MID Penn Bancorp Inc: Form 10-Q for the period ended Jun 30, 2025

This Management Discussion relates to the Corporation, a financial holding company incorporated in the Commonwealth of Pennsylvania, and its wholly-owned subsidiaries, and should be read in conjunction with the consolidated financial statements and other financial information presented in this report and our Annual Report on Form 10-K for the year ended December 31, 2024.

Caution About Forward-Looking Statements

Forward-looking statements involve risks, uncertainties and assumptions. Although Mid Penn generally does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee the accuracy of any forward-looking statements. Actual results may differ materially from those expressed in any forward-looking statements due to a number of uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q, the 2024 Annual Report, and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on Mid Penn’s website or otherwise, and Mid Penn undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Certain of the matters discussed in this document or in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Exchange Act. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” or words or phrases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

• the effects of future economic conditions on Mid Penn, the Bank, our nonbank subsidiaries, and our markets and customers;
• governmental monetary and fiscal policies, as well as legislative and regulatory changes;
• future actions or inactions of the United States government, including a failure to increase the government debt limit or a prolonged shutdown of the federal government;
• business or economic disruption from national or global epidemic or pandemic events;
• the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, the value of investment securities, and interest rate protection agreements;
• the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
• an increase in the Pennsylvania Bank Shares Tax to which the Bank’s capital stock is currently subject, or imposition of any additional taxes on the capital stock of Mid Penn or the Bank;
• impacts of the capital and liquidity requirements imposed by bank regulatory agencies;
• the effect of changes in accounting policies and practices, as may be adopted by regulatory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, the SEC, and other accounting and reporting rule making authorities;
• the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
• changes in technology;
• our ability to implement business strategies, including our acquisition strategy;
• our ability to successfully expand our franchise, including through acquisitions or establishing new offices at favorable prices;
• our ability to successfully integrate any banks, companies, offices, assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames;
• potential goodwill impairment charges, or future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;
• our ability to attract and retain qualified management and personnel;
• results of regulatory examination and supervision processes;
• the possibility of increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the Merger;
• potential exposure to unknown or contingent risks and liabilities we have acquired, or may acquire, or target for acquisition, including in connection with the Merger;
• the failure of assumptions underlying the establishment of reserves for loan and lease losses, the assessment of potential impairment of investment securities, and estimations of values of collateral and various financial assets and liabilities;
• our ability to maintain compliance with the listing rules of The NASDAQ Stock Market;
• our ability to maintain the value and image of our brand and protect our intellectual property rights;
• volatility in the securities markets;
• disruptions due to flooding, severe weather, or other natural disasters or acts of God;
• acts of war, terrorism, or global military conflict;
• supply chain disruption;
• the risk factors described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 and subsequent filings with the SEC.

The above list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with this understanding of inherent uncertainty.

Overview

Mid Penn is a financial holding company, which generates the majority of its revenues through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income as a percentage of average interest-earning assets. Mid Penn also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties. Offsetting these revenue sources are provisions for credit losses, non-interest expenses and income taxes.

The following table presents a summary of Mid Penn's earnings and selected performance ratios:

(1) Presented on a FTE basis using a 21% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section.

(2) Annualized ratios

On April 30, 2025, Mid Penn completed the acquisition of William Penn, which added total assets of $727.7 million, comprised primarily of $405.3 million of loans. This transaction included the acquisition of 12 branches, further expanding Mid Penn's presence in the Philadelphia region and surrounding counties in Pennsylvania and New Jersey.

Each share of William Penn common stock issued and outstanding as of April 30, 2025, was converted into 0.426 shares of Mid Penn common stock. As a result of the acquisition, Mid Penn issued approximately 3,506,795 shares of Mid Penn common stock, plus up to an additional 538,447 shares of Mid Penn common stock issuable upon the exercise of former William Penn stock options, for a purchase price of $103.2 million. Additionally, on May 12, 2025, Mid Penn acquired the insurance business and related accounts of Charis Insurance Group, which provides business, home and auto insurance throughout central and southern Pennsylvania, for a purchase price of $4.0 million.

Summary of Financial Results

• Net Income Per Share - Mid Penn’s net income available to common shareholders ("earnings") for the three months ended June 30, 2025 was $4.8 million, or $0.22 per both common share basic and diluted, compared to earnings of $11.8 million, or $0.71 per both common share basic and diluted for the three months ended June 30, 2024. Mid Penn's earnings for the six months ended June 30, 2025 was $18.5 million, or $0.90 per common share basic, and $0.89 per diluted common share, compared to earnings of $23.9 million, or $1.44 per both common share basic and diluted for the six months ended June 30, 2024.
• Net Interest Margin - For the second quarter of 2025, Mid Penn’s net interest margin was 3.44% versus 3.12% for the same period of 2024. For the six months ended June 30, 2025, net interest margin was 3.41% versus 3.04% for the same period of 2024. The yield on interest-earning assets for the three months ended June 30, 2025 decreased 1 basis point from the same period of 2024. The rate on interest-bearing liabilities decreased 39 basis points from the same period of 2024.
• Loan Growth - Total loans, net of unearned income, as of June 30, 2025 were $4.8 billion compared to $4.4 billion as of December 31, 2024, an increase of $389.8 million, or 8.8%. The growth was primarily

driven by an increase in residential mortgage loans of $212.3 million, an increase in owner occupied commercial real estate of $84.8 million, an increase in nonowner occupied commercial real estate of $91.5 million, and an increase in commercial and industrial loans of $25.2 million, partially offset by an $20.1 million decrease in multifamily loans. William Penn acquisition loans contributed $405.3 million to this increase.

• Deposit Growth - Total deposits increased $759.7 million, or 16.2%, from $4.7 billion at December 31, 2024, to $5.4 billion at June 30, 2025. The growth was driven by an increase of $453.0 million in interest-bearing transaction accounts, an increase of $208.8 million in time deposits, and a $97.9 million increase in non-interest bearing accounts. The William Penn acquisition deposits contributed $619.8 million to this increase.
• Asset Quality - ACL-loans at June 30, 2025 was $37.6 million, or 0.78% of total loans, as compared to $35.5 million, or 0.80% of total loans at December 31, 2024.
• Net Charge-offs/Recoveries - Mid Penn had net charge-offs of $811 thousand and $18 thousand for the three months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025, net charge-offs were $808 thousand compared to $62 thousand for the same period of 2024.
• Non-performing assets - Total nonperforming assets were $28.0 million at June 30, 2025, an increase compared to nonperforming assets of $22.7 million at December 31, 2024. The increase during the second quarter of 2025 is primarily related to the addition of two commercial real estate loans with a combined balance of $8.8 million being foreclosed in the second quarter of 2025, offset by payoffs and paydowns in the second quarter of 2025. Delinquency, measured as loans past due 30 days or more, as a percentage of total loans was 0.58% at June 30, 2025, compared to 0.52% and 0.57% as of December 31, 2024 and June 30, 2024, respectively.
• Provision/Benefit for credit losses - loans - The provision for credit losses - loans was $2.2 million for the three months ended June 30, 2025 compared to $1.8 million for the same period of 2024. The provision for credit losses on off-balance sheet credit exposures was $24 thousand for the three months ended June 30, 2025, compared to a benefit of $178 thousand for the same period of 2024.

The provision for credit losses on loans was $2.6 million for the six months ended June 30, 2025, an increase of $1.4 million compared to the provision for credit losses of $1.2 million for the six months ended June 30, 2024. This increase for the six months ended June 30, 2025 was primarily due to a $2.3 million reserve on non-PCD loans acquired through the William Penn acquisition. The provision for credit losses on off-balance sheet credit exposures was $24 thousand and $4 thousand for the three and six months ended June 30, 2025, respectively. The increase was primarily driven by new participations in construction loans originated in the second quarter.

• Noninterest Income - Noninterest income totaled $6.1 million for the three months ended June 30, 2025 compared to $5.3 million for the same period of 2024. The increase is primarily due to a $277 thousand increase in Fiduciary and wealth management, a $190 thousand increase in earnings from the cash surrender value of life insurance as a result of policies assumed during the William Penn acquisition, and a $219 thousand increase in other miscellaneous noninterest income, driven by a $146 thousand increase in insurance commissions and a $63 thousand increase in ATM surcharge fees.

Noninterest income totaled $11.4 million for the six months ended June 30, 2025 compared to $11.2 million for the same period of 2024. The increase in noninterest income is primarily driven by a $285 thousand increase in fiduciary and wealth management, a $215 thousand increase in mortgage banking income, and a $180 thousand increase in earnings from the cash surrender value of life insurance as a result of policies assumed during the William Penn acquisition, offset by a $512 thousand decrease in other miscellaneous noninterest income, driven by a $1.9 million decrease in Bank-owned life insurance benefits received, partially offset by a $568 thousand increase in loan level swap fees.

• Noninterest Expense - Noninterest expense totaled $47.8 million for the three months ended June 30, 2025, an increase of $19.6 million, or 69.4%, compared to noninterest expense of $28.2 million for the same period of 2024.

Merger and acquisition expenses increased $11.0 million for the three months ended June 30, 2025 compared to the same period in 2024. This includes $10.5 million of merger related expenses related to the William Penn acquisition and $164 thousand related to the Charis Insurance Group acquisition.

Salaries and employee benefits increased $5.2 million for the three months ended June 30, 2025 compared to the same period in 2024. The increase is attributable to (i) equity-based compensation expense for stock options and restricted stock awards totaling $2.0 million that were recognized during the second quarter of 2025. (Future expected compensation expense related to these awards is approximately $753 thousand for the third quarter of 2025 and $2.2 million over the remaining vesting periods); (ii) the retail staff additions at the twelve retail locations added through the William Penn acquisition; and (iii) the retention of various William Penn team members through the completion of systems integration, which occurred on June 20, 2025.

Software licensing and utilization costs increased $1.1 million for the three months ended June 30, 2025 compared to the same period in 2024. The increase reflects additional costs to (i) license the additional William Penn branches; and (ii) upgrades to internal systems, including network storage, cybersecurity, and data security enhancements in response to the Bank's larger size and increased IT complexity. in software licensing, an increase in merger and acquisition expenses, and a $504 thousand increase in occupancy expenses.

Noninterest expense totaled $78.4 million for the six months ended June 30, 2025 compared to $56.7 million for the same period of 2024.

Merger and acquisition expenses increased $11.3 million for the six months ended June 30, 2025, which includes $11.2 million of merger related expenses related to the William Penn acquisition and $164 thousand related to the Charis Insurance Group acquisition.

Salaries and benefits increased $6.1 million for the six months ended June 30, 2025, compared to the same period in 2024, largely driven by the same Q2 items noted above, including $2.0 million in equity compensation, staff additions from the William Penn acquisition, and retention of key personnel through integration.

Software licensing and utilization costs increased $1.5 million for the six months ended June 30, 2025, compared to the same period in 2024, reflecting the same Q2 drivers noted above. These include the onboarding of newly acquired William Penn branches, investments in IT infrastructure and cybersecurity.

Occupancy expenses increased $796 thousand for the six months ended June 30, 2025, compared to the same period in 2024. The increase was driven by the facility operating costs of the additional retail locations added through the William Penn acquisition.

• Liquidity - Current liquidity, including borrowing capacity, increased to $1.6 billion or 99.4% of uninsured and uncollateralized deposits, or approximately 29.3% of total deposits.

Critical Accounting Estimates

The 2024 Annual Report on Form 10-K includes a summary of critical accounting estimates that Mid Penn considers to be most important to the presentation of its financial condition and results of operations. These estimates require management’s most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Management of the Corporation considers the accounting judgments relating to the allowance for credit losses, business combinations, and goodwill impairment to be the accounting area that requires the most subjective and complex judgments.

There have been no material changes to Mid Penn's critical accounting estimates as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024.

Results of Operations

Net Interest Income

Net interest income, Mid Penn’s primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings. The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities. Net interest income is also shown on a taxable-equivalent basis in total. Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 21% for the periods presented.

The following table includes average balances, amounts, and yields of interest income and rates of expense, interest rate spread, and net interest margin for the periods presented:

(Dollars in thousands)

(1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances.

(2) Annualized ratios

The following table summarizes the changes in interest income and interest expense resulting from changes in average balances, volume, and changes in rates for the three months ended June 30, 2025 in comparison to the same period in 2024:

(Dollars in thousands)

For the three months ended June 30, 2025, net interest income was $48.2 million compared to net interest income of $38.8 million for the three months ended June 30, 2024. The tax-equivalent net interest margin for the three months ended June 30, 2025 was 3.44% compared to 3.12% for the second quarter of 2024, representing a 32 bp increase compared to the same period in 2024.

The yield on interest-earning assets remained relatively flat at 5.69% for the quarter ended June 30, 2025. However we continue to see increases in interest income on loans and Federal Funds Sold due to higher balances from prior quarters.

Average investment securities increased $43.9 million and the yield on those investment securities increased 33 bps during the second quarter of 2025 compared to the second quarter of 2024, increasing interest income $320 thousand due to volume, and $522 thousand due to rates. Average loans increased $371.3 million, and the yield on those loans increased 5 bps, contributing $5.7 million and $721 thousand, respectively, to the increase in interest income.

Interest expense decreased $659 thousand during the second quarter of 2025 compared to the second quarter of 2024. The rate of interest-bearing liabilities decreased from 3.28% for the second quarter of 2024 to 2.89% for the second quarter of 2025. The decrease in the rate was primarily a result of a decrease in short-term borrowings, a decrease in long term debt, and a decrease in time deposits. Mid Penn continued to offer higher rates over the comparable period to both retain and attract deposits.

Although the effective interest rate impact on interest-earning assets and funding sources can be reasonably estimated at current interest rate levels, the interest-bearing product and pricing options selected by customers, and the future mix of the loan, investment, and deposit products in the Bank's portfolios, may significantly change the estimates used in Mid Penn’s asset and liability management and related interest rate risk simulation models. In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve’s FOMC.

MID PENN BANCORP, INC.

(Dollars in thousands)

(1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances

(2) Annualized ratios

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances, volume, and changes in rates for the six months ended June 30, 2025 in comparison to the same period in 2024:

(Dollars in thousands)

For the six months ended June 30, 2025, net interest income was $90.7 million compared to net interest income of $75.2 million for the six months ended June 30, 2024. FTE net interest income was $91.2 million for the six months ended June 30, 2025, an increase of $15.5 million, or 20.4%, compared to the same period of June 30, 2024. Mid Penn’s FTE net interest margin for the six months ended June 30, 2025 was 3.41% compared to 3.04% for the same period of June 30, 2024, representing a 36 bp increase compared to the same period in 2024, primarily a result of a decrease in short-term borrowings, a decrease in long term debt, and a decrease in time deposits.

The higher yields and the growth in interest-earning assets contributed $1.3 million and $11.0 million, respectively, to the increase in interest income. The yield on interest-earning assets increased 7 bps to 5.67% for the six months ended June 30, 2025 compared to 5.60% for the same period of 2024. Average interest-earning assets increased $10.9 million, or 7.8%, during the six months ended June 30, 2025 compared to the same period of 2024.

Average investment securities increased $33.9 million, or 5.5%, and the yield on those investment securities increased 28 bps, contributing $500 thousand and $823 thousand, respectively, to interest income. Average loans increased $269.3 million, and the yield on those loans increased 9 bps contributing $8.0 million and $1.6 million, respectively, to the increase in interest income.

Interest expense decreased $3.2 million during the first six months of 2025 compared to the same period of 2024. The rate of interest-bearing liabilities decreased from 3.26% for the first six months of 2024 to 2.91% for the first six months of 2025. The decrease in the rate was driven by the Bank lowering rates in response to the Federal Reserve interest rate cuts in the third and fourth quarters of 2024.. The rate on average interest-bearing deposits decreased 35 bps, reducing interest expense by $3.8 million during the six months ended June 30, 2025 compared to the same period in 2024. In addition, average short-term borrowings decreased to $16.1 million, deducting $7.4 million to interest expense during the six months ended June 30, 2025 compared to the same period in 2024.

Provision for Credit Losses - Loans

The provision for credit losses on loans was $2.2 million for the three months ended June 30, 2025 compared to $1.8 million for the three months ended June 30, 2024. The increase in provision was driven by a $2.3 million reserve established for non-PCD (Purchased Credit Deteriorated) loans acquired in the William Penn acquisition, offset by a decrease in concentration risk across the non owner-occupied commercial real estate and multifamily portfolios.

The provision for credit losses on loans was $2.6 million for the six months ended June 30, 2025 compared to a provision of $1.2 million for the same period in 2024. The increase in provision was primarily driven by a $2.3 million reserve established for non-PCD loans acquired in the William Penn acquisition, offset by an $866 thousand decrease in reserve required for individually analyzed loans.

For the three months ended June 30, 2025, noninterest income totaled $6.1 million, an increase of $814 thousand, or 15.3%, compared to noninterest income of $5.3 million for the three months ended June 30, 2024. The increase is primarily due to a $277 thousand increase in fiduciary and wealth management, a $190 thousand increase in earnings from the cash surrender value of life insurance as a result of policies assumed during the William Penn acquisition, and a $219 thousand increase in other miscellaneous noninterest income, driven by a $146 thousand increase in insurance commissions and a $63 thousand increase in ATM surcharge fees.

The following table and explanations that follow provide additional analysis of noninterest income:

(Dollars in Thousands)

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MID PENN BANCORP, INC.

(Dollars in Thousands)

For the six months ended June 30, 2025, noninterest income totaled $11.4 million, an increase of $216 thousand, or 1.9%, compared to noninterest income of $11.2 million for the six months ended June 30, 2024. The increase in noninterest income is primarily driven by a $285 thousand increase in fiduciary and wealth management, a $215 thousand increase in mortgage banking income, and a $180 thousand increase in earnings from the cash surrender value of life insurance as a result of policies assumed during the William Penn acquisition, offset by a $512 thousand decrease in other miscellaneous noninterest income, driven by a $1.9 million decrease in Bank-owned life insurance benefits received, partially offset by a $568 thousand increase in loan level swap fees.

Noninterest Expense

For the three months ended June 30, 2025, noninterest expense totaled $47.8 million, an increase of $19.6 million, or 69.4%, compared to noninterest expense of $28.2 million for the same period in 2024.

Merger and acquisition expenses increased $11.0 million, which includes $10.5 million of merger related expenses related to the William Penn acquisition and $164 thousand related to the Charis Insurance Group acquisition.

Salaries and benefits increased $5.2 million for the three months ended June 30, 2025 compared to the same period in 2024. The increase is attributable to (i) equity-based compensation expense for stock options and restricted stock awards totaling $2.0 million that were recognized during the second quarter of 2025. (Future expected compensation expense related to these awards is approximately $753 thousand for the third quarter of 2025 and $2.2 million over the remaining vesting periods); (ii) the retail staff additions at the twelve retail locations added through the William Penn acquisition; and (iii) the retention of various William Penn team members through the completion of systems integration, which occurred on June 20, 2025.

Software licensing and utilization costs increased $1.1 million compared to the same period in 2024. The increase reflects additional costs to (i) license the additional William Penn branches; and (ii) upgrades to internal systems, including network storage, cybersecurity, and data security enhancements in response to the Bank's larger size and increased IT complexity.

The following table and explanations that follow provide additional analysis of noninterest expense:

(Dollars in Thousands)

For the six months ended June 30, 2025, noninterest expense totaled $78.4 million, an increase of $21.7 million, or 38.2%, compared to noninterest expense of $56.7 million for the six months ended June 30, 2024.

Merger and acquisition expenses increased $11.3 million for the six months ended June 30, 2025, which includes $11.2 million of merger related expenses related to the William Penn acquisition and $164 thousand related to the Charis Insurance Group acquisition.

Salaries and benefits increased $6.1 million for the six months ended June 30, 2025, compared to the same period in 2024, largely driven by the same Q2 items noted above, including $2.0 million in equity compensation, staff additions from the William Penn acquisition, and retention of key personnel through integration.

Software licensing and utilization costs increased $1.5 million for the six months ended June 30, 2025, compared to the same period in 2024, reflecting the same Q2 drivers noted above. These include the onboarding of newly acquired William Penn branches, investments in IT infrastructure and cybersecurity.

Occupancy expenses increased $796 thousand for the six months ended June 30, 2025, compared to the same period in 2024. The increase was driven by the facility operating costs of the additional retail locations added through the William Penn acquisition.

MID PENN BANCORP, INC.

(Dollars in Thousands)

Income Taxes

The benefit for income taxes was $480 thousand for the three months ended June 30, 2025 compared to a provision of $2.5 million for the same period in 2024. The benefit for income taxes for the six months ended June 30, 2025 reflects a combined Federal and State effective tax rate of 12.2% and 17.5%, for the six months ended June 30, 2025 and June 30, 2024, respectively. Generally, Mid Penn’s effective tax rate is below the federal statutory rate due to earnings on tax-exempt loans, investments, and earnings from the cash surrender value of life insurance, as well as the impact of federal income tax credits, including those awarded from Mid Penn’s low-income housing investments. The realization of Mid Penn’s deferred tax assets is dependent on future earnings. Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets.

Financial Condition

Mid Penn’s total assets were $6.4 billion as of June 30, 2025, reflecting an increase of $883.6 million, or 16.2%, compared to total assets of $5.5 billion as of December 31, 2024. The increase was primarily driven by an increase in loans as a result of the William Penn acquisition, an increase in available for sale investment securities, and an increase in Fed Funds Sold.

Investment Securities

Mid Penn’s investment portfolio is utilized primarily to support overall liquidity and interest rate risk management, to provide collateral supporting pledging requirements for public funds on deposit, and to generate additional interest income within reasonable risk parameters. The carrying value of total investment securities as of June 30, 2025 were $768.8 million compared to $642.9 million as of December 31, 2024. Mid Penn does not intend to grow the investment portfolio beyond levels necessary to support pledging requirements.

The following table presents the expected maturities of the investment portfolio and the weighted average yields (calculated based on historical cost):

(In Thousands)

Loans, net of unearned income

Total loans, net of unearned income, as of June 30, 2025 were $4.8 billion compared to $4.4 billion as of December 31, 2024. The growth of $389.8 million, or 8.8%, since December 31, 2024 was primarily the result of the addition of William Penn acquisition loans of $405.3 million.

MID PENN BANCORP, INC.

(Dollars in thousands)

The majority of the Bank's loan portfolio is to businesses and individuals located within the Bank's primary market area of the Pennsylvania counties of Berks, Blair, Bucks, Chester, Clearfield, Cumberland, Dauphin, Delaware, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Philadelphia, Schuylkill and Westmoreland, along with Burlington, Camden, Mercer, Middlesex and Monmouth counties of New Jersey. Commercial real estate, construction, and land development loans are collateralized mainly by mortgages on the income-producing real estate or land involved. Commercial, industrial, and agricultural loans are primarily made to business entities and may be secured by business assets, including commercial real estate, or may be unsecured. Residential real estate loans are secured by liens on the residential property. Consumer loans include installment loans, lines of credit and home equity loans. The Bank has no significant concentration of credit to any one borrower. The Bank’s highest concentration of credit by loan type is in commercial real estate.

Credit risk is managed through portfolio diversification, underwriting policies and procedures, and loan monitoring practices. Lenders are provided with detailed underwriting policies for all types of credit risks accepted by the Bank and must obtain appropriate internal approvals for credit extensions. The Bank also maintains strict documentation requirements and robust credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible, so any exposures that are discovered might be mitigated or potential losses reduced. The Bank generally secures its loans with real estate, with such collateral values dependent and subject to change based on real estate market conditions within its market area.

The following table presents the commercial real estate portfolio by property type along with the weighted average loan to value:

(Dollars in thousands)

(1) LTV not available for Owner Occupied and Farmland properties.

(2) Weighted average Loan to Value is calculated based on estimated current market values of the properties.

Maturity distribution by contractual maturity date and rate sensitivity information related to the loan portfolio is reflected in the table below:

(In Thousands)

68

MID PENN BANCORP, INC.

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Credit Quality, Credit Risk, and Allowance for Credit Losses

Mid Penn’s ACL methodology for loans is based upon guidance within FASB ASC Subtopic 326-20, "Financial Instruments – Credit Losses – Measured at Amortized Cost," as well as regulatory guidance from the FDIC, the Bank's primary federal regulator. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the loan portfolio is continuously monitored by management and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within Mid Penn’s existing loan portfolio. The ACL is adjusted through the provision for credit losses and reduced by the charge off of loan amounts, net of recoveries.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense.

For a complete description of Mid Penn’s ACL-loans methodology and the quantitative and qualitative factors included in the calculation, please see "Note 4 – Loans and Allowance for Credit Losses – Loans" included in Part I. Item 1. – Financial Statements of this report.

Changes in the ACL-loans are summarized as follows:

(Dollars in thousands)

(1) Includes a $2.3 million initial provision related to non-PCD loans acquired in the William Penn acquisition in the second quarter of 2025.

The following table presents the change in nonperforming asset categories as of June 30, 2025, December 31, 2024, and June 30, 2024.

(Dollars in thousands)

Total nonperforming assets were $28.0 million at June 30, 2025, an increase compared to nonperforming assets of $22.7 million at December 31, 2024. The increase during the second quarter of 2025 is primarily related to the addition of two commercial real estate loans with a combined balance of $8.8 million being foreclosed in the second quarter of 2025, offset by payoffs and paydowns in the second quarter of 2025. Delinquency, measured as loans past due 30 days or more, as a percentage of total loans was 0.58% at June 30, 2025, compared to 0.52% and 0.57% as of December 31, 2024 and June 30, 2024, respectively.

Goodwill

Mid Penn evaluates goodwill annually for impairment unless events occur which indicate that impairment is possible: a triggering event. At June 30, 2025, Mid Penn had goodwill of $135.5 million and Mid Penn's stock continues to trade below book value, warranting additional analysis. Management has reviewed actual earnings in relation to forecasted earnings, liquidity levels, changes in deposit balances, and credit quality, among others. Management has not noted any factors which would indicate that an additional impairment test is necessary. Management will continue to monitor internal metrics and macroeconomic trends to determine if there is likelihood of goodwill impairment. Mid Penn's annual impairment test is scheduled to be conducted as of October 31, 2025.

Deposits

Total deposits increased $759.7 million, or 16.2%, from $4.7 billion on December 31, 2024, to $5.4 billion at June 30, 2025. The growth was driven by a $453.0 million increase in interest bearing accounts, and a $97.9 million increase in noninterest bearing accounts, offset by a $208.8 million increase in time deposits. These increases were partially driven by William Penn acquisition deposits of $619.8 million

Average balances and average interest rates applicable to deposits by major classification:

(Dollars in thousands)

As of June 30, 2025, uninsured deposits were approximately $1.6 billion compared to $1.4 billion as of December 31, 2024. The maturities of the uninsured time deposits as of June 30, 2025 were as follows:

(In thousands)

Borrowings

Total short-term borrowings decreased $2.0 million, or 100.0%, from December 31, 2024. The decrease in short-term borrowings was driven by our objective to maintain a strong unencumbered liquid assets ratio, ensuring the availability of high-quality liquidity to meet potential near-term obligations. Total long-term borrowings were $23.4 million at June 30, 2025, a decrease of $229 thousand from December 31, 2024.

Liquidity

Mid Penn’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and to provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding corporate operations. Sources of liquidity are as follows:

• a growing core deposit base;
• proceeds from the sale or maturity of investment securities;
• payments received on loans and mortgage-backed securities;
• overnight correspondent bank borrowings on various credit lines; and
• borrowing capacity available from the FHLB and the Federal Reserve Discount Window available to Mid Penn.

Mid Penn believes its core deposits are generally stable even in periods of changing interest rates. Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. These measurements indicate that liquidity generally remains stable and exceeds our minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, and the uncertain impact of the current inflationary environment, there are no known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.

On at least a quarterly basis, a comprehensive liquidity analysis is reviewed by the Asset Liability Committee and Board of Directors. The analysis provides a summary of the current liquidity measurements, projections, and future liquidity positions given various levels of liquidity stress. Management also maintains a detailed Contingency Funding Plan designed to respond to overall stress in the financial condition of the banking industry or a prospective liquidity problem specific to Mid Penn.

The Consolidated Statements of Cash Flows provide additional information. Mid Penn’s operating activities during the six months ended June 30, 2025 provided $40.5 million of cash, mainly due to net income. Cash used in investing activities during the six months ended June 30, 2025 was $102.8 million, mainly the result of the net increase in loans. Cash provided by financing activities during the six months ended June 30, 2025 totaled $123.0 million, primarily the result of an increase in net deposits.

Regulatory Capital

Mid Penn and the Bank are subject to regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory, and possibly additional discretionary, actions by the regulators that if, undertaken, could have a direct material effect on Mid Penn's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory account practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Minimum regulatory capital requirements established by Basel III rules require Mid Penn and the Bank to:

• Meet a minimum Common Equity Tier I capital ratio of 4.5% of risk-weighted assets;
• Meet a minimum Tier I capital ratio of 6.0% of risk-weighted assets;
• Meet a minimum Total capital ratio of 8.0% of risk-weighted assets;
• Meet a minimum Tier I leverage capital ratio of 4.0% of average assets;
• Maintain a "capital conservation buffer" of 2.5% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonuses; and
• Comply with the definition of capital to improve the ability of regulatory capital instruments to absorb losses.

The Basel III Rules use a standardized approach for risk weightings that expands the risk-weighting for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures and resulting in higher risk weightings for a variety of asset categories.

Banks are evaluated for capital adequacy by regulatory supervisory agencies based on the ratio of capital to risk-weighted assets and total assets. The minimum capital to risk-weighted assets requirements, including the capital conservation buffers, which became effective for Mid Penn and the Bank on January 1, 2016, are illustrated below. At June 30, 2025, regulatory capital ratios for both Mid Penn and the Bank met the definition of a "well-capitalized" institution under the regulatory framework for prompt corrective action and exceeded the minimum capital requirements under Basel III.

Mid Penn maintained the following regulatory capital ratios in comparison to regulatory requirements:

As of June 30, 2025 and December 31, 2024, Mid Penn and the Bank met all capital adequacy requirements and the Bank was considered "well-capitalized". However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources.

Shareholders' Equity

Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets, and the desire to collectively maintain and enhance shareholders’ value, and satisfactorily address regulatory capital requirements. Accordingly, capital management practices have been, and will continue to be, of paramount importance to Mid Penn.

Shareholders’ equity increased by $120.7 million, or 18.4%, from $655.0 million as of December 31, 2024 to $775.7 million as of June 30, 2025, primarily due to common stock issued to William Penn shareholders in the amount of $99.7 million and year to date earnings of $18.5 million.

As a financial institution, Mid Penn’s primary source of market risk is interest rate risk. Interest rate risk is the exposure to fluctuations in Mid Penn’s future earnings, earnings at risk, resulting from changes in interest rates. This exposure or sensitivity is a function of the repricing characteristics of Mid Penn's portfolio of assets and liabilities. Each asset and liability reprices either at maturity or during the life of the instrument. Interest rate sensitivity is measured as the difference between the volume of assets and liabilities that are subject to repricing in a future period of time.

The principal purpose of asset-liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Net interest income is increased by increasing the net interest margin and by volume growth. Thus, the goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.

Mid Penn utilizes an asset-liability management model to measure the impact of interest rate movements on its interest rate sensitivity position. Mid Penn’s management also reviews the traditional maturity gap analysis regularly. Mid Penn does not always attempt to achieve an exact match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of Mid Penn’s profitability.

Modeling techniques and simulation analysis involve assumptions and estimates that inherently cannot be measured with complete precision. Key assumptions in the analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of Mid Penn’s interest rate risk position over time.

Management reviews interest rate risk on a quarterly basis. This analysis includes earnings scenarios whereby interest rates are increased by 100, 200, 300 and 400 bps or decreased by 100, 200, 300, and 400 bps. These scenarios, detailed in the table below, indicate that Mid Penn would experience enhanced net interest income over a one-year time frame due to upward interest rate changes, while a reduction in interest rates would result in a decline in net interest income over a one-year time frame; however, actual results could vary significantly from the calculations prepared by management. At June 30, 2025, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.

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Evaluation of Disclosure Controls and Procedures

Mid Penn maintains controls and procedures designed to ensure that information required to be disclosed in the reports that Mid Penn files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures as of June 30, 2025, Mid Penn’s management, with the participation of the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Controls

There were no changes in Mid Penn’s internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, Mid Penn’s internal control over financial reporting during the six months ended June 30, 2025.

Management has reviewed the risk factors that were previously disclosed in the 2024 Annual Report and subsequent reports filed with the SEC to determine if there were material changes applicable to the six months ended June 30, 2025. Aside from the following risk factor, there have been no material changes to the risk factors that were previously disclosed in the 2024 Annual Report.

Changes in financial regulations and economic policies under the current U.S. administration may impact our business operations, compliance costs, and profitability.

The current administration's policies have introduced both opportunities and uncertainties that could materially affect our operations:

• Deregulation Efforts: The administration has signaled intentions to ease financial regulations, including potential modifications to capital requirements and stress testing procedures. While this may reduce compliance costs, it may also lead to increased competition and pressure on profit margins.
• Trade Policies: Recent shifts in trade policies, such as the implementation of tariffs on imports from key trading partners, have created volatility in financial markets. This uncertainty could impact our customers' business operations, potentially affecting their creditworthiness and demand for financing.
• Tax Reforms: Proposed changes to corporate tax structures may alter the financial landscape in which we operate. While lower taxes could enhance profitability, the long-term effects on the broader economy remain uncertain.