Mid Penn Bancorp(MPB) - 2021 Q2 - Quarterly Report

PART I Financial Statements This section presents Mid Penn Bancorp's unaudited consolidated financial statements for the periods ended June 30, 2021, detailing financial position, performance, and cash flows, alongside key events like asset growth and the Riverview merger - On June 30, 2021, Mid Penn entered a merger agreement with Riverview Financial Corporation for Riverview to merge into Mid Penn[20] Consolidated Balance Sheets As of June 30, 2021, total assets increased by 15.4% to $3.46 billion, driven by higher cash and net loans, while deposits grew by 12.4% and shareholders' equity rose by 33.6% due to a common stock offering Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,461,792 | $2,998,948 | | Total cash and cash equivalents | $636,347 | $303,724 | | Net loans and leases | $2,480,476 | $2,370,659 | | Total Deposits | $2,782,124 | $2,474,580 | | Total Liabilities | $3,120,223 | $2,743,260 | | Total Shareholders' Equity | $341,569 | $255,688 | Consolidated Statements of Income Net income for Q2 2021 increased by 40.7% to $9.6 million and by 77.7% to $18.9 million for H1 2021, driven by higher net interest income, including PPP loan fees, and substantial noninterest income growth Q2 Financial Performance (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Interest Income | $26,877 | $21,346 | | Provision for Loan and Lease Losses | $1,150 | $1,050 | | Total Noninterest Income | $5,652 | $3,622 | | Total Noninterest Expense | $19,456 | $15,403 | | Net Income | $9,613 | $6,833 | | Diluted EPS | $0.93 | $0.81 | H1 Financial Performance (in thousands, except per share data) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net Interest Income | $52,202 | $39,011 | | Provision for Loan and Lease Losses | $2,150 | $1,600 | | Total Noninterest Income | $10,364 | $6,556 | | Total Noninterest Expense | $37,014 | $30,984 | | Net Income | $18,925 | $10,651 | | Diluted EPS | $2.02 | $1.26 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $341.6 million by June 30, 2021, primarily due to a $70.2 million common stock offering and $18.9 million in net income, partially offset by dividends - A follow-on public offering of 2,990,000 common shares resulted in net proceeds of $70.2 million, significantly boosting shareholders' equity[14] - Net income for the first six months of 2021 was $18.9 million, while common stock dividends declared were $3.9 million[14] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $332.6 million for the six months ended June 30, 2021, primarily driven by $444.6 million from financing activities, including deposit growth and a stock offering, partially offset by investing activities Six-Month Cash Flow Summary (in thousands) | Activity | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $27,997 | $(1,069) | | Net Cash Used In Investing Activities | $(139,986) | $(674,501) | | Net Cash Provided By Financing Activities | $444,612 | $680,295 | | Net increase in cash and cash equivalents | $332,623 | $4,725 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial statement components, including loan portfolio specifics, PPP loans, debt instruments, the Riverview merger, and the company's continued use of the incurred loss method for credit losses - The company has not yet adopted the Current Expected Credit Loss (CECL) accounting standard and will do so on January 1, 2023, currently using the incurred loss method for estimating credit losses[45][120][222] - As of June 30, 2021, the company held $391.8 million in PPP loans, net of deferred fees, and recognized $11.3 million in PPP processing fees as income during the first six months of 2021[43][44] - In May 2021, the company completed a public offering of 2,990,000 shares of common stock, raising net proceeds of $70.2 million[100][204] - On June 30, 2021, Mid Penn entered into a merger agreement with Riverview Financial Corporation, which is expected to close in the fourth quarter of 2021[230][231] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis highlights strong H1 2021 performance with $18.9 million net income, driven by increased net interest income from PPP fees and noninterest income growth, alongside strengthened financial condition with $3.46 billion in assets and improved credit quality Key Performance Metrics | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net Income | $18,925,000 | $10,651,000 | | Diluted EPS | $2.02 | $1.26 | | Taxable-Equivalent Net Interest Income | $52,498,000 | $39,319,000 | | Net Interest Margin | 3.40% | 3.41% | - The increase in net interest income was primarily driven by the recognition of $11.3 million in PPP loan processing fees in H1 2021, compared to $2.4 million in H1 2020[259] - Total assets grew by 15% to $3.46 billion since year-end 2020, supported by a $307.5 million increase in deposits and a $70.2 million common stock offering[286][287] - Credit quality improved substantially, with nonperforming assets decreasing to $8.7 million (0.35% of assets) at June 30, 2021, down from $15.6 million (0.66% of assets) at December 31, 2020, mainly due to successful workouts of two large nonaccrual relationships[296][297] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, managed by its asset-liability committee, with simulation analysis indicating an asset-sensitive position where net interest income is projected to increase with rising rates - The company's primary market risk is interest rate risk, which is the exposure of future earnings to fluctuations in interest rates[347] Net Interest Income Sensitivity Analysis (as of June 30, 2021) | Change in Basis Points | % Change in Net Interest Income | | :--- | :--- | | +300 | 29.03% | | +200 | 18.88% | | +100 | 9.06% | | -100 | -4.00% | | -200 | -9.39% | | -300 | -14.79% | - The analysis indicates an asset-sensitive position, where net interest income is expected to increase in a rising rate environment and decrease in a falling rate environment[351] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by this report (June 30, 2021)[353] - There were no material changes to the company's internal control over financial reporting during the second quarter of 2021[354] PART II – OTHER INFORMATION Legal Proceedings The company is not involved in any legal proceedings expected to have a material adverse effect on its financial position, with existing litigation considered ordinary and routine - There are no pending legal proceedings other than ordinary routine litigation occurring in the normal course of business, and management does not expect any material adverse effect on the company's financial condition[355] Risk Factors This section outlines new risk factors primarily related to the Riverview Financial Corporation merger, including integration challenges, non-recurring costs, failure to realize anticipated benefits, and regulatory approval uncertainties - The primary new risk factors disclosed relate to the announced acquisition of Riverview Financial Corporation[356] - The company expects to incur substantial non-recurring costs related to the merger and integration, including legal, advisory, and severance expenses[357] - There is a risk that combining the two companies may be more difficult, costly, or time-consuming than expected, and that anticipated cost savings may not be fully realized[359] - Regulatory approvals for the merger may be delayed, not received, or impose conditions that could adversely affect the combined company[365] Unregistered Sales of Equity Securities and Use of Proceeds The company maintains a treasury stock repurchase program, authorizing up to $15 million in common stock repurchases, with $13.1 million remaining available as of June 30, 2021 - The company has a treasury stock repurchase program authorizing up to $15,000,000 of its outstanding common stock, which was extended through March 19, 2022[376] Treasury Stock Repurchases (Q2 2021) | Period | Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | January 2021 | — | $ — | | February 2021 | 5,800 | $22.09 | | March 2021 | — | $ — | | April 2021 | — | $ — | | May 2021 | — | $ — | | June 2021 | — | $ — | Defaults upon Senior Securities No defaults upon senior securities were reported - None[379] Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not Applicable[379] Other Information No other material information was reported - None[379] Exhibits This section lists exhibits filed with the report, including the Riverview Financial Corporation merger agreement, officer certifications, and Inline XBRL financial data files - Key exhibits filed include the Agreement and Plan of Merger with Riverview Financial Corporation (Exhibit 2.1), CEO and CFO certifications (Exhibits 31.1, 31.2, 32), and XBRL data files[381]