Mid Penn Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Mid Penn is a Pennsylvania-based bank holding company. Its November 2021 acquisition of Riverview materially affects comparisons with Q1 2021, which did not include Riverview. The May 2021 stock offering and Riverview share issuance also increased shares outstanding and affect per-share comparisons.
Key financial results
| Metric | Q1 2022 | Comparable / change |
|---|---|---|
| Interest income | $37.6 million | $29.2 million in Q1 2021 |
| Net interest income | $34.4 million | $25.3 million in Q1 2021; +36% |
| Net interest margin, taxable-equivalent | 3.21% | 3.46% in Q1 2021 |
| Noninterest income | $5.8 million | $4.7 million in Q1 2021; +22% |
| Provision for loan losses | $0.5 million | $1.0 million in Q1 2021 |
| Noninterest expense | $25.7 million | $17.6 million in Q1 2021; +47% |
| Net income | $11.4 million | $9.3 million in Q1 2021; +22% |
| Basic and diluted EPS | $0.71 | $1.11 basic and $1.10 diluted in Q1 2021 |
| Annualized ROA / ROE | 0.98% / 9.32% | 1.19% / 14.58% in Q1 2021 |
| Operating cash flow | $6.7 million | $13.3 million in Q1 2021 |
Net income increased, while EPS and returns on assets and equity declined. The much larger share count after the 2021 offering and Riverview merger is a key reason EPS does not track the increase in net income. Net interest income benefited from higher loan balances, Riverview, and investment of excess funds; lower asset yields and reduced PPP fee income partly offset these gains.
Financial position and liquidity
- Assets and loans: Total assets were $4.67 billion, down 0.5% from year-end. Loans and leases were $3.12 billion, up $17.1 million; management reported non-PPP core loan growth of about 3% since year-end. Commercial real estate and construction together represented approximately 67% of loans.
- Deposits and cash: Deposits were $3.99 billion, down $13.0 million from year-end. Cash and cash equivalents were $758.4 million, down $155.3 million. The decline in cash principally reflects investment-security purchases and other investing uses. No short-term borrowings were outstanding; the filing reports $573.9 million of unused FHLB borrowing capacity and $35 million of correspondent-bank lines.
- Debt and equity: Long-term debt was $74.7 million and subordinated debt and trust preferred securities were $74.1 million. Shareholders’ equity was $494.2 million, up from $490.1 million at year-end. Regulatory capital ratios exceeded minimum requirements; Mid Penn Bank met the filing’s “well-capitalized” thresholds.
- Credit quality: The allowance for loan and lease losses was $15.1 million, or 0.49% of loans; nonperforming loans were $7.9 million, or 0.25% of loans. Nonperforming assets declined from $10.0 million at year-end to $8.1 million. Net recoveries were $50,000 for the quarter. The company continued to use the incurred-loss method and planned CECL adoption for January 1, 2023.
- Securities and comprehensive income: The portfolio had $27.3 million of gross unrealized losses at quarter-end, primarily attributed by management to interest-rate movements, with no securities deemed other-than-temporarily impaired. The decline in available-for-sale securities’ value contributed to a $5.1 million quarterly other comprehensive loss and negative $4.9 million accumulated other comprehensive income.
Material changes, outlook, and risks
- Riverview acquisition-related scale increased average loans, deposits, revenue, and expenses, making year-over-year comparisons less like-for-like. Q1 included $329,000 of post-acquisition restructuring expense; branch closures under the network optimization plan occurred March 4, 2022. A $705,000 obsolete-asset write-off and a separate $664,000 impaired-asset write-off were disclosed.
- Mortgage banking income fell to $529,000 from $2.4 million as higher mortgage rates slowed refinancing and originations. Fiduciary and wealth income, deposit service charges, card interchange, and other income increased, with acquisition contributions and $533,000 of mortgage-hedging gains among the drivers.
- Management provided no quantified earnings or financial guidance. It said it could not estimate the full 2022 effects of COVID-19 and continued to monitor borrower credit, economic conditions, interest rates, liquidity, and securities values. Its rate-sensitivity model projected higher one-year net interest income under rising-rate scenarios and lower income under falling-rate scenarios; management cautioned actual results may differ.
- Key disclosed risks include interest-rate and funding changes, credit deterioration and collateral values, commercial real estate exposure, integration and realization of Riverview benefits, competition, cybersecurity and technology, regulatory or tax changes, and potential goodwill or other intangible impairment. Management stated litigation was not expected to have a material adverse effect and reported no material changes to previously disclosed risk factors.
- The Riverview purchase-price allocation was described as estimated and potentially adjustable through November 30, 2022. PPP processing fees may be subject to SBA clawback in specified circumstances; Mid Penn reported no known affected loans at quarter-end.
Important facts for investors to verify
- Whether loan growth, deposit stability, and the lower net interest margin persist as rates and funding costs change.
- Credit performance and allowance adequacy, particularly across commercial real estate and construction lending, and the impact of CECL adoption.
- Progress on Riverview integration, expected cost savings, restructuring costs, and final purchase-accounting adjustments.
- The effect of unrealized securities losses on capital and liquidity if securities must be sold or market values decline further.
- Whether PPP fee recognition, mortgage-hedging gains, and other unusual or acquisition-related items are recurring; also verify reported non-GAAP core-loan figures against the filing’s reconciliation.