Mid Penn Bancorp : Annual Report - 2023

2023 ANNUAL REPORT TO SHAREHOLDERS

A LETTER TO OUR SHAREHOLDERS

2023 ANNUAL REPORT TO SHAREHOLDERS

DEAR FELLOW SHAREHOLDERS OF MID PENN BANCORP, INC.,

I hope this letter finds each of you off to a great 2024, enjoying good health, happiness and prosperity.

YEAR IN REVIEW

In October of 2023, I gave a presentation to the Mid Penn employees during which I described the operating environment of 2023 to be the most difficult of my professional career. That was not a hollow statement as I was a banker through the commercial real estate led recession of the early 1990's, the "dot com bubble" recession of the early 2000s, the economic aftermath of 9/11, the Great Recession of 2007-2009 and, most recently, the COVID-19 recession. While each of those time periods presented unique and even historic challenges for the country as a whole, 2023 was specifically more difficult for the banking industry.

Heading into 2023, banks that had securities portfolios with investments purchased before March of 2022 had an erosion of tangible book value as a consequence of the precipitous rise in interest rates that occurred in 2022. That erosion came in the form of "accumulated other comprehensive income/loss" (AOCI), an accountingadjustment which is created as a financial institution has to revalue or mark its securities portfolio to market each quarter to reflect the impact interest rate changes have on the value of the portfolio. As rates go up, the market value of that portfolio goes down. The AOCI adjustment is not made against earnings, but rather, against tangible capital. Although the adjustment never amounted to more than 5% of Mid Penn's tangible capital, it nonetheless had an indirect impact on our stock price throughout the year due to the fact that bank stocks are generally valued as multiples of earnings or tangible book value.

By March, the environment became more difficult with three significant bank failures occurring across the country. Those bank failures created a crisis of confidence in bank safety and soundness, specifically regarding the safety of deposits. That situation was exacerbated by inconsistent rhetoric out of Washington which confused depositors as to the best and safest places to keep their money. At Mid Penn, we spent the following months working diligently to not only retain existing deposits, but also increase deposits enough to support our continued loan growth. To do so, we had to communicate to our depositors the clear distinctions between Mid Penn as a community bank and the large regional banks having the issues. We even created a video series addressing the entirety of the issue, which we posted to our website. Those videos still reside on our website if you wish to review them.

While those two situations were challenging for Mid Penn and the financial services industry overall, our greatest challenge was in dealing with a severely inverted interest rate yield curve starting in October of 2022 and continuing throughout all of 2023. That inverted yield curve caused our base, non-deposit borrowing cost (the effective funds rate) to be at a substantially higher level than our base loan rate (the 5-year Treasury). With core deposit growth hampered by the crisis in confidence and non-deposit borrowing costs inflating over 400%, the lifeblood of the company - our net interest margin - was compressed by 70 basis points from December 2022 to December 2023, presenting a significant challenge to earnings.

"OUR LOAN PIPELINE REMAINED STRONG THROUGHOUT 2023, A TESTAMENT TO THE HIGH QUALITY OF OUR COMMERCIAL CALLING TEAM AND ITS REPUTATION AS A CONSISTENT PROVIDER OF CREDIT TO CREDITWORTHY BORROWERS THROUGHOUT PENNSYLVANIA AND, FOR THE LAST SIX MONTHS OF THE YEAR, NEW JERSEY."

MID PENN PERFORMANCE IN A VOLATILE ENVIRONMENT

Despite those challenges, it was a very active and, ultimately, I believe a positive year for Mid Penn. With nearly 11% organic loan growth, 7.5% organic deposit growth, strong noninterest income, the successful completion of our 5th whole bank acquisition with Brunswick Bank & Trust (Brunswick Bank) of New Brunswick, NJ, the establishment of our Private Bank division, and the impressive manner by which we supported all of our communities, the entire Mid Penn team worked tirelessly to prove that it continues to be THE best community bank around.

economy is dependent upon access to capital and credit, that loan activity not only benefits our shareholders through the creation of net interest revenues, but it also stimulates economic activity throughout all of our markets and regions.

Deposit Growth

With the aforementioned crisis of confidence initiated by the failures of California-based Silicon Valley Bank and First Republic Bank, as

Loan Growth

Our loan pipeline remained strong throughout 2023, a testament to the high quality of our commercial calling team and its reputation as a consistent provider of credit to creditworthy borrowers throughout Pennsylvania and, for the last six months of the year, New Jersey. The overwhelming majority of loans we make are either commercial and industrial loans or commercial real estate loans, but we also have an active group of residential mortgage originatorswell as Signature Bank of New York, attaining the type of deposit growth that has been our calling card was very difficult. Over the last 15 years, our average total deposit growth has been 16.6%, and our average totaland consumer lenders. The entire loan team originated over $1.7 billion of new loans in 2023, mostly to existing borrowers, but also to ones newly sourced throughout the year. In that our free-marketorganic deposit growth (excluding deposits acquired through merger acquisitions) has been 11.2%. In 2023, our total deposit growth was 15% - pretty close to the 15-year average. That was accomplished in part due to the acquisition of Brunswick Bank. However, our 2023 organic deposit growth rate was only 7.5%, significantly below the 15-year average. That falloff was a direct result of the difficulty we and all community banks had in retaining and growing existing big dollar deposit relationships due to the market confusion precipitated by the bank failures. In 2024, we are refocusing our calling team efforts on the organic development of core deposit relationships - the cornerstone of a community bank like Mid Penn.

Noninterest Income

From a noninterest income standpoint, we had a solid year of performance. While the "gain on sale of residential mortgage" line item was down an additional 30% from the falloff experienced in 2022 due to rising interest rates, other line items partially offset that decrease. Once again, leading the way for us in 2023 was our fiduciary, investment, and asset management business lines. With revenues cresting $2 million for the first time, our investment in those business lines, beginning in 2016, has begun to pay off as we had hoped. Other contributors to success in 2023 include our merchant services and credit card revenues, which have seen steady growth in each of the last 15 years. We have also been in the insurance business since mid-2020. In starting that agency de novo, we knew that it would take a few years to generate sufficient revenues to create value and drive positive earnings. In 2023, we made a big step forward in that quest with revenues reaching $650,000. We feel strongly that it will not be much longer until those revenues hit $1 million and are generating significant positive income. For the year, noninterest revenues were 12% of total revenues, reflective of our continued reliance on the spread business of loans and deposits. It has been an ongoing pursuit to reach 20% and above in order to mitigate the strain of a flat or inverted yield curve. With the establishment of our Private Bank in 2023, we feel our progress toward that goal will accelerate.

Brunswick Bank

$391 million Brunswick Bank, which was headquartered in Monmouth County in Central New Jersey. While acquisition costs hampered 2023 GAAP income by over $8.5 million, we feel that the two counties to which we gained access will be great extensions of the growth markets we have in PA, particularly Central and Southeast PA. That bank is now fully integrated into Mid Penn, and we have high expectations for that region's contribution to our 2024 success.

In May of 2023, we completed the acquisition of the to support men's prostate health. Throughout

the year, our employees contributed 13,926 hours of community service to organizations throughout all of our regions, and the bank - through the PA State EITC and NAP programs as well as our own charitable giving - made $1.95 million in other contributions. A company is only as strong as the community it serves, and we will

INVESTMENT IN THE COMMUNITIES WE SERVE

"A COMPANY IS ONLY AS STRONG AS THE COMMUNITY IT SERVES, AND WE WILL ALWAYS INVEST OUR TIME AND MONEY IN THE COMMUNITIES IN WHICH WE OPERATE."

While our impact on local communities has always been a differentiator for us, 2023 was a particularly stellar year. In July, we held the 8th annual Mid Penn Bank Celebrity Golf Classic. With over 60 celebrities from the worlds of professional sports, music and entertainment, as well as hundreds of sponsors and participants, we were able to contribute a total of $200,000 to two important breast cancer charities: the Pennsylvania Breast Cancer Coalition and the Basser Center for BRCA at Penn Medicine in Philadelphia. In November, we participated in the 8th annual "NoShaveNovember" fundraising campaign along with the doctors at the Pennsylvania State University Urology Group in Hershey, PA. With the addition of the $341,000 raised by the campaign last year, we have now totaled $960,000 over eight years and we are well on our way to our overall $1.1 million commitment

always invest our time and money in the communities in which we operate.

RETIRING DIRECTORS

With this year's Shareholder Meeting, we say goodbye to three retiring Mid Penn Directors.

Frank Gumina, Jr. joined the Board in 2023 upon the completion of the Brunswick Bank acquisition. Frank, who was formerly the Chair of Brunswick Bank, was given a one-year assignment on the Board as a condition of that transaction and he was critical in the integration of that bank and its employees. We thank Frank for his role in getting that deal done and we wish him all the very best in his well-deserved retirement.

David Sparks joined the Board in 2018 upon the completion of the First Priority Bank acquisition. Since then, Dave has been a tremendous force in the evolution of Mid Penn from a small community bank in Central PA to one of the largest community banks headquartered in PA, now serving communities throughout PA and NJ. After starting his career in public accounting with Coopers & Lybrand, Dave had a storied career in banking, as he served: as the CFO for Provident National Bank before its merger with Pittsburgh National Bank, which created PNC; as the CFO for Midlantic Bank; as the CFO for the old Meridian Bank; as the founding executive of Millennium Bank; as founding executive of First Priority Bank. While we will miss Dave as a Board Member, we do expect him to stay involved in the company as a consultant to both the Board and the Senior Executive Team, particularly the CFO and myself, along with his duties as Chairman of Cumberland Advisors, Inc.

Robert Grubic joined the Mid Penn Board in 2006, becoming Vice Chair of the Board in 2009 to then Chair Ed Schlegel, and ultimately succeeding Ed as Chair in 2012. Bob was instrumental in recruiting me to Mid Penn in 2009 and he was equally as instrumental in guiding the company from then through his retirement as Chair in 2021 and on to today. It is impossible to put an actual value on what Bob has meant to this company and to me, but suffice it to say that without his sage guidance over his time on the Board and specifically over the last 15 years, I do not believe any of this would have happened. We all owe Bob a debt ofgratitude that I am certain could never be fully repaid. Even as Bob retires from Mid Penn, he will remain active in his role with Herbert, Rowland & Grubic, Inc., a full-service engineering company in Central PA.

LOOKING AHEAD

While 2023 was fraught with volatility, the Mid Penn team persevered and delivered what I believe to be solid results. We built new customer relationships in expanding markets while serving our existing customers with the unwavering service they have come to expect from us. We helped businesses, municipalities, and consumers of all sizes achieve their financial goals. We established a Private Bank division that will help us accelerate growth in deposits, loans, and assets under management. We served the communities in which we live and work and contributed $2.42 million to local community and nonprofit organizations. We continued to invest in our workforce to educate and develop each team member to be the very best they can be, both personally and professionally. We did all of that in a difficult environment and still managed to put together our 4th best year in earnings per share in the last 20 years, which also allowed us to pay an $0.80 annual dividend.

With recent inflation news and messaging from the Federal Reserve that appears bearish on the timing and volume of short-term interest rate reductions this year, along with yet another regional bank issue, I expect the difficult operating environment to persist for at least the first half of 2024. That notwithstanding, your team at Mid Penn is hyper-focused on doing the things necessary to get the most out of this year just as we did in 2023 and have done for the last 15 years.

Thank you for your continued trust in our plan and support of YOUR company.

RORY G. RITRIEVI Chair, President, and Chief Executive Officer

Sensitive data and transmissions are encrypted using industry-standard protocols, adding layers of protection to ensure that data remains secure and confidential.

REGULAR SECURITY AUDITS AND COMPLIANCE REVIEWS

CYBER INITIATIVES

In an era where digitalization is omnipresent, cybersecurity is not just a matter of compliance but a fundamental aspect of our commitment to you. We have invested significantly in cutting-edge technologies and strategic partnerships to fortify our cyber defenses. We have created a robust Information Security Awareness Program to deliver timely educational content to our employees. Your trust is our priority, and we spare no effort in ensuring the confidentiality, integrity, and availability of your financial data.

OUR CYBERSECURITY PROGRAMS

2023 ANNUAL REPORT TO SHAREHOLDERS

ADVANCED THREAT DETECTION AND PREVENTION

Our systems utilize advanced machine-learning algorithms and artificial intelligence to analyze network traffic patterns and identify anomalous behavior that indicate potential cyber threats.

REGULAR PENETRATION TESTING AND VULNERABILITY ASSESSMENTS

We conduct regular penetration testing and vulnerability assessments that identify and address potential weaknesses in our infrastructure and help us stay ahead of emerging threats.

EMPLOYEE TRAINING AND AWARENESS

Regular cybersecurity training on the latest threats and best practices reduces the risk of inadvertent security breaches and fosters a culture of cybersecurity awareness throughout the organization.

COLLABORATION WITH INDUSTRY PARTNERS

Actively collaborating with industry partners, cybersecurity experts, and law enforcement agencies keeps us informed about emerging threats and enhances our ability to respond effectively to evolving cyber threats.

Regular internal and external security audits assess our compliance with regulations and internal policies and identify areas for improvement, ensuring our cybersecurity measures align with the latest regulatory standards and industry best practices.

ENCRYPTION AND SECURE COMMUNICATION

INFORMATION SECURITY AWARENESS 2023:

42

On-site trainings at MPB sites and financial centers

44

Classes at MPU and operations sites

22

Educational presentations in the communities we serve

1,072

External community members and customers engaged in presentations

1,094

Employee class and seminar registrations

EDUCATION & DEVELOPMENT

2023 saw the 5th anniversary of Mid Penn University as it continued to add value to every employee through technical and business development training, professional and leadership development opportunities, and mentoring programs. The University provides instructor-led training, develops media-rich eLearning, and partners with internal and external experts to deliver timely and impactful learning.

New for 2023, the University furnished learning consultants for business line partners and developed training plans for specific job roles. The University is also keenly focused on promoting the Job Shadowing program which provides immersive experiences in various roles at the company. 43 employees participated in the program, shadowing 16 distinct departments. We are extremely proud of the fifth Emerging Leaders cohort that graduated in 2023 by completing an extensive 9-month leadership development program. 76 employees have graduated from the Leadership Academy since its inception in 2018.

JOB SHADOWING

JOB ENHANCEMENTCAREER DEVELOPMENT

Discover new skills, strategies, and best practices.

Provide insights about career trajectories.

Consider alternatives and expand professional horizons.

Better understand roles.

Explore new avenues for growth.

Firsthand experiences help identify opportunities.

FOSTERS OUR CULTURE OF PROFESSIONAL GROWTH AND CONTINUOUS

LEARNING AND DEVELOPMENT.

CAREER EXPLORATION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

• o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to ________

Commission file number 1-13677

MID PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	25-1666413
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)
2407 Park Drive
Harrisburg, Pennsylvania	17110
(Address of Principal Executive Offices)	(Zip Code)
Registrant's telephone number, including area code 1.866.642.7736
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value per share	MPB	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o Accelerated Filer	x
Non-accelerated Filer	o Smaller Reporting Company	o

Emerging Growth Company

o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates computed by reference to the closing price of the common equity of $22.08 per share, as reported by The NASDAQ Stock Market LLC ("NASDAQ"), on June. 30, 2023, the last business day of the registrant's most recently completed second quarter was approximately $329.0 million. As of March 1, 2024, the registrant had 16,573,707 shares of common stock outstanding, par value $1.00 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement of the Registrant for the 2024 Annual Meeting of Shareholders are incorporated by reference in Part III. Auditor Firm ID: 49 Auditor Name: RSM US LLP Auditor Location: Philadelphia, PA USA

MID PENN BANCORP, INC.

FORM 10-K TABLE OF CONTENTSPAGE

PART I

Item1-	Business	3
Item 1A -	Risk Factors	15
Item 1B -	Unresolved Staff Comments	27
Item 1C -	Cybersecurity	28
Item2-	Properties	29
Item3-	Legal Proceedings	29
Item4-	Mine Safety Disclosures	29
PART II
Item5-	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities	30
Item6-	[Reserved]	31
Item7-	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A -	Quantitative and Qualitative Disclosures About Market Risk	53
Item8-	Financial Statements and Supplementary Data	55
Item9-	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	136
Item 9A -	Controls and Procedures	136
Item 9B -	Other Information	137
Item 9C -	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	138
PART III
Item 10 -	Directors, Executive Officers and Corporate Governance	138
Item 11 -	Executive Compensation	138
Item 12 -	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters	139
Item 13 -	Certain Relationships and Related Transactions, and Director Independence	139
Item 14 -	Principal Accounting Fees and Services	139
PART IV
Item 15 -	Exhibit and Financial Statement Schedules	139
Item 16 -	Form 10-K Summary	142
Signatures	143
EXHIBITS

1