# MID Penn Bancorp Inc: Form 10-Q for the period ended Jun 30, 2016

- Company: [MID Penn Bancorp Inc](/companies/mpb.md) (CIK 879635)
- Form: 10-Q
- Filed: 2016-08-12
- Accepted by EDGAR: Aug 12, 2016, 15:12 ET
- Period: 2016-06-30
- Accession: 0000879635-16-000072
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/879635/000087963516000072/c635-20160630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/879635/000087963516000072/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2016-04-01 to 2016-06-30 | $1.3m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2016-01-01 to 2016-06-30 | $2.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | $593.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2016-01-01 to 2016-06-30 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | $2.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | $3.8m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | $0.48 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2016-01-01 to 2016-06-30 | $0.91 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | $18.8m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $319.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2016-01-01 to 2016-06-30 | $1.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2016-06-30 | $41.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2016-06-30 | $1.01bn | us-gaap:Assets |
| Total liabilities | at 2016-06-30 | $938.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-06-30 | $74.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,824 characters.

The following is Management’s Discussion of Consolidated Financial Condition as of June 30, 2016, compared to year-end 2015, and the Results of Operations for the three and six months ended June 30, 2016, compared to the same periods in 2015. For comparative purposes, the June 30, 2015 and December 31, 2015 balances have been reclassified, when, and if necessary, to conform to the 2016 presentation. Such reclassifications had no impact on net income.

This discussion should be read in conjunction with the financial tables, statistics, and the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Annual Report”). The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.

Forward-looking statements involve risks, uncertainties and assumptions. Although Mid Penn does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in the 2015 Annual Report, and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on Mid Penn’s website or otherwise, and Mid Penn undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect”, “anticipates”, “intend”, “plan”, “believe”, “estimate”, and similar expressions are intended to identify such forward-looking statements.

Mid Penn’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

- the effects of future economic conditions on Mid Penn and its customers;
- governmental monetary and fiscal policies, as well as legislative and regulatory changes;
- future actions or inactions of the United States government, including a failure to increase the government debt limit or a prolonged shutdown of the federal government;
- an increase in the Pennsylvania Bank Shares Tax to which Mid Penn Bank’s capital stock is currently subject, or imposition of any additional taxes on the capital stock of Mid Penn or Mid Penn Bank;
- impacts of the capital and liquidity requirements imposed by Basel III standards and other regulatory pronouncements, regulations and rules;
- the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, and other accounting standard setters;
- the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;
- the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in Mid Penn’s market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
- the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
- technological changes;
- our ability to implement business strategies, including our acquisition strategy;
- our acquisition strategy may not be successful in locating advantageous targets or acquiring targets at advantageous prices;
- our ability to successfully integrate any banks, companies, assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames;
- potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;
- our ability to attract and retain qualified management and personnel;
- results of the regulator examination and supervision process;
- the failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities;
- acts of war or terrorism;
- our ability to maintain compliance with the exchange rules of The NASDAQ Stock Market LLC.;
- our ability to maintain the value and image of our brand and protect our intellectual property rights;
- disruptions due to flooding, severe weather, or other natural disasters of Acts of God;
- volatilities in the securities markets; and
- slow economic conditions.

This list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with this understanding of inherent uncertainty.

### Critical Accounting Estimates

Mid Penn’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and conform to general practices within the banking industry. Application of these principles involves significant judgments and estimates by management that have a material impact on the carrying value of certain assets and liabilities. The judgments and estimates that we used are based on historical experiences and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and estimates that we have made, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations.

Management of the Corporation considers the accounting judgments relating to the allowance for loan and lease losses, the evaluation of the Corporation’s investment securities for other-than-temporary impairment, the valuation of the Corporation’s goodwill for impairment, and the valuation of assets acquired and liabilities assumed in business combinations, to be the accounting areas that require the most subjective and complex judgments.

The allowance for loan and lease losses represents management’s estimate of probable incurred credit losses inherent in the loan and lease portfolio. Determining the amount of the allowance for loan and lease losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan and lease portfolio also represents the largest asset type on the consolidated balance sheet. Throughout the remainder of this report, the terms “loan” or “loans” refers to both loans and leases.

Valuations for the investment portfolio are determined using quoted market prices, where available. If quoted market prices are not available, investment valuation is based on pricing models, quotes for similar investment securities, and observable yield curves and spreads. In addition to valuation, management must assess whether there are any declines in value below the carrying value of the investments that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of the loss in the consolidated statement of income.

Goodwill recorded in connection with acquisitions is tested annually for impairment. If certain events occur, which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment. Changes in economic and operating conditions could result in goodwill impairment in future periods.

Valuations of assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires Mid Penn to estimate cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.

### Results of Operations

The comparability of the financial condition and results of operations as of and for the three and six months ended June 30, 2016 and 2015, in general, have been impacted by the acquisition of Phoenix.

### Overview

Net income available to common shareholders was $2,022,000 or $0.48 per common share, for the quarter ended June 30, 2016, as compared to net income available to common shareholders of $1,952,000 or $0.46 per common share, for the quarter ended June 30, 2015. During the six months ended June 30, 2016, net income available to common shareholders was $3,827,000 or $0.91 per common share, versus $2,828,000 or $0.71 per common share, for the six months ended June 30, 2015. The results for the six months ended June 30, 2015 were impacted by $762,000 in non-recurring merger-related expenses associated with Mid Penn’s acquisition of Phoenix on March 1, 2015.

Net income as a percent of average assets (return on average assets, or “ROA”) and shareholders' equity (return on average equity, or “ROE”) were as follows on an annualized basis:

|  | Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Return on average assets | 0.82% | 0.91% | 0.80% | 0.71% |
| Return on average equity | 11.28% | 11.21% | 10.75% | 8.89% |

### Net Interest Income/Funding Sources

Net interest income, Mid Penn’s primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings. The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities. Net interest income and corresponding yields are presented in the analysis below on a taxable-equivalent basis. Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 34%.

Net interest income increased $47,000 or 0.6% to $8,533,000 for the quarter ended June 30, 2016 from $8,486,000 during the quarter ended June 30, 2015. During the six months ended June 30, 2016, net interest income increased $1,424,000 or 9.2% to $16,948,000, from $15,524,000 during the six months ended June 30, 2015. Net interest income in 2016 was positively impacted by core loan growth, as well as a full six months of income on the interest-earning assets from the Phoenix acquisition as compared to four months in 2015.

For the three months ended June 30, 2016, Mid Penn’s taxable-equivalent net interest margin was 3.85% compared to 4.22% for the three months ended June 30, 2015. For the six months ended June 30, 2016, Mid Penn’s taxable-equivalent net interest margin was 3.90%, versus 4.10% for the six months ended June 30, 2015. The higher net interest margin in 2015 was predominantly the result of the recognition of $452,000 of income in both the three and six months ended June 30, 2015 from the successful resolution of three legacy Phoenix loans acquired with credit deterioration. Also, the investment portfolio had a lower yield during the three and six months ended June 30, 2016, versus the same periods in 2015, as several securities which matured or were called during 2016 had higher yields compared to replacement investments purchased in the persistent lower-yield bond market conditions.

Although the effective interest rate impact on earning assets and funding sources can be reasonably estimated at current interest rate levels, the options selected by customers, and the future mix of the loan, investment, and deposit products in the Bank's portfolios, may significantly change the estimates used in the simulation models. In addition, our net interest income may be impacted by further interest rate actions of the Board of Governors of the Federal Reserve System.

### Provision for Loan Losses

The provision for loan and lease losses is the expense necessary to maintain the allowance for loan and lease losses at a level adequate to absorb management’s estimate of probable losses in the loan and lease portfolio. Mid Penn’s provision for loan and lease losses is based upon management’s monthly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans and leases, analyze delinquencies, ascertain loan and lease growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets Mid Penn serves.

Mid Penn has maintained the allowance for loan and lease losses in accordance with Mid Penn’s assessment process, which takes into consideration the risk characteristics of the loan portfolio, the growth in the loan portfolio during the first six months of 2016, and shifting collateral values from December 31, 2015 to June 30, 2016.

Based upon a determination of loan and lease loss allowance adequacy, management recorded a $395,000 provision for the three months ended June 30, 2016 compared to a provision of $300,000 for the three months ended June 30, 2015. During the six months ended June 30, 2016, the provision for loan and lease losses was $735,000, compared to $600,000 for the six months ended June 30, 2015. The allowance for loan and lease losses as a percentage of total loans was 0.90% at June 30, 2016, compared to 0.83% at December 31, 2015. For further discussion of factors affecting the provision for loan and lease losses please see *Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses* in the Financial Condition section of this Management’s Discussion and Analysis.

### Noninterest Income

Noninterest income increased $305,000 or 27.9% during the second quarter of 2016 versus the same period in 2015. During the six months ended June 30, 2016, noninterest income increased $588,000 or 28.8%, versus the same period in 2015. The following components of noninterest income showed significant changes:

*(Dollars in Thousands)*

|  | Three Months Ended June 30, 2016 | 2015 | $ Variance | % Variance |
| --- | ---: | ---: | ---: | ---: |
| Net gain on sales of investment securities | $213 | $- | $213 | NA |
| Mortgage banking income | 246 | 153 | 93 | 60.8% |

*(Dollars in Thousands)*

|  | Six Months Ended June 30, 2016 | 2015 | $ Variance | % Variance |
| --- | ---: | ---: | ---: | ---: |
| Net gain on sales of investment securities | $213 | $177 | $36 | 20.3% |
| Mortgage banking income | 432 | 220 | 212 | 96.4% |
| Net gain on sales of SBA loans | 265 | 143 | 122 | 85.3% |
| Other income | 466 | 349 | 117 | 33.5% |

For the first half of 2016, mortgage banking income favorably increased $212,000 over the same period in 2015. Increased residential real estate financing activity throughout Mid Penn’s footprint, favorably low mortgage market interest rates, and the addition of seasoned loan originators collectively contributed to the increased revenue from this business line.

Mid Penn also experienced increased origination and sales activity in Small Business Administration (“SBA”) loans, resulting in an increase of $122,000 of related loan sale gains during the first six months of 2016 compared to the same period in 2015. More qualified borrowers continue to take advantage of Mid Penn’s Preferred Lender status with the SBA.

During the second quarter of 2016, Mid Penn took advantage of increased market values on several securities to reposition some of its investment portfolio, including selling a large volume of longer-term and rate-sensitive collateralized mortgage obligations (“CMOs”), as well as certain municipal bonds and agency notes. Mid Penn realized $213,000 in securities gains in the first half of 2016 as a result of these investment management activities. In comparison, during the first six months of 2015, Mid Penn realized $177,000 from gains on sales of securities.

Other noninterest income increased $117,000 for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily as a result of the $86,000 gain on the sale of insurance policies upon the dissolution of Mid Penn Insurance Services, LLC, which was a wholly-owned subsidiary of Mid Penn Bank, effective March 1, 2016. The decision was made to liquidate the subsidiary due to the lack of consistent profitability and growth.

### Noninterest Expense

Noninterest expense increased $279,000 or 4.2% during the second quarter of 2016, versus the same period in 2015. During the six months ended June 30, 2016, noninterest expenses increased $621,000, or 4.7%, versus the same period in 2015. The changes were primarily a result of the following components of noninterest expense:

*(Dollars in Thousands)*

|  | Three Months Ended June 30, 2016 | 2015 | $ Variance | % Variance |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $3,723 | $3,440 | $283 | 8.2% |
| Pennsylvania Bank Shares tax expense | 206 | 116 | 90 | 77.6% |

*(Dollars in Thousands)*

|  | Six Months Ended June 30, 2016 | 2015 | $ Variance | % Variance |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $7,446 | $6,760 | $686 | 10.1% |
| Occupancy expense, net | 1,046 | 950 | 96 | 10.1% |
| Equipment expense | 846 | 735 | 111 | 15.1% |
| Pennsylvania Bank Shares tax expense | 409 | 231 | 178 | 77.1% |
| Loss on sale/write-down of foreclosed assets | 132 | 17 | 115 | 676.5% |
| Merger and acquisition expense | - | 762 | (762) | -100.0% |
| Other expenses | 2,095 | 1,955 | 140 | 7.2% |

42

Salaries and employee benefit expenses increased $686,000 during the six months ended June 30, 2016 versus the same period in 2015. The increase primarily was attributable to franchise expansion, including (i) the addition of employees from the Phoenix acquisition on March 1, 2015, (ii) staff added to serve in Mid Penn’s branch in the Mechanicsburg, PA market opened in June 2015, and (iii) an increase in lending personnel and credit support staff in alignment with Mid Penn’s core banking growth.

In connection with the acquisition of Phoenix in March 2015, Mid Penn incurred $762,000 of nonrecurring merger-related expenses in the first half of 2015, while no merger expenses were incurred in the first six months of 2016.

Mid Penn realized losses of $132,000 on the sale/write-down of foreclosed assets during the first half of 2016, as compared to $17,000 for the same period in 2015, reflecting the workout of certain holdings in the Bank’s portfolio of other real estate owned.

Occupancy expenses for the six months ended June 30, 2016 increased by $96,000 compared to the same period in 2015. This increase was impacted by the inclusion of rent and other occupancy costs from the four acquired Phoenix branches and the addition of the Mechanicsburg, PA branch. Equipment expenses, bank shares tax expense, and other expenses also saw increases for the first six months of 2016 compared to the same period of 2015 related primarily to franchise growth.

### Income Taxes

The provision for income taxes was $593,000 for both the three months ended June 30, 2016 and the three months ended June 30, 2015. The effective tax rate for the three months ended June 30, 2016 was 22.7% compared to 22.5% for the three months ended June 30, 2015. The provision for income taxes for the six months ended June 30, 2016 was $1,113,000, compared to $677,000 during the same period in 2015. The effective tax rate for the six months ended June 30, 2016 was 22.5%, compared to 18.4% for the six months ended June 30, 2015. The lower provision for the six months ended June 30, 2015 was caused by the $762,000 in merger-related expenses, of which $101,000 was deemed a nondeductible expense.

Generally, Mid Penn’s effective tax rate is below the statutory rate due to earnings on tax-exempt loans, investments, and bank-owned life insurance, as well as the impact of tax credits. The realization of deferred tax assets is dependent on future earnings. Mid Penn currently anticipates that future earnings will be adequate to fully utilize deferred tax assets.

### Financial Condition

### Overview

Mid Penn’s total assets increased $81,246,000 or 8.7% to $1,012,884,000 at June 30, 2016 from $931,638,000 at December 31, 2015. The increase in total assets was impacted by strong deposit growth, particularly in new retail customers, and nonprofit and government deposits. Total deposits increased $116,397,000 to $893,440,000 at June 30, 2016 from $777,043,000 at December 31, 2015. Growth in public fund deposits required Mid Penn to purchase additional investments for pledging purposes, contributing to the increase in the investment portfolio during the first half of 2016. In addition, these deposits helped fund loan growth and allowed Mid Penn to payoff short-term borrowings in 2016.

### Loans

During the first six months of 2016, Mid Penn experienced an increase in gross loans outstanding of $29,962,000 or 4.1%, mainly in the commercial real estate category, which accounted for the majority of Mid Penn’s loan growth as noted in the table below.

*(Dollars in thousands)*

|  | June 30, 2016 Amount% |  | December 31, 2015 Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Commercial and industrial | $160,278 | 20.8% | $160,261 | 21.7% |
| Commercial real estate | 410,786 | 53.4% | 369,464 | 50.0% |
| Commercial real estate - construction | 56,074 | 7.3% | 68,068 | 9.2% |
| Lease financing | 565 | 0.1% | 727 | 0.1% |
| Residential mortgage | 103,822 | 13.5% | 103,343 | 14.0% |
| Home equity | 34,579 | 4.5% | 33,411 | 4.5% |
| Consumer | 3,049 | 0.4% | 3,917 | 0.5% |
|  | $769,153 | 100.0% | $739,191 | 100.0% |

43

### Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses

During the first six months of 2016, Mid Penn had net recoveries of $9,000 compared to net charge-offs of $465,000 during the same period of 2015. Loans charged off during the first six months of 2016 totaled $185,000 and included eight commercial real estate loans among six relationships totaling $150,000, one home equity loan for $25,000 and one consumer loan for $4,000. Additional charge-offs of $6,000 were predominantly comprised of deposit account charge-offs, as well as one residential mortgage. Mid Penn may need to make future adjustments to the allowance and the provision for loan and lease losses if economic conditions or loan credit quality differs substantially from the assumptions used in making Mid Penn’s evaluation of the level of the allowance for loan losses as compared to the balance of outstanding loans.

Changes in the allowance for loan and lease losses for the six months ended June 30, 2016 and 2015 are summarized as follows:

*(Dollars in thousands)*

|  | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: |
| Balance, beginning of period | $6,168 | $6,716 |
| Loans charged off during period | (185) | (546) |
| Recoveries of loans previously charged off | 194 | 81 |
| Net recoveries (charge-offs) | 9 | (465) |
| Provision for loan and lease losses | 735 | 600 |
| Balance, end of period | $6,912 | $6,851 |
| Ratio of net loans charged off to average loans outstanding (annualized) | 0.00% | 0.14% |
| Ratio of allowance for loan losses to net loans at end of period | 0.90% | 0.97% |

Other than as described herein, Mid Penn does not believe there are any trends, events or uncertainties that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources. Further, based on known information, Mid Penn believes that the effects of current and past economic conditions and other unfavorable business conditions may influence certain borrowers’ abilities to comply with their repayment terms. Mid Penn continues to monitor closely the financial strength of these borrowers. Mid Penn does not engage in practices which may be used to artificially shield certain borrowers from the negative economic or business cycle effects that may compromise their ability to repay. Mid Penn does not normally structure construction loans with interest reserve components. Mid Penn has not in the past performed any commercial real estate or other type loan workouts whereby an existing loan was restructured into multiple new loans. Also, Mid Penn does not extend loans at maturity solely due to the existence of guarantees, without recognizing the credit as impaired. While the existence of a guarantee may be a mitigating factor in determining the proper level of allowance once impairment has been identified, the guarantee does not affect the impairment analysis.

At June 30, 2016, total nonperforming loans amounted to $4,927,000 or 0.64% of loans and leases net of unearned income, compared to levels of $4,877,000 or 0.66% at December 31, 2015, and $8,574,000 or 1.22% at June 30, 2015.

*(Dollars in thousands)*

| Nonperforming Assets: | June 30, 2016 | December 31, 2015 | June 30, 2015 |
| --- | ---: | ---: | ---: |
| Nonaccrual loans | $3,995 | $4,418 | $6,636 |
| Accruing troubled debt restructured loans | 932 | 459 | 1,938 |
| Total nonperforming loans | 4,927 | 4,877 | 8,574 |
| Foreclosed real estate | 540 | 1,185 | 767 |
| Other repossessed property | 1 | - | - |
| Total non-performing assets | 5,468 | 6,062 | 9,341 |
| Accruing loans 90 days or more past due | 73 | 55 | 52 |
| Total risk elements | $5,541 | $6,117 | $9,393 |
| Nonperforming loans as a % of total |  |  |  |
| loans outstanding | 0.64% | 0.66% | 1.22% |
| Nonperforming assets as a % of total |  |  |  |
| loans outstanding and other real estate | 0.71% | 0.82% | 1.32% |
| Ratio of allowance for loan losses |  |  |  |
| to nonperforming loans | 140.28% | 126.46% | 79.90% |

In the table above, troubled debt restructured loans that are no longer accruing interest are included in nonaccrual loans.

Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to charging down or charging off the loan. Once the charge down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact and is not treated as a restructured credit. The following table provides additional analysis of partially charged-off loans.

*(Dollars in thousands)*

|  | June 30, 2016 | December 31, 2015 |
| --- | ---: | ---: |
| Period ending total loans outstanding (net of unearned interest) | $769,153 | $739,191 |
| Allowance for loan and lease losses | 6,912 | 6,168 |
| Total Nonperforming loans | 4,927 | 4,877 |
| Nonperforming and impaired loans with partial charge-offs | 1,710 | 1,869 |
| Ratio of nonperforming loans with partial charge-offs |  |  |
| to total loans | 0.22% | 0.25% |
| Ratio of nonperforming loans with partial charge-offs |  |  |
| to total nonperforming loans | 34.71% | 38.32% |
| Coverage ratio net of nonperforming loans with |  |  |
| partial charge-offs | 214.86% | 205.05% |
| Ratio of total allowance to total loans less |  |  |
| nonperforming loans with partial charge-offs | 0.90% | 0.84% |

Mid Penn considers a commercial loan or commercial real estate loan to be impaired when it becomes 90 days or more past due and not in the process of collection. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time the loan would be considered collateral dependent as the discounted cash flow method indicates no operating income is available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans rated as nonaccrual or lower will first have a collateral evaluation completed in accordance with the guidance on impaired loans. Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans rated as impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variation in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). The process of charge-off for residential mortgage loans begins upon a loan becoming delinquent for 90 days and not in the process of collection. The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Consumer loans are recommended for charge-off after reaching delinquency of 90 days and the loan is not in the process of collection. The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In addition, Mid Penn takes a preemptive step when any commercial loan or commercial real estate loan becomes classified under its internal classification system. A preliminary collateral evaluation in accordance with the guidance on impaired loans is prepared using the existing collateral information in the loan file. This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation. This collateral evaluation is preliminary but allows Mid Penn to determine if any potential collateral shortfalls exist.

Larger groups of small-balance loans, such as residential mortgages and consumer installment loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures unless such loans are the subject of a restructuring agreement.

Mid Penn’s rating system assumes any loans classified as substandard nonaccrual to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

It is Mid Penn’s policy to obtain updated third party valuations on all impaired loans collateralized by real estate as soon as practically possible of the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes.

In some instances Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, Mid Penn’s practice of obtaining independent third party market valuations on the subject property as soon as practically possible of being placed on nonaccrual status sometimes indicates that the loan to value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case by case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Excluding $1,321,000 in loans acquired with credit deterioration from the Phoenix acquisition, Mid Penn had several loan relationships deemed impaired with an aggregate carrying balance of $4,630,000. This pool of loans was further broken down into a group of loans with an aggregate carrying balance of $2,798,000 for which specific allocations totaling $774,000 were included within the loan loss reserve for these loans. The remaining $1,832,000 of loans required no specific allocation within the loan loss reserve. The $4,630,000 of impaired loan relationships were comprised of $3,657,000 in commercial real estate relationships, $824,000 in residential relationships, $81,000 in home equity relationships, and $68,000 in commercial and industrial relationships. There were specific loan loss reserve allocations of $769,000 against the commercial real estate relationships, $3,000 against the commercial and industrial relationships, and $2,000 against home equity relationships. Management currently believes that the specific reserves are adequate to cover probable future losses related to these relationships.

The allowance for loan and lease losses is a reserve established in the form of a provision expense for loan and lease losses and is reduced by loan charge-offs net of recoveries. In conjunction with an internal loan review function that operates independently of the lending function, management monitors the loan portfolio to identify risk on a monthly basis so that an appropriate allowance is maintained. Based on an evaluation of the loan portfolio, management presents a monthly review of the allowance for loan and lease losses to the Board of Directors, indicating any changes in the allowance since the last review. In making the evaluation, management considers the results of recent regulatory examinations, which typically include a review of the allowance for loan and lease losses an integral part of the examination process. As part of the examination process, federal or state regulatory agencies may require Mid Penn to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

In establishing the allowance, management evaluates on a quantitative basis individual classified loans and nonaccrual loans, and determines an aggregate reserve for those loans based on that review. In addition, an allowance for the remainder of the loan and lease portfolio is determined based on historical loss experience within certain components of the portfolio. These allocations may be modified if current conditions indicate that loan and lease losses may differ from historical experience.

In addition, a portion of the allowance is established for losses inherent in the loan and lease portfolio which have not been identified by the quantitative processes described above. This determination inherently involves a higher degree of subjectivity, and considers risk factors that may not have yet manifested themselves in historical loss experience. These factors include:

- changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;
- changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
- changes in the value of underlying collateral for collateral-dependent loans;
- changes in the experience, ability, and depth of lending management and other relevant staff;
- changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;
- changes in the quality of the institution's loan review system;
- changes in the nature and volume of the portfolio and in the terms of loans;
- the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio; and
- the existence and effect of any concentrations of credit and changes in the level of such concentrations.

While the allowance for loan and lease losses is maintained at a level believed to be adequate by management to provide for probable losses inherent in the loan and lease portfolio, determination of the allowance is inherently subjective, as it requires estimates, all of which may be susceptible to significant change. Changes in these estimates may impact the provisions charged to expense in future periods.

Management believes, based on information currently available, that the allowance for loan and lease losses of $6,912,000 is adequate as of June 30, 2016 is adequate to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.

### Liquidity

Mid Penn’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and to provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals and for funding corporate operations. Sources of liquidity are as follows:

- a growing core deposit base;
- proceeds from the sale or maturity of investment securities;
- proceeds from interest-bearing time deposits with other financial institutions;
- payments received on loans and mortgage-backed securities;
- overnight correspondent bank borrowings on various credit lines; and
- borrowing capacity available from the FHLB.

The major source of cash received in the first six months of 2016 came from the $116,397,000 net increase in deposits and the $38,501,000 in proceeds from the sale of investment securities.

Major uses of cash in the first six months of 2016 were $84,352,000 for investment purchases, $41,707,000 for the repayment of short- and long-term borrowings, and $30,054,000 for funding the increase in net loans and leases.

Major sources of cash received in the first six months of 2015 came from the sale of investment securities of $16,091,000, the $14,403,000 increase in short-term borrowings, and the net cash received from the Phoenix acquisition of $8,095,000.

Major uses of cash in the first six months of 2015 were the increase in net loans and leases of $24,202,000, the purchases of investment securities of $8,312,000, and the decrease in deposits of $7,235,000.

Mid Penn believes its core deposits are stable even in periods of changing interest rates. Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. These measurements indicate that liquidity generally remains stable and exceeds our minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, there are no known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.

On a quarterly basis, a comprehensive liquidity analysis is reviewed by the Asset Liability Committee and Board of Directors. The analysis provides a summary of the current liquidity measurements, projections, and future liquidity positions given various levels of liquidity stress. Management also maintains a detailed Contingency Funding Plan designed to respond to an overall decline in the financial condition of the banking industry or a problem specific to Mid Penn.

### Subordinated Debt

On November 9, 2015, Mid Penn entered into agreements with investors to purchase $7,500,000 aggregate principal amount of its Notes due 2025. The Notes are treated as Tier 2 capital for regulatory capital purposes. The offering closed in December 2015.

The Notes bear interest at a rate of 5.15% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no times be less than 4.0%. Interest is paid quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025. Additionally, Mid Penn may redeem the Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. The debt issuance costs associated with the Notes were $91,000 at June 30, 2016 and $86,000 at December 31, 2015.

Holders of the Notes may not accelerate the maturity of the Notes, except upon Mid Penn’s or Mid Penn Bank’s, its principal banking subsidiary’s, bankruptcy, insolvency, liquidation, receivership, or similar event.

### Regulatory Capital Changes

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations began January 1, 2015. The final rules implemented higher minimum capital requirements, added a new common equity Tier 1 capital requirement, and established criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements, which amount must be greater than 2.5% of total risk-weighted assets at January 1, 2019. The phase-in period for the capital conservation and countercyclical capital buffers for all banking organizations began on January 1, 2016 at the 0.625% level. A summary of the payout restrictions based on the capital conservation buffer is as follows:

| Capital Conservation Buffer (as a % of risk-weighted assets) \> 2.5% | Maximum Payout (as a % of eligible retained income) No payout limitation applies |
| --- | ---: |
| ≤2.5% and \>1.875% | 60% |
| ≤1.875% and \>1.25% | 40% |
| ≤1.25% and \>0.625% | 20% |
| ≤0.625% | 0% |

48

Implementation of the deductions and other adjustments to common equity tier 1 capital began on January 1, 2015 and will be phased-in over a three-year period. The final rules called for the following minimum capital requirements to be considered “well-capitalized” (which include the impact of the capital conservation buffer effective January 1, 2016):

|  | As of January 1, 2015 | 2016 | 2017 | 2018 | 2019 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Minimum common equity Tier 1 capital ratio | 4.5% | 4.5% | 4.5% | 4.5% | 4.5% |
| Common equity Tier 1 capital conservation buffer | N/A | 0.625% | 1.25% | 1.875% | 2.5% |
| Minimum common equity Tier 1 capital ratio plus capital conservation buffer | 4.5% | 5.125% | 5.75% | 6.375% | 7.0% |
| Phase-in of most deductions from common equity Tier 1 capital | 40% | 60% | 80% | 100% | 100% |
| Minimum Tier 1 capital ratio | 6.0% | 6.0% | 6.0% | 6.0% | 6.0% |
| Minimum Tier 1 capital ratio plus capital conservation buffer | N/A | 6.625% | 7.25% | 7.875% | 8.5% |
| Minimum total capital ratio | 8.0% | 8.0% | 8.0% | 8.0% | 8.0% |
| Minimum total capital ratio plus capital conservation buffer | N/A | 8.625% | 9.25% | 9.875% | 10.5% |

The final rules allow community banks to make a one-time election not to include the additional components of accumulated other comprehensive income (“AOCI”) in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. Mid Penn made the election not to include the additional components of AOCI in regulatory capital.

The final rules permanently grandfather non-qualifying capital instruments (such as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in the tier 1 capital of banking organizations with total consolidated assets less than $15 billion as of December 31, 2009 and banking organizations that were mutual holding companies as of May 19, 2010.

Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-ups approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250% risk weight.

Under the new rules, mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk weights for past-due loans, certain risk weights and credit conversion factors.

Mid Penn has assessed the impact of these changes on the regulatory ratios of Mid Penn and the Bank on the capital, operations, liquidity and earnings of Mid Penn and the Bank, and concluded that the new rules did not have a material negative effect on Mid Penn’s financial condition.

### Capital Resources

Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets. The greater a corporation’s capital resources, the more likely it is to meet its cash obligations and absorb unforeseen losses. Too much capital, however, indicates that not enough of the corporation’s earnings have been invested in the continued growth of the business or paid to shareholders. The buildup makes it difficult for a corporation to offer a competitive return on the shareholders’ capital going forward. For these reasons capital adequacy has been, and will continue to be, of paramount importance.

Shareholders’ equity increased during the six months ended June 30, 2016 by $4,406,000 or 6.3% from December 31, 2015. Capital was positively impacted by positive earnings of $3,827,000 and an increase in AOCI of $1,964,000. Capital was reduced by the payment of $1,437,000 in common stock dividends during the first half of 2016. All of Mid Penn’s investment securities are classified as available for sale, making accumulated other comprehensive income sensitive to the changing market value of investments.

Banks are evaluated for capital adequacy based on the ratio of capital to risk-weighted assets and total assets. The new minimum capital to risk-adjusted assets requirements including the capital conservation buffers began on January 1, 2016 and are illustrated below. At June 30, 2016, Mid Penn Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action and the minimum capital requirements under Basel III.

Mid Penn and Mid Penn Bank maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of June 30, 2016 and December 31, 2015:

*(Dollars in thousands)*

| Corporation As of June 30, 2016: | Capital Adequacy Actual: Amount | Ratio | Minimum Capital Required: Amount | Ratio | To Be Well-Capitalized Under Prompt Corrective Action Provisions: Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Tier 1 Capital (to Average Assets) | $67,873 | 6.9% | $39,402 | 4.0% | N/A | N/A |
| Common Equity Tier 1 Capital (to Risk Weighted Assets) | 67,873 | 9.2% | 37,649 | 5.125% | N/A | N/A |
| Tier 1 Capital (to Risk Weighted Assets) | 67,873 | 9.2% | 48,669 | 6.625% | N/A | N/A |
| Total Capital (to Risk Weighted Assets) | 82,311 | 11.2% | 63,361 | 8.625% | N/A | N/A |
| Bank |  |  |  |  |  |  |
| As of June 30, 2016: |  |  |  |  |  |  |
| Tier 1 Capital (to Average Assets) | $74,343 | 7.6% | $39,229 | 4.0% | $49,036 | 5.0% |
| Common Equity Tier 1 Capital (to Risk Weighted Assets) | 74,343 | 10.1% | 37,618 | 5.125% | 47,710 | 6.5% |
| Tier 1 Capital (to Risk Weighted Assets) | 74,343 | 10.1% | 48,628 | 6.625% | 58,721 | 8.0% |
| Total Capital (to Risk Weighted Assets) | 81,372 | 11.1% | 63,308 | 8.625% | 73,401 | 10.0% |
| Corporation |  |  |  |  |  |  |
| As of December 31, 2015: |  |  |  |  |  |  |
| Tier 1 Capital (to Average Assets) | $64,089 | 7.1% | $35,098 | 4.0% | N/A | N/A |
| Common Equity Tier 1 Capital (to Risk Weighted Assets) | 64,089 | 9.1% | 31,731 | 4.5% | N/A | N/A |
| Tier 1 Capital (to Risk Weighted Assets) | 64,089 | 9.1% | 42,308 | 6.0% | N/A | N/A |
| Total Capital (to Risk Weighted Assets) | 77,852 | 11.0% | 56,410 | 8.0% | N/A | N/A |
| Bank |  |  |  |  |  |  |
| As of December 31, 2015: |  |  |  |  |  |  |
| Tier 1 Capital (to Average Assets) | $70,351 | 7.8% | $36,245 | 4.0% | $45,306 | 5.0% |
| Common Equity Tier 1 Capital (to Risk Weighted Assets) | 70,351 | 10.0% | 31,698 | 4.5% | 45,786 | 6.5% |
| Tier 1 Capital (to Risk Weighted Assets) | 70,351 | 10.0% | 42,264 | 6.0% | 56,352 | 8.0% |
| Total Capital (to Risk Weighted Assets) | 76,614 | 10.9% | 56,352 | 8.0% | 70,440 | 10.0% |

### Series B Preferred Stock Redemption

Between September 26, 2012 and January 3, 2013, Mid Penn issued, via a private placement, 5,000 shares of its Series B Preferred Stock, resulting in total gross proceeds of $5,000,000.

On December 9, 2015, Mid Penn, using a portion of the proceeds from the offering of the Notes previously described on page 49, redeemed all of its issued and outstanding shares of Series B Preferred Stock at a price equal to $1,024.67 per share, which is equal to $1,020 per share plus an amount equal to declared but unpaid dividends on December 9, 2015, for a total redemption price of $5,123,000.

### Small Business Lending Fund Program Redemption

On March 1, 2015, Mid Penn assumed all of the issued and outstanding shares of Phoenix with respect to 1,750 shares of Phoenix’s preferred stock issued to the Treasury in connection with the Small Business Lending Fund and issued 1,750 shares of Mid Penn’s SBLF Preferred Shares, having a $1,000 liquidation preference per share, to the Treasury. The SBLF Preferred Shares qualify as Tier 1 Capital and have terms and conditions identical to those shares of preferred stock issued by Phoenix to Treasury. Mid Penn paid noncumulative dividends payable quarterly on January 1, April 1, July 1, and October 1. The dividend rate was 1.00% per annum for payment dates up to its redemption.

On December 15, 2015, Mid Penn, using a portion of the proceeds from the offering of the Notes previously described on page 42, redeemed all of the outstanding shares of its SBLF Preferred Shares, which were held by the Treasury for an aggregate redemption price of $1,754,000, including accrued but unpaid dividends.

## Market risk

As filed, 147 characters.

There has been no material change in market risk since December 31, 2015, as reported in Mid Penn’s Form 10-K filed with the SEC on March 17, 2016.

## Controls and procedures

As filed, 970 characters.

### Evaluation of Disclosure Controls and Procedures

Mid Penn maintains controls and procedures designed to ensure that information required to be disclosed in the reports that Mid Penn files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures as of June 30, 2016, Mid Penn’s management, with the participation of the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of such date.

### Changes in Internal Controls

During the three and six months ended June 30, 2016, there were no changes in Mid Penn’s internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, Mid Penn’s internal control over financial reporting.

## Risk factors

As filed, 348 characters.

Management has reviewed the risk factors that were previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015, to determine if there were material changes applicable to the three and six months ended June 30, 2016. There are no material changes from the risk factors as previously disclosed in the Form 10-K.

Filed Aug 12, 2016.
Source: SEC EDGAR, the filing index for accession 0000879635-16-000072. Last ingested by Listed: Nov 5, 2026, 18:25 ET. No prices; not investment advice.