payable 747 556
Change in other liabilities 217 257
------- -------
Net cash provided by
operating activities 3,307 1,687
------- -------
Investing Activities:
Net (incr)decr in int-bearing balances -14,231 -322
Net increase in federal funds sold 0 -3,750
Proceeds from sale of securities 0 0
Proceeds from the maturity of secs 8,344 1,948
Purchases of investment securities -9,862 -5
Net increase in loans -12,073 -678
Purchases of bank premises & equip't -318 -566
Proceeds from sale of foreclosed assets 52 124
------- -------
Net cash used in
investing activities -28,088 -3,249
------- -------
Financing Activities:
Net incr. in demand and savings 8,466 8,257
Net incr.(decr.) in time deposits 24,923 7,667
Net incr.(decr.) in short-term borrowings 479 -16,102
Long-term debt repayments -10,033 -32
Proceeds from long-term borrowings 795 0
Cash dividend paid -698 -668
Purchase of treasury stock -87 -299
------- -------
Net cash provided by(used in)
financing activities 23,845 -1,177
------- -------
Net (decr.)incr. in cash & due from banks -936 -2,739
Cash & due from banks, beg of period 10,599 9,498
------- -------
Cash & due from banks, end of period 9,663 6,759
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid 3,130 3,171
Income taxes paid 0 0
Supplemental Noncash Disclosures:
Loan charge-offs 47 84
Transfers to foreclosed assets held for sale 0 0
The accompanying notes are an integral part of these
consolidated financial statements.
4
MID PENN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated interim financial statements, with the exception of the
consolidated balance sheet as of December 31, 2007, are unaudited and have been
prepared according to the rules and regulations of the Securities and Exchange
Commission with respect to Form 10-Q. The financial information reflects all
adjustments (consisting only of normal recurring adjustments), which are, in our
opinion, necessary for a fair statement of results for the periods covered.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted according to
these rules and regulations. We believe, however, that the disclosures are
adequate so that the information is not misleading. You should read these
interim financial statements along with the financial statements including the
notes included in the Corporation's most recent Form 10-K.
2. Interim statements are subject to possible adjustments in connection with the
annual audit of the Corporation's accounts for the full fiscal year. In our
opinion, all necessary adjustments have been included so that the interim
financial statements are not misleading.
3. The results of operations for the interim periods presented are not
necessarily an indicator of the results expected for the full year.
4. Management considers the allowance for loan and lease losses to be adequate
at this time.
5. Short-term borrowings as of March 31, 2008, and December 31, 2007, consisted
of:
(Dollars in thousands)
3/31/08 12/31/07
------- --------
Federal funds purchased $28,550 $29,600
Repurchase agreements 8,663 7,156
Treasury, tax and loan note 615 593
------- --------
$37,828 $37,349
======= =======
Federal funds purchased represent overnight funds. Securities sold under
repurchase agreements generally mature between one day and one year. Treasury,
tax and loan notes are open-ended interest bearing notes payable to the U.S.
Treasury upon call. All tax deposits accepted by the Bank are placed in the
Treasury note option account.
6. During the first quarter, Mid Penn Bank ("MPB") entered into one long-term
borrowing with the Federal Home Loan Bank of Pittsburgh. It is an amortizing
loan for $795,000 with a fixed rate of 3.24%, maturing on March 5, 2013, which
was entered into in conjunction with the funding of a specific commercial loan
for one of the Bank's borrowers.
7. MPB has an unfunded noncontributory defined benefit retirement plan for
directors. The plan provides defined benefits based on years of service. MPB
also has other postretirement benefit plans covering full-time employees. These
health care and life insurance plans are noncontributory. MPB uses a December 31
measurement date for its plans.
5
MID PENN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of net periodic benefit costs from these benefit plans are as
follows:
THREE MONTHS ENDED MARCH 31:
(IN THOUSANDS)
PENSION BENEFITS OTHER BENEFITS
2008 2007 2008 2007
----- ----- ----- -----
Service cost $ 12 $ 10 $ 6 $ 6
Interest cost 9 8 15 15
Expected return on plan assets 0 0 0 0
Amortization of transition obligation 4 4 0 0
Amortization of prior service cost 0 0 5 7
Amortization of net (gain) loss -1 -2 0 0
----- ----- ----- -----
Net periodic benefit cost $ 24 $ 20 $ 26 $ 28
===== ===== ===== =====
8. Earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during each of the periods presented, giving
retroactive effect to stock dividends. The basic and diluted earnings per share
are the same since there are no dilutive shares of securities outstanding.
9. The purpose of reporting comprehensive income (loss) is to report a measure
of all changes in the Corporation's equity resulting from economic events other
than transactions with stockholders in their capacity as stockholders. For the
Corporation, comprehensive income(loss) includes traditional income statement
amounts as well as unrealized gains and losses on certain investments in debt
and equity securities (i.e. available- for-sale securities). Because unrealized
gains and losses are part of comprehensive income (loss), comprehensive income
(loss) may vary substantially between reporting periods due to fluctuations in
the market prices of securities held. Other comprehensive income also includes a
pension component in accordance with Financial Accounting Standards Board No.
158.
(IN THOUSANDS) THREE MONTHS ENDED
MARCH 31:
2008 2007
-------- --------
Net Income $ 1,173 $ 1,084
-------- --------
Other comprehensive income(loss):
Unrealized holding gains (losses)
on securities arising during the
period 355 -21
Less: reclassification
adjs for losses(gains) included
in net income 0 0
-------- --------
Net unrealized losses 355 -21
Other comprehensive income related to
the booking of benefits liabilities 0 -311
Income tax (provision) benefit
related to other comp.income (loss) -120 113
-------- --------
Other comprehensive inc(loss) 235 -219
-------- --------
Comprehensive Income $ 1,408 $ 865
======== ==========
6
MID PENN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Effective January 1, 2008, MPB adopted Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value under generally accepted
accounting principles in the United States of America and enhances disclosures
about fair value measurements. The Bank measures on a recurring basis its
available for sale securities portfolio at market value according to SFAS 157.
Total available for sale assets were $55,945,000 as of March 31, 2008. These
securities, comprising agency and municipal securities, were measured using
level 2 inputs. These market values are provided by a third-party securities
brokerage firm. Level 2 inputs are inputs other than quoted prices on an active
exchange included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include:
a. Quoted prices for similar assets or liabilities in active
markets;
b. Quoted prices for identical or similar assets or liabilities in
markets that are not active, that is, markets in which there are
few transactions for the asset or liability, the prices are not
current, or price quotations vary substantially either over time
or among market makers (for example, some brokered markets), or
in which little information is released publicly (for example, a
principal-to principal market);
c. Inputs other than quoted prices that are observable for the asset
or liability (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities, prepayment
speeds, loss severities, credit risks, and default rates);
d. Inputs that are derived principally from or corroborated by
observable market data by correlation or other means
(market-corroborated inputs).
Level 1 inputs are those that are quoted prices (unadjusted) in active markets
for identical assets or liabilities. Level 3 inputs are unobservable inputs
based on internal models due to lack of comparable inputs at either level 1 or
2. The Bank did not have any assets or liabilities whose fair values are
measured using level 1 or level 3 inputs.
On January 1, 2008, the Company adopted SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES. SFAS 159 allows companies to elect
to follow fair value accounting for certain financial assets and liabilities in
an effort to mitigate volatility in earnings without having to apply complex
hedge accounting provisions. The Corporation did not elect the fair value option
for any of its financial instruments as of March 31, 2008; and therefore, the
adoption of this statement had no effect on the Corporation's financial
statements.
On January 1, 2008, the Company adopted Emerging Issues Task Force 06-4,
ACCOUNTING FOR DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT ASPECTS OF
ENDORSEMENT SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENTS (EITF 06-4). In accordance
with the EITF, the Corporation recorded a liability of approximately $276,000
and adjusted beginning retained earnings as of January 1, 2008 by approximately
$276,000.
7
MID PENN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. The Corporation adopted FASB Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES, an interpretation of FASB Statement No. 109 (FIN48)
during 2007 and has evaluated its material tax positions as of March 31, 2008.
Under the "more-likely-than-not" threshold guidelines, the Corporation believes
no significant uncertain tax positions exist, either individually or in the
aggregate, that would give rise to the non-recognition of an existing tax
benefit. In the event an adverse tax position is determined to exist, penalty
and interest will be accrued, in accordance with the Internal Revenue Service
guidelines, and recorded as a component of other non-interest expense in the
Corporation's consolidated statements of income.
As of March 31, 2008, there were no unrecognized tax benefits that, if
recognized, would significantly affect the Corporation's effective tax rate.
Also, as of March 31, 2008, there were no penalties and interest recognized in
the consolidated statement of income as a result of FIN 48, nor does the
Corporation foresee a change in its material tax positions that would give rise
to the non-recognition of an existing tax benefit during the near future.
MID PENN BANCORP, INC.
MILLERSBURG, PENNSYLVANIA
ITEM 2: MANAGEMENT'S DISCUSSION OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Special Cautionary Notice Regarding Forward-looking Statements
Certain of the matters discussed in this document and in documents incorporated
by reference herein, including matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," may
constitute forward-looking statements for purposes of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, and as
such may involve known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of the Corporation to
be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. The words "expect,"
"anticipate," "intend," "plan," "believe," "estimate," and similar expressions
are intended to identify such forward-looking statements.
The Corporation's actual results may differ materially from the results
anticipated in these forward-looking statements due to a variety of factors,
including, without limitation:
o The effects of future economic conditions on the Corporation and
the its customers;
o The costs and effects of litigation and of unexpected or adverse
outcomes in such litigation;
o Governmental monetary and fiscal policies, as well as legislative
and regulatory changes;
o The effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies, as well as the
Financial Accounting Standards Board and other accounting
standard setters;
o The risks of changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan
collateral, securities and interest rate protection agreements,
as well as interest rate risks;
o The effects of competition from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit
unions, securities brokerage firms, insurance companies, money
market and other mutual funds and other financial institutions
operating in MPB's market area and elsewhere, including
institutions operating locally, regionally, nationally and
internationally, together with such competitors offering banking
products and services by mail, telephone, computer and the
Internet;
o Technological changes;
o Acquisitions and integration of acquired businesses;
o The failure of assumptions underlying the establishment of
reserves for loan and lease losses and estimations of values of
collateral and various financial assets and liabilities; and
o Acts of war or terrorism.
8
The following is Management's Discussion of Consolidated Financial Condition as
of March 31, 2008, compared to year-end 2007 and the Results of Operations for
the first quarter of 2008 compared to the same period in 2007.
CONSOLIDATED FINANCIAL CONDITION
Total assets as of March 31, 2008, were $535,974,000 compared to $509,757,000 as
of December 31, 2007, an increase of 5.1% during the first quarter.
Strong loan demand contributed $11,973,000 in growth of net loans. Management
also increased the banks investment in interest-bearing balances (short-term,
jumbo certificates of deposit at other financial institutions) by $14,231,000
ahead of the decreases in short-term interest rates.
The growth in assets was funded by an increase in total deposits of $33,389,000
during the quarter. Deposit growth was spurred with a special rate,
thirteen-month term, certificate of deposit offer during the quarter.
Consequently, time deposits grew by $24,923,000 during the quarter. Of this
growth, an increase of $9.7 million represents the time deposits of one
municipality. In addition to the growth in time deposits, all categories of
deposits increased in balances during the quarter. Money market balances
increased by $5.8 million and demand deposits increased by nearly $2 million.
The deposit growth also allowed the Bank to reduce long-term borrowings by not
having to replace a $10 million FHLB borrowing that came due during the quarter.
Short-term borrowings remain at a high level as the Bank is able to take
advantage of decreasing short-term interest rates. Management plans on replacing
some of the short-term borrowings with long-term borrowings to ladder the
maturities.
As of March 31, 2008, the Bank's capital ratios are well in excess of the
minimum and well-capitalized guidelines. In September of 2005, Mid Penn
Bancorp's Board of Directors approved a Stock Repurchase Program under which the
Corporation could buy back up to 250,000 shares of Mid Penn Bancorp common
stock. To date, 28,028 shares have been repurchased at an average price of
$24.56 per share. During the first quarter of 2008, 3,378 shares were
repurchased at an average price of $25.47.
RESULTS OF OPERATIONS
Net income for the first quarter of 2008 was $1,173,000, compared with
$1,084,000 earned in the same quarter of 2007, an increase of 8.2%. The increase
is primarily attributable to the larger base of earning assets during the first
quarter of 2008, which allowed MPB to grow net interest income. Net income per
share for the first quarter of 2008 and 2007 was $.34 and $.31, respectively, or
an increase of 9.7%. Net income as a percentage of stockholders' equity, also
known as return on equity, (ROE), was 11.6% on an annualized basis for the first
quarter of 2008 as compared to 11.1% for the same period in 2007.
Net interest income increased due to a larger base of earning assets as compared
to the first quarter of 2007. Net interest income of $4,200,000 for the quarter
ended March 31, 2008, increased by 5.6% compared to the $3,978,000 earned in the
same quarter of 2007.
9
The following tables illustrate MPB's net interest margin on a taxable
equivalent basis for both the year ended 2007 and the three months ended March
31, 2008, annualized. The margin for 2007 was 3.68%. The margin has decreased
slightly to 3.62% for the quarter ended March 31, 2008. A major factor in this
decrease was the deposit special during the quarter; however, this deposit
special was very effective at bringing in deposits to the bank including funds
that had moved to a competitor, in the midst of a merger, offering aggressive
rates during 2007.
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS
INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS
FOR THREE MONTHS ENDED MARCH 31, 2008
ANNUALIZED
(DOLLARS IN THOUSANDS) AVERAGE INTEREST INCOME AVERAGE RATES
BALANCE /EXPENSE EARNED/PAID
----------- ----------- -----------
ASSETS:
Interest Bearing Balances $ 54,495 2,692 4.94%
Investment Securities:
Taxable 25,402 1,132 4.46%
Tax-Exempt 30,253 2,092 6.92%
-----------
Total Investment Securities 55,655
Federal Funds Sold 0 0 0.00%
Loans, Net 379,342 27,336 7.21%
----------- ----------
Total Earning Assets 489,492 33,252 6.79%
----------- ----------
Cash and Due from Banks 8,024
Other Assets 25,673
-----------
Total Assets $ 523,189
===========
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest Bearing Deposits:
NOW $ 36,240 152 0.42%
Money Market 65,687 1,620 2.47%
Savings 25,148 68 0.27%
Time 224,203 10,108 4.51%
Short-term Borrowings 32,177 1,048 3.26%
Long-term Debt 48,493 2,512 5.18%
----------- ----------
Total Interest Bearing Liabilities 431,948 15,508 3.59%
----------
Demand Deposits 45,394
Other Liabilities 5,638
Stockholders' Equity 40,209
-----------
Total Liabilities and
Stockholders' Equity $ 523,189
===========
Net Interest Income (on a taxable equivalent basis) $ 17,744
==========
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets 6.79%
Rate on Supporting Liabilities 3.17%
Average Interest Spread 3.20%
Net Interest Margin 3.62%
10
TABLE 1: AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS
INCOME AND RATES ON A TAXABLE EQUIVALENT BASIS
FOR TWELVE MONTHS ENDED DECEMBER 31, 2007
ANNUALIZED
(DOLLARS IN THOUSANDS) AVERAGE INTEREST INCOME AVERAGE RATES
BALANCE /EXPENSE EARNED/PAID
----------- ---------- -------------
ASSETS:
Interest Bearing Balances $ 46,900 2,546 5.43%
Investment Securities:
Taxable 25,043 1,150 4.59%
Tax-Exempt 29,726 2,062 6.94%
-----------
Total Investment Securities 54,769
Federal Funds Sold 624 33 5.29%
Loans, Net 361,324 26,592 7.36%
----------- -----------
Total Earning Assets 463,617 32,383 6.99%
-----------
Cash and Due from Banks 7,559
Other Assets 25,012
-----------
Total Assets $ 496,188
===========
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest Bearing Deposits:
NOW $ 35,048 144 0.41%
Money Market 63,927 2,208 3.45%
Savings 25,513 72 0.28%
Time 203,671 9,006 4.42%
Short-term Borrowings 22,528 1,049 4.66%
Long-term Debt 56,908 2,860 5.03%
----------- -----------
Total Interest Bearing Liabilities 407,595 15,339 3.76%
-----------
Demand Deposits 44,021
Other Liabilities 5,734
Stockholders' Equity 38,838
-----------
Total Liabilities and
Stockholders' Equity $ 496,188
===========
Net Interest Income (on a taxable equivalent basis) $ 17,044
===========
Net Yield on Interest Earning Assets:
Total Yield on Earning Assets 6.99%
Rate on Supporting Liabilities 3.31%
Average Interest Spread 3.23%
Net Interest Margin 3.68%
11
During the first quarter of 2008, MPB analyzed interest rate risk using the
Profitstar Asset-Liability Management Model. Using the computerized model,
Management reviews interest rate risk on a periodic basis. This analysis
includes an earnings scenario whereby interest rates are increased by 200 basis
points (2 percentage points) and another whereby they are decreased by 200 basis
points. At March 31, 2008, these scenarios were within the policy limits of +/-
15% change in net interest income for the next twelve months; however, actual
results could vary significantly from the calculations prepared by management.
Based on Management's analysis of the loan portfolio, the Bank recorded a
$100,000 provision for possible loan and lease losses during the first quarter
of 2008, compared to a provision of $75,000 made during the first quarter of
2007. The provision was slightly higher in 2008 due to greater growth in the
loan portfolio compared with the same quarter of 2007. On a quarterly basis,
senior management reviews potentially unsound loans taking into consideration
judgments regarding risk of loss, economic conditions, trends and other factors
in determining a reasonable allowance at the end of the period. A portion of the
allowance for loan and lease losses is based on applying historical loss ratios
to the existing loan portfolio.
Non-interest income amounted to $894,000 for the first quarter of 2008 compared
to $837,000 earned during the same
quarter of 2007. A significant contribution to non-interest income continues to
be insufficient fund (NSF) fee income. NSF fee income contributed approximately
$336,000 during the first quarter of 2008 and $298,000 during the first quarter
of 2007. Another factor in the increase in non-interest income is the continued
increase in ATM/debit card usage, which generated $115,000 in gross income
during the quarter compared to $99,000 during the same quarter of 2007.
Non-interest expense amounted to $3,444,000 for the first quarter of 2008
compared to $3,291,000 incurred during the same quarter of 2007, an increase of
4.6%. A major increase in non-interest expense was the $94,000 increase in
salary and benefits expense. One factor contributing to this increase is the
addition of a full-service office in Camp Hill, Cumberland County, Pennsylvania,
opened in September of 2007. In addition, expenses related to occupancy,
including network expenses, increased by approximately $125,000 compared to the
first quarter of 2007. This increase reflects higher depreciation, taxes and
utility (particularly heating) costs as well as the addition of the Bank's Camp
Hill office. The Bank is also involved in replacing its main-frame computer
system and augmenting its core processing software to increase technological
capabilities to both internal users and ultimately expanding delivery options
for Bank customers. Computer expense amounted to $138,000 during the quarter.
The income tax provision for the quarter reflects a slightly lower effective tax
rate than the first quarter of 2007 due to a higher level of tax-exempt
securities, loans and leases in 2008.
LIQUIDITY
MPB's objective is to maintain adequate liquidity while managing return and
interest rate risk. Adequate liquidity provides resources for credit needs of
borrowers, for depositor withdrawals, and for funding corporate operations.
Sources of liquidity include interest-bearing balances, maturing investment
securities, borrowings, payments received on loans, and increases in deposit
liabilities.
Funds generated from operations were a major source of funds during the quarter.
Another significant source of funds came from the net increase in deposits
during the first quarter, which generated over $33.3 million in funds. The
majority of this increase is attributable to a promotional deposit offer during
the quarter. These funds were used to fund the net increase in loans of $12
million, the net increase in interest-bearing balances of $14 million, and to
pay off a matured borrowing of $10 million.
CREDIT RISK AND ALLOWANCE FOR LOAN AND LEASE LOSSES
Total non-performing assets were $7,513,000, representing 1.40% of total assets
at March 31, 2008, compared to $7,343,000, or 1.44% of total assets, at December
31, 2007. These levels of non-performing assets are high for MPB and reflect the
general economic weakness. MPB did not participate in any subprime mortgage
lending.
12
The allowance for loan losses at March 31, 2008, was $4,867,000 or 1.25% of
loans, net of unearned interest, as compared to $4,790,000 or 1.27% of loans,
net of unearned
interest, at December 31, 2007. While total non-performing loans increased
slightly during the quarter, the financial position of one large commercial
borrower improved, allowing the Bank to reduce its expected exposure in this
relationship. The upgrading of this particular relationship contributed to the
..02% decrease in the allowance-to-loan ratio.
Based upon the ongoing analysis of MPB's loan portfolio by the loan review
department, the latest quarterly analysis of potentially unsound loans and
non-performing assets,
Management considers the Allowance for Loan and Lease Losses to be adequate to
absorb any reasonably foreseeable loan and lease losses.
THREE MOS. YEAR
ENDED ENDED
MAR. 31, DEC. 31,
2008 2007
--------- ---------
Non-Performing Assets:
Non-accrual loans 5,396 4,317
Past due 90 days or more 1,672 2,439
Restructured loans 0 0
--------- ---------
Total non-performing loans 7,068 6,756
Other real estate 445 587
--------- ---------
Total 7,513 7,343
========= =========
Percentage of total loans outstanding 1.93% 1.94%
Percentage of total assets 1.40% 1.44%
Analysis of the Allowance for Loan Losses:
Balance beginning of period 4,790 4,187
Loans charged off:
Commercial real estate, construction
and land development 0 0
Commercial, industrial and agricultural 0 100
Real estate - residential mortgage 0 0
Consumer 47 231
Leases 0 129
--------- ---------
Total loans charged off 47 460
--------- ---------
Recoveries of loans previously charged off:
Commercial real estate, construction
and land development 0 0
Commercial, industrial and agricultural 13 5
Real estate - residential mortgage 0 0
Consumer 11 49
Leases 0 84
--------- ---------
Total recoveries 24 138
--------- ---------
Net (charge-offs) recoveries -23 -322
--------- ---------
Current period provision for
loan losses 100 925
--------- ---------
Balance end of period 4,867 4,790
========= =========
13
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS ("SFAS
No. 157"), to establish a consistent framework for measuring fair value and
expand disclosures on fair value measurements. The provisions of SFAS No. 157
are effective beginning in 2008 and affect the Company's disclosures of
information regarding fair values of financial instruments, but do not have a
material effect on the Company's financial statements. The disclosures required
by SFAS No. 157 are presented in Note 10 to the consolidated financial
statements.
In February 2007, FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR FINANCIAL
ASSETS AND FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB STATEMENT NO.
115 ("SFAS No. 159"). SFASS No. 159 permits entities to choose to measure many
financial instruments at fair value that are not required to be measured at fair
value. It also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective as
of the beginning of an entity's first fiscal year that begins after November 15,
2007 (the Company's 2008 fiscal year). The Company has not elected to measure
any financial instruments at fair value (other than instruments that were
measured at fair value prior to SFAS No. 159), and therefore SFAS No. 159 has
not affected the Company's financial statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of conducting business activities, the Corporation is
exposed to market risk, principally interest risk. Interest risk arises from
market driven fluctuations in interest rates that affect cash flows, income,
expense and values of financial instruments. The Asset/Liability Committee,
using policies approved by the Board of Directors, is responsible for managing
the rate sensitivity position.
No material changes in the market risk strategy occurred during the current
period. No material changes have been noted in the Corporation's equity value at
risk. A detailed discussion of market risk is provided in the Form 10-K for the
year ended December 31, 2007.
ITEM 4: CONTROLS AND PROCEDURES:
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Corporation
updated its evaluation, under the supervision and with the participation of the
Corporation's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
corporation's disclosure controls and procedures pursuant to the Securities
Exchange Act of 1934 Rule 13a-15e. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Corporation's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Corporation (including its consolidated
subsidiaries) required to be included in our periodic SEC filings.
Changes in Internal Controls Over Financial Reporting
There was no change in the Corporation's internal controls or, to its
knowledge, in other factors that have materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
14
MID PENN BANCORP, INC.
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings - Management is not aware of any litigation that would
have a material adverse effect on the consolidated financial position of the
Corporation. There are no proceedings pending other than ordinary routine
litigation incident to the business of the Corporation. In addition, management
does not know of any material proceedings contemplated by governmental
authorities against the Corporation or any of its properties.
Item 1A. Risk Factors - There are no material changes from the risk factors as
previously disclosed in the Form 10-K for the year ended December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - In
September of 2005, Mid Penn Bancorp's Board of Directors approved a Stock
Repurchase Program under which the Corporation could buy back up to 250,000
shares of Mid Penn Bancorp common stock. Through March 31, 2008, 28,028 shares
have been repurchased at an average price of $24.56 per share. During the first
quarter of 2008, 3,378 shares were repurchased at an average price of $25.47.
Issuer Purchases of Equity Securities During the Quarter:
------------------------------------------------------------------------------------------
TOTAL CUMULATIVE
PERIOD NUMBER OF NUMBER OF SHARES MAXIMUM NUMBER OF
SHARES AVERAGE PRICE PURCHASED AS SHARES THAT MAY YET BE
PERIOD PURCHASED PAID PER SHARE PART OF PLAN PURCHASED UNDER PLAN
------------------------------------------------------------------------------------------
January-08 217 $26.90 24,867 225,133
------------------------------------------------------------------------------------------
February-08 260 $25.07 25,127 224,873
------------------------------------------------------------------------------------------
March-08 2,901 $25.40 28,028 221,972
------------------------------------------------------------------------------------------
Total 3,378 $25.47 28,028 221,972
------------------------------------------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NOTHING TO REPORT
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NOTHING TO REPORT
ITEM 5. OTHER INFORMATION - NOTHING TO REPORT
15
ITEM 6. EXHIBITS -
3(i) The Registrant's Articles of Incorporation. (Incorporated by reference
to Registrant's Annual Report on Form 10-K filed with the SEC on March
10, 2008.)
3(ii) The Registrant's By-laws. (Incorporated by reference to Registrant's
Annual Report on Form 10-K filed with the SEC on March 10, 2008.)
10.1 Mid Penn Bank's Profit Sharing Retirement Plan. (Incorporated by
reference to Registrant's Annual Report on Form 10-K filed with the SEC
on March 10, 2008.)
10.2 Mid Penn Bank's Employee Stock Ownership Plan. (Incorporated by
reference to Registrant's Annual Report on Form 10-K filed with the SEC
on March 10, 2008.)
10.3 The Registrant's Dividend Reinvestment Plan, as amended and restated.
(Incorporated by reference to Registrant's Registration Statement on
Form S-3, filed with the SEC on October 12, 2005.)
10.4 Salary Continuation Agreement between Mid Penn Bank and Alan W. Dakey.
(Incorporated by reference to Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 28, 2003.)
10.5 Split Dollar Agreement between Mid Penn Bank and Eugene F. Shaffer
(Incorporated by reference to Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 14, 2005.)
10.6 Death Benefit Plan and Agreement between Mid Penn Bank and the Trustee
of the Eugene F. Shaffer Irrevocable Trust (Incorporated by reference
to Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 14, 2005.)
10.7 Executive Employment Agreement between Mid Penn Bank and Alan W. Dakey
dated as of August 31, 2007. (Incorporated by reference to Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 6, 2007.)
10.8 Key Executive Management Change of Control between Mid Penn Bancorp,
Inc. and Kevin W. Laudenslager dated as of April 1, 2008. (Incorporated
by reference to Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 4, 2008.)
10.9 Revised Directors' Retirement Plan
11.1 Statement regarding the computation of Per Share Earnings (Included in
body of 10-Q)
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1 Chief Executive Officer's ss.1350 Certification.
32.2 Chief Financial Officer's ss.1350 Certification
16
SIGNITURE
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 thereunto duly authorized.
MID PENN BANCORP, INC.
Registrant
/s/ Alan W. Dakey /s/ Kevin W. Laudenslager
By: Alan W. Dakey By: Kevin W. Laudenslager
President & CEO Treasurer
Date: May 5, 2008 Date: May 5, 2008