8-K: Mid Penn Bancorp Boosts CEO's Retirement & Death Benefits

Mid Penn Bancorp, Inc. has entered into new split dollar and supplemental executive retirement plan agreements with President and CEO Rory G. Ritrievi, enhancing his long-term compensation and retention package.

Summary

• Mid Penn Bancorp, Inc. (the Corporation) and its subsidiary, Mid Penn Bank, entered into a new split dollar agreement and a 2025 Supplemental Executive Retirement Plan (SERP) agreement with President and CEO Rory G. Ritrievi on October 24, 2025.
• The 2025 SERP supplements the existing 2022 SERP, which remains in full force and effect.
• The new SERP provides an initial annual normal retirement benefit of $404,480, payable monthly over 15 years, commencing after Mr. Ritrievi reaches age 73 or separates from service, whichever is later.
• This annual benefit will increase by 2.0% each year after it is fully vested and vests ratably over ten years.
• Vesting is accelerated to fully vested upon termination following a change in control or Mr. Ritrievi's disability, or by three years for termination without cause or for good reason.
• The split dollar agreement provides Mr. Ritrievi's designated beneficiary with a share of death proceeds from life insurance policies owned by the Bank if he dies while employed.
• The death benefit under the split dollar agreement ranges from $4,650,000 for death in 2025 to $6,067,200 for death in 2034 and subsequent years, subject to certain calculations involving the SERP differential and net death proceeds.
• The 2025 SERP also includes provisions for early termination, disability, and change in control benefits, all generally linked to the normal retirement benefit amount.
• The agreements contain non-competition and non-solicitation covenants, with violations potentially leading to forfeiture of unpaid benefits.
• Mr. Ritrievi may elect to reduce payments to avoid or lessen excise taxes under Internal Revenue Code Section 4999, and the company will not provide a gross-up payment for such taxes.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While these agreements represent increased future liabilities, they are standard mechanisms for executive retention in the banking industry. Securing the long-term commitment of a CEO through robust compensation and benefits can be viewed favorably for stability and strategic continuity, outweighing the immediate cost concerns for a seasoned investor.

Positives

• The new agreements enhance the long-term retention of a key executive, Rory G. Ritrievi, by providing significant retirement and death benefits.
• The structured benefits package provides financial security for the CEO and his beneficiaries, aligning his long-term interests with the company's stability.
• The inclusion of non-competition and non-solicitation clauses protects the Bank's business interests and goodwill post-employment.

Negatives

• The new compensation agreements represent a significant increase in future liabilities for the Bank, potentially impacting shareholder value.
• The substantial benefits, particularly in the event of a change in control, could be viewed as a 'golden parachute' arrangement, which may draw scrutiny.
• The complexity of the split dollar and SERP agreements, including tax implications and forfeiture conditions, requires careful monitoring and administration.

Risks

• Potential forfeiture of unpaid benefits if Mr. Ritrievi violates non-competition or non-solicitation covenants, except in limited circumstances.
• Risk of payments constituting 'excess parachute payments' under Internal Revenue Code Section 280G, potentially subjecting Mr. Ritrievi to excise taxes under Section 4999 (though he can elect to reduce payments, and no gross-up is provided).
• Benefits may not be distributed if Mr. Ritrievi is subject to a final removal or prohibition order by a federal banking agency.
• The Bank's deduction for certain distributions could be limited or eliminated by Code Section 162(m), potentially delaying payments.
• Payments could be delayed if they violate federal securities laws or other applicable law, or if they jeopardize the Bank's ability to continue as a going concern.

Future Outlook

The new compensation agreements solidify the long-term financial incentives for President and CEO Rory G. Ritrievi, aiming to ensure his continued leadership and commitment to Mid Penn Bancorp. These arrangements are designed to provide substantial benefits upon his retirement, disability, or death, and in the event of a change in control, thereby promoting executive stability and retention. The company anticipates these agreements will contribute to sustained growth and success by retaining key management.

Management Comments

• The agreements were signed by Rory G. Ritrievi as President and Chief Executive Officer of Mid Penn Bancorp, Inc. and as the Executive party to the agreements with Mid Penn Bank.

Industry Context

Executive compensation packages, particularly those involving supplemental executive retirement plans (SERPs) and split dollar life insurance, are common tools in the banking industry for attracting and retaining high-caliber leadership. These arrangements are designed to provide long-term incentives and security, which is crucial in a competitive financial services landscape where experienced executives are highly sought after. The structure of these plans often reflects a company's commitment to its leadership and its long-term strategic vision.

Comparison to Industry Standards

• The use of a Supplemental Executive Retirement Plan (SERP) and a split dollar life insurance agreement for a CEO is a standard practice among regional banks and financial institutions to provide non-qualified deferred compensation and death benefits, similar to arrangements seen at comparable institutions like Fulton Financial Corporation or Univest Financial Corporation.
• The specified normal retirement age of 73 is somewhat higher than the typical retirement age in many industries, but not uncommon for senior executives in banking who often continue to serve beyond traditional retirement ages.
• The annual benefit of $404,480 and the death benefit figures, while substantial, are within the range for CEOs of publicly traded regional banks of similar asset size and market capitalization, reflecting competitive executive compensation practices aimed at retention.
• The inclusion of non-compete and non-solicitation clauses, along with provisions for Section 280G/4999 excise tax mitigation without a gross-up, aligns with best practices in corporate governance and executive compensation to protect shareholder interests and manage tax liabilities.

Corporate Governance

Related Party Transactions

• The filing details new compensation agreements (split dollar and 2025 SERP) between Mid Penn Bank and its President and CEO, Rory G. Ritrievi, who is a related party.

Stakeholder Impact

• **Shareholders:** Will bear the cost of these enhanced compensation packages, which represent increased future liabilities. However, the agreements aim to ensure executive retention and stability, which could be seen as beneficial for long-term performance.
• **Employees:** No direct impact on general employees, as these are executive-specific compensation plans.
• **Executive (Rory G. Ritrievi):** Receives significantly enhanced long-term financial security through retirement, disability, and death benefits, along with incentives for continued service and protection against certain tax impacts.

Next Steps

• The Bank will continue to pay premiums on the life insurance policies under the split dollar agreement.
• The Plan Administrator will manage the administration of the 2025 SERP, including benefit calculations and distributions.
• Mr. Ritrievi will need to designate beneficiaries for both agreements.

Key Dates

Recommendation

The filing details new executive compensation agreements, which are a standard practice for retaining key leadership. While these agreements represent future liabilities, they are designed to ensure stability and continuity at the executive level. There are no immediate operational or financial performance updates that would warrant a 'buy' or 'sell' recommendation. The enhanced compensation package for the CEO is a long-term strategic move for retention, and its impact on the company's overall value will unfold over time, making a 'hold' position appropriate for now.

Keywords

Executive Compensation, SERP, Split Dollar Agreement, Rory G. Ritrievi, Mid Penn Bancorp, Retirement Plan, Death Benefit, Corporate Governance, Executive Retention, Banking Industry