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, 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 November 7, 2019, the registrant had 8,478,461 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 September 30, 2019 and December 31, 2018 (Unaudited)	3
		Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and September 30, 2018 (Unaudited)	4
		Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and September 30, 2018 (Unaudited)	5
		Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2019 and September 30, 2018 (Unaudited)	6
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and September 30, 2018 (Unaudited)	8
		Notes to Consolidated Financial Statements (Unaudited)	10
	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)	September 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	54,756		$	24,600
Interest-bearing balances with other financial institutions		4,393			4,572
Federal funds sold		101,730			10,893
Total cash and cash equivalents		160,879			40,065
Investment securities available for sale, at fair value		52,419			111,923
Investment securities held to maturity, at amortized cost (fair value $173,722 and $166,582)		170,472			168,370
Loans held for sale, at fair value		7,115			1,702
Loans and leases, net of unearned interest		1,710,434			1,624,067
Less:  Allowance for loan and lease losses		(9,316	)		(8,397	)
Net loans and leases		1,701,118			1,615,670
Bank premises and equipment, net		23,357			25,303
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
Restricted investment in bank stocks		6,105			6,646
Accrued interest receivable		8,414			8,244
Deferred income taxes		3,922			4,696
Goodwill		62,840			62,840
Core deposit and other intangibles, net		6,109			7,221
Foreclosed assets held for sale		130			1,017
Other assets		14,033			7,593
Total Assets	$	2,248,899		$	2,077,981
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	298,885		$	269,870
Interest-bearing demand		465,745			384,834
Money Market		486,131			375,648
Savings		180,927			209,345
Time		458,405			486,329
Total Deposits		1,890,093			1,726,026
Short-term borrowings		12,000			43,100
Long-term debt		62,971			48,024
Subordinated debt		27,067			27,082
Operating lease liability		11,534			—
Accrued interest payable		2,823			2,262
Other liabilities		7,799			8,278
Total Liabilities		2,014,287			1,854,772
Shareholders' Equity:
Common stock, par value $1.00 per share; 20,000,000 shares authorized; 8,478,461 shares issued and outstanding at September 30, 2019; 10,000,000 shares authorized, 8,459,918 shares issued and outstanding at December 31, 2018		8,478			8,460
Additional paid-in capital		177,994			177,565
Retained earnings		48,009			39,562
Accumulated other comprehensive income (loss)		131			(2,378	)
Total Shareholders’ Equity		234,612			223,209
Total Liabilities and Shareholders' Equity	$	2,248,899		$	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 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

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 September 30,
	2019			2018
Net income	$	4,813		$	2,164
Other comprehensive income (loss):
Unrealized income (losses) arising during the period on available-for-sale
securities, net of income taxes of $51 and ($157), respectively		190			(589	)
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($9) and ($6), respectively  (a)		(37	)		(23	)
Change in defined benefit plans, net of income taxes of ($61) and $66, respectively  (b)		(231	)		248
Reclassification adjustment for settlement gains and activity related to benefit plans, net
of income taxes of ($4) and ($25), respectively   (c)		(17	)		(93	)
Total other comprehensive income (loss)		(95	)		(457	)
Total comprehensive income	$	4,718		$	1,707

(Dollars in thousands)	Nine Months Ended September 30,
	2019			2018
Net income	$	13,293		$	5,947
Other comprehensive income (loss):
Unrealized income (losses) arising during the period on available-for-sale
securities, net of income taxes of $847 and ($730), respectively		3,188			(2,746	)
Reclassification adjustment for net gain on sales of available-for-sale securities
included in net income, net of income taxes of ($14) and $(28), respectively  (a)		(56	)		(104	)
Change in defined benefit plans, net of income tax impact of ($145) and $422, respectively  (b)		(545	)		1,592
Reclassification adjustment for settlement gains and activity related to benefit plans, net
of income taxes of ($21) and ($105), respectively   (c)		(78	)		(394	)
Total other comprehensive income (loss)		2,509			(1,652	)
Total comprehensive income	$	15,802		$	4,295

(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 consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period.

(c) The reclassification adjustment for benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss.  Amounts are included in other income on the Consolidated Statements of Income within total noninterest income.  Please reference Note 12 – Defined Benefit Plans, for more information.

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)

(Dollars in thousands)										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-in		Retained			Comprehensive			Shareholders'
	Stock		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
Net income		—		—		—		4,813			—			4,813
Total other comprehensive loss, net of taxes		—		—		—		—			(95	)		(95	)
Common stock dividends declared		—		—		—		(1,525	)		—			(1,525	)
Employee Stock Purchase Plan (1,249 shares)		—		1		30		—			—			31
Director Stock Purchase Plan (1,397 shares)		—		1		34		—			—			35
Restricted stock activity (10,637 shares)		—		11		80		—