Business Combination

9 Months Ended

Sep. 30, 2023

Brunswick Acquisition

On May 19, 2023, Mid Penn completed its acquisition of Brunswick through the merger of Brunswick with and into Mid Penn with Mid Penn being the surviving corporation. In connection with this acquisition, Brunswick Bank, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn.

This transaction included the acquisition of 5 branches and extended Mid Penn’s footprint into Middlesex and Monmouth counties in central New Jersey. Mid Penn issued 849,510 shares of its common stock as well as a net cash payment to Brunswick shareholders of $27.6 million, for total consideration of $45.7 million for all outstanding stock and the cancellation of stock options of Brunswick.

Mid Penn has recognized total goodwill of $15.5 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed compared to the fair market value of identifiable assets acquired. The fair value of the consideration exchanged related to Mid Penn’s common stock was calculated based upon the closing market price of Mid Penn’s common stock as of May 19, 2023. None of the goodwill recognized is expected to be deductible for income tax purposes.

Mid Penn incurred expenses related to the Brunswick Acquisition of $352 thousand for the three months ended September 30, 2023 and $8.5 million for the nine months ended September 30, 2023, which are included in noninterest expense in the Consolidated Statements of Income.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. Mid Penn considers various factors in connection with the identification of more-than-insignificant deterioration in credit, including but not limited to nonperforming status, delinquency, risk ratings, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. As part of the Brunswick Acquisition, Mid Penn acquired PCD loans and leases of $18.7 million. Mid Penn established an ACL at acquisition of $355 thousand with a corresponding gross-up to the amortized cost of the PCD loans and leases. The non-credit discount on the PCD loans and leases was $2.1 million and the

Day 1 fair value was $16.6 million. The initial provision expense for non-PCD loans associated with the Brunswick Acquisition was $2.0 million.

Estimated fair values of the assets acquired and liabilities assumed in the Brunswick Acquisition as of the closing date are as follows:


(In thousands)
Assets acquired:
Cash and cash equivalents	$	21,029
Federal funds sold	7,604
Investment securities	1,825
Loans	324,471
Goodwill	15,521
Core deposit intangible	999
Premises and equipment	5,315
Cash surrender value of life insurance	3,361
Deferred income taxes	6,792
Accrued interest receivable	1,171
Other assets	3,860
Total assets acquired	391,948
Liabilities assumed:
Deposits:
Noninterest-bearing demand	62,123
Interest-bearing demand	11,767
Money Market	47,362
Savings	14,203
Time	147,164
Long-term debt	60,137
Accrued interest payable	1,911
Other liabilities	1,621
Total liabilities assumed	346,288

Consideration paid	$	45,660

Cash paid	$	27,565
Fair value of common stock issued	18,095

Management has completed its evaluation of fair values of all assets and liabilities shown in the table above and all amounts are considered final. Measurement period adjustments for the three months ending September 30, 2023 were $349 thousand related to securities paydowns received after the acquisition date that relate to the period before the acquisition date, as well as a $6.4 million reclass between noninterest-bearing demand and interest-bearings demand deposits.