Press Release

Mid Penn Bancorp, Inc. Reports Third Quarter 2019 Earnings and Declares Quarterly Dividend

Company Release - 10/25/2019 7:59 AM ET

MILLERSBURG, Pa., Oct. 25, 2019 (GLOBE NEWSWIRE) -- Mid Penn Bancorp, Inc. (“Mid Penn”) (NASDAQ: MPB), the parent company of Mid Penn Bank (the “Bank”), today reported net income to common shareholders (earnings) for the quarter ended September 30, 2019 of $4,813,000 or $0.57 per common share basic and diluted, compared to earnings of $2,126,000 or $0.28 per common share basic and diluted for the quarter ended September 30, 2018.  The results for the three months ended September 30, 2018 included merger and acquisition expenses resulting from Mid Penn’s acquisition of First Priority Financial Corp. (“First Priority”) on July 31, 2018.

Earnings for the nine months ended September 30, 2019 were $13,293,000 or $1.57 per common share basic and diluted, compared to earnings of $5,909,000 or $0.89 per common share basic and diluted for the nine months ended September 30, 2018.  The results for the nine months ended September 30, 2018 included merger and acquisition expenses resulting from both (i) Mid Penn’s acquisition of First Priority on July 31, 2018, and (ii) Mid Penn’s acquisition of The Scottdale Bank & Trust Company (“Scottdale”) on January 8, 2018.  No merger and acquisition expenses were recorded during the nine months ended September 30, 2019.  Adjusted earnings for the nine months ended September 30, 2018, when excluding the after-tax impact of merger and acquisition expenses (with such adjusted earnings being a non-GAAP measure), were $10,017,000 or $1.52 per share basic and diluted.  Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Measures (Unaudited)” for a discussion of our use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for the quarters ended September 30, 2019 and 2018 and certain other periods. 

Tangible book value per common share, a non-GAAP measure that is regularly reported in the banking industry and the most directly comparable non-GAAP measure to book value per share, favorably increased to $19.54 as of September 30, 2019, compared to $18.10 as of December 31, 2018, and $17.50 as of September 30, 2018.  Mid Penn’s GAAP book value per share increased to $27.67 at September 30, 2019, compared to $26.38 as of December 31, 2018, and $25.83 at September 30, 2018.   

Mid Penn also reported continued growth in total assets to $2,248,899,000 as of September 30, 2019, reflecting an increase of $170,918,000 or 8 percent compared to total assets of $2,077,981,000 as of December 31, 2018, and an increase of $204,619,000 or 10 percent compared to total assets of $2,044,280,000 as of September 30, 2018.  Asset growth during the first nine months of 2019 was primarily attributable to net organic loan growth, an increase in liquid assets from demand deposit growth, and the recording of operating and finance lease right of use assets as a result of Mid Penn’s adoption of Accounting Standard Codification (ASC) 842 – Leases effective January 1, 2019.

In general, the results of operations and the financial condition as of and for the periods ended September 30, 2019, as compared to prior periods and certain period-end dates in 2018, have been materially impacted by Mid Penn’s 2018 acquisitions of First Priority and Scottdale.

Mid Penn also reported that its Board of Directors, at a meeting held on October 23, 2019, declared a quarterly dividend per common share of $0.18 payable on November 25, 2019, to shareholders of record as of November 6, 2019. 

PRESIDENT’S STATEMENT

We are pleased to announce our third quarter results of operations and our quarterly dividend. The three months ended September 30, 2019 were demonstrative of our continued strong organic growth in our legacy markets of Dauphin, Cumberland, Schuylkill and Lancaster counties, as well as the success of our 2018 acquisitions of Scottdale and First Priority.  Our performance reflects strong increases in net interest income; a sound net interest margin even in the face of an inverted yield curve; significant increases in noninterest income sources including mortgage banking, fiduciary, SBA and interchange revenues; a decrease in noninterest expenses; and very favorable asset quality measures.  It is that last item of which I am most proud.  We are a community bank and we derive the bulk of our revenues and income from our loan portfolio. To end the quarter with a 0.36% nonperforming asset ratio is indicative of the strength of our designed business development culture, our commitment to pristine underwriting, our commitment to best in class documentation and portfolio management that is the best I have seen. With all of the success in revenue growth and expense control, we delivered a strong quarter in net income available to common shareholders, earnings per share and tangible book value appreciation. With that, we are sharing the wealth with the announcement of a $0.18 per share common stock dividend.

OPERATING RESULTS

Net Interest Income and Net Interest Margin

Net interest income was $17,767,000 for the three months ended September 30, 2019, an increase of $1,856,000 or 12 percent compared to net interest income of $15,911,000 for the three months ended September 30, 2018.  Through the first nine months of 2019, net interest income was $52,843,000, an increase of $14,640,000 or 38 percent compared to net interest income of $38,203,000 for the same period in 2018.  The primary source of the net interest income growth for both the three and nine month periods was an increase in interest and fees on loans, as total loans increased $143,148,000 or 9 percent since September 30, 2018. 

For the nine months ended September 30, 2019, Mid Penn’s tax-equivalent net interest margin was 3.64% versus 3.62% for the nine months ended September 30, 2018. Year-over-year increases in yields on interest-earning assets and growth in noninterest-bearing deposits more than offset the impact of both (i) the rising cost of both deposit and borrowed funds as a result of the FOMC rate increases in 2018, and (ii) the higher volume of wholesale funding sources, including brokered time deposits and subordinated debt assumed in the First Priority acquisition, and other short-term borrowings added since September 30, 2018 to support liquidity and interest rate management while also partially funding loan growth.

For the three months ended September 30, 2019, Mid Penn’s tax-equivalent net interest margin was 3.53% compared to 3.69% for the three months ended June 30, 2019.  This decrease in net interest margin was driven by successful growth in deposits in both the third quarter and full-year 2019, as Mid Penn had a higher average balance of demand deposits and liquid assets which were temporarily invested in overnight federal funds sold in anticipation of redeployment of some of this excess funding for future loan growth, repayment of maturing wholesale borrowings, and near-term redemptions of brokered CDs. The net interest margin was also impacted by an increase in the cost of deposits, particularly money market accounts and time deposits.

Noninterest Income

During the three months ended September 30, 2019, noninterest income totaled $3,003,000, an increase of $832,000 or 38 percent, compared to noninterest income of $2,171,000 for the three months ended September 30, 2018.  For the nine months ended September 30, 2019, noninterest income totaled $7,926,000, an increase of $2,485,000 or 46 percent, compared to noninterest income of $5,441,000 for the same period in 2018.

Mortgage banking income was $2,605,000 for the nine months ended September 30, 2019, an increase of $2,047,000 or over 350 percent compared to mortgage banking income of $558,000 for the nine months ended September 30, 2018.  Longer-term mortgage interest rates have declined significantly in the first nine months of 2019, resulting in a higher level of mortgage originations and secondary-market loan sales during the first nine months of 2019 when compared to the same period in 2018.  Additionally, Mid Penn expanded its team of residential mortgage originators in southeastern Pennsylvania during the first quarter of 2019, contributing to the larger volume of mortgage loans originated and sold in the nine months ended September 30, 2019.

Income from fiduciary activities was $1,092,000 for the nine months ended September 30, 2019, an increase of $241,000 or 28 percent, compared to fiduciary income of $851,000 for the nine months ended September 30, 2018. These additional revenues were attributed to continued growth in trust assets under management, and increased sales of retail investment products, as a result of successful business development efforts by Mid Penn’s trust and wealth management team.

ATM debit card interchange income was $1,148,000 for the nine months ended September 30, 2019, an increase of $240,000 or 26 percent compared to interchange income of $908,000 for the nine months ended September 30, 2018. The increase resulted from increasing card-transaction usage across our customer base, as well as the added volume from demand deposit accounts assumed in the First Priority acquisition.

Net gains on sales of SBA loans were $710,000 for the nine months ended September 30, 2019, an increase of $233,000 or 49 percent compared to net gains on sales of SBA loans of $477,000 during the same period in 2018.  The increase reflects a higher volume of loans settling in 2019 despite less favorable SBA loan rates year-over-year.

For the nine months ended September 30, 2019, merchant services income totaled $304,000, an increase of $43,000 or 16 percent, compared $261,000 for the nine months ended September 30, 2018, reflecting an increase in the volume of business customers utilizing merchant services to process their debit card transactions, cash advances, and other related products.

Other income was $1,096,000 for the nine months ended September 30, 2019, a decrease of $286,000 compared to other income of $1,382,000 for the nine months ended September 30, 2018.  Although wire transfer, letter of credit, and other fees increased in 2019, these were more than offset by a decline in pension settlement gain income year over year. During the first three quarters of 2018, Mid Penn recognized $497,000 of defined benefit pension plan settlement gains from certain plan participants receiving lump sum benefit payouts (the plan and related liabilities were assumed as a result of the Scottdale acquisition).  During the first three quarters of 2019, a lower amount of pension plan lump sum payouts occurred, with related settlement gains totaling $37,000.  Pension settlement gains are not expected to be a recurring item on a going-forward basis.

Net gains on sales of securities were $70,000 for the nine months ended September 30, 2019, a decrease of $62,000 compared to net gains on sales of securities of $132,000 for the nine months ended September 30, 2018. During the first three quarters of 2018, some investment securities acquired from Scottdale were subsequently sold at gains to ensure that the overall portfolio was in alignment with Mid Penn’s investment management objectives.  The volume of investment sales, and realized gains, were less during the first nine months of 2019, with such sales related primarily in support of interest rate risk and liquidity management.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2019 totaled $14,683,000, a decrease of $587,000 or 4 percent compared to noninterest expenses of $15,270,000 for the three months ended September 30, 2018.  For the nine months ended September 30, 2019, noninterest expense totaled $43,782,000, an increase of $7,523,000 or 21 percent, compared to noninterest expense of $36,259,000 for the same period in 2018.  The increase in noninterest expense for the nine-month period was driven by both (i) the impact of the staff, facilities, and technology licensing costs added as a result of the acquisition of First Priority in July 2018, and (ii) the 2019 expansion of Mid Penn’s mortgage banking division in the southeastern Pennsylvania market.

Salaries and employee benefits expenses were $23,970,000 during the nine months ended September 30, 2019, an increase of $7,684,000 or 47 percent, versus the same period in 2018, with the increase primarily attributable to (i) the full-year impact of the compensation and benefit costs of the staff additions at the eight office locations added through the First Priority acquisition, effective July 31, 2018, and (ii) the back-office and loan originator staff additions as a result of the expansion of the mortgage banking division.

Occupancy expenses increased $1,247,000 or 46 percent during the first nine months of 2019 compared to the same period in 2018.  Similarly, equipment expense increased $425,000 or 28 percent during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.  These increases related to (i) the incremental facilities operating costs, including rent, utilities, and depreciation expense for the buildings and equipment associated with the acquisition of the First Priority retail offices, and (ii) an investment in a corporate administrative facility to promote long-term operational and processing efficiencies by centralizing several back-office functions supporting the broader franchise. 

Pennsylvania bank shares tax expense was $740,000 for the nine months ended September 30, 2019, an increase of $267,000 or 56 percent compared to $473,000 for the nine months ended September 30, 2018.  The increase in assessment expense generally reflects the larger total shareholder equity balance (from both acquisition and organic growth activity) upon which the tax is based. 

FDIC assessment expense was $542,000 for the nine months ended September 30, 2019, an increase of $34,000 or 7 percent compared to $508,000 for the nine months ended September 30, 2018.  The third quarter of 2019 reflects the receipt of $492,000 of FDIC small bank assessment credits which were applied to FDIC assessment expense.  Mid Penn received notification from the FDIC that the FDIC’s Deposit Insurance Fund reserve ratio met a threshold resulting in the FDIC providing the Bank with the credit, which was applied to assessment liability accruals for both the second and third quarters of 2019.

Legal and professional fees for the nine months ended September 30, 2019 increased by $452,000 or 60 percent compared to the same period in 2018 due to increased use and costs of third-party providers for information technology support, human resources services, external audit, and loan review services.

Software licensing and utilization costs were $3,282,000 during the nine months ended September 30, 2019, an increase of $648,000 or 25 percent compared to $2,634,000 for the nine months ended September 30, 2018. The increase is a result of additional transaction volume based costs and licensing fees related to the addition of the locations, staff  and accounts for the First Priority offices acquired in July 2018, the Pillow branch added in September 2018, and the expanded mortgage banking division added during the first quarter of 2019.  Additionally, Mid Penn continued to invest in upgrades to internal systems to enhance data management and storage capabilities given the larger company profile.

Intangible amortization increased from $837,000 during the nine months ended September 30, 2018 to $1,078,000 during the same period in 2019 due to the full nine-month impact of the core deposit intangible asset added from the First Priority acquisition on July 31, 2018.

Other expenses were $5,947,000 during the nine months ended September 30, 2019, an increase of $1,615,000 or 37 percent compared to other expense of $4,332,000 for the same period in 2018.  As the First Priority acquisition and organic growth have increased the organization’s geographic profile and employee base, several categories within other expense experienced increases, including insurance costs, charitable donations, stationary and supplies, printing, loan collection costs, and directors’ fees.

No merger expenses were recorded during the nine months ended September 30, 2019.  During the first nine months of 2018, merger and acquisition expenses totaling $4,955,000 were recorded including investment banking fees, merger-related legal and professional fees, severance costs, and information technology conversion/termination costs incurred for the 2018 acquisitions of First Priority and Scottdale.

The provision for income taxes was $2,539,000 during the nine months ended September 30, 2019, an increase of $1,326,000 or 109 percent compared to $1,213,000 for the same period in 2018.  The third quarter of 2019 reflects a favorable adjustment to income tax expense of $277,000 for certain permanent nonrecurring tax benefits recorded within the current quarter.

FINANCIAL CONDITION

Loans

Total loans at September 30, 2019 were $1,710,434,000 compared to $1,624,067,000 at December 31, 2018, an increase of $86,367,000 or 5 percent since year-end 2018.  The majority of the growth was commercial and industrial financing, and commercial real estate credits.

Deposits

Total deposits increased $164,067,000 or 10 percent, from $1,726,026,000 at December 31, 2018, to $1,890,093,000 at September 30, 2019.  The increase was attributed to both new and expanded cash management and commercial deposit account relationships, and some volume from the third quarter cyclical growth due to real estate tax collections by our public fund depositors.

Investments

Mid Penn’s portfolio of held-to-maturity securities increased $2,102,000 to $170,472,000 as of September 30, 2019, as compared to $168,370,000 as of December 31, 2018 (held-to-maturity investments are recorded at amortized cost).  Mid Penn’s total available-for-sale securities portfolio decreased $59,504,000 or 53 percent, from $111,923,000 at December 31, 2018 to $52,419,000 at September 30, 2019 due to both mortgage-backed securities repayments, and from investment sales related to portfolio strategies in support of both liquidity and interest rate risk management.

Capital

Shareholders’ equity increased by $11,403,000 or 5 percent from $223,209,000 as of December 31, 2018 to $234,612,000 as of September 30, 2019. The increase in shareholders’ equity reflects both (i) the growth in retained earnings through year-to-date net income, net of dividends paid, through the first nine months of 2019, and (ii) the year-to-date accumulated other comprehensive income from the after-tax appreciation in the market value of the available-for-sale investment portfolio.  Regulatory capital ratios for both Mid Penn and its banking subsidiary exceeded regulatory “well-capitalized” levels at both September 30, 2019 and 2018.

ASSET QUALITY

Total nonperforming assets were $5,553,000 at September 30, 2019, a significant decrease compared to nonperforming assets of $12,283,000 at December 31, 2018, and $11,978,000 at September 30, 2018. Nonperforming assets were 0.32% of the total of loans plus other real estate assets as of September 30, 2019, compared to 0.76% for the same measure as of both December 31, 2018 and September 30, 2018.  The decrease was primarily due to the successful workout of one nonaccrual commercial credit relationship totaling $4,302,000 and one nonaccrual residential mortgage relationship totaling $701,000 during the first nine months of 2019.

The allowance for loan and lease losses as a percentage of total loans was 0.54% at September 30, 2019, compared to 0.52% at December 31, 2018 and 0.53% at September 30, 2018.  Mid Penn had net loan charge-offs of $236,000 for the nine months ended September 30, 2019 compared to net recoveries of ($398,000) during the same period in 2018.  The net charge-off position in 2019 was primarily due to a $205,000 charge-off taken on one relationship during the second quarter of 2019.  The favorable net recovery position during the first nine months of 2018 was driven by the recovery of $777,000 of principal from the successful workout of a commercial real estate relationship that originally had a large partial charge-off in 2009.

Loan loss reserves as a percentage of nonperforming loans were 172% at September 30, 2019, compared to 75% at December 31, 2018, and 76% at September 30, 2018.  The increase in the loan loss reserves as a percentage of nonperforming loans at September 30, 2019 as compared to both the prior year-end and September 30, 2018 was a result of both an increase in the allowance balance related to general allocations provided for loan growth, and the year-over-year decrease in nonperforming loans.

Based upon management’s evaluation of the adequacy of the loan and lease loss allowance, a loan loss provision of $1,155,000 was recorded for the nine months ended September 30, 2019 compared to $225,000 recorded during the same period of 2018.  The increase in the provision amount year-over-year was warranted to support both (i) the adequacy of the ALLL given the organic loan portfolio growth during the first nine months of 2019, and (ii) the impact of historical loss factor changes due to charge-offs taken during the first half of 2019.  Management believes, based on information currently available, that the allowance for loan and lease losses of $9,316,000 is adequate as of September 30, 2019, to cover probable and estimated loan losses in the portfolio.


FINANCIAL HIGHLIGHTS (Unaudited)

(Dollars in thousands, except Sept. 30,  June 30,  Mar. 31,  Dec. 31,  Sept. 30, 
 per share data) 2019  2019  2019  2018  2018 
Cash and cash equivalents $160,879  $48,145  $86,968  $40,065  $62,085 
Investment securities  222,891   243,586   264,323   280,293   282,048 
Loans  1,710,434   1,688,173   1,646,686   1,624,067   1,567,286 
Allowance for loan and lease losses  (9,316)  (8,771)  (8,502)  (8,397)  (8,229)
Net loans  1,701,118   1,679,402   1,638,184   1,615,670   1,559,057 
Goodwill and other intangibles  68,949   69,304   69,665   70,061   70,475 
Other assets  95,062   95,685   88,677   71,892   70,615 
Total assets $2,248,899  $2,136,122  $2,147,817  $2,077,981  $2,044,280 
                     
Noninterest-bearing deposits $298,885  $287,183  $290,902  $269,870  $271,142 
Interest-bearing deposits  1,591,208   1,491,218   1,493,278   1,456,156   1,491,323 
Total deposits  1,890,093   1,778,401   1,784,180   1,726,026   1,762,465 
Borrowings and subordinated debt  102,038   105,105   113,661   118,206   46,923 
Other liabilities  22,156   21,354   22,539   10,540   13,057 
Shareholders' equity  234,612   231,262   227,437   223,209   221,835 
Total liabilities and shareholders' equity $2,248,899  $2,136,122  $2,147,817  $2,077,981  $2,044,280 
                     
Book Value per Common Share $27.67  $27.32  $26.88  $26.38  $25.83 
Tangible Book Value per Common Share * $19.54  $19.13  $18.64  $18.10  $17.50 

* Non-GAAP measure; see Reconciliation of Non-GAAP Measures


OPERATING HIGHLIGHTS (Unaudited):

  Three Months Ended  Nine Months
Ended
 
(Dollars in thousands, except Sept. 30,  June 30,  Mar. 31,  Dec. 31,  Sept. 30,  Sept. 30, 
per share data) 2019  2019  2019  2018  2018  2019  2018 
                             
Interest income $24,513  $23,998  $22,866  $22,371  $19,583  $71,377  $46,283 
Interest expense  6,746   6,228   5,560   4,640   3,672   18,534   8,080 
Net Interest Income  17,767   17,770   17,306   17,731   15,911   52,843   38,203 
Provision for loan and lease losses  565   465   125   275   100   1,155   225 
Noninterest income  3,003   2,874   2,049   2,091   2,171   7,926   5,441 
Noninterest expense  14,683   14,796   14,303   13,982   15,270   43,782   36,259 
Income before provision for income taxes  5,522   5,383   4,927   5,565   2,712   15,832   7,160 
Provision for income taxes  709   980   850   916   548   2,539   1,213 
Net income  4,813   4,403   4,077   4,649   2,164   13,293   5,947 
Preferred stock dividends           64   38      38 
Net income available to common shareholders $4,813  $4,403  $4,077  $4,585  $2,126  $13,293  $5,909 
                             
Basic Earnings per Common Share $0.57  $0.52  $0.48  $0.54  $0.28  $1.57  $0.89 
Return on Average Equity  8.34%  7.71%  7.35%  8.19%  4.26%  7.54%  4.94%


  Sept. 30,  June 30,  Mar. 31,  Dec. 31,  Sept. 30, 
  2019  2019  2019  2018  2018 
Tier 1 Capital (to Average Assets) 7.7%  7.8%  7.8%  8.0%  7.7% 
Common Tier 1 Capital (to Risk Weighted Assets) 9.9%  9.8%  9.9%  10.0%  10.1% 
Tier 1 Capital (to Risk Weighted Assets) 9.9%  9.8%  9.9%  10.0%  10.1% 
Total Capital (to Risk Weighted Assets) 12.1%  12.0%  12.2%  12.3%  12.4% 


RECONCILIATION OF NON-GAAP MEASURES (Unaudited:)

This press release contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is book value.  We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets.  Goodwill and other intangible assets have the effect of increasing total book value while not increasing tangible book value.   We believe earnings per share excluding the after-tax impact of merger-related expenses provides important supplemental information in evaluating Mid Penn’s operating results because these charges are not incurred as a result of ongoing operations.  Income tax effects of non-GAAP adjustments are calculated using the applicable statutory tax rate for the jurisdictions in which the charges (benefits) are incurred, while taking into consideration any valuation allowances or non-deductible portions of the non-GAAP adjustments. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Mid Penn’s results and financial condition as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information will be helpful in understanding Mid Penn’s ongoing operating results. This supplemental presentation should not be construed as an inference that Mid Penn’s future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

RECONCILIATION OF NON-GAAP MEASURES, CONTINUED (Unaudited:)

Tangible Book Value Per Share

(Dollars in thousands, except Sept. 30,  June 30,  Mar. 31,  Dec. 31,  Sept. 30, 
per share data) 2019  2019  2019  2018  2018 
                     
Shareholder's Equity $234,612  $231,262  $227,437  $223,209  $221,835 
Less: Preferred Stock              3,404 
Less: Goodwill  62,840   62,840   62,840   62,840   62,767 
Less: Core Deposit and Other Intangibles  6,109   6,464   6,825   7,221   7,708 
Tangible Equity $165,663  $161,958  $157,772  $153,148  $147,956 
                     
Common Shares Issued and Outstanding  8,478,461   8,465,178   8,462,431   8,459,918   8,457,023 
                     
Tangible Book Value per Share $19.54  $19.13  $18.64  $18.10  $17.50 


Adjusted Earnings Per Common Share Excluding Non-Recurring Expenses

(Dollar bill in thousands, except Three Months Ended  Nine Months Ended 
per share data) Sept. 30,  June 30,  Mar. 31,  Dec. 31,  Sept. 30,  Sept. 30, 
  2019  2019  2019  2018  2018  2019  2018 
Net Income Available to Common Shareholders $4,813  $4,403  $4,077  $4,585  $2,126  $13,293  $5,909 
Plus: Merger and Acquisition Expenses           (164)  3,038      4,955 
Less: Tax Effect of Merger and Acquisition Expenses           (35)  576      847 
Net Income Excluding Non-Recurring Expenses $4,813  $4,403  $4,077  $4,456  $4,588  $13,293  $10,017 
                             
Weighted Average Shares Outstanding - denominator  8,473,080   8,462,522   8,460,002   8,457,054   7,695,469   8,465,249   6,604,027 
                             
Adjusted Earnings Per Common Share Excluding Non-Recurring Expenses $0.57  $0.52  $0.48  $0.53  $0.60  $1.57  $1.52 


CONSOLIDATED BALANCE SHEETS (Unaudited):

(Dollars in thousands, except share data) September 30, 2019  Dec. 31, 2018  September 30, 2018 
ASSETS            
Cash and due from banks $54,756  $24,600  $31,110 
Interest-bearing balances with other financial institutions  4,393   4,572   5,241 
Federal funds sold  101,730   10,893   25,734 
Total cash and cash equivalents  160,879   40,065   62,085 
             
Investment securities available for sale, at fair value  52,419   111,923   110,527 
Investment securities held to maturity, at amortized cost            
(fair value $173,722, $166,582, and $169,382)  170,472   168,370   171,521 
Loans held for sale  7,115   1,702   3,181 
Loans and leases, net of unearned interest  1,710,434   1,624,067   1,567,286 
Less:  Allowance for loan and lease losses  (9,316)  (8,397)  (8,229)
Net loans and leases  1,701,118   1,615,670   1,559,057 
             
Bank premises and equipment, net  23,357   25,303   25,467 
Bank premises and equipment held for sale  1,274       
Operating lease right of use asset  10,416       
Finance lease right of use asset  3,492       
Cash surrender value of life insurance  16,804   16,691   16,610 
Restricted investment in bank stocks  6,105   6,646   3,373 
Accrued interest receivable  8,414   8,244   7,491 
Deferred income taxes  3,922   4,696   4,432 
Goodwill  62,840   62,840   62,767 
Core deposit and other intangibles, net  6,109   7,221   7,708 
Foreclosed assets held for sale  130   1,017   1,101 
Other assets  14,033   7,593   8,960 
Total Assets $2,248,899  $2,077,981  $2,044,280 
LIABILITIES & SHAREHOLDERS’ EQUITY            
Deposits:            
Noninterest-bearing demand $298,885  $269,870  $271,142 
Interest-bearing demand  465,745   384,834   438,928 
Money Market  486,131   375,648   356,729 
Savings  180,927   209,345   224,746 
Time  458,405   486,329   470,920 
Total Deposits  1,890,093   1,726,026   1,762,465 
             
Short-term borrowings  12,000   43,100   1,771 
Long-term debt  62,971   48,024   18,064 
Subordinated debt  27,067   27,082   27,088 
Operating lease liability  11,534       
Accrued interest payable  2,823   2,262   2,262 
Other liabilities  7,799   8,278   10,795 
Total Liabilities  2,014,287   1,854,772   1,822,445 
             
Shareholders' Equity:            
Series D preferred stock, par value $1.00; liquidation value $1,000; authorized 3,404 shares; 9% cumulative dividend; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively, and 3,404 shares issued and outstanding at September 30, 2018        3,404 
Common stock, par value $1.00 per share; 20,000,000 shares authorized at September 30, 2019; 8,478,461 shares issued and outstanding at September 30, 2019; 10,000,000 shares authorized at December 31, 2018 and September 30, 2018, respectively; 8,459,918 and 8,457,023 shares issued and outstanding at December 31, 2018 and September 30, 2018, respectively  8,478   8,460   8,457 
Additional paid-in capital  177,994   177,565   177,421 
Retained earnings  48,009   39,562   36,244 
Accumulated other comprehensive income (loss)  131   (2,378)  (3,691)
Total Shareholders’ Equity  234,612   223,209   221,835 
Total Liabilities and Shareholders' Equity $2,248,899  $2,077,981  $2,044,280 


CONSOLIDATED STATEMENTS OF INCOME (Unaudited):

                 
(Dollars in thousands, except per share data) Three Months Ended September 30,  Nine Months Ended September 30, 
   2019   2018   2019   2018 
INTEREST INCOME                
Interest and fees on loans and leases $22,573  $17,715  $65,865  $41,125 
Interest on interest-bearing balances  23   26   80   52 
Interest on federal funds sold  506   78   704   399 
Interest and dividends on investment securities:                
U.S. Treasury and government agencies  701   965   2,433   2,601 
State and political subdivision obligations, tax-exempt  495   636   1,698   1,695 
Other securities  215   163   597   411 
Total Interest Income  24,513   19,583   71,377   46,283 
INTEREST EXPENSE                
Interest on deposits  5,830   3,183   15,692   6,960 
Interest on short-term borrowings  69   38   458   50 
Interest on long-term and subordinated debt  847   451   2,384   1,070 
Total Interest Expense  6,746   3,672   18,534   8,080 
Net Interest Income  17,767   15,911   52,843   38,203 
PROVISION FOR LOAN AND LEASE LOSSES  565   100   1,155   225 
Net Interest Income After Provision for Loan and Lease Losses  17,202   15,811   51,688   37,978 
NONINTEREST INCOME                
Income from fiduciary activities  386   325   1,092   851 
Service charges on deposits  230   242   665   667 
ATM debit card interchange income  434   317   1,148   908 
Mortgage banking income  1,091   197   2,605   558 
Net gain on sales of SBA loans  275   68   710   477 
Merchant services income  115   90   304   261 
Earnings from cash surrender value of life insurance  79   76   236   205 
Net gain on sales of investment securities  46   30   70   132 
Other income  347   826   1,096   1,382 
Total Noninterest Income  3,003   2,171   7,926   5,441 
NONINTEREST EXPENSE                
Salaries and employee benefits  8,425   6,680   23,970   16,286 
Occupancy expense, net  1,232   1,063   3,977   2,730 
Equipment expense  671   579   1,956   1,531 
Pennsylvania bank shares tax expense  359   131   740   473 
FDIC Assessment  (131)  187   542   508 
Legal and professional fees  311   272   1,204   752 
Marketing and advertising expense  238   274   643   693 
Software licensing and utilization  1,150   949   3,282   2,634 
Telephone expense  150   177   465   480 
(Gain) loss on sale or write-down of foreclosed assets  (36)  45   (22)  48 
Intangible amortization  355   341   1,078   837 
Merger and acquisition expense     3,039      4,955 
Other expenses  1,959   1,533   5,947   4,332 
Total Noninterest Expense  14,683   15,270   43,782   36,259 
INCOME BEFORE PROVISION FOR INCOME TAXES  5,522   2,712   15,832   7,160 
Provision for income taxes  709   548   2,539   1,213 
NET INCOME  4,813   2,164   13,293   5,947 
Series D preferred stock dividends     38      38 
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $4,813  $2,126  $13,293  $5,909 
                 
PER COMMON SHARE DATA:                
Basic and Diluted Earnings Per Common Share $0.57  $0.28  $1.57  $0.89 
Cash Dividends Paid $0.18  $0.15  $0.61  $0.55 

 


NET INTEREST MARGIN (Unaudited):

   Average Balances, Income and Interest Rates on a Taxable Equivalent Basis 
   For the Nine Months Ended 
(Dollars in thousands)  September 30, 2019  September 30, 2018 
  Average      Average  Average     Average 
  Balance   Interest  Rates  Balance  Interest  Rates 
ASSETS:                             
Interest Bearing Balances $ 5,287  $  80   2.02% $ 4,993  $ 52   1.39%
Investment Securities:                             
Taxable   154,617     2,718   2.35%   163,900    2,824   2.30%
Tax-Exempt   97,814     2,149  (a) 2.94%   100,305    2,145  (a) 2.86%
Total Securities   252,431     4,867   2.58%   264,205    4,969   2.51%
                              
Federal Funds Sold   42,855     704   2.20%   31,327    399   1.70%
Loans and Leases, Net   1,661,695     66,103  (b) 5.32%   1,131,410    41,320  (b) 4.88%
Restricted Investment in Bank Stocks   6,094     312   6.85%   3,141    188   8.00%
Total Earning Assets   1,968,362     72,066   4.90%   1,435,076    46,928   4.37%
                              
Cash and Due from Banks   29,539              29,801          
Other Assets   144,918              78,126          
Total Assets $ 2,142,819            $ 1,543,003          
                              
LIABILITIES & SHAREHOLDERS' EQUITY:                             
Interest-bearing Demand $ 404,712     3,015   1.00% $ 368,362    1,687   0.61%
Money Market   429,421     5,433   1.69%   288,064    1,917   0.89%
Savings   191,027     495   0.35%   183,617    329   0.24%
Time   472,872     6,749   1.91%   277,239    3,027   1.46%
Total Interest-bearing Deposits   1,498,032     15,692   1.40%   1,117,282    6,960   0.83%
                              
Short-term Borrowings   21,606     458   2.83%   3,775    50   1.77%
Long-term Debt   56,016     1,217   2.90%   13,598    263   2.59%
Subordinated Debt   27,074     1,167   5.76%   19,403    807   5.56%
Total Interest-bearing Liabilities   1,602,728     18,534   1.55%   1,154,058    8,080   0.94%
                              
Noninterest-bearing Demand   288,362              216,037          
Other Liabilities   22,745              12,849          
Shareholders' Equity   228,984              160,059          
Total Liabilities & Shareholders' Equity $ 2,142,819            $ 1,543,003          
                              
Net Interest Income (taxable equivalent basis)      $  53,532           $ 38,848     
Taxable Equivalent Adjustment         (689)            (645)    
Net Interest Income      $  52,843           $ 38,203     
                              
Total Yield on Earning Assets             4.90%            4.37%
Rate on Supporting Liabilities             1.55%            0.94%
Average Interest Spread             3.35%            3.44%
Net Interest Margin             3.64%            3.62%


(a)  Includes tax-equivalent adjustments on interest from tax-free municipal securities of $451,000 and $450,000 for the nine months ended September 30, 2019 and 2018, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2019 and 2018.

(b)  Includes tax-equivalent adjustments on interest from tax-free municipal loans of $238,000 and $195,000 for the nine months ended September 30 2019 and 2018, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2019 and 2018.

                             
  Average Balances, Income and Interest Rates on a Taxable Equivalent Basis 
  For the Three Months Ended 
(Dollars in thousands) September 30, 2019  June 30, 2019 
  Average     Average  Average     Average 
  Balance  Interest  Rates  Balance  Interest  Rates 
ASSETS:                            
Interest Bearing Balances $ 4,687  $ 23   1.95% $ 5,030  $ 27   2.15%
Investment Securities:                            
Taxable   139,423    791   2.25%   159,252    938   2.36%
Tax-Exempt   84,888    627  (a) 2.93%   101,088    739  (a) 2.93%
Total Securities   224,311    1,418   2.51%   260,340    1,677   2.58%
                             
Federal Funds Sold   94,800    506   2.12%   21,554    130   2.42%
Loans and Leases, Net   1,689,378    22,649  (b) 5.32%   1,665,568    22,292  (b) 5.37%
Restricted Investment in Bank Stocks   6,296    125   7.88%   5,996    105   7.02%
Total Earning Assets   2,019,472    24,721   4.86%   1,958,488    24,231   4.96%
                             
Cash and Due from Banks   33,183             27,202          
Other Assets   148,447             148,054          
Total Assets $ 2,201,102           $ 2,133,744          
                             
LIABILITIES & SHAREHOLDERS' EQUITY:                            
Interest-bearing Demand $ 431,928    1,178   1.08% $ 399,187    984   0.99%
Money Market   470,643    2,073   1.75%   429,180    1,897   1.77%
Savings   182,537    158   0.34%   190,031    161   0.34%
Time   460,324    2,421   2.09%   471,025    2,234   1.90%
Total Interest-bearing Deposits   1,545,432    5,830   1.50%   1,489,423    5,276   1.42%
                             
Short-term Borrowings   9,284    69   2.95%   21,320    157   2.95%
Long-term Debt   63,601    456   2.84%   56,153    407   2.91%
Subordinated Debt   27,068    391   5.73%   27,074    388   5.75%
Total Interest-bearing Liabilities   1,645,385    6,746   1.63%   1,593,970    6,228   1.57%
                             
Noninterest-bearing Demand   299,889             288,268          
Other Liabilities   22,755             22,625          
Shareholders' Equity   233,073             228,881          
Total Liabilities & Shareholders' Equity $ 2,201,102           $ 2,133,744          
                             
Net Interest Income (taxable equivalent basis)      $ 17,975           $ 18,003     
Taxable Equivalent Adjustment        (208)            (233)    
Net Interest Income      $ 17,767           $ 17,770     
                             
Total Yield on Earning Assets            4.86%            4.96%
Rate on Supporting Liabilities            1.63%            1.57%
Average Interest Spread            3.23%            3.40%
Net Interest Margin            3.53%            3.69%

(a)  Includes tax-equivalent adjustments on interest from tax-free municipal securities of $132,000 for the three months ended September 30, 2019 and $155,000 for the three months ended June 30, 2019. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2019 and June 30, 2019.

(b)  Includes tax-equivalent adjustments on interest from tax-free municipal loans of $76,000 for the three months ended September 30, 2019 and $78,000 for the three months ended June 30, 2019. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2019 and June 30, 2019.

Management considers subsequent events occurring after the balance sheet date for matters which may require adjustment to, or disclosure in, the consolidated financial statements.  The review period for subsequent events extends up to and including the filing date of a public company’s consolidated financial statements when filed with the Securities and Exchange Commission (“SEC”).  Accordingly, the financial information in this announcement is subject to change.  The statements are valid only as of the date hereof and Mid Penn Bancorp, Inc. disclaims any obligation to update this information.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This press release, and oral statements made regarding the subjects of this release, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's current views and expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as "continues," "expect," "look," "believe," "anticipate," "may," "will," "should," "projects," "strategy" or similar statements. Actual results may differ materially from such forward-looking statements, and no reliance should be placed on any forward-looking statement.  Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; the impact of changes in market values on securities held in Mid Penn’s portfolio; legislation affecting the financial services industry as a whole, and Mid Penn and Mid Penn Bank individually or collectively, including tax legislation; regulatory supervision and oversight, including monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; financial resources in the amounts, at the times and on the terms required to support Mid Penn and Mid Penn Bank’s future businesses; and material differences in the actual financial results of merger, acquisition and investment activities compared with Mid Penn’s initial expectations, including the full realization of anticipated cost savings and revenue enhancements.  For a list of other factors which would affect our results, see Mid Penn’s filings with the SEC, including those risk factors identified in the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent filings. The statements in this press release are made as of the date of this press release, even if subsequently made available by Mid Penn on its website or otherwise. Mid Penn assumes no obligation for updating any such forward-looking statements at any time, except as required by law.

Mid Penn Bancorp, Inc.
349 Union Street
Millersburg, PA  17061
1-866-642-7736

CONTACTS
Rory G. Ritrievi
President & Chief Executive Officer

Michael D. Peduzzi, CPA
Chief Financial Officer

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Source: Mid Penn Bancorp