MILLERSBURG, Pa., July 21, 2016 (GLOBE NEWSWIRE) -- Mid Penn Bancorp, Inc. (“Mid Penn”) (NASDAQ:MPB), the parent company of Mid Penn Bank, today reported a net income available to common shareholders (earnings) of $2,022,000 or $0.48 per common share basic and diluted for the quarter ended June 30, 2016, compared to earnings of $1,952,000 or $0.46 per common share basic and diluted for the quarter ended June 30, 2015. The earnings for the second quarter of 2016 represent a record high for Mid Penn. For the six months ended June 30, 2016, earnings were $3,827,000 or $0.91 per common share basic and diluted, compared to earnings of $2,828,000 or $0.71 per common share basic and diluted for the same period in 2015.
Mid Penn also reported that total assets as of June 30, 2016 grew to $1,012,884,000, reflecting an increase of 8.7%, compared to total assets of $931,638,000 as of December 31, 2015. For the six months ending June 30, 2016, loan growth was $29,962,000, and investments increased $31,621,000. The year-to-date increase in these interest-earning assets was funded by strong deposit growth, as total deposits at the end of the second quarter of 2016 increased by $116,397,000 compared to year-end 2015. In addition to supporting loan and investment growth, the additional funds from the year-to-date deposit growth were used to repay $41,707,000 in short- and long-term borrowings.
PRESIDENT’S STATEMENT
On behalf of our Board of Directors and our team of dedicated employees, I am very pleased to report that Mid Penn achieved record levels of both quarterly earnings and total assets for the period ending June 30, 2016. Reflecting our favorable operating performance, our Return on Average Equity increased to 11.28% for the second quarter of 2016. Mid Penn is now a community banking franchise with over $1 billion in total assets reflecting a high-credit-quality loan portfolio, funded primarily by lower-cost deposits, with client-focused products and solutions to develop new and expanded relationships with both commercial and retail customers. As we strive to increase shareholder value while delivering sound returns, we look to maintain this positive earnings momentum through continued qualitative growth in interest-earning assets and core banking revenues, while seeking to further expand noninterest income sources from fee-based deposit account activities, small business lending, mortgage banking, and wealth management and trust services. We also remain committed to identifying and implementing operating efficiencies in our back office, and expanding our delivery channels, to benefit from both technology and economies of scale to effectively add new customers and integrate new markets.
OPERATING RESULTS
Net Interest Income and Net Interest Margin
Net interest income increased $47,000 or 0.6% to $8,533,000 for the three months ended June 30, 2016 compared to $8,486,000 for the three months ended June 30, 2015. Through the first six months of 2016, net interest income was $16,948,000, an increase of $1,424,000 or 9.2% compared to net interest income of $15,524,000 during the same period in 2015. Net interest income in 2016 was positively impacted by core loan growth, as well as a full six months of income on the interest-earning assets from the Phoenix Bancorp acquisition (the reported earnings for the first half of 2015 included only four months of interest income from acquired assets as the Phoenix acquisition was effective on March 1, 2015).
For the three months ended June 30, 2016, Mid Penn’s tax-equivalent net interest margin was 3.85% as compared to 4.22% for the three months ended June 30, 2015. For the six months ended June 30, 2016, Mid Penn’s tax-equivalent net interest margin was 3.90% versus 4.10% for the six months ended June 30, 2015. The higher net interest margin in 2015 was predominantly the result of the recognition of $452,000 of income in both the three and six months ended June 30, 2015 from the successful resolution of three legacy Phoenix loans acquired with credit deterioration. Also, the investment portfolio had a lower yield during the three and six months ended June 30, 2016, versus the same periods in 2015, as several securities which matured or were called in the first half of 2016 had higher yields compared to replacement investments purchased in the persistent lower-yield bond market conditions.
Noninterest Income
Noninterest income increased $305,000 or 27.9% during the three months ended June 30, 2016, compared to the three months ended June 30, 2015. During the six months ended June 30, 2016, noninterest income increased $588,000 or 28.8% versus the six months ended June 30, 2015.
For the first half of 2016, mortgage banking income favorably increased $212,000 over the same period in 2015. Increased residential real estate financing activity throughout Mid Penn’s footprint, favorably low mortgage market interest rates, and the addition of seasoned loan originators collectively contributed to the increased revenue from this business line.
Mid Penn also experienced increased origination and sales activity in Small Business Administration (“SBA”) loans, resulting in an increase of $122,000 of related loan sale gains during the first six months of 2016 compared to the same period in 2015. More qualified borrowers continue to take advantage of Mid Penn’s Preferred Lender status with the SBA.
During the second quarter of 2016, Mid Penn took advantage of increased market values on several securities to reposition some of its investment portfolio, including selling a large volume of longer-term and rate-sensitive CMOs, as well as certain municipal bonds and agency notes. Mid Penn realized $213,000 in securities gains in the first half of 2016 as a result of these investment management activities. In comparison, during the first six months of 2015, Mid Penn realized $177,000 from gains on sales of securities.
Other noninterest income increased $117,000 for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily as a result of the $86,000 gain on the sale of insurance policies upon the dissolution of Mid Penn Insurance Services, LLC, a wholly-owned subsidiary of Mid Penn Bank, effective March 1, 2016. The decision was made to liquidate the subsidiary due to the lack of consistent profitability and growth.
Noninterest Expense
Noninterest expenses increased $279,000 or 4.2% during the three months ended June 30, 2016, versus the same period in 2015. During the six months ended June 30, 2015, noninterest expenses increased $621,000 or 4.7%, versus the six months ended June 30, 2015.
Mid Penn’s efficiency ratio during the second quarter of 2016 was 67.9% compared to 66.4% in the second quarter of 2015. During the first six months of 2016, the efficiency ratio was 68.6%, versus 68.5% during the same period in 2015.
Salaries and employee benefit expenses increased $686,000 during the six months ended June 30, 2016 versus the same period in 2015. The increase primarily was attributable to franchise expansion, including (i) the addition of employees from the March 1, 2015 Phoenix acquisition, (ii) staff added to serve in Mid Penn’s branch in the Mechanicsburg, PA market opened in June 2015, and (iii) an increase in lending personnel and credit support staff in alignment with Mid Penn’s core banking growth.
In connection with the acquisition of Phoenix in March 2015, Mid Penn incurred $762,000 of nonrecurring merger-related expenses in the first half of 2015, while no merger expenses were incurred in the first six months of 2016.
Mid Penn realized losses of $132,000 on the sale/write-down of foreclosed assets during the first half of 2016, as compared to $17,000 for the same period in 2015, reflecting the workout of certain holdings in the Bank’s portfolio of other real estate owned.
Occupancy expenses for the six months ended June 30, 2016 increased by $96,000 compared to the same period in 2015. This increase was impacted by the inclusion of rent and other occupancy costs from the four acquired Phoenix branches and the addition of the Mechanicsburg, PA branch. Equipment expenses, bank shares tax expense, and other expenses also saw increases for the first six months of 2016 compared to the same period of 2015 related primarily to franchise growth.
FINANCIAL CONDITION
Loans
Total loans at June 30, 2016 were $769,153,000 compared to $739,191,000 at December 31, 2015, an increase of $29,962,000, or 4.1%. The main driver of Mid Penn’s loan growth continues to be commercial loans, including both commercial and industrial financing, and commercial real estate credits.
Deposits
Total deposits increased $116,397,000, or 15.0%, from $777,043,000 at December 31, 2015 to $893,440,000 at June 30, 2016. Over the last six months, all deposit categories increased due to both strong retail branch deposit growth and cash management sales efforts. Mid Penn continues to shift its funding composition towards lower-cost deposits from higher-cost borrowings.
Investments
Mid Penn’s total available-for-sale securities portfolio increased $31,621,000, or 23.3%, from $135,721,000 at December 31, 2015 to $167,342,000 at June 30, 2016. Mid Penn increased its investment holdings primarily to maintain pledging requirements related to an increase in public fund and other collateralized nonprofit deposit balances during the first six months of 2016.
Capital
Shareholders’ equity increased by $4,406,000, or 6.3%, from $70,068,000 at December 31, 2015 to $74,474,000 at June 30, 2016, due to retained earnings and an increase in accumulated other comprehensive income for the first six month from the normal operations of Mid Penn. Regulatory capital ratios for both the holding company and the Bank at June 30, 2016 and December 31, 2015 exceeded regulatory “well-capitalized” levels.
ASSET QUALITY
Total nonperforming assets at June 30, 2016 were $5,468,000, a reduction compared to $6,062,000 at December 31, 2015, and $9,341,000 at June 30, 2015. The ratio of nonperforming assets to total loans and other real estate decreased to 0.71% as of June 30, 2016, as compared to 0.82% as of December 31, 2015 and 1.32% as of June 30, 2015. The reduced level of nonperforming assets has primarily been the result of thorough underwriting and risk analysis of new extensions of credit, as well as diligent portfolio monitoring, and timely collection and workout efforts, which have resulted in reduced delinquency.
Mid Penn had net loan recoveries of $9,000 during the first six months of 2016, compared to net charge-offs of $465,000 during the same period in 2015.
Based upon its analysis of loan and lease loss allowance adequacy, management recorded a $395,000 loan loss provision for the three months ended June 30, 2016, compared to a provision of $300,000 for the three months ended June 30, 2015. During the six months ended June 30, 2016, the provision for loan and lease losses was $735,000, compared to $600,000 for the six months ended June 30, 2015. The allowance for loan and lease losses as a percentage of total loans was 0.90% at June 30, 2016, compared to 0.83% at December 31, 2015. Loan loss reserves as a percentage of nonperforming loans was 140.28% at June 30, 2016, compared to 126.46% at December 31, 2015. Management believes, based on information currently available, that the allowance for loan and lease losses of $6,912,000 is adequate as of June 30, 2016 to cover specifically identifiable loan losses, as well as estimated losses inherent in the portfolio.
FINANCIAL HIGHLIGHTS (Unaudited):
| June 30, | December 31, | Change | ||||||||||
| (Dollars in thousands) | 2016 | 2015 | $ | % | ||||||||
| Total Assets | $ | 1,012,884 | $ | 931,638 | $ | 81,246 | 8.7 | % | ||||
| Total Loans | 769,153 | 739,191 | 29,962 | 4.1 | % | |||||||
| Total Deposits | 893,440 | 777,043 | 116,397 | 15.0 | % | |||||||
| Total Equity | 74,474 | 70,068 | 4,406 | 6.3 | % | |||||||
OPERATING HIGHLIGHTS (Unaudited):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share | June 30, | Change | June 30, | Change | |||||||||||||||||||||||||||||
| data) | 2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||||||||
| Net Interest Income | $ | 8,533 | $ | 8,486 | $ | 47 | 0.6 | % | $ | 16,948 | $ | 15,524 | $ | 1,424 | 9.2 | % | |||||||||||||||||
| Net Income Available to Common Shareholders | 2,022 | 1,952 | 70 | 3.6 | % | 3,827 | 2,828 | 999 | 35.3 | % | |||||||||||||||||||||||
| Basic Earnings per Common Share | 0.48 | 0.46 | 0.02 | 4.3 | % | 0.91 | 0.71 | 0.20 | 28.2 | % | |||||||||||||||||||||||
| Return on Average Equity | 11.28 | % | 11.21 | % | N/A | 0.6 | % | 10.75 | % | 8.89 | % | N/A | 20.9 | % | |||||||||||||||||||
CAPITAL RATIOS (Unaudited):
| To Be Well-Capitalized | ||||||||||||
| Under Prompt | ||||||||||||
| Corrective Action | ||||||||||||
| June 30, 2016 | December 31, 2015 | Provisions: | ||||||||||
| Leverage Ratio | 6.9 | % | 7.1 | % | 5.0 | % | ||||||
| Common Tier 1 Capital (to Risk Weighted Assets) | 9.2 | % | 9.1 | % | 6.5 | % | ||||||
| Tier 1 Capital (to Risk Weighted Assets) | 9.2 | % | 9.1 | % | 8.0 | % | ||||||
| Total Capital (to Risk Weighted Assets) | 11.2 | % | 11.0 | % | 10.0 | % | ||||||
CONSOLIDATED BALANCE SHEETS (Unaudited):
| (Dollars in thousands, except share data) | |||||||||
| June 30, 2016 | December 31, 2015 | ||||||||
| ASSETS | |||||||||
| Cash and due from banks | $ | 14,625 | $ | 12,329 | |||||
| Interest-bearing balances with other financial institutions | 1,232 | 955 | |||||||
| Federal funds sold | 25,103 | - | |||||||
| Total cash and cash equivalents | 40,960 | 13,284 | |||||||
| Interest-bearing time deposits with other financial institutions | 987 | 4,317 | |||||||
| Investment securities available for sale | 167,342 | 135,721 | |||||||
| Loans and leases, net of unearned interest | 769,153 | 739,191 | |||||||
| Less: Allowance for loan and lease losses | (6,912 | ) | (6,168 | ) | |||||
| Net loans and leases | 762,241 | 733,023 | |||||||
| Bank premises and equipment, net | 13,492 | 13,993 | |||||||
| Cash surrender value of life insurance | 12,651 | 12,516 | |||||||
| Restricted investment in bank stocks | 2,643 | 4,266 | |||||||
| Foreclosed assets held for sale | 540 | 1,185 | |||||||
| Accrued interest receivable | 3,943 | 3,813 | |||||||
| Deferred income taxes | 618 | 1,821 | |||||||
| Goodwill | 3,918 | 3,918 | |||||||
| Core deposit and other intangibles, net | 594 | 665 | |||||||
| Other assets | 2,955 | 3,116 | |||||||
| Total Assets | $ | 1,012,884 | $ | 931,638 | |||||
| LIABILITIES & SHAREHOLDERS’ EQUITY | |||||||||
| Deposits: | |||||||||
| Noninterest bearing demand | $ | 122,731 | $ | 103,721 | |||||
| Interest bearing demand | 297,838 | 247,356 | |||||||
| Money Market | 239,878 | 208,386 | |||||||
| Savings | 60,767 | 56,731 | |||||||
| Time | 172,226 | 160,849 | |||||||
| Total Deposits | 893,440 | 777,043 | |||||||
| Short-term borrowings | - | 31,596 | |||||||
| Long-term debt | 30,194 | 40,305 | |||||||
| Subordinated debt | 7,409 | 7,414 | |||||||
| Accrued interest payable | 698 | 390 | |||||||
| Other liabilities | 6,669 | 4,822 | |||||||
| Total Liabilities | 938,410 | 861,570 | |||||||
| Shareholders' Equity: | |||||||||
| Common stock, par value $1.00; authorized 10,000,000 shares; | |||||||||
| 4,229,006 and 4,226,717 shares issued and outstanding at | |||||||||
| June 30, 2016 and at December 31, 2015, respectively | 4,229 | 4,227 | |||||||
| Additional paid-in capital | 40,609 | 40,559 | |||||||
| Retained earnings | 25,860 | 23,470 | |||||||
| Accumulated other comprehensive income | 3,776 | 1,812 | |||||||
| Total Shareholders’ Equity | 74,474 | 70,068 | |||||||
| Total Liabilities and Shareholders' Equity | $ | 1,012,884 | $ | 931,638 | |||||
CONSOLIDATED STATEMENTS OF INCOME (Unaudited):
| (Dollars in thousands, except per share data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||
| INTEREST INCOME | |||||||||||||
| Interest & fees on loans and leases | $ | 8,905 | $ | 8,743 | $ | 17,712 | $ | 15,897 | |||||
| Interest on interest-bearing balances | 2 | 11 | 9 | 22 | |||||||||
| Interest and dividends on investment securities: | |||||||||||||
| U.S. Treasury and government agencies | 311 | 304 | 633 | 635 | |||||||||
| State and political subdivision obligations, tax-exempt | 548 | 517 | 1,012 | 1,048 | |||||||||
| Other securities | 78 | 68 | 172 | 199 | |||||||||
| Interest on federal funds sold and securities purchased under agreements to resell | 15 | 1 | 18 | 1 | |||||||||
| Total Interest Income | 9,859 | 9,644 | 19,556 | 17,802 | |||||||||
| INTEREST EXPENSE | |||||||||||||
| Interest on deposits | 1,092 | 980 | 2,131 | 1,894 | |||||||||
| Interest on short-term borrowings | 12 | 11 | 25 | 22 | |||||||||
| Interest on long-term debt | 222 | 167 | 452 | 362 | |||||||||
| Total Interest Expense | 1,326 | 1,158 | 2,608 | 2,278 | |||||||||
| Net Interest Income | 8,533 | 8,486 | 16,948 | 15,524 | |||||||||
| PROVISION FOR LOAN AND LEASE LOSSES | 395 | 300 | 735 | 600 | |||||||||
| Net Interest Income After Provision for Loan and Lease Losses | 8,138 | 8,186 | 16,213 | 14,924 | |||||||||
| NONINTEREST INCOME | |||||||||||||
| Income from fiduciary activities | 139 | 120 | 245 | 247 | |||||||||
| Service charges on deposits | 158 | 167 | 313 | 317 | |||||||||
| Net gain on sales of investment securities | 213 | - | 213 | 177 | |||||||||
| Earnings from cash surrender value of life insurance | 65 | 71 | 135 | 127 | |||||||||
| Mortgage banking income | 246 | 153 | 432 | 220 | |||||||||
| ATM debit card interchange income | 209 | 196 | 409 | 351 | |||||||||
| Merchant services income | 85 | 61 | 152 | 111 | |||||||||
| Net gain on sales of SBA loans | 75 | 143 | 265 | 143 | |||||||||
| Other income | 208 | 182 | 466 | 349 | |||||||||
| Total Noninterest Income | 1,398 | 1,093 | 2,630 | 2,042 | |||||||||
| NONINTEREST EXPENSE | |||||||||||||
| Salaries and employee benefits | 3,723 | 3,440 | 7,446 | 6,760 | |||||||||
| Occupancy expense, net | 499 | 496 | 1,046 | 950 | |||||||||
| Equipment expense | 411 | 422 | 846 | 735 | |||||||||
| Pennsylvania Bank Shares tax expense | 206 | 116 | 409 | 231 | |||||||||
| FDIC Assessment | 147 | 165 | 300 | 304 | |||||||||
| Legal and professional fees | 183 | 161 | 385 | 304 | |||||||||
| Marketing and advertising expense | 139 | 147 | 223 | 235 | |||||||||
| Software licensing | 334 | 404 | 665 | 723 | |||||||||
| Telephone expense | 143 | 140 | 285 | 263 | |||||||||
| Loss on sale/write-down of foreclosed assets | 28 | (15 | ) | 132 | 17 | ||||||||
| Intangible amortization | 34 | 29 | 71 | 43 | |||||||||
| Merger and acquisition expense | - | - | - | 762 | |||||||||
| Other expenses | 1,074 | 1,137 | 2,095 | 1,955 | |||||||||
| Total Noninterest Expense | 6,921 | 6,642 | 13,903 | 13,282 | |||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 2,615 | 2,637 | 4,940 | 3,684 | |||||||||
| Provision for income taxes | 593 | 593 | 1,113 | 677 | |||||||||
| NET INCOME | 2,022 | 2,044 | 3,827 | 3,007 | |||||||||
| Series B preferred stock dividends | - | 88 | - | 175 | |||||||||
| Series C preferred stock dividend | - | 4 | - | 4 | |||||||||
| NET INCOME AVAILABLE TO COMMON SHAREHOLDERS | $ | 2,022 | $ | 1,952 | $ | 3,827 | $ | 2,828 | |||||
| PER COMMON SHARE DATA: | |||||||||||||
| Basic Earnings Per Common Share | $ | 0.48 | $ | 0.46 | $ | 0.91 | $ | 0.71 | |||||
| Cash Dividends Distributed | $ | 0.12 | $ | 0.10 | $ | 0.34 | $ | 0.20 | |||||
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, 2015. 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.