Executive Summary / Key Takeaways

• Acquisition-Driven Expansion: Mid Penn Bancorp is executing an aggressive growth strategy through strategic acquisitions, significantly expanding its asset base, geographic footprint, and service offerings, with recent and pending deals poised to reshape its scale and capabilities.
• Robust Financial Performance Amidst Integration: The company demonstrated strong financial results in Q3 2025, with substantial increases in net interest income and noninterest income, driven by balance sheet growth from acquisitions and effective interest rate management, despite higher operating expenses related to integration.
• Solid Asset Quality and Liquidity: Mid Penn maintains sound asset quality metrics and a robust liquidity position, providing a stable foundation for its ongoing expansion and mitigating some macroeconomic risks.
• Technological Investment for Scale: While not a core product differentiator, Mid Penn is making critical investments in internal systems, cybersecurity, and data security to support its larger size and increased operational complexity resulting from its growth strategy.
• Competitive Positioning and Outlook: Positioned as a community-focused bank with strong local ties, Mid Penn is expanding its regional presence to compete more effectively with larger institutions, with future acquisitions expected to enhance its wealth management and insurance capabilities.

A Legacy of Community Banking Meets Ambitious Expansion

Mid Penn Bancorp, Inc., founded in 1868 and headquartered in Harrisburg, Pennsylvania, has long served as a cornerstone of community banking across Pennsylvania and parts of New Jersey. The company operates as a financial holding company, primarily through its wholly-owned subsidiary, Mid Penn Bank, offering a comprehensive suite of commercial and consumer loans, diverse deposit products, and specialized services including mortgage and home equity loans, construction financing, and farm loans. Beyond traditional banking, Mid Penn extends its reach into trust and wealth management through its Trust Department and provides insurance services via MPB Risk Services, LLC. This integrated approach caters to individuals, partnerships, non-profit organizations, and corporations, fostering deep local relationships that form the bedrock of its business.

Mid Penn's strategic trajectory is currently defined by an aggressive and calculated acquisition strategy, designed to significantly expand its market presence and diversify its revenue streams. This inorganic growth approach has been a consistent theme, notably with the acquisition of Riverview Financial Corporation (RIVE) in November 2021, which brought $25 million in subordinated notes onto its balance sheet. More recently, the company acquired the insurance business of Commonwealth Benefits Group in July 2024. These historical moves set the stage for a transformative 2025, characterized by pivotal mergers and acquisitions that are rapidly reshaping Mid Penn's scale and competitive standing.

Competitive Landscape and Strategic Differentiation

Mid Penn operates within a highly competitive financial services industry, contending with a diverse array of players ranging from larger national banks to regional and local community institutions, as well as emerging fintech companies. Key direct competitors include regional powerhouses like Fulton Financial Corporation (FULT), Peoples Financial Services Corp. (PFIS), WSFS Financial Corporation (WSFS), and national giants such as PNC Financial Services Group (PNC).

Mid Penn's core competitive advantage lies in its strong community brand and extensive branch network across its operating regions. This localized presence fosters deep customer loyalty and relationship-based banking, allowing Mid Penn to effectively capture market share in niche segments, particularly among small businesses and in rural areas. While competitors like FULT offer a broader regional footprint and WSFS boasts advanced technological capabilities, Mid Penn differentiates itself through tailored solutions and a personalized service model. For instance, its diversified offerings, including specialized community development loans, position it as more adaptable in evolving local markets compared to the more traditional approach of PFIS. However, Mid Penn's smaller scale compared to PNC presents challenges in terms of operational efficiency and the pace of technological innovation. While Mid Penn excels in localized market knowledge, it acknowledges a lag in innovation speed and product performance, particularly in digital features, when compared to technologically advanced rivals like WSFS.

Investing in Foundational Technology for Growth

Mid Penn's approach to technology is primarily focused on strengthening its operational backbone to support its expanding enterprise rather than on developing proprietary, market-facing product differentiators. The company is making significant investments in its internal systems, which is a critical response to its rapid growth through acquisitions. For the three months ended September 30, 2025, software licensing and utilization costs increased by $944 thousand compared to the prior year period. This increase reflects additional costs associated with licensing software for newly acquired branches, such as those from the William Penn acquisition, and crucial upgrades to internal systems. These upgrades encompass network storage, cybersecurity, and data security enhancements, all vital for managing the bank's larger size and increased IT complexity.

These investments, while not directly generating new revenue streams from novel technological products, are essential for maintaining operational effectiveness, ensuring data integrity, and safeguarding customer information in an increasingly digital and threat-laden environment. The strategic intent behind these expenditures is to build a robust and scalable IT infrastructure that can seamlessly integrate acquired entities and support future growth, thereby contributing to long-term stability and efficiency. Without these foundational technological improvements, Mid Penn's ability to realize synergies from its acquisition strategy and maintain competitive parity in service delivery would be significantly hampered. This commitment to internal technological resilience is a necessary component of its growth narrative, enabling the company to absorb and optimize its expanding operations.

Financial Performance: Growth Fueled by Strategic Expansion

Mid Penn Bancorp delivered a compelling financial performance for the third quarter and nine months ended September 30, 2025, demonstrating the tangible benefits of its strategic growth initiatives. Net income available to common shareholders for the third quarter of 2025 surged to $18.30 million, or $0.79 per diluted common share, a notable increase from $12.30 million, or $0.74 per diluted common share, in the same period of 2024. For the nine months ended September 30, 2025, net income reached $36.80 million, compared to $36.20 million in the prior year period. However, diluted EPS for the nine months decreased to $1.70 from $2.18, primarily due to a higher number of shares outstanding following acquisition-related issuances.

Net interest income, the company's primary revenue driver, saw a significant increase, reaching $53.60 million for the third quarter of 2025, up from $40.20 million in Q3 2024. The tax-equivalent net interest margin (NIM) expanded by 47 basis points to 3.60% in Q3 2025, driven by an 8 basis point increase in the yield on interest-earning assets and a 48 basis point decrease in the rate on interest-bearing liabilities. This favorable trend in interest expense was largely a result of a reduction in short-term borrowings and time deposits, alongside the Bank lowering rates in response to Federal Reserve interest rate cuts in 2024. For the nine months, FTE net interest income rose by 24.90% to $145.10 million, with NIM increasing by 41 basis points to 3.48%.

Noninterest income also experienced substantial growth, totaling $8.20 million for Q3 2025, a 58% increase year-over-year. This was propelled by a $329 thousand increase in earnings from the cash surrender value of life insurance, a $245 thousand rise in mortgage banking income, and a $136 thousand increase in fiduciary and wealth management fees. A significant portion of this growth, a $2.20 million increase in other miscellaneous noninterest income, was driven by $534 thousand in recoveries on loans previously acquired in business combinations, a $420 thousand gain from a reinsurance entity investment, and increases in insurance commissions and loan-level swap fees.

Operating expenses, however, also increased, reflecting the costs associated with the company's expansion. Noninterest expense for Q3 2025 rose by $8 million, or 26.80%, to $38 million. This was primarily due to a $4.80 million increase in salaries and employee benefits, attributable to equity-based compensation and staff additions from the William Penn acquisition. Software licensing and utilization costs increased by $944 thousand due to new branch licensing and internal system upgrades, while occupancy expenses rose by $827 thousand for the additional retail locations. For the nine months, merger and acquisition expenses alone increased by $11.40 million, including $11.20 million related to the William Penn acquisition.

Total assets grew by $796.40 million, or 14.60%, to $6.27 billion as of September 30, 2025, compared to $5.47 billion at December 31, 2024. This growth was primarily driven by an increase in loans and available-for-sale investment securities, with the William Penn acquisition contributing $405.30 million to the loan portfolio. Total deposits increased by $652.80 million, or 13.90%, to $5.34 billion, largely due to $619.80 million in deposits from the William Penn acquisition.

Liquidity, Capital, and Asset Quality

Mid Penn maintains a strong liquidity position, with current liquidity, including borrowing capacity, increasing to $1.70 billion as of September 30, 2025. This represents 175.80% of uninsured and uncollateralized deposits, or approximately 32.30% of total deposits, underscoring the company's ability to meet its funding needs. The decrease in short-term borrowings reflects a deliberate strategy to maintain a robust unencumbered liquid assets ratio.

Asset quality remains sound, with the Allowance for Credit Losses (ACL) for loans at $37.30 million, or 0.77% of total loans, as of September 30, 2025, compared to $35.50 million, or 0.80% at December 31, 2024. While total nonperforming assets increased to $27.30 million from $22.70 million at year-end 2024, primarily due to two commercial real estate loans entering foreclosure, this was partially offset by subsequent payoffs. The provision for credit losses on loans for the nine months ended September 30, 2025, was $2.40 million, including a $2.30 million reserve for non-PCD loans from the William Penn acquisition.

Shareholders' equity increased by $141.30 million, or 21.60%, to $796.30 million, largely due to the common stock issued for the William Penn acquisition and year-to-date earnings. Mid Penn and its banking subsidiary continue to exceed minimum capital requirements under Basel III, maintaining a well-capitalized status. The company also manages its exposure to interest rate risks through derivatives, though none are used for speculative purposes, and its interest rate risk levels remain within Board-approved policy limits.

Strategic Outlook and Risks

Mid Penn's future is firmly rooted in its continued acquisition strategy and the integration of recent and pending deals. The acquisition of William Penn Bancorporation (WMPN) on April 30, 2025, significantly expanded its branch network by 12 locations in the Philadelphia region and surrounding areas, contributing approximately $9.50 million in revenue and $438 thousand in net income for the nine months ended September 30, 2025. Looking ahead, two significant transactions are anticipated to close in the first or second quarter of 2026. The agreement to acquire 1st Colonial Bancorp, Inc. for approximately $101 million in cash and stock will further deepen its presence in Pennsylvania and New Jersey. Concurrently, the acquisition of Cumberland Advisors, Inc. for $5.50 million, with a potential earn-out, is expected to add approximately $3.30 billion in new assets under management, marking a strategic push into expanding its investment advisory services.

Despite the promising growth trajectory, Mid Penn faces several risks. The integration of acquired entities, particularly 1st Colonial , carries inherent challenges related to operational complexities, potential employee attrition, and the realization of anticipated synergies and cost savings. Regulatory approvals for these mergers are also a critical condition, and delays or unforeseen conditions could impact the combined company. Furthermore, the company's common stock trading below book value warrants ongoing monitoring for potential goodwill impairment. Macroeconomic factors, such as the continuation of a U.S. federal government shutdown or prolonged adverse economic conditions, could impact loan demand, credit quality, and overall financial performance, particularly affecting its SBA loan business. Interest rate fluctuations also pose a market risk, although management actively monitors and models these exposures.

Conclusion

Mid Penn Bancorp is in a dynamic phase of aggressive expansion, strategically leveraging acquisitions to grow its asset base, geographic reach, and service capabilities. The company's recent financial performance underscores the initial success of these initiatives, with strong increases in net interest income and noninterest income, supported by a solid liquidity position and sound asset quality. While the integration of new entities presents operational and financial complexities, Mid Penn's commitment to strengthening its foundational technology and its deep-rooted community banking model provide a resilient framework for growth. The anticipated closures of the 1st Colonial (FCLB) and Cumberland Advisors acquisitions are poised to further transform Mid Penn, significantly enhancing its scale and diversifying its revenue streams, particularly in wealth management. For investors, Mid Penn represents a compelling opportunity in the regional banking sector, driven by a clear strategic vision for expansion, albeit with the inherent risks associated with rapid integration and evolving macroeconomic conditions. The company's ability to seamlessly integrate its new acquisitions and realize their full synergistic potential will be paramount to unlocking long-term shareholder value.