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 June 30, 2019

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value per share	MPB	The NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted 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 such files)    Yes  ☒    No  ☐

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

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 August 7, 2019, the registrant had 8,475,815 shares of common stock outstanding.

1

FORM 10-Q

TABLE OF CONTENTS

PART 1 – FINANCIAL INFORMATION			3
	Item 1 – Financial Statements		3
		Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 (Unaudited)	3
		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and June 30, 2018 (Unaudited)	4
		Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and June 30, 2018 (Unaudited)	5
		Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2019 and June 30, 2018 (Unaudited)	6
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and June 30, 2018 (Unaudited)	7
		Notes to Consolidated Financial Statements (Unaudited)	9
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk		63
	Item 4 – Controls and Procedures		63
PART II – OTHER INFORMATION			64
	Item 1 – Legal Proceedings		64
	Item 1A – Risk Factors		64
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		64
	Item 3 – Defaults upon Senior Securities		64
	Item 4 – Mine Safety Disclosures		64
	Item 5 – Other Information		64
	Item 6 – Exhibits		64
	Signatures		65

Unless the context otherwise requires, the terms “Mid Penn”, “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. and its consolidated wholly-owned banking subsidiary.

2

MID PENN BANCORP, INC.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data)	June 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	33,177		$	24,600
Interest-bearing balances with other financial institutions		4,623			4,572
Federal funds sold		10,345			10,893
Total cash and cash equivalents		48,145			40,065
Investment securities available for sale, at fair value		83,404			111,923
Investment securities held to maturity, at amortized cost (fair value $162,863 and $166,582)		160,182			168,370
Loans held for sale, at fair value		8,139			1,702
Loans and leases, net of unearned interest		1,688,173			1,624,067
Less:  Allowance for loan and lease losses		(8,771	)		(8,397	)
Net loans and leases		1,679,402			1,615,670
Bank premises and equipment, net		23,583			25,303
Bank premises and equipment held for sale		1,274			—
Operating lease right of use asset		10,834			—
Finance lease right of use asset		3,537			—
Cash surrender value of life insurance		16,725			16,691
Restricted investment in bank stocks		6,480			6,646
Accrued interest receivable		8,883			8,244
Deferred income taxes		3,917			4,696
Goodwill		62,840			62,840
Core deposit and other intangibles, net		6,464			7,221
Foreclosed assets held for sale		390			1,017
Other assets		11,923			7,593
Total Assets	$	2,136,122		$	2,077,981
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	287,183		$	269,870
Interest-bearing demand		404,651			384,834
Money Market		451,667			375,648
Savings		183,019			209,345
Time		451,881			486,329
Total Deposits		1,778,401			1,726,026
Short-term borrowings		13,000			43,100
Long-term debt		65,035			48,024
Subordinated debt		27,070			27,082
Operating lease liability		11,983			—
Accrued interest payable		2,696			2,262
Other liabilities		6,675			8,278
Total Liabilities		1,904,860			1,854,772
Shareholders' Equity:
Common stock, par value $1.00 per share; 20,000,000 shares authorized; 8,465,178 shares issued and outstanding at June 30, 2019; 10,000,000 shares authorized, 8,459,918 shares issued and outstanding at December 31, 2018		8,465			8,460
Additional paid-in capital		177,850			177,565
Retained earnings		44,721			39,562
Accumulated other comprehensive income (loss)		226			(2,378	)
Total Shareholders’ Equity		231,262			223,209
Total Liabilities and Shareholders' Equity	$	2,136,122		$	2,077,981

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

3

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018
INTEREST INCOME
Interest and fees on loans and leases	$	22,214	$	12,073	$	43,292	$	23,410
Interest on interest-bearing balances		27		17		57		26
Interest on federal funds sold		130		153		198		321
Interest and dividends on investment securities:
U.S. Treasury and government agencies		839		884		1,732		1,636
State and political subdivision obligations, tax-exempt		584		517		1,203		1,059
Other securities		204		76		382		248
Total Interest Income		23,998		13,720		46,864		26,700
INTEREST EXPENSE
Interest on deposits		5,276		1,997		9,862		3,777
Interest on short-term borrowings		157		—		389		12
Interest on long-term and subordinated debt		795		309		1,537		619
Total Interest Expense		6,228		2,306		11,788		4,408
Net Interest Income		17,770		11,414		35,076		22,292
PROVISION FOR LOAN AND LEASE LOSSES		465		—		590		125
Net Interest Income After Provision for Loan and Lease Losses		17,305		11,414		34,486		22,167
NONINTEREST INCOME
Income from fiduciary activities		347		286		706		526
Service charges on deposits		218		222		435		425
ATM debit card interchange income		380		326		714		591
Mortgage banking income		1,077		205		1,514		361
Net gain on sales of SBA loans		233		152		435		409
Merchant services income		104		93		189		171
Earnings from cash surrender value of life insurance		79		65		157		129
Net gain on sales of investment securities		17		4		24		102
Other income		419		560		749		846
Total Noninterest Income		2,874		1,913		4,923		3,560
NONINTEREST EXPENSE
Salaries and employee benefits		7,786		4,832		15,545		9,896
Occupancy expense, net		1,344		870		2,745		1,667
Equipment expense		658		544		1,285		952
Pennsylvania bank shares tax expense		245		171		381		342
FDIC Assessment		314		93		673		321
Legal and professional fees		471		256		893		480
Marketing and advertising expense		226		230		405		419
Software licensing and utilization		1,111		861		2,132		1,684
Telephone expense		161		156		315		303
Loss on sale or write-down of foreclosed assets		18		1		14		3
Intangible amortization		360		248		723		496
Merger and acquisition expense		—		222		—		1,916
Other expenses		2,102		1,612		3,988		2,800
Total Noninterest Expense		14,796		10,096		29,099		21,279
INCOME BEFORE PROVISION FOR INCOME TAXES		5,383		3,231		10,310		4,448
Provision for income taxes		980		452		1,830		665
NET INCOME	$	4,403	$	2,779	$	8,480	$	3,783
PER COMMON SHARE DATA:
Basic and Diluted Earnings Per Common Share	$	0.52	$	0.45	$	1.00	$	0.63
Cash Dividends Paid	$	0.18	$	0.15	$	0.43	$	0.40

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

4

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands)	Three Months Ended June 30,
	2019			2018
Net income	$	4,403		$	2,779
Other comprehensive income (loss):
Unrealized income (losses) arising during the period on available-for-sale
securities, net of income taxes of $313 and ($98), respectively		1,179			(368	)
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($4) and ($1), respectively  (a)		(14	)		(3	)
Change in defined benefit plans, net of income taxes of ($90) and $357, respectively  (b)		(339	)		1,343
Reclassification adjustment for settlement gains on benefit plans, net of income taxes
of ($8) and ($80), respectively   (c)		(29	)		(300	)
Total other comprehensive income		797			672
Total comprehensive income	$	5,200		$	3,451

(Dollars in thousands)	Six Months Ended June 30,
	2019			2018
Net income	$	8,480		$	3,783
Other comprehensive income (loss):
Unrealized income (losses) arising during the period on available-for-sale
securities, net of income taxes of $796 and ($564), respectively		2,998			(2,156	)
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($5) and $(21), respectively  (a)		(19	)		(81	)
Change in defined benefit plans, net of income tax impact of ($91) and $357, respectively  (b)		(346	)		1,342
Reclassification adjustment for settlement gains on benefit plans, net of income taxes
of ($8) and ($80), respectively   (c)		(29	)		(300	)
Total other comprehensive income (loss)		2,604			(1,195	)
Total comprehensive income	$	11,084		$	2,588

(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) The change in defined benefit plans includes several components of net periodic benefit costs, including service costs,interest costs, expected return on plan assets, amortization of prior service costs, and amortization of net gain or loss.  Please reference Note 12 – Defined Benefit Plans, for the classification of these components on Consolidated Statements of Income.

(c) Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.

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

5

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

For the Six Months Ended June 30, 2019 and 2018

(Dollars in thousands)								Accumulated
			Additional					Other			Total
	Common		Paid-in		Retained			Comprehensive			Shareholders'
	Stock		Capital		Earnings			Income (Loss)			Equity
Balance, January 1, 2019	$	8,460	$	177,565	$	39,562		$	(2,378	)	$	223,209
Impact of adoption of new accounting standard (a)		—		—		316			—			316
Balance at January 1, 2019, adjusted		8,460		177,565		39,878			(2,378	)		223,525
Net income		—		—		4,077			—			4,077
Total other comprehensive income, net of taxes		—		—		—			1,807			1,807
Common stock dividends declared		—		—		(2,113	)		—			(2,113	)
Employee Stock Purchase Plan (1,152 shares)		1		27		—			—			28
Director Stock Purchase Plan (1,361 shares)		1		32		—			—			33
Restricted stock activity		—		80		—			—			80
Balance, March 31, 2019	$	8,462	$	177,704	$	41,842		$	(571	)	$	227,437
Net income		—		—		4,403			—			4,403
Total other comprehensive income, net of taxes		—		—		—			797			797
Common stock dividends declared		—		—		(1,524	)		—			(1,524	)
Employee Stock Purchase Plan (1,411 shares)		2		34		—			—			36
Director Stock Purchase Plan (1,336 shares)		1		32		—			—			33
Restricted stock activity		—		80		—			—			80
Balance, June 30, 2019	$	8,465	$	177,850	$	44,721		$	226		$	231,262
Balance, January 1, 2018	$	4,242	$	40,970	$	32,565		$	(2,074	)	$	75,703
Impact of adoption of new accounting standard (b)		—		—		(44	)		35			(9	)
Balance at January 1, 2018, adjusted		4,242		40,970		32,521			(2,039	)		75,694
Net income		—		—		1,004			—			1,004
Total other comprehensive loss, net of taxes		—		—		—			(1,867	)		(1,867	)
Common stock issued to Scottdale shareholders (1,878,827 shares) (c)		1,879		62,302		—			—			64,181
Employee Stock Purchase Plan (736 shares)		1		23		—			—			24
Director Stock Purchase Plan (938 shares)		1		29		—			—			30
Common stock dividends declared		—		—		—			—			—
Restricted stock activity		—		58		—			—			58
Balance, March 31, 2018	$