UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

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”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One).

Large accelerated filer  ☐ Accelerated filer  ☐ Non-accelerated filer  ☐ Smaller reporting company  ☒ Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

As of November 8, 2017, the registrant had 4,240,754 shares of common stock outstanding.

MID PENN BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART 1 – FINANCIAL INFORMATION			2
	Item 1 – Financial Statements		2
		Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (Unaudited)	2
		Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and September 30, 2016 (Unaudited)	3
		Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and September 30, 2016 (Unaudited)	4
		Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2017 and September 30, 2016 (Unaudited)	5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and September 30, 2016 (Unaudited)	6
		Notes to Consolidated Financial Statements (Unaudited)	8
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk		50
	Item 4 – Controls and Procedures		50
PART II – OTHER INFORMATION			51
	Item 1 – Legal Proceedings		51
	Item 1A – Risk Factors		51
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		51
	Item 3 – Defaults upon Senior Securities		51
	Item 4 – Mine Safety Disclosures		51
	Item 5 – Other Information		51
	Item 6 – Exhibits		51
	Signatures		52

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.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data)	September 30, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	25,122		$	13,493
Interest-bearing balances with other financial institutions		2,490			2,003
Federal funds sold		28,572			30,477
Total cash and cash equivalents		56,184			45,973
Investment securities available for sale, at fair value		96,513			133,625
Investment securities held to maturity, at amortized cost (fair value $82,716 and $0)		82,625			—
Loans held for sale		1,778			1,959
Loans and leases, net of unearned interest		877,386			813,924
Less:  Allowance for loan and lease losses		(7,502	)		(7,183	)
Net loans and leases		869,884			806,741
Bank premises and equipment, net		14,260			11,074
Bank premises and equipment held for sale		—			1,894
Cash surrender value of life insurance		12,977			12,780
Restricted investment in bank stocks		3,735			2,443
Foreclosed assets held for sale		33			224
Accrued interest receivable		4,159			3,928
Deferred income taxes		2,321			4,286
Goodwill		3,918			3,918
Core deposit and other intangibles, net		460			539
Other assets		4,526			3,215
Total Assets	$	1,153,373		$	1,032,599
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	155,574		$	122,811
Interest-bearing demand		359,236			317,533
Money Market		242,077			252,271
Savings		62,258			60,163
Time		207,530			182,595
Total Deposits		1,026,675			935,373
Short-term borrowings		20,000			—
Long-term debt		13,409			13,581
Subordinated debt		7,421			7,414
Accrued interest payable		940			515
Other liabilities		7,537			5,249
Total Liabilities		1,075,982			962,132
Shareholders' Equity:
Common stock, par value $1.00; authorized 10,000,000 shares;
4,240,754 and 4,233,297 shares issued and outstanding at
September 30, 2017, and at December 31, 2016, respectively		4,241			4,233
Additional paid-in capital		40,846			40,688
Retained earnings		33,334			28,399
Accumulated other comprehensive loss		(1,030	)		(2,853	)
Total Shareholders’ Equity		77,391			70,467
Total Liabilities and Shareholders' Equity	$	1,153,373		$	1,032,599

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

2

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
		2017		2016		2017		2016
INTEREST INCOME
Interest and fees on loans and leases	$	10,213	$	9,134	$	29,864	$	26,846
Interest on interest-bearing balances		5		2		12		11
Interest on federal funds sold		23		36		97		54
Interest and dividends on investment securities:
U.S. Treasury and government agencies		617		339		1,636		972
State and political subdivision obligations, tax-exempt		240		550		820		1,562
Other securities		52		64		159		236
Total Interest Income		11,150		10,125		32,588		29,681
INTEREST EXPENSE
Interest on deposits		1,425		1,162		3,906		3,293
Interest on short-term borrowings		30		—		43		15
Interest on long-term and subordinated debt		179		205		538		657
Total Interest Expense		1,634		1,367		4,487		3,965
Net Interest Income		9,516		8,758		28,101		25,716
PROVISION FOR LOAN AND LEASE LOSSES		—		585		225		1,320
Net Interest Income After Provision for Loan and Lease Losses		9,516		8,173		27,876		24,396
NONINTEREST INCOME
Income from fiduciary activities		217		104		613		349
Service charges on deposits		175		171		554		484
Net gain on sales of investment securities		22		200		42		413
Earnings from cash surrender value of life insurance		65		65		196		200
Mortgage banking income		230		266		646		698
ATM debit card interchange income		233		214		689		623
Merchant services income		84		89		250		241
Net gain on sales of SBA loans		262		89		703		354
Other income		276		221		669		687
Total Noninterest Income		1,564		1,419		4,362		4,049
NONINTEREST EXPENSE
Salaries and employee benefits		4,277		3,982		12,666		11,428
Occupancy expense, net		631		496		1,872		1,542
Equipment expense		398		412		1,149		1,258
Pennsylvania bank shares tax expense		170		197		500		606
FDIC Assessment		197		134		585		434
Legal and professional fees		218		130		584		515
Marketing and advertising expense		139		146		377		369
Software licensing		397		350		1,096		1,015
Telephone expense		120		135		379		420
Loss on sale or write-down of foreclosed assets		—		26		88		158
Intangible amortization		25		31		78		102
Merger and acquisition expense		243		—		467		—
Other expenses		1,145		1,126		3,479		3,231
Total Noninterest Expense		7,960		7,165		23,320		21,078
INCOME BEFORE PROVISION FOR INCOME TAXES		3,120		2,427		8,918		7,367
Provision for income taxes		871		526		2,330		1,639
NET INCOME	$	2,249	$	1,901	$	6,588	$	5,728
PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$	0.53	$	0.45	$	1.56	$	1.35
Cash Dividends Paid	$	0.13	$	0.12	$	0.49	$	0.46

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

3

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)	Three Months Ended September 30,
	2017			2016
Net income	$	2,249		$	1,901
Other comprehensive loss:
Unrealized losses arising during the period on available-for-sale
securities, net of income taxes of ($1) and ($349), respectively		(1	)		(677	)
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($7) and ($68), respectively  (a)		(15	)		(132	)
Change in defined benefit plans, net of income taxes of ($2) and ($6), respectively  (b)		(3	)		(11	)
Total other comprehensive loss		(19	)		(820	)
Total comprehensive income	$	2,230		$	1,081

(Dollars in thousands)	Nine Months Ended September 30,
	2017			2016
Net income	$	6,588		$	5,728
Other comprehensive income (loss):
Unrealized gains arising during the period on available-for-sale
securities, net of income taxes of $956 and $795, respectively		1,858			1,543
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($14) and ($141), respectively  (a)		(28	)		(272	)
Change in defined benefit plans, net of income taxes of ($2) and ($66), respectively  (b)		(7	)		(127	)
Total other comprehensive income		1,823			1,144
Total comprehensive income	$	8,411		$	6,872

(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 Nine Months Ended September 30, 2017 and 2016

(Dollars in thousands)								Accumulated
			Additional					Other			Total
	Common		Paid-in		Retained			Comprehensive			Shareholders'
	Stock		Capital		Earnings			(Loss) Income			Equity
Balance, January 1, 2017	$	4,233	$	40,688	$	28,399		$	(2,853	)	$	70,467
Net income		—		—		6,588			—			6,588
Total other comprehensive income, net of taxes		—		—		—			1,823			1,823
Employee Stock Purchase Plan (2,747 shares)		3		73		—			—			76
Director Stock Purchase Plan (714 shares)		1		20		—			—			21
Common stock dividends		—		—		(1,653	)		—			(1,653	)
Restricted stock activity (3,996 shares)		4		65		—			—			69
Balance, September 30, 2017	$	4,241	$	40,846	$	33,334		$	(1,030	)	$	77,391
Balance, January 1, 2016	$	4,227	$	40,559	$	23,470		$	1,812		$	70,068
Net income		—		—		5,728			—			5,728
Total other comprehensive income, net of taxes		—		—		—			1,144			1,144
Employee Stock Purchase Plan (3,334 shares)		3		53		—			—			56
Common stock dividends		—		—		(1,945	)		—			(1,945	)
Restricted stock activity (2,115 shares)		2		32		—			—			34
Balance, September 30, 2016	$	4,232	$	40,644	$	27,253		$	2,956		$	75,085

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

5

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)	Nine Months Ended September 30,
		2017			2016
Operating Activities:
Net Income	$	6,588		$	5,728
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		225			1,320
Depreciation		1,075			1,238
Amortization of intangibles		78			103
Net (accretion) amortization of security discounts/premiums		(770	)		8,429
Gain on sales of investment securities		(42	)		(413	)
Earnings on cash surrender value of life insurance		(196	)		(200	)
Mortgage loans originated for sale		(33,500	)		(58,766	)
Proceeds from sales of mortgage loans originated for sale		34,327			59,464
Gain on sale of mortgage loans		(646	)		(698	)
SBA loans originated for sale		(8,902	)		(4,436	)
Proceeds from sales of SBA loans originated for sale		9,604			4,790
Gain on sale of SBA loans		(703	)		(354	)
Gain on disposal of property, plant, and equipment		(10	)		—
Loss on sale or write-down of foreclosed assets		88			158
Stock compensation expense		69			34
Deferred income tax expense (benefit)		1,016			(37	)
Increase in accrued interest receivable		(231	)		(219	)
(Increase) decrease in other assets		(1,311	)		483
Increase in accrued interest payable		425			358
Increase in other liabilities		2,288			2,766
Net Cash Provided By Operating Activities		9,472			19,748
Investing Activities:
Net decrease in interest-bearing time deposits with other financial institutions		—			4,317
Proceeds from the sale of available-for-sale securities		52,314			14,983
Proceeds from the maturity or call of available-for-sale securities		7,046			49,635
Purchases of available-for-sale securities		(15,196	)		(108,431	)
Purchases of held-to-maturity securities		(86,092	)		—
(Purchases) redemptions of restricted investment in bank stock		(1,292	)		1,557
Net increase in loans and leases		(63,400	)		(52,517	)
Proceeds from the sale of bank premises and equipment held for sale		2,201			—
Purchases of bank premises and equipment		(4,558	)		(570	)
Proceeds from the sale of foreclosed assets		136			744
Net Cash Used In Investing Activities		(108,841	)		(90,282	)
Financing Activities:
Net increase in deposits		91,302			161,174
Net increase (decrease) in short-term borrowings		20,000			(31,596	)
Common stock dividends paid		(1,653	)		(1,945	)
Employee Stock Purchase Plan		76			56
Director Stock Purchase Plan		21			—
Long-term debt repayment		(166	)		(26,670	)
Net Cash Provided By Financing Activities		109,580			101,019