Mid Penn Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless noted. Mid Penn is a Pennsylvania-based commercial bank and trust company operating in Pennsylvania and two New Jersey counties. Its 2023 Brunswick acquisition added five branches in central New Jersey.
Financial results and condition
- Earnings: Net income was $12.1 million, up from $11.2 million in Q1 2023. Diluted EPS was $0.73 versus $0.70. Return on average assets was 0.92% (1.01% prior year) and return on average equity was 8.94% (8.91%).
- Interest income and margins: Net interest income was $36.5 million, up 1.1% year over year. Tax-equivalent net interest margin fell to 2.97% from 3.49%. Asset yield rose, but the cost of interest-bearing liabilities increased to 3.24% from 1.81%; deposit interest expense more than doubled to $26.3 million.
- Other income and expenses: Noninterest income was $5.8 million, up $1.5 million, primarily from the “Other” category, whose increase was also about $1.5 million; the filing does not clearly explain its components. Noninterest expense was $28.5 million. Salaries and benefits rose $1.6 million, which management attributes principally to Brunswick, and FDIC assessment expense rose $605,000.
- Credit costs and asset quality: The income statement recorded a $937,000 benefit for credit losses, including a $619,000 loan-loss benefit and a $318,000 off-balance-sheet benefit. The loan allowance was $33.5 million, or 0.78% of loans, versus $34.2 million, or 0.80%, at year-end. Net charge-offs were $44,000. Nonperforming assets were $15.5 million, up from $14.5 million, reflecting in part a $4.8 million transfer of loans to foreclosed assets; nonperforming loans themselves declined to $10.4 million from $14.2 million.
- Loans and deposits: Loans grew $64.7 million (1.5%) to $4.32 billion, led by commercial real estate and construction. Commercial real estate was 54.3% of loans. Deposits rose $32.9 million (0.8%) to $4.38 billion, with time deposits increasing $29.9 million. Uninsured deposits were approximately $1.2 billion.
- Liquidity and funding: Cash and cash equivalents declined $28.7 million to $68.1 million. Management reported nearly $1.69 billion of current liquidity, including borrowing capacity, equal to 142.7% of uninsured and uncollateralized deposits and approximately 38.5% of total deposits. Short-term borrowings increased $30.3 million to $271.8 million; long-term debt declined $35.1 million to $23.9 million. Subordinated debt was $46.2 million.
- Cash flow and capital: Operating activities provided $12.4 million; investing activities used $65.7 million, mainly for loan growth; financing activities provided $24.7 million. Shareholders’ equity was $551.0 million. The company reported that it and the Bank met regulatory capital requirements and that the Bank was “well-capitalized.” The quarterly dividend declared was $0.20 per share.
Changes, outlook, and risks
- Net interest margin contracted despite loan growth and higher yields: funding costs rose faster than asset yields. Management cited persistent inflation, competitive deposit pricing, and interest-rate changes as relevant factors.
- Investment securities totaled approximately $614.6 million. At March 31, unrealized losses were $24.5 million on available-for-sale securities and $45.8 million on held-to-maturity securities. Management recorded no securities credit-loss allowance, citing its analysis of the portfolios.
- Management provided no specific earnings or financial guidance. It said liquidity remained above internal minimums and described core deposits as generally stable, while noting competitive funding pressures and volatile interest rates.
- Interest-rate modeling indicated that a 400-basis-point rate increase would reduce modeled one-year net interest income by 2.5%, while a 400-basis-point decrease would increase it by 2.2%. Management cautioned that actual results may differ from model estimates.
- Goodwill was $127.0 million; management noted the stock continued to trade below book value but reported no Q1 impairment trigger. The 2023 annual impairment test recorded no impairment. The filing also identifies credit-loss estimates, commercial real estate exposure, deposit competition, interest-rate risk, and economic conditions as risks. Management said there were no material changes to previously disclosed risk factors and no litigation expected to have a material adverse effect.
- The Board renewed the $15 million share repurchase authorization through April 24, 2025. The company repurchased 15,500 shares during Q1 for an average $20.81 per share; approximately $5.0 million remained available at quarter-end.
Important facts for investors to verify
- Whether deposit pricing and mix stabilize enough to prevent further net interest margin compression.
- Trends in commercial real estate credit quality, nonperforming assets, foreclosed property, and the allowance for credit losses.
- The composition and sustainability of the $1.5 million increase in “Other” noninterest income, which the filing does not clearly itemize.
- Liquidity sources and funding needs as uninsured deposits mature and short-term borrowings remain elevated.
- The extent and potential duration of unrealized securities losses, and the company’s capacity to avoid realizing losses if liquidity needs change.
- A presentation inconsistency: the income statement reports Q1 2023 noninterest expense of $25.841 million, while the MD&A expense table uses $26.070 million. Verify the comparable-period amount and related growth rate.