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EX-32 - EX-32 - MID PENN BANCORP INCc635-20160331xex32.htm

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

  (Mark One)



 

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



For the quarterly period ended March 31, 2016



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 12, 2016, the registrant had 4,227,981 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, 2016 and December 31, 2015 (Unaudited)

2



 

Consolidated Statements of Income for the Three Months Ended March 31, 2016 and March 31, 2015 (Unaudited)

3



 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and March 31, 2015 (Unaudited)

4



 

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2016 and March 31, 2015 (Unaudited)

5



 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and March 31, 2015 (Unaudited)

6



 

Notes to Consolidated Financial Statements (Unaudited)

8



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

35



Item 3 – Quantitative and Qualitative Disclosures about Market Risk

46



Item 4 – Controls and Procedures

46



PART II – OTHER INFORMATION

47



Item 1 – Legal Proceedings

47



Item 1A – Risk Factors

47



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

47



Item 3 – Defaults upon Senior Securities

47



Item 4 – Mine Safety Disclosures

46



Item 5 – Other Information

46



Item 6 – Exhibits

47



Signatures

48





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 data)

March 31, 2016

 

December 31, 2015

ASSETS

 

 

 

 

 

Cash and due from banks

$

9,707 

 

$

12,329 

Interest-bearing balances with other financial institutions

 

1,490 

 

 

955 

Federal funds sold

 

2,125 

 

 

 -

Total cash and cash equivalents

 

13,322 

 

 

13,284 

Interest-bearing time deposits with other financial institutions

 

2,332 

 

 

4,317 

Investment securities available for sale

 

161,910 

 

 

135,721 

Loans and leases, net of unearned interest

 

746,452 

 

 

739,191 

Less:  Allowance for loan and lease losses

 

(6,439)

 

 

(6,168)

Net loans and leases

 

740,013 

 

 

733,023 

Bank premises and equipment, net

 

13,728 

 

 

13,993 

Cash surrender value of life insurance

 

12,586 

 

 

12,516 

Restricted investment in bank stocks

 

2,871 

 

 

4,266 

Foreclosed assets held for sale

 

794 

 

 

1,185 

Accrued interest receivable

 

3,919 

 

 

3,813 

Deferred income taxes

 

1,466 

 

 

1,821 

Goodwill

 

3,918 

 

 

3,918 

Core deposit and other intangibles, net

 

627 

 

 

665 

Other assets

 

3,408 

 

 

3,116 

Total Assets

$

960,894 

 

$

931,638 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest bearing demand

$

107,369 

 

$

103,721 

Interest bearing demand

 

275,011 

 

 

247,356 

Money Market

 

224,656 

 

 

208,386 

Savings

 

59,147 

 

 

56,731 

Time

 

166,398 

 

 

160,849 

Total Deposits 

 

832,581 

 

 

777,043 

Short-term borrowings

 

 -

 

 

31,596 

Long-term debt

 

40,250 

 

 

40,305 

Subordinated debt

 

7,407 

 

 

7,414 

Accrued interest payable

 

586 

 

 

390 

Other liabilities

 

8,848 

 

 

4,822 

Total Liabilities

 

889,672 

 

 

861,570 

Shareholders' Equity:

 

 

 

 

 

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

 

 

 

 

 

4,227,981 and 4,226,717 shares issued and outstanding at

 

 

 

 

 

March 31, 2016 and at December 31, 2015, respectively

 

4,228 

 

 

4,227 

Additional paid-in capital

 

40,585 

 

 

40,559 

Retained earnings

 

24,345 

 

 

23,470 

Accumulated other comprehensive income

 

2,064 

 

 

1,812 

Total Shareholders’ Equity

 

71,222 

 

 

70,068 

Total Liabilities and Shareholders' Equity

$

960,894 

 

$

931,638 



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,



2016

 

2015

INTEREST INCOME

 

 

 

 

 

Interest & fees on loans and leases

$

8,807 

 

$

7,154 

Interest on interest-bearing balances

 

 

 

11 

Interest and dividends on investment securities:

 

 

 

 

 

U.S. Treasury and government agencies

 

322 

 

 

331 

State and political subdivision obligations, tax-exempt

 

464 

 

 

531 

Other securities

 

94 

 

 

131 

Interest on federal funds sold and securities purchased under agreements to resell

 

 

 

 -

Total Interest Income 

 

9,697 

 

 

8,158 

INTEREST EXPENSE

 

 

 

 

 

Interest on deposits

 

1,039 

 

 

914 

Interest on short-term borrowings

 

13 

 

 

11 

Interest on long-term debt

 

230 

 

 

195 

Total Interest Expense 

 

1,282 

 

 

1,120 

Net Interest Income 

 

8,415 

 

 

7,038 

PROVISION FOR LOAN AND LEASE LOSSES

 

340 

 

 

300 

Net Interest Income After Provision for Loan and Lease Losses

 

8,075 

 

 

6,738 

NONINTEREST INCOME

 

 

 

 

 

Income from fiduciary activities

 

106 

 

 

127 

Service charges on deposits

 

155 

 

 

150 

Net gain on sales of investment securities

 

 -

 

 

177 

Earnings from cash surrender value of life insurance

 

70 

 

 

56 

Mortgage banking income

 

186 

 

 

67 

ATM debit card interchange income

 

200 

 

 

155 

Merchant services income

 

67 

 

 

50 

Net gain on sales of SBA loans

 

190 

 

 

 -

Other income

 

258 

 

 

167 

Total Noninterest Income 

 

1,232 

 

 

949 

NONINTEREST EXPENSE

 

 

 

 

 

Salaries and employee benefits

 

3,723 

 

 

3,195 

Occupancy expense, net

 

547 

 

 

454 

Equipment expense

 

435 

 

 

313 

Pennsylvania Bank Shares tax expense

 

203 

 

 

115 

FDIC Assessment

 

153 

 

 

139 

Legal and professional fees

 

202 

 

 

143 

Director fees and benefits expense

 

89 

 

 

83 

Marketing and advertising expense

 

84 

 

 

88 

Software licensing

 

331 

 

 

319 

Telephone expense

 

142 

 

 

123 

Loss on sale/write-down of foreclosed assets

 

104 

 

 

32 

Intangible amortization

 

37 

 

 

Loan collection costs

 

39 

 

 

80 

Merger and acquisition expense

 

 -

 

 

762 

Other expenses

 

893 

 

 

785 

Total Noninterest Expense 

 

6,982 

 

 

6,640 

INCOME BEFORE PROVISION FOR INCOME TAXES

 

2,325 

 

 

1,047 

Provision for income taxes

 

520 

 

 

84 

NET INCOME

 

1,805 

 

 

963 

Series B preferred stock dividends

 

 -

 

 

87 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$

1,805 

 

$

876 



 

 

 

 

 

PER COMMON SHARE DATA:

 

 

 

 

 

Basic Earnings Per Common Share

$

0.43 

 

$

0.23 

Cash Dividends

$

0.22 

 

$

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 March 31,



2016

 

2015



 

 

 

 

 

Net income

$

1,805 

 

$

963 



 

 

 

 

 

Other comprehensive income:

 

 

 

 

 



 

 

 

 

 

Unrealized gains arising during the period on available for sale

 

 

 

 

 

securities, net of income taxes of $189 and $244, respectively

 

366 

 

 

475 



 

 

 

 

 

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

 

 

 

 

 

included in net income, net of income taxes of $0 and ($60), respectively   (a)

 

 -

 

 

(117)



 

 

 

 

 

Change in defined benefit plans, net of income taxes of ($56) and $1, respectively   (b)

 

(114)

 

 



 

 

 

 

 

Total other comprehensive income

 

252 

 

 

361 



 

 

 

 

 

Total comprehensive income

$

2,057 

 

$

1,324 











(a)

Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income



(b)

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





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, 2016 AND 2015





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total



Preferred

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Shareholders'



Stock

 

Stock

 

Capital

 

Earnings

 

Income

 

Equity

Balance, January 1, 2016

$

 -

 

$

4,227 

 

$

40,559 

 

$

23,470 

 

$

1,812 

 

$

70,068 

Net income

 

 -

 

 

 -

 

 

 -

 

 

1,805 

 

 

 -

 

 

1,805 

Total other comprehensive income, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

252 

 

 

252 

Employee Stock Purchase Plan (1,264 shares)

 

 -

 

 

 

 

18 

 

 

 -

 

 

 -

 

 

19 

Common stock dividends

 

 -

 

 

 -

 

 

 -

 

 

(930)

 

 

 -

 

 

(930)

Restricted stock compensation expense

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

Balance, March 31, 2016

$

 -

 

$

4,228 

 

$

40,585 

 

$

24,345 

 

$

2,064 

 

$

71,222 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 





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,



2016

 

2015

Operating Activities:

 

 

 

 

 

   Net Income

$

1,805 

 

$

963 

   Adjustments to reconcile net income to net cash

 

 

 

 

 

       provided by operating activities:

 

 

 

 

 

           Provision for loan and lease losses

 

340 

 

 

300 

           Depreciation

 

419 

 

 

314 

           Amortization of intangibles

 

37 

 

 

13 

           Net amortization of security premiums

 

665 

 

 

384 

   Gain on sales of investment securities

 

 -

 

 

(177)

           Earnings on cash surrender value of life insurance

 

(70)

 

 

(56)

           SBA loans originated for sale

 

(2,500)

 

 

 -

           Proceeds from sales of SBA loans originated for sale

 

2,690 

 

 

 -

           Gain on sale of loans

 

(190)

 

 

 -

           Loss on sale / write-down of foreclosed assets

 

104 

 

 

32 

           Restricted stock compensation expense

 

 

 

           Deferred income tax expense (benefit)

 

53 

 

 

(76)

           (Increase) decrease in accrued interest receivable

 

(106)

 

 

52 

           Increase in other assets

 

(290)

 

 

(47)

           Increase in accrued interest payable

 

196 

 

 

117 

           Increase (decrease) in other liabilities

 

4,026 

 

 

(40)

Net Cash Provided By Operating Activities 

 

7,187 

 

 

1,787 

Investing Activities:

 

 

 

 

 

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

 

1,985 

 

 

103 

    Proceeds from the maturity of investment securities

 

3,045 

 

 

2,594 

    Proceeds from the sale of investment securities

 

 -

 

 

16,091 

   Purchases of investment securities

 

(29,345)

 

 

(8,065)

   Net cash received from acquisition

 

 -

 

 

8,118 

   Redemptions of restricted investment in bank stock

 

1,395 

 

 

173 

   Net increase in loans and leases

 

(7,359)

 

 

(13,579)

   Purchases of bank premises and equipment

 

(154)

 

 

(393)

   Proceeds from sale of foreclosed assets

 

315 

 

 

27 

Net Cash (Used In) Provided By Investing Activities 

 

(30,118)

 

 

5,069 

Financing Activities:

 

 

 

 

 

   Net increase (decrease) in deposits

 

55,538 

 

 

(2,114)

    Net (decrease) increase in short-term borrowings

 

(31,596)

 

 

43 

   Series B preferred stock dividend paid

 

 -

 

 

(87)

   Common stock dividend paid

 

(930)

 

 

(350)

Employee Stock Purchase Plan

 

19 

 

 

16 

   Long-term debt repayment

 

(62)

 

 

(51)

Net Cash Provided By (Used In) Financing Activities 

 

22,969 

 

 

(2,543)

Net increase in cash and cash equivalents

 

38 

 

 

4,313 

Cash and cash equivalents, beginning of year

 

13,284 

 

 

9,882 

Cash and cash equivalents, end of year

$

13,322 

 

$

14,195 



 

6


 

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





 

 

 

 

 

(Dollars in thousands)

Three Months Ended March 31,



2016

 

2015

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

   Interest paid

$

1,086 

 

$

971 

   Income taxes paid

$

200 

 

$

100 



 

 

 

 

 

Supplemental Noncash Disclosures:

 

 

 

 

 

   Loan transfers to foreclosed assets held for sale

$

28 

 

$

216 









 

 

 

 

 

Assets, Liabilities, and Equity in Connection with Merger:

 

 

 

 

 



 

 

 

 

 

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. (the “Company”) and its wholly-owned subsidiaries, Mid Penn Bank (the “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.



Effective March 1, 2016, Mid Penn Insurance Services, LLC, an immaterial subsidiary of Mid Penn, was liquidated due to the lack of consistent profitability and growth.



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 March 31, 2015 and December 31, 2015 balances have been reclassified, when, and if necessary, to conform to the 2016 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.



Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2016, 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)           Mergers and Acquisitions



On March 1, 2015, Phoenix Bancorp, Inc. (“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 the Bank.



As part of this transaction, Phoenix shareholders received either 3.167 shares of the Company’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 the Company’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 the closing stock price of Mid Penn’s common stock on February 27, 2015 of $15.60 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 the Company’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 qualified as Tier 1 capital and had 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 $2,902,000 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 2016 is estimated to be $96,000,  $86,000,  $75,000,  $65,000, and $54,000 per year, respectively, and $114,000 in total for years after 2020.



 

8


 

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



The allocation of the purchase price is as follows:





 

 

(Dollars in thousands)

 



 

 

Assets acquired:

 

 

Cash and cash equivalents

$

11,044 

Investment securities

 

11,331 

Loans

 

110,363 

Goodwill

 

2,902 

Core deposit and other intangibles

 

578 

Other assets

 

7,489 

Total assets acquired

 

143,707 

Liabilities assumed:

 

 

Deposits

 

123,238 

FHLB borrowings

 

3,570 

Other liabilities

 

908 

Total liabilities assumed

 

127,716 

Equity acquired:

 

 

Preferred stock

 

1,750 

Total equity acquired and liabilities assumed

 

129,466 

Consideration paid

$

14,241 



 

 

Cash paid

$

2,949 

Fair value of common stock issued, including replacement equity awards

 

11,292 



The following table summarizes the fair value of the assets acquired, and liabilities and equity assumed by Mid Penn through the Phoenix merger.







 

 

(Dollars in thousands)

 

Total purchase price

$

14,241 



 

 

Net assets acquired:

 

 

Cash and cash equivalents

 

11,044 

Investment securities

 

11,331 

Restricted stock

 

509 

Loans

 

110,363 

Bank owned life insurance

 

3,673 

Premises and equipment

 

1,792 

Deferred income taxes

 

503 

Accrued interest receivable

 

388 

Core deposit and other intangibles

 

578 

Other assets

 

624 

Deposits

 

(123,238)

FHLB borrowings

 

(3,570)

Accrued interest payable

 

(32)

Other liabilities

 

(876)

Preferred stock

 

(1,750)



 

11,339 

Goodwill

$

2,902 



The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $112,816,000.  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.







 

 

 

9


 

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

(Dollars in thousands)

 

Gross amortized cost basis at March 1, 2015

$

112,816 

Market rate adjustment

 

270 

Credit fair value adjustment on pools of homogeneous loans

 

(1,461)

Credit fair value adjustment on impaired loans

 

(1,262)

Fair value of purchased loans at March 1, 2015

$

110,363 



The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the stated 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 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)

 

(804)

Expected cash flows at acquisition

 

2,744 

Interest component of expected cash flows (accretable discount)

 

(458)

Fair value of acquired loans

$

2,286 



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 $762,000 of merger related costs incurred for the three months ended March 31, 2015.  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.  The pro forma data is intended for informational purposes and is not indicative of the future results of operations.





 

 

(Dollars in thousands)

March 31, 2015

Net interest income after loan loss provision

$

7,374 

Noninterest income

 

1,014 

Noninterest expense

 

6,815 

Net income available to common shareholders

 

1,276 

Net income per common share

 

0.30 







(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 Mid Penn’s consolidated statements of income.



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.



 

10


 

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



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.    Because Mid Penn does not intend to sell these investments and it is not likely it will be required to sell these investments before a recovery of fair value, which may be maturity, Mid Penn does not consider the securities with unrealized losses to be other-than-temporarily impaired as losses relate to changes in interest rates and not erosion of credit quality. 



Mid Penn had no securities considered other than temporarily impaired as of March 31, 2016 or December 31, 2015, and did not record any securities impairment charges in the respective periods ended on these dates.



The amortized cost, fair value, and unrealized gains and losses on investment securities at March 31, 2016 and December 31, 2015 are as follows:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 



Amortized

 

Unrealized

 

Unrealized

 

Fair

March 31, 2016

Cost

 

Gains

 

Losses

 

Value

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

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

$

26,309 

 

$

1,076 

 

$

38 

 

$

27,347 

Mortgage-backed U.S. government agencies

 

49,762 

 

 

134 

 

 

185 

 

 

49,711 

State and political subdivision obligations

 

79,647 

 

 

2,162 

 

 

156 

 

 

81,653 

Equity securities

 

3,266 

 

 

24 

 

 

91 

 

 

3,199 



$

158,984 

 

$

3,396 

 

$

470 

 

$

161,910 





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 



Amortized

 

Unrealized

 

Unrealized

 

Fair

December 31, 2015

Cost

 

Gains

 

Losses

 

Value

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

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

$

26,316 

 

$

729 

 

$

55 

 

$

26,990 

Mortgage-backed U.S. government agencies

 

38,983 

 

 

49 

 

 

228 

 

 

38,804 

State and political subdivision obligations

 

64,780 

 

 

1,914 

 

 

77 

 

 

66,617 

Equity securities

 

3,271 

 

 

82 

 

 

43 

 

 

3,310 



$

133,350 

 

$

2,774 

 

$

403 

 

$

135,721 



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 $155,153,000 at March 31, 2016 and $130,298,000 at December 31, 2015, were pledged to secure public deposits and other borrowings.



Mid Penn realized gross gains of $0 and $177,000 on sales of securities available for sale during the three months ended March 31, 2016 and March 31, 2015.  Mid Penn realized no gross losses on the sale of securities available for sale during the three months ended March 31, 2016 and March 31, 2015.



 

11


 

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

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, 2016 and December 31, 2015.









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Less Than 12 Months

 

12 Months or More

 

Total



Number

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

 

Number

 

 

 

 

 

 



of

 

Fair

 

Unrealized

 

of

 

Fair

 

Unrealized

 

of

 

Fair

 

Unrealized

March 31, 2016

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4

 

$

3,817 

 

$

28 

 

2

 

$

1,320 

 

$

10 

 

6

 

$

5,137 

 

$

38 

Mortgage-backed U.S. government agencies

16

 

 

22,011 

 

 

125 

 

10

 

 

6,248 

 

 

60 

 

26

 

 

28,259 

 

 

185 

State and political subdivision obligations

19

 

 

10,899 

 

 

110 

 

4

 

 

1,792 

 

 

46 

 

23

 

 

12,691 

 

 

156 

Equity securities

1

 

 

985 

 

 

15 

 

2

 

 

1,142 

 

 

76 

 

3

 

 

2,127 

 

 

91 

Total temporarily impaired available for sale securities

40

 

$

37,712 

 

$

278 

 

18

 

$

10,502 

 

$

192 

 

58

 

$

48,214 

 

$

470 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Less Than 12 Months

 

12 Months or More

 

Total



Number

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

 

Number

 

 

 

 

 

 



of

 

Fair

 

Unrealized

 

of

 

Fair

 

Unrealized

 

of

 

Fair

 

Unrealized

December 31, 2015

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

6

 

$

6,259 

 

$

43 

 

2

 

$

1,383 

 

$

12 

 

8

 

$

7,642 

 

$

55 

Mortgage-backed U.S. government agencies

13

 

 

12,759 

 

 

124 

 

11

 

 

6,282 

 

 

104 

 

24

 

 

19,041 

 

 

228 

State and political subdivision obligations

9

 

 

4,041 

 

 

32 

 

3

 

 

1,631 

 

 

45 

 

12

 

 

5,672 

 

 

77 

Equity securities

1

 

 

990 

 

 

10 

 

2

 

 

615 

 

 

33 

 

3