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What changed in MID PENN BANCORP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MID PENN BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+341 added−321 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-16)

Top changes in MID PENN BANCORP INC's 2023 10-K

341 paragraphs added · 321 removed · 229 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+11 added−8 removed107 unchanged
Biggest changeUpon consummation of the Merger, Brunswick Bank and Trust Company, a wholly-owned subsidiary of Brunswick, will be merged with and into the Bank ("Bank Merger"), with Mid Penn Bank being the surviving bank in the Bank Merger. The Merger Agreement was unanimously approved by the boards of directors of Mid Penn and Brunswick.
Biggest changeOn 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.
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 (the "Bank"), and the Bank became a wholly-owned subsidiary of Mid Penn.
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, and the Bank became a wholly-owned subsidiary of Mid Penn.
The First Priority Merger resulted in the addition of eight offices in Southeastern Pennsylvania operating as "First Priority Bank, a Division of Mid Penn Bank". On November 30, 2021, Mid Penn completed its acquisition of Riverview Financial Corporation ("Riverview"), the holding company for Riverview Bank, through the merger of Riverview with and into Mid Penn (the "Riverview Acquisition").
The First Priority Merger resulted in the addition of eight offices in Southeastern Pennsylvania operating as "First Priority Bank, a Division of Mid Penn Bank". 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.
We have found that our Women’s Leadership Network has provided a sense of belonging and camaraderie for our primarily female workforce. Our DEI group has laid the groundwork help to create a more diverse and inclusive workplace by promoting understanding, respect, and awareness of different cultures, backgrounds, and perspectives.
We have found that our Women’s Leadership Network has provided a sense of belonging and camaraderie for our primarily female workforce. 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.
Wholesale borrowing sources include advances from the Federal Home Loan Bank of Pittsburgh (the "FHLB"), 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.
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.
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 topics including leadership and professional development, cybersecurity, risk, compliance and technology.
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.
MSRs, 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.
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.
Mid Penn is subject to, among others, the regulations of the Securities and Exchange Commission ("SEC") 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.
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.
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, 2022, 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.
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, 2023, 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.
Furthermore, the requirements indicate that the Federal Reserve will continue to consider a "Tangible Tier 1 Leverage Ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. As of December 31, 2022, 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.
Furthermore, the requirements indicate that the Federal Reserve will continue to consider a "Tangible Tier 1 Leverage Ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. As of December 31, 2023, 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.
During the year ended December 31, 2021, Mid Penn formed MPB Launchpad Fund I, LLC to hold certain financial holding company eligible investments. As of December 31, 2022, the accounts and activities of these nonbank subsidiaries were not material to warrant separate disclosure or segment reporting.
During the year ended December 31, 2021, Mid Penn formed MPB Launchpad Fund I, LLC to hold certain financial holding company eligible investments. As of December 31, 2023, the accounts and activities of these nonbank subsidiaries were not material to warrant separate disclosure or segment reporting.
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, 2022, 2021, and 2020.
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, 2023, 2022, and 2021.
Combined, the Tier 1 Capital and Tier 2 Capital comprise regulatory "Total Capital". As of December 31, 2022, Mid Penn complied with these risk-based capital requirements. In addition, the Federal Reserve has established minimum leverage ratio requirements for bank holding companies.
Combined, the Tier 1 Capital and Tier 2 Capital comprise regulatory "Total Capital". As of December 31, 2023, Mid Penn complied with these risk-based capital requirements. In addition, the Federal Reserve has established minimum leverage ratio requirements for bank holding companies.
The Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the "FDIC") supervise the Bank. Deposits of the Bank are insured by the FDIC’s Deposit Insurance Fund (the "DIF") to the maximum extent provided by law. In addition, the Bank provides a full range of trust and retail investment services.
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 to the maximum extent provided by law. In addition, the Bank provides a full range of trust and retail investment services.
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. 3 Table of Contents MID PENN BANCORP, INC.
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. 3 MID PENN BANCORP, INC.
The Bank is subject to similar capital requirements adopted by the FDIC, and as of December 31, 2022, 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 Bank is subject to similar capital requirements adopted by the FDIC, and as of December 31, 2023, 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.
As of December 31, 2022, the Corporation and the Bank exceeded the minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III Rules. The Basel III Rules provide for a number of required deductions from and adjustments to CET1.
As of December 31, 2023, the Corporation and the Bank exceeded the minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III Rules. The Basel III Rules provide for a number of required deductions from and adjustments to CET1.
For the periods reported in this Form 10-K and in the period subsequent to December 31, 2022, up to the date of the filing of this Form 10-K, Mid Penn was not subject to any such bank regulatory orders.
For the periods reported in this Form 10-K and in the period subsequent to December 31, 2023, up to the date of the filing of this Form 10-K, Mid Penn was not subject to any such bank regulatory orders.
Mid Penn’s primary markets reflect a diversified manufacturing and services base across nineteen Pennsylvania counties, 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’s primary markets reflect a diversified manufacturing and services base across nineteen 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.
In 2022, our employees demonstrated their commitment to our communities by personally giving more than $50 thousand to charitable organizations within Mid Penn’s footprint through our Dress Down Friday program. 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.
In 2023, 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. 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.
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.
It is not possible to reasonably predict the nature, amount, frequency, and impact of future changes in monetary and fiscal policies. 13 MID PENN BANCORP, INC. 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.
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.
Our Culture Committee has focused on contributing to a positive organizational culture by fostering open communication, 4 MID PENN BANCORP, INC. collaboration, and a sense of community; this sense of community is important to Mid Penn as we continue to expand geographically.
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. 8 Table of Contents MID PENN BANCORP, INC. Banking regulators may further refine capital requirements applicable to banking organizations, including those discussed in the "Regulatory Capital Changes" section below.
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.
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, 2022 approximately 70% of our workforce is female. Bank leadership has seen the benefits of Employee Resource Groups ("ERG") within our organization.
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, 2023, approximately 65% of our workforce is female. Bank leadership has seen the benefits of Employee Resource Groups ("ERG") within our organization.
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.
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. 14 MID PENN BANCORP, INC.
In addition, the FDIC has established a "designated reserve ratio" of 2%, a target ratio that, until it is achieved, will not likely result in the FDIC reducing assessment rates.
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.
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.
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. 11 MID PENN BANCORP, INC.
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%.
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%. 8 MID PENN BANCORP, INC.
At December 31, 2022, Mid Penn had total consolidated assets of $4.5 billion with total deposits of $3.8 billion and total shareholders’ equity of $512.1 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.
At December 31, 2023, Mid Penn had total consolidated assets of $5.3 billion with total deposits of $4.3 billion and total shareholders’ equity of $542.4 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.
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.
Enforcement actions that may be imposed by federal and 6 MID PENN BANCORP, INC. 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.
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.
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.
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.
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. 9 MID PENN BANCORP, INC.
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 inquiries from U.S. law enforcement agencies concerning their customers and their transactions.
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 inquiries from U.S. law enforcement agencies concerning their customers and their transactions.
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.
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. 12 MID PENN BANCORP, INC.
Business Strategy The Bank provides services to commercial businesses and real estate investors, consumers, nonprofit organizations, and municipalities through its 43 full-service retail banking properties, one loan production office, one wealth management office, two corporate administrations office, and one operations facility, which are all based in Pennsylvania.
Business Strategy The Bank provides services to commercial businesses and real estate investors, consumers, nonprofit organizations, and municipalities through its 49 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.
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. 12 Table of Contents MID PENN BANCORP, INC.
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.
The FDIC is required under the Dodd-Frank Act to establish assessment rates that will allow the DIF to achieve a reserve ratio of 1.35% of Insurance Fund insured deposits by September 2020.
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.
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 $24.5 million as of December 31, 2022.
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 $22.3 million as of December 31, 2023.
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 principals in the United States ("GAAP") in determining regulatory capital ratios. 9 Table of Contents MID PENN BANCORP, INC.
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.
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.
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.
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.
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. 5 MID PENN BANCORP, INC.
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. 7 Table of Contents MID PENN BANCORP, INC.
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.
The Bank generally secures 5 Table of Contents MID PENN BANCORP, INC. 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, 2022, the Bank’s highest concentration of credit is in commercial real estate.
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, 2023, the Bank’s highest concentration of credit is in commercial real estate.
In 2022, Mid Penn formalized committee members on our Women’s Leadership Network, Diversity, Equity and Inclusion ("DEI"), and our Culture Committees. Each group allows employees to come together based on a shared characteristics to address common challenges and to drive positive impact within the workforce.
In 2022, Mid Penn formalized committee members on our Women’s Leadership Network, Diversity, Equity and Inclusion ("DEI"), and our Culture Committees. Throughout 2023 the company 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.
It is expected that the Merger will be completed in the second quarter of 2023. On December 30, 2022, Mid Penn purchased the assets of Managing Partners, Inc. ("MPI Acquisition") in a business combination. Managing Partners, Inc. was an independent insurance agency that serviced the Central Pennsylvania area.
On December 30, 2022, Mid Penn purchased the assets of Managing Partners, Inc. ("MPI Acquisition") in a business combination. Managing Partners, Inc. was an independent insurance agency that serviced the Central Pennsylvania area.
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.
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".
As of December 31, 2022, the Bank had 580 full-time and 31 part-time employees. Additionally, Mid Penn’s nonbank subsidiaries employed 10 full-time employees as of December 31, 2022. The Corporation and its employees are not subject to a collective bargaining agreement and the Corporation believes it enjoys good relations with its employees. 4 Table of Contents MID PENN BANCORP, INC.
As of December 31, 2023, the Bank had 612 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, 2023. The Corporation and its employees are not subject to a collective bargaining agreement and the Corporation believes it enjoys good relations with its employees.
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. Mid Penn’s headquarters are located at 2407 Park Drive, Harrisburg, Pennsylvania 17110, and its telephone number is 1-866-642-7736.
The SEC’s Internet site address is www.sec.gov. Mid Penn’s headquarters are located at 2407 Park Drive, Harrisburg, Pennsylvania 17110, and its telephone number is 1-866-642-7736.
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.
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.
Mid Penn is subject to the informational requirements of the Exchange Act, and, accordingly, files 13 Table of Contents MID PENN BANCORP, INC. reports, proxy statements and other information with the SEC. Mid Penn is an electronic filer with the SEC.
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.
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.
This transaction included the acquisition of 5 branches and extended Mid Penn's footprint into Middlesex and Monmouth counties in central New Jersey. 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.
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.
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. 7 MID PENN BANCORP, INC.
On an after-tax basis, this unrealized loss on available-for-sale securities resulted in a reduction to shareholders’ equity, through the accumulated other comprehensive loss component, of $19.1 million. No investments in either the held-to-maturity portfolio or available-for-sale portfolio as of December 31, 2022 were deemed to have other-than-temporary-impairment.
On an after-tax basis, this unrealized loss on available-for-sale securities resulted in an increase to shareholders’ equity, through the accumulated other comprehensive loss component, of $2.0 million. As of December 31, 2023, there was no allowance for credit losses on either the held-to-maturity or available-for-sale investment portfolios.
As of December 31, 2022, the Bank had 43 full-service retail banking locations in the Pennsylvania counties of Berks, Blair, Bucks, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Lycoming, Montgomery, Northumberland, Perry, Schuylkill and Westmoreland. Mid Penn has no branches or offices located outside of the Commonwealth of Pennsylvania.
As of December 31, 2023, the Bank operates 44 full-service retail banking locations in the Pennsylvania counties of Berks, Blair, Bucks, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Schuylkill and Westmoreland, along with 5 full-service retail banking locations in the New Jersey counties of Middlesex and Monmouth.
For more information, see the "Supervision and Regulation" section below and Item 1A, "Risk Factors". 6 Table of Contents MID PENN BANCORP, INC. 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.
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.
As a result of this announcement, and in accordance with GAAP, Mid Penn had reclassified the assets associated with these retail locations to held for sale as of December 31, 2021. Mid Penn’s primary business consists of attracting deposits and loans from the Bank’s network of community banking offices.
Mid Penn’s primary business consists of attracting deposits and loans from the Bank’s network of community banking offices.
Removed
On December 20, 2022, Mid Penn entered into an Agreement and Plan of Merger ("Merger Agreement") with Brunswick Bancorp ("Brunswick") pursuant to which Brunswick will merge with and into Mid Penn ("Merger"), with Mid Penn being the surviving corporation in the Merger.
Added
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.
Removed
See "Form 8-K filed on December 20, 2022," for additional details.
Added
Commercial Real Estate Guidance Federal agencies released additional guidance in July 2023, in response to the increased commercial real estate concentrations that have occurred in recent years.
Removed
Under the terms of the Merger Agreement, shareholders of Brunswick will have the right to elect to receive, subject to adjustment and proration as described in the Merger Agreement, either (A) 0.598 shares of Mid Penn common stock or (B) Eighteen Dollars ($18.00) for each share of Brunswick common stock they own.
Added
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.
Removed
On December 7, 2021, in connection with the Riverview Acquisition, and as part of a Retail Network Optimization Plan adopted by Mid Penn Bank’s Board of Directors, the Corporation announced its intention to close sixteen of its retail locations throughout its expanded footprint. The branch closures occurred on or about March 4, 2022.
Added
If the Bank's portfolio exceeds the guidelines mentioned above, additional risk management practices may be needed.
Removed
Finally, certain risk multipliers may be applied to the adjusted assessment. 10 Table of Contents MID PENN BANCORP, INC.
Added
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.
Removed
In attempting to achieve the mandated 1.35% ratio, the FDIC is required to implement assessment formulas that charge banks over $10 billion in asset size more than banks under that size. These new formulas did not affect the Bank as it was less than $10 billion in total assets size.
Added
Banks that have experienced significant growth in their CRE lending will receive closer regulatory review than those that have not.
Removed
During the third quarter of 2019, Mid Penn received notification from the FDIC that the FDIC’s Deposit Insurance Fund reserve ratio met a threshold resulting in the FDIC providing the Bank with a $492,000 credit, which was applied to the deposit insurance assessments for both the second and third quarters of 2019.
Added
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.
Removed
Under Title III of the USA Patriot Act, also known as the 11 Table of Contents MID PENN BANCORP, INC.
Added
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.
Added
The mix of commercial real estate and construction portfolios in relation to the total portfolio increased 33.61% and 1.93%, respectively from December 31, 2022 to December 31, 2023. Non-owner occupied office commercial real estate exposure represents 7.1% of total loan balances and is primarily limited to suburban offices. 10 MID PENN BANCORP, INC.
Added
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%.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

79 edited+31 added−19 removed110 unchanged
Biggest changeOn December 20, 2022, Mid Penn announced the signing of a definitive merger agreement to acquire Brunswick Bancorp and its wholly-owned subsidiary, Brunswick Bank & Trust Company, and Mid Penn has completed three other merger acquisitions in recent years (The Scottdale Bank & Trust Company and First Priority Financial Corp. in 2018 and Riverview Financial Corporation on November 30, 2021).
Biggest changeMid Penn has also completed four other 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 Managing Partners, Inc on December 30, 2022). Generally, Mid Penn must receive federal and state regulatory approval before it can acquire a bank or bank holding company.
Whether customer 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.
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.
We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP.
We have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP.
While we have business continuity plans in place, such events occurring or persisting, such as the current 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.
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.
Given that ESG matters could impose systemic risks upon the financial sector, either 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.
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.
The recent Scottdale, First Priority, and Riverview mergers, the pending Brunswick Bancorp acquisition, and any future mergers or 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.
The recent Scottdale, First Priority, and Riverview mergers, the Brunswick Bancorp acquisition, and any future mergers or 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.
Mid Penn anticipates that the FDIC will impose 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.
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.
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 loan 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.
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.
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 intends to stop persuading or compelling banks to submit LIBOR rates after 2021.
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.
Under the PPP, small businesses and other entities and individuals were permitted to apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria. We participated as a lender in the PPP, which commenced on April 3, 2020.
Under the Paycheck Protection Program (PPP), small businesses and other entities and individuals were permitted to apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria. We participated as a lender in the PPP, which commenced on April 3, 2020.
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 twelve counties and the specific markets primarily served by Mid Penn.
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 nineteen counties and the specific markets primarily served by Mid Penn.
From time to time, customers may make claims and take legal action pertaining to Mid Penn’s performance of its fiduciary responsibilities.
From time to time, customers and shareholders may make claims and take legal action pertaining to Mid Penn’s performance of its fiduciary responsibilities.
The determination of the appropriate level of the allowance for possible loan 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.
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.
In addition, bank regulatory agencies periodically review Mid Penn’s allowance for possible loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.
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 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.
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. 26 MID PENN BANCORP, INC.
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.
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 19 MID PENN BANCORP, INC. its information systems and it has insurance against some cyber-risks and attacks.
Changes in economic conditions affecting borrowers, the impact of the ongoing pandemic, 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.
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.
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.
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. 25 MID PENN BANCORP, INC.
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. 19 Table of Contents MID PENN BANCORP, INC.
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.
However, if other banks and 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.
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. 21 MID PENN BANCORP, INC.
In a series of moves beginning March 17, 2022 through February 1, 2023 intended to curb increasing inflation, the Federal Reserve increased the federal funds rate to a target range of 4.5% to 4.75%. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.
In a series of moves beginning March 17, 2022 through July 25, 2023 intended to curb increasing inflation, the Federal Reserve increased the federal funds rate to a target range of 5.25% to 5.5%. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.
Supply chain disruptions precipitated by the abrupt economic 17 Table of Contents MID PENN BANCORP, INC. slowdown have contributed to increased costs, lost revenue, and inflationary pressures for many segments of the economy. Further, a significant number of workers left their jobs during the COVID-19 pandemic, leading to wage inflation in many industries as businesses attempt to fill vacant positions.
Supply chain disruptions precipitated by the abrupt economic slowdown have contributed to increased costs, lost revenue, and inflationary pressures for many segments of the economy. Further, a significant number of workers left their jobs during the COVID-19 pandemic, leading to wage inflation in many industries as businesses attempt to fill vacant positions.
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 possible loan losses 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.
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 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. 15 MID PENN BANCORP, INC.
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 15 Table of Contents MID PENN BANCORP, INC. 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.
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.
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.
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.
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 soundness of other financial institutions may adversely affect Mid Penn.
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 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.
The banking industry is affected by general economic conditions, including the effects of 20 MID PENN BANCORP, INC. inflation, recession, unemployment, real estate values, trends in national and global economics, and other factors beyond our control.
As of December 31, 2022, approximately 88% of the Bank’s loan portfolio consisted of commercial real estate, commercial and industrial, and agricultural 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.
As of December 31, 2023, approximately 81% 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.
An increased level of attention in the industry is focused on cyber-attacks 18 Table of Contents MID PENN BANCORP, INC. 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.
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.
The continuation of the COVID-19 pandemic and the efforts to contain the virus, including effects of economic stimulus, and the exhaustion or expiration of stimulus benefits, could: • reduce the demand for loans and other financial services; • result in increases in loan delinquencies, problem assets, and foreclosures; • cause the value of collateral for loans, especially real estate, to decline in value; • reduce the availability and productivity of our employees; • cause our vendors and counterparties to be unable to meet existing obligations to us; • negatively impact the business and operations of third-party service providers that perform critical services for our business; • cause the value of our securities portfolio to decline; and • cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.
The lasting impact of the COVID-19 pandemic could: • reduce the demand for loans and other financial services; • result in increases in loan delinquencies, problem assets, and foreclosures; • cause the value of collateral for loans, especially real estate, to decline in value; • reduce the availability and productivity of our employees; • cause our vendors and counterparties to be unable to meet existing obligations to us; • negatively impact the business and operations of third-party service providers that perform critical services for our business; • cause the value of our securities portfolio to decline; and • cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.
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.
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.
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 14 Table of Contents MID PENN BANCORP, INC. these loans could cause a significant increase in non-performing 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.
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.
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.
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. 23 Table of Contents MID PENN BANCORP, INC.
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.
The Federal Reserve aggressively raised interest rates in 2022 to curb inflation, which is likely to drive down the prices of income or dividend-paying securities. The risk that interest rates may continue to rise is pronounced.
The Federal Reserve raised interest rates in 2022 and 2023 to curb inflation, which is likely to drive down the prices of income or dividend-paying securities. The risk that interest rates may remain volatile is pronounced.
Due to the complexity of the process, inputs, calculations and assumptions used in determining whether an investment is impaired, Mid Penn’s assessment of or disclosure of the impairment status of investments may not accurately reflect the actual impairment in the future.
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.
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.
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. The Scottdale, First Priority, and Riverview mergers and Brunswick Bancorp acquisition are reflective of our growth strategy.
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 seek recovery of the principal loss related to the deficiency from us, which could adversely affect our business and earnings.
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.
Measures to contain the virus, such as stay-at-home orders, travel restrictions, closure of non-essential businesses, occupancy limitations and social distancing requirements, resulted in significant business and operational disruptions, including business closures, and mass layoffs and furloughs.
The impact and response to the COVID-19 pandemic has negatively impacted economic and commercial activity and financial markets. Measures to contain the virus, such as stay-at-home orders, travel restrictions, closure of non-essential businesses, occupancy limitations and social distancing requirements, resulted in significant business and operational disruptions, including business closures, and mass layoffs and furloughs.
The Basel III capital requirements require Mid Penn to maintain higher levels of capital, which could reduce profitability. Basel III established higher levels of base capital, certain capital buffers, and a migration toward common equity as the key source of regulatory capital.
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.
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 SVB and Signature Bank in March 2023, and, prior to that, due to the COVID-19 pandemic.
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.
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.
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.
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.
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. The impact of and response to the COVID-19 pandemic could adversely affect Mid Penn’s business, financial condition, and results of operations.
Acts of terrorism, natural disasters, global climate change, pandemics, global conflicts or other similar events could 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.
As announced on March 5, 2021, the administrator of LIBOR ceased publishing most non-USD LIBOR settings beginning on January 1, 2022 and Mid Penn currently anticipates that it will cease to publish the overnight, one-month, three-month, six-month and 12-month USD LIBOR settings on July 1, 2023. Currently, SOFR is the alternative reference rate replacing LIBOR for most types of transactions.
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 will no longer be published. Currently, SOFR is the alternative reference rate replacing LIBOR for most types of transactions.
The risks and uncertainties described below are not the only ones facing Mid Penn’s holding company, the Bank, and nonbank subsidiaries. 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.
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.
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.
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. 23 MID PENN BANCORP, INC.
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.
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. Mid Penn originates and sells a significant amount of residential mortgage loans into the secondary market.
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.
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 24 MID PENN BANCORP, INC. economy.
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.
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.
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.
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.
Competition from other financial institutions may adversely affect Mid Penn’s and the Bank’s profitability. Mid Penn’s banking subsidiary 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.
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.
Congress, state legislatures and federal and state regulatory agencies, as well as certain stock exchanges, continue to propose numerous initiatives related to ESG matters. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting practices, and credit portfolio concentrations management practices.
Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting practices, and credit portfolio concentrations management practices.
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. 20 Table of Contents MID PENN BANCORP, INC.
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 .
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.
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.
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. 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.
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.
Any increase in the allowance resulting from future charge-offs or the transition from the current allowance for loan loss model to the CECL model 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.
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.
As of December 31, 2022, we had $114.2 million of goodwill and $7.2 million of other intangible assets.
As of December 31, 2023, we had $127.0 million of goodwill and $6.5 million of other intangible assets.
BSBY is intended to reflect large banks’ marginal wholesale cost of funds and is a credit-sensitive rate with a forward-looking term structure. In October 2021, the federal bank regulatory agencies issued a Joint Statement on Managing the LIBOR Transition.
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.
Mid Penn is subject to environmental liability risk associated with lending activities. 21 Table of Contents MID PENN BANCORP, INC. 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.
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.
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.
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.
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. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management.
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.
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.
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.
These capital levels are determined and dictated by law, regulation, and banking regulatory agencies. 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.
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 cannot raise additional capital in sufficient amounts when needed, its ability to comply with regulatory capital requirements could be materially impaired. Additionally, the inability to raise capital in sufficient amounts may adversely affect Mid Penn’s financial condition and results of operations.
The inability to raise capital in sufficient amounts may adversely affect Mid Penn’s business, financial condition and results of operations.
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. Certain 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.
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. 22 MID PENN BANCORP, INC.
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 of December 31, 2023, Mid Penn had $1.4 million of PPP loans yet to be forgiven. 17 MID PENN BANCORP, INC. 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.
If we conclude that the decline in the value of any of our investment securities is other than temporary, we are required to write down the value of that security through a charge to earnings.
If we conclude that there is a decline in the value of any of our investment securities, we are required to record an allowance for credit losses where periodic changes are recognized in earnings.
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 with an environmental hazard could have a material adverse effect on Mid Penn’s financial condition and results of operations.
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.
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.
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.
Mortgage banking income is highly influenced by the level and direction of market forces including mortgage interest rates, and real estate and refinancing activity. In lower interest rate environments, the demand for mortgage loans and refinancing activity will tend to increase.
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.
In addition to better serving customers, the effective use of technology increases efficiency and enables Mid Penn to reduce costs.
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.
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.
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.
Mid Penn reviews its investment securities portfolio at each quarter-end reporting period to determine whether the fair value of individual securities or the portfolio as a whole is below the current carrying value.
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.
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.
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.
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.
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.
For Mid Penn, the current allowance model will be replaced by the new CECL model effective for the first interim and annual reporting periods beginning after December 15, 2022. Under the new CECL model, financial institutions will be required to use historical information, current conditions and reasonable forecasts to estimate the expected loss over the life of the loan.
Under the new 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.
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 information technology resources and processes provided both internally and through third party vendors.
The remediation costs and any other financial liabilities associated 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.
Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.
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. 16 MID PENN BANCORP, INC.
Removed
The allowance for loan losses may be not be sufficient to cover actual loan losses. As of December 31, 2022, Mid Penn maintains an allowance for loan losses, which is a reserve established that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditionally, 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 Pottsville, Lancaster, Clearfield and Chambersburg, Pennsylvania. As of December 31, 2022, the Bank’s retail office network was comprised of 43 full-service retail locations.
Biggest changeAdditionally, 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 Pottsville, Lancaster, Clearfield and Chambersburg, Pennsylvania. As of December 31, 2023, the Bank’s retail office network was comprised of 49 full-service retail locations.
The Bank owned 24 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.
The Bank owned 28 of those locations and leased 21 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−2 removed6 unchanged
Biggest changeSecurities 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. 26 Table of Contents MID PENN BANCORP, INC. Stock Performance Graph (1) Comprised of commercial banks with total assets ranging between $2.3 billion and $9.5 billion.
Biggest changeThere were 12,500 shares repurchased during the fourth quarter of 2023: October 2023 November 2023 December 2023 Number of shares repurchased — 2,500 10,000 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. 30 MID PENN BANCORP, INC.
The Repurchase Program was extended through March 19, 2023 by Mid Penn’s Board of Directors on March 23, 2022. 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.
The Repurchase Program was extended through May 11, 2024 by Mid Penn’s Board of Directors on May 11, 2023. 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.
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. 25 Table of Contents MID PENN BANCORP, INC. Transfer Agent: Computershare, Attn: Shareholder Services, P.O. Box 30170, College Station, TX 77842-3170. Phone: 1-800-368-5948.
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.
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 9, 2023.
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 14, 2024.
Number of Shareholders: As of March 1, 2023, there were approximately 2,200 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.
Number of Shareholders: As of March 28, 2024, there were approximately 4,400 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.
As of December 31, 2022, Mid Penn had repurchased 208,343 shares of common stock at an average price of $23.42 per share under the Repurchase Program. There were no share repurchases during the fourth quarter of 2022. The Repurchase Program had $10.1 million remaining available for repurchase as of December 31, 2022.
During the year ended December 31, 2023, Mid Penn repurchased 216,879 shares of common stock at an average price of $22.31 per share under the Repurchase Program. The Repurchase Program had $5.3 million remaining available for repurchase as of December 31, 2023.
Removed
The Repurchase Program became effective March 19, 2020 and is authorized to continue through March 19, 2023, unless otherwise extended by Mid Penn’s Board of Directors.
Added
Stock Performance Graph As of December 31, 2023, 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, 2018.
Removed
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.
Added
Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Mid Penn Bancorp, Inc. 100.00 129.12 101.73 152.16 147.69 124.02 Current Peers (1) 100.00 127.28 100.92 154.07 142.61 147.00 Prior Peers (2) 100.00 123.31 92.01 129.81 122.04 121.37 KBW NASDAQ Bank Index Return 100.00 132.14 114.13 154.13 117.56 111.93 (1) Current 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 announced merger with EBC (2) Prior Peers includes ACNB, AROW, CARE, CCNE, CHCO, CNOB, CZNC, EBTC, FCF, FISI, FLIC, FRBK, FRST, LBAI, ORRF, PFIS, PGC, SMMF, STBA, TMP and UVSP; Excludes CATC due to announced 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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

84 edited+68 added−62 removed14 unchanged
Biggest changeAverage balances, effective interest differential and interest yields for the years ended December 31: Average Balances, Income and Interest Rates on a Taxable-Equivalent Basis 2022 2021 2020 (Dollars in thousands) Average Balance Interest (1) Yield/ Rate Average Balance Interest (1) Yield/ Rate Average Balance Interest (1) Yield/ Rate ASSETS: Interest Bearing Balances $ 26,633 $ 69 0.26 % $ 15,916 $ 13 0.08 % $ 3,593 $ 39 1.09 % Investment Securities: Taxable 500,156 11,663 2.33 124,692 2,257 1.81 112,636 2,524 2.24 Tax-Exempt 78,039 1,895 2.43 57,361 1,420 2.48 49,410 1,276 2.58 Total Investment Securities 578,195 13,558 2.34 182,053 3,677 2.02 162,046 3,800 2.35 Federal Funds Sold 311,989 1,826 0.59 567,647 809 0.14 135,243 497 0.37 Loans, Net 3,217,282 150,636 4.68 2,539,074 119,082 4.69 2,247,002 103,871 4.62 Restricted Investment in Bank Stocks 6,045 289 4.78 7,351 345 4.69 6,554 360 5.49 Total Interest-earning Assets 4,140,144 166,378 4.02 3,312,041 123,926 3.74 2,554,438 108,567 4.25 Cash and Due from Banks 63,608 38,517 33,485 Other Assets 272,422 169,946 170,506 Total Assets $ 4,476,174 $ 3,520,504 $ 2,758,429 LIABILITIES & SHAREHOLDERS' EQUITY: Interest-bearing Demand $ 1,051,605 $ 3,847 0.37 % $ 688,595 $ 2,330 0.34 % $ 538,385 $ 3,423 0.64 % Money Market 1,040,762 5,277 0.51 842,107 3,157 0.37 605,552 4,072 0.67 Savings 355,229 193 0.05 218,546 237 0.11 186,132 346 0.19 Time 524,944 4,827 0.92 451,277 5,603 1.24 443,607 8,558 1.93 Total Interest-bearing Deposits 2,972,540 14,144 0.48 2,200,525 11,327 0.51 1,773,676 16,399 0.92 Short-term borrowings 11,914 441 3.70 153,850 539 0.35 106,233 371 0.35 Long-term debt 23,344 352 1.51 75,483 821 1.09 66,609 999 1.50 Subordinated debt and trust preferred securities 70,583 2,830 4.01 47,116 2,067 4.39 38,740 1,958 5.05 Total Interest-bearing Liabilities 3,078,381 17,767 0.58 2,476,974 14,754 0.60 1,985,258 19,727 0.99 Noninterest-bearing Demand 848,991 684,022 659,554 Other Liabilities 49,864 30,433 24,037 Shareholders' Equity 498,938 329,075 305,929 Total Liabilities & Shareholders' Equity $ 4,476,174 $ 3,520,504 $ 2,974,778 Net Interest Income (taxable-equivalent basis) $ 148,611 $ 109,172 $ 88,840 Taxable Equivalent Adjustment (778) (604) (632) Net Interest Income $ 147,833 $ 108,568 $ 88,208 Total Yield on Earning Assets 4.02 % 3.74 % 4.25 % Rate on Supporting Liabilities 0.58 0.60 0.99 Average Interest Spread 3.44 3.15 3.26 Net Interest Margin 3.59 3.30 3.48 (1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances. 32 Table of Contents MID PENN BANCORP, INC.
Biggest changeManagement’s Discussion and Analysis Average balances, effective interest differential and interest yields for the years ended December 31: Average Balances, Income and Interest Rates 2023 2022 2021 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate ASSETS: Interest Bearing Balances $ 24,270 $ 361 1.49 % $ 26,633 $ 69 0.26 % $ 15,916 $ 13 0.08 % Investment Securities: Taxable 544,896 15,141 2.78 500,156 11,663 2.33 124,692 2,257 1.81 Tax-Exempt 78,163 1,949 2.49 78,039 1,895 2.43 57,361 1,420 2.48 Total Investment Securities 623,059 17,090 2.74 578,195 13,558 2.34 182,053 3,677 2.02 Federal Funds Sold 7,161 373 5.21 311,989 1,826 0.59 567,647 809 0.14 Loans, Net 3,868,307 218,462 5.65 3,217,282 150,636 4.68 2,539,074 119,082 4.69 Restricted Investment in Bank Stocks 11,121 864 7.77 6,045 289 4.78 7,351 345 4.69 Total Interest-earning Assets 4,533,918 237,150 5.23 4,140,144 166,378 4.02 3,312,041 123,926 3.74 Cash and Due from Banks 49,503 63,608 38,517 Other Assets 299,666 272,422 169,946 Total Assets $ 4,883,087 $ 4,476,174 $ 3,520,504 LIABILITIES & SHAREHOLDERS' EQUITY: Interest-bearing Demand $ 950,326 $ 13,893 1.46 % $ 1,051,605 $ 3,847 0.37 % $ 688,595 $ 2,330 0.34 % Money Market 926,034 21,424 2.31 1,040,762 5,277 0.51 842,107 3,157 0.37 Savings 312,053 230 0.07 355,229 193 0.05 218,546 237 0.11 Time 1,116,552 43,749 3.92 524,944 4,827 0.92 451,277 5,603 1.24 Total Interest-bearing Deposits 3,304,965 79,296 2.40 2,972,540 14,144 0.48 2,200,525 11,327 0.51 Short-term borrowings 107,323 7,087 6.60 11,914 441 3.70 153,850 539 0.35 Long-term debt 45,304 975 2.15 23,344 352 1.51 75,483 821 1.09 Subordinated debt and trust preferred securities 49,328 2,008 4.07 70,583 2,830 4.01 47,116 2,067 4.39 Total Interest-bearing Liabilities 3,506,920 89,366 2.55 3,078,381 17,767 0.58 2,476,974 14,754 0.60 Noninterest-bearing Demand 800,582 848,991 684,022 Other Liabilities 53,530 49,864 30,433 Shareholders' Equity 522,055 498,938 329,075 Total Liabilities & Shareholders' Equity $ 4,883,087 $ 4,476,174 $ 3,520,504 Net Interest Income (taxable-equivalent basis) $ 147,784 $ 148,611 $ 109,172 Taxable Equivalent Adjustment (1) (811) (778) (604) Net Interest Income $ 146,973 $ 147,833 $ 108,568 Total Yield on Earning Assets 5.23 % 4.02 % 3.74 % Rate on Supporting Liabilities 2.55 0.58 0.60 Average Interest Spread 2.68 3.44 3.15 Net Interest Margin 3.26 3.59 3.30 (1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances. 37 MID PENN BANCORP, INC.
The increase is a result of additional costs to license the additional Riverview branches, upgrades to internal systems, networks, storage capabilities, cybersecurity management, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and the increasing complexity of information technology management, and increases in certain core processing fees as our customer base and transaction volume continue to grow.
The increase is a result of additional costs to license the additional Brunswick branches, upgrades to internal systems, networks, storage capabilities, cybersecurity management, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and the increasing complexity of information technology management, and increases in certain core processing fees as our customer base and transaction volume continue to grow.
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 loan losses, non-interest expenses and income taxes.
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.
Tax-equivalent adjustments were calculated using a statutory corporate tax rate of 21% for the years ended December 31, 2022, 2021 and 2020. For purposes of calculating loan yields, average loan balances include non-accrual loans.
Tax-equivalent adjustments were calculated using a statutory corporate tax rate of 21% for the years ended December 31, 2023, 2022 and 2021. For purposes of calculating loan yields, average loan balances include non-accrual loans.
For details on the variances of noninterest expense for the year ended December 31, 2021 compared to the year ended December 31, 2020 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, 2021.
For details on the variances of noninterest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 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, 2022.
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.
Management’s Discussion and Analysis 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.
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’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. 44 MID PENN BANCORP, INC.
For the year ended December 31, 2022, Mid Penn had net recoveries of $60 thousand compared to net charge-offs of $1.7 million and $333 thousand for the years ended December 31, 2021 and 2020, respectively. A summary of charge-offs and recoveries of loans and the provision for loan losses is shown in the table below.
For the year ended December 31, 2023, Mid Penn had net charge-offs of $332 thousand compared to net recoveries of $60 thousand and net charge-offs of $1.7 million for the years ended December 31, 2022 and 2021, respectively. A summary of charge-offs and recoveries of loans and the provision for loan losses is shown in the table below.
Tax-exempt income is shown on a tax equivalent basis using a statutory corporate tax rate of 21% for the years ended December 31, 2022, 2021 and 2020. For the year ended December 31, 2022, Mid Penn’s FTE net interest margin was 3.59% versus 3.30% for the year ended December 31, 2021 and 3.48% for the year ended December 31, 2020.
Tax-exempt income is shown on a tax equivalent basis using a statutory corporate tax rate of 21% for the years ended December 31, 2023, 2022 and 2021. For the year ended December 31, 2023, Mid Penn’s FTE net interest margin was 3.26% versus 3.59% for the year ended December 31, 2022 and 3.30% for the year ended December 31, 2021.
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, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Lycoming, Montgomery, Northumberland, Perry, Schuylkill and Westmoreland.
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, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Schuylkill and Westmoreland and New Jersey.
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 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.
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 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. 52 MID PENN BANCORP, INC.
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 allowance for loan losses in future periods.
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.
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, 2022, commitments to extend credit amounted to $1.0 billion compared to $930.7 million as of December 31, 2021. Mid Penn also issues standby letters of credit to its customers.
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, 2023, commitments to extend credit amounted to $1.5 billion compared to $1.0 billion as of December 31, 2022. Mid Penn also issues standby letters of credit to its customers.
For details on the variances of noninterest income for the year ended December 31, 2021 compared to the year ended December 31, 2020 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, 2021. 36 Table of Contents MID PENN BANCORP, INC.
For details on the variances of noninterest income for the year ended December 31, 2022 compared to the year ended December 31, 2021 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, 2022. 42 MID PENN BANCORP, INC.
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 $57.2 million at December 31, 2022, from $55.6 million at December 31, 2021.
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 $62.2 million at December 31, 2023, from $57.2 million at December 31, 2022.
The year ended December 31, 2022 included the recognition of $3.8 million of Paycheck Protection Program ("PPP") loan processing fees generated as a result of Mid Penn’s participation in the PPP compared to $22.0 million for the year ended December 31, 2021.
The year ended December 31, 2023 included the recognition of $15 thousand of Paycheck Protection Program ("PPP") loan processing fees generated as a result of Mid Penn’s participation in the PPP compared to $3.8 million for the year ended December 31, 2022.
The provision for income taxes for the year ended December 31, 2022 reflects an effective combined Federal and state tax rate ("ETR") of 18.6%, compared to an ETR of 18.7% for the year ended December 31, 2021.
The provision for income taxes for the year ended December 31, 2023 reflects an effective combined Federal and state tax rate ("ETR") of 16.3%, compared to an ETR of 18.6% for the year ended December 31, 2022 .
These PPP fees are recognized into interest income over the term of the respective loan, or sooner if the loans are forgiven by the Small Business Administration or the borrowers otherwise pay down principal prior to a loan’s stated maturity.
These PPP fees are recognized into interest income over the term of the respective loan, or sooner if the loans are forgiven by the Small Business Administration or the borrowers otherwise pay down principal prior to a loan’s stated maturity. The year ended 33 MID PENN BANCORP, INC.
All written or oral forward-looking statements attributable to Mid Penn are expressly qualified in their entirety by these cautionary factors. 28 Table of Contents MID PENN BANCORP, INC.
All written or oral forward-looking statements attributable to Mid Penn are expressly qualified in their entirety by these cautionary factors. 32 MID PENN BANCORP, INC.
The following table presents a summary of the Corporation's earnings and selected performance ratios: December 31, 2022 2021 2020 Net Income $ 54,806 $ 29,319 $ 26,209 Diluted EPS $ 3.44 $ 2.71 $ 3.10 Dividends Declared $ 0.80 $ 0.79 $ 0.82 Return on average assets 1.22 % 0.83 % 0.95 % Return on average equity 10.98 % 8.91 % 8.57 % Net interest margin (1) 3.59 % 3.30 % 3.48 % Non-performing assets to total assets 0.21 % 0.22 % 0.52 % Net charge-off to average loans (0.002) % 0.068 % 0.015 % (1) Presented on a FTE basis using a 21% Federal tax rate and statutory interest expense disallowances.
The following table presents a summary of the Corporation's earnings and selected performance ratios: December 31, 2023 2022 2021 Net Income $ 37,397 $ 54,806 $ 29,319 Diluted EPS $ 2.29 $ 3.44 $ 2.71 Dividends Declared $ 0.80 $ 0.80 $ 0.79 Return on average assets 0.77 % 1.22 % 0.83 % Return on average equity 7.16 % 10.98 % 8.91 % Net interest margin (1) 3.26 % 3.59 % 3.30 % Non-performing assets to total assets 0.27 % 0.21 % 0.22 % Net charge-off to average loans 0.009 % (0.002) % 0.068 % (1) Presented on a FTE basis using a 21% Federal tax rate and statutory interest expense disallowances.
Financial Highlights • Net Income Per Share - Mid Penn’s net income available to common shareholders ("earnings") for the year ended December 31, 2022 was $54.8 million or $3.44 per common share basic and diluted, compared to earnings of $29.3 million or $2.71 per common share basic and diluted for the year ended December 31, 2021.
Summary of Financial Results • Net Income Per Share - Mid Penn’s net income available to common shareholders ("earnings") for the year ended December 31, 2023 was $37.4 million or $2.29 per common share basic and diluted, compared to earnings of $54.8 million or $3.44 per common share basic and diluted for the year ended December 31, 2022.
For the year ended December 31, 2021, merger and acquisition expenses were $3.1 million and included investment banking fees, merger-related legal expenses, and other professional fees for advisory, valuation, and consulting services associated with the Riverview Acquisition.
For the year ended December 31, 2023, merger and acquisition expenses were $5.5 million and included investment banking fees, merger-related legal expenses, and other professional fees for advisory, valuation, and consulting services associated with the Brunswick.
The following table presents the expected maturities of the investment portfolio and the weighted average yields (calculated based on historical cost) as of December 31, 2022: 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, 2022 Amount Yield Amount Yield Amount Yield Amount Yield Available for sale securities, at fair value: U.S.
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 tax-equivalent basis assuming a 21% tax rate) as of December 31, 2023: 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, 2023 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.
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.
Refer to Note 2 - Business Combinations for further details. 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.
The yield on interest-earning assets increased 28 basis point(s) ("bp") in 2022 compared to 2021 and the rate on interest-bearing liabilities decreased 3 bp in 2022 compared to 2021. ◦ Loan Growth - Total loans, net of unearned income, as of December 31, 2022 were $3.5 billion compared to $3.1 billion as of December 31, 2021 , an increase of $409.7 million, or 13.2%.
The yield on interest-earning assets increased 121 basis point(s) ("bp") in 2023 compared to 2022 and the rate on interest-bearing liabilities increased 197 bp in 2023 compared to 2022. ◦ Loan Growth - Total loans, net of unearned income, as of December 31, 2023 were $4.3 billion compared to $3.5 billion as of December 31, 2022 , an increase of $738.7 million, or 21.0%.
The Federal Reserve’s Federal Open Market Committee ("FOMC") increased rates seven times during 2022.
The Federal Reserve’s Federal Open Market Committee ("FOMC") increased rates four times during 2023.
Comparatively, as of December 31, 2021, Mid Penn had $111.3 million of PPP loans outstanding, net of deferred fees. Investment Securities Mid Penn’s portfolio of held-to-maturity ("HTM") securities, recorded at amortized cost, increased $70.2 million to $399.5 million as of December 31, 2022, as compared to $329.3 million as of December 31, 2021.
Comparatively, as of December 31, 2022, Mid Penn had $2.6 million of PPP loans outstanding, net of deferred fees. Investment Securities Mid Penn’s portfolio of held-to-maturity ("HTM") securities, recorded at amortized cost, decreased $366 thousand to $399.1 million as of December 31, 2023, as compared to $399.5 million as of December 31, 2022.
Loan fees of $8.4 million, $25.5 million and $15.8 million are included with loan interest income in the following table for the years ended December 31, 2022, 2021, and 2020, respectively. During the years ended December 31, 2022, 31 Table of Contents MID PENN BANCORP, INC.
Loan fees of $4.6 million, $8.4 million and $25.5 million are included with loan interest income in the following table for the years ended December 31, 2023, 2022, and 2021, respectively.
All of these factors may be susceptible to significant change. While management uses the best information known to it in order to make loan loss allowance valuations, adjustments to the allowance may be necessary based on changes in economic and other conditions, changes in the composition of the loan portfolio, or changes in accounting guidance.
Management’s Discussion and Analysis 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.
Management of the Corporation considers the accounting judgments relating to the allowance for loan losses to be the accounting area that requires the most subjective and complex judgments. Allowance for loan losses ("allowance") - The allowance represents management’s estimate of probable incurred credit losses inherent in the loan portfolio.
Management of the Corporation considers the accounting judgments relating to the allowance for credit losses to be the accounting area that requires the most subjective and complex judgments.
The cost of interest-bearing liabilities decreased to 0.58% in 2022 from 0.60% in 2021 and 0.99% in 2020. The rate on total interest-bearing deposits decreased to 0.48% in 2022 from 0.51% in 2021 and 0.92% in 2020.
The cost of interest-bearing liabilities increased to 2.55% in 2023 from 0.58% in 2022 and 0.60% in 2021. The rate on total interest-bearing deposits increased to 2.40% in 2023 from 0.48% in 2022 and 0.51% in 2021.
Financial Condition Mid Penn’s total assets were $4.5 billion as of December 31, 2022, reflecting a decrease of $191.5 million, or 4.1%, compared to total assets of $4.7 billion as of December 31, 2021. Included in total assets as of December 31, 2022 are $2.6 million of PPP loans, net of deferred fees.
Financial Condition Mid Penn’s total assets were $5.3 billion as of December 31, 2023, reflecting an increase of $792.8 million, or 17.6%, compared to total assets of $4.5 billion as of December 31, 2022. Included in total assets as of December 31, 2023 are $1.4 million of PPP loans, net of deferred fees.
The provision for loan losses for the year ended December 31, 2021 was $1.3 million, or 29.9%, lower than the $4.2 million provision for loan losses for the year ended December 31, 2020.
The provision for credit losses for the year ended December 31, 2022 was $1.4 million, or 46.0%, lower than the $2.9 million provision for credit losses for the year ended December 31, 2021.
At December 31, 2021, the unrealized loss on AFS investment securities resulted in a decrease in shareholders’ equity of $254 thousand (comprised of a gross unrealized loss on securities of $322 thousand net of a deferred income tax benefit of $68 thousand). Mid Penn does not have any significant concentrations of non-governmental securities within its investment portfolio.
At December 31, 2022, the unrealized loss on AFS investment securities resulted in a negative impact to shareholders’ equity of $19.1 million (comprised of a gross unrealized loss on securities of $24.1 million and net of a deferred income tax benefit of $5.1 million). Mid Penn does not have any significant concentrations of non-governmental securities within its investment portfolio.
Income Taxes The provision for income taxes was $12.5 million during the year ended December 31, 2022 , an increase of $5.8 million compared to $6.7 million for the same period in 2021.
Income Taxes The provision for income taxes was $7.3 million during the year ended December 31, 2023 , a decrease of $5.2 million compared to $12.5 million for the same period in 2022.
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, 2022, deposits totaled $3.8 billion, a decrease of $223.7 million, or 5.6%.
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, 2023, deposits totaled $4.3 billion, an increase of $567.9 million, or 15.0%.
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. Historically, the estimates of the allowance for loan losses have provided adequate coverage against actual losses incurred.
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.
Management’s Discussion and Analysis post-acquisition restructuring expenses totaling $9.9 million resulting from the Riverview Acquisition, which was announced on June 30, 2021 and legally closed on November 30, 2021. • Net Interest Income ◦ Net Interest Margin - For the year ended December 31, 2022, Mid Penn’s FTE net interest margin was 3.59% versus 3.30% for the year ended December 31, 2021.
Management’s Discussion and Analysis December 31, 2023 also include merger and acquisition expenses of $5.5 million and post-acquisition restructuring expenses totaling $3.0 million resulting from the Brunswick Acquisition, which was announced on December 20, 2022 and legally closed on May 19, 2023. • Net Interest Income ◦ Net Interest Margin - For the year ended December 31, 2023, Mid Penn’s FTE net interest margin was 3.26% versus 3.59% for the year ended December 31, 2022.
Software licensing and utilization costs were $7.5 million for the year ended December 31, 2022, an increase of $1.2 million, or 18.8%, compared to $6.3 million for the year ended December 31, 2021.
Software licensing and utilization costs were $7.9 million for the year ended December 31, 2023, an increase of $403 thousand, or 5.4%, compared to $7.5 million for the year ended December 31, 2022.
Management’s Discussion and Analysis This table and the discussion that follows is based on FTE amounts. Volume analysis of changes in net interest income as of December 31: Years ended December 31, 2022 vs. December 31, 2021 Years ended December 31, 2021 vs.
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, 2023 vs. December 31, 2022 Years ended December 31, 2022 vs.
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.
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.
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. 40 Table of Contents MID PENN BANCORP, INC.
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.
Interest income increased $38.7 million as the result of a $955.7 million, or 27.1%, increase in average interest-earning assets in 2022 compared to 2021 and increased $3.8 million as the result of a 28 bp increase in the yield on interest-earning assets in 2022 compared to 2021.
Interest income increased $30.0 million as the result of a $406.9 million, or 9.1%, increase in average interest-earning assets in 2023 compared to 2022 and increased $40.8 million as the result of a 121 bp increase in the yield on interest-earning assets in 2023 compared to 2022.
The results for the year ended December 31, 2022 were favorably impacted by loan growth, an increase in net interest margin, noninterest income growth and the Riverview Acquisition.
The results for the year ended December 31, 2023 were favorably impacted by loan growth, interest income growth and the Brunswick Acquisition.
Management’s Discussion and Analysis The following table represents the analysis of the allowance for loan losses: Years ended December 31, (In Thousands) 2022 2021 2020 Balance, beginning of year $ 14,597 $ 13,382 $ 9,515 Loans charged off: Commercial and industrial 1 866 45 Commercial real estate 7 1,044 258 Commercial real estate - construction — 23 7 Residential mortgage 25 13 4 Home equity 1 — 58 Consumer 97 42 — Total loans charged off 131 1,988 372 Recoveries on loans previously charged off: Commercial and industrial 13 13 3 Commercial real estate 128 207 1 Commercial real estate - construction 24 8 2 Residential mortgage 2 11 3 Home equity 2 — 3 Consumer 22 19 27 Total loans recovered 191 258 39 Net (recoveries) charge-offs (60) 1,730 333 Provision for loan losses 4,300 2,945 4,200 Balance, end of year $ 18,957 $ 14,597 $ 13,382 Net (recoveries) charge-offs to average loans (0.002) % 0.068 % 0.015 % 35 Table of Contents MID PENN BANCORP, INC.
The following table represents the analysis of the allowance for credit losses: Years ended December 31, (In Thousands) 2023 2022 2021 Balance, beginning of year $ 18,957 $ 14,597 $ 13,382 Loans charged off: Commercial real estate 16 7 1,044 Commercial and industrial 238 1 866 Construction — — 23 Residential mortgage 13 26 13 Consumer 135 97 42 Total loans charged off 402 131 1,988 Recoveries on loans previously charged off: Commercial real estate — 128 207 Commercial and industrial — 13 13 Construction — 24 8 Residential mortgage 38 4 11 Consumer 32 22 19 Total loans recovered 70 191 258 Net charge-offs (recoveries) 332 (60) 1,730 Provision for loan losses 3,295 4,300 2,945 Impact from the adoption of CECL $ 11,931 $ — $ — Purchase Credit Deteriorated loans $ 336 $ — $ — Balance, end of year $ 34,187 $ 18,957 $ 14,597 40 MID PENN BANCORP, INC.
Management’s Discussion and Analysis Noninterest income and variance analysis as of December 31: Years Ended December 31, (Dollars in thousands) 2022 2021 2020 $ Variance 2022 vs. 2021 % Variance 2022 vs. 2021 Income from fiduciary and wealth management activities $ 5,071 $ 2,494 $ 1,694 $ 2,577 103.3 % ATM debit card interchange income 4,362 2,688 1,960 1,674 62.3 Service charges on deposits 2,078 991 637 1,087 109.7 Mortgage banking income 1,607 10,314 9,682 (8,707) (84.4) Mortgage hedging income 1,471 64 167 1,407 N/M Net gain on sales of SBA loans 262 969 442 (707) (73.0) Earnings from cash surrender value of life insurance 1,013 358 301 655 183.0 Net gain on sales of investment activities — 79 467 (79) (100.0) Other income 7,793 3,576 2,558 4,217 117.9 Total Noninterest Income $ 23,657 $ 21,533 $ 17,908 $ 2,124 9.9 % N/M - Not Meaningful For the year ended December 31, 2022, noninterest income totaled $23.7 million, an increase of $2.1 million or 9.9%, compared to noninterest income of $21.5 million for the year ended December 31, 2021.
Management’s Discussion and Analysis Noninterest Income Noninterest income and variance analysis as of December 31: Years Ended December 31, (Dollars in thousands) 2023 2022 2021 $ Variance 2023 vs. 2022 % Variance 2023 vs. 2022 Income from fiduciary and wealth management activities $ 5,059 $ 5,071 $ 2,494 $ (12) (0.2) % ATM debit card interchange income 4,019 4,362 2,688 (343) (7.9) Service charges on deposits 1,943 2,078 991 (135) (6.5) Mortgage banking income 1,353 1,607 10,314 (254) (15.8) Mortgage hedging income 324 1,471 64 (1,147) (78.0) Net gain on sales of SBA loans 571 262 969 309 117.9 Earnings from cash surrender value of life insurance 1,112 1,013 358 99 9.8 Net gain on sales of investment activities — — 79 — N/M Other income 5,627 7,793 3,576 (2,166) (27.8) Total Noninterest Income $ 20,008 $ 23,657 $ 21,533 $ (3,649) (15.4) % N/M - Not Meaningful For the year ended December 31, 2023, noninterest income totaled $20.0 million, a decrease of $3.6 million or 15.4%, compared to noninterest income of $23.7 million for the year ended December 31, 2022.
Most noninterest expense items increased primarily as a result of the Riverview Acquisition. • Borrowings paid downs - During 2022, Mid Penn paid off $76.8 million of long-term debt and redeemed a total of $16.8 million of subordinated debt and trust preferred securities. • Share Repurchases - Mid Penn repurchased 109,891 shares during 2022 at an average price per share of $26.91 under its share repurchase program. • Business Combinations ◦ As announced on Form 8-K filed on December 20, 2022, Mid Penn entered into an Agreement and Plan of Merger with Brunswick Bancorp, pursuant to which Brunswick will merge with and into Mid Penn, 30 Table of Contents MID PENN BANCORP, INC.
Management’s Discussion and Analysis • Borrowings paid downs - During 2023, Mid Penn paid off $30.4 million of long-term debt and redeemed a total of $10.0 million of subordinated debt and trust preferred securities. • Share Repurchases - Mid Penn repurchased 216,879 shares during 2023 at an average price per share of $22.31 under its share repurchase program. • Business Combinations ◦ As announced on Form 8-K filed on December 20, 2022, Mid Penn entered into an Agreement and Plan of Merger with Brunswick Bancorp, pursuant to which Brunswick merged with and into Mid Penn, with Mid Penn being the surviving corporation in the Merger.
The comparability of the results of operations for the year ended 2022, compared to 2021 and 2020, in general, have been materially impacted by the Riverview Acquisition, which closed on November 30, 2021. For comparative purposes, some 2021 and 2020 balances have been reclassified to conform to the 2022 presentation.
The comparability of the results of operations for the year ended 2023, compared to 2022 and 2021, in general, have been materially impacted by the Brunswick Acquisition, which closed on May 19, 2023.
Both occupancy and equipment expenses increased $1.4 million, or 24.8% and 44.9%, respectively, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increases were driven by the facility operating costs and increased depreciation expense for building, furniture, and equipment, respectively, associated with the Riverview Acquisition.
Occupancy increased $449 thousand and equipment expenses increased $628 thousand, or 6.5% and 14.0%, respectively, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increases were driven by the facility operating costs and increased depreciation expense for building, furniture, and equipment, respectively, associated with the Brunswick Acquisition.
Such reclassifications had no impact on net income available to common shareholders or shareholders’ equity. 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.
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.
Management’s Discussion and Analysis with Mid Penn being the surviving corporation in the Merger. This transaction is expected to close in the second quarter of 2023. ◦ On December 30, 2022, Mid Penn purchased the assets, in a business combination, of Managing Partners, Inc., an independent insurance agency that serviced the Central Pennsylvania area.
This transaction legally closed on May 19, 2023. ◦ On December 30, 2022, Mid Penn purchased the assets, in a business combination, of Managing Partners, Inc., an independent insurance agency that serviced the Central Pennsylvania area.
Total average investment securities increased $396.1 million , contributing $7.3 million to the increase in FTE interest income, the average yield investment securities increased 33 bps, contributing $2.6 million to the increase in FTE interest income. Interest expense for 2022 increased by $3.0 million or 20.4% when compared to 2021.
Management’s Discussion and Analysis Total average investment securities increased $44.9 million , contributing $1.0 million to the increase in FTE interest income, and the average yield investment securities increased 40 bps, contributing $2.5 million to the increase in FTE interest income. Interest expense for 2023 increased by $71.6 million or 403.0% when compared to 2022.
At December 31, 2022, the unrealized loss on AFS investment securities resulted in a decrease in shareholders’ equity of $19.1 million (comprised of a gross unrealized loss on securities of $24.1 million net of a deferred income tax benefit of $5.1 million).
At December 31, 2023, the unrealized loss 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 a deferred income tax cost of $144 thousand).
For the year ended December 31, 2022, the provision for loan losses was $4.3 million, an increase of 46.0% compared to a provision for loan losses of $2.9 million for the year ended December 31, 2021.
For the year ended December 31, 2023, the provision for credit losses was $3.3 million, a decrease of 23.4% compared to a provision for credit losses of $4.3 million for the year ended December 31, 2022.
Other expenses increased $4.7 million from $10.6 million for the year ended December 31, 2021, to $15.3 million for the year ended December 31, 2022. Several categories within other expense increased primarily as a result of the Riverview Acquisition and also organic growth, including marketing, telephone, postage, courier, payroll processing, employee travel costs, and director fees.
Several categories within other expense increased, primarily as a result of the Brunswick Acquisition and organic growth, including marketing, telephone, postage, courier, payroll processing, employee travel costs, and director fees.
Most noninterest expense items increased primarily as a result of the Riverview Acquisition as discussed in further detail below. Salaries and employee benefits were $52.6 million for the year ended December 31, 2022, an increase of $10.9 million, or 26.1%, compared to the year ended December 31, 2021.
The increase in noninterest expense is primarily driven by the Brunswick Acquisition as discussed in further detail below. Salaries and employee benefits were $59.3 million for the year ended December 31, 2023, an increase of $6.7 million, or 12.8%, compared to the year ended December 31, 2022.
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.
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.
Shareholders’ equity increased $22.0 million, or 4.5%, to $512.1 million as of December 31, 2022 from $490.1 million as of December 31, 2021, primarily as result of net income and restricted stock activity partially offset by a $19.4 million increase in accumulated comprehensive loss, dividends declared of $12.7 million and share repurchases totaling $3.0 million.
Shareholders’ equity increased $30.3 million, or 5.9%, to $542.4 million as of December 31, 2023 from $512.1 million as of December 31, 2022, primarily as result of net income, common stock issued to Brunswick shareholders, and restricted stock activity partially offset by a decrease in retained earnings due to the impact of adopting CECL totaling $11.5 million, dividends declared of $13.0 million and share repurchases totaling $4.9 million.
December 31, 2020 Increase (decrease) Increase (decrease) (Dollars in thousands) Volume Rate (1) Net Volume Rate (1) Net INTEREST INCOME: Interest Bearing Balances $ 9 $ 47 $ 56 $ 134 $ (160) $ (26) Investment Securities: Taxable 6,796 2,610 9,406 270 (537) (267) Tax-Exempt 512 (37) 475 205 (61) 144 Total Investment Securities 7,308 2,573 9,881 475 (598) (123) Federal Funds Sold (364) 1,381 1,017 1,589 (1,277) 312 Loans, Net 31,808 (254) 31,554 13,501 1,710 15,211 Restricted Investment Bank Stocks (61) 5 (56) 44 (59) (15) Total Interest Income 38,700 3,752 42,452 15,743 (384) 15,359 INTEREST EXPENSE: Interest Bearing Deposits: Interest Bearing Demand 1,228 289 1,517 955 (2,048) (1,093) Money Market 745 1,375 2,120 1,591 (2,506) (915) Savings 148 (192) (44) 60 (169) (109) Time 915 (1,691) (776) 148 (3,103) (2,955) Total Interest-Bearing Deposits 3,036 (219) 2,817 2,754 (7,826) (5,072) Short-term Borrowings (497) 399 (98) 166 2 168 Long-term Debt (567) 98 (469) 133 (301) (168) Subordinated Debt 1,030 (267) 763 423 (324) 99 Total Interest Expense 3,002 11 3,013 3,476 (8,449) (4,973) NET INTEREST INCOME $ 35,698 $ 3,741 $ 39,439 $ 12,267 $ 8,065 $ 20,332 (1) The effect of changing volume and rate, which cannot be segregated, has been allocated entirely to the rate column.
December 31, 2021 Increase (decrease) Increase (decrease) (Dollars in thousands) Volume Rate (1) Net Volume Rate (1) Net INTEREST INCOME: Interest Bearing Balances $ (6) $ 298 $ 292 $ 9 $ 47 $ 56 Investment Securities: Taxable 1,042 2,436 3,478 6,796 2,610 9,406 Tax-Exempt 3 51 54 512 (37) 475 Total Investment Securities 1,045 2,487 3,532 7,308 2,573 9,881 Federal Funds Sold (1,798) 345 (1,453) (364) 1,381 1,017 Loans, Net 30,468 37,358 67,826 31,808 (254) 31,554 Restricted Investment Bank Stocks 243 332 575 (61) 5 (56) Total Interest Income 29,952 40,820 70,772 38,700 3,752 42,452 INTEREST EXPENSE: Interest Bearing Deposits: Interest Bearing Demand (375) 10,421 10,046 1,228 289 1,517 Money Market (585) 16,732 16,147 745 1,375 2,120 Savings (22) 59 37 148 (192) (44) Time 5,443 33,479 38,922 915 (1,691) (776) Total Interest-Bearing Deposits 4,461 60,691 65,152 3,036 (219) 2,817 Short-term Borrowings 6,300 346 6,646 (497) 399 (98) Long-term Debt 332 291 623 (567) 98 (469) Subordinated Debt (852) 30 (822) 1,030 (267) 763 Total Interest Expense 10,241 61,358 71,599 3,002 11 3,013 NET INTEREST INCOME $ 19,711 $ (20,538) $ (827) $ 35,698 $ 3,741 $ 39,439 (1) The effect of changing volume and rate, which cannot be segregated, has been allocated entirely to the rate column.
Management’s Discussion and Analysis Mid Penn maintained regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, 2022 and 2021, as follows: 2022 2021 Regulatory Minimum for Capital Adequacy Total Risk-Based Capital (to Risk-Weighted Assets) 13.19 % 14.60 % 10.50 % Tier I Risk-Based Capital (to Risk-Weighted Assets) 11.18 12.00 8.50 Common Equity Tier I (to Risk-Weighted Assets) 11.18 11.70 7.00 Tier I Leverage Capital (to Average Assets) 9.57 8.10 4.00 (1) Minimum amounts and ratios include the full phase in of the capital conservation buffer of 2.5 % required by the BASEL III framework.
Mid Penn maintained regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, 2023 and 2022, as follows: December 31, 2023 December 31, 2022 Regulatory Minimum for Capital Adequacy Tier I Leverage Capital (to Average Assets) 8.32 % 9.57 % 4.00 % Common Equity Tier I (to Risk-Weighted Assets) 9.78 11.18 7.00 Tier I Risk-Based Capital (to Risk-Weighted Assets) 9.78 11.18 8.50 Total Risk-Based Capital (to Risk-Weighted Assets) 11.69 13.19 10.50 As of December 31, 2023 and December 31, 2022, Mid Penn and the Bank met all capital adequacy requirements and the Bank was considered "well-capitalized".
The maturities of the uninsured time deposits as of December 31, 2022 were as follows: (In thousands) 2022 Three months or less $ 17,159 Over three months to six months 25,793 Over six months to twelve months 50,348 Over twelve months 26,004 $ 119,304 Short-term borrowings as of December 31, 2022 totaled $102.6 million and consisted of FHLB overnight borrowings.
The maturities of the uninsured time deposits as of December 31, 2023 were as follows: (In thousands) 2023 Three months or less $ 142,824 Over three months to six months 99,461 Over six months to twelve months 52,564 Over twelve months 39,689 $ 334,538 Short-term borrowings as of December 31, 2023 totaled $241.5 million, compared to $102.6 million as of December 31, 2022 and consisted of $166.5 million of FHLB overnight borrowings and $75.0 million of other FHLB Short Term borrowings.
Management’s Discussion and Analysis Noninterest expense and variance analysis as of December 31: Years Ended December 31, (In Thousands) 2022 2021 2020 $ Variance 2022 vs. 2021 % Variance 2022 vs. 2021 Salaries and employee benefits $ 52,601 $ 41,711 $ 37,758 $ 10,890 26.1 % Software licensing and utilization 7,524 6,332 5,286 1,192 18.8 Occupancy expense, net 6,900 5,527 5,505 1,373 24.8 Equipment expense 4,493 3,101 2,910 1,392 44.9 Shares tax 2,786 800 — 1,986 N/M Legal and professional fees 2,761 1,979 1,665 782 39.5 ATM/card processing 2,139 1,053 819 1,086 103.1 Intangible amortization 2,012 1,180 1,398 832 70.5 FDIC assessment 1,594 1,888 1,680 (294) (15.6) Charitable contributions qualifying for State tax credits 1,033 1,432 1,342 (399) (27.9) Mortgage banking profit-sharing expense 178 2,571 2,004 (2,393) (93.1) (Gain) loss on sale or write-down of foreclosed assets, net (133) (25) 333 (108) N/M Merger and acquisition expense 294 3,067 — (2,773) (90.4) Post-acquisition restructuring expense 329 9,880 — (9,551) N/M Other expenses 15,332 10,610 9,877 4,722 44.5 Total Noninterest Expense $ 99,843 $ 91,106 $ 70,577 8,737 9.6 % N/M - Not Meaningful For the year ended December 31, 2022, noninterest expense totaled $99.8 million, an increase of $8.7 million, or 9.6%, compared to noninterest expense of $91.1 million for the year ended December 31, 2021.
Management’s Discussion and Analysis Noninterest expense and variance analysis as of December 31: Years Ended December 31, (In Thousands) 2023 2022 2021 $ Variance 2023 vs. 2022 % Variance 2023 vs. 2022 Salaries and employee benefits $ 59,345 $ 52,601 $ 41,711 $ 6,744 12.8 % Software licensing and utilization 7,927 7,524 6,332 403 5.4 Occupancy expense, net 7,349 6,900 5,527 449 6.5 Equipment expense 5,121 4,493 3,101 628 14.0 Shares tax 2,713 2,786 800 (73) (2.6) Legal and professional fees 2,945 2,761 1,979 184 6.7 ATM/card processing 2,108 2,139 1,053 (31) (1.4) Intangible amortization 1,780 2,012 1,180 (232) (11.5) FDIC assessment 3,500 1,594 1,888 1,906 119.6 (Gain) loss on sale or write-down of foreclosed assets, net (144) (133) (25) (11) 8.3 Merger and acquisition expense 5,544 294 3,067 5,250 1785.7 Post-acquisition restructuring expense 2,952 329 9,880 2,623 797.3 Other expenses 17,852 16,543 14,612 1,309 7.9 Total Noninterest Expense $ 118,992 $ 99,843 $ 91,105 19,149 19.2 % N/M - Not Meaningful For the year ended December 31, 2023, noninterest expense totaled $119.0 million, an increase of $19.1 million, or 19.2%, compared to noninterest expense of $99.8 million for the year ended December 31, 2022.
In December of 2022, Mid Penn also redeemed the $9.3 million in subordinated debentures assumed as a result of the Riverview Acquisition. For details on the remaining subordinated debt, see "Note 11 - Subordinated Debt and Trust Preferred Securities " , within Item 8, Notes to Consolidated Financial Statements.
Subordinated debt and trust preferred securities totaled $46.4 million as of December 31, 2023 compared to $56.9 million as of December 31, 2022. 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.
Similar expenses totaling $294 thousand were incurred during the year ended December 31, 2022 related to the MPI Acquisition and the announcement of the Brunswick Bancorp Acquisition. For additional information on these two acquisitions, see "Note 2 - Business Combinations " , within Item 8, Notes to Consolidated Financial Statements.
For additional information on recent acquisitions, see "Note 2 - Business Combinations " , within Item 8, Notes to Consolidated Financial Statements. 43 MID PENN BANCORP, INC. Management’s Discussion and Analysis Post-acquisition and restructuring expenses were $3.0 million for the year ended December 31, 2023 compared to $329 thousand for the year ended December 31, 2022.
The following table represents non-performing assets as of: December 31, (Dollars in thousands) 2022 2021 2020 Non-performing Assets: Non-accrual loans $ 8,195 $ 9,547 $ 15,047 Accruing troubled debt restructured loans 390 435 463 Total non-performing loans 8,585 9,982 15,510 Foreclosed real estate 43 — 134 Total non-performing assets 8,628 9,982 15,644 — Accruing loans 90 days or more past due 654 515 — Total risk elements $ 9,282 $ 10,497 $ 15,644 Non-performing loans as a percentage of total loans outstanding 0.24 % 0.32 % 0.65 % Non-performing assets as a percentage of total loans outstanding and other real estate 0.25 % 0.32 % 0.66 % Non-accrual loans as a percentage of total loans 0.23 % 0.31 % 0.63 % Allowance for loan losses as a percentage of total loans 0.54 % 0.47 % 0.56 % Allowance for loan losses as a percentage of non-accrual loans 231.33 % 152.90 % 88.93 % Ratio of allowance for loan losses to non-performing loans 220.82 % 146.23 % 86.28 % Allowance for loan losses as a percentage of non-performing assets 219.72 % 146.23 % 85.54 % Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to partially or fully charging off the loan.
Management’s Discussion and Analysis The following table represents non-performing assets as of: December 31, (Dollars in thousands) 2023 2022 2021 Non-performing Assets: Total non-performing loans $ 14,216 $ 8,585 $ 9,982 Foreclosed real estate 293 43 — Total non-performing assets 14,509 8,628 9,982 Accruing loans 90 days or more past due — 654 515 Total risk elements $ 14,509 $ 9,282 $ 10,497 Non-performing loans as a percentage of total loans outstanding 0.33 % 0.24 % 0.32 % Non-performing assets as a percentage of total loans outstanding and foreclosed real estate 0.34 % 0.25 % 0.32 % Non-accrual loans as a percentage of total loans 0.33 % 0.23 % 0.31 % Allowance for credit losses as a percentage of total loans 0.80 % 0.54 % 0.47 % Allowance for credit losses as a percentage of non-accrual loans 240.48 % 231.33 % 152.90 % Ratio of ACL to non-performing loans 240.48 % 220.82 % 146.23 % Total nonperforming assets were $14.5 million at December 31, 2023, an increase compared to nonperforming assets of $8.6 million at December 31, 2022.
The decrease in total deposits was primarily due to the strategic decision to allow higher cost time deposits obtained through the Riverview Acquisition to run-off during the year. • Asset Quality - Mid Penn’s allowance for loan losses at December 31, 2022 was $19.0 million, or 0.54% of total loans, as compared to $14.6 million, or 0.47% of total loans at December 31, 2021. ◦ Net Recoveries/Charge-offs - Mid Penn had net loan recoveries of $60 thousand and net loan charge-offs of $1.7 million for the years ended December 31, 2022 and 2021, respectively. ◦ Non-performing assets - Total non-performing assets were $9.3 million at December 31, 2022, a decrease compared to non-performing assets of $10.5 million at December 31, 2021. ◦ Provision for loan losses - The provision for loan losses was $4.3 million for the year ended December 31, 2022 compared to $2.9 million for the year ended December 31, 2021.
ACL at December 31, 2023 was $34.2 million, or 0.80% of total loans, as compared to $19.0 million, or 0.54% of total loans at December 31, 2022. ◦ Net Recoveries/Charge-offs - Mid Penn had net loan charge-offs of $332 thousand and net loan recoveries of $60 thousand for the years ended December 31, 2023 and 2022, respectively. ◦ Non-performing assets - Total non-performing assets were $14.5 million at December 31, 2023, an increase compared to non-performing assets of $9.3 million at December 31, 2022.
The growth was primarily attributable to the Riverview Acquisition. • Noninterest Expense - Noninterest expense totaled $99.8 million, an increase of $8.7 million, or 9.6%, compared to noninterest expense of $91.1 million for the year ended December 31, 2021.
The decrease was primarily attributable to a $1.2 million decrease in mortgage hedging, and a $1.8 million decrease in other miscellaneous income. • Noninterest Expense - Noninterest expense totaled $119.0 million, an increase of $19.1 million, or 19.2%, compared to noninterest expense of $99.8 million for the year ended December 31, 2022.
Management’s Discussion and Analysis 2021, and 2020, Mid Penn recognized $3.8 million, $22.0 million and $13.1 million of PPP fees, respectively, which are included in loan fees.
During the years ended December 31, 2023, 2022, and 2021, Mid Penn recognized $15 thousand, $3.8 million and $22.0 million of PPP fees, respectively, which are included in loan fees. 36 MID PENN BANCORP, INC.
The increase was attributable to the retail staff additions at the seven retail locations added through the Riverview Acquisition, the retention of various Riverview team members through the completion of the systems integration, which occurred on March 4, 2022, and the addition of wealth management professionals, commercial lending professionals, and other staff additions in alignment with Mid Penn’s core banking and non-banking growth initiatives.
The increase was attributable to the retail staff additions at the five retail locations added through the Brunswick Acquisition and the retention of various Brunswick team members through the completion of the systems integration, which occurred on May 19, 2023.
Mortgage hedging income was $1.5 million for the year ended December 31, 2022 compared to $64 thousand for the same period in 2021. The increase was the result of a hedging program related to mortgage derivative activities that Mid Penn did not participate in during the majority of 2021.
Mortgage hedging income was $324 thousand for the year ended December 31, 2023 compared to $1.5 million for the same period in 2022. Other income decreased $2.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Mortgage loan originations and secondary-market loan sales and gains slowed during 2022 as a result of increases in interest rates.
Mortgage loan originations and secondary-market loan sales and gains slowed during 2023 as a result of increases in interest rates. As mortgage rates have risen, demand for mortgages has slowed significantly. As such, it is more difficult to properly hedge lower volumes within the mortgage pipeline.
Mid Penn’s total available-for-sale ("AFS") securities portfolio increased $175.0 million from $62.9 million at December 31, 2021 to $237.9 million at 38 Table of Contents MID PENN BANCORP, INC. Management’s Discussion and Analysis December 31, 2022.
Mid Penn’s total available-for-sale ("AFS") securities portfolio decreased $14.3 million from $237.9 million at December 31, 2022 to $223.6 million at December 31, 2023.
The loan growth occurred primarily within Mid Penn’s commercial real estate loan portfolio. ◦ Deposit Growth - Total deposits decreased $223.7 million, or 5.6% , from $4.0 billion at December 31, 2021 , to $3.8 billion at December 31, 2022 .
Non-owner occupied office commercial real estate exposure represents 7.1% of total loan balances and is primarily limited to suburban offices. ◦ Deposit Growth - Total deposits increased $567.9 million, or 15.0%, from $3.8 billion at December 31, 2022, to $4.3 billion at December 31, 2023.
In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve’s FOMC. Provision for Loan Losses The provision for loan losses is the expense necessary to maintain the allowance for loan losses at a level adequate to absorb management’s estimate of probable losses inherent in the loan portfolio.
In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve’s FOMC. 39 MID PENN BANCORP, INC.
During 2022, FTE net interest income increased $39.4 million, or 36.1%, compared to 2021.
During 2023, FTE net interest income decreased $827 thousand, or 0.6%, compared to 2022.
Management’s Discussion and Analysis Average balances and average interest rates applicable to deposits by major classification for the years ended December 31: 2022 2021 Change (Dollars in thousands) Balance Rate Balance Rate $ % Noninterest-bearing demand deposits $ 848,991 0.00 % $ 684,022 0.00 % $ 164,969 24.12 % Interest-bearing demand deposits 1,051,605 0.37 688,595 0.34 363,010 52.72 Money market 1,040,762 0.51 842,107 0.37 198,655 23.59 Savings 355,229 0.05 218,546 0.11 136,683 62.54 Time 524,944 0.92 451,277 1.24 73,667 16.32 $ 3,821,531 0.37 % $ 2,884,547 0.39 % $ 936,984 32.48 % As of December 31, 2022, uninsured deposits were approximately $1.6 billion compared to $1.4 billion as of December 31, 2021.
Average balances and average interest rates applicable to deposits by major classification for the years ended December 31: 2023 2022 Change (Dollars in thousands) Balance Rate Balance Rate $ % Noninterest-bearing demand deposits $ 800,582 0.00 % $ 848,991 0.00 % $ (48,409) (5.70) % Interest-bearing demand deposits 950,326 1.46 1,051,605 0.37 (101,279) (9.63) Money market 926,034 2.31 1,040,762 0.51 (114,728) (11.02) Savings 312,053 0.07 355,229 0.05 (43,176) (12.15) Time 1,116,552 3.92 524,944 0.92 591,608 112.70 $ 4,105,547 1.93 % $ 3,821,531 0.37 % $ 284,016 7.43 % 50 MID PENN BANCORP, INC.
See also the discussion in the "Provision for Loan Losses" section and see "Note 1- Summary of Significant Accounting Policies " , within Item 8, Notes to Consolidated Financial Statements for additional information regarding the allowance for loan losses.
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.
Management’s Discussion and Analysis Loans The following table presents the ending balance of loans outstanding, by type, as of December 31: 2022 2021 Change in Balance (Dollars in thousands) Balance % of Total Loans Balance % of Total Loans $ % Commercial and industrial $ 596,042 17.0 % $ 619,562 20.0 % $ (23,520) (3.8) % Commercial real estate 2,052,934 58.3 1,668,142 53.5 384,792 23.1 Commercial real estate - construction 441,246 12.6 372,734 12.0 68,512 18.4 Residential mortgage 305,386 8.7 323,223 10.4 (17,837) (5.5) Home equity 110,835 3.2 110,306 3.6 529 0.5 Consumer 7,676 0.2 10,429 0.5 (2,753) (26.4) $ 3,514,119 100.0 % $ 3,104,396 100.0 % $ 409,723 13.2 % Total loans, net of unearned income, as of December 31, 2022 were $3.5 billion compared to $3.1 billion as of December 31, 2021, an increase of $409.7 million.
Management’s Discussion and Analysis Loans The following table presents the ending balance of loans outstanding, by type, as of December 31: 2023 2022 Change in Balance (Dollars in thousands) Balance % of Total Loans Balance % of Total Loans $ % Commercial real estate CRE Nonowner Occupied $ 1,149,553 27.0 % $ 1,184,306 33.7 % $ (34,753) (2.9) % CRE Owner Occupied 629,904 14.8 488,551 13.9 141,353 28.9 Multifamily 309,059 7.3 197,620 5.6 111,439 56.4 Farmland 212,690 5.0 182,457 5.2 30,233 16.6 Total Commercial Real Estate 2,301,206 54.1 2,052,934 58.4 248,272 12.1 Commercial and industrial 675,079 15.9 596,042 17.0 79,037 13.3 Construction Residential Construction 92,843 2.2 90 — 92,753 103058.9 Other Construction 362,624 8.5 441,156 12.6 (78,532) (17.8) Total Construction 455,467 10.7 441,246 12.6 14,221 3.2 Residential mortgage 1-4 Family 1st Lien 339,142 8.0 305,386 8.7 33,756 11.1 1-4 Family Rental 341,937 8.0 — — 341,937 100.0 HELOC and Junior Liens 132,795 3.1 110,835 3.2 21,960 19.8 Total Residential Mortgage 813,874 19.1 416,221 11.8 397,653 95.5 Consumer 7,166 0.2 7,676 0.2 (510) (6.6) $ 4,252,792 100.0 % $ 3,514,119 100.0 % $ 738,673 21.0 % Total loans, net of unearned income, as of December 31, 2023 were $4.3 billion compared to $3.5 billion as of December 31, 2022, an increase of $738.7 million.
The increase was primarily the result of loan growth. • Noninterest Income - Noninterest income totaled $23.7 million for the year ended December 31, 2022, a $2.1 million, or 9.9%, increase compared to the year ended December 31, 2021.
The increase was partially a result of $3.9 million of non-accrual loans acquired from Brunswick. ◦ Provision for credit losses - Loans - The PCL - loans was $3.3 million for the year ended December 31, 2023 compared to $4.3 million for the year ended December 31, 2022.
Contractual Obligations Mid Penn has substantial aggregate contractual obligations to make future cash payments as of December 31, 2022 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 $ 10,739 $ 2,170 $ 3,905 $ 2,351 $ 2,313 Finance lease obligation 4,461 217 511 520 3,213 Certificates of deposit 664,600 442,424 189,572 28,226 4,378 Long-term debt 1,323 339 720 260 4 Subordinated debt 56,941 — — — 56,941 $ 738,064 $ 445,150 $ 194,708 $ 31,357 $ 66,849 45 Table of Contents MID PENN BANCORP, INC.
Contractual Obligations Mid Penn has substantial aggregate contractual obligations to make future cash payments as of December 31, 2023 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 $ 10,261 $ 2,432 $ 3,755 $ 2,279 $ 1,795 Finance lease obligation 4,245 252 519 520 2,954 Certificates of deposit 1,515,596 1,226,790 252,193 33,153 3,460 Long-term debt 55,953 35,310 20,611 28 4 Subordinated debt 46,354 — — — 46,354 $ 1,632,409 $ 1,264,784 $ 277,078 $ 35,980 $ 54,567 Details on expected maturities of investments, loans and deposits are presented in the above sections of Management's Discussion and Analysis.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−1 removed8 unchanged
Biggest changeThe following table reflects the effect of hypothetical changes in interest rates: Change in Basis Points % Change in Net Interest Income Policy Risk Limit 400 0.24% ≥ -25% 300 0.21% ≥ -20% 200 0.20% ≥ -15% 100 0.13% ≥ -10% (100) 1.83% ≥ -10% 47 Table of Contents MID PENN BANCORP, INC.
Biggest changeAt December 31, 2023, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy. 53 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 2.1% ≥ -25% 300 1.7% ≥ -20% 200 1.1% ≥ -15% 100 0.6% ≥ -10% (100) -0.2% ≥ -10% 54 MID PENN BANCORP, INC.
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; 46 however, actual results could vary significantly from the calculations prepared by management.
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.
Removed
At December 31, 2022, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.

Other MPB 10-K year-over-year comparisons