MID PENN BANCORP INC (MPB) stock intrinsic value fair value estimate & owner earnings analysis

Mid Penn Bancorp owns Mid Penn Bank, a Pennsylvania and New Jersey commercial bank that has grown from about $1.0 billion of assets in 2016 to about $7.1 billion at June 30, 2026, almost entirely by buying smaller banks: Scottdale and First Priority (2018), Riverview (2021), Brunswick (2023), William Penn (2025) and 1st Colonial (announced September 2025, a cash-and-stock deal of about $101 million). It makes money from the spread between what it earns on roughly $5.6 billion of mostly commercial and commercial real estate loans and what it pays on about $6.0 billion of deposits, plus modest fee income from mortgage and SBA loan sales, wealth management and insurance. How we measure earnings. For a bank, deposits and borrowings are the raw material, so we value earnings after interest and subtract no debt. We start from operating cash flow, strip out timing swings (mainly loans originated for sale), and then charge back three real costs that the cash-flow statement adds back: stock compensation, the cost of maintaining branches and equipment, and the provision for loan losses and premium amortization on securities. Measured this way, per-share owner earnings since the bank reached its current shape in 2019 were $2.09, $3.19, $3.05, $3.78, $2.29, $2.92 and $3.49 (2019-2025). The median is about $3.05. We set the starting level slightly lower, at $2.95 a share, because two of the stronger years are flattered: 2022 by the peak of the rate cycle, and 2025 by $13.9 million of deferred tax expense that cost no cash that year (current tax was only $2.3 million) as the bank used tax attributes acquired with William Penn. Merger costs depressed 2021, 2023 and 2025 by roughly $0.40-$0.95 a share each, but because the bank makes an acquisition every year or two, we treat some of that cost as recurring rather than adding it all back. Recent results support the level: reported diluted earnings were $0.85 a share in the June 2026 quarter and $1.22 for the first half including deal costs. Intangible amortization from acquisitions (about $3 million in 2025) is a wasting asset; we added it back as a sunk acquisition cost and do not credit it as permanent earning power in the growth path. Growth. Per-share earnings have grown far more slowly than the bank: total earnings rose more than seven-fold from 2016 to 2025 while the diluted share count rose from 4.2 million to 25.6 million, because nearly every deal was paid in stock. Owner earnings per share rose about 19% in 2025, but that figure is inflated by the tax item above; the base case assumes only 1.5% a year, well below that, and every dollar of growth must be paid for by retaining capital (we deduct the retained capital needed to keep the balance sheet growing). We do not credit future acquisitions; the record shows they have added size much more than per-share value. Base case ($51 a share): earnings start at $2.95 and grow 1.5% a year for ten years, reaching about $3.37, funded by retained earnings, then hold flat thereafter on the strength of a 59-branch deposit franchise that has kept funding the bank through the 2020 shutdown and the 2023 deposit-pricing squeeze. Bear case ($40 a share): earnings start at $2.80 and the bank then goes through one full commercial-real-estate credit cycle of the kind community banks went through in 2008-2010. We assume about $70 million of pretax credit losses a year for three years, roughly 3.75% of today's loan book in total, which cuts earnings to about $0.65 a share for three years, followed by a year of margin pressure before recovering to $2.80 and staying there. This is grounded in what is already visible: nonperforming assets rose to $30.8 million at the end of 2025 from $22.7 million a year earlier, as four commercial real estate loans and two business loans totalling $9.0 million went bad, and loans past due 30 days or more climbed to 0.69% from 0.49% two years earlier, while the reserve was only 0.74% of loans. In this case earnings stay positive through the cycle, so capital is not depleted and no dilutive capital raise is required. The bear value sits above tangible book value of about $28.18 a share (June 30, 2026) because the deposit franchise keeps earning through a downturn of that depth; if losses ran deep enough to force a capital raise at trough prices, the value would fall toward or below tangible book. Bull case ($60 a share): earnings start at $3.30, close to the run rate implied by the June 2026 quarter once deal costs stop, and grow 3% a year as the William Penn and 1st Colonial branches are fully absorbed and deposit costs reprice lower, again paying for the growth out of retained earnings. What changed since our previous analysis: we now include the full cash-flow picture rather than reported net income, which lifts the earnings level, and recent quarters (including the $0.85 June 2026 quarter) show the William Penn deal adding to per-share earnings. The previous figures were built on a different basis and are not comparable. Margin of safety price. How sure are we of the earnings level? Fairly sure within a range of about $2.60 to $3.40 a share, because the bank has produced earnings in that band in most years since 2020; the main uncertainty is how much each new acquisition costs and dilutes. The worst plausible outcome is a commercial real estate downturn heavier than our bear case, combined with a deposit run like the one regional banks saw in 2023; a bank of this size with a loan book concentrated in commercial property in two states would survive a 2008-style cycle but could need to raise capital at a low price if losses ran well past 4% of loans. If we are wrong about the earnings level (say $2.50 instead of $2.95) and about the pace of losses, the shares would be worth roughly tangible book, about $28. Holding the shares, an owner is paid a dividend of $0.22 a quarter ($0.88 a year) while waiting, and earnings of nearly $3 a share add to book value each year. The margin-of-safety price is $28 a share: at that price the shares stand at about tangible book value, so tangible capital sits behind the price even in a severe credit cycle, while the dividend of about 3% plus roughly $2 a share of retained earnings a year means that a move back toward the base value within three to four years implies a return above 20% a year, and a slower path still rests on the tangible capital underneath.