Mid Penn Bancorp, Inc. Reports Second Quarter Earnings and Declares Dividend

HARRISBURG, Pa., July 27, 2023 (GLOBE NEWSWIRE) -- Mid Penn Bancorp, Inc. ( MPB) ("Mid Penn"), the parent company of Mid Penn Bank (the "Bank") and MPB Financial Services, LLC, today reported net income available to common shareholders ("earnings") for the quarter ended June 30, 2023, of $4.8 million, or $0.29 per diluted common share. Adjusted net income excluding non-recurring expenses⁽¹⁾ for the second quarter 2023 was $11.1 million and adjusted earnings per share common share excluding non-recurring expenses was $0.68, which excluded $6.3 million of after-tax merger-related expenses.

Key Highlights of the Second Quarter of 2023

• Completed the acquisition of Brunswick Bancorp ("Brunswick"), which added total assets of $391.9 million comprised primarily of $324.8 million of loans.

• Organic deposit growth for the quarter was $126.0 million, or 13% (annualized), from the first quarter of 2023.

• Organic loan growth for the quarter was $98.3 million, or 10.9% (annualized), from the first quarter of 2023.

• Repurchased 204,379 shares of common stock at an average price of $22.41.

• Total accumulated other comprehensive loss was 4.5% of tangible shareholders' equity⁽¹⁾ at June 30, 2023.

• Book value per common share was $32.05 for the second quarter, compared to $32.15 for the first quarter of 2023. Tangible book value per share⁽¹⁾ was $23.79 at June 30, 2023, compared to $24.52, at March 31, 2023.

“During the second quarter, while completing the acquisition of Brunswick Bancorp, Mid Penn achieved 13% annualized organic deposit growth and 10.9% annualized organic loan growth, demonstrating our resilience in the face of recent turbulence in the banking industry. The Brunswick acquisition added $325 million in quality loans and $283 million in core deposits while giving Mid Penn entry into the dynamic central New Jersey market. We look forward to complementing Brunswick’s talented team of bankers with the resources of a $5+ billion balance sheet to help them compete effectively in a market with very attractive demographics,” Chair, President, and CEO Rory G. Ritrievi said.

Ritrievi added, “As a result of the interest rate yield curve being inverted throughout the quarter, our net interest margin remained under pressure, as is the case for most community banks that compete in the spread business. Notwithstanding the rate increase announced this week, we feel we are nearing an end of that margin compression with the expectation that we will now begin to build that margin back to the level we saw in FY2021 and 2022. As we do that, we will remain diligent in controlling noninterest expenses so that our final FY2023 operating results will meet the expectations of our shareholders and analysts.”

For the second quarter, the Board is pleased to announce a quarterly cash dividend of $0.20 per share of common stock, which was declared at its meeting on July 26, 2023, payable on August 28, 2023, to shareholders of record as of August 10, 2023.

^{(1) Non-GAAP financial measure. Refer to the calculation on the section titled “Reconciliation of Non-GAAP Measures” at the end of this document.}

Net Interest Income

For the three months ended June 30, 2023, net interest income was $36.4 million compared to net interest income of $36.0 million for the three months ended March 31, 2023, and $35.4 million for the three months ended June 30, 2022. The tax-equivalent net interest margin for the three months ended June 30, 2023, was 3.29% compared to 3.49% for the first quarter of 2023, and 3.45% for the second quarter of 2022, a 20 and 16 basis point ("bp") decrease, respectively, compared to the prior quarter and the same period in 2022.

The yield on interest-earning assets increased to 5.10% for the quarter ended June 30, 2023, from 4.86% for the quarter ended March 31, 2023, and 3.73% for the quarter ended June 30, 2022. The increase was due to assets continuing to reprice at higher rates during the quarter. Increased yields on interest-earning assets were more than offset by increases in funding costs for the quarter with overall cost of interest-bearing liabilities increasing to 2.35% during the second quarter of 2023, compared to 1.81% at March 31, 2023, and 0.36% at June 30, 2022.

For the six months ended June 30, 2023, net interest income increased $2.6 million to $72.5 million compared to net interest income of $69.8 million for the same period of 2022.

Both interest-earning assets and interest-bearing liabilities associated with the Brunswick acquisition had substantially similar yields to the corresponding Mid Penn portfolios. We do not anticipate a material change in net interest margin resulting from the acquisition.

Average Balances

Average balances were significantly impacted by the Brunswick acquisition given that the acquisition closed on May 19, 2023. Day one increases in loans, total assets, deposits, borrowings, and total liabilities were $324.8 million, $391.9 million, $282.6 million, $60.1 million, and $346.3 million, respectively.

Average loans increased $253.3 million to $3.8 billion at June 30, 2023, compared to $3.6 billion at March 31, 2023, and $3.1 billion at June 30, 2022. Average deposits were $4.1 billion for the second quarter of 2023, reflecting an increase of $274.6 million, or 7.3%, compared to total average deposits in the first quarter of 2023, and $220.5 million, or 5.8%, compared to total average deposits of $3.8 billion for the second quarter of 2022. The average cost of deposits was 1.77% for the second quarter of 2023, representing a 48 bp and 156 bp increase from the first quarter of 2023 and the second quarter of 2022, respectively. We continue to face headwinds with respect to deposit pricing as customers in many product types have become increasingly rate sensitive. Our primary focus with respect to deposit strategy is stability, ensuring that our rates are competitive and our product mix satisfies the needs of our customers. Additionally, Mid Penn also maintains interest rate swaps designated as cash flow hedges to hedge the cash flows associated with existing brokered CDs to mitigate the impact of rising deposit costs.

As a result of the Brunswick acquisition and organic movement, the mix of deposits has shifted from the prior quarter. Time deposits represented 22.8% of total deposits at March 31, 2023, and increased to 29.8% at June 30, 2023. Nearly all of this increase corresponds to movement out of interest-bearing transaction accounts. The mix of non-interest bearing deposits remained stable, representing approximately 20% of total deposits for both March 31 and June 30, 2023. The average duration of the non-hedged time deposit portfolio is 12 months at June 30, 2023. We believe this positions us well to reprice the portfolio at lower rates in the future.

Asset Quality

On January 1, 2023, Mid Penn adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL. Results for reporting periods beginning after January 1, 2023, are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology.

The provision for credit losses on loans was $1.2 million for the three months ended June 30, 2023, an increase of $667 thousand compared to the provision for credit losses of $490 thousand for the three months ended March 31, 2023. The increase in provision was primarily due to reserving for the loans acquired through the Brunswick acquisition which was $2.0 million for non-PCD loans. The provision for credit losses on loans was $1.6 million for the six months ended June 30, 2023, a decrease of $578 thousand compared to the provision for credit losses of $2.2 million for the six months ended June 30, 2022. The ratio of allowance for credit losses to total loans declined to 0.81% at June 30, 2023, from 0.87% at March 31, 2023, primarily due to improved economic forecasts.

Total nonperforming assets were $16.3 million at June 30, 2023, compared to nonperforming assets of $14.2 million and $8.0 million at March 31, 2023, and June 30, 2022, respectively. The increase during the second quarter primarily related to $3.9 million of non-accrual loans acquired from Brunswick, partially offset by reductions to other non-accrual loans. Delinquency as a percentage of total loans was 0.47% at June 30, 2023.

Capital

Shareholders’ equity increased $18.9 million, or 3.68%, from $512.1 million as of December 31, 2022, to $531.0 million as of June 30, 2023. The increase was primarily due to the Brunswick acquisition. Regulatory capital ratios for both Mid Penn and its banking subsidiary indicate regulatory capital levels in excess of both the regulatory minimums and the levels necessary for the Bank to be considered "well capitalized" at June 30, 2023. Additionally, Mid Penn declared $3.2 million in dividends during the second quarter of 2023.

On May 11, 2023, Mid Penn’s Board of Directors reauthorized its treasury stock repurchase program ("Program") effective through May 11, 2024. The Program authorizes the repurchase of up to $15.0 million of Mid Penn’s outstanding common stock. During the six months ended June 30, 2023, Mid Penn repurchased 204,379 shares of common stock at an average price of $22.41. As of June 30, 2023, Mid Penn repurchased 412,722 shares of common stock at an average price of $22.92 per share under the Program. The Program had $5.5 million remaining available for repurchase as of June 30, 2023.

Noninterest Income

For the three months ended June 30, 2023, noninterest income totaled $5.2 million, an increase of $895 thousand, compared to noninterest income of $4.3 million for the first quarter of 2023. The primary driver of the increase was a death benefit claim related to BOLI and increased insurance revenues from the MPB Insurance division, which are included in other income. The Brunswick acquisition provides a market with an attractive demographic in which to create new wealth management and insurance customer relationships, which would help bolster noninterest income.

For the six months ended June 30, 2023, noninterest income totaled $9.5 million, a decrease of $1.4 million, compared to noninterest income of $11.0 million for the six months ended June 30, 2022. The decrease in noninterest income is primarily due to mortgage banking hedging activities. Given the rising interest rate environment and lower demand for mortgages, hedging the mortgage pipeline becomes more difficult and adds volatility to earnings.

Noninterest Expense

Noninterest expense totaled $35.5 million, an increase of $9.5 million, or 36.3%, for the three months ended June 30, 2023, compared to noninterest expense of $26.1 million for the first quarter of 2023. Noninterest expense for the three months ended June 30, 2023, includes $7.9 million of merger related expenses. Excluding merger related expenses, overall noninterest expense remained relatively flat for the second quarter of 2023. For the six months ended June 30, 2023, noninterest expense totaled $61.6 million, an increase of $11.9 million, or 24.0%, compared to noninterest expense of $49.7 million for the six months ended June 30, 2022. Noninterest expense for the six months ended June 30, 2023, includes $8.2 million of merger-related expenses.

The efficiency ratio⁽¹⁾ was 65.40% in the second quarter of 2023, compared to 63.16% in the first quarter of 2023, and 57.57% in the second quarter of 2022. Mid Penn is currently evaluating levels of noninterest expense for opportunities to reduce operating costs throughout the organization.

Brunswick Acquisition

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 and Trust Company, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn.

Pursuant to the terms of the Merger Agreement, each share of Brunswick common stock issued and outstanding as of May 19, 2023, was converted into the right to receive, at the election of the holder, either 0.598 shares of Mid Penn common stock or $18.00 cash, subject to adjustment and proration procedures described in the Merger Agreement requiring that fifty percent (50%) of the outstanding shares of Brunswick common stock be converted into the right to receive cash and the balance converted into the right to receive Mid Penn common stock. Cash was paid to Brunswick shareholders in lieu of any fractional shares. As a result of the merger, Mid Penn paid holders of Brunswick common stock approximately $25.6 million in cash and issued approximately 849,510 shares of Mid Penn common stock.

Subsequent Events

Management considers subsequent events occurring after the balance sheet date for matters which may require adjustment to, or disclosure in, the consolidated financial statements. The review period for subsequent events extends up to and including the filing date of a public company’s consolidated financial statements when filed with the Securities and Exchange Commission ("SEC"). Accordingly, the financial information in this announcement is subject to change. The statements are valid only as of the date hereof and Mid Penn disclaims any obligation to update this information.

^{(1) Non-GAAP financial measure. Refer to the calculation on the section titled “Reconciliation of Non-GAAP Measures” at the end of this document.}

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This press release, and oral statements made regarding the subjects of this release, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's current views and expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as "continues," "expect," "look," "believe," "anticipate," "may," "will," "should," "projects," "strategy" or similar statements. Actual results may differ materially from such forward-looking statements, and no reliance should be placed on any forward-looking statement. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; the impact of changes in market values on securities held in Mid Penn’s portfolio; legislation affecting the financial services industry as a whole, and Mid Penn and Mid Penn Bank individually or collectively, including tax legislation; results of the regulatory examination and supervision process and oversight, including changes in monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; the availability of financial resources in the amounts, at the times and on the terms required to support Mid Penn and Mid Penn Bank’s future businesses; material differences in the actual financial results of merger, acquisition and investment activities compared with Mid Penn’s initial expectations, including the full realization of anticipated cost savings and revenue enhancements; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in legacy Mid Penn and Brunswick markets; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; the ability to complete the integration of Mid Penn and Brunswick successfully; the dilution caused by Mid Penn’s issuance of additional shares of its capital stock in connection with the transaction; and other factors that may affect the future results of Mid Penn.

For a more detailed description of these and other factors which would affect our results, please see Mid Penn’s filings with the SEC, including those risk factors identified in the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent filings with the SEC. The statements in this press release are made as of the date of this press release, even if subsequently made available by Mid Penn on its website or otherwise. Mid Penn assumes no obligation for updating any such forward-looking statements at any time, except as required by law.

SUMMARY FINANCIAL HIGHLIGHTS (Unaudited):