Mid Penn Bancorp, Inc. Reports Third Quarter Earnings Increase of 20% and Declares Dividend

MILLERSBURG, Pa., Oct. 28, 2015 (GLOBE NEWSWIRE) — Mid Penn Bancorp, Inc. (“Mid Penn”) (NASDAQ:MPB), the parent company of Mid Penn Bank, today reported net income available to common shareholders for the quarter ended September 30, 2015 of $1,802,000, or $0.43 per common share, a 19.6% increase over the same period in 2014. Net income available to common shareholders for the nine months ended September 30, 2015 was $4,630,000, or $1.14 per common share, a 1.8% increase from the same period in 2014. Excluding merger and acquisition expenses incurred in conjunction with the acquisition of Phoenix Bancorp, Inc. (“Phoenix”), and the corresponding tax impact, net income available to common shareholders for the nine months ended September 30, 2015 would have been $5,181,000, an increase of 13.9% over the unadjusted results for the nine months ended September 30, 2014. Mid Penn also reported increases of $150,924,000 (26.6%) in total loans, $150,862,000 (19.7%) in total assets, and $129,153,000 (20.0%) in total deposits over September 30, 2014. The comparability of the financial condition and results of operations as of and for the three and nine month periods ended September 30, 2015 and 2014, in general, have been favorably impacted by the acquisition of Phoenix. 

PRESIDENT’S STATEMENT

I am pleased to announce Mid Penn’s financial results for the three and nine months ended September 30, 2015. We are encouraged by the financial results thus far in 2015 and remain focused on quality asset growth, improving the net interest margin, controlling operating expenses, and stabilizing noninterest income. Following the successful completion of the systems integration with Phoenix during the second quarter, we have been extremely pleased with the warm reception Mid Penn’s style of community banking has received throughout the Phoenix footprint and look forward to expanding the successes our newest team members have experienced so far. We remain committed to intelligently growing the company both organically and through merger and acquisition when the opportunities arise.

On behalf of the Board of Directors, I also announce today that Mid Penn is declaring a cash dividend of $0.12 per common share based on third quarter earnings. This is Mid Penn’s twentieth consecutive quarter of paying a cash dividend. The dividend is payable November 23, 2015 to shareholders of record as of November 11, 2015.

OPERATING RESULTS

Net Interest Income and Net Interest Margin

Net interest income increased $1,645,000, or 25.1%, to $8,189,000 for the quarter ended September 30, 2015 from $6,544,000 during the quarter ended September 30, 2014. Through the first nine months of 2015, net interest income increased $4,146,000, or 21.2%, to $23,713,000, from $19,567,000 during the same period in 2014. Net interest income was positively impacted by the Phoenix acquisition and also increased due to strong loan growth and a lower cost of funds in 2015.

For the three months ended September 30, 2015, Mid Penn’s tax-equivalent net interest margin increased to 4.00%, versus 3.91% for the three months ended September 30, 2014. For the nine months ended September 30, 2015, Mid Penn’s tax-equivalent net interest margin increased to 4.06%, versus 4.01% for the nine months ended September 30, 2014. Included in the three months ended September 30, 2015 was the recognition of $100,000 from the successful resolution of a legacy Phoenix loan acquired with credit deterioration. Included in the nine months ended September 30, 2015 is $552,000 in income from the successful resolution of four legacy Phoenix loans acquired with credit deterioration.

Noninterest Income

Noninterest income increased $206,000, or 27.8%, excluding security gains of $138,000, during the third quarter of 2015 versus the same period in 2014. During the nine months ended September 30, 2015, noninterest income, excluding securities gains of 315,000, increased $553,000, or 24.5%, versus the nine months ended September 30, 2014, excluding security gains of $150,000. Both periods were positively impacted by the addition of Phoenix to the income stream. Items of particular note are detailed below for both three and nine month periods.

Income from fiduciary activities decreased $78,000 during the nine months ended September 30, 2015 versus the same period in 2014 due to a change in the commission structure. Mortgage banking income increased $11,000 and $118,000, respectively, in the three and nine months ended September 30, 2015 over September 30, 2014. Improved real estate activity throughout Mid Penn’s footprint and favorable interest rate conditions have contributed to increasing revenue from this business line. Mid Penn has experienced significant activity in Small Business Administration (“SBA”) loans during the quarter and year-to-date as we see more qualified borrowers and take advantage of Mid Penn’s Preferred Lender status with the SBA. 

During the third quarter of 2015, Mid Penn took advantage of opportunities within its investment portfolio to better align the portfolio for a rising interest rate environment thereby increasing realized gains on sales of investments. 

Noninterest Expense

Noninterest expenses increased $1,640,000, or 33.3%, during the third quarter of 2015, versus the same period in 2014. During the nine months ended September 30, 2015, noninterest expenses increased $5,116,000, or 34.7%, versus the nine months ended September 30, 2014. Both periods were impacted by the addition of Phoenix to the expense stream.  Items of particular note are detailed below for both three and nine month periods.

Salaries and employee benefits increased during the three and nine months ended September 30, 2015 by $836,000 and $2,205,000, respectively, versus the same periods in 2014. The increase was driven by the addition of the Phoenix employees to Mid Penn’s employee pool, an increase in staffing levels due to Mid Penn’s entry into the Lancaster County and Mechanicsburg markets, and an increase in lending personnel and support staff to augment the expanding reach of Mid Penn. Occupancy expenses for the three and nine months ended September 30, 2015 increased by $216,000 and $462,000, respectively. This increase was impacted by the inclusion of rent for the new Corporate Administration offices on North Front Street in Harrisburg, the new Elizabethtown branch office, and the new Simpson Ferry Road branch office. Equipment, Pennsylvania bank shares tax, marketing and advertising, software licensing, telephone, and other expenses all saw increases related to the inclusion of Phoenix’s normal operating expenses to Mid Penn’s expense stream during the quarter and year-to-date. Legal and professional fees increased $89,000 during the nine months ended September 30, 2015 compared to the same period in 2014 due to the increase in consultant fees incurred for cyber penetration testing of Mid Penn’s computer network, implementation of Mid Penn’s mobile banking app, routine legal fees generated through the normal conduct of business, and the periodic examination of potential merger and acquisition opportunities as they become available. Merger and acquisition expenses of $784,000 in connection with the acquisition of Phoenix were incurred during the nine months ended September 30, 2015.

FINANCIAL CONDITION

The increase in Mid Penn’s total assets was impacted by the inclusion of Phoenix’s assets and liabilities on the balance sheet. In addition to this, the loan growth also came as a result of business development efforts by a more experienced loan team. Long-term debt increased over this time from $33,008,000 at September 30, 2014 to $51,363,000 at September 30, 2015 as a prudent and planned asset liability management strategy to take advantage of low long-term borrowing rates and to fund loan growth.

Investments

Mid Penn’s total available-for-sale securities portfolio decreased $14,438,000 from $148,134,000 at September 30, 2014 to $133,696,000 at September 30, 2015. Due to the growth in the loan portfolio, Mid Penn has utilized the cash flows from the investment portfolio to supplement deposits and borrowings in funding this growth. 

Loans

Total loans at September 30, 2015 were $719,085,000 compared to $568,161,000 at September 30, 2014, an increase of $150,924,000, or 26.6%. Along with the addition of Phoenix’s loan portfolio, the other main driver of Mid Penn’s loan growth has been in the commercial loan area, specifically in commercial and industrial, and commercial real estate loans. Mid Penn has realigned its commercial loan team over the past five years and now has professional lenders who focus their efforts on developing and maintaining complete business relationships versus a previous focus on prospect-specific speculative real estate financing. We believe the positive results of these efforts are now evident and position us properly for the future.

Deposits

Total deposits increased $129,153,000 from $645,997,000 at September 30, 2014 to $775,150,000 at September 30, 2015. Over the last twelve months, all deposit categories, except for money markets, increased during this time, mainly due to the inclusion of Phoenix’s deposits. The decline in money markets is the result of Mid Penn’s less aggressive strategy to retain these accounts as local competitors continue high-priced specials to attract funds. Mid Penn has accomplished this increase in deposit levels by allowing non-relationship money market deposits run off and shift the funding composition towards lower-cost deposits, including public funds. This strategy, coupled with strong earning assets, has provided positive momentum to net interest income during 2015.

Capital

Shareholders’ equity increased by $16,709,000, or 28.4%, at September 30, 2015 from $58,811,000 at September 30, 2014, primarily due to the issuance of 723,851 shares valued at $11,292,000 in common equity as merger consideration in the Phoenix acquisition. The remaining increase in equity is mainly attributable to an increase in retained earnings from the normal operations of Mid Penn.  

Mid Penn Bank’s regulatory capital ratios at September 30, 2015 and September 30, 2014 exceed all regulatory (well-capitalized) minimums.

ASSET QUALITY

Total nonperforming assets at September 30, 2015 amounted to $8,765,000, or 1.22% of loans and other real estate owned as of such date, compared to $11,533,000, or 2.03% of loans and other real estate owned as of September 30, 2014. This improvement has primarily been the result of well-structured workout plans, which have yielded very positive results, including improved delinquency, as well as the addition of the Phoenix loan portfolio into the equation.

Mid Penn had net charge-offs of $597,000 during the first nine months of 2015, compared to net charge-offs of $1,123,000 during the same period in 2014. On an annualized basis, net charge-offs during 2015 were 0.13% of average total loans compared to 0.27% during 2014.

Following its model for loan and lease loss allowance adequacy, management recorded a $265,000 provision for the three months ended September 30, 2015, compared to a provision of $395,000 for the three months ended September 30, 2014. During the nine months ended September 30, 2015, the provision for loan and lease losses was $865,000, compared to $1,217,000 for the nine months ended September 30, 2014. The allowance for loan and lease losses as a percentage of total loans was 0.97% at September 30, 2015, compared to 1.13% at September 30, 2014. This ratio was impacted by the inclusion of the Phoenix loan portfolio in the calculation coupled with the elimination of Phoenix’s allowance for loan and lease losses in conformity with GAAP purchase accounting treatment. Loan loss reserves as a percentage of non-performing loans was 89.83% at September 30, 2015 compared to 60.01% at the same point in 2014. Management believes, based on information currently available, that the allowance for loan and lease losses of $6,984,000 is adequate as of September 30, 2015 to provide for losses that can be reasonably anticipated.

Mid Penn recognizes asset quality as a high priority and continues its efforts to mitigate future losses through capturing and monitoring credit risk within the portfolio, as well as proactively working with its customers. Furthermore, active monitoring and follow-up will continue on loans previously charged off in order to realize recoveries when borrowers’ conditions have improved.

FINANCIAL HIGHLIGHTS (Unaudited):
         
(Dollars in thousands)                      As of September 30, Change
  2015 2014  $   % 
         
Total Assets  $915,265  $764,403  $150,862   19.7%
         
Total Loans 719,085 568,161 150,924 26.6%
         
Total Deposits 775,150 645,997 129,153 20.0%
         
Core Deposits 701,208 597,291 103,917 17.4%
         
Total Equity 75,520 58,811 16,709 28.4%
 
 
OPERATING HIGHLIGHTS (Unaudited):
                 
(Dollars in thousands, except per share data) Three Months Ended
September 30,

Change
Nine Months Ended
September 30,

Change
  2015 2014  $   %  2015 2014 $  % 
                 
Net Interest Income  $ 8,189  $ 6,544  $ 1,645 25.14%  $ 23,713  $ 19,567  $ 4,146 21.19%
                 
Net Income Available to Common Shareholders 1,802 1,507 295 19.58% 4,630 4,550 80 1.76%
                 
Basic Earnings per Common Share 0.43 0.43 0.00 0.00% 1.14 1.3 (0.16) (12.31%)
                 
Return on Average Equity 9.60% 10.73% N/A (10.57%) 8.79% 11.39% N/A (22.80%)


 
 
ANALYSIS OF NET INTEREST INCOME (Unaudited):
             
  Three Months Ended
September 30,

Change
 Nine Months Ended
September 30,

Change
  2015 2014 % 2015 2014 %
Net Interest Margin 4.00% 3.91% 2.30% 4.06% 4.01% 1.25%
Cost of Funds 0.63% 0.69% (8.70%) 0.64% 0.72% (11.11%)
Yield on Earning Assets     4.54% 4.52% 0.44% 4.62% 4.65% (0.65%)
 
 
CONSOLIDATED BALANCE SHEETS (Unaudited):
     
(Dollars in thousands, except share and per share data) At September 30,
  2015 2014
ASSETS    
Cash and due from banks  $ 17,153  $ 13,854
Interest-bearing balances with other financial institutions 2,081 1,393
Federal funds sold
Total cash and cash equivalents 19,234 15,247
Interest-bearing time deposits with other financial institutions 5,313 5,772
Available for sale investment securities  133,696  148,134
Loans and leases, net of unearned interest  719,085  568,161
Less: Allowance for loan and lease losses  (6,984)  (6,411)
Net loans and leases  712,101  561,750
Bank premises and equipment, net  14,196  12,303
Restricted investment in bank stocks  3,919  3,395
Foreclosed assets held for sale  990  849
Accrued interest receivable  3,415  3,000
Deferred income taxes  2,976  2,055
Goodwill  3,918  1,016
Core deposit and other intangibles, net  699  203
Cash surrender value of life insurance  12,446  8,525
Other assets 2,362 2,154
Total Assets  $ 915,265  $ 764,403
LIABILITIES & SHAREHOLDERS’ EQUITY    
Deposits:    
Noninterest bearing demand  $ 96,916  $ 52,715
Interest bearing demand  255,672  226,883
Money Market  204,928  209,556
Savings  56,032  30,672
Time  161,602  126,171
Total Deposits  775,150  645,997
Short-term borrowings  5,712  21,854
Long-term debt  51,363  33,008
Accrued interest payable  605  646
Other liabilities  6,915  4,087
Total Liabilities  839,745  705,592
Shareholders’ Equity:    
Series B Preferred stock, par value $1.00; liquidation value $1,000; authorized 5,000 shares; 7% non-cumulative dividend; 5,000 shares issued and outstanding at September 30, 2015 and at September 30, 2014; total redemption value $5,100,000  5,000  5,000
Series C Preferred stock, par value $1.00; liquidation value $1,000; authorized 1,750 shares; 1% cumulative dividend; 1,750 shares issued and outstanding at September 30, 2015 and 0 shares issued and outstanding at September 30, 2014; total redemption value $1,750,000  1,750  — 
Common stock, par value $1.00; authorized 10,000,000 shares; 4,225,720 shares issued and outstanding at September 30, 2015 and 3,496,916 at September 30, 2014  4,226  3,497
Additional paid-in capital  40,535  29,888
Retained earnings  22,569  19,117
Accumulated other comprehensive income 1,440 1,309
Total Shareholders’ Equity 75,520 58,811
Total Liabilities and Shareholders’ Equity  $ 915,265  $ 764,403
 
 
CONSOLIDATED STATEMENTS OF INCOME (Unaudited):
         
(Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30,
  2015 2014 2015 2014
INTEREST INCOME        
Interest & fees on loans and leases  $ 8,448  $ 6,657  $ 24,345  $ 20,122
Interest on interest-bearing balances 12 11 34 31
Interest and dividends on investment securities:        
U.S. Treasury and government agencies 293 359 928 994
State and political subdivision obligations, tax-exempt 484 563 1,532 1,618
Other securities 102 43 301 118
Interest on federal funds sold and securities purchased under agreements to resell 1
Total Interest Income 9,339 7,633 27,141 22,883
INTEREST EXPENSE        
Interest on deposits 987 953 2,881 2,921
Interest on short-term borrowings 14 5 36 26
Interest on long-term debt 149 131 511 369
Total Interest Expense 1,150 1,089 3,428 3,316
Net Interest Income 8,189 6,544 23,713 19,567
PROVISION FOR LOAN AND LEASE LOSSES 265 395 865 1,217
Net Interest Income After Provision for Loan and Lease Losses 7,924 6,149 22,848 18,350
NONINTEREST INCOME        
Income from fiduciary activities 120 120 367 445
Service charges on deposits 186 154 503 417
Net gain on sales of investment securities 138 315 150
Earnings from cash surrender value of life insurance 71 50 198 152
Mortgage banking income 106 95 326 208
ATM debit card interchange income 189 138 540 403
Merchant services income 64 65 175 198
Net gain on sales of SBA loans 73 19 216 97
Other income 138 100 487 339
Total Noninterest Income 1,085 741 3,127 2,409
NONINTEREST EXPENSE        
Salaries and employee benefits 3,471 2,635 10,231 8,026
Occupancy expense, net 498 282 1,448 986
Equipment expense 346 297 1,081 908
Pennsylvania Bank Shares tax expense 106 64 337 272
FDIC Assessment 166 134 470 405
Legal and professional fees 151 101 455 366
Director fees and benefits expense 92 83 267 238
Marketing and advertising expense 137 95 372 227
Software licensing 380 238 1,103 687
Telephone expense 169 108 432 304
Loss on sale/write-down of foreclosed assets 47 52 64 109
Intangible amortization 26 8 61 22
Loan collection costs 67 76 235 229
Merger and acquisition expense 11 784 11
Other expenses 913 745 2,511 1,945
Total Noninterest Expense 6,569 4,929 19,851 14,735
INCOME BEFORE PROVISION FOR INCOME TAXES 2,440 1,961 6,124 6,024
Provision for income taxes 546 366 1,223 1,211
NET INCOME 1,894 1,595 4,901 4,813
Series B preferred stock dividends 88 88 263 263
Series C preferred stock dividends 4 8
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS  $ 1,802  $ 1,507  $ 4,630  $ 4,550
         
PER COMMON SHARE DATA:        
Basic Earnings Per Common Share  $ 0.43  $ 0.43  $ 1.14  $ 1.30
Cash Dividends  $ 0.12  $ 0.10  $ 0.32  $ 0.25

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 Factor” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2014. 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.

CONTACT: Mid Penn Bancorp, Inc.
         349 Union Street
         Millersburg, PA  17061
         1-866-642-7736
         
         Rory G. Ritrievi
         President & Chief Executive Officer
         
         Edward P. Williams
         Interim Principal Financial Officer