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Mid Penn Bancorp, Inc. Reports Record 2020 Annual Earnings and Declares Dividend
Источник: Nasdaq GlobeNewswire / 28 янв 2021 12:27:44 America/Chicago
MILLERSBURG, Pa., Jan. 28, 2021 (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 year ended December 31, 2020 of $26,209,000 or $3.11 per common share basic and $3.10 per share diluted, compared to earnings of $17,701,000 or $2.09 per common share basic and diluted for the year ended December 31, 2019. The basic earnings per share for the year ended December 31, 2020 reflect an increase of 49 percent compared to the earnings per share for the same period in the prior year, and reflect the highest annual earnings on record since Mid Penn Bancorp, Inc. was formed as a bank holding company in 1991. Earnings for the fourth quarter of 2020 were $9,011,000 or $1.07 per common share basic and $1.06 per share diluted, which was more than double when compared to earnings of $4,408,000 or $0.52 per common share basic and diluted for the fourth quarter ended December 31, 2019.
Mid Penn also reported that, based upon its fourth quarter and 2020 full-year results, on January 27, 2021, the Board of Directors of Mid Penn Bancorp, Inc. declared a quarterly dividend of $0.19 per common share, payable on February 22, 2021, to shareholders of record as of February 10, 2021.
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 $22.39 as of December 31, 2020, reflecting an increase for the year of $2.43 or 12 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 8 percent for the year to $30.37 as of December 31, 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 December 31, 2020, December 31, 2019, and certain other periods.
Mid Penn also reported total assets of $2,998,948,000 as of December 31, 2020, reflecting an increase of $767,773,000 or 34 percent compared to total assets of $2,231,175,000 as of December 31, 2019. Included in this increase is the significant volume of $388,313,000 of Paycheck Protection Program (“PPP”) loans outstanding, net of deferred fees, as of December 31, 2020. Mid Penn is 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. Total core banking loans (total loans excluding both the PPP portfolio and mortgage loans held for sale) increased to $1,995,728,000 as of December 31, 2020, representing an annualized core loan growth rate of over 13 percent since the end of 2019. The asset growth was funded by both (i) $562,186,000 of deposit growth, representing an annual deposit growth rate of over 29 percent, including an increase of $226,188,000 in noninterest-bearing deposits for the year ended December 31, 2020; and (ii) a $167,829,000 net increase in borrowings, including $125,617,000 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
We are proud to announce these fourth quarter and full year 2020 results of operations to our shareholders. As will be seen with a close analysis of these numbers, it was the best overall performance in the history of Mid Penn.
For the year, organic loan growth (excluding Paycheck Protection Program loans discussed below) was 13 percent, accomplished with the origination of over $1.1 billion in commercial, consumer, and residential loans during 2020. While the yield on those loans was down due to a significant decrease in market interest rates, we maintained a healthy net interest margin with a solid 29 percent organic deposit growth. The importance of maintaining a healthy net interest margin is crucial to a successful year. Equally as important to our overall success is the maintenance of pristine asset (loan) quality. With adding over $4 million to our reserve for loan losses while incurring less than $350,000 in net loan losses (0.01 percent of the total loan portfolio), our asset quality improvement rivaled the success we had in asset growth. Very comforting performance in a very difficult year for so many.
Along with that balance sheet growth, we had our best year ever in the sale of residential mortgages on the secondary market and our best year ever in fiduciary and wealth management. Those successes along with strong performances in other fee-based services drove us to grow non-interest income by over $5 million, an increase of over 41 percent in one year.
Supplementing our core efforts in 2020 was the company’s impressive performance in the Federal Government’s Paycheck Protection Program. Throughout 2020, Mid Penn Bank originated over 4,100 PPP loans, totaling over $630 million of loans, helping to protect over 55,000 jobs in the process. Those efforts led to a significant amount of interest income, while also being a catalyst for organic growth as we more fully developed the relationships with those PPP borrowers. Our 2020 story cannot be written without significant mention of the importance of that PPP success. As a community banking company, our stated mission is to support our customers and our communities, and the PPP allowed us to do that at a time when our customers and the communities we support needed it most. These record results are a reward for that effort.
With our fourth quarter 2020 success, the Board of Directors is pleased to announce a quarterly stock dividend of $0.19 per common share, an increase of $0.01 per common share when compared to each of the other three quarters of 2020. As the company succeeds, our shareholders succeed, both with that dividend and in the increase in our tangible book value as noted above.
OPERATING RESULTS
Net Interest Income and Net Interest Margin
For the year ended December 31, 2020, net interest income was $88,208,000, an increase of $18,060,000 or 26 percent compared to net interest income of $70,148,000 for the year ended December 31, 2019. The primary sources of the increased net interest income growth for the year included (i) $2,292,000 of interest income from core loan growth, (ii) reduced interest expense due to a lower cost of deposits, and (iii) the recognition of $13,137,000 of PPP loan processing fees generated as a result of Mid Penn’s participation in the PPP, with $8,183,000 of PPP fees recognized in the fourth quarter of 2020. These PPP fees are recognized into interest income over the term of the respective loan (most have a 24-month maturity), or sooner if the loans are forgiven by the Small Business Administration or the borrowers otherwise pay down principal prior to a loan’s stated maturity.
Mid Penn’s tax-equivalent net interest margin for the year ended December 31, 2020 was 3.48 percent versus 3.57 percent for the year ended December 31, 2019. The yield on interest-earning assets decreased from 4.83 percent for 2019 to 4.25 percent for 2020. The net interest margin and yields on loans and interest-earning assets reflect the recognition of PPP loan processing fees in total interest income. Though the average balance of interest-earning assets increased year over year, the yields on interest-earning assets declined due to both (i) the significant average balance of PPP loans, which earn interest at a rate of 1 percent while outstanding, and (ii) reductions in market interest rates subsequent to December 2019 consisting of 1.50 percent of combined Federal Open Market Committee (“FOMC”) rate cuts during March 2020 in response to the COVID-19 pandemic. The total cost of deposits for the year ended December 31, 2020 favorably decreased to 0.72 percent compared to 1.19 percent for the year ended December 31, 2019 as a result of the aforementioned growth in noninterest-bearing deposits, and from deposit rate decrease adjustments made during the year, including those made in response to the March 2020 FOMC rate cuts.
Noninterest Income
For the year ended December 31, 2020, noninterest income totaled $17,908,000, an increase of $5,287,000 or 42 percent, compared to noninterest income of $12,621,000 for the same period 2019.
Mortgage banking income was $9,682,000 for the year ended December 31, 2020, an increase of $5,911,000 or more than double the mortgage banking income of $3,771,000 recorded during the year ended December 31, 2019. As mortgage interest rates declined and remained low for most of 2020, Mid Penn significantly increased residential mortgage originations (both purchase and refinance activity) and secondary-market loan sales and gains during 2020.
ATM debit card interchange income was $1,960,000 for the year ended December 31, 2020, an increase of $366,000 or 23 percent compared to interchange income of $1,594,000 for the year ended December 31, 2019. The increase resulted from increasing card-based transaction usage across our expanding checking account customer base.
Income from fiduciary and wealth management activities was $1,694,000 for the year ended December 31, 2020, an increase of $278,000 or 20 percent, compared to fiduciary income of $1,416,000 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.
Net gains on sales of investment securities were $467,000 for the year ended December 31, 2020, a decrease of $1,411,000 compared to net gains on sales of securities of $1,878,000 for the year ended December 31, 2019. During the fourth quarter of 2019, Mid Penn adopted Accounting Standards Update (“ASU”) 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and, as part of the adoption, Mid Penn reclassified several held-to-maturity debt securities with an aggregate amortized cost of $67,100,000 to the available-for-sale category. Through implementation of planned organic hedging activities as part of Mid Penn’s interest rate risk management, all the reclassified securities were subsequently sold, and Mid Penn realized a pre-tax gain on the sales of $1,779,000 in 2019. Investment sales and gains during the twelve months ended December 31, 2020 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 $637,000 during the year ended December 31, 2020, reflecting a decrease of $247,000 or 28 percent when compared to the same period in 2019. The decrease is primarily due to less overdraft activity and decreased nonsufficient funds fees charged to deposit customers.
Net gains on sales of SBA loans were $442,000 for the year ended December 31, 2020, a decrease of $389,000 or 47 percent compared to net gains on sales of SBA loans of $831,000 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 the SBA-administered PPP loan processing, funding, and forgiveness during 2020.
Other income was $2,333,000 for the year ended December 31, 2020, an increase of $813,000 compared to other income of $1,520,000 for the year ended December 31, 2019. The increase in other income was primarily driven by higher volumes of fee-based income, including loan-level swap fees, wire transfer fees, letter of credit fees, and credit card program referrals and royalties.
Noninterest Expense
For the year ended December 31, 2020, noninterest expense totaled $70,577,000, an increase of $10,624,000 or 18 percent, compared to noninterest expense of $59,953,000 for the year ended December 31, 2019.
Salaries and employee benefits were $37,758,000 for the year ended December 31, 2020, an increase of $5,398,000 or 17 percent, versus the same period in 2019, with the increase primarily attributable to (i) increased commissions expense, 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 business development officers and staff members during 2020; and (iii) the addition of private banking and insurance business development professionals in our new nonbank subsidiaries focused on wealth management and insurance services.
Software licensing and utilization costs were $5,286,000 for the year ended December 31, 2020, an increase of $892,000 or 20 percent compared to $4,394,000 for the year ended December 31, 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 December 31, 2019, as well as costs associated with ensuring secure connectivity for an increased volume of employees working remotely in response to the COVID-19 restrictions. Additionally, Mid Penn continued to invest in upgrades to internal systems, networks, storage capabilities, cybersecurity management, 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.
FDIC assessment expense was $1,680,000 for the year ended December 31, 2020, an increase of $841,000 or more than double the $839,000 of FDIC assessment expense recognized during the year ended December 31, 2019. The lower assessment expense for the year ended December 31, 2019 reflected the receipt of $492,000 of FDIC small bank assessment credits in 2019. Similar credits were not received in 2020. Additionally, the total base assessment expense increased for 2020 when compared to 2019, primarily due to the significant year-over-year increase in total average assets of the Bank on which the assessment is based.
Community and charitable contributions qualifying for State tax credits totaled $1,342,000 for the year ended December 31, 2020, an increase of $587,000 compared to similar program contributions of $755,000 for the year ended December 31, 2019. Mid Penn was approved by the Commonwealth of Pennsylvania to contribute an increased tax-credit-qualifying amount to participants within Pennsylvania’s Department of Community and Economic Development (“DCED”) Educational Improvement Tax Credit Program (“EITC”), and to moderate-to-low income housing projects in the DCED’s Neighborhood Assistance Program (“NAP”) during the year ended December 31, 2020. These EITC and NAP contributions in 2020 generated tax credits totaling $1,132,000 to be applied to Mid Penn’s Pennsylvania bank shares tax liability. These contributions and programs are also key elements of Mid Penn’s Community Reinvestment Act compliance activities.
Pennsylvania bank shares tax expense was $583,000 for the year ended December 31, 2020, a decrease of $194,000 or 25 percent compared to $777,000 for the year ended December 31, 2019. The decrease in shares tax expense generally reflects the aforementioned larger dollar volume of donations made, which qualified for PA shares tax credits.
Mortgage banking profit-sharing expense totaled $2,004,000 and related to payments to third-party principals commensurate with the record-level of earnings success within the Southeastern Pennsylvania mortgage banking group at Mid Penn for the year ended December 31, 2020. Similar expenses were not recognized during the year ended December 31, 2019 as the group did not generate profit-sharing qualifying earnings in 2019.
Marketing and advertising expense was $542,000 for the year ended December 31, 2020, a decrease of $364,000 or 40 percent compared to $906,000 during the same period in 2019. The year 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 were significantly reduced in 2020, resulting in less advertising and promotional items expense.
The loss on the sale or write-down of foreclosed assets was $333,000 during the year ended December 31, 2020 as compared to a gain on the sale or write-down of foreclosed assets of $15,000 during the year ended December 31, 2019. The 2020 expense is attributable to write-downs taken on two related foreclosed assets totaling $358,000 during the year ended December 31, 2020. These write-downs were partially offset by $25,000 of collective gains on the sale of certain smaller foreclosed real estate properties during 2020.
The provision for income taxes was $5,130,000 during the year ended December 31, 2020, an increase of $1,405,000 or 38 percent compared to $3,725,000 for the same period in 2019. The provision for income taxes for the year ended December 31, 2020 reflects an effective Federal tax rate of 16.8%, compared to an effective Federal tax rate of 17.8% for the year ended December 31, 2019. The full-year tax provision through December 31, 2020 includes both (i) 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 totaling $318,000, and (ii) the full-year impact of tax credits recognized related to Mid Penn’s investment in a low-income housing project in Dauphin County, Pennsylvania totaling $861,000. In addition to federal taxes, the provision covers $157,000 of state income taxes that Mid Penn pays to the states of New Jersey, Maryland, and Delaware for revenues sourced in those respective States.
FINANCIAL CONDITION
Loans
Total loans at December 31, 2020 were $2,384,041,000 compared to $1,762,756,000 at December 31, 2019, an increase of $621,285,000 or 35 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 $388,313,000 of PPP loans still outstanding as of December 31, 2020, net of deferred PPP processing fees of $7,746,000. The annual loan growth also reflects an increase of $232,972,000 in core (non-PPP) loans, or a 13 percent organic loan growth rate, primarily in commercial real estate credits, and commercial and industrial financing loans.
Investments
Mid Penn’s portfolio of held-to-maturity securities, recorded at amortized cost, decreased $8,185,000 to $128,292,000 as of December 31, 2020, as compared to $136,477,000 as of December 31, 2019. Mid Penn’s total available-for-sale securities portfolio decreased $31,261,000 or 84 percent, from $37,009,000 at December 31, 2019 to $5,748,000 at December 31, 2020. The year ended December 31, 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 certain U.S. Agencies and other security issuers to execute calls on some higher coupon securities. Additionally, Mid Penn initiated some sales of available-for-sale investment securities for both strategic portfolio and asset liability management objectives.
Deposits
Total deposits increased $562,186,000 or over 29 percent, from $1,912,394,000 at December 31, 2019, to $2,474,580,000 at December 31, 2020. 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 $125,617,000 at December 31, 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 five 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 $75,115,000 at December 31, 2020. During the second quarter of 2020, Mid Penn executed a new Federal Home Loan Bank (“FHLB”) two-year term lower-cost borrowing 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. Mid Penn recognized $93,000 of FHLB prepayment penalties during the year ended December 31, 2019 attributable to the prepayment of $20,000,000 of higher-cost FHLB borrowings.
Subordinated Debt
Subordinated debt outstanding increased $17,510,000 or 65 percent, from $27,070,000 at December 31, 2019 to $44,580,000 at December 31, 2020. The year-over-year increase reflects the net impact of three subordinated debt transactions:
- In March 2020, Mid Penn issued an aggregate of $15,000,000 of Subordinated Debt Notes due March 2030 (the “March 2030 Notes”) to accredited investors. The March 2030 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.
- In December 2020, Mid Penn issued an aggregate of $12,150,000 of Subordinated Debt Notes due December 2030 (the “December 2030 Notes”) to accredited investors. The December 2030 Notes bear interest at a rate of 4.5 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.
- Also, during the fourth quarter of 2020, Mid Penn redeemed $9,500,000 in subordinated debt assumed in 2018 in conjunction with Mid Penn’s acquisition of First Priority Bank. The First Priority subordinated debt paid a high fixed rate of interest of 7 percent, and was redeemed promptly following the expiration of the noncallable period. Mid Penn recognized prepayment fees of $143,000 related to the early redemption, which are included in other noninterest expenses.
Capital
Shareholders’ equity increased by $17,814,000 or 7 percent from $237,874,000 as of December 31, 2019 to $255,688,000 as of December 31, 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 $1,795,000 as of December 31, 2020. A total of 92,652 common shares were repurchased at a discount to tangible book value per share, with an average cost of $19.37 per share. Regulatory capital ratios for both Mid Penn and its banking subsidiary exceeded regulatory “well-capitalized” levels at both December 31, 2020 and December 31, 2019.
ASSET QUALITY and COVID-19 IMPACT
The allowance for loan and lease losses as a percentage of total loans was 0.56% at December 31, 2020, compared to 0.54% at December 31, 2019, and 0.52% at December 31, 2018. 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 0.67% as of December 31, 2020. Loan loss reserves as a percentage of nonperforming loans were 84% at December 31, 2020, compared to 79% at December 31, 2019, and 75% at December 31, 2018. Mid Penn had net loan charge-offs of $333,000 and $272,000 for the years ended December 31, 2020 and 2019, respectively.
The provision for loan losses was $4,200,000 for the year ended December 31, 2020, an increase of over 200 percent compared to a provision for loan losses of $1,390,000 for the year ended December 31, 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 core loan growth (excluding PPP loans), which was over 13 percent during the year ended December 31, 2020, 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 $15,644,000 at December 31, 2020, an increase compared to nonperforming assets of $12,156,000 at December 31, 2019. The increase in nonperforming assets was primarily the result of one loan relationship totaling $2,331,000 being reclassified to nonaccrual status. Mid Penn believes this loan relationship reclassified as nonaccrual in 2020 is adequately collateralized, and the Bank expects to realize full principal without the need for a specific reserve for this relationship. Nonperforming assets were 0.66% of the total of loans plus other real estate assets as of December 30, 2020, compared to 0.69% as of December 31, 2019. Foreclosed real estate decreased from $196,000 at December 31, 2019 to $134,000 at December 31, 2020.
The CARES Act signed in March 2020, along with a joint agency statement issued by banking agencies, provided that short-term modifications made in response to COVID-19 to current and performing borrowers did 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 continued 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 relationship at some future time if warranted for the specific situation. As of December 31, 2020, the principal balance of loans remaining in this CARES Act qualifying deferment status totaled $11,681,000, or less than 1 percent of the total loan portfolio, a reduction compared to September 30, 2020, when $32,851,000 of loans, representing 1 percent of the total loan portfolio, were in this deferment status. Most borrowers granted a CARES Act deferral have returned to regular payment status. As more borrowers completed their deferral period subsequent to year-end 2020, the remaining balances outstanding in deferment under the CARES Act qualifications as of January 26, 2021 decreased to $8,126,000 of principal.
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 $13,382,000 is adequate as of December 31, 2020, to cover probable and estimated loan losses in the portfolio.
FINANCIAL HIGHLIGHTS (Unaudited):
(Dollars in thousands, except Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, per share data) 2020 2020 2020 2020 2019 Cash and cash equivalents $ 303,724 $ 195,357 $ 143,755 $ 140,758 $ 139,030 Investment securities 134,555 150,333 158,879 195,383 173,486 Loans 2,384,041 2,521,827 2,445,765 1,798,149 1,762,756 Allowance for loan and lease losses (13,382 ) (12,170 ) (11,067 ) (10,014 ) (9,515 ) Net loans 2,370,659 2,509,657 2,434,698 1,788,135 1,753,241 Goodwill and other intangibles 67,200 67,631 67,948 68,275 68,598 Other assets 122,810 129,957 117,085 107,200 96,820 Total assets $ 2,998,948 $ 3,052,935 $ 2,922,365 $ 2,299,751 $ 2,231,175 Noninterest-bearing deposits $ 536,224 $ 534,918 $ 564,834 $ 347,532 $ 310,036 Interest-bearing deposits 1,938,356 1,921,480 1,761,479 1,625,749 1,602,358 Total deposits 2,474,580 2,456,398 2,326,313 1,973,281 1,912,394 Borrowings and subordinated debt 245,312 321,013 331,228 65,423 59,973 Other liabilities 23,368 27,335 21,479 21,536 20,934 Shareholders' equity 255,688 248,189 243,345 239,511 237,874 Total liabilities and shareholders' equity $ 2,998,948 $ 3,052,935 $ 2,922,365 $ 2,299,751 $ 2,231,175 Book Value per Common Share $ 30.37 $ 29.49 $ 28.94 $ 28.23 $ 28.05 Tangible Book Value per Common Share * $ 22.39 $ 21.46 $ 20.86 $ 20.18 $ 19.96 * Non-GAAP measure; see Reconciliation of Non-GAAP Measures OPERATING HIGHLIGHTS (Unaudited):
Three Months Ended Year Ended (Dollars in thousands, except Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Dec. 31, per share data) 2020 2020 2020 2020 2019 2020 2019 Interest income $ 31,926 $ 26,122 $ 26,188 $ 23,699 $ 23,935 $ 107,935 $ 95,312 Interest expense 4,137 4,714 4,842 6,034 6,630 19,727 25,164 Net Interest Income 27,789 21,408 21,346 17,665 17,305 88,208 70,148 Provision for loan and lease losses 1,500 1,100 1,050 550 235 4,200 1,390 Noninterest income 6,050 5,302 3,622 2,934 4,695 17,908 12,621 Noninterest expense 21,419 18,174 15,403 15,581 16,171 70,577 59,953 Income before provision for income taxes 10,920 7,436 8,515 4,468 5,594 31,339 21,426 Provision for income taxes 1,909 889 1,682 650 1,186 5,130 3,725 Net income $ 9,011 $ 6,547 $ 6,833 $ 3,818 $ 4,408 $ 26,209 $ 17,701 Basic Earnings per Common Share $ 1.07 $ 0.78 $ 0.81 $ 0.45 $ 0.52 $ 3.11 $ 2.09 Diluted Earnings per Common Share $ 1.06 $ 0.78 $ 0.81 $ 0.45 $ 0.52 $ 3.10 $ 2.09 Return on Average Equity 14.34 % 10.64 % 11.41 % 6.43 % 7.41 % 10.76 % 7.67 % Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, 2020 2020 2020 2020 2019 Tier 1 Capital (to Average Assets) 6.8 % 6.6 % 6.6 % 7.8 % 7.8 % Common Tier 1 Capital (to Risk Weighted Assets) 9.6 % 9.5 % 9.5 % 9.6 % 9.8 % Tier 1 Capital (to Risk Weighted Assets) 9.6 % 9.5 % 9.5 % 9.6 % 9.8 % Total Capital (to Risk Weighted Assets) 12.6 % 12.3 % 12.4 % 12.5 % 11.9 % 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 Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, per share data) 2020 2020 2020 2020 2019 Shareholders' Equity $ 255,688 $ 248,189 $ 243,345 $ 239,511 $ 237,874 Less: Goodwill 62,840 62,840 62,840 62,840 62,840 Less: Core Deposit and Other Intangibles 4,360 4,791 5,108 5,435 5,758 Tangible Equity $ 188,488 $ 180,558 $ 175,397 $ 171,236 $ 169,276 Common Shares Outstanding 8,419,183 8,415,589 8,408,401 8,484,328 8,480,938 Tangible Book Value per Share $ 22.39 $ 21.46 $ 20.86 $ 20.18 $ 19.96 CONSOLIDATED BALANCE SHEETS (Unaudited):
(Dollars in thousands, except share data) Dec. 31, 2020 Dec. 31, 2019 ASSETS Cash and due from banks $ 31,284 $ 25,746 Interest-bearing balances with other financial institutions 1,541 4,657 Federal funds sold 270,899 108,627 Total cash and cash equivalents 303,724 139,030 Investment securities held to maturity, at amortized cost 128,292 136,477 (fair value $132,794 and $137,476) Investment securities available for sale, at fair value 5,748 37,009 Equity securities available for sale, at fair value 515 507 Loans held for sale 25,506 8,422 Loans and leases, net of unearned interest 2,384,041 1,762,756 Less: Allowance for loan and lease losses (13,382 ) (9,515 ) Net loans and leases 2,370,659 1,753,241 Bank premises and equipment, net 24,886 24,937 Operating lease right of use asset 10,157 11,442 Finance lease right of use asset 3,267 3,447 Cash surrender value of life insurance 17,183 16,881 Restricted investment in bank stocks 7,594 4,902 Accrued interest receivable 12,971 7,964 Deferred income taxes 3,619 2,810 Goodwill 62,840 62,840 Core deposit and other intangibles, net 4,360 5,758 Foreclosed assets held for sale 134 196 Other assets 17,493 15,312 Total Assets $ 2,998,948 $ 2,231,175 LIABILITIES & SHAREHOLDERS’ EQUITY Deposits: Noninterest-bearing demand $ 536,224 $ 310,036 Interest-bearing demand 605,567 458,451 Money Market 720,506 488,748 Savings 195,038 177,737 Time 417,245 477,422 Total Deposits 2,474,580 1,912,394 Short-term borrowings 125,617 — Long-term debt 75,115 32,903 Subordinated debt 44,580 27,070 Operating lease liability 11,200 12,544 Accrued interest payable 2,007 2,208 Other liabilities 10,161 6,182 Total Liabilities 2,743,260 1,993,301 Shareholders' Equity: Common stock, par value $1.00 per share; 20,000,000 shares authorized;
Shares issued: 8,511,835 at Dec. 31, 2020 and 8,480,938 at Dec. 31, 2019;
Shares outstanding: 8,419,183 at Dec. 31, 2020 and 8,480,938 at Dec. 31, 20198,512 8,481 Additional paid-in capital 178,853 178,159 Retained earnings 70,175 50,891 Accumulated other comprehensive (loss) income (57 ) 343 Treasury stock, at cost; 92,652 shares at December 31, 2020 (1,795 ) — Total Shareholders’ Equity 255,688 237,874 Total Liabilities and Shareholders' Equity $ 2,998,948 $ 2,231,175 CONSOLIDATED STATEMENTS OF INCOME (Unaudited):
(Dollars in thousands, except per share data) Years Ended December 31, 2020 2019 2018 INTEREST INCOME Interest and fees on loans and leases $ 103,507 $ 88,078 $ 61,692 Interest and dividends on investment securities: U.S. Treasury and government agencies 1,631 3,084 3,518 State and political subdivision obligations, tax-exempt 1,008 2,046 2,323 Other securities 1,253 782 595 Total interest and dividends on investment securities 3,892 5,912 6,436 Interest on interest-bearing balances 39 100 75 Interest on federal funds sold 497 1,222 451 Total Interest Income 107,935 95,312 68,654 INTEREST EXPENSE Interest on deposits 16,399 21,550 10,884 Interest on short-term borrowings 371 470 207 Interest on long-term and subordinated debt 2,957 3,144 1,629 Total Interest Expense 19,727 25,164 12,720 Net Interest Income 88,208 70,148 55,934 PROVISION FOR LOAN AND LEASE LOSSES 4,200 1,390 500 Net Interest Income After Provision for Loan and Lease Losses 84,008 68,758 55,434 NONINTEREST INCOME Income from fiduciary activities 1,694 1,416 1,155 Service charges on deposits 637 884 933 Net gain on sales of investment securities 467 1,878 137 Earnings from cash surrender value of life insurance 301 314 286 Mortgage banking income 9,682 3,771 751 ATM debit card interchange income 1,960 1,594 1,253 Merchant services income 392 413 347 Net gain on sales of SBA loans 442 831 561 Other income 2,333 1,520 2,039 Total Noninterest Income 17,908 12,621 7,462 NONINTEREST EXPENSE Salaries and employee benefits 37,758 32,360 23,862 Occupancy expense, net 5,505 5,352 4,019 Equipment expense 2,910 2,647 2,186 Software licensing and utilization 5,286 4,394 3,609 FDIC Assessment 1,680 839 772 Legal and professional fees 1,665 1,679 1,117 Charitable contributions qualifying for State tax credits 1,342 755 585 Mortgage banking profit-sharing expense 2,004 — — Pennsylvania Bank Shares Tax expense 583 777 225 Marketing and advertising expense 542 906 1,025 Telephone expense 539 609 621 Loss (gain) on sale or write-down of foreclosed assets 333 (15 ) 4 Intangible amortization 1,398 1,430 1,224 Merger and acquisition expense — — 4,790 Other expenses 9,032 8,220 6,132 Total Noninterest Expense 70,577 59,953 50,171 INCOME BEFORE PROVISION FOR INCOME TAXES 31,339 21,426 12,725 Provision for income taxes 5,130 3,725 2,129 NET INCOME 26,209 17,701 10,596 Series D preferred stock dividends — — 102 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 26,209 $ 17,701 $ 10,494 PER COMMON SHARE DATA: Basic Earnings Per Common Share $ 3.11 $ 2.09 $ 1.48 Diluted Earnings Per Common Share $ 3.10 $ 2.09 $ 1.48 Cash Dividends Declared $ 0.82 $ 0.79 $ 0.45 NET INTEREST MARGIN, (Unaudited):
Income and Rates on a Taxable Equivalent Basis for Years Ended (Dollars in thousands) December 31, 2020 December 31, 2019 December 31, 2018 Average Average Average Average Average Average Balance Interest Rates Balance Interest Rates Balance Interest Rates ASSETS: Interest Bearing Balances $ 3,593 $ 39 1.09 % $ 5,236 $ 100 1.91 % $ 4,983 $ 75 1.51 % Investment Securities: Taxable 112,636 2,524 2.24 % 149,187 3,442 2.31 % 165,422 3,838 2.32 % Tax-Exempt 49,410 1,276 (a) 2.58 % 89,011 2,590 (a) 2.91 % 102,656 2,940 (a) 2.86 % Total Securities 162,046 3,800 2.35 % 238,198 6,032 2.53 % 268,078 6,778 2.53 % Federal Funds Sold 135,243 497 0.37 % 63,436 1,222 1.93 % 25,745 451 1.75 % Loans and Leases, Net 2,247,002 103,871 (b) 4.62 % 1,678,000 88,398 (b) 5.27 % 1,243,987 61,965 (b) 4.98 % Restricted Investment in Bank Stocks 6,554 360 5.49 % 5,964 424 7.11 % 3,567 275 7.71 % Total Earning Assets 2,554,438 108,567 4.25 % 1,990,834 96,176 4.83 % 1,546,360 69,544 4.50 % Cash and Due from Banks 33,485 30,134 29,408 Other Assets 170,506 145,996 89,953 Total Assets $ 2,758,429 $ 2,166,964 $ 1,665,721 LIABILITIES &
SHAREHOLDERS' EQUITY:Interest-bearing Demand $ 538,385 $ 3,423 0.64 % $ 415,359 $ 4,331 1.04 % $ 371,873 $ 2,447 0.66 % Money Market 605,552 4,072 0.67 % 443,248 7,355 1.66 % 309,705 2,990 0.97 % Savings 186,132 346 0.19 % 187,927 641 0.34 % 191,686 540 0.28 % Time 443,607 8,558 1.93 % 471,241 9,223 1.96 % 324,853 4,907 1.51 % Total Interest-bearing Deposits 1,773,676 16,399 0.92 % 1,517,775 21,550 1.42 % 1,198,117 10,884 0.91 % Short-term Borrowings 106,233 371 0.35 % 16,557 470 2.84 % 8,833 207 2.34 % Long-term Debt 66,609 999 1.50 % 54,634 1,580 2.89 % 17,292 462 2.67 % Subordinated Debt 38,740 1,958 5.05 % 27,073 1,564 5.78 % 21,324 1,167 5.47 % Total Interest-bearing Liabilities 1,985,258 19,727 0.99 % 1,616,039 25,164 1.56 % 1,245,566 12,720 1.02 % Noninterest-bearing Demand 505,094 296,872 232,562 Other Liabilities 24,435 23,325 12,030 Shareholders' Equity 243,642 230,728 175,563 Total Liabilities &
Shareholders' Equity$ 2,758,429 $ 2,166,964 $ 1,665,721 Net Interest Income (taxable equivalent basis) $ 88,840 $ 71,012 $ 56,824 Taxable Equivalent Adjustment (632 ) (864 ) (890 ) Net Interest Income $ 88,208 $ 70,148 $ 55,934 Total Yield on Earning Assets 4.25 % 4.83 % 4.50 % Rate on Supporting Liabilities 0.99 % 1.56 % 1.02 % Average Interest Spread 3.26 % 3.27 % 3.48 % Net Interest Margin 3.48 % 3.57 % 3.67 % (a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $268,000, $544,000 and $617,000 for the years ended December 31, 2020, 2019 and 2018, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at December 31, 2020, 2019 and 2018.
(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $364,000, $320,000 and $273,000 for the years ended December 31, 2020, 2019 and 2018, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at December 31, 2020, 2019 and 2018.NET INTEREST MARGIN, CONTINUED (Unaudited):
Income and Interest Rates on a Taxable Equivalent Basis For the Three Months Ended (Dollars in thousands) December 31, 2020 September 30, 2020 Average Average Average Average Balance Interest Rates Balance Interest Rates ASSETS: Interest Bearing Balances $ 2,245 $ 2 0.35 % $ 3,798 $ 3 0.31 % Investment Securities: Taxable 92,317 490 2.11 % 99,498 545 2.18 % Tax-Exempt 54,394 348 (a) 2.55 % 51,668 335 (a) 2.58 % Total Securities 146,711 838 2.27 % 151,166 880 2.32 % Federal Funds Sold 195,962 50 0.10 % 132,002 34 0.10 % Loans and Leases, Net 2,442,562 31,094 (b) 5.06 % 2,482,011 25,229 (b) 4.04 % Restricted Investment in Bank Stocks 7,285 103 5.62 % 7,215 139 7.66 % Total Earning Assets 2,794,765 32,087 4.57 % 2,776,192 26,285 3.77 % Cash and Due from Banks 36,831 38,065 Other Assets 180,862 177,724 Total Assets $ 3,012,458 $ 2,991,981 LIABILITIES & SHAREHOLDERS' EQUITY: Interest-bearing Demand $ 610,904 $ 650 0.42 % $ 573,178 $ 814 0.56 % Money Market 682,730 713 0.42 % 659,913 881 0.53 % Savings 193,271 67 0.14 % 190,528 80 0.17 % Time 423,573 1,813 1.70 % 419,612 1,992 1.89 % Total Interest-bearing Deposits 1,910,478 3,243 0.68 % 1,843,231 3,767 0.81 % Short Term Borrowings 166,284 145 0.35 % 203,854 181 0.35 % Long-term Debt 75,146 208 1.10 % 81,534 258 1.26 % Subordinated Debt 41,823 541 5.15 % 41,990 508 4.81 % Total Interest-bearing Liabilities 2,193,731 4,137 0.75 % 2,170,609 4,714 0.86 % Noninterest-bearing Demand 544,678 552,576 Other Liabilities 23,997 24,032 Shareholders' Equity 250,052 244,764 Total Liabilities & Shareholders' Equity $ 3,012,458 $ 2,991,981 Net Interest Income (taxable equivalent basis) $ 27,950 $ 21,571 Taxable Equivalent Adjustment (161 ) (163 ) Net Interest Income $ 27,789 $ 21,408 Total Yield on Earning Assets 4.57 % 3.77 % Rate on Supporting Liabilities 0.75 % 0.86 % Average Interest Spread 3.82 % 2.90 % Net Interest Margin 3.98 % 3.09 % (a) Includes tax-equivalent adjustments on interest from tax-free municipal securities of $73,000 for the three months ended December 31, 2020 and $70,000 for the three months ended September 30, 2020. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at December 31, 2020 and September 30, 2020.
(b) Includes tax-equivalent adjustments on interest from tax-free municipal loans of $88,000 for the three months ended December 31, 2020 and $93,000 for the three months ended September 30, 2020, respectively. Tax-equivalent adjustments were calculated using statutory tax rate of 21% at December 31, 2020 and September 30, 2020.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.
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
