Mid Penn Bancorp, Inc. Reports Third Quarter Earnings and Declares Dividend

Mid Penn Bancorp
·42-min read

MILLERSBURG, Pa., Oct. 29, 2020 (GLOBE NEWSWIRE) -- Mid Penn Bancorp, Inc. (“Mid Penn”) (NASDAQ: MPB), the parent company of Mid Penn Bank (the “Bank”), today reported net income to common shareholders (earnings) for the quarter ended September 30, 2020 of $6,547,000 or $0.78 per common share basic and diluted, compared to earnings of $4,813,000 or $0.57 per common share basic and diluted for the quarter ended September 30, 2019. Earnings for the nine months ended September 30, 2020 were $17,198,000 or $2.04 per common share basic and diluted, compared to earnings of $13,293,000 or $1.57 per common share basic and diluted for the nine months ended September 30, 2019. The year-to-date earnings per share through September 30, 2020 reflect an increase of 29 percent compared to the earnings per share for the same period in the prior year.

With these third quarter results, on October 28, 2020, the Board of Directors of Mid Penn Bancorp, Inc. declared a quarterly dividend of $0.18 per common share, payable on November 23, 2020, to shareholders of record as of November 10, 2020.

Tangible book value per common share, a non-GAAP measure that is regularly reported in the banking industry and the most directly comparable non-GAAP measure to book value per share, was $21.46 as of September 30, 2020, reflecting a year-to-date increase of over 7 percent compared to the tangible book value per common share of $19.96 as of December 31, 2019. The GAAP measure of book value per share increased to $29.49 as of September 30, 2020, compared to $28.05 as of December 31, 2019. Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Measures (Unaudited)” for a discussion of our use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for the periods ended September 30, 2020, December 31, 2019, and certain other periods.

Mid Penn also reported total assets of $3,052,935,000 as of September 30, 2020, reflecting an increase of $821,760,000 or 37 percent compared to total assets of $2,231,175,000 as of December 31, 2019, and an increase of $804,036,000 or 36 percent compared to total assets of $2,248,899,000 as of September 30, 2019. Included in this increase is the significant volume of $613,924,000 of Paycheck Protection Program (“PPP”) loans outstanding, net of deferred fees, as of September 30, 2020. Mid Penn was a significant PPP lender under this program which was created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, by President Trump. Total core banking loans (total loans excluding both the PPP portfolio and mortgage loans held for sale) increased to $1,907,903,000 as of September 30, 2020, representing an annualized core loan growth rate of over 10 percent since the end of 2019. The asset growth was funded by both (i) $544,004,000 of deposit growth, representing an annualized deposit growth rate of 38 percent, including a year-to-date increase of $224,882,000 in noninterest-bearing deposits; and (ii) a $246,138,000 net increase in borrowings, including $203,842,000 of funding obtained from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”). Under the PPPLF, the Federal Reserve supplies financing to the Bank at a rate of 35 basis points (0.35%) for a term and amount determined based on the principal amount of PPP loans fully and specifically pledged as collateral in support of the PPPLF borrowings. Draws of PPPLF funds must be repaid to the Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank.

PRESIDENT’S STATEMENT

With a 36 percent increase in third quarter income and a 29 percent increase in year to date income, we are proud to announce these results to our shareholders and the investment community. The success of the last six months, even in the midst of a global pandemic and economic shutdown, is reflective of a company we believe is built not only for performance but sustainability.

The organic growth on both sides of the balance sheet during this time has been impressive. Even net of PPP loans and deposits, we have recognized an annualized growth rate of 12% in assets while controlling operating expenses and lowering the cost of funding. Non-interest income sources, primarily mortgage banking and fiduciary services, are off to the best combined year in our history, contributing a meaningful level to the overall income of the company.

Most importantly, our asset quality numbers remain strong. While we have experienced slight upticks in delinquency and problem loan balances, we do not believe that those will have an impact on our net charge off ratio, which remains at zero percent through the first nine months of 2020.

With the success of the quarter, we are pleased to continue our cash dividend at $0.18 a share at a time when many financial institutions are either decreasing or eliminating their dividends. While the Board of Directors believes that, in an uncertain environment, capital preservation is of utmost importance, we also want to consistently reward our shareholders for their investment based upon the fruits of our labor. A 23 percent dividend payout ratio for the quarter allows us to achieve both objectives.

OPERATING RESULTS

Net Interest Income and Net Interest Margin

For the three months ended September 30, 2020, net interest income was $21,408,000, an increase of $3,641,000 or 20 percent compared to net interest income of $17,767,000 for the three months ended September 30, 2019. Through the first nine months of 2020, net interest income was $60,419,000, an increase of $7,576,000 or 14 percent compared to net interest income of $52,843,000 for the same period in 2019. The year-over-year increase for the nine-month period included $2,622,000 of net interest income from core loan and deposit growth, as well as the recognition of $4,954,000 of PPP loan processing fees generated as a result of Mid Penn’s participation in the PPP. These PPP fees are recognized in interest income over the term of the respective loan (most have a 24-month maturity), or sooner as the loans are forgiven by the Small Business Administration, or the borrowers otherwise pay down principal.

Mid Penn’s tax-equivalent net interest margin for the nine months ended September 30, 2020 was 3.29 percent versus 3.64 percent for the nine months ended September 30, 2019. For the quarter ended September 30, 2020, the net interest margin was 3.09 percent compared to 3.53 percent for the quarter ended September 30, 2019. Though the quarterly and year-to-date average balance of interest-earning assets increased year over year, the yields on interest earning assets declined due to both (i) the significant balance of PPP loans outstanding, which earn interest at a rate of 1 percent, and (ii) reductions in market interest rates subsequent to September 2019, including a rate decrease of 0.25 percent approved by the Federal Open Market Committee (“FOMC”) in October 2019, and 1.50 percent of combined FOMC rate cuts during March 2020 in response to the COVID-19 pandemic. Yields on loans and interest earning assets included the recognition of PPP loan processing fees in total interest income. The total cost of deposits for both the three and nine months ended September 30, 2020 favorably decreased compared to the same periods in 2019 as a result of the aforementioned growth in noninterest-bearing deposits and additional management deposit rate adjustments, including those made in response to the FOMC rate cuts, which collectively reduced deposit costs while still maintaining core deposit growth.

Noninterest Income

During the three months ended September 30, 2020, noninterest income totaled $5,302,000, an increase of $2,299,000 or 76 percent, compared to noninterest income of $3,003,000 for the three months ended September 30, 2019. For the nine months ended September 30, 2020, noninterest income totaled $11,858,000, an increase of $3,932,000 or 50 percent, compared to noninterest income of $7,926,000 for the same period 2019.

Mortgage banking income was $5,927,000 for the nine months ended September 30, 2020, an increase of $3,322,000 or more than double the mortgage banking income of $2,605,000 recorded during the nine months ended September 30, 2019. As longer-term mortgage interest rates have declined over the past twelve months, Mid Penn has significantly increased mortgage originations (both purchase and refinance activity) and secondary-market loan sales during 2020.

Income from fiduciary and wealth management activities was $1,267,000 for the nine months ended September 30, 2020, an increase of $175,000 or 16 percent, compared to fiduciary income of $1,092,000 for the same period in 2019. These additional revenues were attributed to growth in trust assets under management and increased sales of retail investment products, as well as additional fee income from Mid Penn’s expanded wealth management team.

ATM debit card interchange income was $1,426,000 for the nine months ended September 30, 2020, an increase of $278,000 or 24 percent compared to interchange income of $1,148,000 for the nine months ended September 30, 2019. The increase resulted from increasing card-based transaction usage across our expanding checking account customer base.

Net gains on sales of securities were $393,000 for the nine months ended September 30, 2020, an increase of $323,000 compared to net gains on sales of securities of $70,000 for the nine months ended September 30, 2019. These investment sales and gains reflect the continued implementation of asset/liability management strategies, which included effectively using some of these gains to offset $165,000 of debt prepayment penalties, recorded within other noninterest expenses, associated with the early redemption of higher-cost FHLB advances.

Service charges on deposits were $460,000 during the nine months ended September 30, 2020, reflecting a decrease of $205,000 or 31 percent when compared to the same period in 2019. The decrease is primarily due to less overdraft activity and, thus, less nonsufficient funds fees collected from deposit customers.

Net gains on sales of SBA loans were $435,000 for the nine months ended September 30, 2020, a decrease of $275,000 or 39 percent compared to net gains on sales of SBA loans of $710,000 during the same period of 2019. Much of the decrease is due to the temporary shift of the resources in our SBA lending function to focus on PPP loan processing, funding, and forgiveness, particularly during the second quarter of 2020.

Other income was $1,447,000 for the nine months ended September 30, 2020, an increase of $351,000 compared to other income of $1,096,000 for the nine months ended September 30, 2019. The increase in other income was primarily driven by higher volumes of fee-based income, including wire transfer fees, letter of credit fees, loan-level swap fees, and credit card program referrals and royalties.

Noninterest Expense

For the three months ended September 30, 2020, noninterest expense totaled $18,174,000, an increase of $3,491,000 or 24 percent, compared to noninterest expense of $14,683,000 for the three months ended September 30, 2019. For the nine months ended September 30, 2020, noninterest expense totaled $49,158,000, an increase of $5,376,000 or 12 percent, compared to noninterest expense of $43,782,000 for the nine months ended September 30, 2019. The year-over-year increase in quarterly noninterest expense was attributable to: (i) increased mortgage banking commissions expense, a component of personnel expenses, commensurate with the significant increase in mortgage loan originations and revenues; (ii) growth-related business development officer additions since September 30, 2019, including those in Mid Penn’s expanded wealth management and insurance service subsidiaries, and (iii) increases across other expense categories reflective of the overall growth of the organization, including FDIC assessment expense, software licensing and utilization, Pennsylvania bank shares tax, and occupancy and equipment expenses.

Salaries and employee benefits were $26,546,000 for the nine months ended September 30, 2020, an increase of $2,576,000 or 11 percent, versus the same period in 2019, with the increase primarily attributable to (i) increased commissions commensurate with the mortgage loan origination and sales success of the mortgage banking group, (ii) increased compensation expense for the substantial time and effort devoted to the PPP loan initiative by many of our staff members during 2020, and (iii) the addition of private banking and insurance business development professionals to enhance our wealth management and insurance services.

Pennsylvania bank shares tax expense was $869,000 for the nine months ended September 30, 2020, an increase of $129,000 or 17 percent compared to $740,000 for the nine months ended September 30, 2019. The increase in shares tax expense generally reflects the organic growth in the past year of the total shareholder equity balance upon which the tax is based, with some of the increase offset by state tax-credit-generating donations made during the first nine months of 2020.

FDIC assessment expense was $1,216,000 for the nine months ended September 30, 2020, an increase of $674,000 or 124 percent compared to $542,000 for the nine months ended September 30, 2019. The third quarter of 2019 reflected the receipt of $492,000 of FDIC small bank assessment credits, which were applied to FDIC assessment expense. Similar credits were not received in 2020. Additionally, total assessment expense for 2020 has increased when comparing to the same period in 2019, primarily due to the significant year-over-year increase in total average assets of the Bank on which the assessment is based.

Software licensing and utilization costs were $3,881,000 for the nine months ended September 30, 2020, an increase of $599,000 or 18 percent compared to $3,282,000 for the nine months ended September 30, 2019. This increase reflects the additional costs from both transaction volume-based charges, and licensing fees related to the addition of new staff and locations added since September 30, 2019, as well as costs associated with ensuring remote connectivity for an increased volume of employees in response to the COVID-19 work-from-home restrictions. Additionally, Mid Penn continued to invest in upgrades to internal systems, networks, storage capabilities, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and increasing complexity of information technology management.

Other expenses were $7,582,000 for the nine months ended September 30, 2020, an increase of $1,635,000 or 27 percent compared to $5,947,000 for the same period during 2019. This variance was largely driven by increases in several components of other expense, including (i) an increase in tax-credit-generating charitable donations expense, (ii) amortization of Mid Penn’s investment in a low- income housing partnership which began during the fourth quarter of 2019, (iii) revenue-sharing payments made for certain mortgage banking activities, and (iv) increases across several other categories of other expense reflecting growth within the organization, including stationary and supplies, printing, postage, and employee relations costs.

Legal and professional fees for the nine months ended September 30, 2020 decreased by $167,000 or 14 percent compared to the same period in 2019, due primarily to the first nine months of 2019 including additional services supporting a new third-party loan review service, as well as costs associated with supporting both trust and wealth management activities, and the update and revision of Mid Penn’s corporate governance and Board structure.

Marketing and advertising expense was $406,000 for the nine months ended September 30, 2020, a decrease of $237,000 or 37 percent compared to $643,000 during the first nine months of 2019. The first nine months of 2019 reflected additional advertising expense and promotional items expense to increase regional recognition and knowledge of Mid Penn’s First Priority Bank and expanded mortgage origination operations in Southeastern Pennsylvania. Similar expenses were not recognized in 2020. Additionally, as a result of the pandemic, in-person promotional events have been significantly reduced, resulting in less advertising and promotional items expense.

Intangible amortization decreased from $1,078,000 during the nine months ended September 30, 2019 to $966,000 during the nine months ended September 30, 2020, as the core deposit intangible (“CDI”) amortization from the 2018 acquisitions of both (i) the Scottdale Bank and Trust (“Scottdale”) on January 8, 2018, and (ii) First Priority Bancorp (“First Priority”) on July 31, 2018 continues to decrease as the CDI is amortized using the sum-of-the-years digits method over a ten year term (which results in decreasing expense recognized in each year following the respective acquisition).

The provision for income taxes was $3,221,000 during the nine months ended September 30, 2020, an increase of $682,000 or 27 percent compared to $2,539,000 for the same period in 2019. The provision for income taxes for the nine months ended September 30, 2020 reflects an effective Federal tax rate of 15.8%, compared to an effective Federal tax rate of 16.0% for the nine months ended September 30, 2019. The full-year tax provision through September 30, 2020 includes the impact of certain CARES Act provisions allowing for the carryback of federal tax net operating losses (NOLs) to prior periods in which the Federal tax rate was 34 percent. Mid Penn will carryback the NOLs acquired from First Priority and Scottdale, resulting in a $318,000 tax benefit due to carrying the NOLs back to 2017 when the federal statutory tax rate was higher (34 percent versus 21 percent).

FINANCIAL CONDITION

Loans

Total loans at September 30, 2020 were $2,521,827,000 compared to $1,762,756,000 at December 31, 2019, an increase of $759,071,000 or 43 percent since year-end 2019. Much of the growth is attributable to the funding of PPP loans during the second and third quarters of 2020, with $613,924,000 of PPP loans outstanding, net of deferred PPP processing fees of $15,929,000 as of September 30, 2020. The remaining increase of $145,147,000 (annualized growth rate of over 10 percent) was driven by organic growth, particularly within both commercial real estate credits, and commercial and industrial financing loans.

Investments

Mid Penn’s portfolio of held-to-maturity securities, recorded at amortized cost, increased $3,997,000 to $140,474,000 as of September 30, 2020, as compared to $136,477,000 as of December 31, 2019. Mid Penn’s total available-for-sale securities portfolio decreased $28,672,000 or 77 percent, from $37,009,000 at December 31, 2019 to $8,337,000 at September 30, 2020. The first nine months of 2020 reflected a higher volume of calls of both available-for-sale and held-to-maturity securities as market rates dropped due to both changes in the yield curve and from the FOMC reducing rates in response to the COVID-19 pandemic, leading to security issuers to execute calls on some higher coupon securities. Additionally, Mid Penn initiated some sales of available-for-sale investment securities for both portfolio and asset liability management.

Deposits

Total deposits increased $544,004,000 or over 28 percent, from $1,912,394,000 at December 31, 2019, to $2,456,398,000 at September 30, 2020 (annualized growth rate of 38 percent). Deposit growth was led by substantial increases in noninterest-bearing balances and money market deposits, primarily due to both new and expanded cash management and commercial deposit account relationships, including those from new customer relationships and deposits established as a result of Mid Penn’s PPP loan activities.

Short-Term Borrowings

Short-term borrowings of $203,842,000 at September 30, 2020 consisted entirely of Mid Penn’s utilization of the Federal Reserve’s PPPLF. The PPPLF allows banks to pledge PPP loans as collateral to borrow funds for up to a term of two years (to match the term of the respective PPP loans) at an interest rate of 0.35 percent. Mid Penn had no short-term borrowings as of December 31, 2019.

Long-Term Debt

Long-term debt increased from $32,903,000 at December 31, 2019 to $75,199,000 at September 30, 2020. During the second quarter of 2020, Mid Penn executed new Federal Home Loan Bank (“FHLB”) two-year term borrowings of $70,000,000 to fund anticipated core loan growth. This increase was partially offset by the prepayment of $27,500,000 of higher-cost long-term FHLB borrowings. Mid Penn recognized $165,000 of FHLB prepayment penalties, which were recorded within other noninterest expenses on the Consolidated Statements of Income. No FHLB borrowing prepayments occurred during the first nine months of 2019.

Subordinated Debt

Subordinated debt increased $14,902,000 or 55 percent, from $27,070,000 at December 31, 2019 to $41,972,000 at September 30, 2020. As previously reported on a Form 8-K dated March 20, 2020, Mid Penn entered into agreements for an aggregate of $15,000,000 of Subordinated Debt Notes due 2030 (the “Notes”) to accredited investors. The Notes bear interest at a rate of 4 percent per year for the first five years and then float at the Wall Street Journal’s Prime Rate, and are intended to be treated as Tier 2 capital for regulatory capital purposes.

Capital

Shareholders’ equity increased by $10,315,000 or 4 percent from $237,874,000 as of December 31, 2019 to $248,189,000 as of September 30, 2020. The increase in shareholders’ equity primarily reflects the growth in retained earnings through year-to-date net income, net of dividends paid. Some of the increase was offset by the initiation of Mid Penn’s treasury stock repurchase program, which reflected total common stock buybacks of $1,793,000 as of September 30, 2020. Regulatory capital ratios for both Mid Penn and its banking subsidiary exceeded regulatory “well-capitalized” levels at both September 30, 2020 and December 31, 2019.

ASSET QUALITY

The allowance for loan and lease losses as a percentage of total loans was 0.48% at September 30, 2020 compared to 0.54% at December 31, 2019 and September 30, 2019. Excluding PPP loans, which are guaranteed by the SBA and have no associated allowance, the allowance for loan and lease losses as a percentage of core loans was 0.64% as of September 30, 2020. Loan loss reserves as a percentage of nonperforming loans were 91% at September 30, 2020, compared to 79% at December 31, 2019, and 172% at September 30, 2019. Mid Penn had net loan charge-offs of $45,000 and $236,000 for the nine months ended September 30, 2020 and 2019, respectively.

The provision for loan losses was $2,700,000 for the first nine months of 2020, an increase of over 133 percent compared to a provision for loan losses of $1,155,000 for the first nine months of 2019. The allowance for loan losses and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not yet required to adopt the current expected credit loss (“CECL”) accounting standard. The increase in the loan loss reserves and the provision was primarily the result of (i) providing for the year-to-date non-PPP loan growth, which was over 10 percent on an annualized basis, and (ii) an increase in qualitative factors related to economic and external conditions when compared to prior periods, with such changes driven by the potential for ongoing financial implications from the COVID-19 pandemic on Mid Penn’s customers and market area.

Total nonperforming assets were $15,082,000 at September 30, 2020, an increase compared to nonperforming assets of $12,156,000 at December 31, 2019, and $7,057,000 at September 30, 2019. The increase in nonperforming assets was primarily the result of one loan relationship totaling $2,352,000 being reclassified to nonaccrual status. Mid Penn believes it is adequately collateralized and expects to realize full principal without the need for a specific reserve for this relationship. Nonperforming assets were 0.60% of the total of loans plus other real estate assets as of September 30, 2020, compared to 0.69% as of December 31, 2019, and 0.32% as of September 30, 2019. The increase in foreclosed real estate from $196,000 at December 31, 2019 to $1,716,000 at September 30, 2020 was driven by the transfer of $1,465,000 of commercial real estate collateral from one loan relationship to foreclosed real estate during the first nine months of 2020.

The CARES Act, along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ranged from deferrals of both principal and interest payments with some borrowers reverting to interest-only payments. The majority of the deferrals were granted for a period of three months, but some as long as six months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest has and will continue to accrue on loans modified under the CARES Act during the deferral period. During 2020, Mid Penn had provided loan modifications meeting the CARES Act qualifications to over 1,000 borrowers. Mid Penn remains in communication with each of these borrowers to assess the ongoing credit status of the borrowers, and may make further adjustments to a borrower’s modification at some future time if warranted for the specific situation. As of September 30, 2020, the principal balance of loans remaining in this CARES Act qualifying deferment status totaled $32,851,000, or 1 percent of the total loan portfolio, a significant reduction compared to June 30, 2020, when $444,486,000 of loans, representing 18 percent of the total loan portfolio, were in this deferment status, as most borrowers have returned to regular payment status. Subsequent to September 30, 2020, as more borrowers completed their deferral period, the remaining balances outstanding in deferment under the CARES Act qualifications as of October 26, 2020, totaled $11,804,000 of principal, representing less than 1 percent of the total loan portfolio.

Asset quality measures did not reflect any new impaired assets or specific reserve allocations related to the financial impact of the COVID-19 pandemic, though Bank management is continuously and closely monitoring and evaluating the impact of the COVID-19 situation on the portfolio. Management believes, based on information currently available, that the allowance for loan and lease losses of $12,170,000 is adequate as of September 30, 2020, to cover probable and estimated loan losses in the portfolio.

FINANCIAL HIGHLIGHTS (Unaudited):

(Dollars in thousands, except

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

per share data)

2020

2020

2020

2019

2019

Cash and cash equivalents

$

195,357

$

143,755

$

140,758

$

139,030

$

160,879

Investment securities

150,333

158,879

195,383

173,486

222,891

Loans

2,521,827

2,445,765

1,798,149

1,762,756

1,710,434

Allowance for loan and lease losses

(12,170

)

(11,067

)

(10,014

)

(9,515

)

(9,316

)

Net loans

2,509,657

2,434,698

1,788,135

1,753,241

1,701,118

Goodwill and other intangibles

67,631

67,948

68,275

68,598

68,949

Other assets

129,957

117,085

107,200

96,820

95,062

Total assets

$

3,052,935

$

2,922,365

$

2,299,751

$

2,231,175

$

2,248,899

Noninterest-bearing deposits

$

534,918

$

564,834

$

347,532

$

310,036

$

298,885

Interest-bearing deposits

1,921,480

1,761,479

1,625,749

1,602,358

1,591,208

Total deposits

2,456,398

2,326,313

1,973,281

1,912,394

1,890,093

Borrowings and subordinated debt

321,013

331,228

65,423

59,973

102,038

Other liabilities

27,335

21,479

21,536

20,934

22,156

Shareholders' equity

248,189

243,345

239,511

237,874

234,612

Total liabilities and shareholders' equity

$

3,052,935

$

2,922,365

$

2,299,751

$

2,231,175

$

2,248,899

Book Value per Common Share

$

29.49

$

28.94

$

28.23

$

28.05

$

27.67

Tangible Book Value per Common Share *

$

21.46

$

20.86

$

20.18

$

19.96

$

19.54

* Non-GAAP measure; see Reconciliation of Non-GAAP Measures

OPERATING HIGHLIGHTS (Unaudited):

Three Months Ended

Nine Months Ended

(Dollars in thousands, except

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

Sept. 30,

per share data)

2020

2020

2020

2019

2019

2020

2019

Interest income

$

26,122

$

26,188

$

23,699

$

23,935

$

24,513

$

76,009

$

71,377

Interest expense

4,714

4,842

6,034

6,630

6,746

15,590

18,534

Net Interest Income

21,408

21,346

17,665

17,305

17,767

60,419

52,843

Provision for loan and lease losses

1,100

1,050

550

235

565

2,700

1,155

Noninterest income

5,302

3,622

2,934

4,695

3,003

11,858

7,926

Noninterest expense

18,174

15,403

15,581

16,171

14,683

49,158

43,782

Income before provision for income taxes

7,436

8,515

4,468

5,594

5,522

20,419

15,832

Provision for income taxes

889

1,682

650

1,186

709

3,221

2,539

Net income

$

6,547

$

6,833

$

3,818

$

4,408

$

4,813

$

17,198

$

13,293

Basic Earnings per Common Share

$

0.78

$

0.81

$

0.45

$

0.52

$

0.57

$

2.04

$

1.57

Return on Average Equity

10.64

%

11.41

%

6.43

%

7.41

%

8.34

%

9.51

%

7.76

%


Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

2020

2020

2020

2019

2019

Tier 1 Capital (to Average Assets)

6.6%

6.6%

7.8%

7.8%

7.7%

Common Tier 1 Capital (to Risk Weighted Assets)

9.5%

9.5%

9.6%

9.8%

9.9%

Tier 1 Capital (to Risk Weighted Assets)

9.5%

9.5%

9.6%

9.8%

9.9%

Total Capital (to Risk Weighted Assets)

12.3%

12.4%

12.5%

11.9%

12.1%

RECONCILIATION OF NON-GAAP MEASURES (Unaudited:)

This press release contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is book value. We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing tangible book value. Income tax effects of non-GAAP adjustments are calculated using the applicable statutory tax rate for the jurisdictions in which the charges (benefits) are incurred, while taking into consideration any valuation allowances or non-deductible portions of the non-GAAP adjustments. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Mid Penn’s results and financial condition as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information will be helpful in understanding Mid Penn’s ongoing operating results. This supplemental presentation should not be construed as an inference that Mid Penn’s future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

Tangible Book Value Per Share

(Dollars in thousands, except

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

per share data)

2020

2020

2020

2019

2019

Shareholders' Equity

$

248,189

$

243,345

$

239,511

$

237,874

$

234,612

Less: Goodwill

62,840

62,840

62,840

62,840

62,840

Less: Core Deposit and Other Intangibles

4,791

5,108

5,435

5,758

6,109

Tangible Equity

$

180,558

$

175,397

$

171,236

$

169,276

$

165,663

Common Shares Outstanding

8,415,589

8,408,401

8,484,328

8,480,938

8,478,461

Tangible Book Value per Share

$

21.46

$

20.86

$

20.18

$

19.96

$

19.54

CONSOLIDATED BALANCE SHEETS (Unaudited):

(Dollars in thousands, except share data)

Sept. 30, 2020

Dec. 31, 2019

Sept. 30, 2019

ASSETS

Cash and due from banks

$

42,628

$

25,746

$

54,756

Interest-bearing balances with other financial institutions

4,097

4,657

4,393

Federal funds sold

148,632

108,627

101,730

Total cash and cash equivalents

195,357

139,030

160,879

Investment securities available for sale, at fair value

8,337

37,009

52,419

Investment securities held to maturity, at amortized cost

(fair value $144,708, $137,476, and $173,722)

140,474

136,477

170,472

Equity securities available for sale, at fair value

1,522

507

509

Loans held for sale

30,938

8,422

7,115

Loans and leases, net of unearned interest

2,521,827

1,762,756

1,710,434

Less: Allowance for loan and lease losses

(12,170

)

(9,515

)

(9,316

)

Net loans and leases

2,509,657

1,753,241

1,701,118

Bank premises and equipment, net

25,227

24,937

23,357

Operating lease right of use asset

10,173

11,442

10,416

Finance lease right of use asset

3,312

3,447

3,492

Cash surrender value of life insurance

17,108

16,881

16,804

Restricted investment in bank stocks

7,726

4,902

6,105

Accrued interest receivable

14,663

7,964

8,414

Deferred income taxes

4,819

2,810

3,922

Goodwill

62,840

62,840

62,840

Core deposit and other intangibles, net

4,791

5,758

6,109

Foreclosed assets held for sale

1,716

196

130

Other assets

14,275

15,312

14,798

Total Assets

$

3,052,935

$

2,231,175

$

2,248,899

LIABILITIES & SHAREHOLDERS’ EQUITY

Deposits:

Noninterest-bearing demand

$

534,918

$

310,036

$

298,885

Interest-bearing demand

630,160

458,451

465,745

Money Market

679,024

488,748

486,131

Savings

192,314

177,737

180,927

Time

419,982

477,422

458,405

Total Deposits

2,456,398

1,912,394

1,890,093

Short-term borrowings

203,842

12,000

Long-term debt

75,199

32,903

62,971

Subordinated debt

41,972

27,070

27,067

Operating lease liability

11,212

12,544

11,534

Accrued interest payable

2,840

2,208

2,823

Federal income tax payable

1,734

Other liabilities

11,549

6,182

7,799

Total Liabilities

2,804,746

1,993,301

2,014,287

Shareholders' Equity:

Common stock, par value $1.00 per share; 20,000,000 shares authorized;
Shares issued: 8,508,241 at Sept. 30, 2020, 8,480,938 at Dec. 31, 2019 and 8,478,461
at Sept. 30, 2019;
Shares outstanding: 8,415,589 at Sept. 30, 2020, 8,480,938 at Dec. 31, 2019, and
8,478,461 at Sept. 30, 2019

8,508

8,481

8,478

Additional paid-in capital

178,659

178,159

177,994

Retained earnings

63,099

50,891

48,009

Accumulated other comprehensive (loss) income

(284

)

343

131

Treasury stock, at cost; 92,652 shares at September 30, 2020

(1,793

)

Total Shareholders’ Equity

248,189

237,874

234,612

Total Liabilities and Shareholders' Equity

$

3,052,935

$

2,231,175

$

2,248,899

CONSOLIDATED STATEMENTS OF INCOME (Unaudited):

(Dollars in thousands, except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

INTEREST INCOME

Interest and fees on loans and leases

$

25,136

$

22,573

$

72,501

$

65,865

Interest and dividends on investment securities:

U.S. Treasury and government agencies

278

701

1,409

2,433

State and political subdivision obligations, tax-exempt

265

495

734

1,698

Other securities

406

215

882

597

Total interest and dividends on investment securities

949

1,411

3,025

4,728

Interest on other interest-bearing balances

3

23

36

80

Interest on federal funds sold

34

506

447

704

Total Interest Income

26,122

24,513

76,009

71,377

INTEREST EXPENSE

Interest on deposits

3,767

5,830

13,156

15,692

Interest on short-term borrowings

181

69

226

458

Interest on long-term and subordinated debt

766

847

2,208

2,384

Total Interest Expense

4,714

6,746

15,590

18,534

Net Interest Income

21,408

17,767

60,419

52,843

PROVISION FOR LOAN AND LEASE LOSSES

1,100

565

2,700

1,155

Net Interest Income After Provision for Loan and Lease Losses

20,308

17,202

57,719

51,688

NONINTEREST INCOME

Mortgage banking income

3,107

1,091

5,927

2,605

Income from fiduciary and wealth management activities

462

386

1,267

1,092

Service charges on deposits

140

230

460

665

ATM debit card interchange income

535

434

1,426

1,148

Net gain on sales of SBA loans

173

275

435

710

Merchant services income

95

115

276

304

Earnings from cash surrender value of life insurance

75

79

227

236

Net gain on sales of investment securities

150

46

393

70

Other income

565

347

1,447

1,096

Total Noninterest Income

5,302

3,003

11,858

7,926

NONINTEREST EXPENSE

Salaries and employee benefits

10,279

8,425

26,546

23,970

Occupancy expense, net

1,338

1,232

4,110

3,977

Equipment expense

713

671

2,148

1,956

Pennsylvania bank shares tax expense

409

359

869

740

FDIC Assessment

547

(131

)

1,216

542

Legal and professional fees

336

311

1,037

1,204

Marketing and advertising expense

104

238

406

643

Software licensing and utilization

1,363

1,150

3,881

3,282

Telephone expense

134

150

405

465

Gain on sale or write-down of foreclosed assets, net

(8

)

(36

)

(8

)

(22

)

Intangible amortization

317

355

966

1,078

Other expenses

2,642

1,959

7,582

5,947

Total Noninterest Expense

18,174

14,683

49,158

43,782

INCOME BEFORE PROVISION FOR INCOME TAXES

7,436

5,522

20,419

15,832

Provision for income taxes

889

709

3,221

2,539

NET INCOME

$

6,547

$

4,813

$

17,198

$

13,293

PER COMMON SHARE DATA:

Basic and Diluted Earnings Per Common Share

$

0.78

$

0.57

$

2.04

$

1.57

Cash Dividends Paid

$

0.18

$

0.18

$

0.59

$

0.61

NET INTEREST MARGIN, (Unaudited):

Average Balances, Income and Interest Rates on a Taxable Equivalent Basis

For the Three Months Ended

(Dollars in thousands)

September 30, 2020

June 30, 2020

Average

Average

Average

Average

Balance

Interest

Rates

Balance

Interest

Rates

ASSETS:

Interest Bearing Balances

$

3,798

$

3

0.31

%

$

6,307

$

18

1.15

%

Investment Securities:

Taxable

99,498

545

2.18

%

124,524

749

2.42

%

Tax-Exempt

51,668

335

(a)

2.58

%

48,734

314

(a)

2.59

%

Total Securities

151,166

880

2.32

%

173,258

1,063

2.47

%

Federal Funds Sold

132,002

34

0.10

%

90,013

23

0.10

%

Loans and Leases, Net

2,482,011

25,229

(b)

4.04

%

2,287,260

25,207

(b)

4.43

%

Restricted Investment in Bank Stocks

7,215

139

7.66

%

7,039

34

1.94

%

Total Earning Assets

2,776,192

26,285

3.77

%

2,563,877

26,345

4.13

%

Cash and Due from Banks

38,065

28,417

Other Assets

177,724

174,467

Total Assets

$

2,991,981

$

2,766,761

LIABILITIES & SHAREHOLDERS' EQUITY:

Interest-bearing Demand

$

573,178

$

814

0.56

%

$

512,592

$

787

0.62

%

Money Market

659,913

881

0.53

%

575,195

881

0.62

%

Savings

190,528

80

0.17

%

184,680

79

0.17

%

Time

419,612

1,992

1.89

%

451,410

2,262

2.02

%

Total Interest-bearing Deposits

1,843,231

3,767

0.81

%

1,723,877

4,009

0.94

%

Short Term Borrowings

203,854

181

0.35

%

52,293

45

0.35

%

Long-term Debt

81,534

258

1.26

%

81,487

281

1.39

%

Subordinated Debt

41,990

508

4.81

%

42,031

507

4.85

%

Total Interest-bearing Liabilities

2,170,609

4,714

0.86

%

1,899,688

4,842

1.03

%

Noninterest-bearing Demand

552,576

601,650

Other Liabilities

24,032

24,632

Shareholders' Equity

244,764

240,791

Total Liabilities & Shareholders' Equity

$

2,991,981

$

2,766,761

Net Interest Income (taxable equivalent basis)

$

21,571

$

21,503

Taxable Equivalent Adjustment

(163

)

(157

)

Net Interest Income

$

21,408

$

21,346

Total Yield on Earning Assets

3.77

%

4.13

%

Rate on Supporting Liabilities

0.86

%

1.03

%

Average Interest Spread

2.90

%

3.11

%

Net Interest Margin

3.09

%

3.37

%

(a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $70,000 for the three months ended September 30, 2020 and $66,000 for the three months ended June 30, 2020. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2020 and June 30, 2020.
(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $93,000 for the three months ended September 30, 2020 and $91,000 for the three months ended June 30, 2020, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2020 and June 30, 2020.

NET INTEREST MARGIN, CONTINUED (Unaudited):

Average Balances, Income and Interest Rates on a Taxable Equivalent Basis

For the Nine Months Ended

(Dollars in thousands)

September 30, 2020

September 30, 2019

Average

Average

Average

Average

Balance

Interest

Rates

Balance

Interest

Rates

ASSETS:

Interest Bearing Balances

$

4,871

$

36

0.99

%

$

5,287

$

80

2.02

%

Investment Securities:

Taxable

119,458

2,034

2.27

%

154,617

2,718

2.35

%

Tax-Exempt

47,737

929

(a)

2.60

%

97,814

2,149

(a)

2.94

%

Total Securities

167,195

2,963

2.37

%

252,431

4,867

2.58

%

Federal Funds Sold

114,946

447

0.52

%

42,855

704

2.20

%

Loans and Leases, Net

2,181,340

72,777

(b)

4.46

%

1,661,695

66,103

(b)

5.32

%

Restricted Investment in Bank Stocks

6,308

257

5.44

%

6,094

312

6.85

%

Total Earning Assets

2,474,660

76,480

4.13

%

1,968,362

72,066

4.90

%

Cash and Due from Banks

32,361

29,539

Other Assets

166,539

144,918

Total Assets

$

2,673,560

$

2,142,819

LIABILITIES & SHAREHOLDERS' EQUITY:

Interest-bearing Demand

$

514,035

$

2,773

0.72

%

$

404,712

$

3,015

1.00

%

Money Market

579,638

3,359

0.77

%

429,421

5,433

1.69

%

Savings

183,735

279

0.20

%

191,027

495

0.35

%

Time

450,333

6,745

2.00

%

472,872

6,749

1.91

%

Total Interest-bearing Deposits

1,727,741

13,156

1.02

%

1,498,032

15,692

1.40

%

Short-term Borrowings

85,515

226

0.35

%

21,606

458

2.83

%

Long-term Debt

63,997

791

1.65

%

56,016

1,217

2.90

%

Subordinated Debt

37,705

1,417

5.02

%

27,074

1,167

5.76

%

Total Interest-bearing Liabilities

1,914,958

15,590

1.09

%

1,602,728

18,534

1.55

%

Noninterest-bearing Demand

491,803

288,362

Other Liabilities

25,312

22,745

Shareholders' Equity

241,487

228,984

Total Liabilities & Shareholders' Equity

$

2,673,560

$

2,142,819

Net Interest Income (taxable equivalent basis)

$

60,890

$

53,532

Taxable Equivalent Adjustment

(471

)

(689

)

Net Interest Income

$

60,419

$

52,843

Total Yield on Earning Assets

4.13

%

4.90

%

Rate on Supporting Liabilities

1.09

%

1.55

%

Average Interest Spread

3.04

%

3.35

%

Net Interest Margin

3.29

%

3.64

%

(a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $195,000 and $451,000 for the nine months ended September 30, 2020 and 2019, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2020 and 2019.
(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $276,000 and $238,000 for the nine months ended September 30, 2020 and 2019, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at September 30, 2020 and 2019.

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.

A specific factor that may cause results to differ materially from forward-looking statements relates to the COVID-19 pandemic, which could have a negative impact on our business and operations. While Mid Penn has a special operating plan in place during the pandemic, the COVID-19 impact has disrupted the normal operations of our business (including communications and technology), and the finances and typical practices of our deposit and loan clients, suppliers, third-party vendors and counterparties. The COVID-19 pandemic could impact us negatively to the extent that it results in increased credit losses and decreased market values of collateral securing loans, reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial market settlement functions or the realization of other risk factors described herein. This impact could extend beyond the current short-term stress to affect longer-term economic growth negatively, which could have an adverse effect on our business and operations. It could also adversely affect the financial stability of our deposit and loan clients, suppliers, third-party vendors and counterparties, in ways that we are unable to predict.

For a more detailed description of these and other factors which would affect our results, please see Mid Penn’s filings with the SEC, including those risk factors identified in the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent filings. 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: CONTACTS Rory G. Ritrievi President & Chief Executive Officer Michael D. Peduzzi, CPA Chief Financial Officer Mid Penn Bancorp, Inc. 349 Union Street Millersburg, PA 17061 1-866-642-7736