EDGAR 10-K Filing

Company CIK: 879635
Filing Year: 2025
Filename: 879635_10-K_2025_0000879635-25-000030.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
The disclosures set forth in this Item are qualified by the section captioned "Special Cautionary Notice Regarding Forward-Looking Statements" contained in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other cautionary statements set forth elsewhere in this report.
Mid Penn Bancorp, Inc.
Mid Penn Bancorp, Inc. is a financial holding company incorporated in August 1991 in the Commonwealth of Pennsylvania. Mid Penn Bancorp, Inc. and its wholly owned bank and nonbank subsidiaries are collectively referred to herein as "Mid Penn" or the "Corporation." On December 31, 1991, Mid Penn acquired, as part of the holding company formation, all of the outstanding common stock of Mid Penn Bank, referred to herein as "The Bank", and the Bank became a wholly-owned subsidiary of Mid Penn. In addition to Mid Penn Bank, Mid Penn maintains five wholly-owned nonbanks subsidiaries: MPB Financial Services, LLC, which serves as the mid-tier holding company for MPB Risk Services, LLC, a licensed insurance producer, MPB Wealth Management, LLC (which ceased operating during the first quarter of 2024), and MPB Launchpad Fund I, LLC, which was formed to hold certain financial holding company eligible investments; and MPB Realty Holding, LLC, which was formed for purposes of holding certain assets acquired for debts previously contracted. As of December 31, 2024, the accounts and activities of these nonbank subsidiaries were not material to warrant separate disclosure or segment reporting. Mid Penn’s primary business is to supervise and coordinate the business of the Bank and its nonbank subsidiaries, and to provide them with the capital and resources to fulfill their respective missions.
Mid Penn’s consolidated financial condition and results of operations consist almost entirely of that of the Bank, which is managed as a single business segment. At December 31, 2024, Mid Penn had total consolidated assets of $5.5 billion with total deposits of $4.7 billion and total shareholders’ equity of $655.0 million. The holding company and its nonbank subsidiaries currently do not own or lease any real property. The Bank owns or leases the banking offices as identified in Part I, Item 2.
Mid Penn Bank
Mid Penn Bank was organized in 1868 under a predecessor name, Millersburg Bank, and became a state-chartered bank in 1931. Millersburg Bank obtained trust powers in 1935, at which time its name was changed to Millersburg Trust Company. In 1971, Millersburg Trust Company adopted the name "Mid Penn Bank". Mid Penn’s legal headquarters are located at 2407 Park Drive, Harrisburg, Pennsylvania 17110, and the Bank’s legal headquarters are located at 349 Union Street, Millersburg, Pennsylvania 17061.
On March 1, 2015, in connection with the acquisition of Phoenix Bancorp, Inc. ("Phoenix") by Mid Penn, Phoenix’s wholly-owned banking subsidiary, Miners Bank, was merged with and into the Bank, with the Bank being the surviving charter.
On January 8, 2018, Mid Penn completed its acquisition of The Scottdale Bank and Trust Company ("Scottdale") through the merger of Scottdale with and into the Bank (the "Scottdale Merger"). The Scottdale Merger resulted in the addition of five branches in Western Pennsylvania operating as "Scottdale Bank & Trust, a Division of Mid Penn Bank".
On July 31, 2018, Mid Penn completed its acquisition of First Priority Financial Corp. pursuant to which First Priority was merged with and into Mid Penn (the "First Priority Merger"), with Mid Penn being the surviving corporation in the First Priority Merger. As part of this acquisition, First Priority’s banking subsidiary, First Priority Bank, was merged with and into the Bank. The First Priority Merger resulted in the addition of eight offices in Southeastern Pennsylvania.
On November 30, 2021, Mid Penn completed its acquisition of Riverview Financial Corporation, the holding company for Riverview Bank, through the merger of Riverview with and into Mid Penn. In connection with the Riverview Acquisition, Riverview Bank was merged with and into the Bank, with the Bank as the surviving institution. The Riverview merger resulted in the addition of twenty-three community banking offices and three limited purpose offices across Western Pennsylvania.
MID PENN BANCORP, INC.
On December 30, 2022, Mid Penn purchased the assets of Managing Partners, Inc., an independent insurance agency that serviced the Central Pennsylvania area.
On May 19, 2023, Mid Penn completed its acquisition of Brunswick through the merger of Brunswick with and into Mid Penn with Mid Penn being the surviving corporation. In connection with this acquisition, Brunswick Bank, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn. This transaction included the acquisition of five branches and extended Mid Penn's footprint into Middlesex and Monmouth counties in central New Jersey.
On July 31, 2024, Mid Penn acquired the insurance business and related accounts of, Commonwealth Benefits Group, a full-service employee benefits firm that served mid to large employers across central and eastern Pennsylvania, northern Maryland, and northern Virginia, for a purchase price of $2.0 million at closing and an additional $800 thousand potentially payable pursuant to a three year earnout.
On October 31, 2024, Mid Penn entered into an Agreement and Plan of Merger with William Penn Bancorporation pursuant to which William Penn will merge with and into Mid Penn in an all-stock transaction valued at approximately $107 million, based on Mid Penn’s closing stock price as of October 30, 2024. The Merger has been approved unanimously by each company’s board of directors and is expected to close in the first half of 2025. Completion of the transaction is subject to customary closing conditions, including the receipt of required regulatory approvals and the approval of Mid Penn and William Penn shareholders.
Under the terms of the Merger Agreement, shareholders of William Penn will have the right to receive, for each share of common stock, par value $0.01 per share, of William Penn, 0.426 shares of Mid Penn common stock (the “Exchange Ratio”) and cash in lieu of fractional shares, subject to adjustment and proration as described in the Merger Agreement.
Additional information related to the recent acquisitions can be found in "Note 2 - Business Combinations", to the Consolidated Financial Statements contained in Part II, Item of this report.
As of December 31, 2024, the Bank operates 42 full-service retail banking locations in the Pennsylvania counties of Berks, Blair, Bucks, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Schuylkill and Westmoreland, along with 3 full-service retail banking locations in the New Jersey counties of Middlesex and Monmouth. One new full-service retail banking location opened in Camden County, New Jersey in January 2025.
Mid Penn’s primary business consists of attracting deposits and loans from the Bank’s network of community banking offices. The Bank engages in full-service commercial banking and trust business, making available to the community a wide range of financial services, including, but not limited to, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing, farm loans, community development and local government loans and various types of time and demand deposits. The Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation supervise the Bank. Deposits of the Bank are insured by the FDIC’s Deposit Insurance Fund ("DIF") to the maximum extent provided by law. In addition, the Bank provides a full range of trust and retail investment services. The Bank also offers other services such as online banking, telephone banking, cash management services, automated teller services and safe deposit boxes.
Business Strategy
The Bank provides services to commercial businesses and real estate investors, consumers, nonprofit organizations, and municipalities through its 45 full-service retail banking properties, one loan production office, one wealth management office, two corporate administrations offices, and one operations facility, primarily based in Pennsylvania. Mid Penn’s primary markets reflect a diversified manufacturing and services base across sixteen Pennsylvania counties and two counties in New Jersey, including having several offices in and around the state capital region of Harrisburg. The Bank emphasizes developing long-term customer relationships, maintaining high quality service, and providing prompt responses to customer needs. Mid Penn believes that local relationship building and its prudent approach to lending are important factors in the success and growth of Mid Penn.
MID PENN BANCORP, INC.
Human Capital
The majority of employees of the Corporation are employed by the Bank, with a shared services agreement to support the operation of the holding company. As of December 31, 2024, the Bank had 591 full-time and 23 part-time employees. Additionally, Mid Penn’s nonbank subsidiaries employed 9 full-time employees and 1 part-time employee as of December 31, 2024. The Corporation and its employees are not subject to a collective bargaining agreement and the Corporation believes it enjoys good relations with its employees.
Diversity & Inclusion
The Corporation believes that a diverse and inclusive workforce fosters an environment where everyone can thrive and be successful. As of December 31, 2024, approximately 65% of our workforce is female. Bank leadership has seen the benefits of Employee Resource Groups ("ERG") within our organization. In 2022, Mid Penn formalized committee members on our Women’s Leadership Network, Diversity, Equality, and Inclusion ("DEI"), and our Culture Committees. Throughout 2024, the entire organization has benefited from the contributions of these groups. Each group allows employees to come together based on shared characteristics to address common challenges and to drive positive impact within the workforce. We have found that our Women’s Leadership Network has provided a sense of belonging and camaraderie for our primarily female workforce. The Women’s Leadership group has expanded its reach by creating a subgroup called MPB Moms. This group serves as a community for mothers to connect, share like experiences and offer support to each other as they balance their personal and professional lives. Our DEI group has laid the groundwork to help create a more diverse and inclusive workplace by promoting understanding, respect, and awareness of different cultures, backgrounds, and perspectives. Our Culture Committee has focused on contributing to a positive organizational culture by fostering open communication, collaboration, and a sense of community; this sense of community is important to Mid Penn as we continue to expand geographically. The Culture Committee also supports wellness initiatives by creating initiatives, programs, and resources to encourage physical, mental, and emotional wellness. The committee aims to support healthy work-life balance, understand and better utilize our benefit programs, and foster a positive, wellness-oriented workplace culture. We have found that employees who belong to any of our ERGs are more engaged, are developing leadership skills, and are gaining new experiences through volunteer and networking opportunities.
Education and Development
We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion within the organization. The education and development of our employees is a priority, and we continue to invest in tools, education programs, certifications, and continuing education to help our employees build their knowledge, skills and experience. We provide in-house training to employees on a variety of topics, including leadership and professional development, cybersecurity, risk, compliance, and technology.
Benefits
On an ongoing basis, we promote the health and wellness of our employees by strongly encouraging work-life balance. Our benefits package includes health care coverage, retirement benefits, life and disability insurance, tuition-reimbursement, parental leave, wellness programs, and paid time off.
Retention
Employee retention helps us operate efficiently and offers continuity to our customers and the community. We believe our concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages, and providing valuable benefits aids in retention of our employees.
Community Involvement
The Bank is dedicated to supporting charitable community organizations through corporate donations, employee volunteerism and fundraising. In 2024, our employees demonstrated their commitment to our communities by personally giving more than $69 thousand to charitable organizations within Mid Penn’s footprint through our Dress Down Friday program.
MID PENN BANCORP, INC.
Lending Activities
The Bank offers a variety of loan products to its customers, including commercial real estate loans, residential real estate loans, commercial and industrial loans, and consumer loans. The Bank’s primary lending objectives are as follows:
•to establish relationships with creditworthy customers who exhibit positive historical repayment trends, stable cash flows and secondary sources of repayment from tangible collateral;
•to establish a diversified loan portfolio; and
•to provide a satisfactory return to Mid Penn’s shareholders by properly pricing loans to include the cost of funds, administrative costs, bad debts, local economic conditions, competition, customer relationships, the term of the loan, credit risk, collateral quality, and a reasonable profit margin.
Credit risk is managed through portfolio diversification, underwriting policies and procedures, and loan monitoring practices. Lenders are provided with detailed underwriting policies for all types of credit risks accepted by the Bank and must obtain appropriate internal approvals for credit extensions. The Bank also maintains strict documentation requirements and robust credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible, so any exposures that are discovered might be mitigated or potential losses reduced. The Bank generally secures its loans with real estate, with such collateral values dependent and subject to change based on real estate market conditions within its market area. As of December 31, 2024, the Bank’s highest concentration of credit is in commercial real estate.
Investment Activities
Mid Penn’s securities portfolio is a source for both liquidity and interest earnings and serves to support pledging requirements on public funds deposits through investments in primarily higher-quality, fixed-income debt securities. Mid Penn does not have any significant non-governmental concentrations within its investment securities portfolio.
Mid Penn maintains both a held-to-maturity investment portfolio and an available-for-sale investment portfolio. Both portfolios are comprised primarily of lower-risk debt securities, including U.S. Treasury and U.S. government agencies, mortgage-backed U.S. government agencies, investment-grade municipal securities, and corporate bonds. The held-to-maturity portfolio was established to support the Bank’s growth in public fund deposits, which may require pledging of investment securities. The investments in the held-to-maturity portfolio are recorded on the balance sheet at book value (amortized cost), while the available-for-sale securities are recorded on the balance sheet at fair value. These debt securities derive fair values relative to investments of the same type and credit profile with similar maturity dates. As the interest rate environment changes, Mid Penn’s fair value of securities will change. This difference between the amortized cost and fair value of available-for-sale investment securities, or unrealized loss, amounted to $24.3 million as of December 31, 2024. On an after-tax basis, this unrealized loss on available-for-sale securities resulted in a decrease to shareholders’ equity, through the accumulated other comprehensive loss component, of $1.6 million. As of December 31, 2024, there was no allowance for credit losses on either the held-to-maturity or available-for-sale investment portfolios. The majority of the investments are high quality United States and municipal securities that, if held to maturity, are expected to result in no realized loss to the Bank.
Deposits and Other Sources of Funds
The Bank primarily uses deposits and, to a lesser extent, wholesale borrowings to finance lending and investment activities. Wholesale borrowing sources include advances from the Federal Home Loan Bank of Pittsburgh, overnight borrowings from the Bank’s other correspondent banking relationships, and advances from the Federal Reserve’s Discount Window.
All borrowings, except for lines of credit with the Bank’s correspondent banks, require collateral in the form of loans or securities. Collateral levels, therefore, limit the extent of borrowings and the available lines of credit extended by the Bank’s creditors. As a result, generating and retaining retail deposits remains critical to the future funding and growth of the business. Deposit growth within the banking industry has been subject to strong competition from a variety of financial services companies. This competition may require financial institutions to adjust their product offerings and pricing to maintain and grow deposits.
Additionally, the safety of traditional bank deposit products has remained an attractive option during periods of market volatility. Mid Penn’s ability to attract retail funds in the future will continue to be impacted by the public’s appetite for the safety of insured or local investments versus the returns offered by alternative choices as part of their personal investment mix.
MID PENN BANCORP, INC.
Competition
The financial services and banking business is highly competitive, and the profitability of Mid Penn depends principally upon the Corporation’s ability to successfully compete in its market area. The Bank actively competes with other financial services companies for deposit, loan, trust and wealth management business. Competitors include other commercial banks, credit unions, savings banks, savings and loan associations, insurance companies, securities brokerage firms, finance companies, mutual funds, and product/service alternatives via the Internet. Financial institutions compete primarily on the quality of services rendered, interest rates on loans and deposits, service charges, the convenience of banking facilities, location and hours of operation and, in the case of loans to larger commercial borrowers, relative lending limits.
Many competitors are larger than the Corporation and have significantly greater financial resources, personnel, and locations from which to conduct business. In addition, the Bank is subject to banking regulations while certain non-banking competitors may not be subject to similar regulations. For more information, see the "Supervision and Regulation" section below and Item 1A, "Risk Factors".
Mid Penn has been able to compete effectively with other financial institutions by emphasizing customer-focused relationship management and services, convenient hours, efficient and friendly employees, a consultative sales approach, local decision making, and quality products.
Supervision and Regulation
General
Financial holding companies and banks are extensively regulated under both federal and state laws. The regulation and supervision of the Corporation and particularly the Bank are primarily focused on the protection of depositors, the DIF, and the monetary system, and do not prioritize shareholder interests. Enforcement actions that may be imposed by federal and state banking regulators include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance on deposits, the imposition of civil money penalties, and removal and prohibition orders. If a banking regulator takes any enforcement action, the value of an equity investment in Mid Penn could be substantially reduced or eliminated. As of December 31, 2024, the Corporation was not subject to any supervisory enforcement actions.
Federal and state banking laws contain numerous provisions affecting various aspects of the business and operations of Mid Penn and the Bank. Mid Penn is subject to, among others, the regulations of the Securities and Exchange Commission and the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Bank is subject to, among others, the regulations of the Pennsylvania Department of Banking and Securities and the FDIC. The descriptions below of, and references to, applicable statutes and regulations are not intended to be complete lists or reflective of all applicable provisions or their effects on the Corporation. They are summaries of the more significant laws and regulations and are qualified in their entirety by reference to the complete provisions of such statutes and regulations.
Holding Company Regulation
Mid Penn is a registered financial holding company subject to supervision and regulation by the Federal Reserve. As such, it is subject to the Bank Holding Company Act of 1956 ("BHCA") and many of the Federal Reserve’s regulations promulgated thereunder. The Federal Reserve has broad enforcement powers over financial and bank holding companies, including the power to impose substantial fines and civil penalties.
The BHCA requires Mid Penn to file an annual report with the Federal Reserve regarding the holding company and its subsidiary bank. The Federal Reserve also conducts examinations of the holding company. The Bank is not a member of the Federal Reserve System; however, the Federal Reserve possesses cease-and-desist powers over financial and bank holding companies and their subsidiaries where actions would constitute an unsafe or unsound practice or violation of law. The Federal Reserve also makes policy that applies to the declaration and distribution of dividends by financial and bank holding companies.
The BHCA restricts a financial or bank holding company’s ability to acquire control of additional banks. In addition, the BHCA restricts the activities in which financial or bank holding companies may engage directly or through nonbank subsidiaries.
MID PENN BANCORP, INC.
Gramm-Leach-Bliley Financial Modernization Act
Under the Gramm-Leach-Bliley Financial Modernization Act ("GLB"), bank holding companies that meet certain management, capital, and Community Reinvestment Act standards, are permitted to elect to become financial holding companies. No prior regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in certain financial activities permitted under GLB. Activities cited by GLB as being financial in nature include:
•securities underwriting, dealing and market making;
•sponsoring mutual funds and investment companies;
•insurance underwriting and agency;
•merchant banking activities; and
•activities that the Federal Reserve has determined by regulation to be closely related to banking.
In addition to permitting financial holding companies’ entry into new lines of business, the law allows companies the freedom to streamline existing operations and to potentially reduce costs. The GLB may increase both opportunity and competition.
In December 2019, Mid Penn made the election to be treated as a financial holding company as its subsidiary bank was well capitalized under the FDIC Improvement Act’s prompt corrective action provisions, the holding company and Bank were deemed by the regulators to be well managed, and the Bank had at least a satisfactory rating under the Community Reinvestment Act. The required filing supporting this election was a declaration that the bank holding company wished to become a financial holding company and met all applicable requirements. Mid Penn made the election given the Corporation’s growth and the intended broadening spectrum of financial product and service offerings to potentially include, but not be limited to, insurance and wealth management services.
Bank Regulation
As a Pennsylvania-chartered, non-member bank, the Bank is subject to supervision, regulation, and examination by both the Pennsylvania Department of Banking and Securities and the FDIC. The deposits of the Bank are insured by the FDIC to the maximum extent provided by law. The FDIC assesses deposit insurance premiums, the amount of which depends in part on both the asset size and the condition of the Bank. Moreover, the FDIC may terminate deposit insurance of the Bank under certain circumstances. The federal and state banking regulatory agencies have broad enforcement powers over depository institutions under their jurisdiction, including the power to terminate deposit insurance, to impose fines and other civil and criminal penalties, and to appoint a conservator or receiver if any of a number of conditions is met. In addition, the Bank is subject to a variety of local, state, and federal laws that affect its operations.
Banking regulations affect a wide range of the Bank’s activities and operations, including, but not limited to, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans, compensation standards, payment of dividends, various bank account and bank service disclosures, and the safety and soundness of banking practices.
Capital Requirements, Prompt Corrective Action and Basel III Capital Reforms
Under risk-based capital requirements for financial or bank holding companies, Mid Penn is required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) of 10.5%. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less goodwill ("Tier 1 Capital"). The remainder may consist of subordinated debt, non-qualifying preferred stock, and a limited amount of the loan loss allowance ("Tier 2 Capital"). Combined, the Tier 1 Capital and Tier 2 Capital comprise regulatory "Total Capital". As of December 31, 2024, Mid Penn complied with these risk-based capital requirements.
In addition, the Federal Reserve has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted average quarterly assets ("leverage ratio") equal to 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of at least 4-5%. The requirements also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the requirements indicate that the Federal Reserve will continue to consider a "Tangible Tier 1
MID PENN BANCORP, INC.
Leverage Ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. As of December 31, 2024, Mid Penn has met these leverage requirements, and the Federal Reserve has not advised Mid Penn of any specific minimum Tier 1 leverage ratio requirement.
The Bank is subject to similar capital requirements adopted by the FDIC, and as of December 31, 2024, the Bank’s capital levels were sufficient to be considered "well-capitalized". The FDIC has not advised the Bank of any specific minimum leverage ratios.
The capital ratios of Mid Penn and the Bank are described in "Note 17 - Regulatory Matters", within Item 8, Notes to Consolidated Financial Statements, which are included herein.
Banking regulators may further refine capital requirements applicable to banking organizations, including those discussed in the "Regulatory Capital Changes" section below. Changes to capital requirements could materially affect the profitability of Mid Penn or the fair value of Mid Penn stock.
In addition to the required minimum capital levels described above, federal law establishes a system of "prompt corrective actions" which federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a federally regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution that is not adequately capitalized. Under the rules, an institution will be deemed to be "adequately capitalized" if it exceeds the minimum federal regulatory capital requirements. However, it will be deemed "undercapitalized" if it fails to meet the minimum capital requirements, "significantly undercapitalized" if it has a Total Risk-Based Capital ratio that is less than 6%, a Tier 1 Risk-Based Capital ratio that is less than 3%, or a leverage ratio that is less than 3%, and "critically undercapitalized" if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.
The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain "management fees" to any "controlling person". Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed "critically undercapitalized" and continues in that category for four quarters, the statute requires, with certain limited exceptions, that the institution be placed in receivership.
Mid Penn and the Bank are subject to the Basel III Rules that are based upon the final framework of the Basel Committee for strengthening capital and liquidity regulation. Under the Basel III Rules, Mid Penn and the Bank apply the standardized approach in measuring risk weighted assets ("RWA") and regulatory capital.
Under the Basel III Rules, Mid Penn and the Bank are subject to the following minimum capital ratios:
•Common equity tier 1 capital ("CET1") to risk-weighted assets of 4.5%
•Tier 1 capital to RWA of 6.0%
•Total capital to RWA of 8.0%
•Leverage ratio of 4.0%
The Basel III Rules also included a "capital conservation buffer" of 2.5%, composed entirely of CET1, in addition to the minimum capital to RWA ratios outlined above, resulting in effective minimum common equity tier 1, Tier 1 and total capital ratios of 7.0%, 8.5% and 10.5%, respectively. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a capital ratio above the minimum, but below the conservation buffer, will face restrictions on dividends, equity repurchases, and executive compensation based on the amount of the shortfall and the institution's "eligible retained income" (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income). As of December 31, 2024, the Corporation and the Bank exceeded the minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III Rules.
MID PENN BANCORP, INC.
The Basel III Rules provide for a number of required deductions from and adjustments to CET1. These deductions and adjustments include, for example, goodwill, other intangible assets, and deferred tax assets ("DTAs") that arise from net operating loss and tax credit carryforwards net of any related valuation allowance. DTAs arising from temporary differences that could not be realized through net operating loss carrybacks and investments in non-consolidated financial institutions must also be deducted from CET1 to the extent that they exceed certain thresholds. Through subsequent rulemaking, the federal banking agencies provided certain forms of relief to banking organizations, such as Mid Penn and the Bank, that are not subject to the advanced approaches framework. Mid Penn and the Bank made a one-time, permanent election under the Basel III Rules to exclude the effects of certain components of accumulated ("AOCI") included in shareholders' equity under generally accepted accounting principles in the United States ("GAAP") in determining regulatory capital ratios.
Under the Basel III Rules, certain off-balance sheet commitments and obligations are converted into RWA, that together with on-balance sheet assets, are the base against which regulatory capital is measured. The Basel III Rules defined the risk-weighting categories for bank holding companies and banks that follow the standardized approach, such as Mid Penn and the Bank, based on a risk-sensitive analysis, depending on the nature of the exposure.
The Capital Simplifications Rules eliminated the standalone prior approval requirement in the Basel III Rules for any repurchase of common stock. In certain circumstances, repurchases of our common stock may be subject to a prior approval or notice requirement under other regulations or policies of the Federal Reserve. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve.
Safety and Soundness Standards
The federal banking regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards for depository institutions such as the Bank. The guidelines establish general standards relating to management practices, internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, liquidity, capital, earnings, compensation, fees, and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.
In addition, the agencies adopted regulations that authorize an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If an institution is not satisfying certain safety and soundness standards and fails to submit to the banking regulatory agency an acceptable compliance plan or fails to implement an accepted plan, the agency may issue an order directing action to correct the deficiency and may issue an order directing other actions be taken, including restricting asset growth, restricting interest rates paid on deposits, restricting dividend payments to shareholders, and requiring an increase in the institution’s ratio of tangible equity to assets. For the periods reported in this Form 10-K and in the period subsequent to December 31, 2024, up to the date of the filing of this Form 10-K, Mid Penn was not subject to any such bank regulatory orders.
Commercial Real Estate Guidance
Federal agencies released additional guidance in July 2023, in response to the increased commercial real estate ("CRE") concentrations that have occurred in recent years. The guidance identifies institutions that are potentially exposed to significant CRE concentration risk as those who have experienced rapid growth in CRE lending, have notable exposures to a specific type of CRE, or are approaching, or exceed the following supervisory criteria:
•Total loans reported on the Report of Condition for construction, land development, and other land represent 100 percent or more of the institution’s total capital; or
•Total CRE loans as defined in the CRE guidance represent 300 percent or more of the institution’s total capital, and the outstanding balance of the institution’s CRE loan portfolio has increased by 50 percent or more during the prior 36 months.
MID PENN BANCORP, INC.
If the Bank's portfolio exceeds the guidelines mentioned above, additional risk management practices may be needed. In the analysis of the CRE portfolio, the consideration of the following factors could mitigate the risk posed by the concentration:
•Portfolio diversification across property types;
•Geographic dispersion of CRE loans;
•Underwriting standards;
•Level of pre-sold units or other types of take-out commitments on construction loans; and
•Portfolio liquidity.
Banks that have experienced significant growth in their CRE lending will receive closer regulatory review than those that have not.
Mid Penn's underwriting process for commercial real estate loans includes analysis of the financial position and strength of both the borrower and, if applicable, guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type. The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting. Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance, in addition to analysis of the proposed project for income-producing properties. Additional support offered by guarantors is also considered when applicable.
Commercial real estate loans increased 9.2% from December 31, 2023 to December 31, 2024. Commercial real estate loans were the largest driver of the $190.3 million growth in the total loan portfolio. Non-owner occupied commercial real estate loan exposure represents 28.2% of total loan balances and is primarily limited to suburban offices.
Payment of Dividends and Other Restrictions
Mid Penn’s holding company is a legal entity separate and distinct from its wholly-owned Bank subsidiary. There are various legal and regulatory limitations on the extent to which the Bank can, among other things, finance, or otherwise supply funds to the holding company. Specifically, dividends from the Bank are the principal source of the holding company’s cash funds, and there are certain legal restrictions under Pennsylvania law and Pennsylvania banking regulations on the payment of dividends by state-chartered banks. The relevant regulatory agencies also have authority to prohibit Mid Penn and the Bank from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound banking practice. Depending upon the financial condition of the holding company and the Bank, the payment of dividends could be deemed by a regulatory agency to constitute such an unsafe or unsound practice. The holding company and the Bank were not subject to any such dividend prohibitions during the years ended December 31, 2024, 2023, and 2022.
Deposit Insurance
The FDIC insures deposits of the Bank through the DIF. The FDIC maintains the DIF by assessing depository institutions an insurance premium. The amount each institution is assessed is based upon a variety of factors that include the level of assets and tangible equity, and the condition of the Bank (the degree of risk the institution poses to the insurance fund). The FDIC insures deposits up to $250,000. The Bank pays an insurance premium into the DIF based on a regulatory defined assessment calculation. The FDIC uses a risk-based premium system that assesses higher rates on those institutions that pose greater risks to the DIF. The FDIC places each institution in one of four risk categories using a two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory group assignment). Subsequently, the rate for each institution within a risk category may be adjusted depending upon different factors that either enhance or reduce the risk the institution poses to the DIF, including the unsecured debt, secured liabilities and brokered deposits related to each institution. Finally, certain risk multipliers may be applied to the adjusted assessment.
Beginning with the second quarter of 2011 and as applicable continuously through to the current period, as mandated by the Dodd-Frank Act, the assessment base that the FDIC uses to calculate assessment premiums is the Bank’s average assets minus average tangible equity. As the asset base of the banking industry is larger than the deposit base, the range of assessment rates is a low of 2.5 bp and a high of 45 bp, per $100 of assets.
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The FDIC was required under the Dodd-Frank Act to establish assessment rates that allowed the DIF to achieve a reserve ratio of 1.35% of Insurance Fund insured deposits by September 2020. In addition, the FDIC has established a long term goal of a "designated reserve ratio" of 2%, a target ratio that, until it is achieved, will not likely result in the FDIC reducing assessment rates.
The reserve ratio is currently below the minimum and in October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rates uniformly by 2 basis points with the intention of reaching the statutory minimum by September 30, 2028. These new rates will remain in effect until the reserve ratio meets or exceeds 2%.
Consumer Protection Laws
A number of laws govern the relationship between the Bank and its customers. For example, the Community Reinvestment Act is designed to encourage services, investments, and lending activities in low- and moderate-income areas. Federal Bank regulatory agencies passed a final rule in August 2023 to strengthen and modernize the regulations to better achieve the purposes of the law. These changes will begin to take effect on January 1, 2026.
The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisions based on impermissible criteria, such as race or gender. The Truth-in-Lending Act and the Truth-in-Savings Act require banks to provide certain disclosure of relevant terms related to loans and savings accounts, respectively. Anti-tying restrictions (which prohibit conditioning the availability or terms of credit on the purchase of another banking product) further restrict the Bank’s relationships with its customers. The Bank maintains a comprehensive compliance management program to promote its compliance with these and other applicable consumer protection laws and regulations.
Privacy Laws
The federal banking regulators have issued a number of regulations governing the privacy of consumer financial and customer information. The regulations limit the disclosure by financial institutions, such as the Corporation and Bank, of nonpublic personal information about individuals who obtain financial products or services for personal, family, or household purposes. Subject to certain exceptions allowed by law, the regulations cover information sharing between financial institutions and nonaffiliated third parties. More specifically, the regulations require financial institutions to provide:
•initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal financial information to nonaffiliated third parties and affiliates;
•annual notices of their privacy policies to their current customers; and
•a reasonable method for consumers to "opt out" of disclosures to nonaffiliated third parties.
Affiliate Transactions
Transactions between the Bank and the Corporation, and/or its nonbank subsidiary affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An "affiliate" of a bank or savings institution is any company or entity that controls, is controlled by, or is under common control with the bank or savings institution. Generally, a subsidiary of a depository institution that is not also a depository institution is not treated as an affiliate of the bank for purposes of Sections 23A and 23B. Sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.
The USA Patriot Act, Anti-Money Laundering and Anti-Terrorism Financing
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot Act") broadened the application of anti-money laundering regulations to apply to additional types of financial institutions, such as broker-dealers, and strengthened the ability of the U.S. government to detect and prosecute international money laundering and the financing of terrorism. Under Title III of the USA Patriot Act, also known as the International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, all financial institutions, including Mid Penn and the Bank, are required in general to identify their customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether certain transactions of special concern, and be prepared to respond to
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inquiries from U.S. law enforcement agencies concerning their customers and their transactions. The principal provisions of Title III of the USA Patriot Act require that regulated financial institutions, including state-chartered banks:
•establish an anti-money laundering program that includes training and audit components;
•comply with regulations regarding the verification of the identity of any person seeking to open an account;
•take additional required precautions with non-U.S. owned accounts; and
•perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships.
Additional information sharing among financial institutions, regulators, and law enforcement authorities is encouraged for financial institutions that comply with this provision and the authorization of the Secretary of the Treasury to adopt rules to further encourage cooperation and information-sharing.
The USA Patriot Act also expanded the conditions under which funds in a U.S. interbank account may be subject to forfeiture and increased the penalties for violation of anti-money laundering regulations. Failure of a financial institution to comply with the USA Patriot Act’s requirements could have serious legal and reputational consequences for the institution. The effectiveness of a financial institution in combating money-laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act, which applies to the Bank.
The Bank has adopted policies, procedures, and controls to address compliance with the requirements of the USA Patriot Act under the existing regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and implementing regulations.
JOBS Act
In 2012, the Jumpstart Our Business Startups Act (the "JOBS Act") became law. The JOBS Act is aimed at facilitating capital raising by smaller companies, banks, and bank holding companies. Certain changes implemented by the JOBS Act that impacted Mid Penn included (i) raising the threshold requiring registration under the Securities Exchange Act of 1934 (the "Exchange Act") for banks and bank holdings companies from 500 to 2,000 holders of record, and (ii) raising the threshold for triggering deregistration under the Exchange Act for banks and bank holding companies from 300 to 1,200 holders of record.
Dodd-Frank Act
The Dodd-Frank Act, which became law in July 2010, significantly changed regulation of financial institutions and the financial services industry. Dodd-Frank created a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation, and centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, which is responsible for implementing, examining, and enforcing compliance with federal consumer financial laws. Dodd-Frank also permanently raised the current standard maximum deposit insurance amount to $250,000, established strengthened capital standards for banks, disallowed certain trust preferred securities from qualifying as Tier 1 Capital (subject to certain grandfather provisions for existing trust preferred securities), established new minimum mortgage underwriting standards, granted the Federal Reserve the power to regulate debit card interchange fees, and implemented corporate governance changes.
Effects of Government Policy and Potential Changes in Regulation
Changes in regulations applicable to the Corporation, the Bank, or its nonbank subsidiaries, or shifts in monetary or other government policies, could have a material effect on our business. The Corporation’s business is also affected by the state of the financial services industry in general. As a result of legal, economic, and competitive changes, management believes that the Corporation and the financial services industry will continue to experience an increased rate of change from both the opportunities and competitive challenges resulting from greater product and service offerings, technological advancements, and business combinations.
From time to time, legislation is enacted that has the effect of increasing the compliance and operations requirements and the cost of doing business, changing the tax structure applicable to Mid Penn, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are
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frequently made in Congress and the various bank regulatory agencies. Mid Penn cannot predict the likelihood of any major changes or the impact such changes might have on Mid Penn, the Bank, or the nonbank subsidiaries. Congressional bills and other proposals could result in additional significant changes to the financial services and banking system, including, but not limited to, provisions for limitations on deposit insurance coverage, changing the timing and method financial institutions use to pay for deposit insurance, expanding the power of banks by removing the restrictions on bank underwriting activities, changing the regulation of bank derivatives activities, and allowing commercial enterprises to own banks. As a consequence of the extensive regulation of commercial banking activities in the United States, the Bank’s business is particularly susceptible to being affected by federal legislation and regulations that may increase the costs of doing business or change the Corporation’s competitive landscape. Whether any future legislation will be enacted, or additional regulations will be adopted, and how they might impact Mid Penn, cannot be determined at this time.
Mid Penn’s earnings are, and will be affected by, domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have had, and will likely continue to have, an impact on the operating results of commercial banks because of the Federal Reserve’s power to implement national monetary policy to, among other things, promote employment, control inflation or combat recession. The Federal Reserve has a major impact on the loan and deposit rates offered by the Bank and its competitors, and on the levels of bank loans, investments and deposits, through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to reasonably predict the nature, amount, frequency, and impact of future changes in monetary and fiscal policies.
Environmental Laws
Management does not anticipate that compliance with environmental laws and regulations will have any material effect on Mid Penn’s capital, expenditures, earnings, or competitive position. However, environmentally-related hazards have become a source of high risk and liability for some financial institutions.
Additionally, the Pennsylvania Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act provides, among other things, protection to lenders from environmental liability and remediation costs under the environmental laws for releases and contamination caused by others. A lender who engages in activities involved in the routine practices of commercial lending, including, but not limited to, the providing of financial services, holding of security interests, workout practices, foreclosure or the recovery of funds from the sale of property shall not be liable under the environmental acts or common law equivalents to the Pennsylvania Department of Environmental Resources or to any other person by virtue of the fact that the lender engages in such commercial lending practice. A lender, however, will be liable if it, its employees or agents, directly cause an immediate release or directly exacerbate a release of a regulated substance on or from the property, or knew and willfully compelled the borrower to commit an action which caused such release or to violate an environmental act. The Pennsylvania Economic Development Agency, Fiduciary and Lender Environmental Liability Protection Act does not limit federal liability, which still exists under certain circumstances.
Corporate Governance
The Sarbanes-Oxley Act of 2002 ("SOX") and related rules and regulations adopted by the SEC and NASDAQ addressed the following issues: corporate governance, auditor independence and accounting standards, executive compensation, insider loans, whistleblower protection, and enhanced and timely disclosure of corporate information. Mid Penn has established policies, procedures, and systems designed to promote compliance with these regulations. Section 404 of SOX requires publicly held companies to document, test and certify that their internal control systems over financial reporting are effective. Effective for year-end financial reports beginning with December 31, 2017, Mid Penn is subject to the independent attestation requirement under Section 404 of the SOX. The Bank remains subject to independent auditor attestation under FDIC regulation 363.3(b), which is a similar independent attestation requirement at the Bank level.
Available Information
Mid Penn’s common stock is registered under Section 12(b) of the Exchange Act and is traded on NASDAQ under the trading symbol MPB. Mid Penn is subject to the informational requirements of the Exchange Act, and, accordingly, files reports, proxy statements and other information with the SEC. Mid Penn is an electronic filer with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s Internet site address is www.sec.gov.
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Mid Penn’s headquarters are located at 2407 Park Drive, Harrisburg, Pennsylvania 17110, and its telephone number is 1-866-642-7736. Mid Penn’s website is midpennbank.com and Mid Penn makes available through its website, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably possible after filing with the SEC. Mid Penn has adopted a Code of Ethics that applies to all employees and this document is also available on Mid Penn’s website. The information included on our website is not considered a part of this document.
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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Before investing in Mid Penn common stock, an investor should carefully read and consider the risk factors described below, which are not intended to be all inclusive, and to review other information contained in this report and in our other filings with the SEC. We are subject to a number of risks potentially impacting our business, financial condition, results of operations and cash flows. As a financial services company, certain elements of risk are inherent in what we do and the business decisions we make. Thus, we encounter risk as part of the normal course of our business, and we design risk management processes to help manage these risks. The risks and uncertainties described below are not the only ones facing Mid Penn’s holding company, the Bank, and nonbank subsidiaries. Some of these risks and uncertainties are interrelated and the occurrence of one or more of them may exacerbate the effect of others. Additional risks and uncertainties that we are not aware of, or that we currently deem less significant, or that we are otherwise not specifically focused on, may also impact our business, results of operations, and our common stock. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price of our common stock could decline significantly, and an investor could lose all or part of his or her investment in Mid Penn.
Unless the context otherwise requires, references to "we," "us", "our," "Mid Penn", or "Mid Penn Bancorp, Inc.," collectively refer to Mid Penn Bancorp, Inc. and its subsidiaries, and specific references to the "Bank" refer to Mid Penn Bank, the wholly owned banking subsidiary of Mid Penn Bancorp, Inc.
Risks Related to Our Primary Business and Industry
Mid Penn is subject to interest rate risk.
Mid Penn’s earnings and cash flows are largely dependent upon the Bank’s net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities, and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond Mid Penn’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System (the "Federal Reserve"). Changes in monetary policy, including changes in interest rates, could influence not only the interest income the Bank receives on loans and securities and the amount of interest expense it pays on deposits and borrowings, but such changes could also affect (i) the Bank’s ability to originate loans and obtain deposits, (ii) the fair value of financial assets and liabilities, and (iii) the average duration of mortgage-backed securities in the Bank’s investment portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, Mid Penn’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and investments fall more quickly than the interest rates paid on deposits and borrowings. Mid Penn may be subject to a greater risk of rising interest rates due to the current period of rising interest rates and high inflation. In 2024, the Federal Reserve cut interest rates three times in response to cooling inflation and a weakening labor market, after raising interest rates in 2023 and 2022 to curb inflation, which was expected to drive down the prices of income or dividend-paying securities. The risk that interest rates may remain volatile is pronounced.
Management believes it has implemented effective asset and liability management strategies and interest rate risk management activities to reduce the potential effects of changes in interest rates on Mid Penn’s results of operations. Any substantial, unexpected, prolonged, or rapid change in market interest rates could have a material adverse effect on the Bank’s net interest income and Mid Penn’s financial condition and results of operations.
Mid Penn is subject to credit risk.
As of December 31, 2024, approximately 82% of the Bank’s loan portfolio consisted of commercial real estate, commercial and industrial, and construction loans. These types of loans are generally viewed as having more risk of default than residential real estate loans or secured consumer loans. Commercial loans are also typically larger than residential real estate loans and consumer loans. Because the loan portfolio contains a significant number of commercial and industrial loans, and construction and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans. In addition, Mid Penn’s credit risk may be exacerbated when the collateral held by Mid Penn cannot be readily realized or liquidated at prices sufficient to recover the full amount of the credit or derivative exposure due to Mid Penn. An increase in non-performing loans or collateral value deficiencies could result in a net loss of earnings from these loans, an increase in the provision for credit losses on loans
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and an increase in loan charge-offs, all of which could have a material adverse effect on Mid Penn’s financial condition and results of operations.
The allowance for credit losses may not be sufficient to cover actual loan losses.
Following the issuance by the Financial Accounting Standards Board (“FASB”) of Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” effective January 1, 2023, Mid Penn adjusted its loan allowance methodology to reflect the new standard, which requires periodic estimates of lifetime expected credit losses on financial assets and categorizes expected credit losses as allowances for credit losses under the current expected credit loss (“CECL”) methodology. Under the CECL model, financial institutions are required to use historical information, current conditions, and reasonable forecasts to estimate the expected loss over the life of the loan. The ACL on loans and leases represents management’s estimate of all expected credit losses over the expected contractual life of our existing portfolio loans. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; changes in present economic, political and regulatory conditions; other external factors such as the ongoing pandemic; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires Mid Penn to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic and market conditions affecting borrowers, new information regarding existing loans, identification of additional problem credits and other factors, both within and outside of Mid Penn’s control, impact the determination of the allowance. In addition, bank regulatory agencies periodically review Mid Penn’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.
Any increase in the allowance will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on Mid Penn’s financial condition and results of operations.
Competition from other financial institutions may adversely affect Mid Penn’s and the Bank’s profitability.
Mid Penn’s banking subsidiary is subject to rapid changes in technology, regulation, and product innovation, and faces substantial competition in originating both commercial and consumer loans. This competition comes principally from other banks, credit unions, savings institutions, mortgage banking companies and other lenders. Many of its larger competitors who offer loans enjoy advantages over the Bank, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce Mid Penn’s net income by decreasing the number and size of loans that its banking subsidiary originates, and the interest rates it may charge on these loans.
In attracting business and consumer deposits, the Bank faces substantial competition from other insured depository institutions such as other commercial banks, savings institutions, and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of Mid Penn’s larger competitors who accept deposits also enjoy advantages over the Bank, including greater financial resources, more aggressive marketing campaigns, better brand recognition, and more convenient branch locations. These competitors may offer higher interest rates than Mid Penn, which could decrease the deposits that the Bank attracts or require an increase in rates and interest expense to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect Mid Penn’s ability to generate the funds necessary for lending operations. As a result, Mid Penn may need to seek other sources of funds that may be more expensive to obtain and could increase its cost of funds.
Mid Penn’s banking subsidiary and nonbank subsidiaries also compete with non-banking providers of financial services, such as brokerage firms, consumer finance companies, credit unions, insurance agencies and governmental organizations, which may offer more favorable terms. Some of its non-banking competitors are not subject to the same extensive and costly regulations that govern Mid Penn’s operations. As a result, such non-banking competitors may have advantages over Mid Penn’s banking subsidiary and nonbank subsidiaries in providing certain products and services. This competition may reduce or limit Mid Penn’s margins on banking services, revenues from nonbanking subsidiaries’ activities, reduce its market share and adversely affect its earnings and financial condition.
Mid Penn depends on the accuracy and completeness of information about customers and counterparties.
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In deciding whether to extend credit or enter into other transactions, Mid Penn may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. Mid Penn may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on Mid Penn’s business and, in turn, Mid Penn’s financial condition and results of operations.
The discontinuance of LIBOR presents risks to the financial instruments originated, held or serviced by Mid Penn that use LIBOR as a reference rate.
The London Interbank Offered Rate ("LIBOR") and certain other "benchmarks" are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences, which cannot be predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority ("FCA"), which regulates LIBOR, publicly announced that it intended to stop persuading or compelling banks to submit LIBOR rates after 2021. Since then, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate ("SOFR") as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.
The administrator of LIBOR ceased publishing most non-USD LIBOR settings beginning on January 1, 2022, and as of July 1, 2023, the overnight one-month, three-month, six-month, and 12-month USD LIBOR settings were no longer published.
Currently, SOFR is the alternative reference rate replacing LIBOR for most types of transactions. SOFR is viewed as a "riskless rate" as it is derived from rates on overnight U.S. Treasury repurchase transactions, which are essentially overnight loans secured by U.S. Treasury securities and are largely viewed as not presenting credit risk. The BSBY is another alternative reference rate that is in use primarily in the loan market. BSBY is intended to reflect large banks’ marginal wholesale cost of funds and is a credit-sensitive rate with a forward-looking term structure.
The failure to properly transition away from LIBOR may result in increased supervisory scrutiny. In addition, the implementation of LIBOR reform proposals may result in increased compliance costs and operational costs, including costs related to continued participation in LIBOR and the transition to a replacement reference rate or rates, which cannot currently be reasonably estimated.
The discontinuance of LIBOR may result in uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing documents, may adversely affect the value of Mid Penn’s floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates and may also increase operational and other risks to Mid Penn and the industry, including reputational and litigation risk.
The Basel III capital requirements require Mid Penn to maintain higher levels of capital, which could reduce profitability.
We are subject to comprehensive capital adequacy requirements intended to protect against losses that Mid Penn may incur. Basel III established higher levels of base capital, certain capital buffers, and a migration toward common equity as the key source of regulatory capital. Although these capital requirements have been phased in and met by Mid Penn, the Basel III requirements signal a growing effort by domestic and international bank regulatory agencies to require financial institutions, including depository institutions, to maintain higher levels of capital. The Basel III implementation activities and related regulatory capital targets required additional capital to support our business risk profile. Maintaining higher levels of capital potentially reduces opportunities to leverage interest-earning assets, which could limit the net interest income and profitability of Mid Penn, and adversely impact our financial condition and results of operations.
Our SBA lending program is dependent upon the federal government, and we face specific risks associated with originating SBA loans.
Our SBA lending program is dependent upon the federal government. As an SBA Preferred Lender, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. Our SBA lending program depends on interaction with the SBA, which is an independent agency of the federal government. During a lapse of funding, such as a government shutdown, the SBA may not be able to
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engage in such interaction which may have a material adverse effect on our financial condition and the demand for our services could decline. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose some or all of our customers to lenders who are SBA Preferred Lenders. Also, any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, could adversely affect our business and earnings.
We generally sell the guaranteed portion of our SBA 7(a) program loans in the secondary market. These sales have resulted in premium income for us at the time of sale and created a stream of future servicing income. We may not be able to continue originating these loans or selling them in the secondary market. Furthermore, even if we are able to continue originating and selling SBA 7(a) program loans in the secondary market, we might not continue to realize premiums upon the sale of the guaranteed portion of these loans. When we sell the guaranteed portion of our SBA 7(a) program loans, we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on the non-guaranteed portion of a loan, we share any loss and recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may deny its liability under the guaranty for the affected loan or loans, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from us, which could adversely affect our business and earnings.
The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future. We cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our business and earnings.
Acts of terrorism, natural disasters, global climate change, pandemics and global conflicts may have a negative impact on our business and operations.
Acts of terrorism, natural disasters, global climate change, pandemics, global conflicts, and geopolitical tensions (including as a result of the Russia-Ukraine and Israel-Hamas conflicts) or other similar events could have a negative impact on our business and operations. While we have business continuity plans in place, such events occurring or persisting, such as the COVID-19 or any future pandemic, could disrupt or delay the normal operations of our business and our facilities (including communications and technology), result in harm to or cause travel limitations on our employees, and have a similar impact on our clients, suppliers, third-party vendors and counterparties. These events also could impact us negatively to the extent that they result in 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. In addition, these or similar events may impact economic growth negatively, which could have an adverse effect on our business and operations and may have other adverse effects on us in ways that we are unable to predict.
If Mid Penn’s information systems are interrupted or sustain a breach in security, those events may negatively affect Mid Penn’s financial performance and reputation.
In conducting its business, Mid Penn relies heavily on its information systems. Maintaining and protecting those systems and data is difficult and expensive, as is dealing with any failure, interruption, or breach in security of these systems, whether due to acts or omissions by Mid Penn or by a third party, and whether intentional or not. Any such failure, interruption, or breach could result in failures or disruptions in Mid Penn’s customer relationship management, general ledger, deposit, loan, and other systems. A breach of Mid Penn’s information security may result from fraudulent activity committed against Mid Penn or its clients, resulting in financial loss to Mid Penn or its clients, or privacy breaches against Mid Penn’s clients. Such fraudulent activity may consist of check fraud, electronic fraud, wire fraud, "phishing", social engineering, identity theft, or other deceptive acts. The policies, procedures, and technical safeguards put in place by Mid Penn to prevent or limit the effect of any failure, interruption, or security breach of its information systems and data may be insufficient to prevent or remedy the effects of any such occurrences. The occurrence of any failures, interruptions, or security breaches of Mid Penn’s information systems and data could damage Mid Penn’s reputation, cause Mid Penn to incur additional expenses, result in online services or other businesses becoming inoperable, subject Mid Penn to regulatory sanctions or additional regulatory scrutiny, or expose Mid Penn to civil litigation and possible financial liability, any of which could have a material adverse effect on Mid Penn’s financial condition and results of operations.
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Mid Penn’s business operations and interaction with customers are increasingly done via technology and electronic delivery channels, and this has increased risks related to cyber-attacks and cyber incidents.
In the normal course of business, we collect, process, and retain sensitive and confidential information regarding our customers. Although we devote significant resources and management focus to ensuring the integrity of our systems, Mid Penn is exposed to the risk of cyber-attacks in the normal course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. An increased level of attention in the industry is focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. To combat against these attacks, Mid Penn has certain security systems and policies and procedures in place to prevent or limit the effect of the possible security breach of its information systems and it has insurance against some cyber-risks and attacks. While Mid Penn has not incurred any material losses related to cyber-attacks, nor is it aware of any specific or threatened cyber-incidents as of the date of this report, it may incur substantial costs and suffer other negative consequences if it falls victim to successful cyber-attacks. Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that cyber-attacks may have caused; deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence, any of which could have a material adverse effect on our business, financial condition or results of operations.
We are required to make a number of judgments in applying generally accepted accounting standards, and different estimates and assumptions in the application of these accounting standards could result in a decrease in capital and/or other material changes to our reports of financial condition and results of operations.
Generally accepted accounting principles involve certain estimates and processes that are particularly susceptible to significant change, including those related to the determination of the allowance for credit losses and reserve for unfunded lending commitments, the fair value of and potential impairment of certain financial instruments including investment securities, income tax assets or liabilities (including deferred tax assets and any related valuation allowance), and share-based compensation. While we have identified critical accounting policies and have procedures and processes in place to support making the related judgments and estimates, changes to the processes, assumptions, or models in the application of these generally accepted accounting principles, and the impact to the related judgments and estimates could result in a decrease to net income and, possibly, capital and may have a material adverse effect on our financial condition and results of operations. From time to time, the Financial Accounting Standards Board, and the SEC issues changes to or updated interpretations of the financial accounting and reporting guidance that governs the preparation of Mid Penn’s financial statements. These changes are beyond our control, can be difficult to predict, and could materially impact how we report our financial condition and results of operations. We could be required to apply new or revised guidance retrospectively, which may result in the revision of prior financial statements by material amounts. The implementation of new or revised guidance could also result in material adverse effects to our reported capital.
Mid Penn’s mortgage banking income may experience significant volatility.
Mortgage banking income is highly influenced by the level and direction of market forces including mortgage interest rates, and real estate and refinancing activity. Mid Penn sells a significant amount of residential mortgage loans into the secondary market. The sale of these loans generates noninterest income and can be a source of liquidity for the Bank. Disruption in the secondary market for residential mortgage loans as well as declines in real estate values could result in an inability to sell mortgage loans on the secondary market, which could negatively impact Mid Penn’s liquidity position. A decline in real estate values could decrease the potential of mortgage originations for Mid Penn, which could negatively impact our earnings.
Additionally, in lower interest rate environments, the demand for mortgage loans and refinancing activity will tend to increase. This has the effect of increasing fee income but could adversely impact the estimated fair value of Mid Penn’s mortgage servicing rights as the rate of loan prepayments increase. In higher interest rate environments, the demand for mortgage loans and refinancing activity will generally be lower. This has the effect of decreasing mortgage loan originations and refinance activities, and related fee income opportunities.
Mid Penn could be required to repurchase mortgage loans or indemnify mortgage loan purchasers due to breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could have a material adverse impact on our liquidity, results of operations and financial condition.
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Mid Penn originates and sells a significant amount of residential mortgage loans into the secondary market. When Mid Penn sells mortgage loans, Mid Penn is required to make customary representations and warranties to purchasers about the mortgage loans and the manner in which they were originated. The agreements pursuant to which the loans are sold require Mid Penn to repurchase or substitute mortgage loans in the event there was a breach of any of these representations or warranties. In addition, Mid Penn may be required to repurchase mortgage loans as a result of borrower fraud or in the event of early payment default of the borrower on a mortgage loan. If repurchase and indemnity demands increase significantly, Mid Penn’s liquidity, results of operations and financial condition may be adversely affected.
Mid Penn’s profitability depends significantly on economic conditions in Pennsylvania.
Unlike larger or regional financial institutions that are more geographically diversified, Mid Penn’s success is dependent to a significant degree on economic conditions in Pennsylvania, especially in the eighteen counties and the specific markets primarily served by Mid Penn. The banking industry is affected by general economic conditions, including the effects of inflation, recession, unemployment, real estate values, trends in national and global economics, and other factors beyond our control. An economic recession or a delayed recovery over a prolonged period of time in Pennsylvania, or more specific to the counties or communities in Pennsylvania served by Mid Penn, could cause an increase in the level of the Bank’s non-performing assets and loan losses, thereby causing operating losses, impairing liquidity, and eroding capital. Mid Penn cannot assure that adverse changes in the local and state economy supporting its market area would not have a material adverse effect on Mid Penn’s consolidated financial condition, results of operations, and cash flows.
Mid Penn is subject to claims and litigation pertaining to fiduciary responsibility.
From time to time, customers and shareholders may make claims and take legal action pertaining to Mid Penn’s performance of its fiduciary responsibilities. Whether such claims and legal action related to Mid Penn’s performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to Mid Penn, the claims or related litigation processes may result in significant financial expense and liability, and/or adversely affect the market perception of Mid Penn and its products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on Mid Penn’s business, which, in turn, could have a material adverse effect on Mid Penn’s financial condition and results of operations.
Mid Penn operates in a highly regulated environment and may be adversely affected by changes in federal, state and local laws and regulations.
The Corporation, the Bank, and its nonbank subsidiaries are collectively subject to extensive regulation, supervision, and examination by federal and state banking authorities. The potential exists for additional or amended federal or state laws and regulations, or changes in supervisory policies or activities, to materially affect many aspects of Mid Penn’s operations, including capital levels, lending and funding practices, and liquidity standards. New laws and regulations may increase costs of regulatory compliance and of doing business and otherwise affect operations and may significantly affect the markets in which Mid Penn does business, the markets for and value of Mid Penn’s loans and investments, the ability to attract deposits at a reasonable cost, the fees charged, and ongoing operations, costs and profitability. Further, additional legislation and regulations that could significantly affect Mid Penn’s powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on its financial condition and results of operations. Also, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. Any changes in applicable regulations or federal, state or local legislation, or the exercise of bank regulatory authority, may have a negative impact on Mid Penn’s results of operations, financial condition, and its ability to pay dividends on common stock. The burden imposed by federal and state regulators puts Mid Penn at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking companies and leasing companies.
In addition, changes in laws or regulations that affect Mid Penn’s customers and business partners could negatively affect Mid Penn’s revenues and expenses. Certain changes in laws such as tax law reforms that impose limitations on the deductibility of interest may decrease the demand for Mid Penn’s products or services and could negatively affect its revenues and results of operations. Other changes in laws or regulations could cause Mid Penn’s third-party service providers and other vendors to increase the prices they charge to Mid Penn and negatively affect Mid Penn’s expenses and financial results.
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The soundness of other financial institutions may adversely affect Mid Penn.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. Mid Penn has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose Mid Penn to credit risk and losses in the event of a default by a counterparty or client. Any such losses could have a material adverse effect on Mid Penn’s financial condition and results of operations.
During 2023, five banks either failed or were sold in an FDIC-assisted transaction. Mid Penn did not have any direct exposure to any of the affected banks. However, if other banks or financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition.
Volatility in financial markets and the economy may have materially adverse effects on our liquidity and financial condition.
The capital and credit markets have recently experienced extreme volatility and economic disruption, most recently due to the takeover by the FDIC of both Silicon Valley Bank ("SVB") and Signature Bank in March 2023, and, prior to that, due to the COVID-19 pandemic. Adverse financial market and economic conditions can exert downward pressure on stock prices, security prices, and credit availability for certain issuers without regard to their underlying financial strength. The volatility resulting from the failures of SVB and Signature Bank has particularly impacted the price of securities issued by financial institutions, including Mid Penn’s.
If such levels of financial market and economic disruption and volatility continue, there can be no assurance that Mid Penn will not experience adverse effects, which may materially affect its liquidity, financial condition, and profitability.
Mid Penn’s banking subsidiary may be required to pay higher FDIC insurance premiums or special assessments which may adversely affect its earnings.
Poor economic conditions and the resulting bank failures from the most recent recession stressed the DIF and increased the costs of the Bank’s FDIC insurance assessments. Promptly following the recent failures of SVB and Signature Bank in March 2023, the federal banking regulators announced that the FDIC will use funds from the DIF to ensure that all depositors in SVB and Signature Bank are made whole, at no cost to taxpayers. Mid Penn anticipates that the FDIC will impose additional special assessments on all banks in order to replenish the DIF. Mid Penn generally is unable to control the amount of premiums or special assessments that its banking subsidiary is required to pay for FDIC insurance. As of December 31, 2024, Mid Penn has not been subject to additional special assessments. Any special assessments or future changes in the calculation or assessment of FDIC insurance premiums may have a material adverse effect on the results of Mid Penn’s operations and financial condition.
If we conclude that there is a decline in the value of any of our AFS investment securities, we may be required to record an allowance for credit losses where periodic changes are recognized in earnings.
Mid Penn reviews its available-for-sale investment securities portfolio at each quarter-end reporting period to determine if any security has a fair value less than its amortized cost. To determine whether a decline in fair value resulted from a credit loss or other factors, Mid Penn performs further analysis as outlined below:
•Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.
•The securities that violate the credit loss triggers above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.
•If Mid Penn determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss Mid Penn records will be limited to the amount by which the amortized cost exceeds the fair value.
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Due to the complexity of the process, inputs, calculations, and assumptions used in determining whether an investment is in an unrealized loss position, Mid Penn’s assessment of or disclosure of the credit loss on investments may not accurately reflect the actual credit loss in the future.
Mid Penn is subject to environmental, social and governance ("ESG") risks that could adversely affect our results of operations, reputation, and the market price of our securities.
Mid Penn is subject to a variety of risks arising from ESG matters. ESG matters include environmental and climate change activism, diversity activism, and racial and social justice issues. Such matters may involve our personnel, customers, or third parties with whom we do business. Risks arising from ESG matters may adversely affect, among other things, our reputation and the market price of our securities. Further, Mid Penn may be exposed to negative publicity based on the identity and activities of our shareholders, those to whom we lend and with which we otherwise do business, and the public’s view of the approach and requirements of our state or federal regulators, customers, and business partners with respect to ESG matters. Any such negative publicity could arise through traditional media or electronic social media platforms. Mid Penn’s relationships and reputation with our existing and prospective customers and third parties with which we do business could be damaged if we were to become the subject of any such negative publicity. This, in turn, could have an adverse effect on Mid Penn’s ability to attract and retain customers and employees and could have a negative impact on the market price for our securities.
Investor advocacy groups, investment funds and influential investors have begun to consider the steps taken and resources allocated by financial institutions and other commercial organizations with respect to ESG matters when making investment decisions. Certain investors are beginning to incorporate the business risks of ESG regulation and activism and the adequacy of companies’ responses to these into their investment decisions. These shifts in investing priorities may result in adverse effects on the market price of Mid Penn’s securities.
The U.S. Congress, state legislatures and federal and state regulatory agencies, as well as certain stock exchanges, continue to propose numerous initiatives related to ESG matters. The lack of empirical data surrounding the credit and other financial risks posed by ESG regulation and activism render it impossible to predict how specifically ESG matters may impact Mid Penn’s financial condition and results of operations.
Federal and state banking regulators and supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as a tool to effect ESG activism, both directly and with respect to their customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management of ESG matters. Given that ESG matters could impose systemic risks upon the financial sector, via disruptions in economic activity resulting from activism, Mid Penn faces increasing focus on our resilience to ESG risks. Ongoing legislative or regulatory uncertainties and changes regarding ESG risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.
Actual or perceived shortcomings with respect to these ESG initiatives and reporting can impact Mid Penn’s ability to hire and retain employees, increase its customer base or attract and retain certain types of investors. In addition, certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies based upon ESG metrics. Collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming, is subject to evolving reporting standards, and can present numerous operational, reputational, financial, legal and other risks, any of which could have a material impact, including on Mid Penn’s reputation and stock price.
Mid Penn is subject to environmental liability risk associated with lending activities.
A significant portion of Mid Penn’s loan portfolio is secured by real property. During the ordinary course of business, Mid Penn may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, Mid Penn may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require Mid Penn to incur substantial expenses and may materially reduce the affected property’s value or limit Mid Penn’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase Mid Penn’s exposure to environmental liability. Although Mid Penn has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated
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with an environmental hazard could have a material adverse effect on Mid Penn’s financial condition and results of operations.
Mid Penn’s financial performance may suffer if its information technology is unable to keep pace with its growth or industry developments.
Effective and competitive delivery of Mid Penn’s products and services is increasingly dependent upon the successful and uninterrupted functioning of our information technology resources and processes provided both internally and through third party vendors. In addition to better serving customers, the effective use of technology increases efficiency and enables Mid Penn to reduce costs. Mid Penn’s future success will depend, in part, upon its ability to address the needs of its customers by effectively and safely using technology to provide products and services to enhance customer convenience, attract customers who prefer technological delivery channels, and to create additional efficiencies in its operations. Many of Mid Penn’s competitors have greater resources to invest in technological improvements and infrastructure. Additionally, as technology and information security requirements in the financial services industry change and evolve, keeping pace becomes increasingly complex and expensive for Mid Penn. There can be no assurance that Mid Penn will be able to effectively keep pace with these technological advancements or the related substantial costs and investments required, which could adversely affect its financial condition and results of operations.
Growing by acquisition entails certain risks, and difficulties in integrating past or future acquisitions could adversely affect our business.
On November 1, 2024, Mid Penn announced the signing of a definitive merger agreement to acquire William Penn Bancorporation and its wholly-owned subsidiary, William Penn Bank. Mid Penn has completed four other whole bank merger acquisitions in recent years (The Scottdale Bank & Trust Company and First Priority Financial Corp. in 2018, Riverview Financial Corporation on November 30, 2021, and Brunswick Bancorp on May 19, 2023), as well as two nonbank acquisitions.
Generally, Mid Penn must receive federal and state regulatory approval before it can acquire a bank or bank holding company. In determining whether to approve a proposed bank acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition and future prospects. Regulators also review current and projected capital ratios and levels, the competence, experience and integrity of management and its record of compliance with laws and regulations. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. Growth by acquisition involves substantial risks, as the ultimate success of such acquisitions may depend on, among other things, the ability to realize anticipated cost savings and to integrate the acquired companies and operation in a manner that does not result in decreased revenues. Excessive acquisition costs, conversion costs and the disruption of existing customer relationships in both the acquired companies and legacy markets may occur. If we are not able to successfully achieve the financial efficiencies or integration and growth objectives of acquisitions, the anticipated benefits of an acquisition may not be realized fully, or at all, or may take longer to realize than planned.
Further, the asset quality or other financial characteristics of an acquired company may deteriorate from the date a merger or other acquisition agreement is entered into and when the transaction is completed or the post-merger period.
Mid Penn has spent and may continue to spend significant resources identifying companies and businesses to acquire. The efficient and effective integration of any companies and businesses we acquire and integrate into our organization is critical to our growth. Our recent acquisitions, and any future acquisitions, involve numerous risks including difficulties in integrating the culture, operations, technologies and personnel of the acquired companies, the diversion of management’s attention from other business concerns and the potential loss of customers. Failure to fully integrate the operations of any acquired business successfully, or to integrate the operations of future acquisition targets, could harm Mid Penn’s business, financial condition, results of operations and cash flows.
We plan to pursue a growth strategy and there are risks associated with rapid growth.
We intend to pursue a growth plan consistent with our prior business strategy, including growth by acquisition, as well as leveraging our existing branch network or adding new branch locations or offices and personnel in current and adjacent markets we choose to serve. Our recent acquisitions and the pending William Penn acquisition are reflective of our growth strategy.
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Our ability to manage growth successfully will depend on our ability to attract or retain qualified personnel, maintain cost controls and efficiencies, and ensure our areas of growth continue to meet our high asset quality standards, while attracting additional loans and deposits on favorable terms, as well as on factors beyond our control, such as economic conditions and competition in existing and new markets. If we grow too quickly and are not able to attract qualified personnel, control costs and maintain asset quality, this continued rapid growth could materially adversely affect our financial performance.
The value of our goodwill and other intangible assets may decline in the future.
As of December 31, 2024, we had $128.2 million of goodwill and $6.2 million of other intangible assets. A significant decline in our expected future cash flows, a significant adverse change in the business climate, slower economic growth or a significant and sustained decline in the price of our common stock, any or all of which could be materially impacted by many of the risk factors discussed herein, may necessitate our taking charges in the future related to the impairment of our goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment. If we were to conclude that a future write-down of our goodwill is necessary, we would record the appropriate charge, which could have a material adverse effect on our results of operations. We cannot provide assurance that we will not be required to take an impairment charge in the future. Any such charge would have an adverse effect on our shareholders’ equity and financial results and could cause a decline in our stock price.
Identifiable intangible assets other than goodwill consist of core deposit intangibles, books of business, and other intangible assets. Adverse events or circumstances could impact the recoverability of these intangible assets including loss of core deposits, significant losses of customer accounts and/or balances, increased competition, or adverse changes in the economy. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded, which could have a material adverse effect on our results of operations.
Risks Related to the Merger
Failure to complete the Merger could negatively affect our market price, future business and financial results.
Although we anticipate closing the Merger in the second quarter of 2025, we cannot guarantee when, or whether, the Merger will be completed. If the Merger is not completed for any reason, we will be subject to a number of material risks, including the following:
•Costs related to the Merger, such as legal, accounting and financial advisory fees, and, in specific circumstances, additional reimbursement and termination fees, must be paid even if the Merger is not completed.
•Declines in our market price to the extent that the current market price of our common stock already reflects a market assumption that the Merger will be completed.
•The diversion of management’s attention from the day-to-day business operations and the potential disruption to each company’s employees and business relationships during the period before the completion of the Merger may make it difficult to regain financial and market positions if the Merger does not occur.
•Becoming subject to litigation related to any failure to complete the Merger.
Regulatory waivers and approvals may not be received or may be received and subsequently expire, be revoked or be amended to impose conditions that are not presently anticipated or cannot be met.
Before the transactions contemplated in the Merger Agreement, including the Merger, may be completed, various waivers, approvals or consents must be obtained from various bank regulatory and other authorities, including the Board of Governors of the Federal Reserve System, the FDIC, and the Pennsylvania Department of Banking and Securities. In determining whether to grant these approvals, regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to any or all of the following: an adverse development in any party’s regulatory standing or any other factors considered by regulators in granting such approvals; governmental, political, or community group inquiries, investigations or opposition; or changes in legislation or the political or regulatory environment generally, including as a result of changes of the U.S. executive administration, or Congressional leadership and regulatory agency leadership.
Even if the approvals are granted, they may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the Merger Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations, or restrictions or that such conditions, limitations, obligations, or restrictions will not have the
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effect of delaying the completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the Merger or otherwise reduce the anticipated benefits of the Merger if the Merger were completed successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, limitations, obligations, or restrictions will not result in the delay or abandonment of the Merger. The completion of the Merger is conditioned on the receipt of the requisite regulatory approvals without the imposition of any materially burdensome regulatory condition and the expiration of all statutory waiting periods. Additionally, the completion of the Merger is conditioned on the absence of certain orders, injunctions, or decrees issued by any court or any governmental entity of competent jurisdiction that would prevent, prohibit, or make illegal the completion of the Merger or any of the other transactions contemplated by the Merger Agreement.
Despite the parties’ expected commitment to use their reasonable best efforts to respond to any request for information and resolve any objection that may be asserted by any governmental entity with respect to the Merger Agreement, neither party is required under the terms of the Merger Agreement to take any action, commit to take any action, or agree to any condition or restriction in connection with obtaining these approvals, that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the proposed Merger.
Further, such approvals are subject to expiration if the transaction is not consummated within the time period provided in the approval.
Combining Mid Penn and William Penn may be more difficult, costly or time consuming than expected, and we may fail to realize the anticipated benefits of the Merger.
The success of the Merger will depend on, among other things, our ability to integrate William Penn into our business in a manner that facilitates growth opportunities and achieves the anticipated benefits of the Merger. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost and savings and anticipated benefits of the Merger could be less than anticipated, and integration may result in additional unforeseen expenses.
Litigation relating to the Merger could require us to incur significant costs and suffer management distraction, as well as delay and/or enjoin the Merger.
We are not currently able to predict the outcome of any suit arising out of or relating to the proposed Merger that may be filed in the future. If any complaints are filed, absent allegations that are material, We will not necessarily announce such filings.
We could be subject to demands or litigation related to the Merger, whether or not the Merger is consummated. Such actions may create additional uncertainty relating to the Merger, and responding to such demands and defending such actions may be costly and distracting to management. Although there can be no assurance as to the ultimate outcomes of any demand or any subsequent litigation, we do not believe that the resolution of such demands or any subsequent litigation will have a material adverse effect on our financial position, results of operations or cash flow.
We will be subject to various uncertainties while the Merger is pending that could adversely affect our financial results or the anticipated benefits of the Merger.
Uncertainty about the effect of the Merger on counterparties to contracts, employees and other parties may have an adverse effect on us or the anticipated benefits of the Merger. These uncertainties could cause contract counterparties and others who deal with us or William Penn to seek to change existing business relationships with us or William Penn, and may impair our or William Penn’s ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention and recruitment may be particularly challenging prior to the completion of the Merger, as our employees and prospective employees, and the employees and prospective employees of William Penn, may experience uncertainty about their future roles with us following the Merger.
The pursuit of the Merger and the preparation for the integration of the two companies may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results prior to and/or following the completion of the Merger and could limit us from pursuing attractive business opportunities and making other changes to our business prior to completion of the Merger or termination of the Merger Agreement.
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William Penn may have liabilities that are not known to us.
In connection with the Merger, we will assume all of William Penn’s liabilities by operation of law. There may be liabilities that we failed or were unable to discover in the course of performing due diligence investigations into William Penn, or we may not have correctly assessed the significance of certain liabilities of William Penn identified in the course of our due diligence. Any such liabilities, individually or in the aggregate, could have an adverse effect on our business, financial condition, and results of operations.
We expect to incur substantial transaction costs in connection with the Merger.
We expect to incur a significant amount of non-recurring expenses in connection with the Merger, including legal, accounting, consulting, and other expenses. In general, these expenses are payable by us whether or not the Merger is completed. Additional unanticipated costs may be incurred following consummation of the Merger in the course of the integration of our businesses and the business of William Penn. We cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.
The Merger may be completed on different terms from those contained in the Merger Agreement.
Prior to the completion of the Merger, we and William Penn may, by mutual agreement, amend or alter the terms of the Merger Agreement, including with respect to, among other things, the Merger consideration or any covenants or agreements with respect to the parties’ respective operations during the pendency of the Merger Agreement. Any such amendments or alterations may have negative consequences to us.
The Merger will not be completed unless important conditions are satisfied or waived, including approval of the Merger Agreement by our shareholders and William Penn’s shareholders.
Specified conditions set forth in the Merger Agreement must be satisfied or waived to complete the Merger. If the conditions are not satisfied or, subject to applicable law, waived, the Merger will not occur or will be delayed and each of William Penn and us may lose some or all of the intended benefits of the Merger.
Risks Related to Mid Penn Common Stock
The trading volume in Mid Penn’s common stock is less than that of other larger financial services companies.
Mid Penn’s common stock is listed for trading on NASDAQ (symbol: MPB); however, the trading volume in its common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of Mid Penn’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which Mid Penn has no control. Given the generally lower trading volume of Mid Penn’s common stock, significant sales of Mid Penn’s common stock, or the expectation of these sales, could cause Mid Penn’s stock price to fall.
The market price of Mid Penn common stock may fluctuate significantly, and this may make it difficult for investors to resell shares of common stock owned by them at times or at prices they find attractive.
The market price of our common stock as reported on NASDAQ is subject to constant change during business trading hours. We expect that the market price of Mid Penn common stock will continue to fluctuate and there can be no assurance about the stability or trend of market prices for Mid Penn common stock. Stock price volatility, particularly with a stock like ours with lower trading volumes than larger financial services companies, may make it difficult for investors to resell their Mid Penn common stock when they want and at times or prices that they find attractive. Mid Penn’s stock price may fluctuate significantly as a result of a variety of factors, many of which are beyond our control. These factors include those described elsewhere in this entire "Risk Factors" section, in this document, and our other filings with the SEC.
Mid Penn’s ability to pay dividends on its common stock, and principal and interest on its subordinated notes, depends primarily on dividends from its banking subsidiary, which is subject to regulatory limits.
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Mid Penn is a bank holding company and its operations are conducted primarily by its banking subsidiary. Mid Penn’s ability to pay dividends on its common stock, and principal and interest on its subordinated notes, depends on its receipt of dividends from the Bank. Dividend payments from its banking subsidiary are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the respective regulatory agencies that supervise the Bank. The ability of the Bank to pay dividends is also subject to profitability, financial condition, liquidity, and capital management limits. There is no assurance that Mid Penn’s banking subsidiary or other subsidiaries established in the future will be able to pay dividends, or that Mid Penn itself will generate adequate cash flow to pay dividends in the future. Federal Reserve policy, which applies to Mid Penn as a registered bank holding company, also provides that dividends by bank holding companies should generally be paid out of earnings from both the current period and a designated look-back period. Mid Penn’s ability to pay dividends on its common stock, or the amount of any dividends paid, could have a material adverse effect on the market price of its common stock.
Mid Penn may need to, or be required to, raise additional capital in the future, and capital may not be available when needed and on terms favorable to current stockholders.
Federal banking regulators require the Corporation and the Bank to maintain adequate levels of capital to support their operations. These capital levels are determined and dictated by law, regulation, and banking regulatory agencies. Regulators may, from time to time, implement changes to regulatory capital adequacy guidelines. Furthermore, regulators may require that the Corporation and/or the Bank to maintain higher levels of capital based on their condition, risk profile, growth plans, or conditions in the banking industry or economy. Failure to maintain capital to meet current or future regulatory requirements could have a significant material adverse effect on Mid Penn’s business, financial condition, and results of operations. In addition, capital levels are also determined by Mid Penn’s management and board of directors, based on capital levels that they believe are necessary to support Mid Penn’s business operations.
If Mid Penn raises capital through merger and acquisition activities, or through the issuance of additional shares of its common stock or other securities, it would likely dilute the ownership interests of current investors and could dilute the per share book value and earnings per share of its common stock. Furthermore, a capital raise through issuance of additional shares may have an adverse impact on Mid Penn’s stock price. New investors also may have rights, preferences, and privileges senior to Mid Penn’s current common stockholders, which may adversely impact its current common stockholders.
Mid Penn’s ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside of its control, and on its financial performance. Accordingly, Mid Penn cannot be certain of its ability to raise additional capital on acceptable terms and acceptable time frames or to raise additional capital at all. The inability to raise capital in sufficient amounts may adversely affect Mid Penn’s business, financial condition and results of operations.
Offerings of debt, which would be senior to Mid Penn’s common stock upon liquidation, and/or preferred equity securities which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of our common stock.
Mid Penn may attempt to increase its capital resources if the Corporation’s or the Bank’s capital ratios fall below the required minimums. The Corporation or the Bank could be required to raise additional capital by making additional offerings of debt or preferred equity securities, including medium-term notes, senior or subordinated notes and preferred stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. If a future liquidation of Mid Penn occurs, holders of debt securities and shares of preferred stock and lenders with respect to other borrowings are likely to receive distributions of available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of existing shareholders or reduce the market price of our common stock, or both. Holders of Mid Penn common stock are not entitled to preemptive rights or other protections against dilution.
Also, Mid Penn’s board of directors is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of the shareholders. The board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over common stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms. If Mid Penn issues preferred stock in the future that has a preference over its common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if preferred stock is issued with voting rights that dilute the voting power of common stock, the rights of holders of Mid Penn’s common stock or the market price of the common stock could be adversely affected.
MID PENN BANCORP, INC.
Pennsylvania Business Corporation Law and various anti-takeover provisions under our articles of incorporation and bylaws could impede the takeover of Mid Penn.
Various Pennsylvania laws affecting business corporations may have the effect of discouraging offers to acquire Mid Penn, even if the acquisition would be advantageous to shareholders. In addition, Mid Penn has various anti-takeover measures in place under its articles of incorporation and bylaws, including a supermajority vote requirement for mergers, the staggered election of Mid Penn’s board of directors, and the absence of cumulative voting. Any one or more of these laws or measures may impede the takeover of Mid Penn and may prevent its shareholders from taking part in a transaction in which they could realize a premium over the current market price of its common stock.
Mid Penn’s common stock is not insured by any governmental entity.
Although Mid Penn and the Bank are regulated by governmental agencies, Mid Penn common stock is not a deposit account or other obligation of the Bank or any other bank and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, any other governmental entity or by any other public or private entity. Investment in Mid Penn common stock is inherently risky for the reasons described elsewhere in this "Risk Factors" section, in this document, and our other filings with the SEC. Mid Penn common stock is also subject to the same market forces that affect the price of common stock in any other publicly traded company. As a result, investors who acquire Mid Penn common stock may lose some or all of their investment.
General Risk Factors
Mid Penn’s controls and procedures may fail or be circumvented.
Management maintains Mid Penn’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures, and periodically reviews and updates them. Any system of controls, however well designed and operated, is based in part on performance by personnel or certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of Mid Penn’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on Mid Penn’s business, results of operations, and financial condition.
Mid Penn may not be able to attract and retain skilled personnel.
Mid Penn’s success depends, in large part, on its ability to attract and retain qualified, key personnel. Competition for the best personnel in most activities engaged in by Mid Penn can be intense, and Mid Penn may not be able to hire or retain them. Limitations in the way regulated financial institutions can compensate their officers and employees, including those requirements contained in Dodd-Frank, may make it more difficult for regulated financial institutions, including Mid Penn, to compete with unregulated companies for talent. The unexpected loss of services of one or more of Mid Penn’s key personnel could have a material adverse impact on Mid Penn’s business because of their skills, knowledge of Mid Penn’s market, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
MID PENN BANCORP, INC.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The Bank owns a building in Harrisburg, Pennsylvania, located at 2407 Park Drive, which serves as the Corporation’s headquarters. The Bank also owns a building in Millersburg, Pennsylvania, located at 349 Union Street, which serves as the Bank’s headquarters. Additionally, the Bank owns one building in Halifax, Pennsylvania that serves as an operational support facility and one building in Harrisburg, Pennsylvania that serves as corporate administrative and operational support offices. Administrative space is also leased in Malvern, Pottsville, Lancaster, Clearfield and Chambersburg, Pennsylvania. As of December 31, 2024, the Bank’s retail office network was comprised of 45 full-service retail locations. The Bank owned 26 of those locations and leased 19 locations.
All real estate owned by Mid Penn is free and clear of encumbrances. Mid Penn’s leases expire at various dates through the year 2039 and generally include options to renew. For additional information regarding the lease commitments, See "Note 7 - Leases", within Item 8, Notes to Consolidated Financial Statements.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
Mid Penn and its subsidiaries are subject to various pending and threatened legal proceedings or other matters arising out of the normal conduct of business in which claims for monetary damages are asserted. As of the date of this report, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters will be material to Mid Penn’s consolidated financial position. On at least a quarterly basis, Mid Penn assesses its liabilities and contingencies in connection with such matters. For those matters where it is probable that Mid Penn will incur losses and the amounts of the losses can be reasonably estimated, Mid Penn records an expense and corresponding liability in its consolidated financial statements. To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of losses for matters where an exposure is not currently estimable or considered probable is not believed to be material in the aggregate. This is based on information currently available to Mid Penn and involves elements of judgment and significant uncertainties. While Mid Penn does not believe that the outcome of pending or threatened litigation or other matters will be material to Mid Penn’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future. In addition, regardless of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause Mid Penn to incur additional expenses, which could be significant, and possibly material, to Mid Penn’s results of operations in any future period.
In addition, management does not know of any material proceedings contemplated by governmental authorities against Mid Penn or any of its properties.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
MID PENN BANCORP, INC.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Corporation’s common stock is traded on NASDAQ under the symbol MPB.
Transfer Agent: Computershare, Attn: Shareholder Services, P.O. Box 30170, College Station, TX 77842-3170. Phone: 1-800-368-5948.
Number of Shareholders: As of March 13, 2025, there were approximately 5,000 shareholders of record of Mid Penn’s common stock.
Dividends: Mid Penn’s dividend payout philosophy looks to provide reasonable quarterly cash returns to shareholders while still retaining sufficient earnings to finance future growth and maintain sound capital levels. The declaration of cash dividends on Mid Penn’s common stock is at the discretion of its Board of Directors, and any decision to declare a dividend is based on a number of factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels, applicable covenants under any credit agreements and other contractual restrictions, Pennsylvania law, federal and Pennsylvania bank regulatory law, and other factors deemed relevant.
Dividend Reinvestment and Stock Purchases: Shareholders of Mid Penn may acquire additional shares of common stock by reinvesting their cash dividends under the Dividend Reinvestment Plan without paying a brokerage fee. Voluntary cash contributions may also be made under the Plan. For additional information about the Plan, contact the Transfer Agent.
Annual Meeting: The Annual Meeting of the Shareholders of Mid Penn is expected to be held virtually at 10:00 a.m. on Tuesday, May 13, 2025.
Accounting, Auditing and Internal Control Complaints: Information on how to report a complaint regarding accounting, internal accounting controls or auditing matters is available at Mid Penn's website: www.midpennbank.com
Purchases of Equity Securities by the Issuer and Affiliated Purchasers: In 2020, Mid Penn announced the adoption of a treasury stock repurchase program ("Repurchase Program") authorizing the repurchase of up to $15.0 million of Mid Penn’s outstanding common stock, which represents approximately 3.5% of the issued shares based on Mid Penn’s closing stock price and shares issued as of March 31, 2022. The Repurchase Program was extended through April 24, 2025 by Mid Penn’s Board of Directors on April 24, 2024. Under the Repurchase Program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase.
The Repurchase Program may be modified, suspended or terminated at any time, in Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate. The Repurchase Program does not obligate Mid Penn to repurchase any shares.
During the year ended December 31, 2024, Mid Penn repurchased 15,500 shares of common stock at an average price of $20.81 per share. No shares were purchased during the fourth quarter of 2024. As of December 31, 2024, Mid Penn had repurchased 440,722 shares of common stock at an average price of $22.78 per share under the Program. The Repurchase Program had approximately $5.0 million remaining available for repurchase as of December 31, 2024.
Securities Authorized for Issuance under Equity Compensation Plans: Information regarding the Corporation’s equity compensation plans is included in Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
MID PENN BANCORP, INC.
Stock Performance Graph
As of December 31, 2024, to better align with the Company's direct competitors, the Company has chosen to change the composition of its peer group for the performance graph below. The total shareholder return is based on a $100 investment on December 31, 2019.
Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024
Mid Penn Bancorp, Inc. 100.00 78.79 117.84 114.38 96.05 117.89
Current Peers (1) 100.00 79.03 112.09 106.63 104.92 118.63
Prior Peers (2) 100.00 78.92 118.12 110.33 112.74 131.54
KBW NASDAQ Bank Index Return 100.00 86.37 116.64 88.97 84.71 112.44
(1) Current Peers includes AROW, CCNE, CHMG, CNOB, CZFS, CZNC, FCF, FFIC, FISI, FRBA, LNKB, ORRF, PFIS, PGC, SHBI, STBA, TMP, UNTY and UVSP; Excludes FLIC due to pending merger with CNOB
(2) Prior Peers includes AMAL, CCNE, CHCO, CNOB, FCF, FFIC, FISI, KRNY, MCB, NFBK, ORRF, PGC, STBA, TBBK, TMP, TRST, UVSP and WASH; Excludes CATC due to completed merger with EBC
Note: Peer group returns reflect average total return of respective peer group
In accordance with the rules of the SEC, this section, captioned "Stock Performance Graph," is not incorporated by reference into any of our future filings made under the Securities Exchange Act of 1934 or the Securities Act of 1933. The Stock Performance Graph, including its accompanying table and footnotes, is not deemed to be soliciting material or to be filed under the Exchange Act or the Securities Act.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]
MID PENN BANCORP, INC. Management’s Discussion and Analysis

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this document or 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 within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Exchange Act. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, and expected operating results, including after giving effect to the Merger, and the assumptions upon which those statements are based. Forward looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” or words or phrases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.
The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:
•Mid Penn’s ability to efficiently integrate acquisitions, including the Merger, into its business and operations, which may take longer than anticipated, may be more costly than anticipated and may have unanticipated adverse results relating to Mid Penn’s existing business and operations;
•the possibility that the anticipated benefits of the Merger, including anticipated cost savings and other synergies of the Merger may take longer to be realized or may not be achieved in their entirety, and attrition in key client, partner and other relationships relating to the Merger may be greater than expected;
•the effects of future economic conditions on Mid Penn, the Bank, our nonbank subsidiaries, and our markets and 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;
•business or economic disruption from national or global epidemic or pandemic events;
•the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, the value of investment securities, and interest rate protection agreements;
•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 our 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;
•an increase in the Pennsylvania Bank Shares Tax to which the Bank’s capital stock is currently subject, or imposition of any additional taxes on the capital stock of Mid Penn or the Bank;
•impacts of the capital and liquidity requirements imposed by bank regulatory agencies;
•the effect of changes in accounting policies and practices, as may be adopted by regulatory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, the SEC, and other accounting and reporting rule making authorities;
•the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, including litigation related to the Merger;
•changes in technology;
•our ability to implement business strategies, including our acquisition strategy;
•our ability to successfully expand our franchise, including through acquisitions or establishing new offices at favorable prices;
•our ability to successfully integrate any banks, companies, offices, 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, or 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;
MID PENN BANCORP, INC. Management’s Discussion and Analysis
•our ability to attract and retain qualified management and personnel;
•results of regulatory examination and supervision processes;
•the ability to obtain regulatory approvals and satisfy other closing conditions to the Merger, including approval by the shareholders of Mid Penn and William Penn;
•the possibility of increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the Merger;
•potential exposure to unknown or contingent risks and liabilities we have acquired, or may acquire, or target for acquisition, including in connection with the Merger;
•the failure of assumptions underlying the establishment of reserves for loan and lease losses, the assessment of potential impairment of investment securities, and estimations of values of collateral and various financial assets and liabilities;
•our ability to maintain compliance with the listing rules of The NASDAQ Stock Market;
•our ability to maintain the value and image of our brand and protect our intellectual property rights;
•volatility in the securities markets;
•disruptions due to flooding, severe weather, or other natural disasters or acts of God;
•acts of war, terrorism, or global military conflict;
•supply chain disruption; and
•the risk factors described in Item 1A of this Annual Report.
All written or oral forward-looking statements attributable to Mid Penn are expressly qualified in their entirety by these cautionary factors.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of Mid Penn’s Consolidated Financial Statements from the view of management and should be read in conjunction with the Consolidated Financial Statements of the Corporation and Notes thereto and other detailed information appearing elsewhere in this Annual Report on Form 10-K. The comparability of the results of operations for the years ended 2024 and 2023, compared to 2022, in general, have been materially impacted by the Brunswick Acquisition, which closed on May 19, 2023.
Mid Penn is not aware of any current trends, events, uncertainties or any current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on Mid Penn’s or the Bank’s liquidity, capital resources, or operations.
Executive Overview
Mid Penn is a financial holding company incorporated in August 1991 in the Commonwealth of Pennsylvania.
Mid Penn generates the majority of its revenues through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is fully taxable-equivalent basis ("FTE") net interest income as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties. Offsetting these revenue sources are provisions for credit losses, non-interest expenses and income taxes.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table presents a summary of the Corporation's earnings and selected performance ratios:
December 31,
2024 2023 2022
Net Income $ 49,437 $ 37,397 $ 54,806
Diluted EPS $ 2.90 $ 2.29 $ 3.44
Dividends Declared $ 0.80 $ 0.80 $ 0.80
Return on average assets (2)
0.91 % 0.77 % 1.22 %
Return on average equity (2)
8.61 % 7.16 % 10.98 %
Net interest margin (1)
3.11 % 3.26 % 3.59 %
Non-performing assets to total assets 0.41 % 0.27 % 0.21 %
Net charge-off to average loans 0.019 % 0.009 % (0.002) %
(1) Presented on a FTE basis using a 21% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section.
(2) Annualized ratios
During the second quarter of 2023, Mid Penn completed the Brunswick Acquisition, which added total assets of $390.7 million comprised primarily of $324.5 million of loans. This transaction resulted in the addition of 5 branches in central New Jersey. Mid Penn issued 849,510 shares of its common stock as well as a net cash payment to Brunswick shareholders of $27.6 million, for total consideration of $45.7 million for all outstanding stock and the cancellation of options of Brunswick.
Summary of Financial Results
•Net Income Per Share - Mid Penn’s net income available to common shareholders ("earnings") for the year ended December 31, 2024 was $49.4 million or $2.90 per common share basic and diluted, compared to earnings of $37.4 million or $2.29 per common share basic and diluted for the year ended December 31, 2023. The results for the year ended December 31, 2024 were favorably impacted by loan growth, and interest income growth.
•Net Interest Income
◦Net Interest Margin - For the year ended December 31, 2024, Mid Penn’s FTE net interest margin was 3.11% versus 3.26% for the year ended December 31, 2023. The Federal Reserve’s Federal Open Market Committee ("FOMC") decreased rates three times during 2024. The yield on interest-earning assets increased 44 basis point(s) ("bp") for the year ended December 31, 2024 compared to the year ended December 31, 2023 and the rate on interest-bearing liabilities increased 70 bp for the year ended December 31, 2024 compared to the year ended December 31, 2023.
◦Loan Growth - Total loans, net of unearned income, as of December 31, 2024 were $4.4 billion compared to $4.3 billion as of December 31, 2023, an increase of $190.3 million, or 4.5%. The loan growth occurred primarily within Mid Penn’s commercial real estate loan portfolio. The mix of commercial real estate and commercial portfolios in relation to the total change in the loan portfolio increased 111.1% and 15.9%, respectively from December 31, 2023 to December 31, 2024. Non-owner occupied office commercial real estate exposure represents 28.2% of total loan balances and is primarily limited to suburban offices.
◦Deposit Growth - Total deposits increased $343.7 million, or 7.9%, from $4.3 billion at December 31, 2023, to $4.7 billion at December 31, 2024.
•Asset Quality - ACL at December 31, 2024 was $35.5 million, or 0.80% of total loans, as compared to $34.2 million, or 0.80% of total loans at December 31, 2023.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
◦Net Charge-offs/Recoveries - Mid Penn had net loan charge-offs of $817 thousand and net loan charge-offs of $332 thousand for the years ended December 31, 2024 and 2023, respectively.
◦Non-performing assets - Total non-performing assets were $22.7 million at December 31, 2024, an increase compared to non-performing assets of $14.5 million at December 31, 2023. The increase was partially a result of the addition of two commercial loans with a combined balance of $3.0 million, and two commercial real estate loans with a combined balance of $2.3 million being placed on nonaccrual in the fourth quarter of 2024.
◦Provision/Benefit for credit losses - Loans - The provision for credit losses - loans was $2.1 million for the year ended December 31, 2024 compared to $3.3 million for the year ended December 31, 2023. The decrease in provision for the year ended December 31, 2024, is primarily due to a decrease in loss factors across most portfolios. Prior to 2023, ACL and related provision are presented in accordance with the previous accounting guidance using the incurred loss method. The PCL for the year ended December 31, 2023 includes an initial provision for credit losses on non-PCD loans acquired in the Brunswick Acquisition of $2.0 million.
•Noninterest Income - Noninterest income totaled $22.5 million for the year ended December 31, 2024, a $2.5 million, or 12.4%, increase compared to the year ended December 31, 2023. The increase was primarily attributable to a $2.2 million increase in other miscellaneous income, driven by increases in Bank-owned life insurance benefits received, and a $1.1 million increase in mortgage banking income, partially offset by a $379 thousand decrease in fiduciary and wealth management and a $314 thousand decrease in mortgage hedging.
•Noninterest Expense - Noninterest expense totaled $117.6 million, a decrease of $972 thousand, or 0.8%, compared to noninterest expense of $118.6 million for the year ended December 31, 2023. The decrease was primarily driven by a $5.0 million decrease in merger and acquisition expenses and a $3.0 million decrease in post-acquisition restructuring expenses, partially offset by a $4.8 million increase in salaries and benefits expense, driven by year-end employee bonus incentives, increases in employee salaries, and increased costs of employee medical benefits, a $1.4 million increase in legal and professional fees, and a $1.4 million increase in software licensing and utilization expense.
•Borrowings paid downs - During 2024, Mid Penn paid off $35.3 million of long-term debt.
•Share Repurchases - Mid Penn repurchased 15,500 shares during 2024 at an average price per share of $20.81 under its share repurchase program.
•Business Combinations
◦On July 31, 2024, Mid Penn acquired the insurance business and related accounts of a full-service employee benefits firm that serves mid to large employers across central and eastern Pennsylvania, northern Maryland, and northern Virginia, for a purchase price of $2.0 million at closing and an additional $800 thousand potentially payable pursuant to a three year earnout.
◦On May 19, 2023, Mid Penn completed its acquisition of Brunswick through the merger of Brunswick with and into Mid Penn with Mid Penn being the surviving corporation. In connection with this acquisition, Brunswick Bank, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn.
Critical Accounting Estimates
Mid Penn’s Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and conform to general practices within the banking industry. Application of certain 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 used in applying these principles are based on historical experiences and
MID PENN BANCORP, INC. Management’s Discussion and Analysis
other factors which are believed to be reasonable under the circumstances. Because of the nature of the judgments and estimates that have been 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 reported results of operations.
Management of the Corporation considers the accounting judgments relating to the allowance for credit losses and goodwill impairment to be the accounting area that requires the most subjective and complex judgments.
Allowance for Credit Losses
In accordance with CECL, the ACL, which includes both the ACL - loans and the ACL for OBS credit exposures, is calculated with the objective of maintaining a reserve for current expected credit losses over the remaining expected life of the portfolio. Management's determination of the appropriateness of the reserve is based on continuously monitoring and evaluating the loan portfolio, lending-related commitments, current as well as forecasted economic factors, and other relevant factors. The ACL - loans is an estimate of expected losses inherent within Mid Penn's existing loan portfolio.
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by Management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and credit loss expense.
Mid Penn estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Mid Penn uses a third-party software application to calculate the quantitative portion of the ACL using a methodology and assumptions specific to each loan pool. The qualitative portion of the allowance is based on general economic conditions and other internal and external factors affecting Mid Penn as a whole, as well as specific loans. Factors considered include the following: lending process, concentrations of credit, and credit quality. The quantitative and qualitative portions of the allowance are added together to determine the total ACL, which reflects Management’s expectations of future conditions based on reasonable and supportable forecasts. As such, the calculation of ACL is inherently subjective and requires management to exercise significant judgment. The CECL estimate is highly sensitive to the economic forecasts used to develop the estimate.
While management uses the best information known to it in order to make ACL valuations, adjustments to the ACL may be necessary based on changes in economic and other conditions, changes in the composition of the loan portfolio, or changes in accounting guidance. In times of economic slowdown, either local, regional or national, the risk inherent in the loan portfolio could increase resulting in the need for additional provisions to the ACL in future periods. An increase could also be necessitated by an increase in the size of the loan portfolio or in any of its components even though the credit quality of the overall portfolio may be improving.
For further discussion of the methodology used in the determination of the ACL, refer to "Note 1, Summary of Significant Accounting Policies", "Note 3 - Investment Securities", "Note 4 - Loans and Allowance for Credit Losses - Loans" and "Note 18 - Commitments and Contingencies" to the Consolidated Financial Statements. To the extent actual outcomes differ from management estimates, additional PCL may be required that would adversely impact earnings in future periods.
The allowance for credit losses - Loans was $35.5 million as of December 31, 2024, an increase of $1.3 million, or 3.9%, compared to $34.2 million as of December 31, 2023. The increase was primarily the result of an increase in the reserve for individually analyzed loans during the fourth quarter of 2024.
Goodwill
Mid Penn evaluates goodwill annually for impairment unless events occur which indicate that impairment is possible, a triggering event. At December 31, 2024, Mid Penn had goodwill of $128.2 million and Mid Penn's stock continues to trade below book value.
Our annual impairment test was conducted during the fourth quarter of 2024. Goodwill is calculated as a purchase premium using the market participant and peer group control premium approach. Additional factors considered include actual earnings in relation to forecasted earnings, liquidity levels, changes in deposit balances, and credit quality, among
MID PENN BANCORP, INC. Management’s Discussion and Analysis
others. No goodwill impairment has been recorded for 2024. Management will continue to monitor internal metrics and macroeconomic trends to determine if there is likelihood of goodwill impairment.
Refer to Note 1 - Summary of Significant Accounting Policies and Note 6 - Goodwill and Intangible Assets for further details on the Company's goodwill.
Results of Operations
Net Interest Income
Net interest income, Mid Penn's primary source of earnings, represents the difference between interest income received on loans, investments, and overnight funds, and interest expense paid on deposits and short- and long-term borrowings. Net interest income is affected by changes in interest rates and changes in average balances (volume) in the various interest-sensitive assets and liabilities. Interest and average rates in the table below are presented on a fully taxable-equivalent basis ("FTE"). Tax-equivalent adjustments were calculated using a statutory corporate tax rate of 21% for the years ended December 31, 2024, 2023 and 2022. For purposes of calculating loan yields, average loan balances include non-accrual loans. Loan fees of $4.8 million, $4.6 million and $8.4 million are included with loan interest income in the following table for the years ended December 31, 2024, 2023, and 2022, respectively.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table includes average balances, effective interest differential and interest yields for the years ended December 31:
Average Balances, Income and Interest Rates
2024 2023 2022
(Dollars in thousands) Average Balance Interest Yield/
Rate Average Balance Interest Yield/
Rate Average Balance Interest Yield/
Rate
ASSETS:
Interest Bearing Balances $ 30,576 $ 1,127 3.69 % $ 24,270 $ 361 1.49 % $ 26,633 $ 69 0.26 %
Investment Securities:
Taxable 543,157 15,254 2.81 544,896 15,141 2.78 500,156 11,663 2.33
Tax-Exempt 73,834 1,464 1.98 78,163 1,540 2.49 78,039 1,497 2.43
Total Investment Securities 616,991 16,718 2.71 623,059 16,681 2.68 578,195 13,160 2.34
Federal Funds Sold 36,436 1,928 5.29 7,161 373 5.21 311,989 1,826 0.59
Loans, net of unearned income 4,373,922 265,522 6.07 3,868,307 218,060 5.65 3,217,282 150,256 4.68
Restricted Investment in Bank Stocks 14,155 1,288 9.10 11,121 864 7.77 6,045 289 4.78
Total Interest-earning Assets 5,072,080 286,583 5.65 4,533,918 236,339 5.21 4,140,144 165,600 4.02
Cash and Due from Banks 39,995 49,503 63,608
Other Assets 300,904 299,666 272,422
Total Assets $ 5,412,979 $ 4,883,087 $ 4,476,174
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest-bearing Demand $ 1,001,813 $ 19,001 1.90 % $ 950,326 $ 13,893 1.46 % $ 1,051,605 $ 3,847 0.37 %
Money Market 913,311 26,580 2.91 926,034 21,424 2.31 1,040,762 5,277 0.51
Savings 275,692 244 0.09 312,053 230 0.07 355,229 193 0.05
Time 1,541,654 70,495 4.57 1,116,552 43,749 3.92 524,944 4,827 0.92
Total Interest-bearing Deposits 3,732,470 116,320 3.12 3,304,965 79,296 2.40 2,972,540 14,144 0.48
Short-term borrowings 190,885 10,575 5.54 107,323 7,087 6.60 11,914 441 3.70
Long-term debt 27,937 1,321 4.73 45,304 975 2.15 23,344 352 1.51
Subordinated debt and trust preferred securities 46,045 1,696 3.68 49,328 2,008 4.07 70,583 2,830 4.01
Total Interest-bearing Liabilities 3,997,337 129,912 3.25 3,506,920 89,366 2.55 3,078,381 17,767 0.58
Noninterest-bearing Demand 780,538 800,582 848,991
Other Liabilities 62,820 53,530 49,864
Shareholders' Equity 572,284 522,055 498,938
Total Liabilities & Shareholders' Equity $ 5,412,979 $ 4,883,087 $ 4,476,174
Net Interest Income $ 156,671 $ 146,973 $ 147,833
Taxable Equivalent Adjustment (1)
1,018 811 778
Net Interest Income (taxable-equivalent basis) $ 157,689 $ 147,784 $ 148,611
Total Yield on Earning Assets 5.65 % 5.21 % 4.02 %
Rate on Supporting Liabilities 3.25 2.55 0.58
Average Interest Spread 2.40 2.66 3.44
Net Interest Margin (1)
3.11 3.26 3.59
(1)Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The volume analysis of changes in net interest income as of December 31 are as follows:
Years Ended
December 31, 2024 vs. December 31, 2023 Years ended
December 31, 2023 vs. December 31, 2022
Increase (decrease) Increase (decrease)
(Dollars in thousands) Volume Rate Net Volume Rate Net
INTEREST INCOME:
Interest Bearing Balances $ 94 $ 672 $ 766 $ (6) $ 298 $ 292
Investment Securities:
Taxable (48) 161 113 1,042 2,436 3,478
Tax-Exempt (108) 32 (76) 3 40 43
Total Investment Securities (156) 193 37 1,045 2,476 3,521
Federal Funds Sold 1,525 30 1,555 (1,798) 345 (1,453)
Loans, net of unearned income 28,567 18,895 47,462 30,468 37,336 67,804
Restricted Investment Bank Stocks 236 188 424 243 332 575
Total Interest Income 30,266 19,978 50,244 29,952 40,787 70,739
INTEREST EXPENSE:
Interest Bearing Deposits:
Interest Bearing Demand 752 4,356 5,108 (375) 10,421 10,046
Money Market (294) 5,450 5,156 (585) 16,732 16,147
Savings (25) 39 14 (22) 59 37
Time 16,664 10,082 26,746 5,443 33,479 38,922
Total Interest-Bearing Deposits 17,097 19,927 37,024 4,461 60,691 65,152
Short-term Borrowings 4,629 (1,141) 3,488 6,300 346 6,646
Long-term Debt (373) 719 346 332 291 623
Subordinated Debt (134) (178) (312) (852) 30 (822)
Total Interest Expense 21,219 19,327 40,546 10,241 61,358 71,599
NET INTEREST INCOME $ 9,047 $ 651 $ 9,698 $ 19,711 $ (20,571) $ (860)
(1) The effect of changing volume and rate, which cannot be segregated, has been allocated entirely to the rate column. Tax-exempt income is shown on a tax equivalent basis using a statutory corporate tax rate of 21% for the years ended December 31, 2024, 2023 and 2022.
For the year ended December 31, 2024, Mid Penn’s FTE net interest margin was 3.11% versus 3.26% for the year ended December 31, 2023 and 3.59% for the year ended December 31, 2022. During 2024, FTE net interest income increased $9.7 million, or 6.6%, compared to 2023. Interest income increased $30.3 million as the result of a $538.2 million, or 11.9%, increase in average interest-earning assets in 2024 compared to 2023, and increased $20.0 million as the result of a 44 bp increase in the yield on interest-earning assets in 2024 compared to 2023. The decrease to net interest margin was primarily a result of an increase in funding costs and growth in average interest-bearing liabilities, partially offset by higher yields on interest-earning assets and growth in average interest-earning assets.
Average total loans, net, increased $505.6 million, or 13.1%, contributing $28.6 million to the increase in interest income. The yield on average total loans, net, increased from 5.65% for 2023 to 6.07% for 2024. The increase in the yield was primarily the result of the higher interest rate environment during 2024.
Total average federal funds sold increased $29.3 million, contributing $1.5 million to the increase in FTE interest income, and the average yield on federal funds sold increased 8 bps, contributing $30 thousand to the increase in FTE interest income.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
Interest expense for 2024 increased by $40.5 million or 45.4% when compared to 2023. The cost of interest-bearing liabilities increased to 3.25% in 2024 from 2.55% in 2023 and 0.58% in 2022. The rate on total interest-bearing deposits increased to 3.12% in 2024 from 2.40% in 2023 and 0.48% in 2022. The increase in the rate was primarily a result of deposit growth and a shift in the mix of deposits from noninterest-bearing to higher yielding demand, money market and time deposits. Mid Penn continued to offer higher rates to both retain and attract deposits. In addition, average short-term borrowings of $190.9 million were used to help fund loan growth, contributing to the $3.5 million increase in interest expense on short-term borrowings for the year ended December 31, 2024 as compared to 2023.
Although the effective interest rate impact on interest-earning assets and funding sources can be reasonably estimated at current interest rate levels, the interest-bearing product and pricing 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 Mid Penn’s asset and liability management and related interest rate risk simulation models. In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve’s FOMC.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
Provision for Credit Losses - Loans
The provision for credit losses on loans was $2.1 million for the year ended December 31, 2024, a decrease of $1.2 million or 34.9% compared to a provision for credit losses of $3.3 million for the year ended December 31, 2023. The provision for credit losses on loans for the year ended December 31, 2023 decreased $1.0 million, or 23.4%, from the $4.3 million provision for credit losses on loans for the year ended December 31, 2022. The decrease in provision for the year ended December 31, 2024 was primarily due to a decrease in loss factors across most portfolios. The benefit for credit losses on off-balance sheet credit exposures was $628 thousand for the year ended December 31, 2024, compared to a provision of $404 thousand or the year ended December 31, 2023. Prior to 2023, ACL and related provision are presented in accordance with the previous accounting guidance using the incurred loss method.
For the year ended December 31, 2024, Mid Penn had net charge-offs of $817 thousand compared to net charge-offs of $332 thousand for the year ended December 31, 2023, and net recoveries of $60 thousand for the year ended December 31, 2022 . A summary of charge-offs and recoveries of loans and the provision for loan losses is shown in the table below.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table represents the analysis of the allowance for credit losses:
Years ended December 31,
(In Thousands) 2024 2023 2022
Balance, beginning of year $ 34,187 $ 18,957 $ 14,597
Loans charged off:
Commercial real estate
CRE Nonowner Occupied - - 7
CRE Owner Occupied - 16 -
Total Commercial real estate - 16 7
Commercial and industrial 819 238 1
Residential mortgage
1-4 Family 1st Lien 7 13 25
1-4 Family Rental 2 - -
HELOC and Junior Liens 21 - 1
Total residential mortgage 30 13 26
Consumer 52 135 97
Total loans charged off 901 402 131
Recoveries on loans previously charged off:
Commercial real estate
CRE Nonowner Occupied 2 - -
CRE Owner Occupied 4 - 128
Total commercial real estate 6 - 128
Commercial and industrial 1 - 13
Construction
Other Construction - - 24
Total construction - - 24
Residential mortgage
1-4 Family 1st Lien 16 7 2
1-4 Family Rental 22 31 -
HELOC and Junior Liens - - 2
Total residential mortgage 38 38 4
Consumer 39 32 22
Total loans recovered 84 70 191
Net charge-offs (recoveries) 817 332 (60)
Provision for loan losses 2,144 3,295 4,300
Impact from the adoption of CECL - 11,931 -
Purchase Credit Deteriorated loans - 336 -
Balance, end of year $ 35,514 $ 34,187 $ 18,957
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table represents the ratio of net charge-offs (recoveries) to total average loans outstanding:
(In thousands)
As of December 31, 2024 Net charge-offs (Recoveries) Average Loans outstanding Ratio of net charge-offs (recoveries) to total average loans outstanding
Commercial real estate
CRE Nonowner Occupied $ (2) $ 1,204,473 0.000 %
CRE Owner Occupied (4) 624,542 (0.001)
Multifamily - 384,374 0.000
Farmland - 217,667 0.000
Total Commercial Real Estate (6) 2,431,056 0.000
Commercial and industrial
818 695,730 0.118
Construction
Residential Construction - 101,234 0.000
Other Construction - 349,481 0.000
Total Construction - 450,715 0.000
Residential mortgage
1-4 Family 1st Lien (9) 323,524 (0.003)
1-4 Family Rental (20) 344,261 (0.006)
HELOC and Junior Liens 21 136,634 0.015
Total Residential Mortgage (8) 804,419 (0.001)
Consumer 13 7,276 0.179
Total Loans $ 817 $ 4,389,196 0.019 %
As of December 31, 2023
Commercial real estate
CRE Nonowner Occupied $ - $ 1,111,413 0.000 %
CRE Owner Occupied 16 586,357 0.003
Multifamily - 261,289 0.000
Farmland - 199,452 0.000
Total Commercial Real Estate 16 2,158,511 0.001
Commercial and industrial
238 641,264 0.037
Construction
Residential Construction - 100,851 0.000
Other Construction - 378,962 0.000
Total Construction - 479,813 0.000
Residential mortgage
1-4 Family 1st Lien 6 342,485 0.002
1-4 Family Rental (31) 253,606 (0.012)
HELOC and Junior Liens - 128,912 0.000
Total Residential Mortgage (25) 725,003 (0.003)
Consumer 103 6,486 1.588
Total Loans $ 332 $ 4,011,077 0.008 %
MID PENN BANCORP, INC. Management’s Discussion and Analysis
As of December 31, 2022
Commercial real estate
CRE Nonowner Occupied $ 7 $ 961,766 0.001 %
CRE Owner Occupied (128) 479,599 (0.027)
Multifamily - 188,040 0.000
Farmland - 158,844 0.000
Total Commercial Real Estate (121) 1,788,249 (0.007)
Commercial and industrial
(12) 572,291 (0.002)
Construction
Residential Construction - 59,170 0.000
Other Construction (24) 340,751 (0.007)
Total Construction (24) 399,921 (0.006)
Residential mortgage
1-4 Family 1st Lien 23 285,331 0.008
1-4 Family Rental - 114,992 0.000
HELOC and Junior Liens (1) 114,610 (0.001)
Total Residential Mortgage 22 514,933 0.004
Consumer 75 9,141 0.821
Total Loans $ (60) $ 3,284,535 (0.002) %
Noninterest Income
Noninterest income and variance analysis as of December 31:
Years Ended December 31,
(Dollars in thousands) 2024 2023 2022 $ Variance 2024 vs. 2023 % Variance 2024 vs. 2023
Income from fiduciary and wealth management activities $ 4,680 $ 5,059 $ 5,071 $ (379) (7.5) %
ATM debit card interchange income 3,851 4,019 4,362 (168) (4.2)
Service charges on deposits 2,176 1,943 2,078 233 12.0
Mortgage banking income 2,476 1,353 1,607 1,123 83.0
Mortgage hedging income 10 324 1,471 (314) (96.9)
Net gain on sales of SBA loans 347 571 262 (224) (39.2)
Earnings from cash surrender value of life insurance 1,141 1,112 1,013 29 2.6
Other income 7,812 5,627 7,793 2,185 38.8
Total Noninterest Income $ 22,493 $ 20,008 $ 23,657 $ 2,485 12.4 %
For the year ended December 31, 2024, noninterest income totaled $22.5 million, an increase of $2.5 million or 12.4%, compared to noninterest income of $20.0 million for the year ended December 31, 2023. Income from mortgage banking, service charges on deposits, earnings from cash surrender value of life insurance, and other income all increased compared to the prior year.
Mortgage banking income increased $1.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. Mortgage loan originations and secondary-market loan sales and gains increased during 2024 as a result of decreases in interest rates. Mortgage hedging income was $10 thousand for the year ended December 31, 2024 compared to $324 thousand for the same period in 2023.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
Other income increased $2.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase in noninterest income is primarily driven by a $2.2 million increase in other miscellaneous noninterest income, driven by increases in Bank-owned life insurance benefits received.
For details on the variances of noninterest income for the year ended December 31, 2023 compared to the year ended December 31, 2022 refer to the "Noninterest Income" section of the Management's Discussion and Analysis in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Noninterest expense and variance analysis as of December 31:
Years Ended December 31,
(In Thousands) 2024 2023 2022 $ Variance
2024 vs. 2023 % Variance
2024 vs. 2023
Salaries and employee benefits $ 64,098 $ 59,345 $ 52,601 $ 4,753 8.0 %
Software licensing and utilization 9,300 7,927 7,524 1,373 17.3
Occupancy expense, net 7,571 7,349 6,900 222 3.0
Equipment expense 4,928 5,121 4,493 (193) (3.8)
Shares tax 2,350 2,713 2,786 (363) (13.4)
Legal and professional fees 4,306 2,945 2,761 1,361 46.2
ATM/card processing 2,284 2,108 2,139 176 8.3
Intangible amortization 1,784 1,780 2,012 4 0.2
FDIC assessment 4,170 3,500 1,594 670 19.1
(Gain) loss on sale or write-down of foreclosed assets, net 80 (144) (133) 224 N/M
Merger and acquisition expense 545 5,544 294 (4,999) (90.2)
Post-acquisition restructuring expense - 2,952 329 (2,952) (100.0)
Other expenses 16,200 17,448 16,139 (1,248) (7.2)
Total Noninterest Expense $ 117,616 $ 118,588 $ 99,439 $ (972) (0.8) %
N/M - Not Meaningful
For the year ended December 31, 2024, noninterest expense totaled $117.6 million, a decrease of $1.0 million, or 0.8%, compared to noninterest expense of $118.6 million for the year ended December 31, 2023. The decrease was primarily driven by a $5.0 million decrease in merger and acquisition expenses, and a $3.0 million decrease in post-acquisition restructuring, partially offset by a $4.8 million increase in salaries and benefits expense, driven by year-end employee bonus incentives, increases in employee salaries, and increased costs of employee medical benefits, a $1.4 million increase in legal and professional fees, and a $1.4 million increase in software licensing and utilization.
For details on the variances of noninterest expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 refer to the "Noninterest Expense" section of the Management's Discussion and Analysis in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Income Taxes
The provision for income taxes was $10.6 million during the year ended December 31, 2024, an increase of $3.3 million compared to $7.3 million for the same period in 2023. The provision for income taxes for the year ended December 31, 2024 reflects an effective combined Federal and state tax rate ("ETR") of 17.6%, compared to an ETR of 16.3% for the year ended December 31, 2023. The increase in the effective tax rates in 2024 compared to 2023 was a result of higher state taxes, driven by a prior year's benefit from the Brunswick acquisition. Generally, Mid Penn’s effective tax rate is below the federal statutory rate due to earnings on tax-exempt loans, investments, and earnings from the cash surrender value of life insurance, as well as the impact of federal income tax credits, including those awarded from Mid Penn’s low-
MID PENN BANCORP, INC. Management’s Discussion and Analysis
income housing investments. The realization of Mid Penn’s deferred tax assets is dependent on future earnings. Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets.
Financial Condition
Mid Penn’s total assets were $5.5 billion as of December 31, 2024, reflecting an increase of $180.1 million, or 3.4%, compared to total assets of $5.3 billion as of December 31, 2023. The increase was primarily driven by organic loan growth, increases in investment securities, and an increase in Fed Funds Sold.
Investment Securities
Mid Penn’s portfolio of held-to-maturity ("HTM") securities, recorded at amortized cost, decreased $16.7 million to $382.4 million as of December 31, 2024, as compared to $399.1 million as of December 31, 2023. Mid Penn’s total available-for-sale ("AFS") securities portfolio increased $36.9 million from $223.6 million at December 31, 2023 to $260.5 million at December 31, 2024.
At December 31, 2024, the unrealized loss on AFS investment securities resulted in a negative impact to shareholders’ equity of $1.6 million (comprised of a gross unrealized loss on securities of $2.0 million, net of deferred income tax). At December 31, 2023, the unrealized gain on AFS investment securities resulted in a positive impact to shareholders’ equity of $2.0 million (comprised of a gross unrealized gain on securities of $2.1 million, net of deferred income tax). Mid Penn does not have any significant concentrations of non-governmental securities within its investment portfolio.
Mid Penn’s investment portfolio is utilized primarily to support overall liquidity and interest rate risk management, to provide collateral supporting pledging requirements for public funds on deposit, and to generate additional interest income within reasonable risk parameters. Mid Penn’s investment portfolio includes both held-to-maturity securities and available-for-sale securities.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table presents the expected maturities of the investment portfolio and the weighted average yields (calculated based on historical cost and net of tax) as of December 31, 2024:
Maturing
(In Thousands) One Year
and Less After One Year
thru Five Years After Five Years
Thru Ten Years After Ten
Years
As of December 31, 2024 Amount Weighted Average Yield Amount Weighted Average Yield Amount Weighted Average Yield Amount Weighted Average Yield
Available for sale securities, at fair value:
U.S. Treasury and U.S. government agencies $ 5,476 3.49 % $ 14,224 2.40 % $ 1,807 3.30 % $ - - %
Mortgage-backed U.S. government agencies - - - - 5,292 2.53 197,652 3.72
State and political subdivision obligations - - - - 2,948 2.49 648 2.23
Corporate debt securities 4,990 5.15 7,190 4.32 20,250 4.42 - -
$ 10,466 4.28 % $ 21,414 3.05 % $ 30,297 3.84 % $ 198,300 3.71 %
Held to maturity securities, at amortized cost:
U.S. Treasury and U.S. government agencies $ 8,100 3.07 % $ 99,111 1.88 % $ 134,730 2.10 % $ - - %
Mortgage-backed U.S. government agencies - - 1,937 2.97 4,865 2.80 30,791 2.01
State and political subdivision obligations 9,457 2.39 37,111 2.45 15,010 2.27 15,884 2.59
Corporate debt securities 2,006 3.89 3,995 3.18 19,450 4.10 - -
$ 19,563 2.83 % $ 142,154 2.08 % $ 174,055 2.36 % $ 46,675 2.21 %
MID PENN BANCORP, INC. Management’s Discussion and Analysis
Loans, net of unearned income
The following table presents the ending balance of loans outstanding, by type, as of December 31:
2024 2023 Change in Balance
(Dollars in thousands) Balance % of Total Loans Balance % of Total Loans $ %
Commercial real estate
CRE Nonowner Occupied $ 1,251,010 28.1 % $ 1,149,553 27.0 % $ 101,457 8.8 %
CRE Owner Occupied 624,007 14.0 629,904 14.8 (5,897) (0.9)
Multifamily 412,900 9.3 309,059 7.3 103,841 33.6
Farmland 224,709 5.1 212,690 5.0 12,019 5.7
Total Commercial Real Estate 2,512,626 56.5 2,301,206 54.1 211,420 9.2
Commercial and industrial
705,392 15.9 675,079 15.9 30,313 4.5
Construction
Residential Construction 99,399 2.2 92,843 2.2 6,556 7.1
Other Construction 326,171 7.3 362,624 8.5 (36,453) (10.1)
Total Construction 425,570 9.5 455,467 10.7 (29,897) (6.6)
Residential mortgage
1-4 Family 1st Lien 313,592 7.1 339,142 8.0 (25,550) (7.5)
1-4 Family Rental 336,636 7.6 341,937 8.0 (5,301) (1.6)
HELOC and Junior Liens 140,392 3.2 132,795 3.1 7,597 5.7
Total Residential Mortgage 790,620 17.9 813,874 19.1 (23,254) (2.9)
Consumer 8,862 0.2 7,166 0.2 1,696 23.7
$ 4,443,070 100.0 % $ 4,252,792 100.0 % $ 190,278 4.5 %
Total loans, net of unearned income, as of December 31, 2024 were $4.4 billion compared to $4.3 billion as of December 31, 2023, an increase of $190.3 million.
The majority of the Bank's loan portfolio is to businesses and individuals located within the Bank's primary market area of the Pennsylvania counties of Berks, Blair, Bucks, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Schuylkill and Westmoreland, along with Middlesex and Monmouth counties of New Jersey. Commercial real estate, construction, and land development loans are collateralized mainly by mortgages on the income-producing real estate or land involved. Commercial, industrial, and agricultural loans are primarily made to business entities and may be secured by business assets, including commercial real estate, or may be unsecured. Residential real estate loans are secured by liens on the residential property. Consumer loans include installment loans, lines of credit and home equity loans. The Bank has no significant concentration of credit to any one borrower. The Bank’s highest concentration of credit by loan type is in commercial real estate.
Credit risk is managed through portfolio diversification, underwriting policies and procedures, and loan monitoring practices. Lenders are provided with detailed underwriting policies for all types of credit risks accepted by the Bank and must obtain appropriate internal approvals for credit extensions. The Bank also maintains strict documentation requirements and robust credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible, so any exposures that are discovered might be mitigated or potential losses reduced. The Bank generally secures its loans with real estate, with such collateral values dependent and subject to change based on real estate market conditions within its market area.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table represents the Commercial Real Estate portfolio by property type along with the weighted average loan to value as of December 31, 2024:
(Dollars in thousands) December 31, 2024 December 31, 2023
Commercial Real Estate Balance % of portfolio Weighted Average LTV (2)
Balance % of portfolio Weighted Average LTV (2)
Owner Occupied (1)
$ 624,007 24.8 % N/A $ 629,904 27.5 % N/A
Farmland (1)
224,709 8.9 N/A 212,690 9.2 N/A
Multifamily 412,900 16.4 63.8 309,059 13.4 58.9
Non Owner Occupied
Retail 426,171 17.0 60.3 414,485 18.0 51.0
Office 296,468 11.8 63.2 301,810 13.1 64.4
Industrial 161,683 6.4 53.2 156,075 6.8 49.3
Hospitality 152,060 6.1 51.2 137,718 6.0 49.4
Flex 44,187 1.8 44.2 39,374 1.7 56.0
Mobile Home Park 17,748 0.7 67.7 21,298 0.9 68.4
Health Care 14,511 0.6 55.3 15,618 0.7 54.6
Other Property Types 138,182 5.5 64.1 63,175 2.7 43.2
Total Commercial Real Estate $ 2,512,626 100.0 % 59.9 % $ 2,301,206 100.0 % 55.4 %
(1) LTV not available for Owner Occupied and Farmland properties.
(2) Weighted average Loan to Value is calculated based on estimated current market values of the properties.
Maturity distribution by contractual maturity date and rate sensitivity information related to the loan portfolio is reflected in the table below:
(In Thousands)
As of December 31, 2024 One Year
and Less One to
Five Years Five to
Fifteen Years Over
Fifteen Years Total
Commercial real estate
CRE Nonowner Occupied $ 59,218 $ 402,110 $ 499,042 $ 290,640 $ 1,251,010
CRE Owner Occupied 24,643 66,949 258,018 274,397 624,007
Multifamily 43,742 157,530 107,420 104,208 412,900
Farmland 648 8,603 61,388 154,070 224,709
Total Commercial real estate 128,251 635,192 925,868 823,315 2,512,626
Commercial and industrial 28,535 335,077 105,795 235,985 705,392
Construction
Residential Construction 61,942 24,436 11,742 1,279 99,399
Other Construction 148,374 138,126 17,267 22,404 326,171
Total Construction 210,316 162,562 29,009 23,683 425,570
Residential mortgage
1-4 Family 1st Lien 4,749 26,252 80,764 201,827 313,592
1-4 Family Rental 10,733 54,091 99,131 172,681 336,636
HELOC and Junior Liens 8,956 14,778 34,165 82,493 140,392
Total Residential Mortgage 24,438 95,121 214,060 457,001 790,620
Consumer 2,698 1,805 1,404 2,955 8,862
Total loans held in portfolio $ 394,238 $ 1,229,757 $ 1,276,136 $ 1,542,939 $ 4,443,070
MID PENN BANCORP, INC. Management’s Discussion and Analysis
Fixed interest rates:
Commercial real estate
CRE Nonowner Occupied $ 48,354 $ 206,561 $ 73,775 $ 9,349 $ 338,039
CRE Owner Occupied 17,627 46,818 21,985 2,054 88,484
Multifamily 37,898 84,222 6,755 - 128,875
Farmland 483 7,422 6,620 56 14,581
Total Commercial real estate 104,362 345,023 109,135 11,459 569,979
Commercial and industrial 15,481 203,308 20,008 11,207 250,004
Construction
Residential Construction 25,215 7,324 315 - 32,854
Other Construction 24,555 37,269 1,094 808 63,726
Total Construction 49,770 44,593 1,409 808 96,580
Residential mortgage
1-4 Family 1st Lien 4,713 21,152 50,657 132,028 208,550
1-4 Family Rental 7,395 49,140 4,893 8,532 69,960
HELOC and Junior Liens 454 6,665 23,972 2,400 33,491
Total Residential Mortgage 12,562 76,957 79,522 142,960 312,001
Consumer 1,409 1,782 1,404 503 5,098
Total fixed interest rates $ 183,584 $ 671,663 $ 211,478 $ 166,937 $ 1,233,662
Floating interest rates:
Commercial real estate
CRE Nonowner Occupied $ 10,864 $ 195,549 $ 425,267 $ 281,291 $ 912,971
CRE Owner Occupied 7,016 20,131 236,033 272,343 535,523
Multifamily 5,843 73,309 100,665 104,208 284,025
Farmland 165 1,180 54,769 154,014 210,128
Total Commercial real estate 23,888 290,169 816,734 811,856 1,942,647
Commercial and industrial 13,054 131,768 85,787 224,779 455,388
Construction
Residential Construction 36,727 17,113 11,426 1,279 66,545
Other Construction 123,819 100,856 16,173 21,597 262,445
Total Construction 160,546 117,969 27,599 22,876 328,990
Residential mortgage
1-4 Family 1st Lien 36 5,100 30,107 69,799 105,042
1-4 Family Rental 3,338 4,951 94,238 164,149 266,676
HELOC and Junior Liens 8,502 8,114 10,193 80,092 106,901
Total Residential Mortgage 11,876 18,165 134,538 314,040 478,619
Consumer 1,290 23 - 2,451 3,764
Total floating interest rates 210,654 558,094 1,064,658 1,376,002 3,209,408
Total fixed and floating interest rates $ 394,238 $ 1,229,757 $ 1,276,136 $ 1,542,939 $ 4,443,070
Credit Quality, Credit Risk, and Allowance for Credit Losses
Mid Penn adopted FASB ASC 326, in accordance with the amendments of FASB ASU 2016-13, effective January 1, 2023. The guidance in FASB ASC 326 replaced Mid Penn’s previous incurred loss methodology with a methodology that reflects the current expected credit losses and requires consideration of a broader range of reasonable and supportable information
MID PENN BANCORP, INC. Management’s Discussion and Analysis
to determine credit losses. Mid Penn’s ACL methodology for loans is based upon guidance within FASB ASC Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Cost," as well as regulatory guidance from the FDIC, the Bank's primary federal regulator. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the loan portfolio is continuously monitored by management and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within Mid Penn’s existing loan portfolio. The ACL is adjusted through the provision for credit losses and reduced by the charge off of loan amounts, net of recoveries.
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense.
The following table represents the allowance for credit loss as a percentage of total loans:
(In Thousands)
As of December 31, 2024 Total ACL - Loans Total Loans % of Total Loans Outstanding Allowance as a % of Loan Category
Commercial real estate
CRE Nonowner Occupied $ 11,047 $ 1,251,010 28.1 % 0.9 %
CRE Owner Occupied 5,243 624,007 14.0 0.8
Multifamily 3,432 412,900 9.3 0.8
Farmland 1,932 224,709 5.1 0.9
Total Commercial real estate 21,654 2,512,626 56.5 0.9
Commercial and industrial 7,122 705,392 15.9 1.0
Construction
Residential Construction 931 99,399 2.2 0.9
Other Construction 2,131 326,171 7.3 0.7
Total Construction 3,062 425,570 9.5 0.7
Residential mortgage
1-4 Family 1st Lien 1,503 313,592 7.1 0.5
1-4 Family Rental 1,756 336,636 7.6 0.5
HELOC and Junior Liens 392 140,392 3.2 0.3
Total Residential mortgage 3,651 790,620 17.9 0.5
Consumer 25 8,862 0.2 0.3
Total $ 35,514 $ 4,443,070 100.0 % 0.8 %
For a complete description of Mid Penn’s ACL methodology and the quantitative and qualitative factors included in the calculation, please see "Note 4 - Loans and Allowance for Credit Losses - Loans" included in Part I. Item 1. - Financial Statements of this report.
Upon the adoption of FASB ASC 326 on January 1, 2023, Mid Penn recorded an overall increase of $15.0 million to the ACL on January 1, 2023 as a result of the adoption of CECL. Retained earnings decreased $11.5 million and deferred tax assets increased by $3.1 million. Included in the $15.0 million increase to the ACL was $3.1 million for certain OBS credit exposures that were previously recognized in other liabilities before the adoption of CECL. The ACL and the related PCL for the year ended December 31, 2022 reflects Mid Penn’s application of the incurred loss method for estimating credit losses.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
The following table represents non-performing assets as of:
December 31,
(Dollars in thousands) 2024 2023 2022
Non-performing Assets:
Total non-accrual loans $ 22,610 $ 14,216 $ 8,585
Foreclosed real estate 44 293 43
Total non-performing assets 22,654 14,509 8,628
Accruing loans 90 days or more past due - - 654
Total risk elements $ 22,654 $ 14,509 $ 9,282
Non-accrual loans as a percentage of total loans outstanding 0.51 % 0.33 % 0.24 %
Non-performing assets as a percentage of total loans outstanding and foreclosed real estate 0.51 % 0.34 % 0.25 %
Allowance for credit losses as a percentage of total loans 0.80 % 0.80 % 0.54 %
Ratio of ACL to non-performing loans 157.07 % 240.48 % 220.82 %
Total nonperforming assets were $22.7 million at December 31, 2024, an increase compared to nonperforming assets of $14.5 million at December 31, 2023. The increase since December 31, 2023 was primarily the result of the addition of two commercial loans with a combined balance of $3.0 million, and two commercial real estate loans with a combined balance of $2.3 million being placed on nonaccrual in the fourth quarter of 2024.
Deposits and Other Funding Sources
Mid Penn's primary source of funds are retail deposits from businesses, public funds depositors, and consumers in its market area. For the year ended December 31, 2024, deposits totaled $4.7 billion, an increase of $343.7 million, or 7.9%, compared to $4.3 billion as of December 31, 2023.
Average balances and average interest rates applicable to deposits by major classification for the years ended December 31:
2024 2023 Change
(Dollars in thousands) Balance Rate Balance Rate $ %
Noninterest-bearing demand deposits $ 780,538 0.00 % $ 800,582 0.00 % $ (20,044) (2.50) %
Interest-bearing demand deposits 1,001,813 1.90 950,326 1.46 51,487 5.42
Money market 913,311 2.91 926,034 2.31 (12,723) (1.37)
Savings 275,692 0.09 312,053 0.07 (36,361) (11.65)
Time 1,541,654 4.57 1,116,552 3.92 425,102 38.07
$ 4,513,008 2.58 % $ 4,105,547 1.93 % $ 407,461 9.92 %
MID PENN BANCORP, INC. Management’s Discussion and Analysis
As of December 31, 2024, uninsured deposits were approximately $1.4 billion compared to $1.2 billion as of December 31, 2023. The maturities of the uninsured time deposits as of December 31, 2024 were as follows:
(In thousands) 2024
Three months or less $ 183,138
Over three months to six months 89,493
Over six months to twelve months 72,526
Over twelve months 15,552
$ 360,709
Short-term borrowings as of December 31, 2024 totaled $2.0 million, compared to $241.5 million as of December 31, 2023, and consisted of $2.0 million of FHLB overnight borrowings. As of December 31, 2024, the Bank had long-term debt outstanding in the amount of $23.6 million compared to $59.0 million as of December 31, 2023.
Subordinated debt and trust preferred securities totaled $45.7 million as of December 31, 2024 compared to $46.4 million as of December 31, 2023. There were no redemptions of subordinated debt in 2024. In April 2023, Mid Penn redeemed $10.0 million subordinated debt issued in December of 2017. See "Note 11 - Subordinated Debt and Trust Preferred Securities", within Item 8, Notes to Consolidated Financial Statements.
Shareholders' Equity and Capital
Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets. The detailed computation of Mid Penn’s regulatory capital ratios can be found in "Note 17 - Regulatory Matters", within Item 8, Notes to Consolidated Financial Statements. The greater the Corporation’s capital resources, the more likely it is to meet its cash obligations and absorb unforeseen losses. Capital management practices have been, and will continue to be, of paramount importance to the Corporation in support of both its regulatory capital requirements and its shareholders.
Shareholders’ equity increased $112.7 million, or 20.8%, to $655.0 million as of December 31, 2024 from $542.4 million as of December 31, 2023, primarily as result of completion of the underwritten public offering of 2,375,000 shares of common stock in November 2024, and net income, partially offset by dividends declared of $13.8 million and share repurchases totaling $323 thousand.
Mid Penn maintained regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, 2024 and 2023, as follows:
December 31, 2024 December 31, 2023 Regulatory Minimum for Capital Adequacy
Tier I Leverage Capital (to Average Assets) 9.98 % 8.32 % 4.00 %
Common Equity Tier I (to Risk-Weighted Assets) 12.09 9.78 7.00
Tier I Risk-Based Capital (to Risk-Weighted Assets) 12.09 9.78 8.50
Total Risk-Based Capital (to Risk-Weighted Assets) 13.98 % 11.69 % 10.50 %
As of December 31, 2024 and December 31, 2023, Mid Penn and the Bank met all capital adequacy requirements, and the Bank was considered "well-capitalized". However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources.
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.
MID PENN BANCORP, INC. Management’s Discussion and Analysis
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;
•payments received on loans and mortgage-backed securities;
•overnight correspondent bank borrowings on various credit lines; and
•borrowing capacity available from the FHLB and the Federal Reserve Discount Window available to Mid Penn.
Mid Penn believes its core deposits are generally 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, and the uncertain impact of the current inflationary environment, 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 at least 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 overall stress in the financial condition of the banking industry or a prospective liquidity problem specific to Mid Penn.
The Consolidated Statements of Cash Flows provide additional information. Mid Penn’s operating activities during the year ended December 31, 2024 provided $51.4 million of cash, mainly due to net income. Cash used in investing activities during the year ended December 31, 2024 was $208.7 million, mainly the result of the net increase in loans. Cash provided by financing activities during the year ended December 31, 2024 totaled $131.2 million, primarily the result of an increase in net deposits.
Contractual Obligations
Mid Penn has substantial aggregate contractual obligations to make future cash payments as of December 31, 2024 as outlined below:
Total Payments Due by Period
(Dollars in thousands) One Year or
Less One to Three
Years Three to Five
Years More than Five
Years
Operating lease obligations $ 8,978 $ 2,361 $ 4,057 $ 1,943 $ 617
Finance lease obligation 3,992 260 520 535 2,677
Certificates of deposit 1,684,672 1,511,996 152,422 16,530 3,724
Long-term debt 20,586 344 20,241 1 -
Subordinated debt 45,741 - - - 45,741
$ 1,763,969 $ 1,514,961 $ 177,240 $ 19,009 $ 52,759
Details on expected maturities of investments, loans and deposits are presented in the above sections of Management's Discussion and Analysis. We are not aware of any other commitments or contingent liabilities which may have a material adverse impact on Mid Penn’s liquidity or capital resources.
Effects of Inflation
A bank's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of a bank are monetary in nature. Management believes the impact of inflation on its financial results depends principally upon Mid Penn's ability to measure its sensitivity to changes in interest rates and to take appropriate actions, as needed or controllable by the Bank, to mitigate the impacts of inflation on performance. Interest rates do not necessarily move in the same direction or at the same magnitude as the prices of other goods and services. As discussed
MID PENN BANCORP, INC. Management’s Discussion and Analysis
previously, management seeks to manage the relationship between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.
Information included elsewhere in this report will assist in the understanding of how Mid Penn is positioned to react to changing interest rates and inflationary trends. In particular, the previously discussed risk factors, the composition of and yields on loans and investments, and the composition and costs of deposits and other interest-bearing liabilities, should be considered.
Off-Balance Sheet Risk
Mid Penn makes contractual commitments to extend credit and extends lines of credit, which are subject to Mid Penn's credit approval and monitoring procedures. As of December 31, 2024, commitments to extend credit amounted to $1.2 billion compared to $1.5 billion as of December 31, 2023.
Mid Penn also issues standby letters of credit to its customers. The risk associated with standby letters of credit is essentially the same as the credit risk involved in loan extensions to customers. Standby letters of credit increased to $64.3 million at December 31, 2024, from $62.2 million at December 31, 2023.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a financial institution, Mid Penn’s primary source of market risk is interest rate risk. Interest rate risk is the exposure to fluctuations in Mid Penn’s future earnings (earnings at risk) resulting from changes in interest rates. This exposure or sensitivity is a function of the repricing characteristics of Mid Penn's portfolio of assets and liabilities. Each asset and liability reprices either at maturity or during the life of the instrument. Interest rate sensitivity is measured as the difference between the volume of assets and liabilities that are subject to repricing in a future period of time.
The principal purpose of asset-liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Net interest income is increased by increasing the net interest margin and by volume growth. Thus, the goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.
Mid Penn utilizes an asset-liability management model to measure the impact of interest rate movements on its interest rate sensitivity position. Mid Penn’s management also reviews the traditional maturity gap analysis regularly. Mid Penn does not always attempt to achieve an exact match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of Mid Penn’s profitability.
Modeling techniques and simulation analysis involve assumptions and estimates that inherently cannot be measured with complete precision. Key assumptions in the analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of Mid Penn’s interest rate risk position over time.
Management reviews interest rate risk on a quarterly basis. This analysis includes earnings scenarios whereby interest rates are increased by 100, 200, 300, and 400 bp and decreased by 100, 200, 300, and 400 bp. These scenarios, detailed in the table below, indicate that Mid Penn would experience enhanced net interest income over a one-year time frame due to upward interest rate changes, while a reduction in interest rates would result in a decline in net interest income over a one-year time frame; however, actual results could vary significantly from the calculations prepared by management. At December 31, 2024, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.
The following table reflects the effect of hypothetical changes in interest rates:
Change in
Basis Points % Change in
Net Interest Income Policy
Risk Limit
400 9.0% ≥ -25%
300 6.8% ≥ -20%
200 4.6% ≥ -15%
100 2.4% ≥ -10%
(100) (2.3)% ≥ -10%
(200) (4.7)% ≥ -15%
(300) (7.2)% ≥ -20%
(400) (8.2)% ≥ -25%
MID PENN BANCORP, INC.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited financial statements are set forth in this Annual Report on Form 10-K on the following pages:
Management Report on Internal Controls Over Financial Reporting
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
MID PENN BANCORP, INC.
Management Report on Internal Controls Over Financial Reporting
The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in SEC Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2024, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2024, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2024, the Corporation’s internal control over financial reporting is effective based on those criteria.
The effectiveness of the Corporation’s internal control over financial reporting has been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report which is included herein.
/s/ Rory G. Ritrievi /s/ Justin T. Webb
Rory G. Ritrievi Justin T. Webb
President and Chief Financial Officer
Chief Executive Officer March 13, 2025
March 13, 2025
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Mid Penn Bancorp, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mid Penn Bancorp, Inc. and Subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 13, 2025 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses on Loans - Adjustments to Historical Losses
As described in Note 1 and Note 4 of the financial statements, the Company’s allowance for credit losses (ACL) on loans is established through a provision for credit losses on loans and represents management’s estimate of all expected credit losses over the expected contractual life of the Company’s loan portfolio. The methodology for estimating the amount of expected credit losses reported in the ACL on loans has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL on loans for the collective component, loans are segregated into loan pools based on loan purpose codes and similar risk characteristics. The ACL on loans as of December 31, 2024 was $35.5 million, which consists of an ACL on loans collectively evaluated for credit losses of $34.1 million and an ACL on loans individually evaluated for credit losses of $1.4 million.
The Company estimates the collective ACL on loans utilizing a discounted cash flow (DCF) methodology applied to portfolio segments and their loan pools segregated by similar risk characteristics. The Company’s DCF methodology adjusts loan level contractual cash flows for probability of default and loss given default and prepayment and curtailment rate assumptions to calculate expected future cash flows. A correlation between the selected macroeconomic indicators of
national unemployment rate and GDP and historic loss levels, adjusted to include representative peer group loss experience, was developed to predict loss expectations based on current economic conditions and a reasonable and supportable forecast period. At the end of the reasonable and supportable forecast period, the Company reverts to the long-term mean of the macroeconomic indicator. For the December 31, 2024 ACL on loans, the Company determined that reasonable and supportable forecasts could be made for a 12-month period and used a reversion period of four quarters reverting to the historical mean on a straight-line basis. The Company also calculates a qualitative portion of the ACL, which is based on general economic conditions and other internal and external factors affecting Mid Penn’s loan portfolio. At December 31, 2024, qualitative factors considered for the ACL on loans included concentrations of credit, lending process, and peer group divergence.
We identified the adjustments to historical losses, both as it relates to the economic forecast selection and the qualitative factors, within the Company’s ACL on loans calculation as a critical audit matter as auditing the underlying adjustments required significant auditor judgment in the evaluation of the Company’s assumptions.
Our audit procedures related to the Company’s adjustments to historical loss information component of the ACL on loans included the following, among others:
•We obtained an understanding of the relevant controls related to the ACL on loans and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the ACL on loans calculation, management’s assessment and review of the adjustments to historical loss information component of the ACL on loans for current conditions and forecasted scenarios and management’s validation of underlying source data.
•We tested management’s calculation of adjustments to historical loss information within the ACL on loans calculation by:
◦Agreeing calculation inputs to the Company’s internal and external source data, including for current and forecasted conditions;
◦Verifying the mathematical accuracy of the calculation of adjustments to historical loss information; and
◦Evaluating whether adjustments to historical loss information within the ACL on loans, or lack thereof, were reasonable and consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.
•We assessed the reasonableness of management’s calculated changes in adjustments to historical loss information within the ACL on loans calculation by:
◦Evaluating the magnitude and directional consistency of changes, or lack thereof, in the level of adjustments to historical loss information between periods; and
◦Evaluating whether management’s conclusions were reasonable and consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.
•We agreed management’s calculated adjustments to historical loss information to the ACL on loans calculation.
Goodwill Impairment - Fair Value of Reporting Unit
As described in Note 1 and Note 6 of the financial statements, the Company’s goodwill balance was $128.2 million as of December 31, 2024. Goodwill is tested annually for impairment, or at interim periods if certain events occur which may indicate the fair value of the reporting unit has fallen below its carrying amount, by comparing the estimated fair value of Company’s single reporting unit to its carrying value. The Company estimates the fair value of its single reporting unit through multiple valuation techniques, including a public company market change of control approach and a peer group change of control approach. Significant judgment is required to estimate the fair value of the Company’s single reporting unit including the evaluation of current market data as well as the selection of a control premium.
We identified the Company’s annual goodwill impairment test as a critical audit matter due to the complexity of the analysis and certain significant assumptions made by management in estimating the fair value of the Company’s reporting unit such as the determination of a reasonable control premium and the identification of peer public companies. Auditing management’s assumptions required a high degree of auditor judgement, subjectivity, and increased audit effort, including the use of internal valuation specialists, due to the impact these assumptions could have on the accounting estimate.
Our audit procedures related to the Company’s annual goodwill impairment test included the following, among others:
•We obtained an understanding of the relevant controls related to management’s annual test of goodwill for impairment and tested such controls for design and operating effectiveness, including controls over management’s preparation of the significant assumptions such as the control premium.
•We tested the completeness and accuracy of the underlying data used by management in the fair value estimate by agreeing Company financial data to internal Company records.
•We utilized internal valuation specialists who assisted in the following, among others:
◦Evaluating the completeness and accuracy of the market data used in management’s calculation of the control premium by comparing such market data to independently sourced information.
◦Evaluating the comparability of the Company to the peer public companies identified by management through consideration of size, location, and recent results of operations, among other factors.
◦Evaluating the appropriateness of the valuation models used in management’s analysis and comparing management’s selected control premium to publicly available market data.
We have served as the Company's auditor since 2020.
/s/ RSM US LLP
Philadelphia, Pennsylvania
March 13, 2025
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Mid Penn Bancorp, Inc. and Subsidiaries
Opinion on the Internal Control Over Financial Reporting
We have audited Mid Penn Bancorp, Inc. and Subsidiaries' (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 13, 2025 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Philadelphia, Pennsylvania
March 13, 2025
MID PENN BANCORP, INC.
Consolidated Balance Sheets
(In thousands, except per share data) December 31, 2024 December 31, 2023
ASSETS
Cash and due from banks $ 37,002 $ 45,435
Interest-bearing balances with other financial institutions 14,490 34,668
Federal funds sold 19,072 16,660
Total cash and cash equivalents 70,564 96,763
Investment securities:
Held to maturity, at amortized cost (fair value $340,648 and $357,521)
382,447 399,128
AFS, at fair value (amortized cost $284,770 and $245,886)
260,477 223,555
Equity securities, at fair value 428 438
Loans held for sale, at fair value 7,064 3,855
Loans, net of unearned income 4,443,070 4,252,792
Less: ACL - Loans (35,514) (34,187)
Net loans 4,407,556 4,218,605
Premises and equipment, net 38,806 36,909
Operating lease right of use asset 7,699 8,953
Finance lease right of use asset 2,548 2,727
Cash surrender value of life insurance 51,521 54,497
Restricted investment in bank stocks 7,461 16,768
Accrued interest receivable 26,846 25,820
Deferred income taxes 22,747 24,146
Goodwill 128,160 127,031
Core deposit and other intangibles, net 6,242 6,479
Foreclosed assets held for sale 44 293
Other assets 50,326 44,825
Total Assets $ 5,470,936 $ 5,290,792
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand $ 759,169 $ 801,312
Interest-bearing transaction accounts 2,319,753 2,086,450
Time 1,611,005 1,458,450
Total Deposits 4,689,927 4,346,212
Short-term borrowings 2,000 241,532
Long-term debt 23,603 59,003
Subordinated debt 45,741 46,354
Operating lease liability 8,092 9,285
Accrued interest payable 13,484 14,257
Other liabilities 33,071 31,799
Total Liabilities 4,815,918 4,748,442
Shareholders' Equity:
Common stock, par value $1.00 per share; 40,000,000 shares authorized; 19,796,519 issued at December 31, 2024 and 16,998,929 at December 31, 2023; 19,355,797 outstanding at December 31, 2024 and 16,573,707 at December 31, 2023
19,797 16,999
Additional paid-in capital 480,491 405,725
Retained earnings 181,597 145,982
Accumulated other comprehensive loss (16,825) (16,637)
Treasury Stock, at cost; 440,722 and 425,222 shares at December 31, 2024 and December 31, 2023
(10,042) (9,719)
Total Shareholders’ Equity 655,018 542,350
Total Liabilities and Shareholders' Equity $ 5,470,936 $ 5,290,792
The accompanying notes are an integral part of these Consolidated Financial Statements.
MID PENN BANCORP, INC.
Consolidated Statements of Income
Years Ended December 31,
(In thousands, except per share data) 2024 2023 2022
INTEREST INCOME
Loans, including fees $ 265,522 $ 218,060 $ 150,256
Investment securities:
Taxable 16,542 16,005 11,952
Tax-exempt 1,464 1,540 1,497
Other interest-bearing balances 1,127 361 69
Federal funds sold 1,928 373 1,826
Total Interest Income 286,583 236,339 165,600
INTEREST EXPENSE
Deposits 116,320 79,295 14,144
Short-term borrowings 10,575 7,087 441
Long-term and subordinated debt 3,017 2,984 3,182
Total Interest Expense 129,912 89,366 17,767
Net Interest Income 156,671 146,973 147,833
Provision for credit losses - loans 2,144 3,295 4,300
(Benefit)/Provision for credit losses - CCL (628) 404 -
Net Interest Income After Provision for Credit Losses 155,155 143,274 143,533
NONINTEREST INCOME
Fiduciary and wealth management 4,680 5,059 5,071
ATM debit card interchange 3,851 4,019 4,362
Service charges on deposits 2,176 1,943 2,078
Mortgage banking 2,476 1,353 1,607
Mortgage hedging 10 324 1,471
Net gain on sales of SBA loans 347 571 262
Earnings from cash surrender value of life insurance 1,141 1,112 1,013
Other 7,812 5,627 7,793
Total Noninterest Income 22,493 20,008 23,657
NONINTEREST EXPENSE
Salaries and employee benefits 64,098 59,345 52,601
Software licensing and utilization 9,300 7,927 7,524
Occupancy, net 7,571 7,349 6,900
Equipment 4,928 5,121 4,493
Shares tax 2,350 2,713 2,786
Legal and professional fees 4,306 2,945 2,761
ATM/card processing 2,284 2,108 2,139
Intangible amortization 1,784 1,780 2,012
FDIC Assessment 4,170 3,500 1,594
Loss (Gain) on sale of foreclosed assets, net 80 (144) (133)
Merger and acquisition 545 5,544 294
Post-acquisition restructuring - 2,952 329
Other 16,200 17,448 16,543
Total Noninterest Expense 117,616 118,588 99,843
INCOME BEFORE PROVISION FOR INCOME TAXES 60,032 44,694 67,347
Provision for income taxes 10,595 7,297 12,541
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 49,437 $ 37,397 $ 54,806
PER COMMON SHARE DATA:
Basic Earnings Per Common Share $ 2.90 $ 2.29 $ 3.44
Diluted Earnings Per Common Share $ 2.90 $ 2.29 $ 3.44
Weighted-average basic shares outstanding 17,026,240 16,319,006 15,912,877
Weighted-average diluted shares outstanding 17,070,862 16,350,963 15,934,635
The accompanying notes are an integral part of these Consolidated Financial Statements.
MID PENN BANCORP, INC.
Consolidated Statements of Comprehensive Income
Year Ended
December 31,
(In Thousands) 2024 2023 2022
Net income $ 49,437 $ 37,397 $ 54,806
Other comprehensive (loss)/income:
Unrealized (losses)/gains arising during the period on available for sale securities, net of income tax.
(1,550) 1,988 (19,072)
Unrealized holding gains arising during the period on interest rate derivatives used in cash flow hedges, net of income tax.
665 820 -
Change in defined benefit plans, net of income tax. (1)
723 (212) (294)
Reclassification adjustment for settlement gains and activity related to benefit plans, net of income tax. (2)
(26) (17) (8)
Total other comprehensive (loss)/income (188) 2,579 (19,374)
Total comprehensive income $ 49,249 $ 39,976 $ 35,432
(1)The change in defined benefit plans consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period.
(2)The reclassification adjustment for defined benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss. Amounts are included in other income on the Consolidated Statements of Income within the total noninterest income. See "Note 14 - Postretirement Benefit Plans", to the Consolidated Financial Statements for more information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MID PENN BANCORP, INC.
Consolidated Statements of Changes in Shareholders’ Equity
Common Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
(Loss) Income Treasury
Stock Total
Shareholders'
Equity
(In thousands, except per share data) Shares Amount
Balance, January 1, 2022 16,056,282 $ 16,056 $ 384,742 $ 91,043 $ 158 $ (1,923) $ 490,076
Net income - - - 54,806 - - 54,806
Total other comprehensive loss, net of taxes - - - - (19,374) - (19,374)
Common stock cash dividends declared - $0.80 per share
- - - (12,735) - - (12,735)
Riverview restricted stock (1)
- - 776 - - - 776
Repurchased stock (109,891 shares)
- - - - - (2,957) (2,957)
Employee Stock Purchase Plan 7,152 7 193 - - - 200
Director Stock Purchase Plan 5,876 6 159 - - - 165
Restricted stock activity 25,176 25 1,117 - - - 1,142
Balance, December 31, 2022 16,094,486 $ 16,094 $ 386,987 $ 133,114 $ (19,216) $ (4,880) $ 512,099
Net income - $ - $ - $ 37,397 $ - $ - $ 37,397
Total other comprehensive income, net of taxes - - - - 2,579 - 2,579
Common stock cash dividends declared - $0.80 per share
- - - (12,981) - - (12,981)
Common stock issued to Brunswick shareholders (2)
849,510 850 17,245 - - - 18,095
Impact of adopting CECL (3)
- - - (11,548) - - (11,548)
Repurchased stock (216,879 shares) (4)
- - (37) - - (4,839) (4,876)
Employee Stock Purchase Plan 13,459 13 290 - - - 303
Director Stock Purchase Plan 7,884 8 171 - - - 179
Restricted stock activity 33,590 34 1,069 - - - 1,103
Balance, December 31, 2023 16,998,929 $ 16,999 $ 405,725 $ 145,982 $ (16,637) $ (9,719) $ 542,350
Net income - $ - $ - $ 49,437 $ - $ - $ 49,437
Total other comprehensive loss, net of taxes - - - - (188) - (188)
Common stock cash dividends declared - $0.80 per share
- - - (13,822) - - (13,822)
Common stock issuance (5)
2,731,250 2,731 73,225 - - - 75,956
Repurchased stock (15,500 shares) (4)
- - - - - (323) (323)
Employee Stock Purchase Plan 19,829 20 418 - - - 438
Director Stock Purchase Plan 5,072 5 118 - - - 123
Restricted stock activity 41,439 42 1,005 - - - 1,047
Balance, December 31, 2024 19,796,519 $ 19,797 $ 480,491 $ 181,597 $ (16,825) $ (10,042) $ 655,018
(1)Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $776 thousand of cash consideration relating to stock awards.
(2)Shares issued as a result of the acquisition of Brunswick Bancorp ("Brunswick"). See "Note 2 - Business Combinations", to the Consolidated Financial Statements for more information.
(3)The Corporation adopted ASC 326, Financial Instruments - Credit Losses, effective January 1, 2023. See "Note 1 - Summary of Significant Accounting Policies" for further details.
(4)Includes tax effects of repurchased stock.
(5)Shares issued as a result of the underwritten public offering of 2,375,000 shares of common stock at a price of $29.50 per share on November 4, 2024.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MID PENN BANCORP, INC.
Consolidated Statements of Cash Flows
(In thousands) Year Ended
December 31,
2024 2023 2022
Operating Activities:
Net Income $ 49,437 $ 37,397 54,806
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 1,516 3,699 4,300
Depreciation 4,866 4,900 4,283
Amortization of intangibles 1,784 1,780 2,012
Net amortization of security discounts/premiums 397 472 729
Noncash operating lease expense 2,184 1,945 1,755
Amortization of finance lease right of use asset 179 180 180
Earnings on cash surrender value of life insurance (1,141) (1,112) (1,013)
Mortgage loans originated for sale (113,741) (82,714) (138,611)
Proceeds from sales of mortgage loans originated for sale 113,008 82,687 149,257
Gain on sale of mortgage loans (2,476) (1,353) (1,607)
SBA loans originated for sale (4,603) (11,211) (5,310)
Proceeds from sales of SBA loans originated for sale 4,951 10,640 5,571
Gain on sale of SBA loans (347) (571) (262)
(Loss)/Gain on sale of property, plant, and equipment (10) - 938
Loss/(Gain) on sale or write-down of foreclosed assets 80 (144) (133)
Write-off of bank premises and equipment held for sale - - 705
Accretion of subordinated debt (613) (587) (555)
Stock compensation expense 1,047 1,103 1,142
Change in deferred income tax cost/(benefit) 1,516 (1,551) 2,262
Fair value adjustment on equity investments - - 70
Increase accrued interest receivable (1,026) (6,244) (7,080)
(Increase)/Decrease in other assets (4,988) 9,736 (13,261)
(Decrease)/Increase in accrued interest payable (773) 10,043 510
Decrease in operating lease liability (2,123) (2,540) (3,136)
Increase/(Decrease) in other liabilities 2,264 (4,214) 2,439
Net Cash Provided By Operating Activities 51,388 52,341 59,991
Investing Activities:
Proceeds from the sale of available-for-sale securities - 1,751 -
Proceeds from the maturity or call of available-for-sale securities 33,756 16,611 14,574
Purchases of available-for-sale securities (72,712) - (213,976)
Proceeds from the maturity or call of held-to-maturity securities 16,356 10,490 14,942
Purchases of held-to-maturity securities - - (85,664)
Stock dividends of FHLB and other bank stock 1,288 864 289
Reduction (Purchases) of restricted investment in bank stock 8,019 (9,317) 530
Net cash (paid)/received from acquisition (2,676) 1,068 (901)
Net increase in loans (190,658) (424,939) (411,800)
Purchases of bank premises and equipment (6,916) (2,770) (4,249)
Proceeds from the sale of premises and equipment 163 - 220
Proceeds from the sale of foreclosed assets 359 1,256 242
Proceeds from bank-owned life insurance 6,683 774 -
Gain on bank-owned life insurance (2,566) (125) -
Net change in investments in tax credits and other partnerships 162 (4,588) -
Net cash paid on branch sale - - (18,918)
Net Cash Used in Investing Activities (208,742) (408,925) (704,711)
Financing Activities:
Net increase/(Decrease) in deposits 343,715 286,498 (202,607)
MID PENN BANCORP, INC.
Consolidated Statements of Cash Flows
Proceeds from long-term debt - 25,000 -
Common stock dividends paid (13,822) (12,981) (12,735)
Proceeds from Employee and Director Stock Purchase Plan stock issuance 561 482 364
Proceeds from public offering of common stock 75,956 - -
Treasury stock purchased (323) (4,876) (2,957)
Riverview restricted stock (1)
- - 776
Net change in finance lease liability (134) (93) (90)
Net change in short-term borrowings (239,532) 138,885 102,647
Long-term debt repayment (35,266) (30,449) (76,771)
Subordinated debt redemption and trust preferred securities - (10,000) (16,778)
Net Cash Provided by Financing Activities 131,155 392,466 (208,151)
Net increase/(decrease) in cash and cash equivalents (26,199) 35,882 (852,871)
Cash and cash equivalents, beginning of period 96,763 60,881 913,752
Cash and cash equivalents, end of period $ 70,564 $ 96,763 $ 60,881
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 130,685 $ 77,413 $ 17,255
Cash paid for income taxes 853 7,965 7,552
Supplemental Noncash Disclosures:
Recognition of operating lease right of use assets $ 930 $ 2,100 $ -
Recognition of operating lease liabilities 930 2,100 1,498
Obsolete Riverview asset write-off - - 705
Loans transferred to foreclosed assets held for sale 164 1,362 152
Carrying value of assets sold in branch sale - - 2,159
Liabilities assigned in branch sale - - 21,076
Fair value of assets acquired in business combination, excluding cash (1)(2)
1,547 362,070 -
Goodwill recorded (1)(2)
1,129 12,800 -
Liabilities assumed in business combination (2)
- 345,043 -
Stock issued in business combination (3)
- 18,095 -
(1)Includes the impact of the Insurance Acquisition on July 31, 2024. See "Note 2 - Business Combinations" to the Consolidated Financial Statement for additional information.
(2)This disclosure includes the impact of the Brunswick Acquisition on May 19, 2023. See "Note 2 - Business Combinations" to the Consolidated Financial Statements for more information.
(3)Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $776 thousand of cash consideration relating to stock awards.
The accompanying notes are an integral part of these Consolidated Financial Statements.
MID PENN BANCORP, INC.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Mid Penn Bancorp, Inc. ("Mid Penn" or the "Corporation"), through operations conducted by Mid Penn Bank (the "Bank") and its nonbank subsidiaries, engages in a full-service commercial banking and trust business, making available to the community a wide range of financial services, including, but not limited to, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing, farm loans, community development loans, loans to non-profit entities and local government loans, and various types of time and demand deposits including but not limited to, checking accounts, savings accounts, clubs, money market deposit accounts, certificates of deposit, and Individual Retirement Accounts ("IRA"). In addition, the Bank provides a full range of trust and wealth management services through its Trust Department. Deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law.
Mid Penn also fulfills the insurance needs of both existing and potential customers through MPB Risk Services, LLC, doing business as MPB Insurance and Risk Management.
The financial services are provided to individuals, partnerships, non-profit organizations, and corporations through its retail banking offices located in throughout Pennsylvania and two counties in New Jersey.
Basis of Presentation
For all periods presented, the accompanying Consolidated Financial Statements include the accounts of Mid Penn Bancorp, Inc., its wholly-owned subsidiary, Mid Penn Bank, and five wholly-owned nonbank subsidiaries, MPB Realty, LLC, MPB Financial Services, LLC, which includes MPB Wealth Management, LLC (which ceased operating during the first quarter of 2024) and MPB Risk Services, LLC, and MPB Launchpad Fund I, LLC. As of December 31, 2024, the accounts and activities of these nonbank subsidiaries were not material to warrant separate disclosure or segment reporting. As a result, Mid Penn has only one reportable segment for financial reporting purposes. All material intercompany accounts and transactions have been eliminated in consolidation.
For comparative purposes, the December 31, 2023 and December 31, 2022 balances have been reclassified, when necessary, to conform to the 2024 presentation. Such reclassifications had no impact on net income or total shareholders’ equity. In the opinion of management, all adjustments necessary for fair presentation of the periods presented have been reflected in the accompanying consolidated financial statements. All such adjustments are of a normal, recurring nature.
Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2024 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements.
The accounting and reporting policies of Mid Penn conform with accounting principles generally accepted in the United States ("GAAP") and to general practice within the financial industry. Following is a description of the more significant accounting policies.
Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
Significant Group of Concentrations of Credit Risk - Most of the Corporation’s activities are with customers located within Pennsylvania. "Note 3 - Investment Securities" discusses the types of investment securities in which the Corporation invests. "Note 4 - Loans and Allowance for Loan Losses" discusses the types of lending that the Corporation engages in as well as loan concentrations. The Corporation does not have a significant concentration of credit risk with any one customer.
Fair Value Measurements - The Corporation uses estimates of fair value in applying various accounting standards for its consolidated financial statements on either a recurring or non-recurring basis. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The Corporation groups
MID PENN BANCORP, INC.
its assets and liabilities measured at fair value in three hierarchy levels, based on the observability and transparency of the inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. It is the Corporation’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair value. Unobservable inputs are utilized in determining fair value estimates only to the extent that observable inputs are not available. The need to use unobservable inputs generally results from a lack of market liquidity and trading volume. Transfers between levels of fair value hierarchy are recorded at the end of the reporting period.
Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.
Restrictions on Cash and Due from Bank Accounts - The Bank is required by banking regulations to maintain certain minimum cash reserves. As of both December 31, 2024 and 2023, there was no cash reserve balances required to be maintained at the Federal Reserve Bank of Philadelphia because the Bank had sufficient vault cash available.
Debt Investment Securities - Mid Penn determines the classification of investment securities at the time of purchase. If Mid Penn has the intent and the ability at the time of purchase to hold debt securities until maturity, they are classified as held-to-maturity ("HTM"). HTM investment securities are stated at amortized cost. Debt securities Mid Penn does not intend to hold to maturity are classified as available for sale ("AFS") and carried at estimated fair value with unrealized gains or losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss), net of applicable income taxes. Available for sale securities are a part of Mid Penn’s asset/liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other market factors. Management has elected to reclassify realized gains and losses from accumulated other comprehensive income when securities are sold on the trade date.
Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to interest income over the period to maturity of the related security using the effective interest method. Realized gains or losses on the sale of securities are determined using the specific identification method.
ASC 326, Financial Instruments-Credit Losses, was adopted by Mid Penn on January 1, 2023. ASC 326 introduced the CECL methodology for estimating allowances for credit losses. ASC 326 applies to all financial instruments carried at amortized cost, including HTM securities, and makes targeted improvements to the accounting for credit losses on AFS securities.
In order to comply with ASC 326, Mid Penn conducted a review of its investment portfolio and determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero. This zero-credit loss assumption applies to debt issuances of the U.S. Treasury and agencies and instrumentalities of the United States government. The reasons behind the adoption of the zero-credit loss assumption are as follows:
•High credit rating
•Long history with no credit losses
•Guaranteed by a sovereign entity
•Widely recognized as "risk-free rate"
•Can print its own currency
•Currency is routinely held by central banks, used in international commerce, and commonly viewed as reserve currency
•Currently under the U.S. Government conservatorship or receivership
MID PENN BANCORP, INC.
Mid Penn will continuously monitor any changes in economic conditions, credit downgrades, changes to explicit or implicit guarantees granted to certain debt issuers, and any other relevant information that would indicate potential credit deterioration and prompt Mid Penn to reconsider its zero-credit loss assumption.
At the date of adoption, Mid Penn’s estimated allowance for credit losses on AFS and HTM securities under ASC 326 was deemed immaterial due to the composition of these portfolios. Both portfolios consist primarily of U.S. government agency guaranteed mortgage-backed securities for which the risk of loss is minimal. Therefore, Mid Penn did not recognize a cumulative effect adjustment through retained earnings related to the AFS and HTM securities.
AFS Securities
ASC 326, Financial Instruments-Credit Losses, made targeted improvements to the accounting for credit losses on AFS securities. The concept of other-than-temporarily impaired has been replaced with the allowance for credit losses. Unlike HTM securities, AFS securities are evaluated on an individual level and pooling of securities is not allowed.
Quarterly, Mid Penn evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, Mid Penn performs further analysis as outlined below:
•Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.
•The securities that violate the credit loss triggers above would be subjected to additional analysis that may include, but are not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.
•If Mid Penn determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss Mid Penn records will be limited to the amount by which the amortized cost exceeds the fair value.
The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by a reputable third-party.
At December 31, 2024, the results of the analysis did not identify any securities that violate the credit loss triggers; therefore, no DCF analysis was performed and no credit loss was recognized on any of the securities available for sale.
Accrued interest receivable is excluded from the estimate of credit losses for AFS securities. At December 31, 2024, accrued interest receivable totaled $1.2 million for AFS securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.
HTM Securities
ASC 326, Financial Instruments-Credit Losses, requires institutions to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risks exist. Mid Penn uses several levels of segmentation in order to measure expected credit losses:
•The portfolio is segmented into agency and non-agency securities.
•The non-agency securities are separated into state and political subdivision obligations and corporate debt securities.
Each individual segment is categorized by third-party credit ratings.
As discussed above, Mid Penn has determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero, which include debt issuances of the U.S. Treasury and agencies and instrumentalities of the United States government. This assumption will be reviewed and attested to quarterly.
At December 31, 2024, Mid Penn’s HTM securities totaled $382.4 million. After applying appropriate probability of default and loss given default assumptions, the total amount of current expected credit losses was deemed immaterial. Therefore, no reserve was recorded at December 31, 2024.
MID PENN BANCORP, INC.
Accrued interest receivable is excluded from the estimate of credit losses for HTM securities. At December 31, 2024, accrued interest receivable totaled $1.8 million for HTM securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.
At December 31, 2024, Mid Penn had no HTM securities that were past due 30 days or more as to principal or interest payments. Mid Penn had no HTM securities classified as nonaccrual at December 31, 2024.
Equity Securities - The Corporation reports its equity securities with readily determinable fair values at fair value on the Consolidated Balance Sheet, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income. As of December 31, 2024 and 2023, Mid Penn’s equity securities consisted of Community Reinvestment Act funds totaling $428 thousand and $438 thousand, respectively. No equity securities were sold during the years ended December 31, 2024, 2023 and 2022.
Federal Home Loan Bank ("FHLB") and Atlantic Community Bankers' Bank ("ACBB") Stock - The Bank is a member of the FHLB and the ACBB and is required to maintain an investment in the stock of the FHLB and ACBB. No market exists for these stocks, and the Bank’s investment can be liquidated only through redemption by the FHLB or ACBB, at the discretion of and subject to conditions imposed by the FHLB and ACBB. Historically, FHLB and ACBB stock redemptions have been at cost (par value), which equals the Corporation’s carrying value. The Corporation monitors its investment in FHLB and ACBB stock for impairment through review of recent financial results of the FHLB and ACBB including capital adequacy and liquidity position, dividend payment history, redemption history and information from credit agencies. The Corporation has not identified any indicators of impairment of FHLB or ACBB stock. During the years ended December 31, 2024, 2023, and 2022 dividends received from the FHLB totaled $1.3 million, $864 thousand, and $289 thousand respectively.
Investment in Limited Partnership - Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania. The carrying value of Mid Penn’s investment in the limited partnership was zero at December 31, 2024 and $15 thousand at December 31, 2023, net of amortization, using the proportional amortization method and is reported in other assets on the Consolidated Balance Sheets. Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment.
Mid Penn also owns a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of amortization, was $3.7 million and $4.5 million on December 31, 2024 and December 31, 2023, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units qualified for Federal Low-Income Housing Tax Credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment was $7.6 million, and the investment was fully funded within a three-year period beginning in 2020 and ending during the first quarter of 2021. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period using the proportional amortization method which began upon commencement of operations of the facility in December 2021. The project was formally awarded $8.5 million in total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2021 through November 2029. Mid Penn received low-income housing tax credits related to this project of $2.2 million for the tax year ended December 31, 2024, $1.3 million for the tax year ended December 31, 2023, and $853 thousand for the tax year ended December 31, 2022. Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment.
Mid Penn is a limited partner in a partnership that provides low-income housing in Mechanicsburg, Pennsylvania. The total investment in this limited partnership, net of amortization, was $9.7 million at December 31, 2024 and $8.9 million at December 31, 2023, respectively, and was included in other assets on the Consolidated Balance Sheet. All of the units qualified for Federal Low-Income Housing Tax Credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. The investment in the limited partnership is being amortized over a ten-year period using the proportional amortization method which began upon commencement of operations of the facility in December 2023. The project was formally awarded $12.0 million in total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2023 through November 2033. Mid Penn received low-income housing tax credits related to this project of $1.1 million for the tax year ended December 31, 2024, and zero for the tax year ended December 31, 2023, Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment.
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Mid Penn also owns a limited partnership interest in a low-income housing project to construct/rehabilitate seventeen apartments and two commercial shops in Schuylkill County, Pennsylvania. The total investment in this limited partnership, net of amortization, was $3.1 million and $3.3 million on December 31, 2024 and December 31, 2023, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units qualified for Federal Low-Income Housing Tax Credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment was $4.4 million, and the investment was fully funded within a three-year period beginning in 2020 and ending during the first quarter of 2023. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a 10-year period using the proportional amortization method which began upon commencement of operations of the facility in 2023. The project was formally awarded $4.8 million in total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2023 through November 2033. Mid Penn received low-income housing tax credits related to this project of $484 thousand for the tax years ended December 31, 2024, and 2023, respectively. Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment.
Loans Held for Sale - During the third quarter of 2021, the Corporation made the election to measure mortgage loans held for sale at fair value. Derivative financial instruments related to mortgage banking activities are also recorded at fair value, as detailed under the heading "Mortgage Banking Derivative Financial Instruments," below. The Corporation determines fair value for its mortgage loans held for sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Changes in fair values during the period are recorded as components of mortgage banking income on the Consolidated Statements of Income. Interest income earned on mortgage loans held for sale is classified in interest income on the Consolidated Statements of Income.
Loans - Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances, net of an allowance for loan losses, unamortized deferred fees and costs and unamortized premiums or discounts. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the loans using methods which approximate the level yield method. Discounts and premiums are amortized or accreted to interest income over the estimated term of the loans using methods that approximate the level yield method. Interest income on loans is accrued based on the unpaid principal balance outstanding and the contractual terms of the loan agreements.
A substantial portion of the loan portfolio is comprised of commercial and real estate loans throughout Pennsylvania. The ability of the Corporation’s debtors to honor their contracts is dependent upon the general economic conditions of this area.
The loan portfolio is segmented into commercial real estate loans, commercial and industrial loans, construction loans, residential mortgage loans, and consumer loans. Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to repay the loan through operating profitably and effectively growing its business. The Corporation’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the credit quality and cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee to add strength to the credit and reduce the risk on a transaction to an acceptable level; however, some short-term loans may be made on an unsecured basis to the most credit worthy borrowers.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.
With respect to loans to developers and builders, the Corporation generally requires the borrower to have a proven record of success and an expertise in the building industry. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project.
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The Corporation’s non-real estate consumer loans are based on the borrower’s proven earning capacity over the term of the loan. The Corporation monitors payment performance periodically for consumer loans to identify any deterioration in the borrower’s financial strength. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by management and staff. This activity, coupled with a relatively small volume of consumer loans, minimizes risk.
Acquired Loans - At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination. Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans. In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, Mid Penn takes into consideration loan grades, past due and nonaccrual status. Mid Penn may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, and number of times past due. At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit losses. The initial recognition of expected credit losses on PCD loans has no impact on net income. When the initial measurement of expected credit losses on PCD loans is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the ACL on PCD loans are recorded through the PCL. For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination and are therefore not deemed PCD, any discounts or premiums included in the purchase price are accreted (or amortized) over the contractual life of the individual loan.
Loans are charged off against the ACL, with any subsequent recoveries credited back to the ACL account. Expected recoveries may not exceed the aggregate of amounts previously charged off and expected to be charged off.
There were no loans acquired for the year ended December 31, 2024. Loans acquired in the Brunswick acquisition, included in the balance of loans, net of unearned interest, on the Consolidated Balance Sheets for December 31, 2023 totaled $324.5 million.
Non-accrual Loans - The Corporation classifies loans as past due when the payment of principal or interest is greater than 30 days delinquent based on the contractual next payment due date. The Corporation’s policies related to when loans are placed on non-accrual status conform to guidelines prescribed by regulatory authorities. Loans are placed on non-accrual status when it is probable that principal or interest is not fully collectible, or generally when principal or interest becomes 90 days past due, whichever occurs first. When loans are placed on non-accrual status, interest receivable is reversed against interest income in the current period and amortization of any discount ceases. Interest payments received thereafter are applied as a reduction to the remaining principal balance unless management believes that the ultimate collection of the principal is likely, in which case payments are recognized in earnings on a cash basis. Loans are removed from non-accrual status when they become current as to both principal and interest and the collectability of principal and interest is no longer doubtful.
Generally, a non-accrual loan that is restructured remains on non-accrual for a reasonable period of time (generally, at least six consecutive months) to demonstrate the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a non-accrual loan.
Modifications to Borrowers Experiencing Financial Difficulty - From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension, or a combination thereof, among other things.
Allowance for Credit Losses - Mid Penn’s ACL - loans methodology is based upon guidance within FASB ASC Subtopic 326-20, as well as regulatory guidance from the FDIC, its primary federal regulator. The ACL - loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the loan portfolio is continuously monitored by management and is reflected within the ACL -
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loans. The ACL - loans is an estimate of expected losses inherent within Mid Penn’s existing loan portfolio. The ACL - loans is adjusted through the PCL and reduced by the charge off of loan amounts, net of recoveries.
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and credit loss expense.
Mid Penn estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Mid Penn uses a third-party software application to calculate the quantitative portion of the ACL using a methodology and assumptions specific to each loan pool. The qualitative portion of the allowance is based on general economic conditions and other internal and external factors affecting Mid Penn as a whole, as well as specific loans. Factors considered include the following: lending process, concentrations of credit, and peer group divergence. The quantitative and qualitative portions of the allowance are added together to determine the total ACL, which reflects management’s expectations of future conditions based on reasonable and supportable forecasts.
The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL for the collective component, loans are segregated into loan pools based on loan purpose codes and similar risk characteristics.
The commercial real estate and residential mortgage loan portfolio segments include loans for both commercial and residential properties that are secured by real estate. The underwriting process for these loans includes analysis of the financial position and strength of both the borrower and, if applicable, guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type. The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting. Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance, in addition to analysis of the proposed project for income-producing properties. Additional support offered by guarantors is also considered when applicable. Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity and availability of long-term financing.
The commercial and industrial loan portfolio segment includes commercial loans made to many types of businesses for various purposes, such as short-term working capital loans that are usually secured by accounts receivable and inventory, equipment and fixed asset purchases that are secured by those assets, and term financing for those within Mid Penn’s geographic markets. Mid Penn’s credit underwriting process for commercial and industrial loans includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as reflected in current and detailed financial information, and evaluation of underlying collateral to support the credit.
The consumer loan portfolio segment is comprised of loans which are underwritten after evaluating a borrower’s capacity, credit and collateral. Several factors are considered when assessing a borrower’s capacity, including the borrower’s employment, income, current debt, assets and level of equity in the property. Credit is assessed using a credit report that provides credit scores and the borrower’s current and past information about their credit history. Loan-to-value and debt-to-income ratios, loan amount and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends, such as conditions that negatively affect housing prices and demand and levels of unemployment.
Mid Penn utilizes a DCF method to estimate the quantitative portion of the allowance for credit losses for loan pools. The DCF is based off of historical losses, including peer data, which is correlated to national unemployment and GDP.
The PD and LGD measures are used in conjunction with prepayment data as inputs into the DCF model to calculate the cash flows at the individual loan level. Contractual cash flows based on loan terms are adjusted for PD, LGD and prepayments to derive loss cash flows. These loss cash flows are discounted by the loan’s coupon rate to arrive at the
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discounted cash flow based quantitative loss. The prepayment studies are updated quarterly by a third-party for each applicable pool.
Mid Penn determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Mid Penn uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans.
Qualitative factors used in the ACL methodology include the following:
•Lending process
•Concentrations of credit
•Peer Group Divergence
The ACL for individual loans, such as non-accrual and PCD, that do not share risk characteristics with other loans is measured as the difference between the discounted value of expected future cash flows, based on the effective interest rate at origination, and the amortized cost basis of the loan, or the net realizable value. The ACL is the difference between the loan’s net realizable value and its amortized cost basis (net of previous charge-offs and deferred loan fees and costs), except for collateral-dependent loans. A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, adjusted for the estimated cost to sell. Fair value estimates for collateral-dependent loans are derived from appraised values based on the current market value or the "as is" value of the collateral, normally from recently received and reviewed appraisals. Current appraisals are ordered on a regular basis based on the inspection date or more often if market conditions necessitate. Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by Mid Penn’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal. If the calculated expected credit loss is determined to be permanent or not recoverable, the amount of the expected credit loss is charged off.
Mid Penn may also purchase loans or acquire loans through a business combination. At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination. Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans. In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, Mid Penn takes into consideration loan grades, past due and nonaccrual status. Mid Penn may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, and number of times past due. At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit losses. The initial recognition of expected credit losses on PCD loans has no impact on net income. When the initial measurement of expected credit losses on PCD loans is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the ACL on PCD loans are recorded through the PCL. For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination and are therefore not deemed PCD, any discounts or premiums included in the purchase price are accreted (or amortized) over the contractual life of the individual loan.
Loans are charged off against the ACL, with any subsequent recoveries credited back to the ACL account. Expected recoveries may not exceed the aggregate of amounts previously charged off and expected to be charged off.
Premises and Equipment - Land is carried at cost. Buildings, furniture, fixtures, equipment, land improvements, and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Building assets are depreciated using an estimated useful life of five to fifty years. Furniture, fixtures, and equipment are depreciated using an estimated useful life of three to ten years. Land improvements are depreciated over an estimated useful life of ten to twenty years. Leasehold improvements are depreciated using an estimated useful life that is the lesser of the remaining life of the lease or ten to fifteen years. Maintenance and
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normal repairs are charged to expense when incurred, while major additions and improvements are capitalized. Gains and losses on disposals are reflected in current operations.
The Corporation reviews the carrying value of long-lived assets and certain identifiable intangibles for impairment whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable, as prescribed by ASC Topic 360, "Accounting for the Impairment or Disposal of Long-Lived Assets".
Bank Premises and Equipment Held For Sale - Bank premises and equipment designated as held for sale are included in Other Assets on the Balance Sheet, and are carried at the lower of cost or market value, and totaled $702 thousand and $974 thousand at December 31, 2024 and 2023, respectively. The $272 thousand decrease in balance at December 31, 2024 related to the sale of the Riverview Halifax building in 2024. As of December 31, 2024, one property remained for sale.
Foreclosed Assets Held for Sale - Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at their fair value less estimated disposition costs. When such assets are acquired, any shortfall between the loan carrying value and the estimated fair value of the underlying collateral less disposition costs is recorded as an adjustment to the allowance for loan losses while any excess is recognized in income. The Corporation periodically performs a valuation of the property held; any excess of carrying value over fair value less disposition costs is charged to earnings as impairment. Routine maintenance and real estate taxes are expensed as incurred.
Bank-Owned Life Insurance ("BOLI") - Mid Penn is the owner and beneficiary of BOLI policies on current and former Mid Penn directors, as well as BOLI policies acquired through the Phoenix, First Priority, Riverview and Brunswick acquisitions covering certain former Miners Bank, First Priority, Riverview, and Brunswick employees. These policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable. Increases in the cash surrender value of these policies are included in noninterest income in the Consolidated Statements of Income. The Corporation's BOLI policies are invested in general account and hybrid account products that have been underwritten by highly-rated third party insurance carriers.
Mid Penn is also party to certain Split-Dollar Life Insurance Arrangements, and in accordance with GAAP, has accrued a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement, and a liability for the future death benefit.
Goodwill and Other Intangible Assets - Goodwill represents the excess of the purchase price over the underlying fair value of merged entities. We assess goodwill for impairment annually as of October 31 of each year. The Corporation has one reporting unit, community banking, which includes the Bank, the Corporation’s wholly-owned banking subsidiary. 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, we use the widely accepted valuation techniques, including the public company market change of control approach and the peer group change of control approach, to determine the fair valuation of the reporting unit. Both approaches include earnings and price-to-tangible book value multiples of comparable public companies, which are applied to the earnings and equity of the reporting unit. The projected tangible book value ("TBV") multiple serves as an indicator of whether the market price or perceived value of the Company's tangible assets exceeds its book value. In 2024, the company applied a control premium based on its review of observable transactions and comparable marketplace data. Several factors are considered, such as operating results, business plans, economic projections, anticipated future cash flows, current market data, etc. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. Changes in economic and operating conditions could result in goodwill impairment in future periods. The Bank did not identify any impairment on its outstanding goodwill from its most recent testing, which was performed as of October 31, 2024.
Core deposit intangible ("CDI") is a measure of the value of checking and savings deposits acquired in business combinations. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed ten years. Significantly all CDI is amortized using the sum of the years digits method.
Customer list intangibles are a measure of the inherent value of certain customer arrangements acquired in business combinations. The fair value of the customer list is based on the income approach which employs a present value analysis,
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which calculates the expected after-tax cash flow benefits of the net revenues generated by the acquired customers over the expected life of the acquired customers, discounted at a long-term market-oriented after-tax rate of return on investment. The value assigned to the acquired customers represents the future economic benefit from acquiring the customers (net of operating expenses). The customer list is amortized over a 10 to 20-year projection period, a sufficient time to capture the economic value of the customer list given an assumed customer attrition rate.
The Corporation evaluates such identifiable intangibles for impairment when events and circumstances indicate that its carrying amount may not be recoverable. If an impairment loss is determined to exist, the loss is reflected as an impairment charge in the Consolidated Statements of Income for the period in which such impairment is identified. No impairment charges were required for the years ended December 31, 2024, 2023, or 2022.
Leases - Mid Penn leases certain premises and equipment and recognizes a right-of-use ("ROU") asset and a related lease liability for each distinct lease agreement. The lease ROU asset consists of the amount of the initial measurement of the lease liability, adjusted for any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed). The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts are calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.
Operating and finance lease ROU assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt.
Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis. Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the ROU asset. Finance lease expense consists of the amortization of the ROU asset, recognized as a component of occupancy expense and interest expense on the lease liability, which is recorded as a component of other interest expense, both on the Consolidated Statements of Income.
In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration, and grants Mid Penn the right to both obtain substantially all of the economic benefits from the identified asset’s use and the direct the use of the identified asset throughout the term of the agreement.
Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the lease components, consisting of consideration paid to transfer a good or service to Mid Penn and non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance.
Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term. Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of ROU assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred.
None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments. Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations.
Comprehensive Income - Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income. Mid Penn has an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees. These plans utilize assumptions and methods to calculate the fair value of plan assets
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and recognizing the overfunded and underfunded status of the plans on its Consolidated Balance Sheet. Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment.
Trust Assets and Income - Assets held by the Bank in a fiduciary or agency capacity for customers of the trust department of the Bank are not included in the Consolidated Financial Statements since such items are not assets of the Bank. Assets under management totaled $473.5 million as of December 31, 2024, Most trust income is recognized as earned, which is not materially different than if it were reported on the accrual basis.
Revenue Recognition - Mid Penn recognizes revenue when earned based upon contractual terms, as transactions occur, or as related services are provided, and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income. Noninterest income is earned from various banking and financial services that Mid Penn offers through its subsidiaries. In certain circumstances, noninterest income is reported net of associated expenses. Following is further detail on the various types of noninterest income Mid Penn earns and when it recognized:
Interest Income - primarily recognized on an accrual basis according to loan agreements, investment securities contracts or other such written contracts.
Income from Fiduciary and Wealth Management Activities - consists of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income. Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned. Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur. Payment is typically received in the following month. Estate fee income is recognized as services are performed over the service period, generally eighteen months.
ATM Debit Card Interchange Income - consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks. The interchange fee is calculated as a percentage of the total electronic funds transfer ("EFT") transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed. Revenue is recognized daily as transactions occur and interchange fees are subsequently processed. Payment for interchange activity is received primarily daily, while some fees are aggregated and payment is received in the following month.
Service Charges on Deposits - consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts. Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs, and the related service charge is subsequently processed. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.
Mortgage Banking Income - consists of gains or losses on the sale of residential mortgage loans and is recognized when the sale is completed.
Mortgage Hedging Income - relates to the changes in fair value of interest rate locks, forward mortgage loan sales commitments and hedging instruments on forward sales commitments.
Other Income - includes credit card royalties, check orders, letter of credit fees and merchant services income. These fees are primarily transactional, and revenue is recognized when transactions occur, and the related services are subsequently processed. Payment is primarily received immediately or in the following month.
Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied.
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Income Taxes - Income tax expense is determined using the asset and liability method and consists of income taxes that are currently payable and deferred income taxes. Deferred income tax expense (benefit) is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date.
A valuation allowance is established for deferred tax assets when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such determinations, the Corporation considers all available positive and negative evidence that may impact the realization of deferred tax assets. These considerations include future reversals of existing taxable temporary differences, projected future taxable income, and available tax planning strategies.
The Corporation files a consolidated federal income tax return including the results of its wholly-owned subsidiaries. The Corporation estimates income taxes payable based on the amount it expects to owe the various tax authorities (i.e., federal and state). Income taxes represent the net estimated amount due to, or to be received from, such tax authorities. In estimating income taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Corporation’s tax position. Although the Corporation uses the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing its overall tax position.
An uncertain tax position is recognized only if it is more-likely-than-not to be sustained upon examination, including resolution of any related appeals or litigation process, based on the technical merits of the position. The amount of tax benefit recognized in the financial statements is the largest amount of benefit that is more than fifty percent likely to be sustained upon ultimate settlement of the uncertain tax position. If the initial assessment fails to result in recognition of a tax benefit, the Corporation subsequently recognizes a tax benefit if there are changes in tax law or case law that raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not, the statute of limitations expires, or there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. The Corporation’s policy is to classify interest and penalties associated with income taxes within other expenses.
The Corporation is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods. Management believes it is no longer subject to income tax examinations for years prior to 2021.
Off-Balance Sheet Arrangements - The Corporation enters into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. The Corporation decreases its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Corporation would be required to fund the commitment. The maximum potential amount of future payments the Corporation could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Corporation would be entitled to seek recovery from the customer. The Corporation’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
Earnings per Common Share - The Corporation presents basic and diluted earnings per common share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to shareholders of the Corporation by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by
MID PENN BANCORP, INC.
adjusting the profit or loss attributable to shareholders and the weighted average number of shares of common stock outstanding adjusted for the effects of all dilutive potential common shares comprised of restricted stock awards.
Treasury Stock - Common stock held in treasury is accounted for using the cost method, which treats stock held in treasury as a reduction to total stockholders’ equity. The shares may be purchased in the open market or in privately negotiated transactions from time to time depending upon the market conditions and other factors over a one-year period or such longer period of time as may be necessary to complete such repurchases.
Derivative Financial Instruments
Loan-level Interest Rate Swaps
The Corporation offers certain derivative products directly to qualified commercial lending clients seeking to manage their interest rate risk. The Corporation economically hedges interest rate swap transactions to execute with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants. Derivative transactions executed as part of this program are not designed as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded as noninterest income. Because these derivatives have mirror-image contractual terms, in additional to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset.
Cash Flow Hedges of Interest Rate Risk
Mid Penn’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, Mid Penn primarily uses interest rate swaps as part of its interest rate risk management strategy. Beginning in the first quarter of 2023, Mid Penn entered into interest rate swaps designated as cash flow hedges to hedge the cash flows associated with existing brokered CDs.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on Mid Penn’s variable-rate liabilities.
Mortgage Banking Derivative Financial Instruments
In connection with its mortgage banking activities, Mid Penn entered into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, Mid Penn entered into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may have also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock was based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured.
Recent Accounting Pronouncements
Accounting Standards Adopted
On January 1, 2023, the Corporation adopted ASC 326, Financial Instruments - Credit Losses, which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL applies to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to OBS credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASC Topic 842.
The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred
MID PENN BANCORP, INC.
loss methodology. The Corporation recorded an overall increase of $15.0 million to the ACL on January 1, 2023 as a result of the adoption of CECL. Retained earnings decreased $11.5 million and deferred tax assets increased by $3.1 million. Included in the $15.0 million increase to the ACL was $3.1 million for certain OBS credit exposures that were previously recognized in other liabilities before the adoption of CECL.
On January 1, 2023, the Corporation adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification ("ASC") Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. See "Note 4 - Loans and Allowance for Credit Losses - Loans" for the new financial statement disclosures applicable under this update.
The updates to the significant accounting policies related to CECL are further discussed in "Note 3 - Investment Securities", "Note 4 - Loans and Allowance for Credit Losses - Loans" and "Note 18 - Commitments and Contingencies".
ASU No. 2023-02: The FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.
The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. A reporting entity may make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments. The amendments in this update also remove certain guidance for Qualified Affordable Housing Project investments and require the application of the delayed equity contribution guidance to all tax equity investments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and must be applied on either a modified retrospective or a retrospective basis.
ASU 2023-07: The FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.
ASU 2023-07 amends the ASC to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
Accounting Standards Pending Adoption
ASU 2023-06: The FASB issued ASU 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.
ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. ASU 2023-06 is not expected to have a significant impact on our financial statements.
ASU 2023-09: The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.
ASU 2023-09 amends the ASC to enhance income tax disclosures by requiring entities to disclose income taxes paid (net of refunds received) disaggregated by federal, state and foreign taxes. Additionally, entities are required to disclose amounts greater than 5% of the total income taxes paid to an individual jurisdiction The amendments are effective for annual periods beginning after December 15, 2024. ASU 2023-09 is not expected to have a significant impact on the Corporation's financial statements.
ASU 2024-01-The FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope application of profits interest and similar awards.
The amendments in the ASU apply to all reporting entities that account for profits interest awards as compensation to employees or nonemployees in return for goods or services. The amendments are effective for annual periods beginning
MID PENN BANCORP, INC.
after December 15, 2025, and interim periods within those annual periods. ASU 2024-01 is not expected to have a significant impact on the Corporation's financial statements.
ASU 2024-02: The FASB issued ASU 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements.
This ASU contains amendments to the Codification that remove references to various FASB Concepts Statements. The amendments are effective for fiscal years beginning after December 15, 2025. Early adoption is permitted. ASU 2024-02 is not expected to have a significant impact on the Corporation's financial statements.
ASU 2024-03: The FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
The amendments in the ASU improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. ASU 2024-03 is not expected to have a significant impact on the Corporation's financial statements.
ASU 2024-04: The FASB issued ASU - 2024-04, Debt-Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments
The amendments in the ASU clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. The amendments in the ASU are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in ASU2020-06. ASU 2024-04 is not expected to have a significant impact on the Corporation's financial statements.
MID PENN BANCORP, INC.
Note 2 - Business Combinations
Commonwealth Benefits Group Acquisition
On July 31, 2024, Mid Penn acquired the insurance business and related accounts of a full-service employee benefits firm that serves mid to large employers across central and eastern Pennsylvania, northern Maryland, and northern Virginia, for a purchase price of $2.0 million at closing and an additional $800 thousand potentially payable pursuant to a three year earnout.
Mid Penn has recognized total goodwill of $1.1 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed compared to the fair market value of identifiable assets acquired.
Mid Penn incurred expenses related to the Commonwealth Benefits Group acquisition of $545 thousand for the year ended December 31, 2024, which is included in noninterest expense in the Consolidated Statements of Income.
Brunswick Acquisition
On May 19, 2023, Mid Penn completed its acquisition of Brunswick through the merger of Brunswick with and into Mid Penn with Mid Penn being the surviving corporation. In connection with this acquisition, Brunswick Bank, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn.
This transaction included the acquisition of 5 branches and extended Mid Penn’s footprint into Middlesex and Monmouth counties in central New Jersey. Mid Penn issued 849,510 shares of its common stock as well as a net cash payment to Brunswick shareholders of $27.6 million, for total consideration of $45.7 million for all outstanding stock and the cancellation of stock options of Brunswick.
Mid Penn has recognized total goodwill of $12.8 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed compared to the fair market value of identifiable assets acquired. The fair value of the consideration exchanged related to Mid Penn’s common stock was calculated based upon the closing market price of Mid Penn’s common stock as of May 19, 2023. None of the goodwill recognized is expected to be deductible for income tax purposes.
Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. Mid Penn considers various factors in connection with the identification of more-than-insignificant deterioration in credit, including but not limited to nonperforming status, delinquency, risk ratings, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. As part of the Brunswick Acquisition, Mid Penn acquired PCD loans and leases of $18.7 million. Mid Penn established an ACL at acquisition of $336 thousand with a corresponding gross-up to the amortized cost of the PCD loans and leases. The non-credit discount on the PCD loans and leases was $2.4 million and the Day 1 fair value was $16.3 million. The initial provision expense for non-PCD loans associated with the Brunswick Acquisition was $2.0 million.
MID PENN BANCORP, INC.
Estimated fair values of the assets acquired and liabilities assumed in the Brunswick Acquisition as of the closing date are as follows:
(In thousands)
Assets acquired:
Cash and cash equivalents $ 21,029
Federal funds sold 7,604
Investment securities 2,423
Loans 324,471
Goodwill 12,800
Core deposit intangible 999
Premises and equipment 4,568
Cash surrender value of life insurance 3,361
Deferred income taxes 6,393
Accrued interest receivable 1,171
Other assets 5,884
Total assets acquired 390,703
Liabilities assumed:
Deposits:
Noninterest-bearing demand 60,888
Interest-bearing demand 11,767
Money Market 47,362
Savings 14,203
Time 147,163
Long-term debt 60,136
Accrued interest payable 1,911
Other liabilities 1,613
Total liabilities assumed 345,043
Consideration paid $ 45,660
Cash paid $ 27,565
Fair value of common stock issued 18,095
Management has completed its evaluation of fair values of all assets and liabilities shown in the table above and all amounts are considered final.
MID PENN BANCORP, INC.
Note 3 - Investment Securities
AFS Securities
At December 31, 2024, the fair value of AFS securities totaled $260.5 million. At December 31, 2024, no securities were identified that violated credit loss triggers; therefore, no DCF analysis was performed, and no credit loss was recognized on any of the securities available for sale.
Accrued interest receivable is excluded from the estimate of credit losses for AFS securities. At December 31, 2024, accrued interest receivable totaled $1.2 million for AFS securities, and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.
HTM Securities
At December 31, 2024, Mid Penn’s HTM securities totaled $382.4 million. The Company primarily held highly rated HTM securities, including taxable and tax-exempt securities issued mainly by the U.S government, state governments, and political subdivisions. As of December 31, 2024, the majority of Mid Penn's HTM securities were rated as A1/BBB by Moody's and/or Standard & Poor's ratings services. Credit ratings of HTM securities, which are a key factor in estimating expected credit losses, are reviewed on a quarterly basis.
At December 31, 2024, there were no HTM securities that were past due 30 days or more as to principal or interest payments. Additionally, Mid Penn had no HTM securities classified as nonaccrual at December 31, 2024. Therefore, no allowance for credit losses was recorded as of December 31, 2024.
Accrued interest receivable is excluded from the estimate of credit losses for HTM securities. At December 31, 2024, accrued interest receivable totaled $1.8 million for HTM securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.
The following tables set forth the amortized cost and estimated fair value of investment securities for the periods presented:
December 31, 2024
(In thousands) Amortized
Cost Gross
Unrealized
Gains Gross Unrealized
Losses Estimated
Fair Value
Available-for-sale
U.S. Treasury and U.S. government agencies $ 22,247 $ - $ 740 $ 21,507
Mortgage-backed U.S. government agencies 222,464 11 19,531 202,944
State and political subdivision obligations 4,309 - 713 3,596
Corporate debt securities 35,750 - 3,320 32,430
Total available-for-sale debt securities $ 284,770 $ 11 $ 24,304 $ 260,477
Held-to-maturity
U.S. Treasury and U.S. government agencies $ 241,941 $ - $ 28,133 $ 213,808
Mortgage-backed U.S. government agencies 37,593 - 5,508 32,085
State and political subdivision obligations 77,462 - 6,840 70,622
Corporate debt securities 25,451 - 1,318 24,133
Total held-to-maturity debt securities 382,447 - 41,799 340,648
Total $ 667,217 $ 11 $ 66,103 $ 601,125
MID PENN BANCORP, INC.
December 31, 2023
(In thousands) Amortized
Cost Gross
Unrealized
Gains Gross Unrealized
Losses Estimated
Fair Value
Available-for-sale
U.S. Treasury and U.S. government agencies $ 36,637 $ - $ 988 $ 35,649
Mortgage-backed U.S. government agencies 169,184 - 16,501 152,683
State and political subdivision obligations 4,332 - 686 3,646
Corporate debt securities 35,733 - 4,156 31,577
Total available-for-sale debt securities $ 245,886 $ - $ 22,331 $ 223,555
Held-to-maturity
U.S. Treasury and U.S. government agencies $ 245,805 $ 2 $ 28,676 $ 217,131
Mortgage-backed U.S. government agencies 43,818 - 5,523 38,295
State and political subdivision obligations 84,035 11 6,486 77,560
Corporate debt securities 25,470 - 935 24,535
Total held-to-maturity debt securities 399,128 13 41,620 357,521
Total $ 645,014 $ 13 $ 63,951 $ 581,076
Estimated fair values of debt securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices of instruments of a similar type, credit quality and structure, adjusted for differences between the quoted instruments and the instruments being valued. See "Note 13 - Fair Value Measurement," for additional information.
Investment securities having a fair value of $440.0 million at December 31, 2024, and $380.3 million at December 31, 2023, were pledged primarily to secure public deposits, some Trust department deposit accounts, and certain other borrowings. In accordance with legal provisions for alternatives other than pledging of investments, Mid Penn also obtains letters of credit from the FHLB to secure certain public deposits. These FHLB letter of credit commitments totaled $156.0 million as of December 31, 2024 and $153.5 million as of December 31, 2023.
MID PENN BANCORP, INC.
The following tables present gross unrealized losses and fair value of investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2024 and 2023.
(Dollars in thousands) Less Than 12 Months 12 Months or More Total
December 31, 2024 Number
of
Securities Estimated
Fair
Value Gross
Unrealized
Losses Number
of
Securities Estimated
Fair
Value Gross
Unrealized
Losses Number
of
Securities Estimated
Fair
Value Gross
Unrealized
Losses
Available-for-sale debt securities:
U.S. Treasury and U.S. government agencies - $ - $ - 12 $ 21,507 $ 740 12 $ 21,507 $ 740
Mortgage-backed U.S. government agencies 9 72,499 1,847 91 130,445 17,684 100 202,944 19,531
State and political subdivision obligations - - - 8 3,596 713 8 3,596 713
Corporate debt securities - - - 18 32,430 3,320 18 32,430 3,320
Total available-for-sale debt securities 9 $ 72,499 $ 1,847 129 $ 187,978 $ 22,457 138 $ 260,477 $ 24,304
Held-to-maturity debt securities:
U.S. Treasury and U.S. government agencies - $ - $ - 143 $ 213,808 $ 28,133 143 $ 213,808 $ 28,133
Mortgage-backed U.S. government agencies 2 163 1 62 31,922 5,507 64 32,085 5,508
State and political subdivision obligations 8 3,176 30 169 67,446 6,810 177 70,622 6,840
Corporate debt securities 4 10,500 - 11 13,633 1,318 15 24,133 1,318
Total held-to-maturity debt securities 14 13,839 31 385 326,809 41,768 399 340,648 41,799
Total 23 $ 86,338 $ 1,878 514 $ 514,787 $ 64,225 537 $ 601,125 $ 66,103
(Dollars in thousands) Less Than 12 Months 12 Months or More Total
December 31, 2023 Number
of
Securities Estimated
Fair
Value Gross
Unrealized
Losses Number
of
Securities Estimated
Fair
Value Gross
Unrealized
Losses Number
of
Securities Estimated
Fair
Value Gross
Unrealized
Losses
Available-for-sale securities:
U.S. Treasury and U.S. government agencies - $ - $ - 19 $ 35,649 $ 988 19 $ 35,649 $ 988
Mortgage-backed U.S. government agencies 1 4,015 26 92 148,668 16,475 93 152,683 16,501
State and political subdivision obligations - - - 8 3,646 686 8 3,646 686
Corporate debt securities 1 410 90 17 31,167 4,066 18 31,577 4,156
Total available-for-sale securities 2 $ 4,425 $ 116 136 $ 219,130 $ 22,215 138 $ 223,555 $ 22,331
Held-to-maturity securities:
U.S. Treasury and U.S. government agencies 1 $ 2,002 $ - 144 $ 215,129 $ 28,676 145 $ 217,131 $ 28,676
Mortgage-backed U.S. government agencies - - - 64 38,295 5,523 64 38,295 5,523
State and political subdivision obligations 25 8,729 63 170 68,831 6,423 195 77,560 6,486
Corporate debt securities 1 936 57 14 23,599 878 15 24,535 935
Total held to maturity securities 27 11,667 120 392 345,854 41,500 419 357,521 41,620
Total 29 $ 16,092 $ 236 528 $ 564,984 $ 63,715 557 $ 581,076 $ 63,951
At December 31, 2024 and 2023, the majority of the unrealized losses on securities in an unrealized loss position were attributable to U.S. Treasury and U.S. government agencies, and mortgage-backed U.S. government agencies.
Mid Penn had no securities considered by management to be credit related losses as of December 31, 2024 and December 31, 2023, and did not record any securities losses in the respective periods ended on these dates. Mid Penn does not consider the securities with unrealized losses on the respective dates to be credit related losses as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality.
There were no gross realized gains and losses on the sale of AFS securities as of December 31, 2024.
MID PENN BANCORP, INC.
The table below illustrates the contractual maturity of debt investment securities at amortized cost and estimated fair value. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without call or prepayment penalties.
(In thousands) Available-for-sale Held-to-maturity
December 31, 2024 Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Due in 1 year or less $ 10,503 $ 10,466 $ 19,563 $ 19,420
Due after 1 year but within 5 years 22,397 21,414 140,217 130,043
Due after 5 years but within 10 years 28,562 25,006 169,190 145,879
Due after 10 years 844 647 15,884 13,221
62,306 57,533 344,854 308,563
Mortgage-backed securities 222,464 202,944 37,593 32,085
$ 284,770 $ 260,477 $ 382,447 $ 340,648
MID PENN BANCORP, INC.
Note 4 - Loans and Allowance for Credit Losses - Loans
Loans, net of unearned income, are summarized as follows by portfolio segment:
(In thousands) December 31, 2024 December 31, 2023
Commercial real estate
CRE Nonowner Occupied $ 1,251,010 $ 1,149,553
CRE Owner Occupied 624,007 629,904
Multifamily 412,900 309,059
Farmland 224,709 212,690
Total Commercial real estate 2,512,626 2,301,206
Commercial and industrial
705,392 675,079
Construction
Residential Construction 99,399 92,843
Other Construction 326,171 362,624
Total Construction 425,570 455,467
Residential mortgage
1-4 Family 1st Lien 313,592 339,142
1-4 Family Rental 336,636 341,937
HELOC and Junior Liens 140,392 132,795
Total Residential Mortgage 790,620 813,874
Consumer 8,862 7,166
Total loans $ 4,443,070 $ 4,252,792
Total loans are stated at the amount of unpaid principal, adjusted for net deferred fees and costs. Net deferred loan fees were $3.8 million and $4.2 million as of December 31, 2024 and 2023, respectively.
Accrued interest receivable is not included in the amortized cost basis of Mid Penn's loans. At December 31, 2024, accrued interest receivable for loans totaled $22.9 million with no related ACL and was reported in other assets on the accompanying Consolidated Balance Sheet.
The Bank has granted loans to certain of its executive officers, directors, and their related interests. The aggregate amount of these loans was $13.8 million and $22.0 million at December 31, 2024 and 2023, respectively. During 2024, $924 thousand of new loans, advances and loans to new related parties were extended and repayments totaled $3.0 million. In addition, for the year ended December 31, 2024 there were $8.0 million of loans that were no longer extended to related parties. None of these loans were past due, in non-accrual status, or restructured at December 31, 2024.
Past Due and Nonaccrual Loans
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The classes of the loan portfolio summarized by the past due status as of December 31, 2024 and December 31, 2023, are summarized as follows:
MID PENN BANCORP, INC.
(In thousands) 30-59
Days Past
Due 60-89
Days Past
Due Greater
than 90
Days Total Past
Due Current Total Loans Loans
Receivable
> 90 Days and
Accruing
December 31, 2024
Commercial real estate
CRE Nonowner Occupied $ 1,281 $ 1,515 $ 11,658 $ 14,454 $ 1,236,556 $ 1,251,010 $ -
CRE Owner Occupied 39 51 262 352 623,655 624,007 -
Multifamily - - - - 412,900 412,900 -
Farmland 184 - - 184 224,525 224,709 -
Total Commercial real estate 1,504 1,566 11,920 14,990 2,497,636 2,512,626 -
Commercial and industrial 74 3 794 871 704,521 705,392 -
Construction
Residential Construction - - - - 99,399 99,399 -
Other Construction - - - - 326,171 326,171 -
Total Construction - - - - 425,570 425,570 -
Residential mortgage
1-4 Family 1st Lien 2,853 220 516 3,589 310,003 313,592 -
1-4 Family Rental 374 7 137 518 336,118 336,636 -
HELOC and Junior Liens 724 209 2,157 3,090 137,302 140,392 -
Total Residential Mortgage 3,951 436 2,810 7,197 783,423 790,620 -
Consumer 20 - - 20 8,842 8,862 -
Total $ 5,549 $ 2,005 $ 15,524 $ 23,078 $ 4,419,992 $ 4,443,070 $ -
(In thousands) 30-59
Days Past
Due 60-89
Days Past
Due Greater
than 90
Days Total Past
Due Current Total Loans Loans
Receivable
> 90 Days and
Accruing
December 31, 2023
Commercial real estate
CRE Nonowner Occupied $ 3,339 $ 682 $ 2,115 $ 6,136 $ 1,143,417 $ 1,149,553 $ -
CRE Owner Occupied 1,734 - 859 2,593 627,311 629,904 -
Multifamily - - - - 309,059 309,059 -
Farmland - - - - 212,690 212,690 -
Total Commercial real estate 5,073 682 2,974 8,729 2,292,477 2,301,206 -
Commercial and industrial 638 24 1,270 1,932 673,147 675,079 -
Construction
Residential Construction - 270 303 573 92,270 92,843 -
Other Construction - - 2,256 2,256 360,368 362,624 -
Total Construction - 270 2,559 2,829 452,638 455,467 -
Residential mortgage
1-4 Family 1st Lien 1,554 217 847 2,618 336,524 339,142 -
1-4 Family Rental 2,520 - 644 3,164 338,773 341,937 -
HELOC and Junior Liens 574 50 1,027 1,651 131,144 132,795 -
Total Residential Mortgage 4,648 267 2,518 7,433 806,441 813,874 -
Consumer 41 31 - 72 7,094 7,166 -
Total $ 10,400 $ 1,274 $ 9,321 $ 20,995 $ 4,231,797 $ 4,252,792 $ -
MID PENN BANCORP, INC.
Loans are placed on nonaccrual status when management determines that the full repayment of principal and collection of interest according to contractual terms is no longer likely, generally when the loan becomes 90 days or more past due. Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of December 31, 2024 and 2023 are summarized as follows:
December 31, 2024 December 31, 2023
(In thousands) With a Related Allowance Without a Related Allowance Total With a Related Allowance Without a Related Allowance Total
Commercial real estate
CRE Nonowner Occupied $ 2,622 $ 11,153 $ 13,775 $ 361 $ 4,144 $ 4,505
CRE Owner Occupied - 546 546 - 1,909 1,909
Multifamily - 154 154 93 80 173
Farmland - - - - - -
Total Commercial real estate 2,622 11,853 14,475 454 6,133 6,587
Commercial and industrial 758 3,894 4,652 1,222 64 1,286
Construction
Residential Construction - - - - 303 303
Other Construction - - - - 2,256 2,256
Total Construction - - - - - 2,559 2,559
Residential mortgage
1-4 Family 1st Lien - 1,028 1,028 - 1,875 1,875
1-4 Family Rental - 176 176 2 699 701
HELOC and Junior Liens - 2,279 2,279 - 1,208 1,208
Total Residential Mortgage - - 3,483 3,483 2 3,782 3,784
Consumer - - - - - -
Total loans $ 3,380 $ 19,230 $ 22,610 $ 1,678 $ 12,538 $ 14,216
The amount of interest income recognized on nonaccrual loans was approximately $128 thousand and $174 thousand during the three months ended December 31, 2024 and 2023, respectively. During the years ended December 31, 2024 and 2023, the amount of interest income recognized on nonaccrual loans was approximately $584 thousand and $1.2 million, respectively.
Credit Quality Indicators
Mid Penn categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. On a minimum of a quarterly basis, Mid Penn analyzes loans individually to classify the loans as to their credit risk. The following table presents risk ratings by loan portfolio segment and origination year, which is the year of origination or renewal.
PASS - This type of classification consists of 6 subcategories:
Nominal Risk / Pass - This loan classification is a credit extension of the highest quality.
Moderate Risk / Pass - This type of classification has strong financial ratios, substantial debt capacity, and low leverage with a very favorable comparison to industry peers or better than average improving trends.
Good Acceptable Risk / Pass - This type of classification is a reasonable credit risk having financial ratios on par with its peers and demonstrates slightly improving trends over time; the Borrower lists good quality assets with relatively low leverage and ample debt capacity.
MID PENN BANCORP, INC.
Average Acceptable Risk / Pass - This type of classification has financial ratios and assets that are of above average quality; however, the leverage is worse than average compared to industry standards; the Borrower should have a good repayment history and possess consistent earnings with some growth.
Marginally Acceptable Risk / Pass - This type of classification has financial ratios consistent with industry averages, assets of average quality with ascertainable values, acceptable leverage, moderate capital assets and an acceptable reliance on trade debt; however, the Borrower demonstrates marginally adequate earnings, cash flow and debt service plus positive trends.
Weak/Monitor Risk (Watch list) / Pass - This type of classification has financial ratios that are slightly below standard industry averages and assets are below average quality with unstable values; fixed assets could be near or at the end of their useful life and liabilities may not match the asset structure.
SPECIAL MENTION - These credits have developing weaknesses deserving extra attention from the lender and lending management. They are currently protected, but potentially weak. The weakness may be, cash flow, leverage, liquidity, management, industry or other factors which may, if not checked or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date.
SUBSTANDARD - These credit extensions also have well defined weaknesses, which are inadequately protected by the current worth and debt service capacity of the Borrowers or the collateral pledged, if any. The repayment of principal and interest as originally intended can be jeopardized by defined weaknesses related to adverse financial, managerial, economic, market or political conditions.
DOUBTFUL - These credits have definite weaknesses inherent in Substandard loans with added characteristics that are severe enough to make further collection in full highly questionable and improbable based on the current trends.
LOSS. These loans are considered uncollectible and no longer a viable asset of the Bank. They lack an identifiable source of repayment based on an inability to generate sufficient cash flow to service their debt. All trends are negative and the damage to the financial condition of the Borrower can’t be reversed now or in the near future.
The following table presents risk ratings by loan portfolio segment and origination year, which is the year of origination or renewal.
December 31, 2024
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized
Cost Basis
(In thousands) 2024 2023 2022 2021 2020 Prior Total
CRE Nonowner Occupied
Pass $ 85,501 $ 176,018 $ 343,072 $ 152,157 $ 130,650 $ 325,478 $ 11,732 $ 1,224,608
Special mention - - - - - 3,105 - 3,105
Substandard or lower - 1,515 1,260 - 3,281 17,241 - 23,297
Total CRE Nonowner Occupied 85,501 177,533 344,332 152,157 133,931 345,824 11,732 1,251,010
Gross charge offs - - - - - - - -
Current period recoveries - - - - - 2 - 2
Net charge offs - - - - - 2 - 2
CRE Owner Occupied
Pass 52,922 99,065 106,876 66,160 77,774 199,725 11,630 614,152
Special mention - 222 4,991 227 - 2,133 - 7,573
Substandard or lower - - - 194 - 2,088 - 2,282
Total CRE Owner Occupied 52,922 99,287 111,867 66,581 77,774 203,946 11,630 624,007
Gross charge offs - - - - - - - -
MID PENN BANCORP, INC.
Current period recoveries - - - - - 4 - 4
Net recoveries - - - - - 4 - 4
Multifamily
Pass 4,843 66,119 118,568 101,871 40,450 78,070 2,771 412,692
Special mention - - - - - 54 - 54
Substandard or lower - - - - - 154 - 154
Total Multifamily 4,843 66,119 118,568 101,871 40,450 78,278 2,771 412,900
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net charge offs - - - - - - - -
Farmland
Pass 27,449 31,259 56,178 42,693 25,119 24,729 14,801 222,228
Special mention - 128 - - - 2,163 190 2,481
Substandard or lower - - - - - - - -
Total Farmland 27,449 31,387 56,178 42,693 25,119 26,892 14,991 224,709
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net charge offs - - - - - - - -
Commercial and industrial
Pass 114,175 106,657 78,702 54,312 21,532 92,723 222,525 690,626
Special mention - 62 503 31 - 3,534 4,498 8,628
Substandard or lower - - - 892 1,168 1,632 2,446 6,138
Total commercial and industrial 114,175 106,719 79,205 55,235 22,700 97,889 229,469 705,392
Gross charge offs - (201) - - (206) (412) - (819)
Current period recoveries - - - - - 1 - 1
Net charge offs - (201) - - (206) (411) - (818)
Residential Construction
Pass 34,275 37,222 15,559 - - 2,007 10,336 99,399
Special mention - - - - - - - -
Substandard or lower - - - - - - - -
Total Residential Construction 34,275 37,222 15,559 - - 2,007 10,336 99,399
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net recoveries - - - - - - - -
Other Construction
Pass 66,711 94,619 104,439 11,664 10,983 11,928 25,827 326,171
Special mention - - - - - - - -
Substandard or lower - - - - - - - -
Total Other Construction 66,711 94,619 104,439 11,664 10,983 11,928 25,827 326,171
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net recoveries - - - - - - - -
MID PENN BANCORP, INC.
1-4 Family 1st Lien
Performing 27,580 59,762 45,946 34,743 42,727 98,891 2,915 312,564
Non-performing - - - - 211 817 - 1,028
Total 1-4 Family 1st Lien 27,580 59,762 45,946 34,743 42,938 99,708 2,915 313,592
Gross charge offs - - - - - (7) - (7)
Current period recoveries - - - - - 16 - 16
Net recoveries - - - - - 9 - 9
1-4 Family Rental
Performing 28,735 51,488 88,594 59,397 35,222 69,890 2,009 335,335
Non-performing - 147 - - 595 559 - 1,301
Total 1-4 Family Rental 28,735 51,635 88,594 59,397 35,817 70,449 2,009 336,636
Gross charge offs - - - - - (2) - (2)
Current period recoveries - - - - - 22 - 22
Net recoveries - - - - - 20 - 20
HELOC and Junior Liens
Performing 6,096 16,125 9,856 4,845 2,182 10,887 88,122 138,113
Non-performing - 21 - - - 1,257 1,001 2,279
Total HELOC and Junior Liens 6,096 16,146 9,856 4,845 2,182 12,144 89,123 140,392
Gross charge offs - - (21) - - - - (21)
Current period recoveries - - - - - - - -
Net charge offs - - (21) - - - - (21)
Consumer
Performing 4,214 972 354 394 107 234 2,587 8,862
Non-performing - - - - - - - -
Total consumer 4,214 972 354 394 107 234 2,587 8,862
Gross charge offs - - (2) - - (50) - (52)
Current period recoveries - - 1 - - 38 - 39
Net charge offs - - (1) - - (12) - (13)
Total
Pass 385,876 610,959 823,394 428,857 306,508 734,660 299,622 3,589,876
Special mention - 412 5,494 258 - 10,989 4,688 21,841
Substandard or lower - 1,515 1,260 1,086 4,449 21,115 2,446 31,871
Performing 66,625 128,347 144,750 99,379 80,238 179,902 95,633 794,874
Nonperforming - 168 - - 806 2,633 1,001 4,608
Total $ 452,501 $ 741,401 $ 974,898 $ 529,580 $ 392,001 $ 949,299 $ 403,390 $ 4,443,070
MID PENN BANCORP, INC.
December 31, 2023
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized
Cost Basis
(In thousands) 2023 2022 2021 2020 2019 Prior Total
CRE Nonowner Occupied
Pass $ 119,793 $ 329,715 $ 160,583 $ 140,083 $ 86,629 $ 267,210 $ 10,030 $ 1,114,043
Special mention - - - - 6,009 7,926 - 13,935
Substandard or lower - 5,209 - 3,162 229 12,975 - 21,575
Total CRE Nonowner Occupied 119,793 334,924 160,583 143,245 92,867 288,111 10,030 1,149,553
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net charge offs - - - - - - - -
CRE Owner Occupied
Pass 92,561 121,231 75,711 86,322 60,761 174,680 14,388 625,654
Special mention - - - - - 190 - 190
Substandard or lower - - 208 - - 3,852 - 4,060
Total CRE Owner Occupied 92,561 121,231 75,919 86,322 60,761 178,722 14,388 629,904
Gross charge offs - - - - - (16) - (16)
Current period recoveries - - - - - - - -
Net charge offs - - - - - (16) - (16)
Multifamily
Pass 26,776 44,450 105,406 41,713 23,118 65,480 1,881 308,824
Special mention - - - - - 62 - 62
Substandard or lower - - - - - 173 - 173
Total Multifamily 26,776 44,450 105,406 41,713 23,118 65,715 1,881 309,059
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net charge offs - - - - - - - -
Farmland
Pass 32,525 61,405 45,211 29,628 7,926 20,956 11,962 209,613
Special mention 194 - - - - 2,304 186 2,684
Substandard or lower - - - - - 345 48 393
Total Farmland 32,719 61,405 45,211 29,628 7,926 23,605 12,196 212,690
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net charge offs - - - - - - - -
Commercial and industrial
Pass 158,824 106,714 68,448 29,961 50,206 57,892 188,714 660,759
Special mention - 89 2,224 - 227 2,200 4,391 9,131
Substandard or lower - - 662 - - 1,978 2,549 5,189
Total commercial and industrial 158,824 106,803 71,334 29,961 50,433 62,070 195,654 675,079
MID PENN BANCORP, INC.
Gross charge offs - (100) - (111) - (27) - (238)
Current period recoveries - - - - - - - -
Net charge offs - (100) - (111) - (27) - (238)
Residential construction
Pass 43,043 25,159 6,444 979 - - 16,645 92,270
Special mention - - - - - - - -
Substandard or lower - 573 - - - - - 573
Total Residential construction 43,043 25,732 6,444 979 - - 16,645 92,843
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net recoveries - - - - - - - -
Other construction
Pass 110,553 156,055 48,214 21,378 10,247 5,856 6,617 358,920
Special mention - - - 1,447 - - - 1,447
Substandard or lower - - - - - 2,257 - 2,257
Total Other construction 110,553 156,055 48,214 22,825 10,247 8,113 6,617 362,624
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net recoveries - - - - - - - -
1-4 Family 1st Lien
Performing 77,801 51,651 41,133 48,748 9,348 106,353 2,240 337,274
Non-performing - - 37 218 - 1,613 - 1,868
Total 1-4 Family 1st Lien 77,801 51,651 41,170 48,966 9,348 107,966 2,240 339,142
Gross charge offs - - - - - (13) - (13)
Current period recoveries - - - - - 7 - 7
Net recoveries - - - - - (6) - (6)
1-4 Family Rental
Performing 62,897 90,092 64,766 38,672 16,831 64,309 1,885 339,452
Non-performing - - 56 1,252 - 1,177 - 2,485
Total 1-4 Family Rental 62,897 90,092 64,822 39,924 16,831 65,486 1,885 341,937
Gross charge offs - - - - - - - -
Current period recoveries - - - - - 31 - 31
Net recoveries - - - - - 31 - 31
HELOC and Junior Liens
Performing 17,936 11,460 5,711 2,962 1,684 8,236 83,598 131,587
Non-performing - - - - - 1,208 - 1,208
Total HELOC and Junior Liens 17,936 11,460 5,711 2,962 1,684 9,444 83,598 132,795
Gross charge offs - - - - - - - -
Current period recoveries - - - - - - - -
Net recoveries - - - - - - - -
MID PENN BANCORP, INC.
Consumer
Performing 2,361 754 649 273 223 103 2,803 7,166
Non-performing - - - - - - - -
Total consumer 2,361 754 649 273 223 103 2,803 7,166
Gross charge offs (86) - (10) (9) - (30) - (135)
Current period recoveries 26 - - 1 - 5 - 32
Net charge offs (60) - (10) (8) - (25) - (103)
Total
Pass 584,075 844,729 510,017 350,064 238,887 592,074 250,237 3,370,083
Special mention 194 89 2,224 1,447 6,236 12,682 4,577 27,449
Substandard or lower - 5,782 870 3,162 229 21,580 2,597 34,220
Performing 160,995 153,957 112,259 90,655 28,086 179,001 90,526 815,479
Nonperforming - - 93 1,470 - 3,998 - 5,561
Total $ 745,264 $ 1,004,557 $ 625,463 $ 446,798 $ 273,438 $ 809,335 $ 347,937 $ 4,252,792
Mid Penn had no loans classified as "Doubtful" as of December 31, 2024 and 2023. There was $861 thousand and $121 thousand in loans for which formal foreclosure proceedings were in process at December 31, 2024 and December 31, 2023, respectively.
Collateral-Dependent Loans
A financial asset is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of financial assets deemed collateral-dependent, Mid Penn elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, Mid Penn records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate, including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land. Total collateral-dependent loans as of December 31, 2024 were $22.6 million.
Allowance for Credit Losses
Mid Penn’s ACL - loans methodology follows guidance within FASB ASC Subtopic 326-20. The ACL - loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the loan portfolio is continuously monitored by management and is reflected within the ACL - loans. The ACL - loans is an estimate of expected losses inherent within Mid Penn’s existing loan portfolio. The ACL - loans is adjusted through the PCL and reduced by the charge off of loan amounts, net of recoveries.
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and credit loss expense.
Mid Penn estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Mid Penn uses a third-party software application to calculate the quantitative portion of the ACL using a methodology and assumptions specific to each loan pool. The qualitative portion of the allowance is based on general economic conditions and other internal and external factors affecting Mid Penn as a whole, as well as specific loans. Factors considered include the following: lending process, concentrations of credit, and peer group divergence. The quantitative and qualitative portions of the allowance are added
MID PENN BANCORP, INC.
together to determine the total ACL, which reflects management’s expectations of future conditions based on reasonable and supportable forecasts.
The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. In estimating the ACL for the collective component, loans are segregated into loan pools based on loan purpose codes and similar risk characteristics.
The commercial real estate and residential mortgage loan portfolio segments include loans for both commercial and residential properties that are secured by real estate. The underwriting process for these loans includes analysis of the financial position and strength of both the borrower and, if applicable, guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type. The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting. Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance, in addition to analysis of the proposed project for income-producing properties. Additional support offered by guarantors is also considered when applicable. Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity and availability of long-term financing.
The commercial and industrial loan portfolio segment includes commercial loans made to many types of businesses for various purposes, such as short-term working capital loans that are usually secured by accounts receivable and inventory, equipment and fixed asset purchases that are secured by those assets, and term financing for those within Mid Penn’s geographic markets. Mid Penn’s credit underwriting process for commercial and industrial loans includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as reflected in current and detailed financial information, and evaluation of underlying collateral to support the credit.
The consumer loan portfolio segment is comprised of loans which are underwritten after evaluating a borrower’s capacity, credit and collateral. Several factors are considered when assessing a borrower’s capacity, including the borrower’s employment, income, current debt, assets and level of equity in the property. Credit is assessed using a credit report that provides credit scores and the borrower’s current and past information about their credit history. Loan-to-value and debt-to-income ratios, loan amount and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends, such as conditions that negatively affect housing prices and demand and levels of unemployment.
Mid Penn utilizes a DCF method to estimate the quantitative portion of the allowance for credit losses for loan pools. The DCF is based off of historical losses, including peer data, which is correlated to national unemployment and GDP.
The PD and LGD measures are used in conjunction with prepayment data as inputs into the DCF model to calculate the cash flows at the individual loan level. Contractual cash flows based on loan terms are adjusted for PD, LGD and prepayments to derive loss cash flows. These loss cash flows are discounted by the loan’s coupon rate to arrive at the discounted cash flow based quantitative loss. The prepayment studies are updated quarterly by a third-party for each applicable pool.
Mid Penn determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools. To the extent the lives of the loans in the Loans held for investment (LHFI) portfolio extend beyond this forecast period, Mid Penn uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans.
Qualitative factors used in the ACL methodology include the following:
•Lending process
•Concentrations of credit
•Peer Group Divergence
The ACL for individual loans, such as non-accrual and PCD, that do not share risk characteristics with other loans is measured as the difference between the discounted value of expected future cash flows, based on the effective interest rate
MID PENN BANCORP, INC.
at origination, and the amortized cost basis of the loan, or the net realizable value. The ACL is the difference between the loan’s net realizable value and its amortized cost basis (net of previous charge-offs and deferred loan fees and costs), except for collateral-dependent loans. A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral. The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, adjusted for the estimated cost to sell. Fair value estimates for collateral-dependent loans are derived from appraised values based on the current market value or the "as is" value of the collateral, normally from recently received and reviewed appraisals. Current appraisals are ordered on a regular basis based on the inspection date or more often if market conditions necessitate. Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. These appraisals are reviewed by Mid Penn’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal. If the calculated expected credit loss is determined to be permanent or not recoverable, the amount of the expected credit loss is charged off.
Mid Penn may also purchase loans or acquire loans through a business combination. At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination. Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans. In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, Mid Penn takes into consideration loan grades, past due and nonaccrual status. Mid Penn may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, and number of times past due. At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit losses. The initial recognition of expected credit losses on PCD loans has no impact on net income. When the initial measurement of expected credit losses on PCD loans is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool. Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan. Subsequent changes to the ACL on PCD loans are recorded through the PCL. For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination and are therefore not deemed PCD, any discounts or premiums included in the purchase price are accreted (or amortized) over the contractual life of the individual loan.
Loans are charged off against the ACL, with any subsequent recoveries credited back to the ACL account. Expected recoveries may not exceed the aggregate of amounts previously charged off and expected to be charged off.
The following table presents the activity in the ACL - loans by portfolio segment for the year ended December 31, 2024 and 2023:
(In thousands)
Balance at
December 31, 2023 Charge offs Recoveries Net loans (charged off) recovered (Benefit)/Provision for credit losses
Year Ended
December 31, 2024
Commercial Real Estate
CRE Nonowner Occupied $ 10,267 $ - $ 2 $ 2 $ 778 $ 11,047
CRE Owner Occupied 5,646 - 4 4 (407) 5,243
Multifamily 2,202 - - - 1,230 3,432
Farmland 2,064 - - - (132) 1,932
Commercial and industrial 7,131 (819) 1 (818) 809 7,122
Construction
Residential Construction 1,256 - - - (325) 931
Other Construction 2,146 - - - (15) 2,131
Residential Mortgage
1-4 Family 1st Lien 1,207 (7) 16 9 287 1,503
1-4 Family Rental 1,859 (2) 22 20 (123) 1,756
HELOC and Junior Liens 389 (21) - (21) 24 392
Consumer 20 (52) 39 (13) 18 25
Total $ 34,187 $ (901) $ 84 $ (817) $ 2,144 $ 35,514
MID PENN BANCORP, INC.
(In thousands) Balance at
December 31, 2022 CECL Impact PCD Loans Charge offs Recoveries Net loans (charged off) recovered Provision/(Benefit) for credit losses
Year Ended
December 31, 2023
Commercial Real Estate
CRE Nonowner Occupied $ 8,284 $ 259 $ 312 $ - $ - $ - $ 1,412 $ 10,267
CRE Owner Occupied 2,916 91 2 (16) - (16) 2,653 5,646
Multifamily 1,111 35 - - - 1,056 2,202
Farmland 831 26 - - - 1,207 2,064
Commercial and industrial 4,593 6,601 5 (238) - (238) (3,830) 7,131
Construction
Residential Construction - 1,270 12 - - - (26) 1,256
Other Construction - 1,931 1 - - - 214 2,146
Residential Mortgage
1-4 Family 1st Lien 370 1,307 4 (13) 7 (6) (468) 1,207
1-4 Family Rental 288 731 - 31 31 809 1,859
HELOC and Junior Liens 661 (230) - - - (42) 389
Consumer 29 154 (135) 32 (103) (60) 20
Unallocated (126) (244) - - - 370 -
Total $ 18,957 $ 11,931 $ 336 $ (402) $ 70 $ (332) $ 3,295 $ 34,187
MID PENN BANCORP, INC.
The following table presents the ACL for loans and the amortized cost basis of loans as of December 31, 2024 and December 31, 2023:
(In thousands) ACL - Loans Loans
December 31, 2024 Collectively Evaluated for Credit Loss Individually Evaluated for Credit Loss Total ACL - Loans Collectively Evaluated for Credit Loss Individually Evaluated for Credit Loss Total Loans
Commercial real estate
CRE Nonowner Occupied $ 9,945 $ 1,102 $ 11,047 $ 1,237,235 $ 13,775 $ 1,251,010
CRE Owner Occupied 5,243 - 5,243 623,461 546 624,007
Multifamily 3,432 - 3,432 412,746 154 412,900
Farmland 1,932 - 1,932 224,709 - 224,709
Commercial and industrial 6,785 337 7,122 700,740 4,652 705,392
Construction
Residential Construction 931 - 931 99,399 - 99,399
Other Construction 2,131 - 2,131 326,171 - 326,171
Residential mortgage
1-4 Family 1st Lien 1,503 - 1,503 312,564 1,028 313,592
1-4 Family Rental 1,756 - 1,756 336,460 176 336,636
HELOC and Junior Liens 392 - 392 138,113 2,279 140,392
Consumer 25 - 25 8,862 - 8,862
Total $ 34,075 $ 1,439 $ 35,514 $ 4,420,460 $ 22,610 $ 4,443,070
(In thousands) ACL - Loans Loans
December 31, 2023 Collectively Evaluated for Credit Loss Individually Evaluated for Credit Loss Total ACL - Loans Collectively Evaluated for Credit Loss Individually Evaluated for Credit Loss Total Loans
Commercial real estate
CRE Nonowner Occupied $ 9,906 $ 361 $ 10,267 $ 1,145,048 $ 4,505 $ 1,149,553
CRE Owner Occupied 5,646 - 5,646 627,995 1,909 629,904
Multifamily 2,190 12 2,202 308,886 173 309,059
Farmland 2,064 - 2,064 212,690 - 212,690
Commercial and industrial 6,419 712 7,131 673,793 1,286 675,079
Construction
Residential Construction 1,256 - 1,256 92,270 573 92,843
Other Construction 2,146 - 2,146 360,368 2,256 362,624
Residential mortgage
1-4 Family 1st Lien 1,207 - 1,207 337,267 1,875 339,142
1-4 Family Rental 1,857 2 1,859 341,236 701 341,937
HELOC and Junior Liens 389 - 389 131,587 1,208 132,795
Consumer 20 - 20 7,166 - 7,166
Total $ 33,100 $ 1,087 $ 34,187 $ 4,238,306 $ 14,486 $ 4,252,792
MID PENN BANCORP, INC.
Modifications to Borrowers Experiencing Financial Difficulty
From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension, or a combination thereof, among other things.
Information related to loans modified (by type of modification), whereby the borrower was experiencing financial difficulty at the time of modification as of December 31, 2024, is set forth in the following table:
(In thousands) Interest Only Term Extension Combination:
Interest Only and
Term Extension Total % of Total Class of Financing Receivable
Year ended December 31, 2024
Commercial and industrial $ - $ - $ 287 $ 287 0.04 %
1-4 Family Rental - 184 - 184 0.05
HELOC and Junior Liens - - 92 92 0.07
Total $ - $ 184 $ 379 $ 563
The financial effects of the interest-only loan modifications reduced the monthly payment amounts for the borrower and the term extensions in the table above added a weighted-average of 2.0 years to the life of the loans, which also reduced the monthly payment amounts for the borrowers.
As of December 31, 2024, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements. There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2023.
Interest Only Term Extension Combination:
Interest Only and
Term Extension Total % of Total Class of Financing Receivable
Year ended December 31, 2023
Commercial real estate
CRE Owner Occupied $ 51 $ - $ 180 $ 231 0.04 %
Total Commercial real estate 51 - 180 231 0.02
Commercial and industrial - 150 - 150 0.02
Construction
Other Construction - 700 - 700 0.19
Total Construction - 700 - 700 0.15
Total loans $ 51 $ 850 $ 180 $ 1,081
MID PENN BANCORP, INC.
Note 5 - Premises and Equipment
The following is a summary of premises and equipment as of December 31:
(In thousands) 2024 2023
Land $ 6,251 $ 6,663
Buildings 28,948 29,680
Furniture, fixtures, and equipment 23,656 23,091
Leasehold improvements 3,317 2,469
Capital expenditures in process 4,941 1,165
Total cost 67,113 63,068
Less accumulated depreciation (28,307) (26,159)
Total premises and equipment $ 38,806 $ 36,909
Depreciation expense was $4.9 million in 2024, $4.9 million in 2023, and $4.3 million in 2022.
Note 6 - Goodwill and Intangible Assets
The following table summarizes the changes in goodwill:
For the Years Ended
December 31,
(In thousands)
2024 2023
Goodwill balance, beginning of year $ 127,031 $ 114,231
Brunswick Acquisition - 12,800
Commonwealth Benefits Group Acquisition 1,129 -
Goodwill balance, end of year $ 128,160 $ 127,031
On July 31, 2024, Mid Penn acquired the insurance business and related accounts of a full-service employee benefits firm that serves mid to large employers across central and eastern Pennsylvania, northern Maryland, and northern Virginia. Goodwill totaling $1.1 million was booked as a result of this business combination.
On May 19, 2023, Mid Penn purchased Brunswick Bank in a business combination. Goodwill totaling $12.8 million was booked as a result of this business combination.
The following table summarizes the changes in core deposit intangible.
For the Years Ended
December 31,
(In thousands)
2024 2023 2022
Core deposit intangible balance, beginning of year $ 4,649 $ 4,964 $ 7,282
Brunswick core deposit intangibles - 999 -
Riverview (adjustment) acquisition - - (705)
Amortization of core deposit intangibles 1,267 1,314 1,613
Core deposit and other intangible balances, end of year $ 3,382 $ 4,649 $ 4,964
MID PENN BANCORP, INC.
The following table shows the amortization expense for future periods:
(In thousands)
2025 $ 1,035
2026 812
2027 591
2028 370
2029 260
2030-thereafter 314
Total $ 3,382
Customer List Intangible
As a result of the Commonwealth Financial Group and Riverview Acquisitions, Mid Penn recorded a customer list intangible asset included in total intangible assets related to the insurance and wealth management customers assumed in the acquisitions. This intangible is amortized as an expense over ten years using the sum of the years’ amortization method.
The following table summarizes the changes in the customer list intangible during the years ended December 31:
(In thousands) 2024 2023
Customer list intangible balance, beginning of year $ 1,830 $ 2,275
Commonwealth Financial Group acquisition 1,481 -
Amortization of customer list intangible 512 445
Customer list intangible, end of year $ 2,799 $ 1,830
The following table shows the amortization expense for future periods:
(In thousands)
2025 $ 608
2026 532
2027 456
2028 380
2029 304
2030-thereafter 519
Total $ 2,799
Note 7 - Leases
Mid Penn has operating and finance leases for certain premises and equipment.
Operating and finance lease ROU assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt.
MID PENN BANCORP, INC.
Supplemental consolidated balance sheet information for each of the lease classifications as of December 31 was as follows:
2024 2023
(Dollars in thousands) Operating
Leases Finance
Lease Operating
Leases Finance
Lease
ROU $ 7,699 $ 2,548 $ 8,953 $ 2,727
Lease liability 8,092 3,063 9,285 3,197
Weighted average remaining lease term (in years) 5.12 14.17 5.60 15.17
Weighted average discount rate 3.68 % 3.81 % 3.66 % 3.81 %
Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income. Following is a summary of lease costs during the years ended December 31:
(In thousands) 2024 2023 2022
Finance lease cost:
Amortization of ROU asset $ 179 $ 180 $ 180
Interest expense on lease liability 119 123 127
Total finance lease cost 298 303 307
Operating lease cost 2,322 2,081 2,057
Sublease income (21) (29) (24)
Total lease costs $ 2,599 $ 2,355 $ 2,340
The rental expense paid to related parties was $274 thousand for each of 2024, 2023 and 2022.
Supplemental cash flow information related to operating and finance leases for the years ended December 31 was as follows:
(In thousands) 2024 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases $ 119 $ 123
Operating cash flows from operating leases 2,382 2,556
Financing cash flows from finance leases 134 93
MID PENN BANCORP, INC.
A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.
December 31, 2024
(In thousands) Operating Leases Finance Lease
Lease payments due:
2025 $ 2,361 $ 260
2026 2,179 260
2027 1,878 260
2028 1,136 259
2029 807 276
2030 and thereafter 617 2,677
Total lease payments 8,978 3,992
Less: imputed interest (886) (929)
Present value of lease liabilities $ 8,092 $ 3,063
The future minimum payments to related parties are $185 thousand for 2025, $178 thousand for 2026, 2027, 2028 and 2029 and $638 thousand thereafter.
There were no sale and leaseback transactions or leveraged leases as of December 31, 2024 or 2023. There were no leases that had not commenced as of December 31, 2024.
Note 8 - Deposits
Deposits consisted of the following as of December 31:
(Dollars in thousands) 2024 2023
Noninterest-bearing demand deposits $ 759,169 $ 801,312
Interest-bearing demand deposits 1,101,444 947,372
Money market 958,051 850,674
Savings 260,258 288,404
Total demand and savings 3,078,922 2,887,762
Time 1,611,005 1,458,450
Total deposits $ 4,689,927 $ 4,346,212
The scheduled maturities of time deposits at December 31, 2024 were as follows:
Time Deposits
(In thousands) Less than $250,000 $250,000 or more
Maturing in 2025 $ 1,089,099 $ 356,781
Maturing in 2026 104,814 15,638
Maturing in 2027 24,083 1,222
Maturing in 2028 10,503 264
Maturing in 2029 4,790 250
Maturing thereafter 3,007 554
$ 1,236,296 $ 374,709
MID PENN BANCORP, INC.
Mid Penn had $319.8 million in brokered certificates of deposits as of December 31, 2024 and $244.8 million as of December 31, 2023. As of December 31, 2024 and 2023, Mid Penn had $83.7 million and $96.7 million of CDAR (Certificate of Deposit Account Registry) deposits, respectively.
Deposits and other funds from related parties held by Mid Penn at December 31, 2024 and 2023 amounted to $31.8 million and $48.3 million, respectively.
Note 9 - Short-term Borrowings
Total short-term borrowings were $2.0 million as of December 31, 2024 and $241.5 million as of December 31, 2023, respectively. Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by our investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling $2.3 billion at December 31, 2024. The Bank had short-term borrowing capacity from the FHLB up to the Bank’s unused borrowing capacity of $1.5 billion (equal to $1.6 billion of maximum borrowing capacity less the aggregate amount of FHLB letter of credits securing public funds deposits, and other FHLB advances and obligations outstanding) upon satisfaction of any stock purchase requirements of the FHLB.
The Bank also has unused overnight lines of credit with other correspondent banks amounting to $35.0 million at December 31, 2024. No draws have been made on these lines of credit and on December 31, 2024 and 2023, the balance was $0.
Note 10 - Long-term Debt
The following table presents a summary of long-term debt as of December 31:
(Dollars in thousands) December 31, 2024 December 31, 2023
FHLB fixed rate instruments:
Due January 2024, 1.10%
$ - $ 10,000
Due March 2024, 5.60%
- 25,000
Due February 2026, 4.51%
20,000 20,000
Due August 2026, 4.80%
523 782
Due February 2027, 6.71%
17 24
Total FHLB fixed rate instruments 20,540 55,806
Lease obligations included in long-term debt 3,063 3,197
Total long-term debt $ 23,603 $ 59,003
Mid Penn prepaid no FHLB fixed rate instruments during the years ended December 31, 2024 and 2023.
As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity. As of December 31, 2024, and 2023, the Bank had long-term debt outstanding in the amount of $23.6 million and $59.0 million, respectively, consisting of FHLB fixed rate instruments, and a finance lease liability.
The FHLB fixed rate instruments are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans. Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit. These FHLB letter of credit commitments totaled $156.0 million and $153.5 million as of December 31, 2024 and 2023, respectively.
During the first quarter of 2019, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039 and is included in long-term debt on the Consolidated Balance Sheets. See "Note 7 - Leases", for more information related to Mid Penn’s finance lease obligation.
The aggregate principal amounts due on FHLB fixed rate instruments subsequent to December 31, 2024 are as follows:
MID PENN BANCORP, INC.
(In thousands)
2025 $ 318
2026 20,220
2027 2
Thereafter -
$ 20,540
Note 11 - Subordinated Debt and Trust Preferred Securities
Subordinated Debt Assumed November 2021 with the Riverview Acquisition
On November 30, 2021, Mid Penn completed its acquisition of Riverview and assumed $25.0 million of Subordinated Notes (the "Riverview Notes"). In accordance with purchase accounting principles, the Riverview Notes were assigned a fair value premium of $2.3 million. The notes are treated as Tier 2 capital for regulatory reporting purposes.
The Riverview Notes were entered into by Riverview on October 6, 2020 with certain qualified institutional buyers and accredited institutional investors. The Riverview Notes have a maturity date of October 15, 2030 and initially bear interest, payable semi-annually, at a fixed annual rate of 5.75% per annum until October 15, 2025. Commencing on that date, the interest rate applicable to the outstanding principal amount due will be reset quarterly to an interest rate per annum equal to the then current three-month secured overnight financing rate ("SOFR") plus 563 bp, payable quarterly until maturity. Mid Penn may redeem the Notes at par, in whole or in part, at its option, anytime beginning on October 15, 2025.
Subordinated Debt Issued December 2020
On December 22, 2020, Mid Penn entered into agreements for and sold, at 100% of their principal amount, an aggregate of $12.2 million of its Subordinated Notes due December 2030 (the "December 2020 Notes") on a private placement basis to accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes.
The December 2020 Notes bear interest at a rate of 4.50% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the December 2020 Notes are floating will at no time be less than 4.50%. Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31, of each year, beginning on March 31, 2021. The December 2020 Notes will mature on December 31, 2030 and are redeemable, in whole or in part, without premium or penalty, on any interest payment date on or after December 31, 2025 and prior to December 31, 2030, subject to any required regulatory approvals. Additionally, if (i) all or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (ii) interest on the December 2020 Notes fails to be deductible for United States federal income tax purposes or (iii) Mid Penn will be considered an "investment company," Mid Penn may redeem the December 2020 Notes, in whole but not in part, by giving 10 days’ notice to the holders of the December 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the December 2020 Notes at 100% of the principal amount of the December 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.
Holders of the December 2020 Notes may not accelerate the maturity of the December 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $750 thousand of the December 2020 Notes as of December 31, 2024 and 2023.
Subordinated Debt Issued March 2020
On March 20, 2020, Mid Penn entered into agreements with accredited investors who purchased $15.0 million aggregate principal amount of Mid Penn Subordinated Notes due March 2030 (the "March 2020 Notes"). As a result of Mid Penn’s merger with Riverview on November 30, 2021, $6.9 million of the March 2020 Notes balance were redeemed as Riverview was a holder of the March 2020 Notes. The balance of March 2020 Notes outstanding as of December 31, 2023 was $8.1 million. The March 2020 Notes held at December 31, 2024 are treated as Tier 2 capital for regulatory capital purposes.
The March 2020 Notes bear interest at a rate of 4.00% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the March 2020 Notes are floating will at no time be less than 4.25%. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable
MID PENN BANCORP, INC.
quarterly in arrears thereafter on March 30, June 30, September 30 and December 30. The March 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030. Additionally, if all or any portion of the March 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the March 2020 Notes at 100% of the principal amount of the March 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.
Holders of the March 2020 Notes may not accelerate the maturity of the March 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1.7 million of the March 2020 Notes as of December 31, 2024 and 2023.
Note 12 - Derivative Financial Instruments
Mid Penn manages its exposure to certain interest rate risks through the use of derivatives; however, none are entered into for speculative purposes. During the year ended December 31, 2024, Mid Penn entered into outstanding derivative contracts designated as hedges. Mid Penn’s free-standing derivative financial instruments are required to be carried at their fair value on the Consolidated Balance Sheets.
Mortgage Banking Derivative Financial Instruments
In connection with its mortgage banking activities, Mid Penn entered into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, Mid Penn entered into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may have also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock was based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. During the year ended December 31, 2023, Mid Penn did not participate in mortgage banking derivative activities.
Information related to mortgage banking derivative activity is set forth in the following table:
December 31, 2024 December 31, 2023
(In thousands) Notional Amount Asset (Liability) Fair Value Notional Amount Asset (Liability) Fair Value
Interest Rate Lock Commitments
Positive Fair Values $ 120 $ 1 $ - $ -
Negative Fair Values 1,084 (4) - -
Forward Commitments
Positive Fair Values 2,380 7 - -
Negative Fair Values $ 1,167 $ (6) $ - $ -
For the year ended December 31, 2024, 2023, and 2022, Mid Penn recorded net gains from mortgage banking hedging activity of $10 thousand, $324 thousand, and $1.5 million, respectively.
The following table presents derivative financial instruments and the amount of the net gains or losses recognized within other noninterest income on the Consolidated Statements of Income for the years ended December 31:
(In thousands) 2024 2023
Interest Rate Lock Commitments $ (3) $ 37
Forward Commitments 14 287
Total $ 11 $ 324
MID PENN BANCORP, INC.
Loan-level Interest Rate Swaps
Mid Penn enters into loan-level interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. Mid Penn simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of the offsetting customer and dealer counterparty swap agreements is that the customer pays a fixed rate of interest and Mid Penn receives a floating rate. Mid Penn’s loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.
Information related to loan level swaps is set forth in the following table:
(Dollars in thousands) December 31, 2024 December 31, 2023
Interest rate swaps on loans with customers
Notional amount $ 217,150 $ 187,192
Weighted average remaining term (years) 5.11 6.24
Receive fixed rate (weighted average) 4.68 % 4.59 %
Pay variable rate (weighted average) 6.64 % 7.50 %
Estimated fair value (1)
$ 11,118 $ 10,484
(Dollars in thousands) December 31, 2024 December 31, 2023
Interest rate swaps on loans with correspondents
Notional amount $ 217,150 $ 187,192
Weighted average remaining term (years) 5.11 6.24
Receive variable rate (weighted average) 6.64 % 7.50 %
Pay fixed rate (weighted average) 4.68 % 4.59 %
Estimated fair value (2)
$ 11,118 $ 10,484
(1) The net amount of the estimated fair value is disclosed in Other Liabilities on the Consolidated Balance Sheet.
(2) The net amount of the estimated fair value is disclosed in Other Assets on the Consolidated Balance Sheet.
Cash Flow Hedges of Interest Rate Risk
Mid Penn’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, Mid Penn primarily uses interest rate swaps as part of its interest rate risk management strategy. During the year ended December 31, 2024, Mid Penn entered into interest rate swaps designated as cash flow hedges to hedge the cash flows associated with existing brokered CDs.
Information related to cash flow hedges is set forth in the following table:
(Dollars in thousands) December 31, 2024 December 31, 2023
Cash flow hedges
Notional amount $ 295,000 $ 190,000
Weighted average remaining term (years) 1.55 2.22
Pay fixed rate (weighted average) 3.64 % 3.74 %
Receive variable rate (weighted average) 4.10 % 4.07 %
Estimated fair value (1)
$ 2,590 $ 1,460
(1) Estimated fair value, net of accrued interest receivable, is disclosed in Other Assets on the Consolidated Balance Sheet.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on Mid Penn’s variable-rate liabilities. During the next twelve months ended December 31, 2025, Mid Penn estimates that an additional $1.4 million will be reclassified as a decrease to interest expense.
MID PENN BANCORP, INC.
Note 13 - Fair Value Measurement
The Corporation uses estimates of fair value in applying various accounting standards for its consolidated financial statements on either a recurring or non-recurring basis. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. Mid Penn groups its assets and liabilities measured at fair value in three hierarchy levels, based on the observability and transparency of the inputs. The fair value hierarchy is as follows:
Level 1 - Inputs that represent quoted prices for identical instruments in active markets.
Level 2 - Inputs that represent quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 - Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
There were no transfers of assets between fair value Level 1 and Level 2 during the year ended December 31, 2024 or the year ended December 31, 2023.
The following tables illustrate the assets and liabilities measured at fair value on a recurring basis and reported on the Consolidated Balance Sheets:
December 31, 2024
(In thousands) Level 1 Level 2 Level 3 Total
Available-for-sale securities:
U.S. Treasury and U.S. government agencies $ - $ 21,507 $ - $ 21,507
Mortgage-backed U.S. government agencies - 202,944 - 202,944
State and political subdivision obligations - 3,596 - 3,596
Corporate debt securities - 32,430 - 32,430
Equity securities 428 - - 428
Loans held for sale - 7,064 - 7,064
Other assets:
Derivative assets - 13,708 - 13,708
Other liabilities:
Derivative liabilities - 11,118 - 11,118
December 31, 2023
(In thousands) Level 1 Level 2 Level 3 Total
Available-for-sale securities:
U.S. Treasury and U.S. government agencies $ - $ 35,649 $ - $ 35,649
Mortgage-backed U.S. government agencies - 152,683 - 152,683
State and political subdivision obligations - 3,646 - 3,646
Corporate debt securities - 31,577 - 31,577
Equity securities 438 - - 438
Loans held for sale - 3,855 - 3,855
Other assets:
Derivative assets - 11,944 - 11,944
Other liabilities:
Derivative Liabilities - 10,484 - 10,484
MID PENN BANCORP, INC.
The valuation methodologies and assumptions used to estimate the fair value for the items in the preceding tables are as follows:
Available for sale investment securities - The fair value of equity and debt securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather, relying on the securities’ relationship to other benchmark quoted prices.
Equity securities - The fair value of equity securities with readily determinable fair values is recorded on the Consolidated Balance Sheet, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income.
Loans held for sale - This category includes mortgage loans held for sale that are measured at fair value. Fair values as of December 31, 2024 were measured as the price that secondary market investors were offering for loans with similar characteristics.
Derivative instruments - Interest rate swaps are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing sources values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.
Mortgage banking derivatives - represent the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors and the fair value of interest rate swaps. The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. These characteristics classify interest rate swap agreements as Level 2. See "Note 12 - Derivative Financial Instruments," for additional information.
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, upon their acquisition or when there is evidence of impairment). The following table illustrates financial instruments measured at fair value on a nonrecurring basis:
December 31, 2024
(In thousands) Level 1 Level 2 Level 3 Total
Individually evaluated loans, net of ACL $ - $ - $ 21,171 $ 21,171
Foreclosed assets held for sale - - 44 44
December 31, 2023
(In thousands) Level 1 Level 2 Level 3 Total
Individually evaluated loans, net of ACL $ - $ - $ 13,399 $ 13,399
Foreclosed assets held for sale - - 293 293
Net loans - This category consists of loans that were individually evaluated for credit losses, net of the related ACL, and have been classified as Level 3 assets. All of Mid Penn’s individually evaluated loans for 2024 and 2023, whether reporting a specific allowance allocation or not, are considered collateral-dependent. Mid Penn utilized Level 3 inputs such as independent appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses.
Foreclosed assets held for sale - Values are based on appraisals that consider the sales prices of property in the proximate vicinity.
MID PENN BANCORP, INC.
The following table presents additional information about the valuation techniques for level 3 assets measured at fair value on a nonrecurring basis.
December 31, 2024
(In thousands) Fair Value
Valuation Technique
Significant Unobservable Input
Range of Inputs
Weighted Average
Individually evaluated loans, net of ACL $ 21,171 Appraisal of collateral
Appraisal adjustments
-% - 100% 5.6%
Foreclosed assets held for sale 44 Appraisal of collateral
Appraisal adjustments 26% - 26% 26.0%
December 31, 2023
(In thousands) Fair Value
Valuation Technique
Significant Unobservable Input
Range of Inputs Weighted Average
Individually evaluated loans, net of ACL $ 13,399 Appraisal of collateral
Appraisal adjustments -% - 100% 5.7%
Foreclosed assets held for sale 293 Appraisal of collateral
Appraisal adjustments 25% - 94% 64.5%
The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of:
December 31, 2024
Estimated Fair Value
(In thousands) Carrying
Amount Level 1 Level 2 Level 3 Total
Financial instruments - assets
Cash and cash equivalents $ 70,564 $ 70,564 $ - $ - $ 70,564
Available-for-sale securities 260,477 - 260,477 - 260,477
Held-to-maturity securities 382,447 - 340,648 - 340,648
Equity securities 428 428 - - 428
Loans held for sale 7,064 - 7,064 - 7,064
Net loans 4,407,556 - - 4,430,623 4,430,623
Restricted investment in bank stocks 7,461 7,461 - 7,461
Accrued interest receivable 26,846 26,846 - - 26,846
Derivative assets 13,708 - 13,708 - 13,708
Financial instruments - liabilities
Deposits $ 4,689,927 $ - $ 4,684,548 $ - $ 4,684,548
Short-term borrowings 2,000 - 2,000 - 2,000
Long-term debt (1)
20,540 - 19,120 - 19,120
Subordinated debt 45,741 - 42,811 - 42,811
Accrued interest payable 13,484 13,484 - - 13,484
Derivative liabilities 11,118 - 11,118 - 11,118
(1)Long-term debt excludes finance lease obligations.
MID PENN BANCORP, INC.
December 31, 2023
Estimated Fair Value
(In thousands) Carrying
Amount Level 1 Level 2 Level 3 Total
Financial instruments - assets
Cash and cash equivalents $ 96,763 $ 96,763 $ - $ - $ 96,763
Available-for-sale securities 223,555 - 223,555 - 223,555
Held-to-maturity securities 399,128 - 357,521 - 357,521
Equity securities 438 438 - - 438
Loans held for sale 3,855 - 3,855 - 3,855
Net loans 4,218,605 - - 4,221,926 4,221,926
Restricted investment in bank stocks 16,768 - 16,768 - 16,768
Accrued interest receivable 25,820 25,820 - - 25,820
Derivative assets 11,944 - 11,944 - 11,944
Financial instruments - liabilities
Deposits $ 4,346,212 $ - $ 4,337,723 $ - $ 4,337,723
Short-term debt 241,532 - 241,532 - 241,532
Long-term debt (1)
55,806 - 55,081 - 55,081
Subordinated debt 46,354 - 39,515 - 39,515
Accrued interest payable 14,257 14,257 - - 14,257
Derivative liabilities 10,484 - 10,484 - 10,484
(1)Long-term debt excludes finance lease obligations
The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of December 31, 2024 and 2023.
Note 14 - Postretirement Benefit Plans
Mid Penn has an unfunded noncontributory defined benefit plan for directors, which provides defined benefits based on the respective director’s years of service, as well as a postretirement healthcare and life insurance benefit plan, which is noncontributory, covering certain full-time employees. Mid Penn also assumed noncontributory defined benefit pension plans as a result of the acquisitions of Scottdale on January 8, 2018 and Riverview on November 30, 2021. None of Mid Penn’s plans contained a promised interest crediting rate.
Service costs related to plans benefiting Mid Penn employees are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets, amortization (accretion) of prior service cost, and settlement gain are reported as a component of other income. Service costs, interest costs, and amortization of prior service costs related to plans benefiting Mid Penn’s nonemployee directors are reported as a component of director fees and benefits expense within the other expense line item on the Consolidated Statement of Income.
The accrued benefit liability, related income statement impacts, and other significant aspects of the plans are detailed below.
Life Insurance - Full-time employees who had at least ten years of service as of January 1, 2008 and retire with the Bank after age 55 and at least 20 years of service are eligible for term life insurance coverage. The insurance amount will be $50 thousand until age 65. After age 65, the insurance amount will decrease by $5 thousand per year until age 74. Thereafter,
MID PENN BANCORP, INC.
the insurance amount will be $5 thousand. The payment of the life insurance premium by the Corporation shall terminate at any time if the retired employee obtains other employment.
Health Benefit Plan - Full-time employees who had at least 10 years of service as of January 1, 2008 and who retire at age 55 or later, after completion of at least 20 years of service, are eligible for medical benefits. Medical benefits are provided for up to five years after retirement. Employees who retired prior to December 31, 2015 may elect the least expensive single coverage in the employer’s group medical plan. If the retiree becomes eligible for Medicare during the five year duration of coverage, the Bank will pay, at its discretion, premiums for single 65-special coverage or similar supplemental coverage. For those employees who retired between September 18, 2015 and December 31, 2015, the Bank will only pay up to $5 thousand towards such medical coverage. Employees who retired after December 31, 2015 may not participate in the employer’s group medical plan. Instead, the Bank will reimburse the retiree for up to $5 thousand (grossed up by 36.79% as of December 31, 2024) in medical costs. The reimbursement shall terminate at any time during the five-year period if the retired employee obtains other employment or the retired employee dies.
The following tables provide a reconciliation of the changes in the plan’s health and life insurance benefit obligations and fair value of plan assets for the years ended December 31, 2024 and 2023, and a statement of the funded status at December 31, 2024 and 2023.
(In thousands) December 31,
Change in benefit obligations: 2024 2023
Benefit obligations, January 1 $ 271 $ 297
Service cost 1 1
Interest cost 11 13
Change in experience (28) (22)
Change in assumptions (7) -
Benefit payments (22) (18)
Benefit obligations, December 31 $ 226 $ 271
Change in fair value of plan assets:
Fair value of plan assets, January 1 $ - $ -
Employer contributions 22 18
Benefit payments (22) (18)
Fair value of plan assets, December 31 - -
Funded status at year end $ (226) $ (271)
Mid Penn has capped the benefit to future retirees under its post-retirement health benefit plan. Employees who had achieved ten years of service as of January 1, 2008 and subsequently retire after at least 20 years of service are eligible for reimbursement of major medical insurance premiums up to $5 thousand, if the employee has not yet reached age 65. Upon becoming eligible for Medicare, Mid Penn will reimburse up to $5 thousand in premiums for Medicare Advantage or a similar supplemental coverage. The maximum reimbursement period will not exceed five years regardless of retirement age and will end upon the participant obtaining other employment or the participant’s death.
The amount recognized in other liabilities on the Consolidated Balance Sheets at December 31, is as follows:
(In thousands) 2024 2023
Accrued benefit liability $ 226 $ 271
MID PENN BANCORP, INC.
The amounts recognized in accumulated other comprehensive income as of December 31 consist of:
(In thousands) 2024 2023
Net (gain) loss, pretax $ (65) $ (38)
Net prior service cost, pretax - -
The accumulated benefit obligation for health and life insurance plans was $226 thousand and $271 thousand at December 31, 2024 and 2023, respectively.
The components of net periodic postretirement benefit (income) cost for 2024, 2023 and 2022 are as follows:
(In thousands) 2024 2023 2022
Service cost $ 1 $ 1 $ 2
Interest cost 11 13 8
Amortization of prior service cost - 10 (24)
Amortization of net (gain) / loss (7) (2) 2
Net periodic postretirement benefit income $ 5 $ 22 $ (12)
Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31 are as follows:
Weighted-average assumptions: 2024 2023
Discount rate 5.32 % 4.67 %
Rate of compensation increase - -
Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31 are as follows:
Weighted-average assumptions: 2024 2023 2022
Discount rate 4.67 % 4.90 % 2.40 %
Rate of compensation increase - - -
Assumed health care cost trend rates at December 31 are as follows:
2024 2023 2022
Health care cost trend rate assumed for next year 7.00 % 7.00 % 6.50 %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.50 % 5.50 % 5.50 %
Year that the rate reaches the ultimate trend rate 2028 2027 2026
The following table shows the estimated benefit payments for future periods:
(In thousands)
2025 $ 30
2026 28
2027 28
2028 25
2029 14
2030-2034 65
MID PENN BANCORP, INC.
Directors’ Retirement Plan - Mid Penn has an unfunded defined benefit retirement plan ("Director's Plan") for directors with benefits based on years of service.
On October 1, 2023, the Bank decided to terminate the Plan and pay out any benefits to participants in a lump sum cash payout of $1.3 million, which was paid out on October 1, 2024.
The following tables provide a reconciliation of the changes in the Director's Plan benefit obligations and fair value of plan assets for the years ended December 31, 2024 and 2023, and a statement of the status at December 31, 2024 and 2023. This Plan is unfunded.
(In thousands) December 31,
Change in benefit obligations: 2024 2023
Benefit obligations, January 1 $ 1,306 $ 1,299
Service cost - 56
Interest cost - 61
Actuarial loss - -
Change in assumptions - (12)
Benefit payments (1,306) (98)
Benefit obligations, December 31 $ - $ 1,306
Change in fair value of plan assets:
Fair value of plan assets, January 1 $ - $ -
Employer contributions 1,306 98
Benefit payments (1,306) (98)
Fair value of plan assets, - -
Funded status at year end $ - $ (1,306)
Amounts recognized in other liabilities on the Consolidated Balance Sheet at December 31 are as follows:
(In thousands) 2024 2023
Accrued benefit liability $ - $ 1,306
Amounts recognized in accumulated other comprehensive loss (income) as of December 31 consist of:
(In thousands) 2024 2023
Net prior service cost, pretax $ - $ -
Net loss, pretax - 214
The accumulated benefit obligation for the retirement plan was zero at December 31, 2024 and $1.3 million at December 31, 2023.
The components of net periodic retirement cost for 2024, 2023 and 2022 are as follows:
(In thousands) 2024 2023 2022
Service cost $ - $ 56 $ 75
Interest cost - 61 30
Amortization of net loss - 34 20
Net periodic retirement cost $ - $ 151 $ 125
MID PENN BANCORP, INC.
Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31 are as follows:
Weighted-average assumptions: 2024 2023
Discount rate - % 4.80 %
Change in consumer price index - 3.40
Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31 are as follows:
Weighted-average assumptions: 2024 2023 2022
Discount rate - % 4.80 % 4.90 %
Change in consumer price index - 3.40 7.00
The Bank is the owner and beneficiary of insurance policies on the lives of certain officers and directors, which informally fund the retirement plan obligation. The aggregate cash surrender value of these policies was $4.3 million and $4.2 million at December 31, 2024 and 2023, respectively.
Scottdale Defined Benefit Pension Plan - As a result of the acquisition of Scottdale on January 8, 2018, Mid Penn has assumed a noncontributory defined benefit pension plan ("Scottdale Plan") covering certain former employees of Scottdale. After the acquisition, Mid Penn does not allow for any further participants to join the Plan. Mid Penn’s policy is to fund pension benefits as accrued. The Scottdale Plan’s assets are managed by the trust department of the Bank and were primarily invested in corporate equity securities at the time of acquisition but have since been diversified into a more conservative investment profile, including fixed income debt securities. The investment objective of the plan is "Balanced" to provide relatively stable growth from assets offset by a moderate level of income with target portfolio allocations of up to 20% cash, 30-50% fixed income securities, and 40-60% equity securities. The valuation of the plan’s assets is subject to market fluctuations.
For the year ended December 31, 2024, Mid Penn recognized no settlement gains. For the year ended December 31, 2023, Mid Penn recognized $322 thousand of settlement gains, as a result of certain lump sum payouts to participants of the Scottdale Plan. The settlement gains were recorded in noninterest income as a component of other income in the Consolidated Statements of Income for the year ended December 31, 2023.
MID PENN BANCORP, INC.
The following tables provide a reconciliation of the changes in the Scottdale Plan’s benefit obligations and fair value of plan assets for the year ended December 31, 2024 and 2023, and a statement of the status at December 31, 2024 and 2023:
(In thousands) December 31,
Change in benefit obligations: 2024 2023
Benefit obligations, January 1 $ 2,659 $ 3,805
Service cost 25 58
Interest cost 130 197
Settlement (gain) loss - (4)
Actuarial (gain) / loss (97) 168
Settlement payments - (1,472)
Benefit payments (170) (93)
Benefit obligations, December 31 $ 2,547 $ 2,659
Change in fair value of plan assets:
Fair value of plan assets, January 1 $ 3,468 $ 4,722
Return on plan assets 328 348
Employer contributions - -
Benefit payments (170) (93)
Administrative expenses (29) (37)
Settlement payments - (1,472)
Fair value of plan assets, December 31 3,597 3,468
Funded status at year end $ 1,050 $ 809
Amounts recognized on the Consolidated Balance Sheets at December 31 are as follows:
(In thousands) 2024 2023
Accrued pension benefit asset $ 1,050 $ 809
Amounts recognized in accumulated other comprehensive loss consist of the following as of December 31:
(In thousands) 2024 2023
Unrecognized actuarial gain $ 798 $ 581
The accumulated benefit obligation for the retirement plan was $2.5 million and $2.7 million at December 31, 2024 and 2023, respectively.
The components of net periodic retirement cost for December 31 are as follows:
(In thousands) 2024 2023
Service cost $ 25 $ 58
Interest cost 130 197
Expected return on plan assets 153 211
Recognized net actuarial gain (25) (63)
Net periodic retirement income $ (23) $ (19)
MID PENN BANCORP, INC.
Assumptions used in the measurement of Mid Penn’s benefit obligations and net periodic pension costs at December 31 are as follows:
Weighted-average assumptions: 2024 2023
Discount rate 5.50 % 5.00 %
Expected long-term return on plan assets 4.50 4.50
Rate of compensation increases 2.50 2.50
The following table presents a summary of the Scottdale Plan’s assets at fair value and the weighted-average asset allocations by investment category as of December 31:
Estimated Fair Value Percentage of Total Assets Estimated Fair Value Percentage of Total Assets
(Dollars in thousands) 2024 2023
Cash and cash equivalents $ 263 7.3 % $ 90 2.6 %
Common stock 2,081 57.9 2,186 63.0
Corporate bonds 1,253 34.8 1,192 34.4
$ 3,597 100.0 % $ 3,468 100.0 %
The description of the valuation methodologies used for assets measured at fair value is disclosed below.
Common Stocks
Valued at the closing price reported on the active market on which the individual securities are traded and therefore would be categorized as Level 1 assets under the fair value hierarchy.
Corporate Bonds
Valued using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted prices and therefore would be categorized as Level 2 assets under the fair value hierarchy.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table shows the estimated benefit payments for future periods.
(In thousands)
2025 $ 139
2026 137
2027 168
2028 196
2029 194
2030-2034 1,038
Riverview Defined Benefit Plan - As a result of the Riverview Acquisition on November 30, 2021, Mid Penn has assumed noncontributory defined benefit pension plans ("Riverview Plans") covering certain former employees of Riverview (or its predecessor-in-interest) as follows:
Pursuant to the consolidation with Union Bancorp, Inc. ("Union") effective November 1, 2013, Riverview assumed Union’s noncontributory defined benefit pension plan, which substantially covered all Union employees. The plan
MID PENN BANCORP, INC.
benefits were based on average salary and years of service. Union elected to freeze all benefits earned under the plan effective January 1, 2007.
Riverview also assumed responsibility of Citizens National Bank of Meyersdale’s ("Citizens") noncontributory defined benefit pension plan effective as of the December 31, 2015 merger date. The plan substantially covered all Citizens employees, and the plan benefits were based on average salary and years of service. Citizens elected to freeze all benefits earned under the plan effective January 1, 2013.
As a result of a merger effective October 1, 2017, Riverview assumed responsibility of CBT Financial Corp’s ("CBT") postretirement benefits plan, which is an unfunded postretirement benefit plan covering health insurance costs and post-retirement life insurance benefits for certain retirees.
Subsequent to the Riverview Acquisition, Mid Penn disallowed any further participants to join the Riverview Plans. Mid Penn’s policy is to fund pension and post-retirement benefits as accrued. The Riverview Plans’ assets are managed by a third party and were primarily invested in a combination of cash and cash equivalents, equity securities and fixed income securities at the time of acquisition. The valuation of the Riverview Plans’ assets is subject to market fluctuations.
The following tables provide a reconciliation of the changes in the Riverview Plans' benefit obligations and fair value of plan assets for year ended December 31, 2024, and a statement of the status at December 31, 2024 and 2023.
(In thousands)
Change in benefit obligations: 2024 2023
Benefit obligations, January 1 $ 6,442 $ 6,424
Interest cost 299 309
Actuarial (Loss)/gain (483) 228
Benefit payments (518) (519)
Benefit obligations, December 31 $ 5,740 $ 6,442
Change in fair value of plan assets:
Fair value of plan assets, January 1, $ 6,895 $ 6,720
Return on plan assets 329 691
Contributions 3 3
Benefit payments (516) (519)
Fair value of plan assets, December 31 6,711 6,895
Funded status at year end $ 971 $ 453
Amounts recognized in other liabilities on the Consolidated Balance Sheets as of December 31 are as follows:
(In thousands) 2024 2023
Accrued pension benefit asset $ 971 $ 453
As of December 31, 2024 amounts related to the Riverview Plans that have been recognized in accumulated other comprehensive loss but not yet recognized as a component of net periodic pension cost are as follows:
(In thousands) 2024 2023
Unrecognized actuarial gain $ 415 $ 76
MID PENN BANCORP, INC.
The components of net periodic pension and postretirement benefit cost for the year ended December 31, 2024 and 2023 are as follows:
(In thousands) 2024 2023
Interest cost $ 299 $ 309
Expected return on plan assets (397) (387)
Amortization of net loss 12 -
Net periodic pension benefit $ (86) $ (78)
(In thousands) 2024 2023
Service credit $ - $ -
Interest cost 1 1
Unrecognized gain (1) (1)
Net periodic postretirement benefit $ - $ -
The accumulated benefit obligation was $5.7 million and $6.4 million at December 31, 2024 and 2023, respectively, for the Riverview Plans.
Weighted average assumptions used in the measurement of Mid Penn’s benefit obligations and net periodic pension costs at December 31, 2024 and 2023 are as follows:
Pension Benefits Postretirement
Life Insurance
Benefits
2024 Union Citizens CBT
Discount rate 4.83 % 4.83 % 5.32 %
Expected long-term return on plan assets 6.00 6.00 n/a
Discount rate 5.02 % 5.02 % 4.70 %
Expected long-term return on plan assets 6.00 6.00 n/a
The following summarizes the actuarial assumptions used for the Riverview Plans:
For the pension plan, the selected long-term rate of return on plan assets was primarily based on the asset allocation of the plan’s assets. Analysis of the historic returns on these asset classes and projections of expected future returns were considered in setting the long-term rate of return.
The benefit offered under the postretirement benefits plan is fixed; therefore, the accumulated postretirement benefit obligation is not impacted by health care cost trends or the rate of compensation increase.
MID PENN BANCORP, INC.
The following table presents a summary of the Riverview Plan’s assets at fair value and the weighted-average asset allocations by investment category as of December 31:
Estimated Fair Value Percentage of Total Assets Estimated Fair Value Percentage of Total Assets
Weighted-average asset allocations: 2024 2023
Cash and cash equivalents $ 60 0.9 % $ 48 0.7 %
Mutual fund - equity 2,619 39.0 2,499 36.2
Mutual fund / EFTs - fixed income 3,716 55.4 4,038 58.6
Common / collective trusts equity 316 4.7 310 4.5
$ 6,711 100 % $ 6,895 100 %
The valuation used is based on quoted market prices provided by an independent third party. The fair values of mutual fund investments are considered Level 1 assess in the fair value hierarchy and the collective trusts equity are considered Level 2 assets.
The following table shows the estimated benefit payments for future periods.
(In thousands) Pension Benefits Postretirement
Life Insurance
Benefits
2025 $ 517 $ 4
2026 506 3
2027 493 3
2028 493 3
2029 485 3
2030-2033 2,207 11
Note 15 - Other Benefit Plans
Mid Penn maintains several benefit plans for both current and former employees of the Corporation. Liabilities related to the plans are recorded in other liabilities on the balance sheet, and aggregate cash surrender values assets related to the life insurance plans are recorded in the cash surrender value of life insurance line item on the balance sheet. Significant aspects of the plans are detailed below.
Defined-Contribution 401(k) Plan - The Bank has a 401(k) plan that covers substantially all employees. The plan allows employees to contribute a portion of their salaries and wages to the plan and provides for Mid Penn to match a portion of employee-elected salary deferrals, subject to certain percentage maximums of their salaries and wages. The Corporation’s contribution to the 401(k) Plan was $1.8 million, $1.7 million, and $1.4 million for the years ending December 31, 2024, 2023, and 2022, respectively and is included as a component of salaries and benefits expense in the Consolidated Statements of Income. The plan also includes a funded contributory profit sharing provision for substantially all employees which is funded annually when applicable. The Corporation did not make a profit sharing contribution to the plan in 2024, 2023, or 2022.
Deferred Compensation Plan - Mid Penn has a directors’ deferred compensation plan, which allows directors to defer receipt of director fees for a specified period in order to provide future retirement income. At December 31, 2024 and 2023, the Corporation accrued a liability of $2.6 million and $2.4 million, respectively, for this plan. The expense related to the plan was $159 thousand, $127 thousand and $64 thousand in 2024, 2023 and 2022, respectively, and is included as a component of other expense in the Consolidated Statements of Income.
Supplemental Executive Retirement Plan - On September 6, 2022, Mid Penn entered into new or amended and restated supplemental executive retirement plan agreements ("SERPs") with six named executive officers and three other members of the Bank’s executive management team. Each SERP provides for the monthly payment of a fixed cash benefit over a
MID PENN BANCORP, INC.
period of 15 years, commencing on the first day of the month following the Executive’s separation from service: (i) occurring on or after reaching normal retirement age (age 70); (ii) due to disability; (iii) due to death; or (iv) within two years following a change in control of the Bank. The annual benefit vests over a term of four to ten years, with a portion of the annual benefit having previously vested for several of the participants. Any unvested portion of the benefit fully vests upon a change in control of the Bank. The accrued liability for the supplemental retirement plans was $3.2 million and $2.5 million at December 31, 2024 and 2023, respectively. The expense related to the plan was $739 thousand, $792 thousand and $609 thousand in 2024, 2023 and 2022, respectively and is included as a component of salaries and benefits expense in the Consolidated Statements of Income.
Split Dollar Life Insurance Arrangements - At December 31, 2024 and 2023, the Bank had Split Dollar Life Insurance arrangements with two former executives for which the aggregate collateral assignment and cash surrender values are approximately $1.4 million for December 31, 2024 and 2023. Mid Penn acquired Phoenix’s Split Dollar Life Insurance arrangements in 2015 on select employees, which had aggregate cash surrender values of $4.5 million and $4.4 million at December 31, 2024 and 2023. Mid Penn acquired First Priority’s Split Dollar Life Insurance arrangements in 2018 on select employees, which had aggregate cash surrender values of $3.8 million and $3.7 million at December 31, 2024 and 2023. Mid Penn acquired Riverview’s Split Dollar Life Insurance arrangements in 2021 on select employees, which had aggregate cash surrender values of $1.4 million and $2.0 million at December 31, 2024 and 2023.
Rabbi Trust - As a result of the acquisition of Riverview, Mid Penn assumed certain benefit plan liabilities related to compensation arrangements within other liabilities on the Consolidated Balance Sheets, including certain executive non-qualified retirement benefits, deferred compensation plans, and executive employment and separation agreements associated with Riverview.
The details of the compensation arrangements for the years ended December 31 include:
(In thousands) Fully Funded Gross Amounts
Compensation Arrangements 2024 2023
Supplemental executive retirement agreements $ 1,112 $ 1,214
Executive deferred compensation agreement 1,235 1,440
Total compensation agreements $ 2,347 $ 2,654
The obligations are fully funded through a Rabbi Trust having a cash balance of $2.7 million and $2.9 million within other assets on the Consolidated Balance Sheets as of December 31, 2024 and 2023 to provide a source of funds in satisfying the obligations under the respective compensation arrangements.
MID PENN BANCORP, INC.
Note 16 - Income Taxes
Significant components of the Corporation’s net deferred tax asset at December 31, 2024 and 2023 are shown below.
(In thousands) 2024 2023
Deferred tax assets:
Allowance for loan losses $ 7,878 $ 7,642
Loan fees 769 1,053
Deferred compensation 1,317 1,476
Benefit plans 50 60
Unrealized loss on securities 5,389 4,992
Lease adjustments 87 74
Business combination adjustments 4,659 5,669
Acquired NOL, Section 1231, and charitable contribution carryforwards 3,153 3,832
Rabbi Trust 521 593
Riverview AMT credits 621 696
Equity Comp 249 256
Riverview subordinated debt fair value adjustment 139 327
Software renewal costs 222 335
Unfunded and loan basis adjustments 491 635
Investments in Flow-through entities 517 391
Other 482 378
26,544 28,409
Deferred tax liabilities:
Depreciation (1,160) (1,397)
Bond accretion (269) (187)
Goodwill and intangibles (505) (1,017)
Prepaid expenses (74) (227)
Benefit plans (1,368) (1,199)
Interest Rate Swaps (421) (236)
(3,797) (4,263)
Deferred tax asset, net $ 22,747 $ 24,146
In assessing the Corporation’s ability to realize deferred federal tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. At December 31, 2024, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Mid Penn will realize the benefits of these deferred tax assets and has no valuation allowances recorded against any components of its deferred tax asset, including the carryforward balances related to net operating losses ("NOL"), Section 1231 losses, and charitable contribution carryforwards.
At December 31, 2024, Mid Penn had NOL carryforwards of $2.4 million resulting from the November 30, 2021 acquisition of Riverview. These NOLs were assumed by Riverview in a previous acquisition and were generated during the tax years ended December 31, 2013, 2014, and 2015 and begin to expire in 2032. The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, signed into law on March 27, 2020 to mitigate the economic effects of COVID-19, implemented a five-year carryback period for NOLs generated in tax years beginning in 2018, 2019, or 2020. As a result of this CARES Act provision, during the year ended December 31, 2023, Mid Penn filed the required federal tax returns to
MID PENN BANCORP, INC.
carryback NOLs to the 2017 tax year, comprised of (i) $1.2 million of NOLs generated in 2018 and acquired from Scottdale, and (ii) $1.2 million of NOLs generated in 2018 and acquired from First Priority. The carryback of these NOLs to the 2017 tax year when the tax rate was 34% (versus 21% in 2018) generated a federal tax benefit of $318 thousand recorded in the provision for income taxes on the Consolidated Statements of Income for the year ended December 31, 2020. The remaining NOL balance of $119 thousand at December 31, 2021 was generated in the 2012 tax year, was acquired from First Priority, and expires in 2032. Mid Penn is limited to a deduction of the lesser of the available NOL carryforward or 80% of pre-NOL taxable income in a single tax year as set forth in the Tax Cuts and Jobs Act ("TCJA").
Mid Penn had no charitable contribution carryforwards at December 31, 2024 and December 31, 2023, while at December 31, 2022, Mid Penn had $43 thousand charitable contribution carryforwards which were acquired from Riverview. During the years ended December 31, 2024, 2023 and 2022, Mid Penn generated sufficient taxable income to utilize all charitable contribution carryforwards. Mid Penn expects to generate sufficient taxable income to utilize all charitable contribution carryforwards in the future.
Acquired Section 1231 losses totaling $314 thousand were recorded as a result of filing the final First Priority return in 2019 and expired in 2022.
The annual usage of acquired NOL, charitable contribution carryforwards, and Section 1231 losses is limited by Internal Revenue Service ("IRS") Section 382 regulations. These limitations are calculated separately for each acquisition as the federal long-term tax-exempt rate at the date of acquisition multiplied by the valuation of the selling company as calculated in accordance with GAAP. As a result, the usage of acquired NOLs, charitable contribution carryforwards, AMT carryforwards, and Section 1231 losses to offset taxable income related to the Riverview Acquisition is limited to $2.0 million per year and $1.9 million per year for the First Priority Acquisition. All contribution carryforwards related to the Scottdale Acquisition were utilized as of December 31, 2022.
The provision for income taxes consists of the following:
(In thousands) 2024 2023 2022
Current tax provision
Federal $ 7,118 $ 7,570 $ 10,212
State 864 1,033 67
Total current tax provision $ 7,982 $ 8,603 $ 10,279
Deferred tax expense (benefit)
Federal $ 1,998 $ (525) $ 2,262
State 615 (781) -
Total deferred tax expense (benefit) 2,613 (1,306) 2,262
Total provision for income taxes $ 10,595 $ 7,297 $ 12,541
A reconciliation of the federal income tax provision at the statutory rate of 21% for 2024, 2023 and 2022 to Mid Penn's actual federal income tax provision at its effective rate is as follows:
(In thousands) 2024 2023 2022
Provision at the expected statutory rate $ 12,607 $ 9,388 $ 14,143
Low income housing partnership tax credits (2,163) (1,337) (929)
Effect of tax-exempt income (804) (641) (614)
Effect of investment in life insurance (770) (252) (203)
Nondeductible merger and acquisition expense 48 207 60
State income taxes, net of federal tax benefit 1,169 199 53
Nondeductible interest 150 108 20
Other items 358 (375) 11
Provision for income taxes $ 10,595 $ 7,297 $ 12,541
MID PENN BANCORP, INC.
Mid Penn has no unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Mid Penn does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.
No amounts for interest and penalties were recorded in income tax expense in the Consolidated Statement of Income for the years ended December 31, 2024, 2023, or 2022. There were no amounts accrued for interest and penalties at December 31, 2024 or 2023.
Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the states of Pennsylvania, New Jersey, and Maryland. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2017.
Note 17 - Regulatory Matters
The Corporation and the Bank are subject to regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory, and possibly additional discretionary, actions by the regulators that if, undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory account practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
As of December 31, 2024 and 2023, the Corporation and the Bank met all capital adequacy requirements and the Bank was considered "well-capitalized". However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources.
Minimum regulatory capital requirements established by Basel III rules require the Corporation and the Bank to:
•Meet a minimum Common Equity Tier I capital ratio of 4.5% of risk-weighted assets;
•Meet a minimum Tier I capital ratio of 6.0% of risk-weighted assets;
•Meet a minimum Total capital ratio of 8.0% of risk-weighted assets;
•Meet a minimum Tier I leverage capital ratio of 4.0% of average assets;
•Maintain a "capital conservation buffer" of 2.5% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonuses; and
•Comply with the definition of capital to improve the ability of regulatory capital instruments to absorb losses.
The Basel III Rules use a standardized approach for risk weightings. The rules provide that the failure to maintain the "capital conservation buffer" results in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As a result, under the Basel III Rules, if the Bank fails to maintain the required minimum capital conservation buffer, the Corporation will be subject to limits, and possibly prohibitions, on its ability to obtain capital distributions from the Bank. If the Corporation does not receive sufficient cash dividends from the Bank, it may not have sufficient funds to pay dividends on its common stock, service its debt obligations or repurchase its common stock.
Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans, or advances. The amount of dividends that may be paid from the Bank to the Corporation in any calendar year is limited to the Bank’s current year’s net profits, combined with the retained net profits of the preceding two years. For the year ended December 31, 2024, $39.5 million of undistributed earnings of the Bank, included in the consolidated shareholders’ equity balance, was available for distribution to the Corporation as dividends without prior regulatory approval, subject to regulatory capital requirements below.
MID PENN BANCORP, INC.
The following tables present the regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31:
Actual Minimum for
Basel III Capital
Adequacy To Be Well-Capitalized
Under Prompt
Corrective
Action Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Mid Penn Bancorp, Inc.
Tier 1 Capital (to Average Assets) $ 535,501 10.0 % $ 214,621 4.0 % N/A N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets) 535,501 11.9 313,979 7.0 N/A N/A
Tier 1 Capital (to Risk Weighted Assets) 535,501 11.9 381,261 8.5 N/A N/A
Total Capital (to Risk Weighted Assets) 618,971 13.8 470,969 10.5 N/A N/A
Mid Penn Bank
Tier 1 Capital (to Average Assets) $ 495,729 9.2 % $ 214,461 4.0 % $ 268,076 5.0 %
Common Equity Tier 1 Capital (to Risk Weighted Assets) 495,729 11.1 313,456 7.0 291,066 6.5
Tier 1 Capital (to Risk Weighted Assets) 495,729 11.1 380,625 8.5 358,235 8.0
Total Capital (to Risk Weighted Assets) 533,458 11.9 470,183 10.5 447,794 10.0
Mid Penn Bancorp, Inc.
Tier 1 Capital (to Average Assets) $ 427,353 8.3 % $ 204,935 4.0 % N/A N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets) 427,353 9.8 305,083 7.0 N/A N/A
Tier 1 Capital (to Risk Weighted Assets) 427,353 9.8 370,458 8.5 N/A N/A
Total Capital (to Risk Weighted Assets) 510,734 11.7 457,624 10.5 N/A N/A
Mid Penn Bank
Tier 1 Capital (to Average Assets) $ 458,077 8.9 % $ 204,777 4.0 % $ 255,971 5.0 %
Common Equity Tier 1 Capital (to Risk Weighted Assets) 458,077 10.5 304,788 7.0 283,018 6.5
Tier 1 Capital (to Risk Weighted Assets) 458,077 10.5 370,100 8.5 348,330 8.0
Total Capital (to Risk Weighted Assets) 495,104 11.4 457,182 10.5 $ 435,412 10.0
Note 18 - Commitments and Contingencies
Mid Penn is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The commitments include various guarantees and commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer. Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Mid Penn had $64.3 million and $62.2 million of standby letters of credit outstanding as of December 31, 2024 and December 31, 2023, respectively. Mid Penn does not anticipate any losses because of these transactions. The
MID PENN BANCORP, INC.
amount of the liability as of December 31, 2024 and December 31, 2023 for payment under standby letters of credit issued was not considered material.
Mid Penn adopted FASB ASC 326, effective January 1, 2023, which requires Mid Penn to estimate expected credit losses for OBS credit exposures which are not unconditionally cancellable. Mid Penn maintains a separate ACL on OBS credit exposures, including unfunded loan commitments and letters of credit, which is included in other liabilities on the accompanying Consolidated Balance Sheets.
The ACL - OBS is adjusted as a provision for OBS commitments in noninterest expense. The estimate includes consideration of the likelihood that funding will occur, an estimate of exposure at default that is derived from utilization rate assumptions using a non-modeled approach, and PD and LGD estimates that are derived from the same models and approaches for Mid Penn's other loan portfolio segments described in "Note 4 - Loans and Allowance for Credit Losses - Loans" above, as these unfunded commitments share similar risk characteristics with these loan portfolio segments.
The ACL - OBS at December 31, 2024 was $2.9 million compared to $3.6 million at December 31, 2023. The benefit for OBS for the year ended December 31, 2024 was $628 thousand. On January 1, 2023 in conjunction with adopting ASC 326, Mid Penn recorded an additional $3.1 million of provision for OBS which was included in the adoption cumulative effect adjustment.
The following table presents the activity in the ACL - OBS by segment for the year ended December 31, 2024 and December 31, 2023:
(in thousands)
Balance at December 31, 2023 (Benefit)/Provision for credit loss Year ended December 31, 2024
1-4 Family Rental $ 11 $ 5 $ 16
C&I 1,270 (105) 1,165
CRE NonOwner Occupied 113 19 132
CRE Owner Occupied 106 (8) 98
Consumer 3 - 3
Farmland 108 (16) 92
HELOC & Junior Liens 100 (8) 92
Multifamily 24 3 27
Other Construction & Land 1,036 (244) 792
Residential Construction 778 (262) 516
Residential First Liens 18 (12) 6
$ 3,567 $ (628) $ 2,939
MID PENN BANCORP, INC.
(in thousands)
Balance at December 31, 2022 Provision for credit loss
Year ended December 31, 2023
1-4 Family Rental $ - $ 11 $ 11
C&I 33 1,237 1,270
CRE NonOwner Occupied 2 111 113
CRE Owner Occupied 4 102 106
Consumer 1 2 3
Farmland 2 106 108
HELOC & Junior Liens 13 87 100
Multifamily - 24 24
Other Construction & Land 23 1,013 1,036
Residential Construction 6 772 778
Residential First Liens 1 17 18
$ 85 $ 3,482 $ 3,567
Litigation
Mid Penn and its subsidiaries are subject to various pending and threatened legal proceedings or other matters arising out of the normal conduct of business in which claims for monetary damages are asserted. As of the date of this report, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters will be material to Mid Penn’s consolidated financial position. On at least a quarterly basis, Mid Penn assesses its liabilities and contingencies in connection with such matters. For those matters where it is probable that Mid Penn will incur losses and the amounts of the losses can be reasonably estimated, Mid Penn records an expense and corresponding liability in its consolidated financial statements. To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of losses for matters where an exposure is not currently estimable or considered probable is not believed to be material in the aggregate. This is based on information currently available to Mid Penn and involves elements of judgment and significant uncertainties. While Mid Penn does not believe that the outcome of pending or threatened litigation or other matters will be material to Mid Penn’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future. In addition, regardless of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause Mid Penn to incur additional expenses, which could be significant, and possibly material, to Mid Penn’s results of operations in any future period.
MID PENN BANCORP, INC.
Note 19 - Earnings Per Share
The following table presents the computation of basic and diluted EPS:
(In thousands, except per share data)
2024 2023 2022
Net income $ 49,437 $ 37,397 $ 54,806
Weighted average shares outstanding (basic) 17,026,240 16,319,006 15,912,877
Effect of dilutive unvested restricted stock grants 44,622 31,957 21,758
Weighted average shares outstanding (diluted) 17,070,862 16,350,963 15,934,635
Basic earnings per common share $ 2.90 $ 2.29 $ 3.44
Diluted earnings per common share 2.90 2.29 3.44
There were no antidilutive shares at December 31, 2024, 2023, and 2022.
As previously announced on a Form 8-K on November 4, 2024, Mid Penn completed an underwritten public offering of 2,375,000 shares of common stock at a price of $29.50 per share, with the aggregate gross proceeds of the offering totaling $70 million before underwriting discounts and offering expenses. The net proceeds of the offering after deducting the underwriting discount and other offering expenses were $67 million.
Additionally, as previously announced on the Form 8-K on November 4, 2024, Mid Penn pursuant to an option granted to the underwriting sold an additional 356,250 shares of the Company's common stock, in full, at the public offering price less underwriting discounts and commissions, or $28.025 per share. The issuance was completed on November 5, 2024.
MID PENN BANCORP, INC.
Note 20 - Shareholders' Equity
Accumulated Other Comprehensive Loss (Income)
The components of accumulated other comprehensive loss (income), net of taxes, are as follows:
(In thousands)
Unrealized Loss on
Securities Unrealized Holding Losses on Interest Rate Derivatives used in Cash Flow Hedges Defined Benefit
Plans Total
Balance at December 31, 2021 $ (255) $ - $ 413 $ 158
OCI before reclassifications (19,072) - (294) (19,366)
Amounts reclassified from AOCI - - (8) (8)
Balance - December 31, 2022 (19,327) - 111 (19,216)
OCI before reclassifications 1,988 820 (212) 2,596
Amounts reclassified from AOCI - - (17) (17)
Balance - December 31, 2023 (17,339) 820 (118) (16,637)
OCI before reclassifications (1,550) 665 723 (162)
Amounts reclassified from AOCI - - (26) (26)
Balance - December 31, 2024 $ (18,889) $ 1,485 $ 579 $ (16,825)
Treasury Stock Repurchase Program
Mid Penn adopted a treasury stock repurchase program ("Program") initially effective March 19, 2020, and renewed through April 24, 2025 by Mid Penn’s Board of Directors on April 24, 2024. The Program authorizes the repurchase of up to $15.0 million of Mid Penn’s outstanding common stock. Under the Program, Mid Penn conducts repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the Program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase. The Program is able to be modified, suspended or terminated at any time, at Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate. The Program does not obligate Mid Penn to repurchase any shares.
Mid Penn repurchased 15,500 shares during 2024 at an average price per share of $20.81 under its share repurchase program. As of December 31, 2024, Mid Penn had repurchased 440,722 shares of common stock at an average price of $22.78 per share under the Program. The Program had $5.0 million remaining available for repurchase as of December 31, 2024.
Dividend Reinvestment Plan
Under Mid Penn’s amended and restated DRIP, 300,000 shares of Mid Penn’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments, within specified limits, to be used for the purchase of additional shares.
Note 21 - Stock-Based Compensation Plans
On May 9, 2023, shareholders approved the 2023 Stock Incentive Plan, which authorizes Mid Penn to grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, deferred stock units and performance shares. The 2023 Plan was established for employees and directors of Mid Penn and the Bank, selected by the Compensation Committee of the Board of Directors, to incentivize the further success of the Company, and replaces the 2014 Restricted
MID PENN BANCORP, INC.
Stock Plan. The aggregate number of shares of common stock of the Company available for issuance under the Plan is 350,000 shares.
As of December 31, 2024, a total of 263,974 restricted shares were granted under the 2014 Restricted Stock Plan, of which 82,278 shares were unvested. The 2014 Restricted Stock Plan shares granted and vested resulted in $1.1 million in share-based compensation expense for the years ended December 31, 2024 and 2023, respectively.
Share-based compensation expense relating to restricted stock is calculated using grant date fair value and is recognized on a straight-line basis over the vesting periods of the awards. Restricted shares granted to employees vest in equal amounts on the anniversary of the grant date over the vesting period and the expense is a component of salaries and benefits expense on the Consolidated Statement of Income. The employee grant vesting period is determined by the terms of each respective grant, with vesting periods generally between one and four years. Restricted shares granted to directors have a twelve-month vesting period, and the expense is a component of directors’ fees and benefits within the other expense line item on the Consolidated Statement of Income.
The following table presents compensation expense and related tax benefits for restricted stock awards recognized on the Consolidated Statements of Income:
(In thousands) 2024 2023 2022
Compensation expense $ 1,047 $ 1,103 $ 1,142
Tax benefit (220) (232) (240)
Net income effect $ 827 $ 871 $ 902
The following table presents information regarding the non-vested restricted stock for the year ended December 31, 2024:
Shares Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2024 88,269 $ 26.07
Vested (41,101) 25.50
Forfeited (5,950) 20.59
Granted 41,060 20.05
Non-vested at December 31, 2024 82,278 23.75
At December 31, 2024, there was $1.9 million of unrecognized compensation cost related to all non-vested share-based compensation awards, which will be recognized as compensation expense through April 2028 with a weighted average recognition period of 2.5 years. Mid Penn recognizes the impact of forfeitures as of the forfeiture date.
MID PENN BANCORP, INC.
Note 22 - Segment Reporting
Mid Penn operates as a single reportable segment, providing a broad range of banking and financial services to individuals, businesses, and institutional clients. These services include commercial and consumer lending, deposit products, wealth management, insurance, and treasury management solutions. The Chief Executive Officer and the Chief Financial Officer are the Mid Penn Chief Operating Decision Makers ("CODM"). The CODM regularly evaluates financial performance and allocates resources on a consolidated basis.
The following table presents certain information reviewed by management:
(in thousands)
December 31, 2024 December 31, 2023 December 31, 2022
Net interest income $ 156,671 $ 146,973 $ 147,833
Provision for credit losses 1,516 3,699 4,300
Noninterest income 22,493 20,008 23,657
Noninterest expense 117,616 118,588 99,843
Income taxes 10,595 7,297 12,541
Net income 49,437 37,397 54,806
Total assets 5,470,936 5,290,792 4,497,954
Other Segment Information
Revenue Composition: Mid Penn generates revenue primarily from net interest income and non-interest income, including fees from deposit accounts, wealth management, insurance, and treasury services.
Capital Allocation & Performance Metrics: The CODM assesses performance based on key financial metrics, including net interest margin, return on assets ("ROA"), return on equity ("ROE") and efficiency ratio.
MID PENN BANCORP, INC.
Note 23 - Variable Interest Entities
Mid Penn invests in Low-Income Housing Tax Credit ("LIHTC") partnerships that are considered variable interest entities ("VIEs") under ASC 810, Consolidation. These partnerships are formed to develop and operate affordable housing projects that qualify for federal tax credits under Section 42 of the Internal Revenue Code.
The Company evaluates its LIHTC investments to determine whether it has a controlling financial interest in the partnerships. A controlling financial interest exists if the Company:
•Has the power to direct activities that most significantly impact the entity's economic performance; and
•Has the obligation to absorb losses or the right to receive benefits that could be significant.
Based on this assessment, Mid Penn has determined that it is not the primary beneficiary of the LIHTC partnerships, as it does not control the significant operating decisions. Therefore, these entities are not consolidated in the financial statements.
Mid Penn accounts for its LIHTC investments using the proportional amortization method under ASC 323-740, Investments - Equity method and Joint Ventures: Investments in Qualified Affordable Housing Projects. Under this method:
•The initial investment is recorded as an asset with Other Assets on the balance sheet.
•Tax credits and other tax benefits are recognized as a reduction of income tax expense.
•The investment is amortized over the period in which the tax credits are received, with amortization recorded as a component of income tax expense.
The investments in these unconsolidated entities are reflected in other assets on the Consolidated Balance Sheet, and are summarized for the periods below:
For the Year Ended
(in thousands)
December 31, 2024 December 31, 2023
Income tax benefits
$ 2,163 $ 1,337
Amortization of LIHTC investments
2,290 1,625
LIHTC investments are periodically assessed for impairment. No impairment losses were recognized for the years ended December 31, 2024 and 2023.
In addition, Mid Penn holds private equity investments classified as variable interest entities, with a total carrying value of $2.8 million and $2.5 million as of December 31, 2024 and 2023. respectively. Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment.
MID PENN BANCORP, INC.
Note 24 - Parent Company Statements
CONDENSED BALANCE SHEETS
December 31,
(In thousands) 2024 2023
ASSETS
Cash and cash equivalents $ 83,209 $ 10,064
Investment in subsidiaries 617,476 575,971
Other assets 1,423 4,252
Total assets $ 702,108 $ 590,287
LIABILITIES AND SHAREHOLDERS' EQUITY
Subordinated debt and trust preferred securities $ 45,741 $ 46,354
Other liabilities 1,349 1,583
Shareholders' equity 655,018 542,350
Total liabilities and shareholders' equity $ 702,108 $ 590,287
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
(In thousands) 2024 2023 2022
Income
Other income $ 62 $ 147 $ 1,130
Total Income 62 147 1,130
Expenses 6,677 10,865 7,333
(Loss) income before income tax and equity in undistributed earnings of subsidiaries (6,615) (10,718) (6,203)
Income Tax Benefit 1,549 2,932 702
Equity in undistributed earnings of subsidiaries 54,503 45,183 60,307
Net Income $ 49,437 $ 37,397 $ 54,806
MID PENN BANCORP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands) 2024 2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 49,437 $ 37,397 $ 54,806
Equity in undistributed earnings of subsidiaries (54,503) (45,183) (60,307)
Stock based compensation 1,047 1,103 1,142
Amortization of debt issuance costs 7 7 26
Net change in other assets 2,829 (3,407) 759
Net change in other liabilities (854) (246) (6,285)
Net cash (used in) provided by operating activities (2,037) (10,329) (9,859)
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition - (25,574) -
Investment in subsidiary 12,810 71,493 (1,787)
Net cash provided by (used in) investing activities 12,810 45,919 (1,787)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (13,822) (12,981) (12,735)
Employee and Director Stock Purchase Plans stock issuance 561 482 364
Proceeds from issuance of common stock 75,956 - -
Treasury stock purchased (323) (4,876) (2,957)
Riverview restricted stock (1)
- - 776
Subordinated debt and trust preferred securities redemption - (10,000) (16,778)
Net cash (used in) provided by financing activities 62,372 (27,375) (31,330)
Net increase (decrease) in cash and cash equivalents 73,145 8,215 (42,976)
Cash and cash equivalents, beginning of year 10,064 1,849 44,825
Cash and cash equivalents, end of year $ 83,209 $ 10,064 $ 1,849
(1) Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $776 thousand of cash consideration relating to stock awards.
MID PENN BANCORP, INC.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Mid Penn carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of December 31, 2024. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of December 31, 2024, that Mid Penn’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed by Mid Penn within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to management to allow timely decisions regarding required disclosures. Management Report on Internal Controls over Financial Reporting is located on page 60 of this report and is incorporated herein by reference.
Our independent registered public accounting firm, RSM US LLP, also attested to, and reported on, the effectiveness of Mid Penn’s internal control over financial reporting as of December 31, 2024. RSM US LLP’s attestation report appears in Part II, Item 8, "Financial Statements and Supplemental Data."
Changes in Internal Controls over Financial Reporting
There were no changes in Mid Penn’s internal control over financial reporting during the fourth quarter of 2024 that have materially affected, or are reasonably likely to materially affect, Mid Penn’s internal control over financial reporting.
Management's Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Management's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Management recognizes that because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item, relating to directors, executive officers, and control persons, is set forth under the captions "Executive Officers", "Information Regarding Director Nominees and Continuing Directors", "Delinquent Section 16(a) Reports", "Audit Committee Report", and "Governance of the Corporation" in Mid Penn’s definitive proxy statement to be used in connection with the 2025 Annual Meeting of Shareholders, which pages are incorporated herein by reference.
The Corporation has adopted a Code of Ethics that applies to directors, officers and employees of the Corporation and the Bank. The Corporation amended the Code of Ethics on January 26, 2022. A copy is posted under Governance Documents in the Corporate Information section under the Investors link on the Corporation’s website, www.midpennbank.com. The Corporation’s Code of Ethics may be viewed on the Mid Penn website at www.midpennbank.com or requested from the Corporate Secretary by telephone at 1-866-642-7736.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item, relating to executive compensation, is set forth under the captions "Compensation Discussion and Analysis", "Executive Compensation", "Potential Payments Upon Termination or Change In Control", "Information Regarding Director Nominees and Continuing Directors", "Compensation Committee Report", "Compensation Committee Interlocks and Insider Participation", and "Pay Versus Performance" of Mid Penn’s definitive proxy statement to be used in connection with the 2025 Annual Meeting of Shareholders, which pages are incorporated herein by reference. In accordance with Items 402(v) and 407(e)(5) of Regulation S-K, the information set forth under the captions “Pay versus Performance” and “Compensation Committee Report” in such proxy statement will be deemed to be furnished in this Report and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act as a result of furnishing the disclosure in this manner.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this Item, relating to beneficial ownership of Mid Penn’s common stock, is set forth under the caption "Beneficial Ownership of Mid Penn Bancorp’s Stock Held By Principal Shareholders and Management" of Mid Penn’s definitive proxy statement to be used in connection with the 2025 Annual Meeting of Shareholders, which pages are incorporated herein by reference. All awards under the Mid Penn Bancorp, Inc. 2014 Restricted Stock Plan are in the form of restricted stock. Accordingly, they were not included in calculating the weighted-average exercise price because the shares of common stock will be issued for no consideration.
The following table provides information related to equity compensation plans as of December 31, 2024:
Plan Category Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights Weighted-
average Exercise
Price of Outstanding
Options, Warrants, and
Rights Number of Securities
Remaining for Future
Issuance Under Equity
Compensation Plans
(excluding securities
reflected in column (a))
(a) (b) (c)
Equity compensation plans approved by security holders 82,278 - 5,250
Equity compensation plans not approved by security holders - - -
Total 82,278 - 5,250

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item, relating to transactions with management and others, certain business relationships and indebtedness of management, is set forth under the captions "Certain Relationships and Related Transactions" and "Governance of the Corporation" of Mid Penn’s definitive proxy statement to be used in connection with the 2025 Annual Meeting of Shareholders, which pages are incorporated herein by reference.
MID PENN BANCORP, INC.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item, relating to the fees and services provided by Mid Penn’s principal accountant, is set forth under the caption "Audit Committee Report" and "Proposal No. 5: Ratification of the Appointment of RSM US, LLP as the Corporation’s Independent Registered Public Accounting Firm for 2025" of Mid Penn’s definitive proxy statement to be used in connection with the 2025 Annual Meeting of Shareholders, which pages are incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a)Financial statements are incorporated by reference in Part II, Item 8 hereof.
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b)The financial statement schedules, required by Regulation S-X, are omitted because the information is either not applicable or is included elsewhere in the Consolidated Financial Statements.
(c)The following Exhibits are filed as part of this filing on Form 10-K, or incorporated by reference hereto:
2.1 Agreement and Plan of Merger, dated as of March 29, 2017, by and among Mid Penn Bancorp, Inc., Mid Penn Bank, and The Scottdale Bank and Trust Company (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on March 30, 2017.)
2.2 Agreement and Plan of Merger, dated as of January 16, 2018, by and between First Priority Financial Corp. and Mid Penn Bancorp, Inc. (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on January 16, 2018.)
2.3 Agreement and Plan of Merger, dated as of June 30, 2021, by and between Riverview Financial Corporation and Mid Penn Bancorp, Inc. (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on June 30, 2021.)
2.4 Agreement and Plan of Merger, dated as of December 20, 2022, by and between Brunswick Bancorp. and Mid Penn Bancorp, Inc. (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on December 20, 2022.)
2.5 Agreement and Plan of Merger, dated as of October 31, 2024, by and between William Penn Bancorporation and Mid Penn Bancorp, Inc. (Incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K filed on November 1, 2024.)
3(i) The Registrant’s amended Articles of Incorporation. (Incorporated by reference to Exhibit 3(i) to Registrant’s Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2023).
3(ii) The Registrant’s By-laws (Incorporated by reference to Exhibit 3(ii) of the Registrant's Annual Report on Form 10-K filed with the SEC on March 28, 2024.)
4.1 Description of Registrant’s Securities (Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-4 filed on January 17, 2025.)
MID PENN BANCORP, INC.
10.1
The Registrant’s Dividend Reinvestment Plan, as amended and restated. (Incorporated by reference to Exhibit 99.1 of Registrant’s Registration Statement on Form S-3, filed with the SEC on October 12, 2005.)
10.2
Mid Penn Bancorp, Inc. 2014 Restricted Stock Plan. (Incorporated by reference to Appendix A of Registrant’s Definitive Proxy Statement on Schedule 14A as filed with the SEC on March 27, 2014.)
10.3 Form of Mid Penn Bancorp, Inc. Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 12, 2018.)
10.4 Mid Penn Bancorp, Inc. Director Stock Purchase Plan (Incorporated by reference to Exhibit 99.1 of Registrant’s Registration Statement on Form S-8, filed with the SEC on June 8, 2017.)
10.5 Amended and Restated Employment Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Rory G. Ritrievi dated September 6, 2022. (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.6 Employment Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Scott Micklewright dated September 6, 2022. (Incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.7
Employment Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Justin T. Webb dated September 6, 2022. (Incorporated by reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.8 Amended and Restated Change in Control Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Rory G. Ritrievi dated September 6, 2022. (Incorporated by reference to Exhibit 10.6 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.9
Amended and Restated Change in Control Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Scott Micklewright dated September 6, 2022. (Incorporated by reference to Exhibit 10.8 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.10 Amended and Restated Change in Control Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Justin T. Webb dated September 6, 2022. (Incorporated by reference to Exhibit 10.9 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.11 Amended and Restated Supplemental Executive Retirement Plan Agreement between Mid Penn Bank and Rory G. Ritrievi dated September 6, 2022. (Incorporated by reference to Exhibit 10.11 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.12 Amended and Restated Supplemental Executive Retirement Plan Agreement between Mid Penn Bank and Scott Micklewright dated September 6, 2022. (Incorporated by reference to Exhibit 10.13 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.13 Amended and Restated Supplemental Executive Retirement Plan Agreement between Mid Penn Bank and Justin T. Webb dated September 6, 2022. (Incorporated by reference to Exhibit 10.14 to Registrant's Current Report on Form 8-K filed with the SEC on September 9, 2022.)
10.14 Form of Director Deferred Fee Agreement (Incorporated by reference to Exhibit 10.13 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 15, 2021.)
10.15 Director Retirement Plan (Incorporated by reference to Exhibit 10.14 of the Registrant’s Annual Report on Form 10-K filed with the SEC on March 15, 2021.)
10.16
Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-8 filed with the SEC on May 25, 2023)
MID PENN BANCORP, INC.
10.17 2023 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to Registrant's Registration Statement on Form S-8 filed with the SEC on May 25, 2023)
10.18 Executive Annual Incentive Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed with the SEC on January 24, 2025.)
10.19 Employment Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Jordan D. Space dated September 6, 2022 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2024.)
10.20 Change in Control Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Jordan D. Space dated September 18, 2023 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024.)
10.21 Supplemental Executive Retirement Plan Agreement between Mid Penn Bank and Jordan D. Space dated September 6, 2022 (Incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024.)
10.22 Employment Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Joseph Paese dated September 6, 2022. (Incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K filed with the SEC on March 16, 2023.)
10.23 Amended and Restated Change in Control Agreement among Mid Penn Bancorp, Inc., Mid Penn Bank and Joseph Paese dated September 6, 2022. (Incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K filed with the SEC on March 16, 2023.)
10.24 Amended and Restated Supplemental Executive Retirement Plan Agreement between Mid Penn Bank and Joseph Paese dated September 6, 2022. (Incorporated by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K filed with the SEC on March 16, 2023.)
19 Insider Trading Policy - filed herewith
21 Subsidiaries of Registrant - filed herewith.
23 Consent of Independent Registered Public Accounting Firm
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer.
32 Principal Executive and Financial Officer’s §1350 Certifications.
97.1
Clawback Policy. (Incorporated by reference to Exhibit 97.1 of the Registrant's Annual Report on Form 10-K filed with the SEC on March 28, 2024.)
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
MID PENN BANCORP, INC.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)