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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 March 31, 2015

 

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 May 15, 2015, the registrant had 4,222,693 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 March 31, 2015 and December 31, 2014 (Unaudited)

2

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2015 and March 31, 2014 (Unaudited)

3

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and March 31, 2014 (Unaudited)

4

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2015 and March 31, 2014 (Unaudited)

5

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and March 31, 2014 (Unaudited)

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

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

32

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

41

 

Item 4 – Controls and Procedures

41

 

PART II – OTHER INFORMATION

42

 

Item 1 – Legal Proceedings

42

 

Item 1A – Risk Factors

42

 

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

42

 

Item 3 – Defaults upon Senior Securities

42

 

Item 4 – Mine Safety Disclosures

42

 

Item 5 – Other Information

42

 

Item 6 – Exhibits

42

 

Signatures

43

 

 

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 per share data)

March 31, 2015

 

December 31, 2014

ASSETS

 

 

 

 

 

 Cash and due from banks

$

12,716 

 

$

8,869 

 Interest-bearing balances with other financial institutions

 

1,101 

 

 

1,013 

 Federal funds sold

 

378 

 

 

 -

   Total cash and cash equivalents

 

14,195 

 

 

9,882 

 Interest-bearing time deposits with other financial institutions

 

5,669 

 

 

5,772 

 Available for sale investment securities

 

142,680 

 

 

141,634 

 Loans and leases, net of unearned interest

 

695,153 

 

 

571,533 

   Less:  Allowance for loan and lease losses

 

(6,566)

 

 

(6,716)

 Net loans and leases

 

688,587 

 

 

564,817 

 Bank premises and equipment, net

 

14,096 

 

 

12,225 

 Restricted investment in bank stocks

 

3,517 

 

 

3,181 

 Foreclosed assets held for sale

 

722 

 

 

565 

 Accrued interest receivable

 

3,394 

 

 

3,058 

 Deferred income taxes

 

2,363 

 

 

2,125 

 Goodwill

 

3,613 

 

 

1,016 

 Core deposit and other intangibles, net

 

752 

 

 

187 

 Cash surrender value of life insurance

 

12,304 

 

 

8,575 

 Other assets

 

3,257 

 

 

2,620 

      Total Assets

$

895,149 

 

$

755,657 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

 Deposits:

 

 

 

 

 

   Noninterest bearing demand

$

94,427 

 

$

60,613 

   Interest bearing demand

 

230,204 

 

 

222,712 

   Money Market

 

217,674 

 

 

197,418 

   Savings

 

57,519 

 

 

32,394 

   Time

 

159,222 

 

 

124,785 

       Total Deposits 

 

759,046 

 

 

637,922 

 Short-term borrowings

 

621 

 

 

578 

  Long-term debt

 

56,480 

 

 

52,961 

  Accrued interest payable

 

498 

 

 

349 

  Other liabilities

 

5,421 

 

 

4,717 

     Total Liabilities

 

822,066 

 

 

696,527 

 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 March 31, 2015 and

 

 

 

 

 

       at December 31, 2014; total redemption value $5,100,000

 

5,000 

 

 

5,000 

   Series C Preferred stock, par value $1.00; liquidation value $1,000; authorized 1,750 shares;

 

 

 

 

 

       1% non-cumulative dividend; 1,750 shares issued and outstanding at March 31, 2015 and

 

 

 

 

 

       0 shares issued and outstanding at December 31, 2014; total redemption value $1,750,000

 

1,750 

 

 

 -

   Common stock, par value $1.00; authorized 10,000,000 shares; 4,222,693 shares

 

 

 

 

 

       issued and outstanding at March 31, 2015 and 3,497,829 at December 31, 2014

 

4,223 

 

 

3,498 

   Additional paid-in capital

 

40,493 

 

 

29,902 

   Retained earnings

 

19,743 

 

 

19,217 

   Accumulated other comprehensive income

 

1,874 

 

 

1,513 

 Total Shareholders’ Equity

 

73,083 

 

 

59,130 

       Total Liabilities and Shareholders' Equity

$

895,149 

 

$

755,657 

 

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 March 31,

 

 

2015

 

2014

 

INTEREST INCOME

 

 

 

 

 

 

  Interest & fees on loans and leases

$

7,154 

 

$

6,540 

 

 Interest on interest-bearing balances

 

11 

 

 

10 

 

 Interest and dividends on investment securities:

 

 

 

 

 

 

   U.S. Treasury and government agencies

 

331 

 

 

277 

 

   State and political subdivision obligations, tax-exempt

 

531 

 

 

519 

 

   Other securities

 

131 

 

 

34 

 

     Total Interest Income 

 

8,158 

 

 

7,380 

 

INTEREST EXPENSE

 

 

 

 

 

 

 Interest on deposits

 

914 

 

 

978 

 

 Interest on short-term borrowings

 

11 

 

 

14 

 

 Interest on long-term debt

 

195 

 

 

116 

 

     Total Interest Expense 

 

1,120 

 

 

1,108 

 

     Net Interest Income 

 

7,038 

 

 

6,272 

 

PROVISION FOR LOAN AND LEASE LOSSES

 

300 

 

 

547 

 

Net Interest Income After Provision for Loan and Lease Losses

 

6,738 

 

 

5,725 

 

NONINTEREST INCOME

 

 

 

 

 

 

 Income from fiduciary activities

 

127 

 

 

158 

 

 Service charges on deposits

 

150 

 

 

127 

 

 Net gain on sales of investment securities

 

177 

 

 

150 

 

 Earnings from cash surrender value of life insurance

 

56 

 

 

51 

 

 Mortgage banking income

 

67 

 

 

38 

 

 ATM debit card interchange income

 

155 

 

 

126 

 

 Merchant services income

 

50 

 

 

67 

 

 Net gain on sales of SBA loans

 

 -

 

 

51 

 

 Other income

 

167 

 

 

126 

 

    Total Noninterest Income 

 

949 

 

 

894 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 Salaries and employee benefits

 

3,195 

 

 

2,548 

 

 Occupancy expense, net

 

454 

 

 

382 

 

 Equipment expense

 

313 

 

 

301 

 

 Pennsylvania Bank Shares tax expense

 

115 

 

 

99 

 

 FDIC Assessment

 

139 

 

 

132 

 

 Legal and professional fees

 

143 

 

 

97 

 

 Director fees and benefits expense

 

83 

 

 

79 

 

 Marketing and advertising expense

 

88 

 

 

48 

 

 Software licensing

 

319 

 

 

237 

 

 Telephone expense

 

123 

 

 

96 

 

 Loss on sale/write-down of foreclosed assets

 

32 

 

 

87 

 

 Intangible amortization

 

 

 

 

 Loan collection costs

 

80 

 

 

71 

 

 Merger and acquisition expense

 

909 

 

 

 -

 

  Other expenses

 

638 

 

 

554 

 

    Total Noninterest Expense 

 

6,640 

 

 

4,738 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

1,047 

 

 

1,881 

 

 Provision for income taxes

 

84 

 

 

370 

 

NET INCOME

 

963 

 

 

1,511 

 

 Series B preferred stock dividends

 

87 

 

 

87 

 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$

876 

 

$

1,424 

 

 

 

 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 Basic Earnings Per Common Share

$

0.23 

 

$

0.41 

 

 Cash Dividends

$

0.10 

 

$

0.05 

 

 

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 March 31,

 

2015

 

2014

 

 

 

 

 

 

Net income

$

963 

 

$

1,511 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains arising during the period on available for sale

 

 

 

 

 

securities, net of income taxes of $244 and $599, respectively

 

475 

 

 

1,162 

 

 

 

 

 

 

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

 

 

 

 

 

included in net income, net of income taxes of ($60) and ($51), respectively   (1) (3)

 

(117)

 

 

(99)

 

 

 

 

 

 

Change in defined benefit plans, net of income taxes of $1 and $1, respectively   (2) (3)

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

361 

 

 

1,065 

 

 

 

 

 

 

Total comprehensive income

$

1,324 

 

$

2,576 

 

 

 

(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 THREE MONTHS ENDED MARCH 31, 2015 AND 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

Preferred

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Shareholders'

 

Stock

 

Stock

 

Capital

 

Earnings

 

(Loss) Income

 

Equity

Balance, January 1, 2015

$

5,000 

 

$

3,498 

 

$

29,902 

 

$

19,217 

 

$

1,513 

 

$

59,130 

   Net income

 

 -

 

 

 -

 

 

 -

 

 

963 

 

 

 -

 

 

963 

   Total other comprehensive income, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

361 

 

 

361 

   Employee Stock Purchase Plan (1,013 shares)

 

 -

 

 

 

 

15 

 

 

 -

 

 

 -

 

 

16 

   Common stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(350)

 

 

 -

 

 

(350)

   Series B preferred stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(87)

 

 

 -

 

 

(87)

   SBLF preferred stock in connection with Phoenix acquisition

 

1,750 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,750 

   Common stock issued to Phoenix shareholders

 

 -

 

 

724 

 

 

10,568 

 

 

 -

 

 

 -

 

 

11,292 

   Restricted stock compensation expense

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

Balance, March 31, 2015

$

6,750 

 

$

4,223 

 

$

40,493 

 

$

19,743 

 

$

1,874 

 

$

73,083 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

$

5,000 

 

$

3,494 

 

$

29,853 

 

$

15,441 

 

$

(872)

 

$

52,916 

   Net income

 

 -

 

 

 -

 

 

 -

 

 

1,511 

 

 

 -

 

 

1,511 

   Total other comprehensive income, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,065 

 

 

1,065 

   Employee Stock Purchase Plan (985 shares)

 

 -

 

 

 

 

13 

 

 

 -

 

 

 -

 

 

14 

   Common stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(174)

 

 

 -

 

 

(174)

   Series B preferred stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(87)

 

 

 -

 

 

(87)

Balance, March 31, 2014

$

5,000 

 

$

3,495 

 

$

29,866 

 

$

16,691 

 

$

193 

 

$

55,245 

 

 

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)

Three Months Ended March 31,

 

2015

 

2014

Operating Activities:

 

 

 

 

 

   Net Income

$

963 

 

$

1,511 

   Adjustments to reconcile net income to net cash

 

 

 

 

 

       provided by operating activities:

 

 

 

 

 

           Provision for loan and lease losses

 

300 

 

 

547 

           Depreciation

 

314 

 

 

313 

           Amortization of intangibles

 

13 

 

 

           Net amortization of security premiums

 

384 

 

 

43 

   Gain on sales of investment securities

 

(177)

 

 

(150)

           Earnings on cash surrender value of life insurance

 

(56)

 

 

(51)

           SBA loans originated for sale

 

 -

 

 

(468)

           Proceeds from sales of SBA loans originated for sale

 

 -

 

 

519 

           Gain on sale of loans

 

 -

 

 

(51)

           Loss on sale / write-down of foreclosed assets

 

32 

 

 

87 

           Restricted stock compensation expense

 

 

 

 -

           Deferred income tax benefit

 

(76)

 

 

(28)

           Decrease (increase) in accrued interest receivable

 

52 

 

 

(200)

           Increase in other assets

 

(47)

 

 

(152)

           Increase in accrued interest payable

 

117 

 

 

93 

           Decrease in other liabilities

 

(40)

 

 

(282)

Net Cash Provided By Operating Activities 

 

1,787 

 

 

1,735 

Investing Activities:

 

 

 

 

 

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

 

103 

 

 

2,190 

    Proceeds from the maturity of investment securities

 

2,594 

 

 

3,375 

    Proceeds from the sale of investment securities

 

16,091 

 

 

7,199 

   Purchases of investment securities

 

(8,065)

 

 

(7,462)

   Net cash received from acquisition

 

8,118 

 

 

 -

   Redemptions (purchases) of restricted investment in bank stock

 

173 

 

 

(177)

   Net increase in loans and leases

 

(13,579)

 

 

(3,982)

   Purchases of bank premises and equipment

 

(393)

 

 

(499)

   Proceeds from sale of foreclosed assets

 

27 

 

 

64 

Net Cash Provided By Investing Activities 

 

5,069 

 

 

708 

Financing Activities:

 

 

 

 

 

   Net decrease in deposits

 

(2,114)

 

 

(1,455)

    Net increase in short-term borrowings

 

43 

 

 

4,711 

   Series B preferred stock dividend paid

 

(87)

 

 

(87)

   Common stock dividend paid

 

(350)

 

 

(174)

Employee Stock Purchase Plan

 

16 

 

 

14 

   Long-term debt repayment

 

(51)

 

 

(45)

Net Cash (Used In) Provided By Financing Activities 

 

(2,543)

 

 

2,964 

Net increase in cash and cash equivalents

 

4,313 

 

 

5,407 

Cash and cash equivalents, beginning of year

 

9,882 

 

 

8,623 

Cash and cash equivalents, end of year

$

14,195 

 

$

14,030 

 

 

6


 

MID PENN BANCORP, INC.Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

   Interest paid

$

971 

 

$

1,015 

   Income taxes paid

$

100 

 

$

 -

 

 

 

 

 

 

Supplemental Noncash Disclosures:

 

 

 

 

 

   Loan transfers to foreclosed assets held for sale

$

216 

 

$

264 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets, Liabilities, and Equity in Connection with Merger:

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Assets Acquired:

 

 

 

 

 

Securities

$

11,331 

 

$

 -

Loans

 

110,707 

 

 

 -

Restricted stock

 

509 

 

 

 -

Property and equipment

 

1,792 

 

 

 -

Accrued interest receivable

 

388 

 

 

 -

Core deposit and other intangible assets

 

578 

 

 

 -

Bank-owned life insurance

 

3,673 

 

 

 -

Other assets

 

933 

 

 

 -

 

$

129,911 

 

$

 -

 

 

 

 

 

 

       Liabilities Assumed:

 

 

 

 

 

Deposits

$

123,238 

 

$

 -

Accrued interest payable

 

32 

 

 

 -

Long-term debt

 

3,570 

 

 

 -

Other liabilities

 

744 

 

 

 -

 

$

127,584 

 

$

 -

 

 

 

 

 

 

       Equity Acquired:

 

 

 

 

 

Preferred stock

$

1,750 

 

$

 -

 

 

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

 

 

 

7


 

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 footnote 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 March 31, 2014 and December 31, 2014 balances have been reclassified 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, 2014.

 

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2015, 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)           Merger

 

On March 1, 2015, Mid Penn consummated the merger with Phoenix Bancorp, Inc. (“Phoenix”), a Pennsylvania corporation.  Under the terms of a merger agreement between the parties, Phoenix merged with, and into Mid Penn, with Mid Penn continuing as the surviving entity.  Simultaneously with the consummation of the foregoing merger, Miners Bank (“Miners”), a Pennsylvania-state chartered bank and wholly-owned subsidiary of Phoenix, merged with and into Mid Penn Bank, a Pennsylvania-state chartered bank and wholly-owned subsidiary of Mid Penn.

 

As part of this transaction, Phoenix shareholders received either 3.167 shares of Mid Penn’s common stock or $51.60 in cash in exchange for each share of Phoenix common stock.  Holders of contingent rights issued by Phoenix received approximately 0.414 shares of Mid Penn’s common stock as settlement of such rights.  As a result, Mid Penn issued 723,851 shares of common stock with an acquisition date fair value of approximately $11,292,000, based on Mid Penn’s closing stock price of $15.60 on February 27, 2015, and cash of  $2,949,000.  Including an insignificant amount of cash paid in lieu of fractional shares, the fair value of total consideration paid was $14,241,000.

 

Additionally, as part of this transaction, on March 1, 2015, Mid Penn assumed all of the liabilities and obligations of Phoenix with respect to 1,750 shares of Phoenix’s preferred stock issued to the United States Treasury (“Treasury”)  in connection with the Small Business Lending Fund and issued 1,750 shares of Mid Penn’s Senior Non-Cumulative Perpetual Preferred Stock, Series C, having a $1,000 liquidation preference per share (the “SBLF Preferred Shares”), to the Treasury.  The SBLF Preferred Shares qualify as Tier 1 Capital and have terms and conditions identical to those shares of preferred stock issued by Phoenix to the Treasury.

 

The assets and liabilities of Miners and Phoenix were recorded on the consolidated balance sheet at their estimated fair value as of March 1, 2015, and their results of operations have been included in the consolidated income statement since such date.

 

Included in the purchase price was goodwill and a core deposit intangible of $2,597,000 and $578,000, respectively.  The core deposit intangible will be amortized over a ten-year period using a sum of the year’s digits basis.  The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.  Core deposit intangible amortization expense projected for the succeeding five years beginning 2015 is estimated to be $88,000, $96,000, $86,000, $75,000, and $65,000 per year, respectively, and $168,000 in total for years after 2019.

 

 

8


 

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

The allocation of the purchase price is as follows:

 

 

 

 

 

(Dollars in thousands)

 

Purchase price assigned to Phoenix common shares exchanged for 723,851 Mid Penn common shares

$

11,292 

Purchase price assigned to Phoenix common shares exchanged for cash

 

2,949 

Total purchase price

 

14,241 

Phoenix net assets acquired:

 

 

Tangible Common Equity

 

12,292 

Estimated adjustments to reflect assets acquired and liabilities assumed at fair value:

 

 

Total fair value adjustments

 

(982)

Associated deferred income taxes

 

334 

Fair value adjustment to net assets acquired, net of tax

 

(648)

Total Phoenix net assets acquired

 

11,644 

Goodwill resulting from the merger

$

2,597 

 

While Mid Penn believes that the accounting for the merger is complete, ASC 805 allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date.  The following table summarizes the estimated fair value of the assets acquired and liabilities and equity assumed.

 

 

 

 

 

(Dollars in thousands)

 

Total purchase price

$

14,241 

 

 

 

Net assets acquired:

 

 

Cash and cash equivalents

 

11,067 

Investment securities

 

11,331 

Restricted stock

 

509 

Loans

 

110,707 

Bank owned life insurance

 

3,673 

Premises and equipment

 

1,792 

Accrued interest receivable

 

388 

Core deposit and other intangibles

 

578 

Other assets

 

933 

Deposits

 

(123,238)

FHLB borrowings

 

(3,570)

Accrued interest payable

 

(32)

Other liabilities

 

(744)

Preferred stock

 

(1,750)

 

 

11,644 

Goodwill

$

2,597 

 

The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $113,090,000.  The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

 

 

 

 

 

(Dollars in thousands)

 

Gross amortized cost basis at March 1, 2015

$

113,090 

Market rate adjustment

 

222 

Credit fair value adjustment on pools of homogeneous loans

 

(1,462)

Credit fair value adjustment on impaired loans

 

(1,143)

Fair value of purchased loans at March 1, 2015

$

110,707 

 

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the started rates of the acquired loans.  The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from the loan inception to the acquisition date.  The credit adjustment on impaired loans is derived

 

9


 

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

in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan.

 

The information about the acquired Phoenix impaired loan portfolio as of March 1, 2015 is as follows:

 

 

 

 

 

(Dollars in thousands)

 

Contractually required principal and interest at acquisition

$

3,548 

Contractual cash flows not expected to be collected (nonaccretable discount)

 

(663)

Expected cash flows at acquisition

 

2,885 

Interest component of expected cash flows (accretable discount)

 

(480)

Fair value of acquired loans

$

2,405 

 

The following table presents pro forma information as if the merger between Mid Penn and Phoenix had been completed on January 1, 2014.  The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with Phoenix at the beginning of 2014.  Supplemental pro forma earnings for 2015 were adjusted to exclude $909,000 of merger related costs incurred in the first three months of 2015; the results for the first three months of 2014 were adjusted to include these charges.  The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.

 

 

 

 

 

 

 

 

(Dollars in thousands)

March 31, 2015

 

March 31, 2014

Net interest income after loan loss provision

$

7,374 

 

$

7,050 

Noninterest income

 

1,014 

 

 

1,129 

Noninterest expense

 

6,815 

 

 

7,548 

Net income available to common shareholders

 

1,276 

 

 

543 

Net income per common share

 

0.30 

 

 

0.13 

 

The amount of total revenue, consisting of interest income plus noninterest income, as well as the net income specifically related to Phoenix for the period beginning March 1, 2015, included in the consolidated statements of income of Mid Penn for the three months ended March 31, 2015, was $495,000 and $50,000, respectively. 

 

 

 

(3)           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.

 

 

10


 

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

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.

 

At March 31, 2015 and December 31, 2014, 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

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

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

$

26,337 

 

$

1,026 

 

$

16 

 

$

27,347 

Mortgage-backed U.S. government agencies

 

36,938 

 

 

250 

 

 

140 

 

 

37,048 

State and political subdivision obligations

 

74,162 

 

 

2,077 

 

 

242 

 

 

75,997 

Equity securities

 

2,239 

 

 

70 

 

 

21 

 

 

2,288 

 

$

139,676 

 

$

3,423 

 

$

419 

 

$

142,680 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

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

$

26,343 

 

$

752 

 

$

29 

 

$

27,066 

Mortgage-backed U.S. government agencies

 

33,763 

 

 

190 

 

 

177 

 

 

33,776 

State and political subdivision obligations

 

77,482 

 

 

2,007 

 

 

318 

 

 

79,171 

Equity securities

 

1,584 

 

 

60 

 

 

23 

 

 

1,621 

 

$

139,172 

 

$

3,009 

 

$

547 

 

$

141,634 

 

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 $127,164,000 at March 31, 2015 and $134,740,000  at  December 31, 2014, were pledged to secure public deposits and other borrowings.

 

Mid Penn realized gross gains of $177,000 and $150,000 on sales of securities available for sale during the three months ended March 31, 2015 and March 31, 2014.  Mid Penn realized gross losses on the sale of securities available for sale of $0 during the three months ended March 31, 2015 and March 31, 2014.

 

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 March 31, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

Less Than 12 Months

 

12 Months or More

 

Total

March 31, 2015

Number of

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Securities

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4

 

$

4,397 

 

$

16 

 

$

 -

 

$

 -

 

$

4,397 

 

$

16 

Mortgage-backed U.S. government agencies

17

 

 

9,881 

 

 

66 

 

 

2,968 

 

 

74 

 

 

12,849 

 

 

140 

State and political subdivision obligations

25

 

 

8,463 

 

 

48 

 

 

4,592 

 

 

194 

 

 

13,055 

 

 

242 

Equity securities

2

 

 

 -

 

 

 -

 

 

596 

 

 

21 

 

 

596 

 

 

21 

Total temporarily impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    available for sale securities

48

 

$

22,741 

 

$

130 

 

$

8,156 

 

$

289 

 

$

30,897 

 

$

419 

 

11


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

Less Than 12 Months

 

12 Months or More

 

Total

December 31, 2014

Number of

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Securities

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5

 

$

6,059 

 

$

29 

 

$

 -

 

$

 -

 

$

6,059 

 

$

29 

Mortgage-backed U.S. government agencies

20

 

 

9,511 

 

 

62 

 

 

4,416 

 

 

115 

 

 

13,927 

 

 

177 

State and political subdivision obligations

37

 

 

4,444 

 

 

33 

 

 

13,947 

 

 

285 

 

 

18,391 

 

 

318 

Equity securities

2

 

 

 -

 

 

 -

 

 

583 

 

 

23 

 

 

583 

 

 

23 

Total temporarily impaired