8-K/A: Mid Penn Bancorp Completes William Penn Acquisition, Unveils Pro Forma Financials with Strategic Asset Restructuring

Mid Penn Bancorp, Inc. has finalized its acquisition of William Penn Bancorporation, disclosing pro forma financial statements that include a strategic post-closing asset restructuring aimed at enhancing interest income.

Summary

• Mid Penn Bancorp, Inc. completed its acquisition of William Penn Bancorporation on April 30, 2025, as per the Merger Agreement dated October 31, 2024.
• This amended Current Report on Form 8-K/A provides the required unaudited financial statements for William Penn Bancorporation for the six months ended December 31, 2024, and unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2024.
• William Penn Bancorporation reported a net loss of $1,009 thousand for the six months ended December 31, 2024, compared to a net income of $190 thousand for the same period in 2023.
• Basic and diluted loss per share for William Penn Bancorporation was $0.12 for the six months ended December 31, 2024, down from earnings per share of $0.02 in the prior year period.
• William Penn's total assets decreased to $796,428 thousand as of December 31, 2024, from $818,747 thousand as of June 30, 2024.
• The allowance for credit losses for William Penn decreased to $2,598 thousand as of December 31, 2024, from $2,989 thousand as of June 30, 2024, primarily due to a decrease in delinquent 1-4 family investor loans and commercial non-residential loans, and consistently low net charge-offs.
• William Penn Bank maintained a 'well capitalized' status with a Tier 1 leverage ratio of 16.66% as of December 31, 2024, significantly above the 9.00% requirement.
• The total estimated purchase price for William Penn Bancorporation was $103.2 million, resulting in $10.2 million in goodwill.
• Each share of William Penn common stock was converted into the right to receive 0.426 shares of Mid Penn common stock.
• Pro forma combined net income for the twelve months ended December 31, 2024, is $54,419 thousand, with basic earnings per common share of $2.65 and diluted earnings per common share of $2.61.
• A key management adjustment in the pro forma financials involves selling $215.7 million of investment securities (assumed yield 2.90%) and reinvesting the proceeds into federal funds sold (assumed yield 4.25%).
• Merger-related charges are estimated at $10.8 million pre-tax for Mid Penn and $1.4 million pre-tax for William Penn.

Sentiment

Score: 7

Explanation: The completion of the merger and the strategic asset restructuring are positive developments for the combined entity, aiming to enhance future profitability. While William Penn's standalone financials show a loss, this is historical and the pro forma combined results are positive. The significant merger costs are expected but represent a near-term financial impact.

Positives

• William Penn Bank maintained a 'well capitalized' status with a Tier 1 leverage ratio of 16.66% as of December 31, 2024, significantly exceeding the 9.00% regulatory requirement.
• William Penn's allowance for credit losses decreased, attributed to a reduction in delinquent 1-4 family investor loans and commercial non-residential loans, coupled with low net charge-offs and strong asset quality metrics.
• The pro forma combined financial statements project a positive net income of $54,419 thousand and basic EPS of $2.65 for the combined entity for the twelve months ended December 31, 2024.
• A strategic management adjustment to sell $215.7 million of lower-yielding investment securities (2.90% yield) and reinvest into higher-yielding federal funds sold (4.25% yield) is expected to improve net interest income for the combined entity.

Negatives

• William Penn Bancorporation reported a net loss of $1,009 thousand for the six months ended December 31, 2024, a significant decline from a net income of $190 thousand in the prior year period.
• Basic and diluted loss per share for William Penn Bancorporation was $0.12 for the six months ended December 31, 2024, indicating a negative shift in profitability.
• Total other expenses for William Penn increased to $11,505 thousand for the six months ended December 31, 2024, from $10,296 thousand in the prior year, partly due to merger-related expenses.

Risks

• The final allocation of the purchase price for the acquisition is preliminary and subject to change based on further analyses and operations subsequent to December 31, 2024, which could materially alter the amount of goodwill and other assets/liabilities.
• There is no assurance that the anticipated cost savings or revenue enhancements from the merger will be realized on the anticipated time schedule or at all.
• The determination of an appropriate allowance for credit losses is inherently subjective and may have significant changes from period to period, potentially impacting financial results.
• The Company's primary business activity is concentrated in the Delaware Valley area, making its loan portfolio susceptible to the region's economic conditions.

Future Outlook

The pro forma financial information is provided for illustrative purposes and is not necessarily indicative of future actual results. However, a key management adjustment indicates a strategic move to enhance future net interest income by selling lower-yielding investment securities and reinvesting in higher-yielding federal funds. The final purchase price allocation and realization of anticipated cost savings are subject to further analysis and may differ from current estimates.

Management Comments

• The unaudited interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented.
• Management determined that it is not more likely than not that the carrying value of goodwill is impaired as of December 31, 2024.

Industry Context

This acquisition reflects a continuing trend of consolidation within the regional banking sector, particularly in the Delaware Valley area, as institutions seek to achieve economies of scale, expand market share, and optimize asset portfolios in a dynamic interest rate environment. The strategic decision to reallocate assets from lower-yielding securities to higher-yielding federal funds aligns with broader industry efforts to improve net interest margins amidst fluctuating rates and competitive pressures.

Comparison to Industry Standards

• William Penn Bank's Tier 1 leverage ratio of 16.66% as of December 31, 2024, significantly exceeds the Community Bank Leverage Ratio (CBLR) framework requirement of 9.00%, indicating a strong capital position well above industry regulatory standards for well-capitalized institutions.
• The decrease in William Penn's allowance for credit losses and non-accrual loans suggests effective credit risk management and asset quality metrics that compare favorably to peers experiencing stable or improving loan portfolio health.
• The strategic asset restructuring, involving the sale of $215.7 million in investment securities with a 2.90% yield and reinvestment into federal funds sold at a 4.25% yield, demonstrates an active approach to balance sheet management, aiming to optimize returns in line with best practices for maximizing net interest income in a rising rate environment, a strategy often employed by agile financial institutions.

Legal Proceedings

• The Bank is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, results of operations or cash flows.

Stakeholder Impact

• Shareholders of William Penn Bancorporation received 0.426 shares of Mid Penn common stock for each of their shares, impacting their ownership and future returns in the combined entity.
• Shareholders of Mid Penn Bancorp will experience dilution due to the issuance of new shares for the acquisition but are expected to benefit from the expanded market presence and potential synergies.
• Employees of William Penn Bancorporation may experience changes in roles, benefits, or employment as Mid Penn assesses personnel and integrates operations.
• Customers of William Penn Bank will become customers of Mid Penn Bank, potentially experiencing changes in services, branch access, or account terms.
• The termination of the William Penn Bank Employee Stock Ownership Plan (ESOP) impacts participating employees, with shares being remitted to repay the ESOP loan and remaining shares converted into merger consideration.

Next Steps

• Mid Penn will finalize its fair value determinations for William Penn's assets and liabilities as of the April 30, 2025, closing date.
• Mid Penn will continue assessing personnel, benefits plans, premises, equipment, computer systems, and service contracts to identify redundancies and facilitate system conversions for the combined entity.

Key Dates

Recommendation

Keywords

Merger, Acquisition, SEC Filing, 8-K/A, Financial Statements, Pro Forma, Banking, Community Bank, Asset Restructuring, Goodwill, Credit Quality, Regulatory Capital, William Penn Bancorporation, Mid Penn Bancorp