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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, 2014

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number 1-13677

MID PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

  

 

 

 

 

 

 

Pennsylvania

 

25-1666413

(State or Other Jurisdiction of 

Incorporation or Organization) 

 

(I.R.S. Employer 

Identification Number) 

 

 

349 Union Street

Millersburg, Pennsylvania

 

17061

(Address of Principal Executive Offices) 

 

(Zip Code) 

 

Registrant’s telephone number, including area code 1.866.642.7736

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One).

Large accelerated filer       Accelerated Filer       Non-accelerated Filer       Smaller Reporting Company 

 

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 14, 2014, the registrant had 3,496,916 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, 2014 and December 31, 2013 (Unaudited)

2

 

 

Consolidated Statements of Income for the Three and Nine months Ended September 30, 2014 and September 30, 2013 (Unaudited)

3

 

 

Consolidated Statements of Comprehensive Income for the Three and Nine months Ended September 30, 2014 and September 30, 2013 (Unaudited)

4

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Nine months Ended September 30, 2014 and September 30, 2013 (Unaudited)

5

 

 

Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2014 and September 30, 2013 (Unaudited)

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

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

30

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

43

 

Item 4 – Controls and Procedures

43

 

PART II – OTHER INFORMATION

44

 

Item 1 – Legal Proceedings

44

 

Item 1A – Risk Factors

44

 

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

44

 

Item 3 – Defaults upon Senior Securities

44

 

Item 4 – Mine Safety Disclosures

44

 

Item 5 – Other Information

44

 

Item 6 – Exhibits

44

 

Signatures

45

 

 

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.Consolidated Balance Sheets (Unaudited)

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

 

 

 

 

 

 

(Dollars in thousands, except share and per share data)

September 30, 2014

 

December 31, 2013

ASSETS

 

 

 

 

 

 Cash and due from banks

$

13,854 

 

$

7,407 

 Interest-bearing balances with other financial institutions

 

1,393 

 

 

1,216 

   Total cash and cash equivalents

 

15,247 

 

 

8,623 

 Interest-bearing time deposits with other financial institutions

 

5,772 

 

 

7,513 

 Available-for-sale investment securities

 

148,134 

 

 

122,803 

 Loans and leases, net of unearned interest

 

568,161 

 

 

546,462 

   Less:  Allowance for loan and lease losses

 

(6,411)

 

 

(6,317)

 Net loans and leases

 

561,750 

 

 

540,145 

 Bank premises and equipment, net

 

12,303 

 

 

12,469 

 Restricted investment in bank stocks

 

3,395 

 

 

2,969 

 Foreclosed assets held for sale

 

849 

 

 

965 

 Accrued interest receivable

 

3,000 

 

 

2,704 

 Deferred income taxes

 

2,055 

 

 

3,235 

 Goodwill

 

1,016 

 

 

1,016 

 Core deposit and other intangibles, net

 

203 

 

 

249 

 Cash surrender value of life insurance

 

8,526 

 

 

8,374 

 Other assets

 

2,153 

 

 

2,060 

      Total Assets

$

764,403 

 

$

713,125 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 Deposits:

 

 

 

 

 

   Noninterest-bearing demand

$

52,715 

 

$

48,346 

   Interest-bearing demand

 

226,883 

 

 

201,090 

   Money Market

 

209,556 

 

 

196,736 

   Savings

 

30,672 

 

 

29,585 

   Time

 

126,171 

 

 

132,373 

       Total Deposits 

 

645,997 

 

 

608,130 

 Short-term borrowings

 

21,854 

 

 

23,833 

  Long-term debt

 

33,008 

 

 

23,145 

  Accrued interest payable

 

646 

 

 

393 

  Other liabilities

 

4,087 

 

 

4,708 

     Total Liabilities

 

705,592 

 

 

660,209 

 Shareholders' Equity:

 

 

 

 

 

   Series B Preferred stock, par value $1.00; liquidation value $1,000; authorized

 

 

 

 

 

       5,000 shares; 7% non-cumulative dividend; 5,000 shares issued and outstanding

 

 

 

 

 

       at September 30, 2014 and December 31, 2013

 

5,000 

 

 

5,000 

   Common stock, par value $1.00; authorized 10,000,000 shares; 3,496,916 shares

 

 

 

 

 

       issued and outstanding at September 30, 2014 and 3,494,397 at December 31, 2013

 

3,497 

 

 

3,494 

   Additional paid-in capital

 

29,888 

 

 

29,853 

   Retained earnings

 

19,117 

 

 

15,441 

   Accumulated other comprehensive income (loss)

 

1,309 

 

 

(872)

 Total Shareholders’ Equity

 

58,811 

 

 

52,916 

       Total Liabilities and Shareholders' Equity

$

764,403 

 

$

713,125 

 

 

 

 

 

 

 

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,

 

2014

 

2013

 

2014

 

2013

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

  Interest & fees on loans and leases

$

6,657 

 

$

6,962 

 

$

20,122 

 

$

19,717 

 Interest on interest-bearing balances

 

11 

 

 

21 

 

 

31 

 

 

97 

 Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

   U.S. Treasury and government agencies

 

359 

 

 

170 

 

 

994 

 

 

393 

   State and political subdivision obligations, tax-exempt

 

563 

 

 

466 

 

 

1,618 

 

 

1,442 

   Other securities

 

43 

 

 

14 

 

 

118 

 

 

28 

 Interest on federal funds sold and securities purchased

 

 

 

 

 

 

 

 

 

 

 

   under agreements to resell

 

 -

 

 

 -

 

 

 -

 

 

11 

     Total Interest Income 

 

7,633 

 

 

7,633 

 

 

22,883 

 

 

21,688 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 Interest on deposits

 

953 

 

 

1,068 

 

 

2,921 

 

 

3,403 

 Interest on short-term borrowings

 

 

 

12 

 

 

26 

 

 

19 

 Interest on long-term debt

 

131 

 

 

112 

 

 

369 

 

 

519 

     Total Interest Expense 

 

1,089 

 

 

1,192 

 

 

3,316 

 

 

3,941 

     Net Interest Income 

 

6,544 

 

 

6,441 

 

 

19,567 

 

 

17,747 

PROVISION FOR LOAN AND LEASE LOSSES

 

395 

 

 

575 

 

 

1,217 

 

 

1,485 

Net Interest Income After Provision for Loan and Lease Losses

 

6,149 

 

 

5,866 

 

 

18,350 

 

 

16,262 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 Income from fiduciary activities

 

120 

 

 

111 

 

 

445 

 

 

360 

 Service charges on deposits

 

154 

 

 

150 

 

 

417 

 

 

430 

 Gain on sales of investment securities

 

 -

 

 

108 

 

 

150 

 

 

220 

 Earnings from cash surrender value of life insurance

 

50 

 

 

58 

 

 

152 

 

 

174 

 Mortgage banking income

 

95 

 

 

75 

 

 

208 

 

 

300 

 ATM debit card interchange income

 

138 

 

 

130 

 

 

403 

 

 

376 

 Merchant services income

 

65 

 

 

86 

 

 

198 

 

 

260 

 Gain on sales of SBA loans

 

19 

 

 

 -

 

 

97 

 

 

 -

 Other income

 

100 

 

 

90 

 

 

339 

 

 

376 

    Total Noninterest Income 

 

741 

 

 

808 

 

 

2,409 

 

 

2,496 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 Salaries and employee benefits

 

2,635 

 

 

2,657 

 

 

8,026 

 

 

8,199 

 Occupancy expense, net

 

282 

 

 

256 

 

 

986 

 

 

835 

 Equipment expense

 

297 

 

 

323 

 

 

908 

 

 

984 

 Pennsylvania Bank Shares tax expense

 

64 

 

 

104 

 

 

272 

 

 

365 

 FDIC Assessment

 

134 

 

 

 

 

405 

 

 

339 

 Legal and professional fees

 

101 

 

 

191 

 

 

366 

 

 

511 

 Director fees and benefits expense

 

83 

 

 

81 

 

 

238 

 

 

238 

 Marketing and advertising expense

 

95 

 

 

87 

 

 

227 

 

 

192 

 Software licensing

 

238 

 

 

239 

 

 

687 

 

 

666 

 Telephone expense

 

108 

 

 

116 

 

 

304 

 

 

318 

 Loss (gain) on sale/write-down of foreclosed assets

 

52 

 

 

(54)

 

 

109 

 

 

(376)

 Intangible amortization

 

 

 

 

 

22 

 

 

22 

 Loan collection costs

 

76 

 

 

32 

 

 

229 

 

 

178 

 Merger and acquisition expense

 

11 

 

 

 -

 

 

11 

 

 

 -

  Other expenses

 

745 

 

 

700 

 

 

1,945 

 

 

1,924 

    Total Noninterest Expense 

 

4,929 

 

 

4,746 

 

 

14,735 

 

 

14,395 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

1,961 

 

 

1,928 

 

 

6,024 

 

 

4,363 

 Provision for income taxes

 

366 

 

 

440 

 

 

1,211 

 

 

824 

NET INCOME

 

1,595 

 

 

1,488 

 

 

4,813 

 

 

3,539 

 Series A preferred stock dividends and discount accretion

 

 -

 

 

 -

 

 

 -

 

 

14 

 Series B preferred stock dividends

 

88 

 

 

88 

 

 

263 

 

 

222 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$

1,507 

 

$

1,400 

 

$

4,550 

 

$

3,303 

 

 

 

 

 

 

 

 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 

 

 

 

 

 Basic Earnings Per Common Share

$

0.43 

 

$

0.40 

 

$

1.30 

 

$

0.95 

 Cash Dividends

 

0.10 

 

 

0.05 

 

 

0.25 

 

 

0.10 

 

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

 

 

3


 

MID PENN BANCORP, INC.                 Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Three Months Ended September 30,

 

2014

 

2013

 

 

 

 

 

 

Net income

$

1,595 

 

$

1,488 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

securities, net of income taxes of $40 and $147, respectively

 

77 

 

 

286 

 

 

 

 

 

 

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

 

 

 

 

 

included in net income, net of income taxes of $0 and ($37), respectively   (1) (3)

 

 -

 

 

(71)

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of $3 and $2, respectively   (2) (3)

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

81 

 

 

219 

 

 

 

 

 

 

Total comprehensive income

$

1,676 

 

$

1,707 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Nine Months Ended September 30,

 

2014

 

2013

 

 

 

 

 

 

Net income

$

4,813 

 

$

3,539 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

securities, net of income taxes of $1,171 and ($1,334), respectively

 

2,270 

 

 

(2,591)

 

 

 

 

 

 

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

 

 

 

 

 

included in net income, net of income taxes of ($51) and ($75), respectively   (1) (3)

 

(99)

 

 

(145)

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of $6 and $7, respectively   (2) (3)

 

10 

 

 

10 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

2,181 

 

 

(2,726)

 

 

 

 

 

 

Total comprehensive income

$

6,994 

 

$

813 

 

(1)

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

 

(2)

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

 

(3)

Income tax amounts are included in the provision for income taxes in the Consolidated Statements of 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, 2014 AND 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

Preferred

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Shareholders'

 

Stock

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

Equity

Balance, January 1, 2014

$

5,000 

 

$

3,494 

 

$

29,853 

 

$

15,441 

 

$

(872)

 

$

52,916 

   Net income

 

 -

 

 

 -

 

 

 -

 

 

4,813 

 

 

 -

 

 

4,813 

   Total other comprehensive income, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,181 

 

 

2,181 

   Employee Stock Purchase Plan (2,519 shares)

 

 -

 

 

 

 

35 

 

 

 -

 

 

 -

 

 

38 

   Common stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(874)

 

 

 -

 

 

(874)

   Series B Preferred stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(263)

 

 

 -

 

 

(263)

Balance, September 30, 2014

$

5,000 

 

$

3,497 

 

$

29,888 

 

$

19,117 

 

$

1,309 

 

$

58,811 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2013

$

4,880 

 

$

3,490 

 

$

29,816 

 

$

11,741 

 

$

2,293 

 

$

52,220 

   Net income

 

 -

 

 

 -

 

 

 -

 

 

3,539 

 

 

 -

 

 

3,539 

   Total other comprehensive loss, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,726)

 

 

(2,726)

   Common stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(349)

 

 

 -

 

 

(349)

   Employee Stock Purchase Plan (3,845 shares)

 

 -

 

 

 

 

39 

 

 

 -

 

 

 -

 

 

43 

   Series B Preferred stock issuance

 

120 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

120 

   Series B Preferred stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(222)

 

 

 -

 

 

(222)

   Amortization of warrant cost

 

 -

 

 

 -

 

 

(14)

 

 

 -

 

 

 -

 

 

(14)

   Warrant repurchase

 

 -

 

 

 -

 

 

 -

 

 

(58)

 

 

 -

 

 

(58)

Balance, September 30, 2013

$

5,000 

 

$

3,494 

 

$

29,841 

 

$

14,651 

 

$

(433)

 

$

52,553 

 

 

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,

 

2014

 

2013

Operating Activities:

 

 

 

 

 

   Net Income

$

4,813 

 

$

3,539 

   Adjustments to reconcile net income to net cash

 

 

 

 

 

       provided by operating activities:

 

 

 

 

 

           Provision for loan and lease losses

 

1,217 

 

 

1,485 

           Depreciation

 

934 

 

 

936 

           Amortization of intangibles

 

46 

 

 

97 

           Net amortization of security premiums

 

925 

 

 

2,082 

   Gain on sales of investment securities

 

(150)

 

 

(220)

           Earnings on cash surrender value of life insurance

 

(152)

 

 

(174)

           SBA loans originated for sale

 

(943)

 

 

 -

           Proceeds from sales of SBA loans originated for sale

 

1,040 

 

 

 -

           Gain on sale of SBA loans

 

(97)

 

 

 -

           Loss (gain) on disposal of property, plant, and equipment

 

 

 

(8)

           Loss (gain) on sale / write-down of foreclosed assets

 

109 

 

 

(376)

           Deferred income tax expense (benefit)

 

71 

 

 

(1,223)

           (Increase) decrease in accrued interest receivable

 

(296)

 

 

209 

           (Increase) decrease in other assets

 

(94)

 

 

1,503 

           Increase in accrued interest payable

 

253 

 

 

183 

           (Decrease) increase in other liabilities

 

(621)

 

 

1,949 

Net Cash Provided By Operating Activities 

 

7,063 

 

 

9,982 

Investing Activities:

 

 

 

 

 

   Net decrease in interest-bearing time deposits with other financial institutions

 

1,741 

 

 

15,702 

    Proceeds from the maturity of investment securities

 

10,497 

 

 

31,777 

    Proceeds from the sale of investment securities

 

7,199 

 

 

15,118 

   Purchases of investment securities

 

(40,511)

 

 

(18,376)

   (Purchases) redemptions of restricted investment in bank stocks

 

(426)

 

 

608 

   Net increase in loans and leases

 

(23,613)

 

 

(48,175)

   Purchases of bank premises and equipment

 

(776)

 

 

(564)

   Proceeds from sale of foreclosed assets

 

798 

 

 

1,820 

Net Cash Used In Investing Activities 

 

(45,091)

 

 

(2,090)

Financing Activities:

 

 

 

 

 

   Net increase in demand deposits and savings accounts

 

44,069 

 

 

16,475 

   Net decrease in time deposits

 

(6,202)

 

 

(21,082)

    Net (decrease) increase in short-term borrowings

 

(1,979)

 

 

9,245 

   Series B preferred stock dividend paid

 

(263)

 

 

(222)

   Common stock dividend paid

 

(874)

 

 

(349)

Series B preferred stock issuance

 

 -

 

 

120 

Employee Stock Purchase Plan

 

38 

 

 

43 

Warrant repurchase

 

 -

 

 

(58)

    Proceeds from long-term debt borrowings

 

10,000 

 

 

 -

   Repayment of long-term debt

 

(137)

 

 

(14,320)

Net Cash Provided By (Used In) Financing Activities 

 

44,652 

 

 

(10,148)

Net increase (decrease) in cash and cash equivalents

 

6,624 

 

 

(2,256)

Cash and cash equivalents, beginning of year

 

8,623 

 

 

15,473 

Cash and cash equivalents, end of period

$

15,247 

 

$

13,217 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

   Interest paid

$

3,063 

 

$

3,758 

   Income taxes paid

 

870 

 

 

550 

Supplemental Noncash Disclosures:

 

 

 

 

 

   Loan transfers to foreclosed assets held for sale

$

791 

 

$

2,648 

 

 

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

 

 

6


 

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)

 

(1)          Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. and its wholly-owned subsidiaries, Mid Penn Bank (“Bank”), and the Bank’s wholly-owned subsidiary Mid Penn Insurance Services, LLC (collectively, “Mid Penn”).  All material intercompany accounts and transactions have been eliminated in consolidation.

 

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Mid Penn believes the information presented is not misleading and the disclosures are adequate.  For comparative purposes, the September 30, 2013 and December 31, 2013 balances have been reclassified, when necessary, to conform to the 2014 presentation.  Such reclassifications had no impact on net income. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.  These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Mid Penn’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

On August 27, 2014 Mid Penn, and Phoenix Bancorp, Inc., (“Phoenix”), entered into a merger agreement that provides for the combination of the two companies.  Under the merger agreement, Phoenix will merge with and into Mid Penn, with Mid Penn remaining as the surviving entity, and the separate corporate existence of Phoenix will cease.  Miners Bank, a wholly-owned subsidiary of Phoenix, will merge with and into Mid Penn Bank, with Mid Penn Bank continuing as the surviving entity.  Before the merger is completed, the shareholders of Mid Penn and Phoenix must approve and adopt the merger agreement and customary regulatory approvals received.  Refer to footnote 12, as well as Form 8-K filed on August 27, 2014, for more information. 

 

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2014, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.

 

(2)           Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available-for-sale and carried at fair value.  Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, and other factors related to interest rate and resultant prepayment risk changes.

 

Realized gains and losses on dispositions are based on the net proceeds and the amortized cost of the securities sold, using the specific identification method.  Unrealized gains and losses on investment securities available for sale are based on the difference between amortized cost and fair value of each security.  These gains and losses are credited or charged to other comprehensive income, whereas realized gains and losses flow through the Corporation’s consolidated statements of income.

 

Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired.  For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.  These steps are done before assessing whether the entity will recover the cost basis of the investment.

 

In instances when a determination is made that other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

 

In assessing potential other-than-temporary impairment for equity securities, consideration is given to management’s intent and ability to hold the securities until recovery of unrealized losses.

 

7


 

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)

 

At September 30, 2014 and December 31, 2013, amortized cost, fair value, and unrealized gains and losses on investment securities are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and U.S. government agencies

$

26,350 

 

$

586 

 

$

71 

 

$

26,865 

Mortgage-backed U.S. government agencies

 

40,617 

 

 

314 

 

 

252 

 

 

40,679 

State and political subdivision obligations

 

77,425 

 

 

1,999 

 

 

434 

 

 

78,990 

Equity securities

 

1,583 

 

 

42 

 

 

25 

 

 

1,600 

 

$

145,975 

 

$

2,941 

 

$

782 

 

$

148,134 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and U.S. government agencies

$

12,134 

 

$

700 

 

$

 -

 

$

12,834 

Mortgage-backed U.S. government agencies

 

39,481 

 

 

349 

 

 

438 

 

 

39,392 

State and political subdivision obligations

 

70,770 

 

 

744 

 

 

2,476 

 

 

69,038 

Equity securities

 

1,550 

 

 

20 

 

 

31 

 

 

1,539 

 

$

123,935 

 

$

1,813 

 

$

2,945 

 

$

122,803 

 

Estimated fair values of debt securities are based on quoted market prices, where applicable.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments, adjusted for differences between the quoted instruments and the instruments being valued.

 

Investment securities having a fair value of $144,323,000 at September 30, 2014 and $114,600,000 at December 31, 2013, were pledged to secure public deposits and other borrowings.

 

Mid Penn realized gross gains of $0 on sales of securities available for sale during the three months ended September 30, 2014 and $150,000 during the first nine months of 2014.  Mid Penn realized gross gains of $108,000 on sales of securities available for sale during the three months ended September 30, 2013 and $220,000 during the nine months ended September 30, 2013.  Mid Penn realized gross losses on the sale of securities available for sale of $0 during the three and nine months ended September 30, 2014 and September 30, 2013.

 

The following table presents gross unrealized losses and fair value of investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

Less Than 12 Months

 

12 Months or More

 

Total

 

Number of

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

September 30, 2014

Securities

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and U.S. government agencies

8

 

$

10,488 

 

$

71 

 

$

 -

 

$

 -

 

$

10,488 

 

$

71 

Mortgage-backed U.S. government agencies

22

 

 

11,367 

 

 

71 

 

 

5,395 

 

 

181 

 

 

16,762 

 

 

252 

State and political subdivision obligations

39

 

 

1,820 

 

 

19 

 

 

17,808 

 

 

415 

 

 

19,628 

 

 

434 

Equity securities

2

 

 

 -

 

 

 -

 

 

583 

 

 

25 

 

 

583 

 

 

25 

Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    available-for-sale securities

71

 

$

23,675 

 

$

161 

 

$

23,786 

 

$

621 

 

$

47,461 

 

$

782 

 

 

 

8


 

MID PENN BANCORP, INC.Notes to Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

Less Than 12 Months

 

12 Months or More

 

Total

 

Number of

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

December 31, 2013

Securities

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed U.S. government agencies

29

 

$

9,799 

 

$

182 

 

$

9,866 

 

$

256 

 

$

19,665 

 

$

438 

State and political subdivision obligations

90

 

 

39,611 

 

 

2,150 

 

 

4,288 

 

 

326 

 

 

43,899 

 

 

2,476 

Equity securities

1

 

 

 -

 

 

 -

 

 

550 

 

 

31 

 

 

550