Mid Penn Bancorp, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; filed March 15, 2021. Mid Penn is a Pennsylvania-based community banking holding company operating primarily through Mid Penn Bank.
Financial performance and position
| Metric | FY2020 / year-end | FY2019 / year-end |
|---|---|---|
| Net interest income | $88.2 million | $70.1 million |
| Net income available to common shareholders | $26.2 million; diluted EPS $3.10 | $17.7 million; diluted EPS $2.09 |
| Net interest margin, tax-equivalent | 3.48% | 3.57% |
| Return on average assets / equity | 0.95% / 10.76% | 0.82% / 7.67% |
| Total assets | $2.999 billion | $2.231 billion |
| Loans, net of unearned interest | $2.384 billion | $1.763 billion |
| Deposits | $2.475 billion | $1.912 billion |
| Shareholders’ equity | $255.7 million | $237.9 million |
- Total interest income was $107.9 million, up from $95.3 million. Noninterest income was $17.9 million, up 42%, led by mortgage banking income of $9.7 million versus $3.8 million.
- Provision for loan and lease losses increased to $4.2 million from $1.4 million. Noninterest expense rose 18% to $70.6 million, including higher compensation, technology, FDIC assessments, and $2.0 million in mortgage profit-sharing expense.
- Net cash provided by operating activities was $14.1 million; investing activities used $588.9 million; financing activities provided $739.5 million. Cash and cash equivalents ended the year at $303.7 million, up from $139.0 million.
- Allowance for loan and lease losses was $13.4 million, or 0.56% of loans, versus $9.5 million, or 0.54%. Nonperforming assets were $15.6 million, compared with $12.2 million.
- Year-end borrowings included $125.6 million under the Federal Reserve’s PPPLF, $75.1 million of long-term debt, and $44.6 million of subordinated debt. The Bank had $35 million in unused correspondent-bank lines and reported $490 million of unused FHLB borrowing capacity after outstanding advances and letters of credit.
- Regulatory capital remained above minimums: consolidated total capital ratio was 12.6%; the Bank’s was 11.8%. The Bank was classified as well-capitalized. Mid Penn declared $0.82 per share in 2020 dividends and repurchased 92,652 shares for $1.8 million.
Material changes versus FY2019
- Net income increased 48%, while total assets grew 34%, loans grew 35%, and deposits grew 29%. Growth included $388.3 million of net PPP loans and $233.0 million of core, non-PPP loan growth.
- PPP processing fees contributed $13.1 million to 2020 interest income; $20.9 million of fees had been received by year-end, with $7.7 million deferred. Core loan growth was over 13%.
- Net interest margin declined 9 basis points. Lower asset yields—including the 1% PPP loan rate and Federal Reserve rate cuts—were partly offset by lower funding costs; the total deposit cost fell to 0.72% from 1.19%.
- Mortgage banking income more than doubled amid low rates and higher originations and loan sales. Investment securities gains declined to $0.5 million from $1.9 million, which included a sizable securities-sale gain in 2019.
- The allowance increased partly in response to loan growth and pandemic-related economic uncertainty. Nonperforming assets rose, primarily after a $2.3 million acquired loan relationship moved to nonaccrual status.
Outlook, risks, and unusual items
- Outlook: No quantified earnings or margin guidance is provided. Management stated that the pandemic’s effects on 2021 results, financial condition, capital, and liquidity could not be estimated.
- COVID-19 and PPP: More than 1,000 borrowers received qualifying payment deferrals; $11.7 million remained in deferral at year-end, less than 1% of loans. Mid Penn disclosed SBA-guarantee and fee-clawback risks, potential PPP-related litigation, and uncertainty about future credit losses. Through February 18, 2021, it had disbursed over $290 million of 2021 PPP loans and expected $12.8 million of related processing fees as of the filing date.
- Credit and concentration: Commercial real estate, construction, commercial and industrial, and agricultural lending represented approximately 88% of the portfolio; commercial real estate was 56.6%. Pandemic-related borrower weakness, collateral values, and allowance assumptions are key risks.
- Interest-rate risk: Management’s model estimated that a 100-basis-point rate decrease would reduce one-year net interest income by 3.97%, while a 100-basis-point increase would raise it by 4.72%; larger modeled changes also showed downside exposure to falling rates.
- Other notable items: Mid Penn issued $27.15 million of subordinated notes and redeemed $9.5 million of higher-cost acquired notes, incurring $143,000 in redemption fees. It closed three branches at year-end and formed nonbank subsidiaries to expand wealth management and insurance offerings. The CARES Act NOL carryback generated a $318,000 tax benefit.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions. Critical audit matters included allowance qualitative factors and goodwill impairment. Management reported no material litigation or regulatory enforcement action.
Investor facts to verify
- How quickly PPP loans are forgiven or repaid, how much deferred processing-fee income remains, and whether expected 2021 PPP fees are realized.
- Whether the elevated 2020 earnings level is sustainable without the PPP fees and unusually strong mortgage activity.
- Trends in commercial real estate and other commercial credit quality, nonaccrual balances, collateral values, and allowance adequacy as borrower relief programs expire.
- Deposit growth and funding mix, including the PPPLF repayment profile, wholesale borrowing costs, and liquidity capacity.
- Whether net interest margin stabilizes under persistently low rates and how actual results compare with management’s interest-rate sensitivity model.