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Section 1: S-4 (S-4)

S-4
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As Filed with the Securities and Exchange Commission on May 31, 2018

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

MID PENN BANCORP, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Pennsylvania   6022   25-1666413

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(IRS Employer

Identification No.)

 

 

349 Union Street

Millersburg, Pennsylvania 17061

(717) 692-7105

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Rory G. Ritrievi

President and Chief Executive Officer

Mid Penn Bancorp, Inc.

349 Union Street

Millersburg, Pennsylvania 17061

(717) 692-7105

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Kenneth J. Rollins, Esq.

Pillar+Aught

4201 E. Park Circle

Harrisburg, Pennsylvania 17111

(717) 308-9633

 

David W. Swartz, Esq.

Stevens & Lee, P.C.

111 North 6th Street

Reading, Pennsylvania 19603

(610) 478-2184

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Securities Act”), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

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 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon on conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross Border Third-Party Tender Offer  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount

to be

registered(1)

 

Proposed

maximum

offering price

per share

 

Proposed

maximum

aggregate
offering price(2)

 

Amount of

registration fee(3)

Common Stock, par value $1.00 per share

  2,569,069   N/A   $87,013,278   $10,834

 

 

(1) Represents the estimated maximum number of shares of common stock, par value $1.00 per share, of the registrant to be issued upon completion of the merger described in the joint proxy statement/prospectus contained herein (the “merger”), calculated as the product of (i) 6,646,369 shares of common stock, par value $1.00 per share, of First Priority Financial Corp., a Pennsylvania corporation (“First Priority common stock”), plus 733,892 shares of First Priority common stock reserved in connection with all outstanding options to purchase shares of First Priority common stock outstanding as of May 25, 2018, multiplied by (ii) 0.3481, the exchange ratio under the merger agreement.
(2) Pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) promulgated under the Securities Act and solely for the purpose of calculating the registration fee, the proposed aggregate maximum offering price is equal to the product of (x) $11.79 (the average of the high and low prices of First Priority common stock as reported on the OTCQX Market on May 25, 2018) and (y) 7,380,261, the estimated maximum number of shares of First Priority common stock to be exchanged in the merger.
(3) Computed in accordance with Rule 457(f) under the Securities Act to be $10,834, which is equal to 0.0001245 multiplied by the proposed maximum aggregate offering price of $87,013,278.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this joint proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this joint proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED MAY 31, 2018

 

LOGO    LOGO

 

Mid Penn Bancorp, Inc.

  

 

First Priority Financial Corp.

Joint Proxy Statement/Prospectus

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On January 16, 2018, Mid Penn Bancorp, Inc., or Mid Penn, and First Priority Financial Corp., or First Priority, entered into a merger agreement under which First Priority will merge with and into Mid Penn, with Mid Penn remaining as the surviving entity. Before we complete the merger, the shareholders of Mid Penn and First Priority must approve and adopt the merger agreement.

Mid Penn shareholders will vote to adopt the merger agreement and on the other matters described below at a special meeting of shareholders to be held at [●], local time, on [●], 2018 at [●]. First Priority shareholders will vote to adopt the merger agreement and on the other matters described below at a special meeting of shareholders to be held at [●], local time, on [●], 2018 at [●].

If the merger is completed, First Priority shareholders will have the right to receive for each share of First Priority common stock they own 0.3481 shares of Mid Penn common stock. Cash will be paid in lieu of any fractional shares, and all options to purchase First Priority common stock outstanding immediately prior to the merger will be cashed out. If the merger is completed, Mid Penn will issue between 2,309,632 and 2,571,010 shares of common stock, depending on the number of First Priority options that are exercised prior to completion of the merger.

The common stock of Mid Penn trades on the Nasdaq Global Select Market under the symbol “MPB” and the common stock of First Priority trades on the OTCQX Market under the symbol “FPBK.” On January 12, 2018, which was the last trading date preceding the public announcement of the proposed merger, the closing price of Mid Penn common stock and First Priority common stock was $37.50 per share and $9.00 per share, respectively. On [●], 2018, the most recent practicable trading day prior to the printing of this joint proxy statement/prospectus, the closing price of Mid Penn common stock and First Priority common stock was $[●] per share and $[●] per share, respectively. The market price of both Mid Penn common stock and First Priority common stock will fluctuate before the completion of the merger; therefore, you are urged to obtain current market quotations for Mid Penn common stock and First Priority common stock.

The Mid Penn board of directors has determined that the merger is advisable and in the best interests of Mid Penn and the Mid Penn board of directors unanimously recommends that the Mid Penn shareholders vote “FOR” the adoption of the merger agreement and “FOR” the approval of the other proposals described in this joint proxy statement/prospectus.

The First Priority board of directors has determined that the merger is advisable and in the best interests of First Priority and the First Priority board of directors unanimously recommends that the First Priority shareholders vote “FOR” the adoption of the merger agreement and “FOR” the approval of the other proposals described in this joint proxy statement/prospectus.

Your vote is very important. Whether or not you plan to attend your shareholders’ meeting, please take the time to vote by completing and mailing the enclosed proxy card in accordance with the instructions on the proxy card. Mid Penn and First Priority shareholders may also cast their votes over the Internet or by telephone in accordance with the instructions on the Mid Penn or First Priority proxy card or voting instructions, as the case may be. We cannot complete the merger unless Mid Penn and First Priority shareholders approve and adopt the merger agreement.

You should read this entire joint proxy statement/prospectus, including the annexes hereto and the documents incorporated by reference herein, carefully because it contains important information about the merger and the related transactions. In particular, you should read carefully the information under the section entitled “Risk Factors” beginning on page [33]. You can also obtain information about Mid Penn and First Priority from documents that each has filed with the Securities and Exchange Commission.

We strongly support this combination of our companies and join with the other members of our boards of directors in enthusiastically recommending that you vote in favor of the merger.

 

/s/ Rory G. Ritrievi    /s/ David E. Sparks
Rory G. Ritrievi    David E. Sparks
President and Chief Executive Officer    Chairman and Chief Executive Officer
Mid Penn Bancorp, Inc.    First Priority Financial Corp.

The shares of Mid Penn common stock to be issued to First Priority shareholders in the merger are not deposits or savings accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this joint proxy statement/prospectus or the Mid Penn common stock to be issued in the merger, or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The date of this joint proxy statement/prospectus is [●], 2018, and it is first being mailed or otherwise delivered to shareholders on or about [●], 2018.

This document incorporates important business and financial information about Mid Penn that is not included in or delivered with this document. This information is available without charge to shareholders upon written or oral request at Mid Penn’s address and telephone number listed on page [●]. To obtain timely delivery, shareholders must request the information no later than [●], 2018. Please see “Where You Can Find More Information” on page [●] for instructions to request this and certain other information regarding Mid Penn.


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MID PENN BANCORP, INC.

349 UNION STREET

MILLERSBURG, PENNSYLVANIA 17061

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [], [], 2018

 

 

TO THE SHAREHOLDERS OF MID PENN BANCORP, INC.:

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Mid Penn Bancorp, Inc., or Mid Penn, will be held at [●], local time, on [●], 2018, at [●], to consider and vote on:

1. adoption of the Agreement and Plan of Merger, dated January 16, 2018, by and between Mid Penn and First Priority Financial Corp., or First Priority, which provides for, among other things, the merger of First Priority with and into Mid Penn; and

2. a proposal to authorize the board of directors to adjourn the special meeting, if necessary, to solicit additional proxies, in the event there are not sufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement.

These items are described in more detail in the accompanying joint proxy statement/prospectus and its annexes. You should read these documents in their entirety before voting. We have fixed [●], 2018 as the record date for determining those Mid Penn shareholders entitled to vote at the special meeting. Accordingly, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the special meeting or any adjournment or postponement of the meeting.

Your board of directors has unanimously determined that the proposed merger is advisable and in the best interests of Mid Penn and unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement. Your board of directors also recommends that you vote “FOR” proposal 2 listed above. In accordance with the terms of the merger agreement, each director, executive officer and ten percent (10%) shareholder of Mid Penn has agreed to vote all shares of Mid Penn common stock owned by him, her or it in favor of adoption of the merger agreement and the transactions contemplated by the merger agreement.

Your vote is very important, regardless of the number of shares of Mid Penn common stock that you own. We cannot complete the merger unless at least 66 2/3% of the outstanding shares of Mid Penn common stock votes for adoption of the merger agreement. 

Even if you plan to attend the special meeting in person, Mid Penn requests that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or Internet prior to the special meeting to ensure that your shares of Mid Penn common stock will be represented at the special meeting. If you hold your shares in “street name” through a bank, brokerage firm or other nominee, you should follow the procedures provided by your bank, brokerage firm or other nominee to vote your shares. If you fail to submit a proxy or to attend the special meeting and vote in person or do not provide your bank, brokerage firm or other nominee with instructions as to how to vote your shares, your shares of Mid Penn common stock will not be counted and will have the same effect as a vote “against” the approval of the merger agreement.

We urge you to vote as soon as possible so that your shares will be represented.

BY ORDER OF THE BOARD OF DIRECTORS,

/s/ Cindy L. Wetzel

Cindy L. Wetzel

Corporate Secretary

Millersburg, Pennsylvania

[●], 2018


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FIRST PRIORITY FINANCIAL CORP.

2 WEST LIBERTY BOULEVARD, SUITE 104

MALVERN, PENNSYLVANIA 19355

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [],[], 2018

 

 

TO THE SHAREHOLDERS OF FIRST PRIORITY FINANCIAL CORP.:

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of First Priority Financial Corp., or First Priority, will be held at [●], local time, on [●], 2018, at [●], to consider and vote on:

1. adoption of the Agreement and Plan of Merger, dated January 16, 2018, by and between Mid Penn Bancorp, Inc., or Mid Penn, and First Priority, which provides for, among other things, the merger of First Priority with and into Mid Penn; and

2. a proposal to authorize the board of directors to adjourn the special meeting, if necessary, to solicit additional proxies, in the event there are not sufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement.

These items are described in more detail in the accompanying joint proxy statement/prospectus and its annexes. You should read these documents in their entirety before voting. We have fixed [●], 2018 as the record date for determining those First Priority shareholders entitled to vote at the special meeting. Accordingly, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the special meeting or any adjournment or postponement of the meeting.

Your board of directors has unanimously determined that the proposed merger is advisable and in the best interests of First Priority and unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement. Your board of directors also recommends that you vote “FOR” proposal 2 listed above. In accordance with the terms of the merger agreement, each director and executive officer of First Priority has agreed to vote all shares of First Priority common stock owned by him or her in favor of adoption of the merger agreement and the transactions contemplated thereby.

We urge you to vote as soon as possible so that your shares will be represented.

Your vote is very important, regardless of the number of shares of First Priority common stock that you own. We cannot complete the merger unless First Priority’s shareholders approve the merger agreement by a majority of votes cast at the meeting. 

Even if you plan to attend the special meeting in person, First Priority requests that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or Internet prior to the special meeting to ensure that your shares of First Priority common stock will be represented at the special meeting. If you hold your shares in “street name” through a bank, brokerage firm or other nominee, you should follow the procedures provided by your bank, brokerage firm or other nominee to vote your shares. If you fail to submit a proxy or to attend the special meeting and vote in person or do not provide your bank, brokerage firm or other nominee with instructions as to how to vote your shares, as applicable, your shares of First Priority common stock will not be counted.

BY ORDER OF THE BOARD OF DIRECTORS,

/s Alice D. Flaherty

Alice D. Flaherty

Corporate Secretary

Malvern, Pennsylvania

[●], 2018


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WHERE YOU CAN FIND MORE INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Mid Penn from other documents that Mid Penn has filed with the U.S. Securities and Exchange Commission, which we refer to as the “SEC,” and that are contained in or incorporated by reference into this joint proxy statement/prospectus. First Priority does not have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” but is subject to the reporting requirements of Section 15(d) of the Exchange Act and files documents and reports with the SEC. This information is available for you to review at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and through the SEC’s website at www.sec.gov.

You may request copies of this joint proxy statement/prospectus and any of the documents incorporated by reference into this joint proxy statement/prospectus or other information concerning Mid Penn, without charge, by telephone or written request directed to:

Mid Penn Bancorp, Inc.

349 Union Street

Millersburg, Pennsylvania 17061

Attention: Corporate Secretary

(717) 692-7105

You may also request a copy of this joint proxy statement/prospectus and or other information concerning First Priority, without charge, by telephone or written request directed to:

First Priority Financial Corp.

2 West Liberty Boulevard, Suite 104

Malvern, Pennsylvania 19355

Attention: Corporate Secretary

(610) 280-7100

To obtain timely delivery of these documents, you must request the information no later than [], 2018 in order to receive them before Mid Penn’s special meeting of shareholders and no later than [], 2018 in order to receive them before First Priority’s special meeting of shareholders.

The joint proxy statement/prospectus is also available on Mid Penn’s website at www.midpennbank.com and on First Priority’s website at www.fpbk.com. The information on Mid Penn’s website is not part of this joint proxy statement/prospectus. References to Mid Penn’s and First Priority’s websites in this joint proxy statement/prospectus are intended to serve as textual references only.

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the SEC by Mid Penn (File No. 333-[●]), constitutes a prospectus of Mid Penn under the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” with respect to the shares of common stock, par value $1.00 per share, of Mid Penn, which we refer to as “Mid Penn common stock,” to be issued pursuant to the Agreement and Plan of Merger, dated as of January 16, 2018, by and between Mid Penn and First Priority, which we refer to as the “merger agreement.” This document also constitutes a proxy statement of Mid Penn and First Priority under the Exchange Act. It also constitutes a notice of meeting with respect to the special meetings, at which each of Mid Penn and First Priority shareholders will be asked to vote to approve the merger agreement. Mid Penn has supplied all information contained or incorporated by reference into this joint proxy statement/prospectus relating to Mid Penn, and First Priority has supplied all information contained in this joint proxy statement/prospectus relating to First Priority.

 

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You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. Mid Penn and First Priority have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference into this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [●], 2018, and you should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than such date. Further, you should not assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this joint proxy statement/prospectus to First Priority shareholders nor the issuance by Mid Penn of shares of its common stock pursuant to the merger agreement will create any implication to the contrary.

 

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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

     1  

Questions about the Merger

     1  

Questions about the Mid Penn Special Meeting

     3  

Questions about the First Priority Special Meeting

     6  

SUMMARY

     11  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF MID PENN

     20  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FIRST PRIORITY

     21  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF SCOTTDALE

     22  

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

     23  

COMPARATIVE PER SHARE DATA (UNAUDITED)

     31  

RISK FACTORS

     33  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     39  

THE MERGER

     41  

Background of the Merger

     41  

First Priority’s Reasons for the Merger

     45  

Recommendation of First Priority’s Board of Directors

     48  

Opinion of First Priority’s Financial Advisor

     48  

Mid Penn’s Reasons for the Merger

     57  

Recommendation of Mid Penn’s Board of Directors

     59  

Opinion of Mid Penn’s Financial Advisor

     59  

Board of Directors and Management of Mid  Penn Following Completion of the Merger

     71  

First Priority Shareholders Have Dissenters’ Rights in the Merger

     71  

Regulatory Approvals Required for the Merger

     73  

INTERESTS OF FIRST PRIORITY’S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER

     74  

Share Ownership

     74  

First Priority Stock Options

     74  

Indemnification and Insurance

     74  

Appointment to Boards of Directors of Mid Penn and Mid Penn Bank

     74  

Appointment of David E. Sparks as Chief Strategic Advisor and Market President

     75  

Existing Employment Agreement of Steven A. Ehrlich

     75  

First Priority Bank Severance Plan

     75  

THE MERGER AGREEMENT

     76  

Terms of the Merger

     76  

Closing and Effective Time of the Merger

     76  

Consideration to be Received in the Merger

     76  

Conversion of Shares; Letter of Transmittal; Exchange of Certificates

     77  

Dividends and Distributions

     77  

Representations and Warranties

     77  

Covenants and Agreements

     78  

First Priority Bank Post-Closing Operation

     82  

Shareholder Meetings

     82  

Agreement Not to Solicit Other Offers

     82  

Expenses and Fees

     84  

Indemnification and Insurance

     84  

Conditions to Complete the Merger

     85  

Termination of the Merger Agreement

     86  

Termination Fee

     87  

Amendment, Waiver and Extension of the Merger Agreement

     87  

 

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ACCOUNTING TREATMENT

     87  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     88  

THE MID PENN SPECIAL MEETING

     90  

MID  PENN SPECIAL MEETING—PROPOSAL NO. 1
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT

     92  

MID  PENN SPECIAL MEETING—PROPOSAL NO. 2
AUTHORIZATION TO VOTE ON ADJOURNMENT OR OTHER MATTERS

     93  

INFORMATION ABOUT MID PENN BANCORP, INC.

     94  

Business

     94  

THE FIRST PRIORITY SPECIAL MEETING

     95  

FIRST PRIORITY SPECIAL MEETING—PROPOSAL NO. 1
ADOPTION OF THE MERGER AGREEMENT

     97  

FIRST PRIORITY SPECIAL MEETING—PROPOSAL NO. 2
AUTHORIZATION TO VOTE ON ADJOURNMENT OR OTHER MATTERS

     97  

INFORMATION ABOUT FIRST PRIORITY FINANCIAL CORP.

     98  

Business

     98  

Competition

     99  

Properties

     99  

Legal Proceedings

     99  

Information about First Priority Designees to Mid  Penn Bancorp, Inc. Board of Directors

     100  

Security Ownership of Certain Beneficial Holders of First Priority

     100  

Compensation of David E. Sparks

     102  

Transactions with Certain Related Persons

     104  

Management’s Discussion and Analysis of Financial Condition and Results of Operations of First Priority—March 31, 2018

     104  

Management’s Discussion and Analysis of Financial Condition and Results of Operations of First Priority—December 31, 2017

     125  

COMPARISON OF SHAREHOLDERS’ RIGHTS

     152  

MARKET PRICE AND DIVIDEND INFORMATION

     161  

LEGAL MATTERS

     163  

EXPERTS

     163  

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     163  

 

Annex A

  

Agreement and Plan of Merger

     A-1  

Annex B

  

Opinion of Griffin Financial Group LLC

     B-1  

Annex C

  

Opinion of Sandler O’Neill & Partners, L.P.

     C-1  

Annex D

  

Pennsylvania Statutory Provisions Relating to Dissenter’s Rights

     D-1  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

The following questions and answers briefly address some commonly asked questions about the merger (as defined below) and the shareholder meetings. They may not include all the information that is important to the shareholders of Mid Penn and First Priority. Shareholders of Mid Penn and First Priority should each read carefully this entire joint proxy statement/prospectus, including the annexes and other documents referred to in this document.

Questions about the Merger

 

Q: What is the merger?

 

A: Mid Penn and First Priority have entered into an Agreement and Plan of Merger, dated January 16, 2018, which is referred to as the “merger agreement.” A copy of the merger agreement is attached as Annex A to, and is incorporated by reference in, this joint proxy statement/prospectus. The merger agreement contains the terms and conditions of the proposed business combination of Mid Penn and First Priority. Under the merger agreement, First Priority will merge with and into Mid Penn, with Mid Penn remaining as the surviving entity. We refer to this transaction as the “corporate merger.” Immediately following the corporate merger, First Priority Bank, a wholly owned bank subsidiary of First Priority, will merge with and into Mid Penn’s wholly owned bank subsidiary, Mid Penn Bank, with Mid Penn Bank as the surviving bank, and the separate corporate existence of First Priority Bank will cease. We refer to this transaction as the “bank merger.” We refer to the corporate merger and the bank merger collectively as the “merger.”

Following the completion of the merger, the merger agreement provides that Mid Penn will continue to operate the branches of First Priority Bank as a separate banking division of Mid Penn Bank under the name “First Priority Bank, a Division of Mid Penn Bank.”

 

Q: Why am I receiving these materials?

 

A: This document constitutes both a joint proxy statement of Mid Penn and First Priority and a prospectus of Mid Penn. It is a joint proxy statement because the boards of directors of both companies are soliciting proxies from their respective shareholders. It is a prospectus because Mid Penn will issue shares of its common stock in exchange for shares of First Priority common stock in the merger.

Mid Penn is sending these materials to its shareholders to help them decide how to vote their shares of Mid Penn common stock with respect to the proposed merger and the other matters to be considered at the Mid Penn special meeting described in “The Mid Penn Special Meeting,” beginning on page [●].

First Priority is sending these materials to its shareholders to help them decide how to vote their shares of First Priority common stock with respect to the proposed merger and the other matters to be considered at the First Priority special meeting described in “The First Priority Special Meeting,” beginning on page [●].

Information about these meetings, the merger and the other business to be considered at the meetings is contained in this joint proxy statement/prospectus. The merger cannot be completed unless shareholders of Mid Penn and First Priority each approve the merger.

 

Q: Why is Mid Penn proposing the merger?

 

A: The Mid Penn board of directors, in unanimously determining that the merger is in the best interests of Mid Penn, considered a number of key factors that are described under the heading “The Merger—Mid Penn’s Reasons for the Merger,” beginning on page [●].

 

Q: Why is First Priority proposing the merger?

 

A: The First Priority board of directors, in unanimously determining that the merger is in the best interests of First Priority, considered a number of key factors that are described under the heading “The Merger—First Priority’s Reasons for the Merger,” beginning on page [●].

 

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Q: What will First Priority shareholders receive in the merger, and how will this affect holders of Mid Penn common stock?

 

A: Upon completion of the merger, First Priority shareholders will be entitled to receive, for each share of First Priority common stock they own, 0.3481 shares, which we sometimes call the “exchange ratio,” of Mid Penn common stock. The exchange ratio is fixed and not subject to adjustment, except in limited circumstances. Because of the number of shares of Mid Penn common stock being issued in the merger, the percentage ownership interest in Mid Penn represented by the existing shares of Mid Penn common stock will be diluted. Mid Penn shareholders will not receive any merger consideration and will continue to own their existing shares of Mid Penn common stock after the merger.

 

Q: What equity stake will First Priority shareholders hold in Mid Penn immediately following the merger?

 

A: Following completion of the merger, current Mid Penn shareholders will own in the aggregate approximately 72.6% of the outstanding shares of Mid Penn common stock and First Priority shareholders will own approximately 27.4% of the outstanding shares of Mid Penn common stock.

 

Q: What is the value of the per share merger consideration?

 

A: On January 12, 2018, which was the last trading date preceding the public announcement of the proposed merger, the closing price of Mid Penn common stock was $37.50 per share. On [●], 2018, the most recent practicable trading day prior to the printing of this joint proxy statement/prospectus, the closing price of Mid Penn common stock was $[●] per share. The market price of both Mid Penn common stock and First Priority common stock will fluctuate before the completion of the merger, therefore, you are urged to obtain current market quotations for Mid Penn common stock and First Priority common stock.

 

Q: What happens if I am eligible to receive a fraction of a share of Mid Penn common stock as part of the merger consideration?

 

A: If the aggregate number of shares of Mid Penn common stock that you are entitled to receive as part of the merger consideration includes a fraction of a share of Mid Penn common stock, you will receive cash in lieu of that fractional share. See the section entitled “The Merger Agreement—Consideration to be Received in the Merger” beginning on page [●] of this joint proxy statement/prospectus.

 

Q: Who will be the directors and executive officers of the combined company following the merger?

 

A: Following completion of the merger, the then current directors and executive officers of Mid Penn and Mid Penn Bank will continue in office. At the effective time of the merger, the boards of directors of Mid Penn and Mid Penn Bank will be increased by four (4) directors and David E. Sparks, Chairman and Chief Executive Officer of First Priority, and three (3) of the other current directors of First Priority selected by the board of directors of First Priority, with the approval of Mid Penn’s board of directors, will be added to the boards of directors of Mid Penn and Mid Penn Bank. Additionally, Mr. Sparks will be appointed as Chief Strategic Advisor to the Chief Executive Officer of Mid Penn Bancorp, Inc. and Mid Penn Bank, and Market President of First Priority Bank, a Division of Mid Penn Bank.

 

Q: When do you expect to complete the merger?

 

A: Subject to the satisfaction or waiver of the closing conditions described under the section entitled, “The Merger Agreement—Conditions to Completion of the Merger” beginning on page [●] of this joint proxy statement/prospectus, including receipt of shareholder approvals at the respective special meetings of Mid Penn and First Priority, and continued effectiveness of regulatory approvals already received, we currently expect to complete the merger in the third quarter of 2018. It is possible, however, that factors outside of either company’s control could result in us completing the merger at a later time or not completing it at all.

 

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Q: What are the federal income tax consequences of the merger?

 

A: The merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which is referred to as the Internal Revenue Code. It is a condition to the completion of the merger that each of Mid Penn and First Priority receive a written opinion from their respective legal counsel to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Because First Priority shareholders will receive solely Mid Penn common stock for their shares (except for cash in lieu of fractional shares), First Priority shareholders should not recognize gain or loss except with respect to the cash they receive in lieu of a fractional share.

This tax treatment may not apply to all First Priority shareholders. Determining the actual tax consequences of the merger to First Priority shareholders can be complicated. First Priority shareholders should consult their own tax advisor for a full understanding of the merger’s tax consequences that are particular to each shareholder. For further discussion of the material U.S. federal income tax consequences of the merger, see “Material United States Federal Income Tax Consequences of the Merger,” beginning on page [●].

Questions about the Mid Penn Special Meeting

 

Q: What am I being asked to vote on at the Mid Penn special meeting?

 

A: You are being asked to consider and vote on:

 

  1. adoption of the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus; and

 

  2. adjournment of the Mid Penn special meeting, if necessary, to solicit additional proxies.

 

Q: How does the Mid Penn board of directors recommend that I vote my shares?

 

A: The Mid Penn board of directors recommends that the Mid Penn shareholders vote their shares as follows:

 

    “FOR” adoption of the merger agreement; and

 

    “FOR” an adjournment of the Mid Penn special meeting, if necessary, to solicit additional proxies.

As of the record date, directors, executive officers and ten percent (10%) shareholders of Mid Penn and their affiliates had the right to vote [●] shares of Mid Penn common stock, or [●]% of the outstanding Mid Penn common stock entitled to be voted at the special meeting. Each of the directors, executive officers and ten percent (10%) shareholders of Mid Penn has agreed to vote all shares of Mid Penn common stock owned by him, her or it in favor of adoption of the merger agreement.

 

Q: What do I need to do now?

 

A: After carefully reading and considering the information contained in this joint proxy statement/prospectus, please submit your proxy as soon as possible so that your shares will be represented at the Mid Penn special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee.

 

Q: Who is entitled to vote at the Mid Penn special meeting?

 

A: Mid Penn shareholders of record as of the close of business on [●], 2018, which is referred to as the “Mid Penn record date,” are entitled to notice of, and to vote at, the Mid Penn special meeting.

 

Q: How many votes do I have?

 

A: Each outstanding share of Mid Penn common stock is entitled to one vote.

 

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Q: How do I vote my Mid Penn shares?

 

A: You may vote your Mid Penn shares by completing and returning the enclosed proxy card, by Internet or by voting in person at the Mid Penn special meeting.

Voting by Proxy. You may vote your Mid Penn shares by completing and returning the enclosed proxy card. Your proxy will be voted in accordance with your instructions. If you submit a properly executed and dated proxy, but do not specify a choice on one of the proposals described in this joint proxy statement/prospectus, your proxy will be voted in favor of that proposal.

Voting by Internet. If you are a registered shareholder, you may vote electronically through the Internet by following the instructions included on your proxy card. If your shares are registered in the name of a broker or other nominee, you may be able to vote via the Internet. If so, the voting form your nominee sends you will provide Internet instructions.

Voting by Phone. Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call [●] and then follow the instructions.

Voting in Person. If you attend the Mid Penn special meeting, you may deliver your completed proxy card in person or may vote by completing a ballot that will be available at the meeting. If your shares are registered in the name of a broker or other nominee and you wish to vote at the meeting you will need to obtain a legal proxy from your bank or brokerage firm. Please consult the voting form sent to you by your bank or broker to determine how to obtain a legal proxy in order to vote in person at the special meeting.

 

Q: Why is my vote important?

 

A: Because the merger cannot be completed without the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Mid Penn common stock at the Mid Penn special meeting, every shareholder’s vote is important.

 

Q: If my shares of Mid Penn common stock are held in street name by my broker, will my broker automatically vote my shares for me?

 

A: No. Your broker CANNOT vote your shares on any proposal at the Mid Penn special meeting without instructions from you. You should instruct your broker as to how to vote your shares, following the directions your broker provides to you.

 

Q: What if I fail to instruct my broker?

 

A: If you do not provide your broker with instructions, your broker generally will not be permitted to vote your shares on the merger proposal or any other proposal (a so-called “broker non-vote”) at the Mid Penn special meeting. Because the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of outstanding Mid Penn shares is necessary to approve the merger, any broker non-votes submitted by brokers or nominees in connection with the special meeting will in effect be a vote against the merger. For determining the number of votes cast with respect to the adjournment proposal, only those votes cast “for” or “against” the proposal are counted. Any broker non-votes submitted by brokers or nominees in connection with the special meeting will not be counted as votes “for” or “against” for determining the number of votes cast, but will be treated as present for quorum purposes.

 

Q: What constitutes a quorum for the Mid Penn special meeting?

 

A:

As of the Mid Penn record date, [●] shares of Mid Penn common stock were issued and outstanding, each of which will be entitled to one vote at the meeting. Under Mid Penn’s bylaws, the presence, in person or by

 

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  proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast constitutes a quorum for the transaction of business at the special meeting. If you vote by proxy, your shares will be included for determining the presence of a quorum. Both abstentions and broker non-votes are also included for determining the presence of a quorum.

 

Q: Assuming the presence of a quorum, what is the vote required to approve the matters to be considered at the Mid Penn special meeting?

 

A: The affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Mid Penn common stock at the Mid Penn special meeting is required to approve the proposal to approve and adopt the merger agreement, and the affirmative vote of a majority of the votes cast, in person or by proxy, at the Mid Penn special meeting is required to approve the proposal to adjourn the Mid Penn special meeting, if necessary, to solicit additional proxies and any other matter that may properly come before the special meeting. Therefore, abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal to approve the merger, but will have no effect on the adjournment proposal.

 

Q: Do I have appraisal or dissenters’ rights?

 

A: No. Under Pennsylvania law, holders of Mid Penn common stock will not be entitled to exercise any appraisal rights in connection with the merger.

 

Q: Can I attend the Mid Penn special meeting and vote my shares in person?

 

A: Yes. All shareholders, including shareholders of record and those who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the special meeting. Holders of record of Mid Penn common stock can vote in person at the special meeting. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the special meeting. If you plan to attend the special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted. We reserve the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification.

 

Q: Can I change my vote?

 

A: Yes. You may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date (if you submitted your proxy by Internet or by telephone, you can vote again by Internet or telephone), (2) delivering a written revocation letter to Mid Penn’s Corporate Secretary, or (3) attending the special meeting in person, notifying the Corporate Secretary and voting by ballot at the special meeting. Mid Penn’s Corporate Secretary’s mailing address is Mid Penn Bancorp, Inc., 349 Union Street, Millersburg, Pennsylvania 17061, Attention: Corporate Secretary.

Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy, but the mere presence (without notifying Mid Penn’s Corporate Secretary) of a shareholder at the special meeting will not constitute revocation of a previously given proxy. A shareholder may change his or her vote up and until the time that votes are counted but not thereafter.

 

Q: How will proxies be solicited and who will bear the cost of soliciting votes for the Mid Penn special meeting?

 

A: Mid Penn has engaged [●] (“[●]”) to act as the proxy solicitor and to assist in the solicitation of proxies for the Mid Penn special meeting of shareholders. Mid Penn has agreed to pay [●] approximately $[●], plus reasonable out-of-pocket expenses, for such services and will also indemnify [●] against certain claims, costs, damages, liabilities, and expenses.

 

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Mid Penn will bear the cost of preparing and assembling these proxy materials for the Mid Penn special meeting. The cost of printing and mailing these proxy materials will be shared equally between Mid Penn and First Priority. The solicitation of proxies or votes for the Mid Penn special meeting may also be made in person, by telephone, or by electronic communication by Mid Penn’s directors, officers, and employees, none of whom will receive any additional compensation for such solicitation activities. In addition, Mid Penn may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners.

 

Q: Can additional proposals be presented at the Mid Penn special meeting?

 

A: No. Other than the proposals described in this joint proxy statement/prospectus, no additional matters can be presented for a vote at the special meeting.

 

Q: Are there risks that I should consider in deciding whether to vote to approve the merger agreement?

 

A: Yes. You should consider the risk factors set out in the section entitled “Risk Factors” beginning on page [●] of this joint proxy statement/prospectus.

 

Q: What if I hold stock of both Mid Penn and First Priority?

 

A: If you hold shares of both Mid Penn and First Priority, you will receive two separate packages of proxy materials. A vote as a Mid Penn shareholder for the merger proposal or any other proposals to be considered at the Mid Penn special meeting will not constitute a vote as a First Priority shareholder for the merger proposal or any other proposals to be considered at the First Priority special meeting, and vice versa. Therefore, please sign, date and return all proxy cards that you receive, whether from Mid Penn or First Priority, or submit separate proxies as both a Mid Penn shareholder and a First Priority shareholder as instructed.

 

Q: Whom should I contact if I have additional questions?

 

A: If you are a Mid Penn shareholder and have any questions about the merger, need assistance in submitting your proxy or voting your shares of Mid Penn common stock, or if you need additional copies of this document or the enclosed proxy card, you should contact [●], the proxy solicitor for Mid Penn at [●]. You may also contact:

Mid Penn Bancorp, Inc.

349 Union Street

Millersburg, Pennsylvania 17061

Attention: Investor Relations

Telephone: (717) 692-7105

Questions about the First Priority Special Meeting

 

Q: What am I being asked to vote on at the First Priority special meeting?

 

A: You are being asked to consider and vote on:

 

  1. adoption of the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus; and

 

  2. adjournment of the First Priority special meeting, if necessary, to solicit additional proxies.

 

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Q: How does the First Priority board of directors recommend that I vote my shares?

 

A: The First Priority board of directors recommends that the First Priority shareholders vote their shares as follows:

 

    “FOR” adoption of the merger agreement; and

 

    “FOR” an adjournment of the First Priority special meeting, if necessary, to solicit additional proxies.

As of the record date, directors and executive officers of First Priority and their affiliates had the right to vote [●] shares of First Priority common stock, or [●]% of the outstanding First Priority common stock entitled to be voted at the First Priority special meeting. Each of the directors and executive officers of First Priority has agreed to vote all shares of First Priority common stock owned by him or her in favor of adoption of the merger agreement.

 

Q: What do I need to do now?

 

A: After carefully reading and considering the information contained in this joint proxy statement/prospectus, please submit your proxy as soon as possible so that your shares will be represented at the First Priority special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee.

 

Q: Who is entitled to vote at the First Priority special meeting?

 

A: First Priority shareholders of record as of the close of business on [●], 2018, which is referred to as the “First Priority record date,” are entitled to notice of, and to vote at, the First Priority special meeting.

 

Q: How many votes do I have?

 

A: Each outstanding share of First Priority common stock is entitled to one vote.

 

Q: How do I vote my First Priority shares?

 

A: You may vote your First Priority shares by completing and returning the enclosed proxy card or by voting in person at the First Priority special meeting.

Voting by Proxy. You may vote your First Priority shares by completing and returning the enclosed proxy card. Your proxy will be voted in accordance with your instructions. If you submit a properly executed and dated proxy, but do not specify a choice on one of the proposals described in this joint proxy statement/prospectus, your proxy will be voted in favor of that proposal.

Voting by Internet. If you are a registered shareholder, you may vote electronically through the Internet by following the instructions included on your proxy card. If your shares are registered in the name of a broker or other nominee, you may be able to vote via the Internet. If so, the voting form your nominee sends you will provide Internet instructions.

Voting by Phone. Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call [●] and then follow the instructions.

Voting in Person. If you attend the First Priority special meeting, you may deliver your completed proxy card in person or may vote by completing a ballot that will be available at the meeting. If your shares are registered in the name of a broker or other nominee and you wish to vote at the meeting, you will need to

 

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obtain a legal proxy from your bank or brokerage firm. Please consult the voting form sent to you by your bank or broker to determine how to obtain a legal proxy in order to vote in person at the First Priority special meeting.

 

Q: Why is my vote important?

 

A: Because the merger cannot be completed without the affirmative vote of a majority of the votes cast at the First Priority special meeting, every shareholder’s vote is important.

 

Q: If my shares of First Priority common stock are held in street name by my broker, will my broker automatically vote my shares for me?

 

A: No. Your broker CANNOT vote your shares on any proposal at the First Priority special meeting without instructions from you. You should instruct your broker as to how to vote your shares, following the directions your broker provides to you. Please check the voting form used by your broker.

 

Q: What if I fail to instruct my broker?

 

A: If you do not provide your broker with instructions, your broker generally will not be permitted to vote your shares on the merger proposal or any other proposal (a so-called “broker non-vote”) at the First Priority special meeting. For purposes of determining the number of votes cast with respect to the merger proposal, only those votes cast “for” or “against” the proposal are counted. Broker non-votes, if any are submitted by brokers or nominees in connection with the special meeting, will not be counted as votes “for” or “against” for purposes of determining the number of votes cast, but will be treated as present for quorum purposes.

 

Q: What constitutes a quorum for the First Priority special meeting?

 

A: As of the First Priority record date, [●] shares of First Priority common stock were issued and outstanding, each of which will be entitled to one vote at the meeting. Under First Priority’s bylaws, the presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast constitutes a quorum for the transaction of business at the special meeting. If you vote by proxy, your shares will be included for determining the presence of a quorum. Both abstentions and broker non-votes are also included for determining the presence of a quorum.

 

Q: Assuming the presence of a quorum, what is the vote required to approve the matters to be considered at the First Priority special meeting?

 

A: The affirmative vote of a majority of all votes cast, in person and by proxy, at the meeting is required to approve all matters to be considered at the First Priority special meeting. Abstentions and broker non-votes will not affect the outcome of any matters being voted on at the meeting.

 

Q: Do any of First Priority’s directors or executive officers have interests in the merger that may differ from those of First Priority shareholders?

 

A: First Priority’s directors and executive officers have interests in the merger that are different from, or in addition to, those of First Priority shareholders generally. The members of First Priority’s board of directors were aware of and considered these interests, among other matters, in evaluating the merger agreement and the merger, and in recommending that First Priority shareholders approve the merger agreement. For a description of these interests, refer to the section entitled “Interests of First Priority’s Directors and Executive Officers in the Merger” beginning on page [●] of this joint proxy statement/prospectus.

 

Q: Do I have appraisal or dissenters’ rights?

 

A:

Yes. Under Pennsylvania law, First Priority shareholders have the right to dissent from the merger agreement and the merger and to receive a payment in cash for the “fair value” of their shares of First

 

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  Priority common stock as determined by an appraisal process. This value may be more or less than the value you would receive in the merger if you do not dissent. If you dissent, you will receive a cash payment for the value of your shares that will be fully taxable to you. To perfect your dissenters’ rights, you must follow precisely the required statutory procedures. See “First Priority Shareholders Have Dissenters’ Rights in the Merger” beginning on page [●].

 

Q: Can I attend the First Priority special meeting and vote my shares in person?

 

A: Yes. All shareholders, including shareholders of record and those who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the special meeting. Holders of record of First Priority common stock can vote in person at the special meeting. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the special meeting. If you plan to attend the special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted. We reserve the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification.

 

Q: Can I change my vote?

 

A: Yes. You may revoke your proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) delivering a written revocation letter to First Priority’s Corporate Secretary, or (3) attending the special meeting in person, notifying Corporate Secretary and voting by ballot at the special meeting. The mailing address for First Priority’s Corporate Secretary is First Priority Financial Corp., 2 West Liberty Boulevard, Suite 104, Malvern, Pennsylvania 19355, Attention: Alice D. Flaherty.

Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy, but the mere presence (without notifying First Priority’s Corporate Secretary) of a shareholder at the special meeting will not constitute revocation of a previously given proxy. A shareholder may change his or her vote up and until the time that votes are counted but not thereafter.

 

Q: How will proxies be solicited and who will bear the cost of soliciting votes for the First Priority special meeting?

 

A: First Priority has engaged [●] (“[●]”) to act as the proxy solicitor and to assist in the solicitation of proxies for the First Priority special meeting of shareholders. First Priority has agreed to pay [●] approximately $[●], plus reasonable out-of-pocket expenses, for such services and will also indemnify [●] against certain claims, costs, damages, liabilities, and expenses.

First Priority will bear the cost of preparing and assembling these proxy materials for the First Priority special meeting. The cost of printing and mailing these proxy materials will be shared equally between Mid Penn and First Priority. The solicitation of proxies or votes for the First Priority special meeting may also be made in person, by telephone, or by electronic communication by First Priority’s directors, officers, and employees, none of whom will receive any additional compensation for such solicitation activities. In addition, First Priority may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners.

 

Q: Can additional proposals be presented at the First Priority special meeting?

 

A: No. Other than the proposals described in this joint proxy statement/prospectus, no additional matters can be presented for a vote at the special meeting.

 

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Q: Are there risks that I should consider in deciding whether to vote to approve the merger agreement?

 

A: Yes. You should consider the risk factors set out in the section entitled “Risk Factors” beginning on page [●] of this joint proxy statement/prospectus.

 

Q: What if I hold stock of both Mid Penn and First Priority?

 

A: If you hold shares of both Mid Penn and First Priority, you will receive two separate packages of proxy materials. A vote as a First Priority shareholder for the merger proposal or any other proposals to be considered at the First Priority special meeting will not constitute a vote as a Mid Penn shareholder for the merger proposal or any other proposals to be considered at the Mid Penn special meeting, and vice versa. Therefore, please sign, date and return all proxy cards that you receive, whether from Mid Penn or First Priority, or submit separate proxies as both a Mid Penn shareholder and a First Priority shareholder as instructed.

 

Q: Should I send in my First Priority stock certificates now?

 

A: No, please do NOT return your stock certificate(s) with your proxy. You will be provided separate instructions regarding the surrender of your stock certificates. You should then send your First Priority stock certificates to the exchange agent in accordance with those instructions.

 

Q: Whom should I contact if I have additional questions?

 

A: If you are a First Priority shareholder and have any questions about the merger, need assistance in submitting your proxy or voting your shares of First Priority common stock, or if you need additional copies of this document or the enclosed proxy card, you should contact [●], the proxy solicitor for First Priority at [●]. You may also contact:

First Priority Financial Corp.

2 West Liberty Boulevard, Suite 104

Malvern, Pennsylvania 19355

Attention: Corporate Secretary

Telephone: (610) 280-7100

 

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SUMMARY

This summary highlights information contained elsewhere in this joint proxy statement/prospectus and may not contain all of the information that is important to you. We urge you to carefully read the entire joint proxy statement/prospectus and the other documents to which we refer in order to fully understand the merger and the related transactions. See “Where You Can Find More Information.” Each item in this summary refers to the page of this joint proxy statement/prospectus on which that subject is discussed in more detail.

Information about the Parties

Mid Penn Bancorp, Inc.

Mid Penn is a Pennsylvania business corporation and bank holding company with its headquarters in Millersburg, Pennsylvania. At March 31, 2018, Mid Penn had total consolidated assets of $1.4 billion. Mid Penn is the parent company of Mid Penn Bank, serving the community since 1868, which operates twenty-nine retail banking offices across eight counties in Pennsylvania.

Upon the closing of the merger of The Scottdale Bank & Trust Co., or Scottdale, with and into Mid Penn Bank, which occurred on January 8, 2018, Mid Penn Bank assumed all of the assets of Scottdale. As of December 31, 2017, Scottdale had approximately $261 million in total assets and total deposits of approximately $211 million, based upon Scottdale’s December 31, 2017 Call Report filed with the FDIC.

The principal executive offices of Mid Penn are located at 349 Union Street, Millersburg, Pennsylvania 17061 and its telephone number is (717) 692-2133.

Mid Penn common stock is traded on The Nasdaq Global Select Market under the symbol “MPB.”

First Priority Financial Corp.

First Priority is a Pennsylvania business corporation and bank holding company with its headquarters in Malvern, Pennsylvania. At March 31, 2018, First Priority had total consolidated assets of $614.6 million. First Priority is the parent company of First Priority Bank, which operates eight retail banking offices in four counties in Pennsylvania.

The principal executive offices of First Priority are located at 2 West Liberty Boulevard, Suite 104, Malvern, Pennsylvania 19355, and its telephone number is (610) 280-7100.

First Priority common stock is traded on the OTCQX Market under the symbol “FPBK.”

The Merger and the Merger Agreement (page [])

The terms and conditions of the merger are contained in the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein. Please carefully read the merger agreement as it is the legal document that governs the merger.

Pursuant to the merger agreement, First Priority will merge with and into Mid Penn with Mid Penn as the surviving corporation. Immediately after the corporate merger, First Priority Bank will merge with and into Mid Penn Bank, with Mid Penn Bank as the surviving bank.

Following the completion of the merger, the merger agreement provides that Mid Penn will continue to operate the branches of First Priority Bank as a separate banking division of Mid Penn Bank under the name “First Priority Bank, a Division of Mid Penn Bank.”



 

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Mid Penn Will Hold Its Special Meeting on [] (page [])

The Mid Penn special meeting will be held on [●] at [●], local time, at [●], Pennsylvania. At the special meeting, Mid Penn shareholders will be asked to:

 

1. adopt the merger agreement; and

 

2. approve the adjournment of the special meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to adopt the merger agreement.

Record Date. Only holders of record of Mid Penn common stock at the close of business on [●], 2018 will be entitled to vote at the special meeting. Each share of Mid Penn common stock is entitled to one vote. As of the Mid Penn record date, there were [●] shares of Mid Penn common stock issued and outstanding and entitled to vote at the special meeting.

Required Vote. The affirmative vote, in person or by proxy, of at least sixty-six and two thirds percent (66 2/3%) of the outstanding shares of Mid Penn common stock is required to approve the merger agreement, and a majority of the votes cast at the special meeting is required to approve the proposal to adjourn the Mid Penn special meeting, if necessary, to solicit additional proxies. The presence, in person or by proxy, of a majority of the outstanding shares of Mid Penn common stock is necessary to constitute a quorum in order to transact business at the special meeting.

As of the record date, directors, executive officers and ten percent (10%) shareholders of Mid Penn and their affiliates had the right to vote [●] shares of Mid Penn common stock, or [●]% of the outstanding Mid Penn common stock entitled to be voted at the special meeting. Each of the directors, executive officers and ten percent (10%) shareholders of Mid Penn has agreed to vote all shares of Mid Penn common stock owned by him, her or it in favor of adoption of the merger agreement and the transactions contemplated thereby.

First Priority Will Hold Its Special Meeting on [] (page [])

The First Priority special meeting will be held on [●] at [●], local time, at [●]. At the special meeting, First Priority shareholders will be asked to:

 

1. adopt the merger agreement; and

 

2. approve the adjournment of the special meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to adopt the merger agreement.

Record Date. Only holders of record of First Priority common stock at the close of business on [●], 2018 will be entitled to vote at the special meeting. Each share of First Priority common stock is entitled to one vote. As of the First Priority record date, there were [●] shares of First Priority common stock issued and outstanding and entitled to vote at the special meeting.

Required Vote. The affirmative vote, in person or by proxy, of a majority of votes cast is required to approve the merger agreement and the proposal to adjourn the First Priority special meeting, if necessary, to solicit additional proxies.

As of the record date, directors and executive officers of First Priority and their affiliates had the right to vote [●] shares of First Priority common stock, or [●]% of the outstanding First Priority common stock entitled to be voted at the special meeting. Each of the directors and the executive officers of First Priority has agreed to vote all shares of First Priority common stock owned by him or her in favor of adoption of the merger agreement.



 

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First Priority Shareholders Will Receive Shares of Mid Penn Common Stock in the Merger (page []).

Upon completion of the merger, each outstanding share of First Priority common stock outstanding immediately prior to the effective time of the merger, will be converted into the right to receive 0.3481 shares of Mid Penn common stock, which we refer to as the “merger consideration.” The exchange ratio is fixed and not subject to adjustment, except in limited circumstances.

On January 12, 2018, which was the last trading date preceding the public announcement of the proposed merger, the closing price of Mid Penn common stock was $37.50 per share. On [●], 2018, the most recent practicable trading day prior to the printing of this joint proxy statement/prospectus, the closing price of Mid Penn common stock was $[●] per share. The market price of both Mid Penn common stock and First Priority common stock will fluctuate before the completion of the merger; therefore, you are urged to obtain current market quotations for Mid Penn common stock and First Priority common stock. The value of the merger consideration will fluctuate as the market price of Mid Penn common stock fluctuates before the completion of the merger. The market price of Mid Penn common stock at closing will not be known at the time of the First Priority special meeting and may be more or less than the current price of Mid Penn common stock or the price of Mid Penn common stock at the time of the First Priority special meeting or at the effective time of the merger.

Expected Material United States Federal Income Tax Treatment as a Result of the Merger (page [])

The merger is structured to be treated as a reorganization for United States federal income tax purposes. Each of Mid Penn and First Priority has conditioned the consummation of the merger on its receipt of a legal opinion that this will be the case. Because First Priority shareholders will receive solely Mid Penn common stock for their shares (except for cash in lieu of fractional shares), First Priority shareholders should not recognize gain or loss except with respect to the cash they receive instead of a fractional share.

This tax treatment may not apply to all First Priority shareholders. Determining the actual tax consequences of the merger to First Priority shareholders can be complicated. First Priority shareholders should consult their own tax advisor for a full understanding of the merger’s tax consequences that are particular to each shareholder.

Exceptions to these conclusions or other considerations may apply, some of which are discussed beginning on page [●]. Determining the actual tax consequences of the merger to a First Priority shareholder can be complicated. For further information, please refer to “Material United States Federal Income Tax Consequences of the Merger” on page [●]. First Priority shareholders should also consult their own tax advisors for a full understanding of the federal income tax and other tax consequences of the merger as they apply specifically to them.

Accounting Treatment of the Merger (page [])

The merger will be treated as a “business combination” using the acquisition method of accounting with Mid Penn treated as the acquiror under accounting principles generally accepted in the United States of America, or “US GAAP.”

Market Prices and Share Information (page [])

Mid Penn common stock is listed on The Nasdaq Global Select Market under the symbol “MPB.” First Priority common stock is quoted on the OTCQX Market under the symbol “FPBK.”

The table below shows the last sale price of Mid Penn common stock and First Priority common stock, and the value of Mid Penn common stock received per share of First Priority common stock based upon the exchange



 

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ratio, on January 12, 2018 (the last full trading day prior to announcement of the execution of the merger agreement) and [●], 2018 (the last full trading day prior to the date of these materials).

 

     Mid Penn
Common
Stock
     First
Priority
Common
Stock
     Exchange
Ratio
     Equivalent
Per
Share Value:
 

January 12, 2018

   $ 37.50      $ 9.00        0.3481      $ 13.05  

At [●], 2018

   $ [        $ [          0.3481      $ [    

Because the exchange ratio is fixed and will be adjusted only in limited circumstances, including if Mid Penn declares any stock dividends or effects a stock split or reverse stock split, and the market price of Mid Penn common stock will fluctuate prior to the merger, the pro forma equivalent price per share of First Priority common stock will also fluctuate prior to the merger. First Priority shareholders will not know the final equivalent price per share of First Priority common stock when they vote on the merger. This information relates to the value of shares of First Priority common stock that will be converted into shares of Mid Penn common stock in the merger. You should obtain current stock price quotations for the shares.

Following completion of the merger, current Mid Penn shareholders will own in the aggregate approximately 72.6% of the outstanding shares of Mid Penn common stock and First Priority shareholders will own approximately 27.4% of the outstanding shares of Mid Penn common stock.

Opinion of First Priority’s Financial Advisor (page [])

At the January 16, 2018 meeting at which the First Priority board of directors considered and approved the merger agreement, First Priority’s financial advisor, Griffin Financial Group LLC, or Griffin, delivered its oral opinion to First Priority’s board of directors, which was subsequently confirmed in writing, to the effect that, as of January 16, 2018, subject to the procedures followed, assumptions made, matters considered and qualifications and limitations described in Griffin’s opinion, the merger consideration was fair, from a financial point of view, to First Priority common equity shareholders.

The full text of Griffin’s opinion is attached as Annex B to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Griffin in rendering its opinion.

First Priority shareholders should read the opinion and the summary description of Griffin’s opinion contained in this joint proxy statement/prospectus carefully in their entirety.

Griffin’s opinion speaks only as of the date of the opinion. The opinion of Griffin does not reflect any developments that may have occurred or may occur after the date of its opinion and prior to the completion of the merger. First Priority does not expect that it will request an updated opinion from Griffin. The opinion was directed to First Priority’s board of directors in connection with its consideration of the merger and is directed only as to the fairness, from a financial point of view, of the merger consideration to First Priority common equity shareholders. Griffin’s opinion does not constitute a recommendation to any First Priority shareholder as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the First Priority merger proposal. Griffin’s opinion does not address the underlying business decision of First Priority to engage in the merger, the form or structure of the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for First Priority or the effect of any other transaction in which First Priority might engage. Griffin did not express any opinion as to the fairness of the amount or nature of the compensation



 

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to be received in the merger by First Priority’s officers, directors, or employees, or class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder of First Priority.

For further information, see “The Merger—Opinion of First Priority’s Financial Advisor.”

Opinion of Mid Penn’s Financial Advisor (page [])

At the January 16, 2018 meeting at which the Mid Penn board of directors considered and approved the merger agreement, Mid Penn’s financial advisor, Sandler O’Neill & Partners, L.P., or Sandler, delivered its oral opinion to Mid Penn’s board of directors, which was subsequently confirmed in writing, to the effect that, as of January 16, 2018, subject to the procedures followed, assumptions made, matters considered and qualifications and limitations described in Sandler’s opinion, the merger consideration was fair, from a financial point of view, to Mid Penn.

The full text of Sandler’s opinion is attached as Annex C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler in rendering its opinion.

Mid Penn shareholders should read the opinion and the summary description of Sandler’s opinion contained in this joint proxy statement/prospectus carefully in their entirety.

Sandler’s opinion speaks only as of the date of the opinion. The opinion of Sandler does not reflect any developments that may have occurred or may occur after the date of its opinion and prior to the completion of the merger. Mid Penn does not expect that it will request an updated opinion from Sandler. The opinion was directed to Mid Penn’s board of directors in connection with its consideration of the merger and is directed only as to the fairness, from a financial point of view, of the merger consideration to Mid Penn. Sandler’s opinion does not constitute a recommendation to any Mid Penn shareholder as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the Mid Penn merger proposal. Sandler’s opinion does not address the underlying business decision of Mid Penn to engage in the merger, the form or structure of the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Mid Penn or the effect of any other transaction in which Mid Penn might engage. Sandler did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by Mid Penn’s officers, directors, or employees, or class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder of Mid Penn.

For further information, see “The Merger—Opinion of Mid Penn’s Financial Advisor.”

Board of Directors and Executive Officers of Mid Penn after the Merger (page [])

Following completion of the merger, the then current directors and executive officers of Mid Penn and Mid Penn Bank will continue in office. At the effective time of the merger, the boards of directors of Mid Penn and Mid Penn Bank will be increased by four (4) directors. David E. Sparks, Chairman and Chief Executive Officer of First Priority, and three (3) of the other current directors of First Priority selected by the board of directors of First Priority, with the approval of Mid Penn’s board of directors, will be added to the boards of directors of Mid Penn and Mid Penn Bank. Additionally, Mr. Sparks will be appointed as Chief Strategic Advisor to the Chief Executive Officer of Mid Penn Bancorp, Inc. and Mid Penn Bank, and Market President of First Priority Bank, a Division of Mid Penn Bank.



 

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The Mid Penn Board of Directors Recommends That Mid Penn Shareholders Vote “FOR” Approval and Adoption of the Agreement and Plan of Merger (page [])

The Mid Penn board of directors believes that the merger is in the best interests of Mid Penn and has unanimously approved the merger and the merger agreement. The Mid Penn board of directors recommends that Mid Penn shareholders vote “FOR” approval and adoption of the agreement and plan of merger. The Mid Penn board also recommends that its shareholders vote “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

The First Priority Board of Directors Recommends That First Priority Shareholders Vote “FOR” Approval and Adoption of the Agreement and Plan of Merger (page [])

The First Priority board of directors believes that the merger is in the best interests of First Priority and has unanimously approved the merger and the merger agreement. The First Priority board of directors recommends that First Priority shareholders vote “FOR” approval and adoption of the agreement and plan of merger. The First Priority board also recommends that its shareholders vote “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

First Priority’s Directors and Executive Officers Have Financial Interests in the Merger that May Differ from the Interests of First Priority Shareholders (page [])

In addition to their interests as First Priority shareholders, the directors and certain executive officers of First Priority have interests in the merger that are different from or in addition to interests of other First Priority shareholders. For purposes of the relevant First Priority agreements and plans, the completion of the merger will constitute a change in control. These additional interests may create potential conflicts of interest and cause some of these persons to view the proposed transaction differently than a First Priority shareholder may view it. The financial interests of First Priority’s directors and executive officers in the merger include the following:

 

    the appointment, effective at the closing of the merger, of David E. Sparks and three (3) other members of the board of directors of First Priority to the boards of directors of Mid Penn and Mid Penn Bank and the payment of compensation to such individual in accordance with the policies of Mid Penn, which currently consists of the following payments to each of its non-employee directors: an annual retainer of $30,000 for directors other than the Chairman and Vice-Chairman, and between $500 and $600 for each committee meeting attended, depending on the committee;

 

    the appointment, effective at the closing of the merger, of Mr. Sparks as Chief Strategic Advisor to the Chief Executive Officer of Mid Penn Bancorp, Inc. and Mid Penn Bank, and Market President of First Priority Bank, a Division of Mid Penn Bank;

 

    the continued indemnification of current directors and executive officers of First Priority and its subsidiaries pursuant to the terms of the merger agreement;

 

    certain of First Priority’s named executive officers will be entitled to severance, change-in-control or other benefits and payments upon the closing of the merger; and

 

    the acceleration of vesting of unvested First Priority options and restricted stock grants held by First Priority directors and officers, and the conversion of such First Priority options into the right to receive cash following the merger.

First Priority’s board of directors was aware of these interests and took them into account in its decision to approve the agreement and plan of merger. For information concerning these interests, please see the discussion on page [●] under the caption “The Merger—Interests of First Priority’s Directors and Executive Officers in the



 

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Merger.” For more information concerning the closing conditions of the merger, please see the discussion on page [●] under the caption “The Merger Agreement—Covenants and Agreements.

First Priority Shareholders’ Dissenters Rights to Appraisal Rights

Shareholders of First Priority will have appraisal or dissenters’ rights in connection with the merger. See “First Priority Shareholders Have Dissenters’ Rights in the Merger” beginning on page [●].

The Rights of First Priority Shareholders Will Change After the Merger (page [])

The rights of First Priority shareholders will change as a result of the merger due to differences in Mid Penn’s and First Priority’s governing documents. The rights of First Priority’s shareholders are governed under Pennsylvania law and by First Priority’s articles of incorporation and bylaws. Upon completion of the merger, First Priority shareholders will be governed under Pennsylvania law and by Mid Penn’s articles of incorporation and bylaws. A description of shareholder rights under each of the Mid Penn and First Priority governing documents, and the material differences between them, is included in the section entitled “Comparison of Shareholders’ Rights” found on page [●].

Conditions That Must Be Satisfied or Waived for the Merger to Occur (page [])

Currently, we expect to complete the merger in the third quarter of 2018. In addition to the approval of the merger proposal by the requisite vote of Mid Penn and First Priority shareholders and the receipt of all required regulatory approvals and expiration or termination of all statutory waiting periods in respect thereof, each as described herein, each party’s obligation to complete the merger is also subject to the satisfaction or waiver (to the extent permitted under applicable law) of certain other conditions, including the effectiveness of the registration statement containing this joint proxy statement/prospectus, approval of the listing on the Nasdaq Stock Market of the Mid Penn common stock to be issued in the merger, the absence of any applicable law or order prohibiting the merger, the accuracy of the representations and warranties of the other party under the merger agreement (subject to the materiality standards set forth in the merger agreement), the performance by the other party of its respective obligations under the merger agreement in all material respects, delivery of officer certificates by the other party certifying satisfaction of the two preceding conditions and each of Mid Penn’s and First Priority’s receipt of a tax opinion to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code.

Neither First Priority nor Mid Penn can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

No Solicitation of Other Offers (page [])

First Priority has agreed that it will not, and First Priority will cause its subsidiaries and each of their respective officers, directors, employees, representatives, agents, and affiliates not to, between the date of the merger agreement and the closing of the merger, directly or indirectly:

 

    initiate, solicit, induce or encourage, or take any action to facilitate the making of, any inquiry, offer or proposal that constitutes, relates or could reasonably be expected to lead to an alternative acquisition proposal;

 

    recommend or endorse an alternative acquisition transaction;

 

    participate in any discussions or negotiations regarding an alternative acquisition proposal, or furnish or afford access to information or data to any person;


 

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    release anyone from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which First Priority is a party; or

 

    enter into any agreement, agreement in principle or letter of intent with respect to any alternative acquisition proposal or approve or resolve to approve any alternative acquisition proposal or any agreement, agreement in principle or letter of intent relating to an alternative acquisition proposal.

The merger agreement does not, however, prohibit First Priority from furnishing information or access to a third party who has made an alternative acquisition proposal and participating in discussions and negotiating with such person prior to the receipt of shareholder approval if specified conditions are met. Among those conditions is a good faith determination by First Priority’s board of directors that the acquisition proposal constitutes or that could reasonably be expected to lead to a proposal that is more favorable, from a financial point of view, to First Priority and its shareholders than the transactions contemplated by the merger agreement and is reasonably capable of being completed on its stated terms, taking into account all financial, regulatory, legal and other aspects of the proposal.

For further discussion of the restrictions on solicitation of acquisition proposals from third parties, see “The Merger Agreement—Agreement Not to Solicit Other Offers” beginning on page [●].

Termination of the Merger Agreement (page [])

We may mutually agree to terminate the merger agreement before completing the merger, even after First Priority or Mid Penn shareholder approval. In addition, either of us may decide to terminate the merger agreement, if (i) a court or governmental entity issues a final order that is not appealable prohibiting the merger, (ii) a bank regulator which must grant a regulatory approval as a condition to the merger denies such approval of the merger and such denial has become final and is not appealable, (iii) the shareholders of Mid Penn or First Priority fail to approve the merger at their respective special meetings, or (iv) the other party breaches the merger agreement in a way that would entitle the party seeking to terminate the agreement not to consummate the merger, subject to the right of the breaching party to cure the breach within 30 days following written notice. Either of us may terminate the merger agreement if the merger has not been completed by December 31, 2018, unless the reason the merger has not been completed by that date is a breach of the merger agreement by the company seeking to terminate the merger agreement.

Mid Penn may terminate the merger agreement if the First Priority board of directors, in connection with the receipt of an alternative acquisition proposal, (1) enters into a letter of intent, agreement in principle or an acquisition agreement with respect to the alternative acquisition proposal, (2) fails to make, withdraws, modifies or qualifies its recommendation of the merger agreement in a manner adverse to Mid Penn, or (3) has otherwise made a determination to accept the alternative acquisition proposal.

First Priority may terminate the merger agreement if First Priority receives an alternative acquisition proposal and has made a determination to accept the alternative acquisition proposal. First Priority may also terminate the merger agreement within five days of its receipt of written notice from Mid Penn that Mid Penn intends to consummate or enter into an agreement: (1) to acquire a third party or group by way of merger, consolidation, share exchange or similar transaction, (2) with respect to any transaction pursuant to which Mid Penn would acquire twenty-five percent (25%) or more of the assets of a third party, or (3) to issue or sell any equity or debt securities of Mid Penn (other than pursuant to existing stock purchase and dividend reinvestment plans maintained by Mid Penn).

However, if First Priority chooses to exercise this termination right, Mid Penn has the option, within forty-eight hours of receipt of notice from First Priority, to terminate the proposed transaction and prevent termination under this provision.



 

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Termination Fee (page [])

First Priority will pay Mid Penn a termination fee of $3,500,000 if the merger agreement is terminated under the following circumstances:

 

    by Mid Penn because First Priority has received an alternative acquisition proposal, and First Priority (1) enters into a letter of intent, agreement in principle or an acquisition agreement with respect to the alternative acquisition proposal, (2) fails to make, withdraws, modifies or qualifies its recommendation of the merger agreement in a manner adverse to Mid Penn, or (3) has otherwise made a determination to accept the alternative acquisition proposal; or

 

    by First Priority, if First Priority receives an alternative acquisition proposal and has made a determination to accept the alternative acquisition proposal in accordance with the terms of the merger agreement.

Additionally, First Priority will pay Mid Penn a termination fee of $3,500,000 in the event that First Priority enters into a definitive agreement relating to, or consummates, an acquisition proposal within twelve months following termination of the merger agreement:

 

    by Mid Penn because of a willful breach of the merger agreement by First Priority; or

 

    by either Mid Penn or First Priority, if the shareholders of First Priority fail to approve the merger and either First Priority breached the non-solicitation provisions of the merger agreement or a third party publicly proposed or announced an alternative acquisition proposal.

Regulatory Approvals Required for the Merger (page [])

Completion of the merger and the bank merger are subject to the receipt of all approvals required to complete the transactions contemplated by the merger agreement, including from the Board of Governors of the Federal Reserve System (the “FRB”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Pennsylvania Department of Banking and Securities (the “PDB”).

Notifications and/or applications requesting approval may also be submitted to various other federal and state regulatory authorities and self-regulatory organizations. Mid Penn and First Priority have agreed to use their reasonable best efforts to obtain all required regulatory approvals. As of the date of this joint proxy statement/prospectus, Mid Penn has received the requisite approvals or waivers from the FRB, the FDIC and the PDB, which remain effective as of the date of this document.

Risk Factors (page [])

You should consider all the information contained in or incorporated by reference into this joint proxy statement/prospectus in deciding how to vote for the proposals presented in the joint proxy statement/prospectus. In particular, you should consider the factors described under “Risk Factors.”



 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF MID PENN

The following table provides historical consolidated summary financial data for Mid Penn. The data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from Mid Penn’s audited financial statements as of or for the periods then ended. The results of operations for the three months ended March 31, 2018 and 2017 are not necessarily indicative of the results of operations for the full year or any other interim period. Mid Penn’s management prepared the unaudited information on the same basis as it prepared Mid Penn’s audited consolidated financial statements. In the opinion of Mid Penn’s management, this information reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this data for those dates.

 

    Three Months Ended     Year Ended December 31,  
(Dollars in thousands, except per share data)   March 31,
2018
    March 31,
2017
    2017     2016     2015     2014     2013  

INCOME:

             

Total Interest Income

  $ 12,980     $ 10,559     $ 43,892     $ 40,212     $ 36,490     $ 30,627     $ 28,983  

Total Interest Expense

    2,102       1,384       6,304       5,367       4,607       4,427       5,057  

Net Interest Income

    10,878       9,175       37,588       34,845       31,883       26,200       23,926  

Provision for Loan and Lease Losses

    125       125       325       1,870       1,065       1,617       1,685  

Noninterest Income

    1,647       1,436       5,693       5,924       4,113       3,284       3,290  

Noninterest Expense

    11,183       7,802       31,367       28,818       26,759       20,704       19,391  

Income Before Provision for Income Taxes

    1,217       2,684       11,589       10,081       8,172       7,163       6,140  

Provision for Income Taxes

    213       690       4,500       2,277       1,644       1,462       1,201  

Net Income

    1,004       1,994       7,089       7,804       6,528       5,701       4,939  

Series A Preferred Stock Dividends and Discount Accretion

    —         —         —         —         —         —         14  

Series B Preferred Stock Dividends and Redemption Premium

    —         —         —         —         473       350       309  

Series C Preferred Stock Dividends

    —         —         —         —         17       —         —    

Net Income Available to Common Shareholders

    1,004       1,994       7,089       7,804       6,038       5,351       4,616  

COMMON STOCK DATA PER SHARE:

             

Earnings Per Common Share (Basic)

  $ 0.17     $ 0.47     $ 1.67     $ 1.85     $ 1.47     $ 1.53     $ 1.32  

Earnings Per Common Share (Fully Diluted)

    0.17       0.47       1.67       1.85       1.47       1.53       1.32  

Cash Dividends Declared

    —         0.13       0.77       0.68       0.44       0.45       0.25  

Cash Dividends Paid

    0.25       0.23       0.62       0.58       0.44       0.45       0.25  

Book Value Per Common Share

    22.72       17.08       17.85       16.65       16.58       15.48       13.71  

Tangible Book Value Per Common Share(a)

    18.21       16.04       16.82       15.59       15.49       15.13       13.35  

AVERAGE SHARES OUTSTANDING (BASIC):

    5,974,949       4,233,308       4,236,616       4,229,284       4,106,548       3,495,705       3,491,653  

AVERAGE SHARES OUTSTANDING (FULLY DILUTED):

    5,974,949       4,233,308       4,236,616       4,229,284       4,106,548       3,495,705       3,491,653  

BALANCE SHEET DATA:

             

Available-For-Sale Investment Securities, at Fair Value

  $ 122,342     $ 119,525     $ 93,465     $ 133,625     $ 135,721     $ 141,634     $ 122,803  

Held-For-Sale Investment Securities, at Amortized Cost

    131,293       49,654       101,356       —         —         —         —    

Loans and Leases, Net of Unearned Interest

    1,007,138       834,220       910,404       813,924       736,513       571,533       546,462  

Allowance for Loan and Lease Losses

    7,666       7,620       7,606       7,183       6,168       6,716       6,317  

Total Assets

    1,391,217       1,072,938       1,170,354       1,032,599       931,638       755,657       713,125  

Total Deposits

    1,212,423       971,887       1,023,568       935,373       777,043       637,922       608,130  

Short-term Borrowings

    —         —         34,611       —         31,596       578       23,833  

Long-term Debt

    12,297       13,524       12,352       13,581       40,305       52,961       23,145  

Subordinated Debt

    17,335       7,416       17,338       7,414       7,414       —         —    

Shareholders’ Equity

    139,124       72,327       75,703       70,467       70,068       59,130       52,916  

RATIOS:

             

Return on Average Assets (annualized)

    0.30     0.77     0.64     0.78     0.74     0.78     0.71

Return on Average Shareholders’ Equity (annualized)

    2.78     11.33     9.48     10.71     9.16     9.95     9.37

Cash Dividend Payout Ratio

    0.00     53.49     37.13     31.43     29.93     29.41     18.94

Allowance for Loan and Lease Losses to Loans and Leases, Net of Unearned Interest

    0.76     0.91     0.84     0.88     0.83     1.18     1.16

Average Shareholders’ Equity to Average Assets

    10.61     6.77     6.78     7.28     8.06     7.80     7.56


 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FIRST PRIORITY

The following table provides historical consolidated summary financial data for First Priority. The data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from First Priority’s audited financial statements as of or for the periods then ended. The results of operations for the three months ended March 31, 2018 and 2017 are not necessarily indicative of the results of operations for the full year or any other interim period. First Priority’s management prepared the unaudited information on the same basis as it prepared First Priority’s audited consolidated financial statements. In the opinion of First Priority’s management, this information reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this data for those dates.

 

    Three Months Ended     Year Ended December 31,  
(Dollars in thousands, except per share data)   March 31,
2018
    March 31,
2017
    2017     2016     2015     2014     2013  

INCOME:

             

Total Interest Income

  $ 6,354     $ 5,740     $ 24,053     $ 21,246     $ 19,510     $ 18,647     $ 17,649  

Total Interest Expense

    1,667       1,265       5,849       4,530       3,325       2,872       3,149  

Net Interest Income

    4,687       4,475       18,204       16,716       16,185       15,775       14,500  

Provision for Loan and Lease Losses

    20       10       385       710       610       1,132       645  

Noninterest Income

    164       178       1,041       1,545       1,155       1,007       739  

Noninterest Expense

    3,859       3,498       14,401       14,123       13,683       13,227       14,365  

Income Before Provision for Income Taxes

    972       1,145       4,459       3,428       3,047       2,423       229  

Provision (Benefit) for Income Taxes(3)

    210       363       2,001       1,128       935       (4,502     33  

Net Income

    762       782       2,458       2,300       2,112       6,925       196  

Preferred Stock Dividends, including Net Amortization

    77       77       306       407       801       579       532  

Net Income (Loss) Available to Common Shareholders

    685       705       2,152       1,893       1,311       6,346       (336

COMMON STOCK DATA PER SHARE:

             

Earnings (Loss) Per Common Share - Basic

  $ 0.10     $ 0.11     $ 0.33     $ 0.29     $ 0.20     $ 0.98     $ (0.06

Earnings (Loss) Per Common Share - Fully Diluted

    0.10       0.11       0.32       0.29       0.20       0.98       (0.06

Cash Dividends Declared

    —         —         —         —         —         —         —    

Cash Dividends Paid

    —         —         —         —         —         —         —    

Book Value Per Common Share

    7.19       6.96       7.16       6.84       6.58       6.33       5.12  

Tangible Book Value Per Common Share(2)

    6.76       6.51       6.72       6.38       6.11       5.85       4.62  

AVERAGE SHARES OUTSTANDING (BASIC):

    6,636,000       6,534,000       6,559,000       6,514,000       6,469,000       6,443,000       5,822,000  

AVERAGE SHARES OUTSTANDING (FULLY DILUTED):

    6,974,000       6,705,000       6,785,000       6,570,000       6,538,000       6,457,000       5,822,000  

BALANCE SHEET DATA:

             

Available-For-Sale Investment Securities, at Fair Value

  $ 35,798     $ 36,780     $ 52,373     $ 70,560     $ 94,704     $ 75,557     $ 78,636  

Held-For-Sale Investment Securities, at Amortized Cost

    18,548       18,923       18,665       19,043       19,886       15,956       10,963  

Loans and Leases, Net of Unearned Interest

    518,252       487,781       518,927       488,243       409,153       375,222       335,737  

Allowance for Loan and Lease Losses

    3,405       3,332       3,405       3,330       2,795       2,313       2,273  

Total Assets

    614,634       602,597       609,942       597,795       546,540       492,311       446,088  

Total Deposits

    511,986       467,971       523,150       467,688       406,687       378,209       357,420  

Federal Home Loan Bank of Pittsburgh Advances

    40,025       74,364       24,625       68,164       74,725       62,472       44,625  

Subordinated Debt

    9,238       9,213       9,231       9,207       9,201       —         —    

Shareholders’ Equity(1)

    51,223       48,916       50,496       48,046       52,091       50,211       42,392  

RATIOS:

             

Return on Average Assets (annualized)

    0.52     0.56     0.43     0.44     0.44     1.56     0.05

Return on Average Shareholders’ Equity (annualized)

    6.06     6.33     4.92     4.81     4.11     15.16     0.47

Cash Dividend Payout Ratio

    0.00     0.00     0.00     0.00     0.00     0.00     0.00

Allowance for Loan and Lease Losses to Loans and Leases, Net of Unearned Interest

    0.66     0.68     0.66     0.68     0.68     0.62     0.68

Average Shareholders’ Equity to Average Assets

    8.54     8.59     8.66     9.20     10.64     10.28     10.50

 

(1) For the year ended December 31, 2016, Shareholders’ Equity reflects a $6 million redemption of preferred stock; See Note 13, “Shareholders’ Equity” of the Notes to Consolidated Financial Statements.
(2) Tangible Book Value Per Common Share excludes goodwill and core deposits and other intangibles, net
(3) For the year ended December 31, 2017, income tax expense included a non-recurring non-cash reduction in the value of First Priority’s net deferred tax asset (“DTA”) which resulted in a charge of $571 thousand as a result of the Tax Cuts and Jobs Act, enacted on December 22, 2017, which lowered the Company’s future maximum corporate tax rate from 34 percent to 21 percent. For the year ended December 31, 2014 an income tax benefit of $4.5 million resulted from the reversal of the valuation allowance on net deferred tax assets.


 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF SCOTTDALE

The following table provides historical consolidated summary financial data for Scottdale. The data for the year ended December 31, 2017 are derived from Scottdale’s unaudited financial statements as of or for the period then ended, and the data for the year ended December 31, 2016 are derived from Scottdale’s audited financial statements as of or for the period then ended. The unaudited financial information for the year ended December 31, 2017 was prepared on the same basis as Scottdale’s audited consolidated financial statements. In the opinion of Mid Penn’s management, this information reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of this data for those dates. Upon the closing of the merger of Scottdale with and into Mid Penn Bank effective January 8, 2018, Mid Penn Bank acquired all of the assets and assumed all of the liabilities of Scottdale.

 

    Year Ended December 31,  
(Dollars in thousands, except per share data)   2017     2016     2015     2014     2013  

INCOME:

         

Total Interest Income

  $ 6,618     $ 6,739     $ 6,589     $ 7,003     $ 7,438  

Total Interest Expense

    510       520       689       862       860  

Net Interest Income

    6,108       6,219       5,900       6,141       6,578  

Provision (Credit) for Loan and Lease Losses

    —         (200     —         —         —    

Noninterest Income

    6,751       487       549       631       458  

Noninterest Expense

    5,745       6,253       5,544       4,956       5,458  

Income Before Provision for Income Taxes

    7,114       653       905       1,816       1,578  

Provision (Credit) for Income Taxes

    1,161       103       29       (46     94  

Net Income

    5,953       550       876       1,862       1,484  

COMMON STOCK DATA PER SHARE:

         

Earnings Per Common Share (Basic)

  $ 117.37     $ 10.84     $ 19.39     $ 36.71     $ 29.25  

Earnings Per Common Share (Fully Diluted)

    117.37       10.84       19.39       36.71       29.25  

Cash Dividends Declared

    9.00       30.00       9.00       9.00       8.00  

Cash Dividends Paid

    9.00       30.00       9.00       9.00       8.00  

Book Value Per Common Share

    920.36       892.84       902.28       900.25       883.39  

Tangible Book Value Per Common Share

    920.36       892.84       902.28       900.25       883.39  

AVERAGE SHARES OUTSTANDING (BASIC):

    50,718       50,718       50,718       50,718       50,718  

AVERAGE SHARES OUTSTANDING (FULLY DILUTED):

    50,718       50,718       50,718       50,718       50,718  

BALANCE SHEET DATA:

         

Available-For-Sale Investment Securities, at Fair Value

  $ 114,908     $ 77,282     $ 66,859     $ 55,226     $ 54,643  

Held-For-Sale Investment Securities, at Amortized Cost

    —         100,558       101,683       115,260       121,291  

Loans and Leases, Net of Unearned Interest

    69,869       63,379       59,210       59,794       61,341  

Allowance for Loan and Lease Losses

    541       553       756       755       756  

Total Assets

    260,735       263,476       262,234       259,992       257,892  

Total Deposits

    210,658       215,985       214,390       212,196       212,373  

Short-term Borrowings

    —         —         —         —         —    

Long-term Debt

    —         —         —         —         —    

Subordinated Debt

    —         —         —         —         —    

Shareholders’ Equity

    46,679     45,283       45,762       45,659       44,804  

RATIOS:

         

Return on Average Assets

    2.26     0.21     0.33     0.72     0.58

Return on Average Shareholders’ Equity

    12.90     1.19     1.88     4.06     3.40

Cash Dividend Payout Ratio

    7.67     276.75     46.42     24.52     27.35

Allowance for Loan and Lease Losses to Loans and Leases, Net of Unearned Interest

    0.77     0.87     1.28     1.26     1.23

Average Shareholders’ Equity to Average Assets

    17.55     17.51     17.78     17.68     16.98


 

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UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting, giving effect to the merger of Mid Penn with First Priority. The following unaudited pro forma combined consolidated financial information is based upon the assumption that the total number of shares of First Priority common stock outstanding immediately prior to the completion of the merger will be 6,646,469 and utilizes the exchange ratio of 0.3481 shares of Mid Penn common stock for each share of First Priority common stock issued and outstanding as of the effective time of the merger, which will result in approximately 2,313,636 shares of Mid Penn common stock being issued in the transaction.

The following unaudited pro forma combined consolidated financial statements as of and for the periods ended March 31, 2018 and December 31, 2017 combine the historical consolidated financial statements of Mid Penn and First Priority. The unaudited pro forma combined consolidated financial statements give effect to the proposed merger as if the merger occurred on March 31, 2018 with respect to the consolidated balance sheet, and at the beginning of the applicable period, for the three months ended March 31, 2018 and for the year ended December 31, 2017, with respect to the consolidated income statement.

The notes to the unaudited pro forma combined consolidated financial statements describe the pro forma amounts and adjustments presented below. THIS PRO FORMA DATA IS NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS THAT MID PENN WOULD HAVE ACHIEVED HAD IT COMPLETED THE MERGER AS OF THE BEGINNING OF THE PERIOD PRESENTED AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE OPERATIONS.

The Mid Penn pro forma balance sheet and income statement information as of March 31, 2018 presented below reflects the acquisition of Scottdale by Mid Penn, which was completed on January 8, 2018. The Mid Penn pro forma income statement information as of December 31, 2017 does not reflect the acquisition of Scottdale by Mid Penn.

Certain reclassifications have been made to First Priority historical financial information in order to conform to Mid Penn’s presentation of financial information.

The actual value of Mid Penn’s common stock to be recorded as consideration in the merger will be based on the closing price of Mid Penn’s common stock at the time of the merger completion date. The proposed merger is targeted for completion in the third quarter of 2018. There can be no assurance that the merger will be completed as anticipated. For purposes of the pro forma financial information, the fair value of Mid Penn common stock to be issued in connection with the merger of First Priority was based on Mid Penn’s closing stock price of $37.50 on January 12, 2018.

The pro forma financial information includes estimated adjustments, including adjustments to record assets and liabilities of First Priority at their respective fair values and represents the pro forma estimates by Mid Penn based on available fair value information as of the date of the merger agreement. In some cases, where noted, more recent information has been used to support estimated adjustments in the pro forma financial information.

We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses. The unaudited pro forma combined condensed consolidated financial data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.

The unaudited pro forma combined consolidated financial information presented below is based on, and should be read together with, the historical financial information that Mid Penn, First Priority and Scottdale have included in or incorporated by reference in this joint proxy statement/prospectus as of and for the indicated periods.



 

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Pro Forma Combined Consolidated Balance Sheet as of March 31, 2018

Unaudited (in thousands, except share and per share data)

 

    Mid Penn
Bancorp, Inc.
    First
Priority
Financial
Corp.
    Unadjusted
Combined
    Pro Forma
Adjustments
          Pro Forma
Combined
 

ASSETS

           

Cash and due from banks

  $ 20,866     $ 5,474     $ 26,340     $ (3,890     A     $ 22,450  

Interest-bearing balances with other financial institutions

    5,346       25,021       30,367       —           30,367  

Federal funds sold

    32,963       —         32,963       —           32,963  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total cash and cash equivalents

    59,175       30,495       89,670       (3,890       85,780  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Investment securities available for sale, at fair value

    122,342       35,798       158,140           158,140  

Investment securities held to maturity, at amortized cost

    131,293       18,548       149,841       683       B       150,524  

Loans held for sale

    1,348       —         1,348           1,348  

Loans and leases, net of unearned interest

    1,007,138       518,252       1,525,390       (7,256     C       1,518,134  

Less: Allowance for loan and lease losses

    (7,666     (3,405     (11,071     3,405       D       (7,666
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net loans and leases

    999,472       514,847       1,514,319       (3,851       1,510,468  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Bank premises and equipment, net

    20,015       2,025       22,040       —         E       22,040  

Cash surrender value of life insurance

    13,106       3,342       16,448       —           16,448  

Restricted investment in bank stocks

    2,759       2,032       4,791       —           4,791  

Foreclosed assets held for sale

    745       440       1,185       (145     F       1,040  

Deferred income taxes

    3,821       937       4,758       761       G       5,519  

Goodwill

    22,528       2,725       25,253       31,825       H       57,078  

Core deposit and other intangibles, net

    5,126       154       5,280       1,027       I       6,307  

Accrued interest receivable and other assets

    9,487       3,291       12,778       —           12,778  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Assets

  $ 1,391,217     $ 614,634     $ 2,005,851     $ 26,410       $ 2,032,261  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

           

Deposits:

           

Noninterest-bearing demand

  $ 195,330     $ 69,457     $ 264,787     $ —         $ 264,787  

Interest-bearing demand

    355,939       30,333       386,272       —           386,272  

Money market

    270,489       85,089       356,052       —           356,052  

Savings

    174,920       59,309       233,755       —           233,755  

Time

    215,745       267,798       483,543       —           483,543  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Deposits

    1,212,423       511,986       1,724,409       —           1,724,409  

Short-term borrowings

    —         31,025       31,025       —           31,025  

Long-term debt

    12,297       9,000       21,297       —           21,297  

Subordinated debt

    17,335       9,238       26,573       308       J       26,881  

Accrued interest payable and other liabilities

    10,038       2,162       12,200       3,646       L       15,846  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Liabilities

    1,252,093       563,411       1,815,504       3,954         1,819,458  

Shareholders’ Equity:

           

Preferred stock

    —         3,404       3,404       —           3,404  

Common stock

    6,123       6,646       12,769       (4,333     K       8,436  

Additional paid-in capital

    103,382       41,267       144,649       30,341       K       174,990  

Retained earnings

    33,525       362       33,887       (4,008     K,L,M       29,879  

Accumulated other comprehensive loss

    (3,906     (456     (4,362     456       K       (3,906
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Shareholders’ Equity

    139,124       51,223       190,347       22,456         212,803  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Liabilities and Shareholders’ Equity

  $ 1,391,217     $ 614,634     $ 2,005,851     $ 26,410       $ 2,032,261  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Per Common Share Data:

           

Common shares outstanding

    6,122,717       6,646,469         (4,332,833       8,436,353  

Book value per common share

  $ 22.72     $ 7.19           $ 25.25  

Tangible book value per common share:

           

Total common equity

  $ 139,124     $ 47,819           $ 213,045  

Less: goodwill and intangibles

    27,654       2,879             63,385  

Total tangible equity

  $ 111,470     $ 44,940           $ 149,660  

Tangible book value per common share

  $ 18.21     $ 6.76           $ 17.74  


 

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Pro Forma Combined Consolidated Statement of Income

For the Twelve Months Ended December 31, 2017

Unaudited (in thousands, except per share data)

 

    Mid Penn
Bancorp, Inc.
    First
Priority
Financial
Corp.
    Unadjusted
Combined
    Pro Forma
Adjustments
          Pro Forma
Combined
 

INTEREST INCOME

           

Interest & fees on loans and leases

  $ 40,156     $ 22,074     $ 62,230     $ 711       C       62,941  

Interest on interest-bearing balances

    18       201       219       —           219  

Interest and dividends on investment securities:

              —    

U.S. Treasury, government agency, and other taxable securities

    2,490       1,199       3,689       —           3,689  

State and political subdivision obligations, tax-exempt

    1,113       579       1,692       —           1,692  

Interest on federal funds sold

    115       —         115       —           115  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Interest Income

    43,892       24,053       67,945       711         68,656  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

INTEREST EXPENSE

           

Interest on deposits

    5,463       4,713       10,176       —           10,176  

Interest on short-term borrowings

    111       305       416       —           416  

Interest on long-term and subordinated debt

    730       831       1,561       (103     J       1,458  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Interest Expense

    6,304       5,849       12,153       (103       12,050  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net Interest Income

    37,588       18,204       55,792       814         56,606  

PROVISION/(CREDIT) FOR LOAN AND LEASE LOSSES

    325       385       710       —           710  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net Interest Income After Provision for Loan and Lease Losses

    37,263       17,819       55,082       814         55,896  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NONINTEREST INCOME

           

Income from fiduciary activities

    845       168       1,013       —           1,013  

Service charges on deposits

    721       132       853       —           853  

Net gain on sales of investment securities

    42       416       458       —           458  

Earnings from cash surrender value of life insurance

    262       70       332       —           332  

Mortgage banking income

    872       —         872       —           872  

ATM debit card interchange income

    937       114       1,051       —           1,051  

Merchant services income

    335       —         335       —           335  

Net gain on sales of SBA loans

    800       —         800       —           800  

Other income

    879       141       1,020       —           1,020  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Noninterest Income

    5,693       1,041       6,734       —           6,734  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NONINTEREST EXPENSE

           

Salaries and employee benefits

    16,929       8,273       25,202       —           25,202  

Occupancy and equipment expense, net

    4,048       1,844       5,892       —           5,892  

Pennsylvania Bank Shares tax expense

    451       354       805       —           805  

FDIC Assessment

    792       520       1,312       —           1,312  

Legal and professional fees

    802       690       1,492       —           1,492  

Marketing and advertising expense

    516       336       852       —           852  

Software licensing and data processing

    1,458       927       2,385       —           2,385  

Telephone expense

    497       81       578       —           578  

Loss on sale/write-down of foreclosed assets

    88       178       266       —           266  

Intangible amortization

    104       65       169       150       I       319  

Merger and acquisition expense

    619       —         619       5,213       L       5,832  

Other expenses

    5,063       1,133       6,196       —           6,196  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Noninterest Expense

    31,367       14,401       45,768       5,363         51,131  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

    11,589       4,459       16,048       (4,549       11,499  

Provision (benefit) for income taxes

    4,500       2,001       6,501       (588     M       5,913  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NET INCOME

    7,089       2,458       9,547       (3,961       5,586  

Preferred dividends

    —         306       306       —           306  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

  $ 7,089     $ 2,152     $ 9,241     $ (3,961     $ 5,280  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Weighted average common shares outstanding:

           

Basic

    4,236,616       6,559,000         (4,332,833       6,462,783  

Diluted

    4,236,616       6,785,000         (4,332,833       6,462,783  

Earnings per common share:

           

Basic

  $ 1.67     $ 0.33           $ 0.94  

Diluted

  $ 1.67     $ 0.32           $ 0.94  


 

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Pro Forma Combined Consolidated Statement of Income

For the Three Months Ended March 31, 2018

Unaudited (in thousands, except per share data)

 

    Mid Penn
Bancorp, Inc.
    First
Priority
Financial
Corp.
    Unadjusted
Combined
    Pro Forma
Adjustments
          Pro Forma
Combined
 

INTEREST INCOME

           

Interest & fees on loans and leases

  $ 11,337     $ 5,885     $ 17,222     $ 237       C       17,459  

Interest on interest-bearing balances

    9       44       53       —           53  

Interest and dividends on investment securities:

              —    

U.S. Treasury, government agency, and other taxable securities

    924       328       1,252       —           1,252  

State and political subdivision obligations, tax-exempt

    542       97       639       —           639  

Interest on federal funds sold

    168       —         168       —           168  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Interest Income

    12,980       6,354       19,334       237         19,571  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

INTEREST EXPENSE

           

Interest on deposits

    1,780       1,333       3,113       —           3,113  

Interest on short-term borrowings

    12       125       137       —           137  

Interest on long-term and subordinated debt

    310       209       519       (26     J       493  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Interest Expense

    2,102       1,667       3,769       (26       3,743  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net Interest Income

    10,878       4,687       15,565       263         15,828  

PROVISION FOR LOAN AND LEASE LOSSES

    125       20       145       —           145  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net Interest Income After Provision for Loan and Lease Losses

    10,753       4,667       15,420       263         15,683  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NONINTEREST INCOME

           

Income from fiduciary activities

    240       41       281       —           281  

Service charges on deposits

    203       29       232       —           232  

Net gain on sales of investment securities

    98       —         98       —           98  

Earnings from cash surrender value of life insurance

    64       16       80       —           80  

Mortgage banking income

    156       —         156       —           156  

ATM debit card interchange income

    265       21       286       —           286  

Merchant services income

    78       4       82       —           82  

Net gain on sales of SBA loans

    257       —         257       —           257  

Other income

    286       53       339       —           339  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Noninterest Income

    1,647       164       1,811       —           1,811  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NONINTEREST EXPENSE

           

Salaries and employee benefits

    5,064       2,215       7,279       —           7,279  

Occupancy and equipment expense, net

    1,205       501       1,706       —           1,706  

Pennsylvania Bank Shares tax expense

    171       98       269       —           269  

FDIC Assessment

    228       142       370       —           370  

Legal and professional fees

    224       211       435       —           435  

Marketing and advertising expense

    189       58       247       —           247  

Software licensing and data processing

    514       258       772       —           772  

Telephone expense

    147       19       147       —           166  

Loss on sale/write-down of foreclosed assets

    2       (45     (43     —           (43

Intangible amortization

    248       15       248       38       I       301  

Merger and acquisition expense

    1,694       92       1,786       4,701       L       6,487  

Other expenses

    1,497       295       1,826       —           1,792  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total Noninterest Expense

    11,183       3,859       15,042       4,739         19,781  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

    1,217       972       2,189       (4,476       (2,287

Provision (benefit) for income taxes

    213       210       423       (680     M       (257
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NET INCOME

    1,004       762       1,766       (3,796       (2,030

Preferred dividends

    —         77       77           77  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

  $ 1,004     $ 685     $ 1,689       (3,796     $ (2,107
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Weighted average common shares outstanding:

           

Basic

    5,974,949       6,636,000         (4,332,833       8,278,116  

Diluted

    5,974,949       6,974,000         (4,332,833       8,278,116  

Earnings per common share:

           

Basic

  $ 0.17     $ 0.10           $ -0.11  

Diluted

  $ 0.17     $ 0.10           $ -0.11  


 

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Explanatory Notes to the Unaudited Pro Forma Combined Consolidated Financial Statements

 

A. Under the definitive merger agreement between Mid Penn and First Priority, shareholders of First Priority common stock will receive, for each share of First Priority held at the effective time of the merger, 0.3481 shares of Mid Penn common stock as merger consideration. This exchange ratio will not change as a result of changes in the Mid Penn share price. The projected value and allocation of the merger consideration paid by Mid Penn in common stock and cash following the closing of the merger of First Priority with and into Mid Penn, based upon the relevant provisions of the definitive merger agreement, is projected as follows:

Mid Penn Bancorp, Inc. Acquisition of First Priority Financial Corp.

Projected Acquisition Purchase Price Consideration Including Allocation Between Cash and Mid Penn Common Stock

 

(Dollars in Thousands except per share data)       

Total Acquisition Purchase Price Consideration:

  

Cash Consideration—Buyout of Outstanding Options: There are 733,892 options outstanding as of March 31, 2018 to purchase First Priority common stock, with a weighted average exercise price of $5.77 per option. In accordance with the definitive merger agreement, outstanding options at the time of the merger will be converted to the right to receive cash at a per-option value of $11.07 less the exercise price, without interest. The resulting cash consideration is projected at $5.30 for each First Priority common stock option outstanding.

   $ 3,890  

Stock Consideration: First Priority shareholders representing 6,646,469 shares outstanding as of March 31, 2018, will receive 0.3481 shares of Mid Penn common stock for each First Priority share as merger consideration. This exchange ratio will not change as a result of changes in the Mid Penn share price. Using this data, Mid Penn will issue approximately 2,313,636 new shares of common stock in connection with the merger. For purposes of this pro forma analysis, the estimated fair value of Mid Penn common stock was estimated at $31.95 per share, which was the closing price of Mid Penn common stock as of March 31, 2018.

   $ 73,921  
  

 

 

 

Total Acquisition Purchase Price Consideration:

   $ 77,811  

 

B. The First Priority held-to-maturity portfolio will be maintained at the same classification post-merger, but in accordance with acquisition accounting requirements, will be acquired by Mid Penn at the fair value of the securities. As of March 31, 2018, the fair value of the held-to-maturity portfolio exceeded the amortized cost of these securities by $683,000.

 

C.

The estimated adjustments to First Priority’s loan portfolio, to reflect the acquisition fair value after the reversal of the allowance for loan and lease losses previously recorded by First Priority, include (i) estimated nonaccretable specific credit marks of $150,000 representing approximately twenty-five percent of the balance of nonperforming loans as of March 31, 2018, and (ii) a combined amount of general portfolio accretable credit marks and interest rate marks on the loan portfolio estimated at $7,106,000 which is based upon a preliminary evaluation of the general credit risk and interest rate risk profile of the loan portfolio, which includes a higher relative volume of commercial and industrial credits, and commercial real estate credits, as of March 31, 2018. The earnings impact of the accretable general and interest rate



 

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Table of Contents
  adjustments is projected to be recognized over approximately ten years, using an amortization method based upon the expected average life of the acquired loan portfolio, resulting in an increase to pre-tax interest income of $711,000 in the first year post-merger.

 

D. This unaudited pro forma adjustment reflects the reversal of the First Priority allowance for loan losses of $3,405,000 in accordance with the GAAP method of acquisition accounting requiring the recording of acquired loans at fair value.

 

E. Given that premises and equipment owned by First Priority were all acquired in recent years and, based upon preliminary condition and value assessments, don’t reflect either (i) significant concerns of obsolescence or inordinate deterioration beyond recorded depreciation, or (ii) significant appreciation, no material fair value adjustments to premises and equipment are projected.

 

F. The foreclosed assets (other real estate owned) of First Priority as of March 31, 2018 totaled $440,000. The fair value of any foreclosed real estate still held near the time of merger will be determined by certified appraisals or bona fide sales offers, adjusted for estimated selling costs, obtained closer to the actual merger date. For these pro forma financials, an estimated fair value mark of $145,000 was assigned to the pre-merger carrying value of First Priority foreclosed real estate.

 

G. The unaudited pro forma adjustments to the combined-entity result in a net deferred tax asset. Based upon Mid Penn’s level of reported earnings for the three months ended March 31, 2018, and the full year ended December 31, 2017, and the projected earnings of Mid Penn and First Priority combined post-merger, Mid Penn believes it is probable that the combined entity will have sufficient future federal taxable income to fully realize the combined deferred tax asset benefits. The pro-forma combined deferred tax asset, including $761,000 for the related deferred tax impact of acquisition accounting adjustments, was valued based upon an assumed corporate tax rate of 21%, which is the tax rate applicable to tax periods after December 31, 2017, as a result of the Tax Cuts and Jobs Act enacted December 22, 2017.


 

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Table of Contents
H. For purposes of the unaudited pro forma combined consolidated balance sheet as of March 31, 2018, Goodwill of $34,550,000 is projected to result from the Mid Penn acquisition of First Priority. However, the eventual amount actually recorded as Goodwill will be determined as part of the final acquisition accounting as of the merger date, and the Goodwill amount will be based on a purchase price using the value of Mid Penn common stock at closing and may be adjusted from this projection based on changes in financial condition and transactions subsequent to March 31, 2018, as additional information becomes available and updated analyses are performed. The Goodwill will not be amortized, but will be measured for impairment annually (or more frequently if warranted). The unaudited pro forma combined consolidated statement of income projects no Goodwill impairment in the first year post merger. The following reflects the unaudited pro forma calculation of Goodwill based upon estimated fair value adjustments to First Priority assets to be acquired and liabilities to be assumed:

Goodwill Resulting from the Mid Penn Bancorp, Inc. Acquisition of First Priority Financial Corp.

Pro Forma as of December 31, 2017

 

(Dollars in Thousands)              

Acquisition Purchase Price Consideration ($3,890 in Cash and $73,921 in Mid Penn Stock) *:

      $ 77,811  

Net Assets Acquired:

     

First Priority Financial Corp.—Common Stockholders’ Equity

   $ 47,819     

Core Deposit Intangible

     1,181     

Adjustments to First Priority Assets acquired to reflect fair value:

     

Investments—to record the held-to-maturity portfolio to fair value

     683     

Loans—general credit and interest rate marks

     (7,106   

Loans—specific credit marks

     (150   

Allowance for loan losses

     3,405     

Other real estate owned

     (145   

Pre-transaction goodwill and remaining CDI of First Priority

     (2,879   

Deferred tax impact of fair value adjustments

     761     

Adjustments to First Priority Liabilities assumed to reflect fair value:

     

Subordinated Debt

     (308   
  

 

 

    
        43,261  
     

 

 

 

Goodwill resulting from merger

      $ 34,550  
     

 

 

 

 

  * See the analysis and calculation of the merger consideration in Explanatory Note A.

 

I. The unaudited consolidated combined consolidated balance sheet projects a core deposit intangible asset (premium) of $1,181,000 reflecting the evaluated stability and decay rate of First Priority’s core deposits, and the combined entity’s ability to generate increased long-term earnings from these deposits. The core deposit intangible will be amortized over a ten-year period using a sum of the year’s digits basis, resulting in $215,000 of additional intangible amortization in the first year post merger.

 

J. The unaudited pro forma combined consolidated financial statements reflect an adjustment of $308,000 to reflect the estimated fair value of First Priority’s higher-cost subordinated debt outstanding. The adjustment will be recognized using a straight-line amortization method based upon the estimated remaining maturity of the subordinated debt which approximates seven years.

 

K. The unaudited pro forma adjustments to the common stock and additional paid-in-capital accounts, and to the number of common shares outstanding, reflect the impact of projected acquisition consideration of $73,921,000 to be paid in Mid Penn common stock, as further detailed in Explanatory Note A. The adjustments to retained earnings and accumulated other comprehensive loss reflect the elimination of the respective balances in the First Priority equity accounts.


 

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Table of Contents
L. The unaudited consolidated combined consolidated statement of income reflects accruals for $5,213,000 of combined merger-related expenses for both entities, including (i) $2,828,000 of projected severance and retention bonus benefits to be accrued for and paid to certain First Priority employees expected to be displaced as of, or shortly after, the effective date of the merger including certain change-in-control payments made in accordance with IRC sections 280G and 4999; (ii) $1,410,000 for First Priority’s and Mid Penn’s investment banking fees and expenses contingent upon the successful closing of the merger; (iii) $609,000 for Mid Penn’s and First Priority’s combined legal, accounting and other professional fees related to the merger; (iv) $326,000 of termination and conversion costs related to the core processing, storage and imaging, internet banking, and debit card processing service amendments related to the expansion of existing systems and service agreement for the merger-related conversion and integration of First Priority customer and account data; and (v) $40,000 of other merger-related expenses.

Of the above merger-related expenses, a net liability of $3,646,000 will be recorded at the time of legal closing as a result of $4,238,000 of combined severance costs and investment banking fees, net of related taxes of $592,000 representing the 21% tax benefit on the deductible portion of these liabilities.

For the consolidated statements of income for the year ended December 31, 2017 (before applying pro forma adjustments), Mid Penn and First Priority reported no merger expenses related to this combination, although Mid Penn reported merger expenses of $619,000 related to its separate acquisition of The Scottdale Bank and Trust Company. For the consolidated statements of income for the three months ended March 31, 2018 (before applying pro forma adjustments), Mid Penn and First Priority combined reported a combined $512,000 of expenses related to this combination, and Mid Penn also reported merger expenses of $1,274,000 related to its separate acquisition of The Scottdale Bank and Trust Company.

 

M. The unaudited pro forma income tax adjustments assume a corporate tax rate of 21% related to (i) the deductible portion of merger-related expenses and (ii) fair value adjustments on pre-tax amounts, in the unaudited pro forma combined financial statements.


 

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Table of Contents

COMPARATIVE PER SHARE DATA (UNAUDITED)

The following table sets forth certain historical Mid Penn and First Priority per share data giving effect to the merger (which we refer to as “pro forma” information). In presenting the comparative pro forma information for the time period shown, we assumed that we had been merged on the date or at the beginning of the period indicated.

Mid Penn anticipates that the combined company will derive financial benefits from the merger that include reduced operating expenses and the opportunity to earn more revenue. The pro forma combined information, while helpful in illustrating the financial characteristics of Mid Penn following the merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma combined information also does not necessarily reflect what the historical results of Mid Penn would have been had our companies been combined during this period.

This data should be read together with Mid Penn’s and First Priority’s historical financial statements and notes thereto, included elsewhere in or incorporated by reference in this document. Please see “Selected Consolidated Historical Financial Data of Mid Penn” beginning on page [●], “Selected Consolidated Historical Financial Data of First Priority” beginning on page [●] and “Where You Can Find More Information” beginning on page [●]. The per share data is not necessarily indicative of the operating results that Mid Penn would have achieved had it completed the merger as of the beginning of the period presented and should not be considered as representative of future operations.

 

     As of and for the
three months ended
March 31, 2018
     As of and for the
twelve months ended
December 31, 2017
 

Comparative Per Share Data:

     

Basic net income (loss) per common share:

     

Mid Penn historical

   $ 0.17      $ 1.67  

First Priority historical

     0.10        0.33  

Pro forma combined(1)

     (0.25      0.82  

Equivalent pro forma for one share of First Priority common stock(3)

     (0.09      0.28  

Diluted net income (loss) per common share:

     

Mid Penn historical

   $ 0.17      $ 1.67  

First Priority historical

     0.10        0.32  

Pro forma combined(1)

     (0.25      0.82  

Equivalent pro forma for one share of First Priority common stock(3)

     (0.09      0.28  

Book value per common share:

     

Mid Penn historical

   $ 22.72      $ 17.85  

First Priority historical

     7.19        7.16  

Pro forma combined(2)

     24.82        22.14  

Equivalent pro forma for one share of First Priority common stock(3)

     8.64        7.71  

Tangible book value per common share:

     

Mid Penn historical

   $ 18.21      $ 16.82  

First Priority historical

     6.76        6.72  

Pro forma combined(2)

     17.31        16.41  

Equivalent pro forma for one share of First Priority common stock(3)

     6.02        5.71  


 

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Table of Contents
     As of and for the
three months ended
March 31, 2018
     As of and for the
twelve months ended
December 31, 2017
 

Cash dividends declared per common share:

     

Mid Penn historical

   $  —        $ 0.77  

First Priority historical

     —          —    

Pro forma combined(4)

     —          0.77  

Equivalent pro forma for one share of First Priority common stock(3)

     —          0.27  

 

(1) The pro forma combined basic earnings and diluted earnings of Mid Penn’s common stock is based on the pro forma combined net income per common share for Mid Penn and First Priority divided by the pro forma common shares or diluted common shares of the combined entity, assuming 100% of the outstanding shares of First Priority common stock are exchanged for Mid Penn common stock at the exchange ratio of 0.3481 shares of Mid Penn common stock for each share of First Priority common stock in accordance with the merger agreement. The pro forma information does not include anticipated cost savings or revenue enhancements.
(2) The pro forma combined book value of Mid Penn’s common stock is based on pro forma combined common shareholders’ equity of Mid Penn and First Priority divided by total pro forma common shares of the combined entities, assuming 100% of the outstanding shares of First Priority common stock are exchanged for Mid Penn common stock at the exchange ratio of 0.3481 shares of Mid Penn common stock for each share of First Priority common stock in accordance with the merger agreement. The pro forma information includes adjustments related to the estimated fair value of assets and liabilities and is subject to adjustment as additional information becomes available and as additional analysis is performed. The unaudited pro forma combined consolidated information does not include anticipated cost savings or revenue enhancements.
(3) The pro forma equivalent per share amount is calculated by multiplying the pro forma combined per share amount by the exchange ratio of 0.3481, assuming 100% of the outstanding shares of First Priority common stock are exchanged for Mid Penn common stock at the exchange ratio of 0.3481 shares of Mid Penn common stock for each share of First Priority common stock in accordance with the merger agreement.
(4) The pro forma cash dividends declared of Mid Penn’s common stock is based on the pro forma combined cash dividends declared for Mid Penn and First Priority divided by the pro forma common shares or diluted common shares of the combined entity, assuming 100% of the outstanding shares of First Priority common stock are exchanged for Mid Penn common stock at the exchange ratio of 0.3481 shares of Mid Penn common stock for each share of First Priority common stock in accordance with the merger agreement.


 

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RISK FACTORS

In considering whether to vote in favor of the proposal to adopt the merger agreement, you should consider all of the information included in this document and its annexes and all of the information we have incorporated by reference and the risk factors identified by Mid Penn with respect to its operations included in its filings with the SEC, including in its Annual Report on Form 10-K for the year ended December 31, 2017 and subsequent Quarterly Reports on Form 10-Q. See “Incorporation of Certain Documents by Reference.” In addition, you should consider the following risk factors.

Because the market price of Mid Penn shares of common stock will fluctuate, First Priority shareholders cannot be sure of the value of the merger consideration they may receive.

Upon completion of the merger, each share of First Priority common stock will be automatically converted into the right to receive 0.3481 shares of Mid Penn common stock, which we call the exchange ratio. The sale prices for shares of Mid Penn common stock may vary from the sale prices of Mid Penn common stock on the date we announced the merger, on the date this joint proxy statement/prospectus was mailed to First Priority shareholders and on the date of the special meeting of the First Priority shareholders. Any change in the market price of Mid Penn shares of common stock prior to closing the merger may affect the value of the merger consideration that First Priority shareholders will receive upon completion of the merger. First Priority is not permitted to resolicit the vote of First Priority shareholders solely because of changes in the market price of Mid Penn shares of common stock. Because the exchange ratio is fixed, if Mid Penn’s stock price declines prior to the completion of the merger, Mid Penn will not be required to adjust the exchange ratio. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects and regulatory considerations. Many of these factors are beyond our control. You should obtain current market quotations for shares of Mid Penn common stock.

Mid Penn may be unable to successfully integrate First Priority’s operations and retain First Priority’s employees.

The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include, among other things: integrating personnel with diverse business backgrounds; combining different corporate cultures; and retaining key employees.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will require the experience and expertise of certain key employees of First Priority who are expected to be retained by Mid Penn. Mid Penn may not be successful in retaining these employees for the time period necessary to successfully integrate First Priority’s operations with those of Mid Penn. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Mid Penn following the merger.

Additionally, Mid Penn may not be able to successfully achieve the level of cost savings and other synergies that it expects, and may not be able to capitalize upon the existing customer relationships of First Priority to the extent anticipated, or it may take longer, or be more difficult or expensive than expected to achieve these goals. This could have an adverse effect on Mid Penn’s business, results of operation and stock price.

The market price of Mid Penn shares of common stock after the merger may be affected by factors different from those currently affecting the shares of First Priority.

The businesses of Mid Penn and First Priority differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations of Mid Penn. For a discussion of the businesses of Mid Penn and First Priority, see “Information about Mid Penn” and “Information about First Priority” on pages [●] and [●], respectively.

 

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First Priority and Mid Penn shareholders will have a reduced ownership percentage and voting interest after the merger and will exercise less influence over management.

First Priority’s shareholders currently have the right to vote in the election of the board of directors of First Priority and on certain other matters affecting First Priority. When the merger occurs, each First Priority shareholder that receives shares of Mid Penn common stock will become a shareholder of Mid Penn with a percentage ownership of the combined organization that is much smaller than the shareholder’s current percentage ownership of First Priority. Additionally, each Mid Penn shareholder will have a percentage ownership of the combined organization that is smaller than the shareholder’s current ownership in Mid Penn. More specifically, following completion of the merger, current Mid Penn shareholders will own in the aggregate approximately 72.6% of the outstanding shares of Mid Penn common stock and First Priority shareholders will own approximately 27.4% of the outstanding shares of Mid Penn common stock.

Because of this, each institution’s existing shareholders will have less influence on the management and policies of Mid Penn than they now have on the management and policies of the institution in which they currently own shares.

The proposed First Priority merger and Mid Penn’s recently completed Scottdale merger may increase the risks associated with each of these mergers, as well as place a strain on Mid Penn’s financial and personnel resources that could adversely impact Mid Penn’s business.

On January 8, 2018, Mid Penn completed its acquisition of Scottdale. The First Priority merger is expected to close during the third quarter of 2018. The recent completion of the Scottdale merger and the pending First Priority merger will cause Mid Penn to continue to incur significant expenditures and will require substantial attention and effort from Mid Penn’s management and other personnel. Mid Penn’s current and planned operations, personnel, facility size and configuration, systems and internal procedures and controls might be inefficient or inadequate to support these efforts at the same time. In addition, the risks associated with each of these mergers, as described herein and in Mid Penn’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, may increase while the First Priority merger is pending. The increased risks and obligations associated with the mergers could place a strain on Mid Penn’s financial position and personnel resources, which may adversely affect Mid Penn’s stock price, revenues, results of operations and/or financial condition.

Future issuances of Mid Penn equity securities could dilute shareholder ownership and voting interest of Mid Penn shareholders.

Mid Penn’s articles of incorporation currently authorize the issuance of up to 10 million shares of common stock, which is the maximum number of shares Mid Penn may have issued and outstanding at any one time. Mid Penn’s ability to issue additional shares is reduced by the number of shares that are currently outstanding and already reserved for future issuances. Any future issuance of equity securities by Mid Penn may result in dilution in the percentage ownership and voting interest of Mid Penn shareholders. Also, any securities Mid Penn sells in the future may be valued differently and the issuance of equity securities for future services, acquisitions or other corporate actions may have the effect of diluting the value of shares held by Mid Penn shareholders.

The merger agreement limits First Priority’s ability to pursue alternatives to the merger.

The merger agreement contains “no shop” provisions that, subject to specified exceptions, limit First Priority’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of First Priority. In addition, a termination fee is payable by First Priority under certain circumstances, generally involving the decision to pursue an alternative transaction. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of First Priority from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share value than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire First Priority than it might otherwise have proposed to pay, if the merger with Mid Penn had not been announced.

 

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First Priority shareholders have dissenters’ rights in the merger.

Dissenters’ rights are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the merger consideration offered to shareholders in connection with the extraordinary transaction.

Regulatory waivers and approvals already received may expire, be revoked or be amended to impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated in the merger agreement, including the merger, may be completed, various waivers, approvals or consents must be obtained from various bank regulatory and other authorities, including the FRB, the FDIC and the PDB. These governmental entities may impose conditions on the completion of the merger or require changes to the terms of the merger agreement. Further, such approvals are subject to expiration if the transaction is not consummated within the time period provided in the approval.

As of the date of this joint proxy statement/prospectus, all requisite bank regulatory waivers and approvals have been received and remain effective, and none contain any unusual conditions to completion of the merger or require changes to the merger agreement. However, these waivers and approvals are subject to modification or revocation by the issuing regulatory authorities prior to the merger. Mid Penn may be required to request an extension of the expiration date for one or more approvals. Although Mid Penn and First Priority do not currently expect that any waivers or approvals will be revoked or modified to impose conditions on the merger or changes to the merger agreement, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the transactions contemplated in the merger agreement or imposing additional costs on or limiting Mid Penn’s revenues, any of which might have a material adverse effect on Mid Penn following the merger.

First Priority’s directors and executive officers have financial interests in the merger that may be different from, or in addition to, the interests of First Priority shareholders.

First Priority’s directors and executive officers have financial interests in the merger that may be different from, or in addition to, the interests of First Priority shareholders. For example, David E. Sparks and three other current directors of First Priority will serve on the boards of directors of Mid Penn and Mid Penn Bank after the merger, Mr. Sparks will be appointed Chief Strategic Advisor to the Chief Executive Officer of Mid Penn and Mid Penn Bank and Market President of First Priority Bank, a Division of Mid Penn Bank, and each will receive compensation for his services as an employee or director, as applicable. In addition, certain officers or employees may receive certain severance payments if they are terminated following the merger. For information concerning these interests, please see the discussion under the caption “The Merger—Interests of First Priority’s Directors and Executive Officers in the Merger” on page [●].

The shares of Mid Penn common stock to be received by First Priority shareholders as a result of the merger will have different rights from the shares of First Priority common stock.

Upon completion of the merger, First Priority shareholders will become Mid Penn shareholders. Their rights as shareholders will be governed by Pennsylvania corporate law and the articles of incorporation and bylaws of Mid Penn. The rights associated with First Priority common stock are governed by the articles of incorporation and bylaws of First Priority and are different from the rights associated with Mid Penn common stock. See the section of this joint proxy statement/prospectus titled “Comparison of Shareholders’ Rights” beginning on page [●] for a discussion of the different rights associated with Mid Penn common stock.

 

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Termination of the merger agreement could negatively affect First Priority.

If the merger agreement is terminated, there may be various consequences, including the fact that First Priority’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger.

If the merger agreement is terminated and First Priority’s board of directors seeks another merger or business combination, First Priority shareholders cannot be certain that First Priority will be able to find a party willing to offer equivalent or more attractive consideration than the consideration Mid Penn has agreed to provide in the merger.

If the merger agreement is terminated and a different business combination is pursued, First Priority may be required to pay a termination fee of $3,500,000 to Mid Penn under certain circumstances. See “The Merger Agreement—Termination Fee” beginning on page [●].

The fairness opinions obtained by First Priority and Mid Penn from their respective financial advisors will not reflect changes in circumstances subsequent to the date that such opinions were rendered.

First Priority has obtained a fairness opinion dated as of January 16, 2018, from its financial advisor, Griffin. Mid Penn has obtained a fairness opinion dated as of January 16, 2018, from its financial advisor, Sandler. Neither First Priority nor Mid Penn has obtained, and neither will obtain, an updated opinion as of the date of this joint proxy statement/prospectus from their respective financial advisor. Changes in the operations and prospects of Mid Penn or First Priority, general market and economic conditions and other factors that may be beyond the control of Mid Penn and First Priority may alter the value of Mid Penn or First Priority or the price of shares of Mid Penn common stock or First Priority common stock by the time the merger is completed. The opinions do not speak to the time the merger will be completed or to any other date other than the date of such opinions. As a result, the opinions will not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed. For a description of the opinion that First Priority received from Griffin, please see “The Merger—Opinion of First Priority’s Financial Advisor” beginning on page [●] of this joint proxy statement/prospectus. For a description of the opinion that Mid Penn received from Sandler, please see “The Merger—Opinion of Mid Penn’s Financial Advisor” beginning on page [●] of this joint proxy statement/prospectus.

The merger agreement may be terminated in accordance with its terms and the merger may not be completed for other reasons.

The merger agreement is subject to a number of conditions that must be fulfilled in order to complete the merger. Those conditions include, among others: approval of the merger agreement by Mid Penn and First Priority shareholders, regulatory approvals, absence of orders prohibiting the completion of the merger, effectiveness of the registration statement of which this joint proxy statement/prospectus is a part, approval of the shares of Mid Penn common stock to be issued to First Priority shareholders for listing on the Nasdaq Global Select Market, the continued accuracy of the representations and warranties by both parties, the performance by both parties of their covenants and agreements, and the receipt by both parties of legal opinions from their respective tax counsels. See “The Merger Agreement—Termination of the Merger Agreement” beginning on page [●] for a more complete discussion of the circumstances under which the merger agreement could be terminated. The conditions to closing of the merger may not be fulfilled and the merger may not be completed.

We may fail to realize all of the anticipated benefits of the merger.

The success of the merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining the businesses of Mid Penn and First Priority. However, to realize these anticipated benefits and cost savings, which include increased Mid Penn lending limits and access to stable core deposits, we must

 

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successfully combine the businesses of Mid Penn and First Priority. If we are not able to achieve these objectives, the anticipated benefits and cost savings of the merger may not be realized fully or at all, or may take longer to realize than expected.

Mid Penn and First Priority have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on Mid Penn or First Priority during the transition period.

Another expected benefit from the merger is an expected increase in the revenues of the combined company from anticipated sales of Mid Penn’s greater variety of financial products, and from increased lending out of Mid Penn’s substantially larger capital base, to First Priority’s existing customers and to new customers in First Priority’s market area who may be attracted by the combined company’s enhanced offerings. An inability to successfully market Mid Penn’s products to First Priority’s customer base could cause the earnings of the combined company to be less than anticipated.

Failure to complete the merger could negatively affect the market price of Mid Penn’s and First Priority’s common stock.

If the merger is not completed for any reason, Mid Penn and First Priority will be subject to a number of material risks, including the following:

 

    the market price of First Priority common stock may decline to the extent that the current market prices of its common stock already reflect a market assumption that the merger will be completed;

 

    costs relating to the merger, such as legal, accounting and financial advisory fees, and, in specified circumstances, additional reimbursement and termination fees, must be paid even if the merger is not completed; and

 

    the diversion of management’s attention from the day-to-day business operations and the potential disruption to each company’s employees and business relationships during the period before the completion of the merger may make it difficult to regain financial and market positions if the merger does not occur.

Unanticipated costs relating to the merger could reduce Mid Penn’s future earnings per share.

Mid Penn and First Priority believe that they have reasonably estimated the likely incremental costs of the combined operations of Mid Penn and First Priority following the merger. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as unanticipated costs to integrate the two businesses, increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, including negative changes in the value of First Priority’s loan portfolio, could have a material adverse effect on the results of operations and financial condition of Mid Penn following the merger. In addition, if actual costs are materially different than expected costs, the merger could have a significant dilutive effect on Mid Penn’s earnings per share.

First Priority will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on First Priority and consequently on Mid Penn. These uncertainties may impair First Priority’s ability to attract, retain and motivate key personnel until the merger is consummated, and could cause customers and others that deal

 

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with First Priority to seek to change existing business relationships with First Priority. Retention of certain employees may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with Mid Penn. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Mid Penn, Mid Penn’s business following the merger could be harmed. In addition, the merger agreement restricts First Priority from taking certain actions until the merger occurs without the consent of Mid Penn. These restrictions may prevent First Priority from pursuing attractive business opportunities that may arise prior to the completion of the merger. Please see the section entitled “The Merger Agreement—Covenants and Agreements” beginning on page [●] of this joint proxy statement/prospectus for a description of the restrictive covenants to which First Priority is subject under the merger agreement.

If the merger is not completed, First Priority and Mid Penn will have incurred substantial expenses without realizing the expected benefits of the merger.

First Priority and Mid Penn have both incurred substantial expenses in connection with the merger. The completion of the merger depends on the satisfaction of specified conditions and the continued effectiveness of regulatory approvals and the approval of Mid Penn’s and First Priority’s shareholders. First Priority and Mid Penn cannot guarantee that these conditions will be met. If the merger is not completed, these expenses could have an adverse impact on the financial condition and results of operations on a stand-alone basis for both First Priority and Mid Penn.

Litigation relating to the merger could require us to incur significant costs and suffer management distraction, as well as delay and/or enjoin the merger.

Neither First Priority nor Mid Penn is currently able to predict the outcome of any suit arising out of or relating to the proposed transaction that may be filed in the future. If any letters or complaints are filed, absent allegations that are material, First Priority and Mid Penn will not necessarily announce such filings.

First Priority and Mid Penn could be subject to demands or litigation related to the merger, whether or not the merger is consummated. Such actions may create additional uncertainty relating to the merger, and responding to such demands and defending such actions may be costly and distracting to management. Although there can be no assurance as to the ultimate outcomes of any demand or any subsequent litigation, neither First Priority nor Mid Penn believes that the resolution of such demands or any subsequent litigation will have a material adverse effect on its respective financial position, results of operations or cash flows.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains or incorporates by reference a number of forward-looking statements, including statements about the financial conditions, results of operations, earnings outlook and prospects of Mid Penn, First Priority and the potential combined company and may include statements for periods following the completion of the merger. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions.

The forward-looking statements involve certain risks and uncertainties. The ability of either Mid Penn or First Priority to predict results or the actual effects of its plans and strategies, or those of the combined company, is subject to inherent uncertainty. Factors that may cause actual results or earnings to differ materially from such forward-looking statements include those beginning on page [●] under “Risk Factors,” as well as, among others, the following:

 

    those discussed and identified in public filings with the SEC and bank regulatory agencies made by Mid Penn and First Priority;

 

    completion of the merger is dependent on, among other the things, the receipt of shareholder approvals, the timing of which cannot be predicted with precision and which may not be received at all, as well as the continued effectiveness of regulatory approvals, which may be revoked or expire;

 

    the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

 

    higher than expected increases in Mid Penn’s or First Priority’s loan losses or in the level of nonperforming loans;

 

    higher than expected charges incurred by Mid Penn in connection with marking First Priority’s assets to fair value;

 

    a continued weakness or unexpected decline in the U.S. economy, in particular in Pennsylvania;

 

    a continued or unexpected decline in real estate values within Mid Penn’s and First Priority’s market areas;

 

    unanticipated reduction in Mid Penn’s or First Priority’s respective deposit bases or funding sources;

 

    government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate risk policies of the FRB;

 

    legislative and regulatory actions could subject Mid Penn to additional regulatory oversight which may result in increased compliance costs and/or require Mid Penn to change its business model;

 

    the integration of First Priority’s business and operations with those of Mid Penn may take longer than anticipated, may be more costly than anticipated and may have unanticipated adverse results relating to First Priority’s or Mid Penn’s existing businesses; and

 

    the anticipated cost savings and other synergies of the merger may take longer to be realized or may not be achieved in their entirety, and attrition in key client, partner and other relationships relating to the merger may be greater than expected.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference in this joint proxy statement/prospectus.

 

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All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this joint proxy statement/prospectus and attributable to Mid Penn or First Priority or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this joint proxy statement/prospectus. Except to the extent required by applicable law or regulation, Mid Penn and First Priority undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events.

 

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THE MERGER

Background of the Merger

During the course of developing its strategic plan, Mid Penn’s board of directors and senior management team regularly consider various strategies for creating additional shareholder value, including growth through the expansion of its customer base in existing markets, as well as growth through the acquisition of community banks in existing or other markets. As part of this strategic planning process, Mid Penn routinely evaluates possible business combinations, and has completed two acquisitions in recent years—Phoenix Bancorp, Inc. in 2015, and The Scottdale Bank & Trust Co. in the first quarter of 2018.

Since First Priority’s formation, its board of directors and executive management have been committed to the goal of achieving shareholder returns through balanced growth and profitability. The company has defined its opportunity for shareholder value as “strategic optionality,” which has included organic growth, growth through acquisitions and product diversification, or a combination of these factors. First Priority’s board of directors periodically reviews the landscape for financial institutions and considers the company’s strategic options in light of that landscape.

First Priority has taken a number of actions since its organization to further its goals of providing shareholder value, including the acquisition of Prestige Community Bank (Newtown Pennsylvania) in 2008, the acquisitions of Affinity Bank (Berks County, Pennsylvania) in March 2013, the quotation of the Company’s common stock on the OTCQX Market beginning in 2015, and the purchase of a $64 million performing loan and relationship portfolio from a Philadelphia-based financial institution in August 2016.

These transactions and activities were also consistent with the board’s view that competitive and other factors at play in the financial services sector made a larger relative size and scale for First Priority desirable in delivering acceptable shareholder returns.

Shortly after its integration of Affinity Bank, First Priority also commenced discussions with a local financial institution regarding a potential merger of equals transaction. Confidentiality agreements were signed and each party engaged an investment banker. A number of meetings occurred during 2014 and 2015 between the senior management teams. Social issues for the transaction were generally agreed to by the parties, but the parties, based on the advice from their respective investment bankers, could not reach agreement on financial terms for a transaction. Negotiations terminated in 2015.

During 2016, First Priority’s Chief Executive Officer, at the board’s direction and as part of the company’s ongoing consideration of strategic paths, met with a number of other financial institutions, both smaller and larger, that were considered potential candidates for a business combination transaction with First Priority. With respect to smaller institutions, First Priority concluded, based on discussions with the institutions contacted, that these institutions either had no desire to sell or were not for sale at a price that First Priority was willing to pay. With respect to larger institutions, preliminary discussions on potential pricing or other issues relating to market structure, earnings potential, or other factors in a particular case resulted in discussions terminating at a preliminary stage.

First Priority’s unsuccessful attempts to identify smaller institutions to acquire at an acceptable price, or to find an acceptable merger of equals transaction partner, resulted in a change in strategic emphasis. As financial institutions, including First Priority, faced stronger lending and deposit growth competition, along with higher capital levels required to support growth, First Priority changed its strategic focus to core deposit growth and access to lower cost core deposits. As part of this change in strategic focus, First Priority began to identify and consider potential business combination partners with low loan to deposit ratios and with lower cost deposits.

In late 2015, representatives of Griffin had introduced First Priority’s Chief Executive Officer to executive management of a large regional bank holding company with headquarters outside Pennsylvania. Throughout

 

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2016 and into March 2017, First Priority’s Chief Executive Officer attended several meetings and discussions with executive management of this institution. The parties executed confidentiality agreements, prepared financial analyses on a potential transaction, and exchanged certain due diligence information. First Priority believed that this party had a favorable liquid market structure and the capital to support First Priority’s operations and growth. The institution’s preliminary indication of pricing, however, was below First Priority’s expectations, and discussions terminated in early 2017.

In June 2016, First Priority’s Chief Executive Officer contacted Mid Penn’s Chief Executive Officer and requested an introductory meeting, which occurred on June 15, 2016. Several follow-up meetings occurred through the remainder of 2016 and into 2017 to discuss strategic direction for both institutions, corporate culture, financial results and capital, management alignment, and Mid Penn’s market structure. During the course of these early discussions, Mid Penn commenced negotiations to acquire The Scottdale Bank & Trust Company, and the First Priority discussions were put on hold. Mid Penn announced the Scottdale transaction on March 29, 2017.

Following the suspension of the initial discussions with Mid Penn, during the remainder of 2016 and into 2017, First Priority continued to consider potential combinations with other financial institutions and, consistent with its focus on core deposits, First Priority’s Chief Executive Officer and representatives of Griffin also had preliminary discussions with a number of larger institutions in nearby markets.

In April 2017, First Priority’s Chief Executive Officer was introduced by a third party investment banker to the Chief Executive Officer of a publicly traded regional financial institution located outside of First Priority’s market area. Several additional meetings occurred during May 2017, including meetings attended by First Priority’s Chief Executive Officer and other senior management personnel at the offices of the other institution. Follow-up meetings to discuss financial and other aspects of a potential transaction were held throughout June and July 2017. First Priority’s board of directors discussed a potential business combination at meetings held on June 22, 2017 and July 27, 2017, and, at the July 27 meeting, the board authorized the Strategic Finance Committee of the board to approve negotiation of a transaction. During August 2017, the parties exchanged a draft preliminary term sheet, for discussion purposes, containing certain terms for a potential transaction. First Priority’s board of directors reviewed the proposed financial terms for a potential transaction at a meeting held on September 28, 2017, and agreed with management that such terms were not sufficient for First Priority to agree to the exclusivity provisions requested by the other party. The board directed First Priority’s Chief Executive Officer to continue to pursue discussions with other parties, including Mid Penn.

Commencing in June of 2017 and continuing into the fall of 2017, Mid Penn’s Chief Executive Officer met and had a number of conversations with representatives of Sandler, Mid Penn’s financial advisor on the then-pending Scottdale transaction, to discuss the concept, pricing and structure of a potential business combination with First Priority.

On August 3, 2017, First Priority’s Chief Executive Officer met with Mid Penn’s Chief Executive Officer for an update on the status of Mid Penn’s pending merger transaction with Scottdale and to revisit the initial discussions involving a possible business combination between First Priority and Mid Penn. Each concluded that continuing discussions made sense, and that there was a strong compatibility between the business cultures and strategies of each institution. First Priority’s Chief Executive Officer attended a dinner meeting with Mid Penn’s Chief Executive Officer and Mid Penn’s Chairman and Vice Chairman on September 6, 2017. On September 7, 2017, a meeting of the Executive Committee of the board of directors of Mid Penn was held during which a potential business combination with First Priority was discussed, and it was agreed that preliminary discussions should continue between the parties. Thereafter, a series of meetings occurred throughout October and early November 2017 between each company’s Chief Executive Officers and Chief Financial Officers.

During the September-October time period, First Priority, through its Chief Executive Officer, or through representatives of Griffin, contacted the larger financial institutions with which First Priority had previously discussed a possible business combination to determine whether any of them had interest in discussing a

 

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transaction at pricing levels deemed appropriate by First Priority. First Priority also continued discussions with Mid Penn.

At its regularly scheduled meeting on October 25, the Mid Penn board of directors was updated by senior management as to the status of the ongoing discussions with First Priority. Discussion was held concerning potential pricing and social terms, as well as opportunities and challenges associated with such a combination being in close proximity to the anticipated consummation of the Scottdale transaction.

First Priority’s board of directors held its annual strategic planning meeting on November 16, 2017. Representatives of Griffin attended the November 16 board meeting. Griffin provided a landscape overview, a capital markets update, a discussion of the impact of size and scale on financial institution performance and returns, and a merger and acquisition market update. The discussion also included consideration of the possible effects of anticipated corporate tax reform, which eventually concluded with the passage of the Tax Cuts and Jobs Act on December 22, 2017. Griffin suggested that, although general stock market and economic performance had improved dramatically over the past year, certain negative factors or uncertainties remained and should be considered in planning activities by financial institutions. These negative factors or uncertainties included continued pressure on margins resulting from high levels of competition and the need for investments in technology, the high levels of federal debt, declining regional growth rates, and compliance costs. Griffin also addressed the organic growth challenges for a smaller community bank, as well as the challenges for smaller community banks growing by acquisition given the depleted number of candidates for either acquisitions or merger of equals transactions. Alternatively, the ability to achieve an appropriate size and scale generally leads to improved efficiency ratios, higher returns on assets and equity, increased liquidity for shareholders, and higher valuations. Griffin suggested that First Priority partnering with the right larger institution was an alternative worth considering given the potential economic uncertainties and increasing information technology and compliance costs. Such a transaction could result in an immediate, substantial increase in size and scale, including a higher lending limit, and likely improvement in net interest margin, and improved returns on assets and equity. Such a transaction should also result in a stronger market structure, including a better mix of retail and institutional shareholders, a higher market capitalization and improved trading liquidity, a dividend yield and potentially higher valuations.

At the November 16, 2017 strategic planning meeting, First Priority’s Chief Executive Officer also presented certain background and financial information on Mid Penn, as well as the status of his conversations with Mid Penn’s Chief Executive Officer. He pointed out a number of potential strategic benefits to a transaction with Mid Penn, including the market diversification for both companies, the increased size and scale of the combined entity, the ability to access lower cost funding, the additions to management depth for both companies, higher resulting investor interest and exposure, a good cultural and operational fit with similar views on credit, risk, strategy and growth, an attractive pricing for First Priority given Mid Penn’s trading multiples compared to peers, the ability to enhance First Priority’s lending platform without a need to restructure, the fact that a transaction would be immediately accretive to pro forma earnings and moderately dilutive to pro forma tangible book value, and the opportunity for First Priority shareholders to receive a regular cash dividend. First Priority’s Chief Executive Officer also summarized the material transaction points that had been discussed to date, including that the transaction would be an all-stock merger transaction structured as a tax-free reorganization, that the exchange ratio would be fixed at 165% of First Priority’s tangible book value at September 30, 2017, that First Priority would operate as a separate division, and that First Priority would have three or four directors serving on the boards of directors of Mid Penn and Mid Penn Bank following the transaction. First Priority’s Chief Executive Officer also pointed out that Mid Penn’s current market structure was potentially a negative factor due to a low institutional to retail investor mix and relatively low average daily trading volume. He noted, however, that the combined company should have a market capitalization in excess of $200 million and a significantly improved average daily trading volume, including anticipated qualification of Mid Penn common stock for the Russell 2000 Index during 2018, which would significantly mitigate any shareholder liquidity concerns.

As a result of the prior contacts with other institutions and First Priority’s discussions with representatives of Mid Penn, First Priority’s board of directors and executive management concluded that exclusive negotiations with

 

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Mid Penn for a period of time would be appropriate at the pricing levels discussed at the November 16 meeting. Accordingly, at the meeting held on November 16, 2017, First Priority’s board of directors authorized First Priority’s Chief Executive Officer to negotiate and execute a non-binding term sheet with Mid Penn substantially on the terms discussed. The board authorized the inclusion of an exclusivity period through January 31, 2018, the termination date for the non-binding term sheet.

On November 17, 2017, Mid Penn held a special meeting of its shareholders, at which the Scottdale transaction was approved.

At its regularly scheduled meeting on November 21, 2017, the Mid Penn board of directors was updated by executive management as to the status of the discussions with First Priority, including the specific transaction terms discussed between each party’s Chief Executive Officer. Mid Penn’s board of directors authorized Mid Penn’s Chief Executive Officer to negotiate and execute a non-binding term sheet with First Priority substantially on the terms described above.

On November 30, 2017, First Priority’s Chief Executive Officer met with Mid Penn’s Chief Executive Officer, together with First Priority’s and Mid Penn’s respective financial advisors. The parties completed negotiations and agreed to a non-binding term sheet, which was finalized and executed on December 1, 2017. The non-binding term sheet was subject to a number of conditions, including negotiation and execution of board approved definitive merger documents by January 31, 2018, but included the pricing and other material terms that were eventually included in the definitive merger agreement. The term sheet also required, and each party agreed, to deal exclusively with the other for the purpose of completing due diligence and negotiating a definitive agreement through January 31, 2018, and, through that period, not to solicit acquisition proposals that could result in a sale or change in control of the party.

During December 2017, each of First Priority and Mid Penn were granted access to certain due diligence information included in electronic data rooms, and a more complete due diligence investigation was completed by each party. On December 14 and 15, 2017, members of First Priority’s management team conducted a loan review of Mid Penn via remote access, and on December 18 and 19, 2017, members of the executive and senior management team of Mid Penn conducted on-site loan reviews of First Priority.

On December 21, 2017, Stevens & Lee, legal counsel for First Priority, was provided a draft merger agreement prepared by Pillar+Aught, legal counsel for Mid Penn. The parties and their respective advisers negotiated the terms of the merger agreement over the following weeks. The terms negotiated by the parties and their respective advisers included, but were not limited to, executory period covenants, termination provisions and their related fees, the treatment of First Priority’s outstanding preferred stock, execution of affiliate voting agreements, and post-closing employee matters.

On January 5, 2018, the parties conducted in-person senior management interviews as part of their respective due diligence processes, and on January 10, 2018, representatives of Mid Penn and First Priority discussed the proposed transaction with representatives of the FRB, FDIC and PDB.

On January 16, 2018, First Priority’s board of directors met to consider the proposed merger agreement and certain ancillary documents. First Priority’s executive management, as well as representatives from Griffin, its financial advisor, and Stevens & Lee, its legal advisor, participated in the meeting. A detailed summary of the merger agreement negotiated to date, as well as certain ancillary documents, including a draft of Griffin’s presentation materials to be reviewed at the meeting, had been made available to board members on January 15, 2018. At the January 16 meeting, representatives of Griffin made a presentation in which it summarized the transaction terms, pricing metrics, and the analyses it performed to evaluate the fairness of the merger consideration from a financial point of view. Griffin’s presentation also included an overview of First Priority’s historical financial profile, stock price performance, and other data.

 

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At the January 16 meeting, representatives of Griffin also delivered to First Priority’s directors its oral opinion that, as of January 16, 2018, the merger consideration was fair to the holders of First Priority common stock. Representatives of Stevens & Lee reviewed in detail the terms of the merger agreement and ancillary documents, including the voting agreements required by Mid Penn to be executed by the directors and executive officers of First Priority and certain of their affiliates. Representatives of Stevens & Lee also discussed the proposed resolutions that the board would be requested to approve.

Following these presentations and discussions and review and discussion among the members of First Priority’s board of directors, including consideration of the factors described under “—Recommendation of the First Priority Board of Directors and Reasons for the Merger,” First Priority’s board of directors determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger of First Priority with Mid Penn, were advisable and in the best interests of First Priority and its shareholders, and the directors unanimously voted to adopt the merger agreement and the transactions contemplated thereby, recommended that First Priority’s shareholders approve the merger agreement, and received the written confirmation of Griffin’s opinion as to fairness of the merger consideration.

Also on January 16, 2018, the Mid Penn board of directors held a special meeting to review the final draft of the merger agreement. Representatives of Sandler and Pillar+Aught reviewed the provisions of the merger agreement in detail with the board of directors. Sandler reviewed its financial analyses of the merger and delivered an oral opinion, which was subsequently confirmed in writing, to the effect that, as of that date and subject to assumptions made, procedures followed, matters considered and limitations on the review undertaken set forth in the opinion, the merger consideration in the merger was fair, from a financial point of view, to Mid Penn. After careful consideration of these presentations and further discussion, the Mid Penn board of directors unanimously approved the merger agreement and agreed to recommend that Mid Penn’s shareholders adopt and approve the merger agreement and the merger.

Upon completion of the First Priority and Mid Penn board meetings, the merger agreement and ancillary documents were executed and delivered by the parties. After the market closed on January 16, 2018, Mid Penn and First Priority issued a joint press release announcing the execution of the merger agreement.

First Priority’s Reasons for the Merger

In reaching the conclusion that the merger agreement is in the best interests of and advisable for First Priority and its shareholders, and in approving the merger agreement, First Priority’s board of directors consulted with executive management, its financial advisor and its legal counsel, and considered a number of factors, including, among others, the following, which are not presented in any order of priority:

 

    the consideration and related exchange ratio offered by Mid Penn represents an attractive premium or multiple to First Priority’s tangible common equity and core deposits at September 30, 2017, its earnings for the twelve-month period ended September 30, 2017, and its closing price on January 12, 2018, based on various analyses provided by Griffin;

 

    the transaction is an all-stock transaction with a fixed exchange ratio, thereby permitting First Priority common shareholders to realize the benefits of any increases in value of Mid Penn common stock before and after closing of the transaction, especially in light of the anticipated qualification of Mid Penn common stock for the Russell 2000 Index during 2018, and the potential financial and operational benefits expected in connection with Mid Penn’s acquisition of Scottdale Bank & Trust;

 

    on a pro forma combined basis, the transaction is estimated to be accretive to earnings per share in the first full year after completion of the transaction;

 

    on a pro forma combined basis, the transaction is estimated to be accretive to book value per share within three years after completion of the transaction;

 

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    the understanding of First Priority’s board of directors of the strategic options available to First Priority and the board of directors’ assessment of those options taking into account a number of factors, including the obstacles confronting a relatively smaller community financial institution to grow organically in First Priority’s markets, and the decreasing number of smaller acquisition candidates available on acceptable terms to achieve appropriate size and scale;

 

    the challenges facing community financial institutions in growing a franchise and enhancing shareholder value on a standalone basis given current market and operating conditions, including increased costs resulting from the continuing need to invest in technology and regulatory compliance, continued pressure on net interest margins resulting from competition and other factors, and anticipated challenges in funding continued loan growth in First Priority’s market area through core deposits or otherwise;

 

    the board’s view that the relative size of a financial institution and related economies of scale, beyond the level it believed to be reasonably achievable by First Priority on an independent basis, was becoming increasingly important to continued success in the current and expected future financial services operating environment;

 

    based on the pro forma combined company’s size, scale, asset quality and sound capital levels, the combined company should be more competitive in terms of organic growth and acquisition opportunities;

 

    based on discussions that First Priority’s management and its financial advisor had with potential business combination partners during 2016 and 2017, the board’s belief that the transaction offered by Mid was more attractive in its entirety than what other potential acquirers had preliminarily indicated;

 

    the pro forma capital position of the combined company, and the fact that Mid Penn would be considered “well capitalized” after completing the transaction;

 

    the lower cost of Mid Penn’s deposits and its lower loan to deposit ratio, particularly after giving effect to the Scottdale acquisition, thereby permitting decreased reliance on wholesale funding and brokered deposits in connection with the combined companies lending activities in First Priority’s markets;

 

    the perceived relative value and potential future value of the Mid Penn common stock consideration;

 

    the ability of Mid Penn to complete a merger transaction from a financial and regulatory perspective;

 

    the geographic diversification to the markets of both companies resulting from the transaction, allowing First Priority access to central and western Pennsylvania markets and allowing Mid Penn access to southeastern Pennsylvania markets;

 

    Mid Penn’s business, operations, financial condition, asset quality, earnings and prospects, taking into account the results of First Priority’s due diligence review of Mid Penn, including Mid Penn’s strong historical financial performance against peers;

 

    the historical stock market performance for First Priority and Mid Penn common stock;

 

    the cash dividend rate payable on Mid Penn common stock, and the fact that First Priority has never paid a common stock cash dividend;

 

    the fact that Mid Penn common stock is currently quoted on the Nasdaq Stock Market, which, coupled with the significantly greater market capitalization of the combined company at over $300 million, and the anticipated qualification of Mid Penn common stock for the Russell 2000 Index during 2018, should result in increased liquidity for First Priority shareholders;

 

    the terms of the merger agreement, including the representations and warranties of the parties, the covenants of the parties, the merger consideration, and the benefits to First Priority’s employees;

 

   

the opinion and supporting financial analyses presented by Griffin to the First Priority board of directors to the effect that, as of the date of the opinion, and subject to and based on the qualifications

 

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and assumptions set forth in the opinion, the merger consideration provided for in the merger agreement is fair, from a financial point of view, to the common equity shareholders of First Priority;

 

    the commitment by Mid Penn to (i) elect four current directors of First Priority to the boards of directors of Mid Penn and Mid Penn Bank as of closing with each director renominated for at least one additional three-year term and (ii) appoint David E. Sparks, First Priority’s Chief Executive Officer, as Chief Strategic Advisor to the Chief Executive Officer of Mid Penn and Mid Penn Bank and as President of the First Priority Division of Mid Penn Bank, thereby retaining a level of influence over future strategic direction of the combined entity;

 

    the commitment by Mid Penn to mitigate the potential disruption that can be caused by a merger by continuing to operate the First Priority franchise as a separate division of Mid Penn Bank following the merger;

 

    the process conducted by First Priority’s management and financial advisor during the period from 2015 through 2017 to identify potential business combination partners and to discuss preliminary levels of interest and, in some cases, terms with such parties; and

 

    the likelihood of expeditiously obtaining the necessary regulatory approvals without unusual or burdensome conditions.

First Priority’s board of directors also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including, without limitation, the following:

 

    because the transaction is structured as a fixed exchange ratio, the possibility that the trading price of the Mid Penn common stock could decline prior to completion of the merger such that the value of the merger consideration received by First Priority shareholders at closing and thereafter could be less than the value at the time of the merger agreement;

 

    Mid Penn’s current stock market structure having a high retail to institutional investor mix and relatively low average daily trading volume, although the board observed that the combined company should have a market capitalization in excess of $300 million and a significantly improved average daily trading volume, including anticipated qualification of Mid Penn common stock for the Russell 2000 Index during 2018, which could significantly mitigate any shareholder liquidity concerns

 

    the potential risk of the need to divert management attention and resources from the operation of First Priority’s business and towards the completion of the merger;

 

    the restrictions on the conduct of First Priority’s business after signing the merger agreement and before completion of the merger, which are customary for public company merger agreements involving financial institutions, but which, subject to specific exceptions, could delay or prevent First Priority from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of First Priority absent the pending merger;

 

    the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating First Priority’s business, operations and workforce with those of Mid Penn;

 

    the merger-related costs;

 

    that the interests of certain of First Priority’s directors and executive officers may be different from, or in addition to, the interests of First Priority’s other shareholders as described under the heading “Interests of First Priority’s Directors and Executive Officers in the Merger;

 

    the risk that the conditions to the parties’ obligations to complete the merger agreement may not be satisfied, including the risk that necessary regulatory approvals or necessary shareholder approvals might not be obtained and, as a result, the merger may not be consummated;

 

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    the risk of potential employee attrition and/or adverse effects on business and customer relationships as a result of the pending merger;

 

    that First Priority would be prohibited from affirmatively soliciting acquisition proposals after execution of the merger agreement and that it would be obligated to pay to Mid Penn a termination fee if the merger agreement is terminated under certain circumstances, which may discourage other parties potentially interested in a strategic transaction with First Priority from pursuing such a transaction; and

 

    the other risks described under the heading “Risk Factors.”

The foregoing discussion of the information and factors considered by the board of directors of First Priority is not intended to be exhaustive, but includes the material factors considered by the board of directors of First Priority. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the board of directors of First Priority did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The board of directors of First Priority considered all these factors as a whole, including discussions with, and questioning of First Priority’s management and First Priority’s independent financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

First Priority shareholders should be aware that First Priority’s directors and executive officers have interests in the merger that are different from, or in addition to, those of other First Priority shareholders. The board of directors of First Priority was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, and in recommending that the Merger Proposal be approved by the shareholders of First Priority. See “—Interests of First Priority’s Directors and Executive Officers in the Merger.

This summary of the reasoning of the board of directors of First Priority and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Forward-Looking Statements.”

Recommendation of First Priority’s Board of Directors

First Priority’s board of directors believes that the terms of the transaction are in the best interests of First Priority and its shareholders and has unanimously approved the merger agreement. Accordingly, First Priority’s board of directors unanimously recommends that First Priority’s shareholders vote “FOR” adoption of the merger agreement and “FOR” an adjournment of the First Priority special meeting, if necessary, to solicit additional proxies.

Opinion of First Priority’s Financial Advisor

First Priority engaged Griffin to serve as its financial advisor in connection with a potential business combination with Mid Penn in late December 2017. Griffin is a nationally recognized, Financial Industry Regulatory Authority-licensed investment banking firm which is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. First Priority hired Griffin on the basis of Griffin’s qualifications and experience in transactions similar to the merger to provide its opinion as to the fairness, from a financial point of view, of the merger consideration (as defined in the following sentence), to the common equity shareholders of First Priority in connection with the proposed merger of Mid Penn and First Priority. Pursuant to the merger agreement, each of the issued and outstanding shares of First Priority will be exchanged for the right to receive 0.3481 shares of Mid Penn’s common stock on a fixed exchange basis, subject to adjustments and limitations described in the merger agreement (the merger consideration).

At a meeting of the First Priority board of directors held on January 16, 2018 to evaluate the proposed merger with Mid Penn, Griffin reviewed the financial aspects of the proposed merger and provided its opinion to First

 

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Priority’s board that, as of such date, and subject to factors, qualifications, limitations and assumptions set forth in the opinion, the merger consideration in connection with the proposed merger was fair, from a financial point of view, to the common equity shareholders of First Priority.

The full text of Griffin’s written opinion is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. First Priority’s shareholders are urged to read the opinion in its entirety for a description of the assumptions made, matters considered, procedures followed and qualifications and limitations on the review undertaken by Griffin. Griffin’s opinion is subject to the assumptions and conditions contained in its opinion and is necessarily based on economic, market and other conditions as in effect on, and the information made available to Griffin as of, the date of its opinion. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion.

Griffin’s opinion speaks only as of the date of the opinion. The opinion is addressed to the First Priority board of directors and is limited to the fairness, from a financial point of view, of the merger consideration in connection with the merger, to the common equity shareholders of First Priority. Griffin does not express an opinion as to the underlying decision by First Priority to engage in the merger or the relative merits of the merger compared to other strategic alternatives which may be available to First Priority.

In providing its opinion, Griffin, among other things:

 

    reviewed a draft of the merger agreement;

 

    reviewed and discussed with First Priority its financial information as of and for the twelve months ended December 31, 2017 and December 31, 2016;

 

    reviewed and discussed with Mid Penn its financial information as of and for the twelve months ended December 31, 2017 and December 31, 2016, including 2017 financial information giving pro forma effect to its acquisition of Scottdale Bank & Trust (“Scottdale”);

 

    reviewed and discussed with management of First Priority and Mid Penn their respective balance sheet growth and earnings for 2017, as well as adjustments required by federal tax law changes, and growth trends for assets, loans, deposits, capital and earnings for future periods;

 

    analyzed and discussed with First Priority and Mid Penn their respective views of the potential strategic implications and operational benefits of the merger anticipated by the managements of First Priority and Mid Penn;

 

    discussed with the management of First Priority and Mid Penn matters relating to their respective financial condition, liquidity, net income, asset quality, reserve levels, capital adequacy, regulatory status, and stock market structure including investor mix;

 

    reviewed and discussed with First Priority certain publicly available business and financial information concerning First Priority and Mid Penn pro forma with Scottdale and the economic and regulatory environments in which they operate;

 

    discussed with Mid Penn the average daily trading of its common stock, the probability of its inclusion in the Russell 2000 in 2018 and related expectations for valuation and liquidity, and related matters;

 

    held discussions with certain members of the management of First Priority and Mid Penn with respect to certain aspects of the merger, including past and current business operations, regulatory relations, financial condition, dividend and capital policies, opportunities within each of their core operating markets, and other matters as deemed appropriate by Griffin;

 

    discussed with management of First Priority and Mid Penn their respective forecasts and related assumptions for future growth and their respective estimates of cost savings and transaction costs associated with the merger;

 

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    compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving whole bank and thrift acquisitions as deemed relevant by Griffin;

 

    compared the financial condition and implied valuation of First Priority and Mid Penn to the financial condition and performance and valuation of certain institutions deemed relevant by Griffin;

 

    performed a relative contribution analysis;

 

    evaluated, from publicly available sources and discussions with the management of Mid Penn, the capacity of Mid Penn to complete the merger on a timely basis;

 

    evaluated and compared Mid Penn’s market structure, stock market performance, ownership concentrations, common dividend, and trading history of its common stock to certain institutions deemed relevant by Griffin;

 

    performed a pro forma transaction analyses combining projected balance sheet and income statement information for First Priority and Mid Penn;

 

    performed discounted cash flow analyses; and

 

    performed such other financial studies and analyses and considered such other information as deemed appropriate for the purpose of its opinion.

Griffin’s opinion has been approved by its fairness opinion committee in conformity with its policies and procedures established under the requirement of Rule 5150 of the Financial Industry Regulatory Authority. In conducting its review and providing its opinion, Griffin assumed and relied upon the accuracy and completeness of all information furnished to, discussed with, or reviewed by it or otherwise publicly available. Griffin did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification or accuracy. Griffin did not review individual loan files or deposit information of First Priority or Mid Penn, nor did Griffin conduct or was Griffin provided with any valuation or appraisal of any assets, deposits or other liabilities of First Priority or Mid Penn. Griffin is not an expert in the evaluation of loan portfolios for purposes of assessing the adequacy of the allowance for losses with respect thereto, and accordingly, Griffin assumed that such allowances for losses are adequate. In relying on financial analyses and financial projections provided to or discussed with Griffin by First Priority or Mid Penn or derived therefrom, Griffin assumed that such analyses and projections have been reasonably prepared based on assumptions reflecting the best currently available information and judgments by management. Griffin expresses no view as to such analyses, forecasts, estimates, or the assumptions on which they were based. Griffin’s review of Mid Penn and its ability to complete the merger was limited to publicly available information, certain management information and discussions with the management of Mid Penn regarding the past and current business operations, financial condition and future prospects of Mid Penn. Griffin is not a legal, regulatory, or tax expert and has relied on the assessments made by advisors to First Priority with respect to such issues.

For purposes of providing its opinion, Griffin assumed that, in all respects material to its analysis:

 

    the representations and warranties of each party in the draft merger agreement are true and correct;

 

    each party to the merger agreement will perform all of the covenants and agreements required to be performed by such party under such agreement in a manner that will not give Mid Penn or First Priority the ability to terminate the merger agreement or decline to close under the merger agreement;

 

    all conditions to the completion of the merger, including required approvals by federal and state banking regulators and by the shareholders of First Priority and the shareholders of Mid Penn, will be satisfied in a manner that will not give Mid Penn or First Priority the ability to terminate the merger agreement or decline to close under the merger agreement;

 

    all material governmental, regulatory, stockholder and any other consents and approvals necessary for the completion of the merger will be obtained without any adverse effect to First Priority or Mid Penn or to the contemplated benefits of the merger; and

 

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    the merger will be completed substantially in accordance with the terms set forth in the draft merger agreement provided to Griffin.

Griffin’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Subsequent developments may affect Griffin’s opinion, and Griffin does not have any obligation to update, revise, confirm or reaffirm its opinion. Griffin’s opinion is limited to the fairness, from a financial point of view, to the common equity shareholders of First Priority with regards to the merger consideration to be received by the common equity shareholders of First Priority in the merger as of the date of the opinion. Griffin expressed no opinion as to the fairness of the merger as of any subsequent date or to creditors or other stakeholders of First Priority or as to the underlying decision by First Priority to engage in the merger, the relative merits of the merger compared to other merger transactions available to First Priority, or the relative merits of the merger compared to other strategic alternatives that may be available to First Priority. Griffin did not, and was not asked to, contact any other interested parties other than those specifically indicated by the First Priority board of directors. Furthermore, Griffin did not take into account, and expresses no opinion with respect to, the amount or nature of any bonuses and any other compensation or consideration to any officers, directors, or employees of First Priority or Mid Penn paid or payable by reason or as a result of the merger.

The forecasts, projections and estimates of First Priority and Mid Penn prepared and provided to Griffin by the management of First Priority and Mid Penn, respectively, were not prepared with the expectation of public disclosure. All such information was based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such forecasts, projections and estimates. Griffin assumed, based on discussions with the management of First Priority and Mid Penn, respectively, and at the direction of and with the consent of the First Priority board of directors, that all such forecasts, projections and estimates referred to above provided a reasonable basis upon which Griffin could form its opinion and Griffin expressed no view as to any such information or the assumptions or bases therefor. Griffin relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

The preparation of the fairness opinion is a comprehensive and complex analytical process, involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In accordance with customary investment banking practice, Griffin employed generally accepted valuation methods in reaching its opinion. Estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. The following is a summary of the material financial analyses undertaken by Griffin and presented by Griffin to the First Priority board of directors in connection with rendering Griffin’s opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by Griffin or the presentation made by Griffin to the board of directors. In arriving at its opinion, Griffin did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized within include information presented in tabular format. Accordingly, Griffin believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses.

 

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Summary of Proposal for Purposes of the Fairness Opinion

Pursuant to the merger agreement by and between First Priority and Mid Penn, at the effective time of the merger, First Priority will merge with and into Mid Penn, and each issued and outstanding share of First Priority’s common stock, other than shares held in treasury or owned by Mid Penn and its affiliates, will be exchanged for the right to receive 0.3481 shares of Mid Penn’s common stock, subject to adjustments and limitations described in the merger agreement. Shareholders of First Priority are expected to own 27.4% of Mid Penn following completion of the merger. Using the Mid Penn volume weighted average trading price of $35.42 on January 12, 2018, the merger consideration is equal to $12.33 per share, which is $81.8 million in the aggregate and represents 183.7% of First Priority’s tangible common equity at December 31, 2017, 30.8 times First Priority’s earnings for the twelve-month period ended December 31, 2017, an 11.7% tangible common equity premium to core deposits, and a 37% premium to First Priority’s closing price on January 12, 2018 of $9.00.

Acquirer Market Price and Selected Companies Analysis

Using publicly available information, Griffin reviewed the market price and market structure of Mid Penn. Shares of Mid Penn’s common stock are listed on The NASDAQ Capital Market. Griffin identified the following information as of January 12, 2018.

 

52-week high (January 12, 2018)

   $ 37.80  

52-week low (February 1, 2017)

   $ 24.25  

Average daily trading volume during last 52 weeks

     1,953  

Price/Last Trailing Twelve Months (“LTM”) Earnings per Share (“EPS”) (x)

     18.4  

Price/Book Value (%)

     205.5  

Price/Tangible Book Value (“TBV”) (%)

     217.4  

Dividend Yield (%)

     1.39  

Using publicly available information, Griffin compared the financial performance and condition of Mid Penn to publicly traded banks, thrifts and bank holding companies headquartered in Pennsylvania with between $1.0 billion and $2.0 billion in total assets, return on average assets (“ROAA”) greater than 0.70%, and average daily trading volume of at least 1,000 shares during the last three months. Companies included in this group were:

 

ACNB Corporation    DNB Financial Corporation    Penns Woods Bancorp, Inc.
Citizens & Northern Corporation    Franklin Financial Services Corporation    QNB Corp.
Codorus Valley Bancorp, Inc.    Norwood Financial Corp.   

 

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To perform this analysis, Griffin used financial information as of September 30, 2017 or the most recently available quarter, and market price information as of January 12, 2018, as reported by SNL Financial. Griffin’s analysis showed the following concerning Mid Penn’s and its peers’ financial condition, risk profile, valuation and liquidity:

 

            Est. MPB
Pro Forma
for Scottdate
     Peers  
     MPB         Average      Median  

Offices

     24        29        24        26  

Total Assets ($000)

     1,153,373        1,429,715        1,309,489        1,212,735  

NPAs & 90+ PD/ Assets (%)

     0.74        0.60        0.99        0.95  

Core Deposits/ Total Deposits (%)

     92.57        93.88        93.61        95.29  

ROAA (%)

     0.81           0.94        0.90  

ROAE (%)

     11.76           8.99        9.01  

Tang Common Equity/ Tang Assets (%)

     6.37        8.11        9.66        9.09  

Avg Daily Volume (3 mo)

     1,953           9,486        9,265  

Price/ Tangible Book (%)

     217.4        200.5        164.5        163.7  

Price/ Last-twelve-months EPS (x)

     18.4           17.3        17.7  

No company used as a comparison in the above analysis is identical to Mid Penn. Accordingly, an analysis of these results is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and of the banking environment at the time of the opinion.

Acquirer Discounted Cash Flow Analysis

Griffin performed a discounted cash flow analysis to estimate a range of the present value of estimated free cash flows that Mid Penn could generate on a stand-alone basis. In performing this analysis, Griffin utilized the following assumptions, among others:

 

    growth and earnings assumptions for Mid Penn from Mid Penn management, which were pro forma for the Scottdale acquisition and utilized an effective tax rate of 15.4%;

 

    a required capitalization level of 8.0% tangible common equity/tangible assets;

 

    earnings in excess of required capital retention are distributed to shareholders;

 

    discount rates ranging from 11% to 14% based on Mid Penn’s estimated cost of equity capital; and

 

    a projected terminal trading value multiple range of 160% to 200% of Mid Penn’s forecasted 2023 required tangible book value.

These calculations resulted in a range of implied valuations for Mid Penn between $26.87 per share and $36.63 per share. The discounted cash flow present value analysis is a widely used valuation methodology that relies on numerous assumptions, including asset and earnings growth rates, terminal values and discount rates and is not necessarily indicative of the actual value or expected value of Mid Penn.

 

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First Priority Selected Companies Analysis

Using publicly available information, Griffin compared the financial performance and condition of First Priority to publicly traded banks, thrifts and bank holding companies headquartered in Pennsylvania, New Jersey, Delaware and Maryland with between $400 million and $1.0 billion in total assets, ROAA for the last twelve months between 0.20% and 0.80%, NPAs as a percentage of total assets less than 3.0%, and average daily trading volume of at least 500 shares during the last three months. Companies included in this group were:

 

1st Colonial Bancorp, Inc.    Highlands Bancorp, Inc.    York Traditions Bank
Bancorp of New Jersey, Inc.    Stewardship Financial Corporation   
Emclaire Financial Corp    Sussex Bancorp   

To perform this analysis, Griffin used financial information as of September 30, 2017 or the most recently available quarter, and market price information as of January 12, 2018, as reported by SNL Financial. Griffin’s analysis showed the following concerning First Priority’s and its peers’ financial condition, risk profile, valuation and liquidity:

 

            National Peers  
     FPBK      Average      Median  

Total Assets (000)

     612,033        701,148        773,940  

LTM Gross Loan HFI Growth

     2.17        14.97        14.78  

NPAs & 90+ PD/ Assets (%)

     0.37        1.00        0.84  

Core Deposits/ Total Deposits (%)

     71.44        89.34        89.15  

ROAA (%)

     0.52        0.68        0.69  

ROAE (%)

     6.11        8.90        8.81  

Tang Common Equity/ Tang Assets (%)

     7.25        8.20        8.14  

Avg Daily Volume (3 mo)

     5,050        4,372        2,340  

Price/ Tangible Book (%)

     134.1        141.3        139.4  

Price/ Last-twelve-months EPS (x)

     22.5        16.6        14.6  

No company used as a comparison in the above analysis is identical to First Priority. In addition, Griffin presumed that the trading valuations for peers exclude any change in control premium. Accordingly, an analysis of these results is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and of the banking environment at the time of the opinion.

Selected Transactions Analysis

Griffin reviewed publicly available information as reported by SNL Financial related to acquisitions announced since January 1, 2017 of banks, thrifts and bank holding companies headquartered in Delaware, Maryland, New Jersey, New York, Pennsylvania, and Virginia with between $300 million and $1.0 billion in total assets and ROAA for the last twelve months of less than 1.00%.

Regional Selected Transactions

 

Acquirer    Acquiree
Howard Bancorp Inc.    1st Mariner Bank
Old Line Bancshares Inc    Bay Bancorp Inc.
Riverview Financial Corp.    CBT Financial Corp.
Sussex Bancorp    Community Bk of Bergen County
Old Line Bancshares Inc    DCB Bancshares Inc.

 

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Griffin also reviewed publicly available information as reported by SNL Financial related to acquisitions announced since January 1, 2017 of banks, thrifts and bank holding companies nationwide with between $400 million and $1.0 billion in total assets and LTM ROAA between 0.00% and 0.80%.

Nationwide Selected Transactions

 

Acquirer    Acquiree
First Mid-Illinois Bancshares    First BancTrust Corp.
FCB Financial Holdings Inc.    Floridian Community Hldgs Inc.
Riverview Financial Corp.    CBT Financial Corp.
Ameris Bancorp    Atlantic Coast Financial Corp.
Midland States Bancorp Inc.    Centrue Financial Corporation
Old Line Bancshares Inc    Bay Bancorp Inc.
Washington Federal Inc.    Anchor Bancorp
CenterState Bank Corp.    Sunshine Bancorp Inc
First Bancorp    ASB Bncp Inc

For each transaction referred to above, Griffin derived and compared, among other things, the following implied ratios:

 

  1. Price per common share paid for the acquired company to last twelve months earnings per share of the acquired company based on the latest publicly available financial statements of the company available prior to the announcement of the acquisition;

 

  2. Price per common share paid for the acquired company to tangible common equity per share of the acquired company based on the latest publicly available financial statements of the company available prior to the announcement of the acquisition; and

 

  3. Aggregate deal value paid for the acquired company in excess of the company’s tangible book as a ratio to the core deposits of the company based on the latest publicly available financial statements of the company available prior to the announcement of the acquisition.

The results of the analysis are set forth in the following table:

 

            Regional
Selected Transactions
     National
Selected Transactions
 
     FPBK      Average      Median      Average      Median  

Target Financials

              

Total Assets ($000)

     612,033        555,221        488,060        696,580        645,940  

Prior Calendar Year Loan Growth (%)

     2.17        8.23        11.67        23.52        14.58  

TCE/TA (%)

     7.25        7.79        8.12        10.58        10.10  

NPAs/Total Assets (%)

     0.37        1.68        2.07        1.36        1.21  

LTM ROAA (%)

     0.55        0.39        0.49        0.56        0.64  

LTM ROAE (%)

     6.44        4.13        5.43        5.15        5.34  

Deal Value/Deal Ratios

              

Deal Value ($ in millions)

     85.7        85.5        49.2        119.7        127.7  

Deal Value/LTM Earnings (x)

     30.8        28.3        29.0        31.5        29.9  

Deal Value/TCE (%)

     183.7        150.1        158.2        157.1        160.5  

Premium/Core Deposits (%)

     11.7        8.6        7.0        8.9        9.7  

No company or transaction used as a comparison in the above analyses is identical to First Priority or the merger. Accordingly, an analysis of these results is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies, of the banking environment at the time of the opinion, and the expected impact of tax reform on transaction valuation multiples.

 

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Discounted Cash Flow Analysis

Griffin performed a discounted cash flow analysis to estimate a range of the present value of estimated free cash flows that First Priority could generate on a stand-alone basis. In performing this analysis, Griffin utilized the following assumptions, among others:

 

    growth and earnings assumptions for First Priority from First Priority management which utilized an effective tax rate of 20%;

 

    a required capitalization level of 8.0% TCE/TA;

 

    earnings in excess of required capital retention are distributed to shareholders;

 

    discount rates ranging from 11% to 14% based on First Priority’s’s estimated cost of equity capital; and

 

    a projected terminal sale value multiple range of 160% to 200% of First Priority’s forecasted 2023 required tangible book value.

These calculations resulted in a range of implied valuations for First Priority between $8.80 per share and $12.75 per share. The discounted cash flow present value analysis is a widely used valuation methodology that relies on numerous assumptions, including asset and earnings growth rates, terminal values and discount rates and is not necessarily indicative of the actual value or expected value of First Priority.

Financial Impact Analysis

Griffin performed pro forma transaction analyses that combined projected balance sheet and projected income statement information for First Priority and Mid Penn. Growth, earnings estimates and other assumptions (including, without limitation, purchase accounting adjustments, cost savings and related expenses) were provided by First Priority and Mid Penn. The analyses indicated that the merger is expected to be dilutive to Mid Penn’s projected tangible book value per common share and accretive to Mid Penn’s projected earnings per common share, and that Mid Penn is expected to maintain well-capitalized capital ratios but each of Mid Penn’s tangible common equity to tangible assets ratio, leverage ratio, Tier 1 common equity ratio, Tier 1 risk-based capital ratio and total risk based capital ratio as of December 31, 2017 could be lower at the closing of the merger than on a stand-alone basis. Actual results are expected to be different from the assumptions used and the projected results, and these differences may be material.

Contribution Analysis

Griffin reviewed relative financial information relating to First Priority and Mid Penn to understand the relative contribution of net assets and operations to the combined entity. Relative contribution amounts are as follows:

 

     Mid Penn     First Priority  

Market Capitalization *

     79.5     20.5

Total Assets *

     70.0     30.0

Total Net Loans *

     65.4     34.6

Total Deposits *

     71.3     28.7

Common Equity *

     73.8     26.2

Tangible Common Equity *

     72.2     27.8

Net Income to Common (LTM)

     76.3     23.7

Net Income to Common (YTD)

     76.4     23.6

 

* MPB amounts are adjusted for the estimated impact of the Scottdale transaction

Based on the exchange ratio, Mid Penn shareholders will own 72.6% of the combined company, and former First Priority shareholders will own 27.4% of the combined company.

 

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The summary set forth above is not a complete description of the analyses and procedures performed by Griffin in the course of arriving at its opinion.

As part of its investment banking business, Griffin is, from time to time, engaged in the valuation of bank and bank holding company securities in connection with mergers and acquisitions, public and private placement of listed and unlisted securities, rights offerings and other forms of valuations for various purposes. As specialists in the securities of banking companies, Griffin has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of its business as a broker-dealer, Griffin may, from time to time, purchase securities from, and sell securities to, First Priority and Mid Penn. As a market maker in securities, Griffin may from time to time have a long or short position in, and buy or sell, debt or equity securities of institutions like and possibly including First Priority and Mid Penn for Griffin’s own account and for the accounts of its customers. To the extent Griffin held any such positions, it was disclosed to First Priority and Mid Penn.

Pursuant to Griffin’s engagement letter, First Priority agreed to pay Griffin a fee of $750,000 contingent on the completion of the merger. First Priority has agreed to reimburse Griffin for reasonable out of pocket expenses incurred in connection with Griffin’s engagement and to indemnify and hold harmless its partners, officers, directors, employees, agents and controlling persons from and against all losses, claims, judgments, liabilities, costs, damages and expenses based upon or arising from Griffin’s engagement. During the two years preceding the date of its opinion to First Priority, Griffin received $1,098.74 in expense reimbursements relating to an advisory engagement which expired in March of 2016. During the two years preceding the date of its opinion to First Priority, Griffin did not receive compensation for investment banking services from Mid Penn.

Stevens & Lee, which is the regular corporate counsel to First Priority, and Griffin are affiliated. Stevens & Lee has provided legal services as corporate counsel to Mid Penn, which is represented by other counsel in the merger.

Mid Penn’s Reasons for the Merger

The board of directors and senior management of Mid Penn periodically review and evaluate the economic and regulatory environments in which Mid Penn and its affiliated companies operate. Part of this review in recent years has included an acknowledgement of the effects of additional oversight and regulation on revenues, expenses and capital requirements for financial institutions, particularly community banks, as a result of the passage in 2010 of the Dodd-Frank Act and other factors, and consideration of competitive factors. The board of directors and senior management generally believe that greater size and scale can help a community-oriented financial institution address the costs of anticipated additional regulation, as well as provide additional revenue opportunities and provide a platform to compete more effectively with larger financial institutions. In light of these observations, Mid Penn has elected to pursue a controlled growth strategy, which may include both organic growth and the targeted acquisition of other financial institutions with strong performance characteristics in alignment with Mid Penn’s community banking philosophy.

Mid Penn entered into the merger agreement to further implement this strategy, as well as to provide additional opportunities for revenue growth. Mid Penn’s board of directors reviewed and discussed the transaction with senior management, as well as its financial and legal advisors, in unanimously determining that the merger was advisable and in the best interests of Mid Penn. In reaching its determination, the Mid Penn board of directors considered a number of factors, including:

 

    the board’s understanding of the business operations, management, financial condition, asset quality, product offerings, and prospects of First Priority based on, among other things, presentations by management and Mid Penn’s financial advisor;

 

   

the board’s concurrence with management that the merger provides Mid Penn with increased scale and will serve to extend Mid Penn’s presence into the demographically attractive Southeastern

 

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Pennsylvania markets that Mid Penn believes will be receptive to its services, strengthens Mid Penn’s retail banking network, and provides a broader platform to sell non-banking services;

 

    the board’s view that First Priority’s product offerings and business mix are compatible with those of Mid Penn and provide Mid Penn with opportunities to accelerate loan growth and to build upon the market share of secondary market loan generations, as well as opportunities to expand Mid Penn’s insurance, wealth management, and mortgage banking activities;

 

    the merger presents the opportunity to more readily deploy the excess capital and liquidity generated by the Scottdale acquisition;

 

    the fact that the transaction will be immediately accretive to earnings per share (exclusive of one-time merger expenses) and is expected to have a tangible book value dilution earn back period of less than 3 years;

 

    the fact that talented and experienced executives of First Priority will bring their industry and market knowledge to Mid Penn;

 

    the board’s view that First Priority, like Mid Penn, is focused on customer service and building relationships in local communities;

 

    the fact that as a result of the transaction and the merger with Scottdale, Mid Penn is expected to become the ninth largest publicly traded, Pennsylvania headquartered depository institution having less than $10 billion in assets;

 

    the results of the due diligence examination of First Priority and its business operations, including asset quality and composition of its investment portfolio, undertaken by management with the assistance of Mid Penn’s financial advisor;

 

    the board’s view that the combined company will have the potential for a stronger competitive position in a market place where relatively greater size and scale may become increasingly more important factors for financial performance and success;

 

    the board’s view that the combined company will increase shareholder value and enhance shareholder returns;

 

    the financial information and analyses presented by Mid Penn’s financial advisor, Sandler, and the opinion of Sandler delivered to Mid Penn’s board of directors to the effect that, as of January 16, 2018, and based on and subject to the various factors, limitations, considerations, qualifications and assumptions set forth in the opinion, the merger consideration was fair, from a financial point of view, to Mid Penn; and

 

    the review by the board of directors with Pillar+Aught, its legal advisor, of the structure of the merger and the financial and other terms of the merger agreement.

The foregoing discussion of the information and factors considered by Mid Penn’s board of directors is not exhaustive, but includes the material factors considered by the board. In view of the wide variety of factors considered by the board of directors of Mid Penn in connection with its evaluation of the merger and the complexity of these matters, the board of directors did not consider it practical to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. Mid Penn’s board of directors evaluated the factors described above, including asking questions of Mid Penn’s legal and financial advisors. In considering the factors described above, individual members of Mid Penn’s board of directors may have given different weights to different factors. The board of directors relied on the experience and expertise of its legal advisors regarding the structure of the merger and the terms of the merger agreement and on the experience and expertise of its financial advisors for quantitative analysis of the financial terms of the merger. It should also be noted that this explanation of the reasoning of Mid Penn’s board of directors and certain other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements” on page [●].

 

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Recommendation of Mid Penn’s Board of Directors

Mid Penn’s board of directors believes that the terms of the transaction are in the best interests of Mid Penn and has unanimously approved the merger agreement. Accordingly, Mid Penn’s board of directors unanimously recommends that Mid Penn shareholders vote “FOR” adoption of the merger agreement and “FOR” an adjournment of the Mid Penn special meeting, if necessary to solicit additional proxies.

Opinion of Mid Penn’s Financial Advisor

By letter dated January 4, 2018, Mid Penn retained Sandler to render a fairness opinion to the Mid Penn board of directors in connection with Mid Penn’s consideration of a possible business combination with First Priority. Sandler is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler rendered a fairness opinion in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the January 16, 2018 meeting at which Mid Penn’s board of directors considered and approved the merger agreement, Sandler delivered to the Mid Penn board of directors its oral opinion, which was subsequently confirmed in writing, to the effect that, as of such date, the exchange ratio provided for in the merger agreement was fair to Mid Penn from a financial point of view.

The full text of Sandler’s opinion is attached as Annex C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Mid Penn common shareholders are urged to read the entire opinion carefully in connection with their consideration of the Mid Penn merger proposal.

Sandler’s opinion speaks only as of the date of the opinion. The opinion was directed to Mid Penn’s board of directors in connection with its consideration of the merger and is directed only to the fairness, from a financial point of view, of the exchange ratio to Mid Penn. Sandler’s opinion does not constitute a recommendation to any Mid Penn shareholder as to how such Mid Penn shareholder should vote at any meeting of shareholders called to consider and vote upon the Mid Penn merger proposal. It does not address the underlying business decision of Mid Penn to engage in the merger, the form or structure of the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Mid Penn or the effect of any other transaction in which Mid Penn might engage. Sandler did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any Mid Penn or First Priority officers, directors, or employees, or class of such persons, if any, relative to the compensation to be received in the merger by any other shareholders. Sandler’s opinion was approved by Sandler’s fairness opinion committee.

In connection with rendering its opinion, Sandler reviewed and considered, among other things:

 

    a draft of the merger agreement, dated January 14, 2018;

 

    certain publicly available financial statements and other historical financial information of Mid Penn that Sandler deemed relevant;

 

    certain publicly available financial statements and other historical financial information of First Priority that Sandler deemed relevant;

 

    certain internal financial projections for Mid Penn for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of Mid Penn;

 

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    certain internal financial projections for First Priority for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of First Priority and confirmed with the senior management of Mid Penn;

 

    the pro forma financial impact of the merger on Mid Penn based on certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, as well as the redemption of First Priority’s outstanding preferred stock prior to closing of the merger, as provided by the senior management of Mid Penn;

 

    the publicly reported historical price and trading activity for Mid Penn common stock and First Priority common stock, including a comparison of certain stock trading information for Mid Penn common stock and First Priority common stock and certain stock indices, as well as similar publicly available information for certain other companies, the securities of which are publicly traded;

 

    a comparison of certain financial information for Mid Penn and First Priority with similar institutions for which information is publicly available;

 

    the financial terms of certain recent business combinations in the bank and thrift industry (on a regional and nationwide basis), to the extent publicly available;

 

    the current market environment generally and the banking environment in particular; and

 

    such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler considered relevant.

Sandler also discussed with certain members of the senior management of Mid Penn the business, financial condition, results of operations and prospects of Mid Penn and held similar discussions with the senior management of First Priority and its representatives regarding the business, financial condition, results of operations and prospects of First Priority.

In performing its review, Sandler relied upon the accuracy and completeness of all of the financial and other information that was available to Sandler from public sources, that was provided to Sandler by Mid Penn, First Priority or their respective representatives, or that was otherwise reviewed by Sandler and Sandler assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Sandler further relied on the assurances of the respective senior managements of Mid Penn and First Priority that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading in any material respect. Sandler was not asked to and did not undertake an independent verification of any of such information and Sandler did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Mid Penn or First Priority. Sandler rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of Mid Penn or First Priority. Sandler did not make an independent evaluation of the adequacy of the allowance for loan losses of Mid Penn or First Priority, or the combined entity after the merger, and Sandler did not review any individual credit files relating to Mid Penn or First Priority. Sandler assumed, with Mid Penn’s consent, that the respective allowances for loan losses for both Mid Penn and First Priority were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler used certain internal financial projections for Mid Penn for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of Mid Penn. In addition, Sandler used certain internal financial projections for First Priority for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of First Priority and confirmed with the senior management of Mid Penn. Sandler also received and used in its pro forma analyses certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, as well as the redemption of First Priority’s outstanding preferred stock prior to closing of the merger, as provided by the senior management of Mid Penn. With respect to the foregoing information, the senior managements of Mid Penn and First Priority

 

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confirmed to Sandler that such information reflected the best currently available projections and estimates of the senior managements of Mid Penn and First Priority as to the future financial performance of Mid Penn and First Priority, respectively, and Sandler assumed that the financial results reflected in such information would be achieved. Sandler expressed no opinion as to such projections or estimates, or the assumptions on which they were based. Sandler also assumed that there had been no material change in Mid Penn’s or First Priority’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to Sandler. Sandler assumed in all respects material to its analyses that Mid Penn and First Priority would remain as going concerns for all periods relevant to its analyses.

Sandler also assumed, with Mid Penn’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements required to effect the merger, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect that would be material to Sandler’s analysis on Mid Penn, First Priority or the merger, or any related transaction, (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements, and (iv) the merger would qualify as a tax-free reorganization for federal income tax purposes. Finally, with Mid Penn’s consent, Sandler relied upon the advice that Mid Penn had received from its legal, accounting and tax advisors as to all legal, accounting and tax matters related to the merger and the other transactions contemplated by the merger agreement. Sandler expressed no opinion as to any such matters.

Sandler’s opinion was necessarily based on financial, regulatory, economic, market and other conditions as in effect on, and the information made available to Sandler as of, the date thereof. Events occurring after the date thereof could materially affect Sandler’s opinion. Sandler had not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof.

In performing its analyses, Sandler made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which were beyond the control of Sandler, Mid Penn and First Priority. Any estimates contained in the analyses performed by Sandler were not necessarily indicative of actual values or future results, which could be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the values of businesses or securities did not purport to be appraisals or to reflect the prices at which such businesses or securities could actually be sold. Accordingly, these analyses and estimates were inherently subject to substantial uncertainty. In addition, Sandler’s opinion was among several factors taken into consideration by the Mid Penn board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Mid Penn board of directors with respect to the fairness of the merger or the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between Mid Penn and First Priority and the decision to enter into the merger agreement was solely that of the Mid Penn board of directors.

The following is a summary of the material financial analyses presented by Sandler to the Mid Penn board of directors in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by Sandler to the Mid Penn board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic

 

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process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Sandler did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Sandler believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

Summary of Proposed Merger Consideration and Implied Transaction Metrics

Sandler reviewed the financial terms of the proposed merger. Subject to the provisions of the merger agreement, at the effective time, each share of First Priority common stock issued and outstanding immediately prior to the effective time will be converted into 0.3481 shares of Mid Penn common stock. Based upon Mid Penn’s January 12, 2017 closing common stock price of $37.50, a fixed exchange ratio equal to 0.3481, and 6,634,969 shares of First Priority common stock outstanding, Sandler calculated an implied transaction value per share of $13.05 and an aggregate implied transaction value of approximately $90.5 million. Sandler also calculated an implied transaction value per share of $11.86 and an aggregate implied transaction value of approximately $82.6 million based on Mid Penn’s volume weighted average price for Mid Penn common stock for the ten trading days ended January 12, 2017 of $34.08.

Sandler calculated the following implied transaction metrics:

 

     Closing
Price¹
    10-Day
VWAP²
 

Price / Last Twelve Months Earnings Per Share ended September 30, 2017

     32.6x       29.7x  

Price / Estimated 2018 Earnings Per Share³

     22.6x       20.5x  

Price / September 30, 2017 Book Value Per Share

     182     166

Price / September 30, 2017 Tangible Book Value Per Share

     195     177

Price / September 30, 2017 Adjusted Tangible Book Value Per Share4

     197     179

Core Deposit Premium5

     11.1     9.2

1-Day Market Premium as of January 12, 2018

     45.0     31.8

 

(1) Based on Mid Penn’s closing common stock price of $37.50 on January 12, 2018
(2) Based on Mid Penn’s volume-weighted average common stock price of $34.08 for the 10 trading days ended January 12, 2018
(3) As provided by the senior management of First Priority
(4) Adjusted tangible equity assumes a $0.6 million, or $0.08 per share, write-down of the deferred tax asset account
(5) Core deposits equal to total deposits less jumbo CDs (greater than $100,000)

Stock Trading History

Sandler reviewed the historical publicly reported trading price of Mid Penn common stock for the one-year period ended January 12, 2018 and for the three-year period ended January 12, 2018. Sandler also reviewed the historical publicly reported trading price of First Priority common stock for the one-year period ended January 12, 2018 and for the period between March 12, 2015, the day on which First Priority common stock commenced quotation on the OTCQX®, and January 12, 2018. Sandler then compared the relationship between the movements in the prices of Mid Penn common stock and First Priority common stock to the movements in their respective peer groups (as described below) as well as certain stock indices.

 

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Mid Penn’s One-Year Stock Performance

 

     Beginning Value
January 12, 2017
  Ending Value
January 12, 2018

Mid Penn

       100 %       154.0 %

MPB Peer Group

       100 %       111.3 %

SNL U.S. Bank and Thrift Index

       100 %       121.5 %

S&P 500 Index

       100 %       122.7 %

Mid Penn’s Three-Year Stock Performance

 

     Beginning Value
January 12, 2015
  Ending Value
January 12, 2018

Mid Penn

       100 %       244.3 %

MPB Peer Group

       100 %       148.3 %

SNL U.S. Bank and Thrift Index

       100 %       159.4 %

S&P 500 Index

       100 %       137.4 %

First Priority’s One-Year Stock Performance

 

     Beginning Value
January 12, 2017
  Ending Value
January 12, 2018

First Priority

       100 %       135.5 %

FPBK Peer Group

       100 %       118.7 %

SNL U.S. Bank and Thrift Index

       100 %       121.5 %

S&P 500 Index

       100 %       122.7 %

First Priority’s Stock Performance Since First OTCQX Quotation (March 12, 2015)

 

     Beginning Value
March 12, 2015
  Ending Value
January 12, 2018

First Priority

       100 %       180.0 %

FPBK Peer Group

       100 %       133.9 %

SNL U.S. Bank and Thrift Index

       100 %       152.0 %

S&P 500 Index

       100 %       135.7 %

Mid Penn Comparable Company Analysis

Using publicly available information, Sandler compared selected financial information for Mid Penn with a group of financial institutions selected by Sandler. The Mid Penn peer group consisted of banks and thrifts headquartered in Pennsylvania with total assets between $750 million and $3 billion, whose securities are publicly traded on the NYSE or NASDAQ Stock Market (the “MPB Peer Group”). Targets of announced merger transactions were excluded from the MPB Peer Group. The MPB Peer Group included the following companies:

 

ACNB Corporation    Fidelity D & D Bancorp, Inc.
AmeriServ Financial, Inc.    Malvern Bancorp, Inc.
CB Financial Services, Inc.    Meridian Bank
Citizens & Northern Corporation    Norwood Financial Corp.
CNB Financial Corporation    Orrstown Financial Services, Inc.
Codorus Valley Bancorp, Inc.    Penns Woods Bancorp, Inc.
DNB Financial Corporation    Peoples Financial Services Corp.

 

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Emclaire Financial Corp    Prudential Bancorp, Inc.
ESSA Bancorp, Inc.    Republic First Bancorp, Inc.

The analysis compared publicly available financial information for Mid Penn with the corresponding data for the MPB Peer Group as of or for the twelve months ended September 30, 2017, with pricing data as of January 12, 2018. The table below sets forth the data for Mid Penn (referred to as “MPB” in the table below) and the median, mean, high and low data for the MPB Peer Group:

 

     MPB      MPB Peer
Group
Median
     MPB Peer
Group
Mean
     MPB Peer
Group
High
     MPB Peer
Group
Low
 

Total Assets ($ in millions)

     1,153        1,215        1,385        2,745        774  

Loans / Deposits (%)

     85.5        93.4        92.0        109.5        58.1  

Non-Performing Assets¹ / Total assets (%)

     0.74        0.77        0.85        1.86        0.31  

Tangible Common Equity/Tangible Assets (%)

     6.37        9.43        9.39        14.49        6.41  

Tier 1 Leverage Ratio

     6.76        9.49        10.05        14.81        7.82  

Total RBC Ratio

     10.69        14.09        15.13        24.83        11.93  

CRE / Total RBC Ratio (%)

     333.8        198.1        205.9        357.5        82.9  

LTM Return on Average Assets (%)

     0.81        0.82        0.75        1.27        0.35  

LTM Return on Average Equity (%)

     11.76        8.09        7.34        11.01        2.16  

LTM Net Interest Margin (%)

     3.78        3.57        3.44        3.87        2.72  

LTM Efficiency Ratio (%)

     69.1        63.5        67.9        89.3        56.2  

Price/Tangible Book Value (%)

     218        162        162        228        87  

Price/LTM Earnings Per Share (x)

     18.4        18.9        23.7        62.9        14.5  

Price/2017 Est. Earnings Per Share² (x)

     —          22.0        26.2        58.7        15.7  

Price/2018 Est. Earnings Per Share² (x)

     —          15.7        17.9        33.8        12.7  

Current Dividend Yield (%)

     1.4        2.2        2.0        4.3        0.0  

LTM Dividend Ratio (%)

     29.9        38.9        36.8        80.6        0.0  

Market Value ($ in millions)

     230        196        217        502        74  

Note: Regulatory data as of December 31, 2016 used if SEC data not available

(1) Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned
(2) Based on S&P Capital IQ median earnings per share estimate

First Priority Comparable Company Analysis

Using publicly available information, Sandler compared selected financial information for First Priority with a group of financial institutions selected by Sandler (“the FPBK Peer Group”). The FPBK Peer Group consisted of banks and thrifts headquartered in the Mid-Atlantic Region with total assets between $500 million and $750 million whose securities are publicly traded. Targets of announced merger transactions, non-stock institutions and unprofitable institutions over the last twelve months were excluded from the FPBK Peer Group. The FPBK Peer Group included the following companies:

 

1st Colonial Bancorp, Inc.    Elmira Savings Bank
American Bank Incorporated    Honat Bancorp, Inc.
Berkshire Bancorp Inc.    Jonestown Bank and Trust Co.
Calvin B. Taylor Bankshares, Inc.    Juniata Valley Financial Corp.
CCFNB Bancorp, Inc.    MSB Financial Corp.
Centric Financial Corporation    Northumberland Bancorp
Country Bank Holding Company, Inc.    Riverview Financial Corporation

 

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Delmar Bancorp    Steuben Trust Corporation
Dimeco, Inc.   

The analysis compared publicly available financial information for First Priority with the corresponding data for the FPBK Peer Group as of or for the twelve months ended September 30, 2017, unless otherwise noted, with pricing data as of January 12, 2018. The table below sets forth the data for First Priority (referred to as “FPBK” in the table below) and the median, mean, high and low data for the FPBK Peer Group:

 

     FPBK      FPBK Peer
Group
Median
     FPBK Peer
Group
Mean
     FPBK Peer
Group
High
     FPBK Peer
Group
Low
 

Total Assets ($ in millions)

     612        567        594        740        512  

Loans / Deposits (%)

     99.5        90.9        89.4        117.4        63.2  

Non-Performing Assets¹ / Total assets (%)

     0.37        0.75        1.12        2.95        0.20  

Tangible Common Equity/Tangible Assets (%)

     7.25        9.42        10.55        16.61        7.20  

Tier 1 Leverage Ratio

     8.13        10.20        10.74        15.90        7.09  

Total RBC Ratio

     12.51        13.72        16.45        28.77        10.75  

CRE / Total RBC Ratio (%)

     203.0        148.4        197.4        402.6        40.8  

LTM Return on Average Assets (%)

     0.52        0.84        0.86        1.28        0.08  

LTM Return on Average Equity (%)

     6.11        8.64        8.10        12.34        0.94  

LTM Net Interest Margin (%)

     3.28        3.44        3.48        3.98        2.93  

LTM Efficiency Ratio (%)

     74.9        64.7        65.4        82.9        52.4  

Price/Tangible Book Value (%)

     134        129        131        175        87  

Price/LTM Earnings Per Share (x)

     22.5        15.2        21.8        90.0        12.6  

Current Dividend Yield (%)

     0.0        2.8        2.5        7.0        0.0  

LTM Dividend Ratio (%)

     0.0        37.4        58.3        366.7        0.0  

Market Value ($ in millions)

     59        72        86        188        39  

Note: Bank level regulatory data as of September 30, 2017 used when consolidated financial information not available

Note: Current common and/or average diluted shares outstanding not available for BERK, CYHC and DBCP

Note: Total Assets and Loans/Deposits as of June 30, 2017 for CYHC

(1) Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned

Selected Transactions Analysis

Sandler reviewed two groups of recent merger and acquisition transactions consisting of a national group as well as a regional group. The national group consisted of nationwide bank and thrift transactions announced between January 1, 2017 and January 12, 2018 with disclosed deal values, target total assets between $450 million and $750 million, and target return on average assets over the last twelve months greater than zero (the “Nationwide Precedent Transactions”). The regional group consisted of bank and thrift transactions announced between January 1, 2016 and January 12, 2018 with targets headquartered in Pennsylvania, New Jersey, West Virginia or Maryland, and with target total assets between $250 million and $950 million (the “Regional Precedent Transactions”).

The Nationwide Precedent Transactions group was composed of the following transactions:

 

Acquiror:

  

Target:

First Foundation Inc.    PBB Bancorp
First Mid-Illinois Bancshares    First BancTrust Corp.
FCB Financial Holdings Inc.    Floridian Community Holdings Inc.
WesBanco Inc.    First Sentry Bancshares Inc.

 

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Acquiror:

  

Target:

First Federal Bancorp MHC    Coastal Banking Co.
Old Line Bancshares Inc.    Bay Bancorp Inc.
Susser Bank Holdings LLC    BancAffiliated Inc.
Commerce Union Bancshares Inc.    Community First Inc.
Home Bancorp Inc.    Saint Martin Bancshares Inc.
National Commerce Corp.    FirstAtlantic Financial Holdings Inc.
Veritex Holdings Inc.    Liberty Bancshares Inc.
Heritage Financial Corp.    Puget Sound Bancorp Inc.
United Community Banks Inc.    Four Oaks Fincorp Inc.
Glacier Bancorp Inc.    Columbine Capital Corp.
SmartFinancial Inc.    Capstone Bancshares Inc.
Riverview Financial Corp.    CBT Financial Corp.
Washington Federal Inc.    Anchor Bancorp
First Busey Corp.    Mid Illinois Bancorp Inc.

Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, transaction price to tangible book value per share, core deposit premium, and 1-day market premium. Sandler compared the indicated transaction metrics for the merger based on Mid Penn’s closing common stock price on January 12, 2018 as well as based on Mid Penn’s volume-weighted average stock price for the 10 day trading period ending January 12, 2018 to the median, mean, high and low metrics of the Nationwide Precedent Transactions group.

 

    MPB/FPBK¹   10-Day VWAP
MPB/FPBK²
  Median
Nationwide
Precedent
Transactions
  Mean
Nationwide
Precedent
Transactions
  High
Nationwide
Precedent
Transactions
  Low
Nationwide
Precedent
Transactions

Transaction Price/ LTM Earnings Per Share (x)

      32.6       29.7       19.4       21.2       39.3       9.6

Transaction Price/ Tangible Book Value Per Share (%)

      195/197 ³       177/179 ³       185       179       233       99

Core Deposit Premium (%)4

      11.1       9.2       11.7       12.2       28.3       2.8

1-Day Market Premium (%)5

      45.0       31.8       44.2       38.9       76.5       2.6

 

(1) Based on Mid Penn’s closing stock price of $37.50 on January 12, 2018
(2) Based on Mid Penn’s volume-weighted average stock price of $34.08 for the 10-day trading period ended January 12, 2018
(3) Adjusted tangible equity assumes a $0.6 million, or $0.08 per share, write-down of the deferred tax asset account
(4) Core deposits equal to total deposits less jumbo CDs (greater than $100,000)
(5) As of January 12, 2018

The Regional Precedent Transactions group was composed of the following transactions:

 

Acquiror:

  

Target:

CB Financial Services Inc.    First WV Bancorp Inc.
WesBanco Inc.    First Sentry Bancshares Inc.
Old Line Bancshares Inc.    Bay Bancorp Inc.
Riverview Financial Corp.    CBT Financial Corp.
Sussex Bancorp    Community Bank of Bergen County
Mid Penn Bancorp Inc.    Scottdale Bank & Trust Company
Old Line Bancshares Inc.    DCB Bancshares Inc.

 

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Acquiror:

  

Target:

Bryn Mawr Bank Corp.    Royal Bancshares of PA
ACNB Corp.    New Windsor Bancorp Inc.
Standard Financial Corp    Allegheny Valley Bancorp Inc.
Summit Financial Group Inc.    First Century Bankshares Inc.
Revere Bank    Monument Bank
DNB Financial Corp.    East River Bank
Lakeland Bancorp    Harmony Bank

Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, transaction price to tangible book value per share, core deposit premium, and 1-day market premium. Sandler compared the indicated transaction metrics for the merger based on Mid Penn’s closing common stock price on January 12, 2018 as well as based on Mid Penn’s volume-weighted average stock price for the 10 day trading period ending January 12, 2018 to the median, mean, high and low metrics of the Regional Precedent Transactions group.

 

    MPB/FPBK¹   10-Day VWAP
MPB/FPBK²
  Median
Regional
Precedent
Transactions
  Mean
Regional
Precedent
Transactions
  High
Regional
Precedent
Transactions
  Low
Regional
Precedent
Transactions

Transaction Price/ LTM Earnings Per Share (x)

      32.6       29.7       20.5       21.4       13.5       39.3

Transaction Price/ Tangible Book Value Per Share (%)

      195/197 ³       177/179 ³       157       156       241       105

Core Deposit Premium (%)4

      11.1       9.2       6.6       7.0