What changed in this filing

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Item 1. Business

2024-03-28 compared with 2023-03-16 · 65 added, 50 removed, 297 unchanged (28% of the section changed)

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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.

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.

During the year ended December 31, 2020, Mid Penn established three nonbank subsidiaries, including MPB Financial Services, LLC, under which two additional nonbank subsidiaries have been established:

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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").

On November 30, 2021, Mid Penn completed its acquisition of Riverview Financial Corporation, the holding company for Riverview Bank, through the merger of Riverview with and into Mid Penn.

In connection with the Riverview Acquisition , Riverview Bank was merged with and into the Bank, with the Bank as the surviving institution.

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MID PENN BANCORP, INC.

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.

Upon 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.

See "Form 8-K filed on December 20, 2022," for additional details.

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.

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.

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was an independent insurance agency that serviced the Central Pennsylvania area.

On May 19, 2023, Mid Penn completed its acquisition of Brunswick through the merger of Brunswick with and into Mid Penn with Mid Penn being the surviving corporation.

In connection with this acquisition, Brunswick Bank, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn.

This transaction included the acquisition of 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.

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.

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.

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.

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.

Mid Penn’s primary business consists of attracting deposits and loans from the Bank’s network of community banking offices.

The Bank engages in full-service commercial banking and trust business, making available to the community a wide range of financial services, including, but not limited to, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing, farm loans, community development and local government loans and various types of time and demand deposits.

The Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (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.

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.

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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.

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 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.

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.

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As of December 31, 2023, the Bank had 612 full-time and 23 part-time employees.

Additionally, Mid Penn’s nonbank subsidiaries employed 10 full-time employees as of December 31, 2022.

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.

MID PENN BANCORP, INC.

Diversity & Inclusion

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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.

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.

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.

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 DEI group has laid the groundwork to help create a more diverse and inclusive workplace by promoting understanding, respect, and awareness of different cultures, backgrounds, and perspectives.

Our Culture Committee has focused on contributing to a positive organizational culture by fostering open communication,

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.

We have found that employees who belong to any of our ERGs are more engaged, are developing leadership skills, and are gaining new experiences through volunteer and networking opportunities.

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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.

We provide in-house training to employees on a variety of topics, including leadership and professional development, cybersecurity, risk, compliance and technology.

On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance.

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The Bank also maintains strict documentation requirements and robust credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible, so any exposures that are discovered might be mitigated or potential losses reduced.

The Bank generally secures

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its loans with real estate, with such collateral values dependent and subject to change based on real estate market conditions within its market area.

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.

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Mid Penn does not have any significant non-governmental concentrations within its investment securities portfolio.

MID PENN BANCORP, INC.

Mid Penn maintains both a held-to-maturity investment portfolio and an available-for-sale investment portfolio.

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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.

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.

The majority of the investments are high quality United States and municipal securities that, if held to maturity, are expected to result in no realized loss to the Bank.

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The Bank primarily uses deposits and, to a lesser extent, wholesale borrowings to finance lending and investment activities.

Wholesale borrowing sources include advances from the Federal Home Loan Bank of Pittsburgh (the "FHLB"), overnight borrowings from the Bank’s other correspondent banking relationships, and advances from the Federal Reserve’s Discount Window.

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.

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For more information, see the "Supervision and Regulation" section below and Item 1A, "Risk Factors".

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.

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The regulation and supervision of the Corporation and particularly the Bank are primarily focused on the protection of depositors, the DIF, and the monetary system, and do not prioritize shareholder interests.

Enforcement actions that may be imposed by federal and state banking regulators include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance on deposits, the imposition of civil money penalties, and removal and prohibition orders.

Enforcement actions that may be imposed by federal and

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.

If a banking regulator takes any enforcement action, the value of an equity investment in Mid Penn could be substantially reduced or eliminated.

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Federal and state banking laws contain numerous provisions affecting various aspects of the business and operations of Mid Penn and the Bank.

Mid Penn is subject to, among others, the regulations of the Securities and Exchange Commission ("SEC") and the Board of Governors of the Federal Reserve System (the "Federal Reserve").

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.

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• activities that the Federal Reserve has determined by regulation to be closely related to banking.

MID PENN BANCORP, INC.

In addition to permitting financial holding companies’ entry into new lines of business, the law allows companies the freedom to streamline existing operations and to potentially reduce costs.

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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 BANCORP, INC.

Bank Regulation

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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.

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.

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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%.

MID PENN BANCORP, INC.

The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party.

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These deductions and adjustments include, for example, goodwill, other intangible assets, and deferred tax assets ("DTAs") that arise from net operating loss and tax credit carryforwards net of any related valuation allowance.

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.

Through subsequent rulemaking, the federal banking agencies provided certain forms of relief to banking organizations, such as Mid Penn and the Bank, that are not subject to the advanced approaches framework.

Mid Penn and the Bank made a one-time, permanent election under the Basel III Rules to exclude the effects of certain components of accumulated ("AOCI") included in shareholders' equity under generally accepted accounting principals in the United States ("GAAP") in determining regulatory capital ratios.

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.

Under the Basel III Rules, certain off-balance sheet commitments and obligations are converted into RWA, that together with on-balance sheet assets, are the base against which regulatory capital is measured.

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Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve.

MID PENN BANCORP, INC.

Safety and Soundness Standards

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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.

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.

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;

• 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.

If the Bank's portfolio exceeds the guidelines mentioned above, additional risk management practices may be needed.

In the analysis of the CRE portfolio, the consideration of the following factors could mitigate the risk posed by the concentration:

• Portfolio diversification across property types;

• Geographic dispersion of CRE loans;

• Underwriting standards;

• Level of pre-sold units or other types of take-out commitments on construction loans;

• Portfolio liquidity.

Banks that have experienced significant growth in their CRE lending will receive closer regulatory review than those that have not.

Mid Penn's underwriting process for commercial real estate loans includes analysis of the financial position and strength of both the borrower and, if applicable, guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type.

The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting.

Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance, in addition to analysis of the proposed project for income-producing properties.

Additional support offered by guarantors is also considered when applicable.

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.

MID PENN BANCORP, INC.

Payment of Dividends and Other Restrictions

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Finally, certain risk multipliers may be applied to the adjusted assessment.

MID PENN BANCORP, INC.

Beginning with the second quarter of 2011 and as applicable continuously through to the current period, as mandated by the Dodd-Frank Act, the assessment base that the FDIC uses to calculate assessment premiums is the Bank’s average assets minus average tangible equity.

As the asset base of the banking industry is larger than the deposit base, the range of assessment rates is a low of 2.5 bp and a high of 45 bp, per $100 of assets.

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.

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 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.

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.

The FDIC was required under the Dodd-Frank Act to establish assessment rates that allowed the DIF to achieve a reserve ratio of 1.35% of Insurance Fund insured deposits by September 2020.

In addition, the FDIC has established a long term goal of a "designated reserve ratio" of 2%, a target ratio that, until it is achieved, will not likely result in the FDIC reducing assessment rates.

The reserve ratio is currently below the minimum and in October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rates uniformly by 2 basis points with the intention of reaching the statutory minimum by September 30, 2028.

These new rates will remain in effect until the reserve ratio meets or exceeds 2%.

Consumer Protection Laws

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For example, the Community Reinvestment Act is designed to encourage services, investments, and lending activities in low- and moderate-income areas.

Federal Bank regulatory agencies passed a final rule in August 2023 to strengthen and modernize the regulations to better achieve the purposes of the law.

These changes will begin to take effect on January 1, 2026.

The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisions based on impermissible criteria, such as race or gender.

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The Bank maintains a comprehensive compliance management program to promote its compliance with these and other applicable consumer protection laws and regulations.

MID PENN BANCORP, INC.

The federal banking regulators have issued a number of regulations governing the privacy of consumer financial and customer information.

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government to detect and prosecute international money laundering and the financing of terrorism.

Under Title III of the USA Patriot Act, also known as the

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.

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.

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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.

MID PENN BANCORP, INC.

In 2012, the Jumpstart Our Business Startups Act (the "JOBS Act") became law.

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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.

MID PENN BANCORP, INC.

From time to time, legislation is enacted that has the effect of increasing the compliance and operations requirements and the cost of doing business, changing the tax structure applicable to Mid Penn, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial institutions.

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It is not possible to reasonably predict the nature, amount, frequency, and impact of future changes in monetary and fiscal policies.

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Environmental Laws

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Mid Penn’s common stock is registered under Section 12(b) of the Exchange Act and is traded on NASDAQ under the trading symbol MPB.

Mid Penn is subject to the informational requirements of the Exchange Act, and, accordingly, files

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reports, proxy statements and other information 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.

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The information included on our website is not considered a part of this document.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business