10-K: Mid Penn Bancorp Reports Full Year 2023 Results, Impacted by Acquisition and Interest Rate Changes

Mid Penn Bancorp's 2023 financial results were influenced by the acquisition of Brunswick Bancorp, loan growth, and shifts in interest rates, leading to a decrease in net income compared to the previous year.

Summary

• Mid Penn Bancorp reported a net income of $37.4 million for 2023, a decrease from $54.8 million in 2022.
• Diluted earnings per share were $2.29 in 2023, down from $3.44 in 2022.
• The company's net interest margin decreased to 3.26% in 2023 from 3.59% in 2022.
• Total loans increased by 21.0% to $4.3 billion, with $324.5 million attributed to the Brunswick acquisition.
• Total deposits grew by 15.0% to $4.3 billion, including $282.6 million from the Brunswick acquisition.
• The allowance for credit losses increased to $34.2 million, or 0.80% of total loans, due to the adoption of CECL.
• Noninterest income decreased by 15.4% to $20.0 million, primarily due to lower mortgage hedging income.
• Noninterest expense increased by 19.2% to $119.0 million, driven by merger-related expenses and higher salaries.
• Mid Penn repurchased 216,879 shares of its common stock at an average price of $22.31 per share during 2023.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is growth in loans and deposits, the decrease in net income and net interest margin, along with increased expenses, suggests a neutral to slightly negative outlook. The company is facing challenges but is also taking steps to expand its business.

Positives

• Total loans increased by 21.0% to $4.3 billion, indicating strong lending activity.
• Total deposits grew by 15.0% to $4.3 billion, reflecting customer confidence and deposit growth.
• The company successfully completed the acquisition of Brunswick Bancorp, expanding its market presence.
• Mid Penn repurchased 216,879 shares of its common stock, demonstrating a commitment to shareholder value.

Negatives

• Net income decreased to $37.4 million in 2023 from $54.8 million in 2022.
• The net interest margin declined to 3.26% in 2023 compared to 3.59% in the previous year.
• Noninterest income decreased by 15.4% to $20.0 million, primarily due to lower mortgage hedging income.
• Noninterest expense increased by 19.2% to $119.0 million, driven by merger-related expenses and higher salaries.

Risks

• The company is subject to interest rate risk, which could impact net interest income.
• Credit risk is a concern, particularly with a significant portion of the loan portfolio in commercial real estate and construction loans.
• Competition from other financial institutions may adversely affect profitability.
• Cybersecurity risks and potential breaches could negatively impact financial performance and reputation.
• Economic conditions in Pennsylvania could affect the company's financial results.
• The company may be required to pay higher FDIC insurance premiums or special assessments.
• The company is subject to environmental, social and governance risks that could adversely affect our results of operations, reputation, and the market price of our securities.

Future Outlook

The document includes forward-looking statements that are subject to various risks and uncertainties, including economic conditions, interest rate changes, competition, and regulatory changes. The company's future performance is dependent on its ability to manage these factors effectively.

Management Comments

• Management believes it has implemented effective asset and liability management strategies and interest rate risk management activities to reduce the potential effects of changes in interest rates on Mid Penns results of operations.
• 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.

Industry Context

The financial services and banking industry is highly competitive, and Mid Penn's profitability depends on its ability to compete effectively. The company faces competition from other commercial banks, credit unions, savings banks, insurance companies, and securities brokerage firms. The industry is also subject to rapid changes in technology, regulation, and product innovation.

Comparison to Industry Standards

• Mid Penn's performance is compared to a peer group of similar financial institutions, including AMAL, CCNE, CHCO, CNOB, FCF, FFIC, FISI, KRNY, MCB, NFBK, ORRF, PGC, STBA, TBBK, TMP, TRST, UVSP and WASH.
• The company's total shareholder return was 124.02% based on a $100 investment on December 31, 2018, while the average return for its current peers was 147.00% over the same period.
• The KBW NASDAQ Bank Index Return was 111.93% over the same period.
• The company's net interest margin of 3.26% is compared to the industry average, which is not explicitly stated in the document.
• The company's non-performing assets to total assets ratio of 0.27% is compared to the industry average, which is not explicitly stated in the document.

Corporate Governance

Legal Proceedings

• Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position of the Corporation.
• Mid Penn and the Bank have no proceedings pending other than ordinary, routine litigation occurring in the normal course of business.

Related Party Transactions

• The aggregate amount of loans to executive officers, directors, and their related interests was $22.0 million at December 31, 2023.
• Related parties held $750 thousand of the December 2020 Notes as of December 31, 2023.
• Related parties held $1.7 million of the March 2020 Notes as of December 31, 2023.
• Rental expense paid to related parties was $274 thousand for each of 2023, 2022 and 2021.
• Deposits and other funds from related parties held by Mid Penn at December 31, 2023 and 2022 amounted to $48.3 million and $56.8 million, respectively.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and diluted EPS.
• Employees may be affected by changes in compensation and benefits.
• Customers may experience changes in services and products due to the acquisition and other strategic initiatives.
• Creditors may be impacted by changes in the company's financial condition and capital structure.

Next Steps

• The company will continue to monitor internal metrics and macroeconomic trends to determine if there is likelihood of goodwill impairment.
• The company will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and implementing regulations.
• The company will continue to invest in tools, education programs, certifications and continuing education to help our employees build their knowledge, skills and experience.

Key Dates

Keywords

Mid Penn Bancorp, financial results, acquisition, Brunswick Bancorp, net interest margin, loan growth, deposit growth, credit losses, noninterest income, noninterest expense, share repurchase, interest rate risk, cybersecurity, FDIC, commercial real estate, mortgage banking