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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13677

MID PENN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania |  | 25-1666413
(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)
349 Union Street Millersburg, Pennsylvania |  | 17061
(Address of Principal Executive Offices) |  | (Zip Code)

Registrant’s telephone number, including area code 1.866.642.7736

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $1.00 par value per share |  | MPB |  | The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ | Accelerated filer ☒ | Non-accelerated filer ☐ | 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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 5, 2021, the registrant had 11,433,554 shares of common stock outstanding.

1

FORM 10-Q

TABLE OF CONTENTS

PART 1 – FINANCIAL INFORMATION | 3
| Item 1 – Financial Statements | 3
|  | Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited) | 3
|  | Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and September 30, 2020 (Unaudited) | 4
|  | Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and September 30, 2020 (Unaudited) | 5
|  | Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and September 30, 2020 (Unaudited) | 6
|  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and September 30, 2020 (Unaudited) | 8
|  | Notes to Consolidated Financial Statements (Unaudited) | 10
| Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations | 49
| Item 3 – Quantitative and Qualitative Disclosures about Market Risk | 68
| Item 4 – Controls and Procedures | 68
PART II – OTHER INFORMATION | 69
| Item 1 – Legal Proceedings | 69
| Item 1A – Risk Factors | 69
| Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | 69
| Item 3 – Defaults upon Senior Securities | 69
| Item 4 – Mine Safety Disclosures | 69
| Item 5 – Other Information | 69
| Item 6 – Exhibits | 70
| Signatures | 71

Unless the context otherwise requires, the terms “Mid Penn”, “Corporation” “we”, “us”, and “our” refer to Mid Penn Bancorp, Inc. and its consolidated wholly-owned banking subsidiary and nonbank subsidiaries.

2

MID PENN BANCORP, INC. |

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data) |  | September 30, 2021 |  |  | December 31, 2020 |
ASSETS |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 40,134 |  |  | $ | 31,284 |
Interest-bearing balances with other financial institutions |  |  | 2,536 |  |  |  | 1,541 |
Federal funds sold |  |  | 712,272 |  |  |  | 270,899 |
Total cash and cash equivalents |  |  | 754,942 |  |  |  | 303,724 |
Investment securities held to maturity, at amortized cost (fair value $155,680 and $132,794) |  |  | 152,791 |  |  |  | 128,292 |
Investment securities available for sale, at fair value |  |  | 5,015 |  |  |  | 5,748 |
Equity securities available for sale, at fair value |  |  | 505 |  |  |  | 515 |
Loans held for sale |  |  | 23,154 |  |  |  | 25,506 |
Loans and leases, net of unearned interest |  |  | 2,370,429 |  |  |  | 2,384,041 |
Less: Allowance for loan and lease losses |  |  | (14,233 | ) |  |  | (13,382 | )
Net loans and leases |  |  | 2,356,196 |  |  |  | 2,370,659 |
Bank premises and equipment, net |  |  | 25,562 |  |  |  | 24,886 |
Operating lease right of use asset |  |  | 9,942 |  |  |  | 10,157 |
Finance lease right of use asset |  |  | 3,132 |  |  |  | 3,267 |
Cash surrender value of life insurance |  |  | 17,406 |  |  |  | 17,183 |
Restricted investment in bank stocks |  |  | 7,906 |  |  |  | 7,594 |
Accrued interest receivable |  |  | 10,008 |  |  |  | 12,971 |
Deferred income taxes |  |  | 4,133 |  |  |  | 3,619 |
Goodwill |  |  | 62,840 |  |  |  | 62,840 |
Core deposit and other intangibles, net |  |  | 3,537 |  |  |  | 4,360 |
Foreclosed assets held for sale |  |  | 11 |  |  |  | 134 |
Other assets |  |  | 16,107 |  |  |  | 17,493 |
Total Assets |  | $ | 3,453,187 |  |  | $ | 2,998,948 |
LIABILITIES & SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |
Noninterest-bearing demand |  | $ | 661,890 |  |  | $ | 536,224 |
Interest-bearing demand |  |  | 745,833 |  |  |  | 605,567 |
Money Market |  |  | 905,742 |  |  |  | 720,506 |
Savings |  |  | 205,842 |  |  |  | 195,038 |
Time |  |  | 442,574 |  |  |  | 417,245 |
Total Deposits |  |  | 2,961,881 |  |  |  | 2,474,580 |
Short-term borrowings |  |  | — |  |  |  | 125,617 |
Long-term debt |  |  | 74,858 |  |  |  | 75,115 |
Subordinated debt |  |  | 44,599 |  |  |  | 44,580 |
Operating lease liability |  |  | 10,950 |  |  |  | 11,200 |
Accrued interest payable |  |  | 1,901 |  |  |  | 2,007 |
Other liabilities |  |  | 9,690 |  |  |  | 10,161 |
Total Liabilities |  |  | 3,103,879 |  |  |  | 2,743,260 |
Shareholders' Equity: |  |  |  |  |  |  |  |
Common stock, par value $1.00 per share; 20,000,000 shares authorized; Shares issued: 11,532,006 at September 30, 2021 and 8,511,835 at December 31, 2020; Shares outstanding: 11,433,554 at September 30, 2021 and 8,419,183 at December 31, 2020 |  |  | 11,532 |  |  |  | 8,512 |
Additional paid-in capital |  |  | 246,830 |  |  |  | 178,853 |
Retained earnings |  |  | 92,722 |  |  |  | 70,175 |
Accumulated other comprehensive income (loss) |  |  | 147 |  |  |  | (57 | )
Treasury stock, at cost; 98,452 shares at September 30, 2021 and 92,652 shares at December 31, 2020 |  |  | (1,923 | ) |  |  | (1,795 | )
Total Shareholders’ Equity |  |  | 349,308 |  |  |  | 255,688 |
Total Liabilities and Shareholders' Equity |  | $ | 3,453,187 |  |  | $ | 2,998,948 |

The accompanying notes are an integral part of these consolidated financial statements.

3

MID PENN BANCORP, INC. |

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data) |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  |  | 2021 |  |  |  | 2020 |  |  |  | 2021 |  |  |  | 2020 |
INTEREST INCOME |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and fees on loans and leases |  | $ | 29,590 |  |  | $ | 25,136 |  |  | $ | 87,755 |  |  | $ | 72,501 |
Interest and dividends on investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and government agencies |  |  | 285 |  |  |  | 278 |  |  |  | 688 |  |  |  | 1,409 |
State and political subdivision obligations, tax-exempt |  |  | 279 |  |  |  | 265 |  |  |  | 834 |  |  |  | 734 |
Other securities |  |  | 277 |  |  |  | 406 |  |  |  | 870 |  |  |  | 882 |
Total Interest and Dividends on Investment Securities |  |  | 841 |  |  |  | 949 |  |  |  | 2,392 |  |  |  | 3,025 |
Interest on other interest-bearing balances |  |  | 1 |  |  |  | 3 |  |  |  | 5 |  |  |  | 36 |
Interest on federal funds sold |  |  | 308 |  |  |  | 34 |  |  |  | 485 |  |  |  | 447 |
Total Interest Income |  |  | 30,740 |  |  |  | 26,122 |  |  |  | 90,637 |  |  |  | 76,009 |
INTEREST EXPENSE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on deposits |  |  | 2,909 |  |  |  | 3,767 |  |  |  | 8,791 |  |  |  | 13,156 |
Interest on short-term borrowings |  |  | 133 |  |  |  | 181 |  |  |  | 539 |  |  |  | 226 |
Interest on long-term and subordinated debt |  |  | 704 |  |  |  | 766 |  |  |  | 2,111 |  |  |  | 2,208 |
Total Interest Expense |  |  | 3,746 |  |  |  | 4,714 |  |  |  | 11,441 |  |  |  | 15,590 |
Net Interest Income |  |  | 26,994 |  |  |  | 21,408 |  |  |  | 79,196 |  |  |  | 60,419 |
PROVISION FOR LOAN AND LEASE LOSSES |  |  | 425 |  |  |  | 1,100 |  |  |  | 2,575 |  |  |  | 2,700 |
Net Interest Income After Provision for Loan and Lease Losses |  |  | 26,569 |  |  |  | 20,308 |  |  |  | 76,621 |  |  |  | 57,719 |
NONINTEREST INCOME |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage banking income |  |  | 3,162 |  |  |  | 3,107 |  |  |  | 8,382 |  |  |  | 5,927 |
Income from fiduciary and wealth management activities |  |  | 618 |  |  |  | 462 |  |  |  | 1,716 |  |  |  | 1,267 |
Service charges on deposits |  |  | 223 |  |  |  | 140 |  |  |  | 552 |  |  |  | 460 |
ATM debit card interchange income |  |  | 630 |  |  |  | 535 |  |  |  | 1,854 |  |  |  | 1,426 |
Net gain on sales of SBA loans |  |  | 105 |  |  |  | 173 |  |  |  | 560 |  |  |  | 435 |
Merchant services income |  |  | 58 |  |  |  | 95 |  |  |  | 359 |  |  |  | 276 |
Earnings from cash surrender value of life insurance |  |  | 74 |  |  |  | 75 |  |  |  | 223 |  |  |  | 227 |
Net gain on sales of investment securities |  |  | 79 |  |  |  | 150 |  |  |  | 79 |  |  |  | 393 |
Other income |  |  | 560 |  |  |  | 565 |  |  |  | 2,148 |  |  |  | 1,447 |
Total Noninterest Income |  |  | 5,509 |  |  |  | 5,302 |  |  |  | 15,873 |  |  |  | 11,858 |
NONINTEREST EXPENSE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  |  | 10,342 |  |  |  | 10,279 |  |  |  | 29,873 |  |  |  | 26,546 |
Occupancy expense, net |  |  | 1,318 |  |  |  | 1,338 |  |  |  | 4,115 |  |  |  | 4,110 |
Equipment expense |  |  | 745 |  |  |  | 713 |  |  |  | 2,237 |  |  |  | 2,148 |
Software licensing and utilization |  |  | 1,551 |  |  |  | 1,363 |  |  |  | 4,493 |  |  |  | 3,881 |
Pennsylvania bank shares tax expense |  |  | 498 |  |  |  | 409 |  |  |  | 1,022 |  |  |  | 869 |
FDIC Assessment |  |  | 461 |  |  |  | 547 |  |  |  | 1,364 |  |  |  | 1,216 |
Legal and professional fees |  |  | 610 |  |  |  | 336 |  |  |  | 1,591 |  |  |  | 1,037 |
Charitable contributions qualifying for State tax credits |  |  | — |  |  |  | — |  |  |  | 635 |  |  |  | 545 |
Mortgage banking profit-sharing expense |  |  | 1,140 |  |  |  | 390 |  |  |  | 2,005 |  |  |  | 540 |
Marketing and advertising expense |  |  | 174 |  |  |  | 104 |  |  |  | 466 |  |  |  | 406 |
Telephone expense |  |  | 134 |  |  |  | 134 |  |  |  | 409 |  |  |  | 405 |
Gain on sale or write-down of foreclosed assets, net |  |  | (7 | ) |  |  | (8 | ) |  |  | (26 | ) |  |  | (8 | )
Intangible amortization |  |  | 266 |  |  |  | 317 |  |  |  | 823 |  |  |  | 966 |
Merger and acquisition expense |  |  | 198 |  |  |  | — |  |  |  | 720 |  |  |  | — |
Other expenses |  |  | 2,589 |  |  |  | 2,252 |  |  |  | 7,306 |  |  |  | 6,497 |
Total Noninterest Expense |  |  | 20,019 |  |  |  | 18,174 |  |  |  | 57,033 |  |  |  | 49,158 |
INCOME BEFORE PROVISION FOR INCOME TAXES |  |  | 12,059 |  |  |  | 7,436 |  |  |  | 35,461 |  |  |  | 20,419 |
Provision for income taxes |  |  | 2,272 |  |  |  | 889 |  |  |  | 6,749 |  |  |  | 3,221 |
NET INCOME |  | $ | 9,787 |  |  | $ | 6,547 |  |  | $ | 28,712 |  |  | $ | 17,198 |
PER COMMON SHARE DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and Diluted Earnings Per Common Share |  | $ | 0.86 |  |  | $ | 0.78 |  |  | $ | 2.85 |  |  | $ | 2.04 |
Cash Dividends Declared |  | $ | 0.20 |  |  | $ | 0.18 |  |  | $ | 0.59 |  |  | $ | 0.59 |

The accompanying notes are an integral part of these consolidated financial statements.

4

MID PENN BANCORP, INC. |

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands) |  | Three Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Net income |  | $ | 9,787 |  |  | $ | 6,547 |
Other comprehensive (loss): |  |  |  |  |  |  |  |
Unrealized income arising during the period on available-for-sale |  |  |  |  |  |  |  |
securities, net of income taxes of $8 and $24, respectively |  |  | 29 |  |  |  | 90 |
Reclassification adjustment for net gain on sales of available-for-sale securities |  |  |  |  |  |  |  |
included in net income, net of income taxes of ($17) and ($32), respectively (a) |  |  | (62 | ) |  |  | (118 | )
Change in defined benefit plans, net of income taxes of ($10) and ($27), respectively (b) |  |  | (36 | ) |  |  | (101 | )
Reclassification adjustment for settlement losses and other activity related to benefit |  |  |  |  |  |  |  |
plans, net of income taxes of ($1) and ($1), respectively (c) |  |  | (3 | ) |  |  | (5 | )
Total other comprehensive loss |  |  | (72 | ) |  |  | (134 | )
Total comprehensive income |  | $ | 9,715 |  |  | $ | 6,413 |

(Dollars in thousands) |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Net income |  | $ | 28,712 |  |  | $ | 17,198 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |
Unrealized income arising during the period on available-for-sale |  |  |  |  |  |  |  |
securities, net of income taxes of $13 and $111, respectively |  |  | 51 |  |  |  | 419 |
Reclassification adjustment for net gain on sales of available-for-sale securities |  |  |  |  |  |  |  |
included in net income, net of income taxes of ($17) and ($83), respectively (a) |  |  | (62 | ) |  |  | (310 | )
Change in defined benefit plans, net of income tax impact of $70 and ($194), respectively (b) |  |  | 262 |  |  |  | (741 | )
Reclassification adjustment for settlement (gains) losses and other activity related to benefit |  |  |  |  |  |  |  |
plans, net of income taxes of ($12) and $1, respectively (c) |  |  | (47 | ) |  |  | 5 |
Total other comprehensive income (loss) |  |  | 204 |  |  |  | (627 | )
Total comprehensive income |  | $ | 28,916 |  |  | $ | 16,571 |

| (a) | Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate element within total noninterest income.

| (b) | The change in defined benefit plans consists primarily of unrecognized actuarial gains (losses) on defined benefit plans during the period.

| (c) | The reclassification adjustment for benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss. Amounts are included in other income on the Consolidated Statements of Income within total noninterest income. Please reference Note 11 – Defined Benefit Plans, for more information.

The accompanying notes are an integral part of these consolidated financial statements.

5

MID PENN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  |  |  |  |  | Total |
|  | Common |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Treasury |  |  | Shareholders' |
|  | Stock |  |  | Capital |  |  | Earnings |  |  | Income (Loss) |  |  | Stock |  |  | Equity |
Balance, January 1, 2021 |  | $ | 8,512 |  |  | $ | 178,853 |  |  | $ | 70,175 |  |  | $ | (57 | ) |  | $ | (1,795 | ) |  | $ | 255,688 |
Net income |  |  | — |  |  |  | — |  |  |  | 9,312 |  |  |  | — |  |  |  | — |  |  |  | 9,312 |
Total other comprehensive income, net of taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 558 |  |  |  | — |  |  |  | 558 |
Common stock dividends declared |  |  | — |  |  |  | — |  |  |  | (1,599 | ) |  |  | — |  |  |  | — |  |  |  | (1,599 | )
Repurchased stock (5,800 shares) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (128 | ) |  |  | (128 | )
Employee Stock Purchase Plan (1,459 shares) |  |  | 2 |  |  |  | 38 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 40 |
Director Stock Purchase Plan (1,253 shares) |  |  | 1 |  |  |  | 32 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 33 |
Restricted stock activity |  |  | — |  |  |  | 132 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 132 |
Balance, March 31, 2021 |  | $ | 8,515 |  |  | $ | 179,055 |  |  | $ | 77,888 |  |  | $ | 501 |  |  | $ | (1,923 | ) |  | $ | 264,036 |
Net income |  |  | — |  |  |  | — |  |  |  | 9,613 |  |  |  | — |  |  |  | — |  |  |  | 9,613 |
Total other comprehensive loss, net of taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (282 | ) |  |  | — |  |  |  | (282 | )
Common stock dividends declared |  |  | — |  |  |  | — |  |  |  | (2,281 | ) |  |  | — |  |  |  | — |  |  |  | (2,281 | )
Common shares issued through follow-on public offering (2,990,000 shares), net of underwriting discounts and offering expenses |  |  | 2,990 |  |  |  | 67,248 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 70,238 |
Employee Stock Purchase Plan (1,388 shares) |  |  | 1 |  |  |  | 37 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 38 |
Director Stock Purchase Plan (1,229 shares) |  |  | 1 |  |  |  | 33 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 34 |
Restricted stock activity |  |  | — |  |  |  | 173 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 173 |
Balance, June 30, 2021 |  | $ | 11,507 |  |  | $ | 246,546 |  |  | $ | 85,220 |  |  | $ | 219 |  |  | $ | (1,923 | ) |  | $ | 341,569 |
Net income |  |  | — |  |  |  | — |  |  |  | 9,787 |  |  |  | — |  |  |  | — |  |  |  | 9,787 |
Total other comprehensive loss, net of taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (72 | ) |  |  | — |  |  |  | (72 | )
Common stock dividends declared |  |  | — |  |  |  | — |  |  |  | (2,285 | ) |  |  | — |  |  |  | — |  |  |  | (2,285 | )
Employee Stock Purchase Plan (1,784 shares) |  |  | 2 |  |  |  | 47 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 49 |
Director Stock Purchase Plan (1,225 shares) |  |  | 1 |  |  |  | 32 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 33 |
Restricted stock activity (21,833 shares) |  |  | 22 |  |  |  | 205 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 227 |
Balance, September 30, 2021 |  | $ | 11,532 |  |  | $ | 246,830 |  |  | $ | 92,722 |  |  | $ | 147 |  |  | $ | (1,923 | ) |  | $ | 349,308 |

The accompanying notes are an integral part of these consolidated financial statements.

6

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  |  |  |  |  | Total |
|  | Common |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Treasury |  |  | Shareholders' |
|  | Stock |  |  | Capital |  |  | Earnings |  |  | Income (Loss) |  |  | Stock |  |  | Equity |
Balance, January 1, 2020 |  | $ | 8,481 |  |  | $ | 178,159 |  |  | $ | 50,891 |  |  | $ | 343 |  |  | $ | — |  |  | $ | 237,874 |
Net income |  |  | — |  |  |  | — |  |  |  | 3,818 |  |  |  | — |  |  |  | — |  |  |  | 3,818 |
Total other comprehensive loss, net of taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (395 | ) |  |  | — |  |  |  | (395 | )
Common stock dividends declared |  |  | — |  |  |  | — |  |  |  | (1,950 | ) |  |  | — |  |  |  | — |  |  |  | (1,950 | )
Employee Stock Purchase Plan (1,647 shares) |  |  | 1 |  |  |  | 32 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 33 |
Director Stock Purchase Plan (1,743 shares) |  |  | 2 |  |  |  | 33 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 35 |
Restricted stock activity |  |  | — |  |  |  | 96 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 96 |
Balance, March 31, 2020 |  | $ | 8,484 |  |  | $ | 178,320 |  |  | $ | 52,759 |  |  | $ | (52 | ) |  | $ | — |  |  | $ | 239,511 |
Net income |  |  | — |  |  |  | — |  |  |  | 6,833 |  |  |  | — |  |  |  | — |  |  |  | 6,833 |
Total other comprehensive loss, net of taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (98 | ) |  |  | — |  |  |  | (98 | )
Common stock dividends declared |  |  | — |  |  |  | — |  |  |  | (1,523 | ) |  |  | — |  |  |  | — |  |  |  | (1,523 | )
Repurchased stock (80,523 shares) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,560 | ) |  |  | (1,560 | )
Employee Stock Purchase Plan (2,365 shares) |  |  | 3 |  |  |  | 42 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 45 |
Director Stock Purchase Plan (2,231 shares) |  |  | 2 |  |  |  | 39 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 41 |
Restricted stock activity |  |  | — |  |  |  | 96 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 96 |
Balance, June 30, 2020 |  | $ | 8,489 |  |  | $ | 178,497 |  |  | $ | 58,069 |  |  | $ | (150 | ) |  | $ | (1,560 | ) |  | $ | 243,345 |
Net income |  |  | — |  |  |  | — |  |  |  | 6,547 |  |  |  | — |  |  |  | — |  |  |  | 6,547 |
Total other comprehensive loss, net of taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (134 | ) |  |  | — |  |  |  | (134 | )
Common stock dividends declared |  |  | — |  |  |  | — |  |  |  | (1,517 | ) |  |  | — |  |  |  | — |  |  |  | (1,517 | )
Repurchased stock (12,129 shares) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (233 | ) |  |  | (233 | )
Employee Stock Purchase Plan (2,113 shares) |  |  | 2 |  |  |  | 34 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 36 |
Director Stock Purchase Plan (2,434 shares) |  |  | 2 |  |  |  | 39 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 41 |
Restricted stock activity (14,770 shares) |  |  | 15 |  |  |  | 89 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 104 |
Balance, September 30, 2020 |  | $ | 8,508 |  |  | $ | 178,659 |  |  | $ | 63,099 |  |  | $ | (284 | ) |  | $ | (1,793 | ) |  | $ | 248,189 |

The accompanying notes are an integral part of these consolidated financial statements.

7

MID PENN BANCORP, INC. |

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands) |  | Nine Months Ended September 30, |
|  |  | 2021 |  |  |  | 2020 |
Operating Activities: |  |  |  |  |  |  |  |
Net Income |  | $ | 28,712 |  |  | $ | 17,198 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Provision for loan and lease losses |  |  | 2,575 |  |  |  | 2,700 |
Depreciation |  |  | 2,463 |  |  |  | 2,393 |
Amortization of intangibles |  |  | 823 |  |  |  | 966 |
Net amortization of security discounts/premiums |  |  | 471 |  |  |  | 565 |
Amortization of operating lease right of use assets |  |  | 1,279 |  |  |  | 1,269 |
Amortization of finance lease right of use asset |  |  | 135 |  |  |  | 135 |
Gain on sales of investment securities |  |  | (79 | ) |  |  | (393 | )
Earnings on cash surrender value of life insurance |  |  | (223 | ) |  |  | (227 | )
Mortgage loans originated for sale |  |  | (257,133 | ) |  |  | (243,179 | )
Proceeds from sales of mortgage loans originated for sale |  |  | 267,867 |  |  |  | 226,590 |
Gain on sale of mortgage loans |  |  | (8,382 | ) |  |  | (5,927 | )
SBA loans originated for sale |  |  | (5,923 | ) |  |  | (6,410 | )
Proceeds from sales of SBA loans originated for sale |  |  | 6,483 |  |  |  | 6,845 |
Gain on sale of SBA loans |  |  | (560 | ) |  |  | (435 | )
(Gain) loss on disposal or write-down of property, plant, and equipment |  |  | (52 | ) |  |  | 45 |
Gain on sale or write-down of foreclosed assets |  |  | (26 | ) |  |  | (8 | )
Stock compensation expense |  |  | 532 |  |  |  | 296 |
Deferred income tax benefit |  |  | (295 | ) |  |  | (2,773 | )
Decrease (increase) in accrued interest receivable |  |  | 2,963 |  |  |  | (6,699 | )
Decrease in other assets |  |  | 1,386 |  |  |  | 1,247 |
(Decrease) increase in accrued interest payable |  |  | (106 | ) |  |  | 632 |
Net change in operating lease liability |  |  | (1,314 | ) |  |  | (1,332 | )
(Decrease) increase in other liabilities |  |  | (40 | ) |  |  | 5,398 |
Net Cash Provided By (Used In) Operating Activities |  |  | 41,556 |  |  |  | (1,104 | )
Investing Activities: |  |  |  |  |  |  |  |
Proceeds from the sale of available-for-sale securities |  |  | 5,178 |  |  |  | 91,854 |
Proceeds from the maturity or call of available-for-sale securities |  |  | 2,500 |  |  |  | 8,513 |
Purchases of available-for-sale securities |  |  | (6,893 | ) |  |  | (71,297 | )
Proceeds from the maturity or call of held-to-maturity securities |  |  | 40,014 |  |  |  | 93,029 |
Purchases of held-to-maturity securities |  |  | (64,972 | ) |  |  | (95,758 | )
Purchases of equity securities, available for sale |  |  | — |  |  |  | (1,000 | )
Purchases of restricted investment in bank stock |  |  | (312 | ) |  |  | (2,824 | )
Net decrease (increase) in loans and leases |  |  | 11,835 |  |  |  | (760,645 | )
Purchases of bank premises and equipment |  |  | (3,149 | ) |  |  | (2,938 | )
Proceeds from the sale of bank premises and equipment |  |  | 62 |  |  |  | — |
Proceeds from the sale of foreclosed assets |  |  | 202 |  |  |  | 17 |
Net Cash Used In Investing Activities |  |  | (15,535 | ) |  |  | (741,049 | )
Financing Activities: |  |  |  |  |  |  |  |
Net increase in deposits |  |  | 487,301 |  |  |  | 544,004 |
Net (decrease) increase in short-term borrowings |  |  | (125,617 | ) |  |  | 203,842 |
Common stock dividends paid |  |  | (6,586 | ) |  |  | (4,990 | )
Proceeds from Employee Stock Purchase Plan stock issuance |  |  | 127 |  |  |  | 108 |
Proceeds from Director Stock Purchase Plan stock issuance |  |  | 100 |  |  |  | 111 |
Proceeds from follow-on common stock public offering |  |  | 70,238 |  |  |  | — |
Treasury stock purchased |  |  | (128 | ) |  |  | (1,793 | )
Net change in finance lease liability |  |  | (65 | ) |  |  | (62 | )
Proceeds from the issuance of subordinated debt |  |  | — |  |  |  | 15,000 |
Issuance of long-term debt |  |  | — |  |  |  | 70,000 |
Long-term debt repayment |  |  | (173 | ) |  |  | (27,740 | )
Net Cash Provided By Financing Activities |  |  | 425,197 |  |  |  | 798,480 |
Net increase in cash and cash equivalents |  |  | 451,218 |  |  |  | 56,327 |
Cash and cash equivalents, beginning of period |  |  | 303,724 |  |  |  | 139,030 |
Cash and cash equivalents, end of period |  | $ | 754,942 |  |  | $ | 195,357 |

8

MID PENN BANCORP, INC. |

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

(Dollars in thousands) |  | Nine Months Ended September 30, |
|  |  | 2021 |  |  |  | 2020 |
Supplemental Disclosures of Cash Flow Information: |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 11,547 |  |  | $ | 14,958 |
Cash paid for income taxes |  |  | 8,835 |  |  |  | 2,370 |
Supplemental Noncash Disclosures: |  |  |  |  |  |  |  |
Recognition of operating lease right of use assets |  | $ | 1,064 |  |  | $ | — |
Recognition of operating lease liabilities |  |  | 1,064 |  |  |  | — |
Asset transferred to bank premises and equipment held for sale |  |  | — |  |  |  | 210 |
Loans transferred to foreclosed assets held for sale |  |  | 53 |  |  |  | 1,529 |

The accompanying notes are an integral part of these consolidated financial statements.

9

MID PENN BANCORP, INC. |

(1)Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mid Penn Bancorp, Inc. (“Mid Penn” or the “Corporation”), its wholly-owned subsidiary, Mid Penn Bank (the “Bank”), and non-bank subsidiaries which were established during 2020, including MPB Financial Services, LLC, under which two additional non-bank subsidiaries have been established: (i) MPB Wealth Management, LLC, created to expand the wealth management services of the Corporation, and (ii) MPB Risk Services, LLC, created to fulfill the insurance needs of both existing and potential customers of the Corporation. As of September 30, 2021, the accounts and activities of these non-bank subsidiaries established in 2020 were not material to warrant separate disclosure or segment reporting. All material intercompany accounts and transactions have been eliminated in consolidation.

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Mid Penn believes the information presented is not misleading, and the disclosures are adequate. For comparative purposes, the balances for the periods ending September 30, 2020 and December 31, 2020 have been reclassified, when necessary, to conform to the 2021 presentation. Such reclassifications had no impact on net income or total shareholders’ equity. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year. Except for adjustments made related to the adoption of new accounting standards, in the opinion of management, all adjustments necessary for fair presentation of the periods presented have been reflected in the accompanying consolidated financial statements. All such adjustments are of a normal, recurring nature. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

On June 30, 2021, Mid Penn entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Riverview Financial Corporation (“Riverview”) pursuant to which Riverview will merge with and into Mid Penn (the “Merger”), with Mid Penn being the surviving corporation in the Merger. Refer to (i) Note 15, Agreement and Plan of Merger; (ii) Part II, Item 1A “Risk Factors”, and (iii) the Form 8-K filed on June 30, 2021, for more information and considerations regarding the proposed Merger.

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2021, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the issuance date of these consolidated financial statements.

(2)Summary of Significant Accounting Policies

The accounting and reporting policies of Mid Penn conform with accounting principles as required under GAAP and general practices within the financial industry. The following is a description of the more significant accounting policies.

Investment Securities

Securities to be held for indefinite periods, but not intended to be held to maturity, are classified as available for sale and carried at fair value. Securities held for indefinite periods include securities that management intends to use as part of its asset and liability management strategy and pledging requirements, and that may be sold in response to liquidity needs, changes in interest rates, resultant prepayment risk, reductions in pledging levels, and other factors related to effective portfolio management. Securities to be held to maturity are carried at amortized cost.

For available-for-sale debt securities, realized gains and losses on dispositions are based on the difference between net proceeds and the amortized cost of the securities sold, using the specific identification method. Unrealized gains and losses on debt securities are based on the difference between the amortized cost and fair value of each security as of the respective reporting date. Unrealized gains and losses are credited or charged to other comprehensive income on an after-tax basis, whereas realized gains and losses flow through Mid Penn’s consolidated statement of income for the respective period.

ASC Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess, in addition to the credit condition of the underlying issuer, whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the Corporation will recover the cost basis of the investment.

In instances when a determination is made that an other-than-temporary impairment of a debt security exists but the Corporation does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, this guidance changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss), and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

10

MID PENN BANCORP, INC. |

Equity Securities

In accordance with ASC Topic 825, Financial Instruments, Mid Penn reports its equity securities with readily determinable fair values at fair value on the Consolidated Balance Sheets, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income. Mid Penn’s equity securities consisted of Community Reinvestment Act (“CRA”) funds with a fair value totaling $505,000 and $515,000 as of September 30, 2021 and December 31, 2020, respectively. No equity securities were sold during the three or nine months ended September 30, 2021 or September 30, 2020.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans, generally being amortized over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loan portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial and industrial, commercial real estate, commercial real estate-construction and lease financing. Consumer loans consist of the following classes: residential mortgage loans, home equity loans and other consumer loans.

For all classes of loans, the accrual of interest generally is discontinued when the contractual payment of principal or interest has become 90 days or more past due, or management has serious doubts about further collectability of principal or interest even though the loan is currently performing. A loan past due 90 days or more may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest is credited to income. Interest received on nonaccrual loans, including impaired loans, is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Nonaccrual loans may be restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally, at least nine consecutive months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Commercial and Industrial Loans

Mid Penn originates commercial and industrial loans. Most of the Bank’s commercial and industrial loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory, and accounts receivable. Commercial loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Generally, the maximum term on non-mortgage lines of credit is one year. The loan-to-value ratio on such loans and lines of credit generally may not exceed 80 percent of the value of the collateral securing the loan. The Bank’s commercial business lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower. Analysis of the borrower’s past, present, and future cash flows is also an important aspect of the Bank’s current credit analysis. Nonetheless, such loans are believed to carry higher credit risk than other extensions of credit.

Commercial and industrial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, which, in turn, is likely to be dependent upon the general economic environment. Mid Penn’s commercial and industrial loans are usually, but not always, secured by business assets and personal guarantees. However, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business.

Commercial Real Estate and Commercial Real Estate – Construction Loans

Commercial real estate and commercial real estate construction loans generally present a higher level of risk than loans secured by one-to-four family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. In addition, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

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Residential Mortgage Loans

Mid Penn offers a wide array of residential mortgage loans for both permanent structures and those under construction. The Bank’s residential mortgage originations are secured primarily by properties located in its primary market and surrounding areas. Residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 percent of the lesser of the appraised value of the security property or the contract price. Private mortgage insurance is generally required in an amount sufficient to reduce the Bank’s exposure to at or below the 85 percent loan to value level. Residential mortgage loans generally do not include prepayment penalties.

In underwriting residential mortgage loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Most properties securing real estate loans made by Mid Penn are appraised by independent fee appraisers. The Bank generally requires borrowers to obtain title insurance and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. Real estate loans originated by the Bank generally contain a “due on sale” clause allowing the Bank to declare the unpaid principal balance due and payable upon the sale of the security property.

The Bank underwrites residential mortgage loans to the standards established by the secondary mortgage market, i.e., Fannie Mae, Ginnie Mae, Freddie Mac, Federal Home Loan Bank, or Pennsylvania Housing Finance Agency standards, with the intention of selling the majority of residential mortgages originated into the secondary market. In the event that the facts and circumstances surrounding a residential mortgage application do not meet the required underwriting conditions of the secondary mortgage market, the Bank will evaluate the failed conditions and evaluate the potential risk of holding the residential mortgage in the Bank’s portfolio rather than rejecting the loan request. In the event that the loan is funded and held in the Bank’s portfolio, the interest rate on the residential mortgage would be increased to compensate for the added portfolio risk.

Consumer Loans, Including Home Equity Credits

Mid Penn offers a variety of secured consumer loans, including home equity, automobile, and deposit secured loans. In addition, the Bank offers other secured and unsecured consumer loans. Most consumer loans are originated in Mid Penn’s primary market and surrounding areas.

The largest component of Mid Penn’s consumer loan portfolio consists of fixed rate home equity loans and variable rate home equity lines of credit. Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences. The Bank will lend amounts, which, together with all prior liens, typically may be up to 85 percent of the appraised value of the property securing the loan. Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of five years.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts, and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt. Generally, foreclosure actions could become more prevalent if the real estate market weakens and property values deteriorate.

Payroll Protection Program (“PPP”) Loans

Included in total loans as of September 30, 2021, within the commercial and industrial loan portfolio classification, are $229,679,000 of Paycheck Protection Program (“PPP”) loans, net of deferred fees, with this total being comprised of (i) $216,187,000 of PPP 2021 loans, net of deferred fees, originated during the first half of 2021; and (ii) $13,492,000 of PPP 2020 loans, net of deferred fees, originated during 2020 which, as of September 30, 2021, were still outstanding as the Small Business Administration (“SBA”) had not yet completed the loan forgiveness and repayment processing. Comparatively, as of December 31, 2020, Mid Penn had $388,313,000 of PPP 2020 loans outstanding, net of deferred fees. Mid Penn has been a significant participating lender under the PPP, which was originally created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, and extended by the signing of the Consolidated Appropriations Act, 2021 into law on December 27, 2020, and further extended to May 31, 2021 by the PPP Extension Act of 2021. The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term.

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The SBA also provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee generally ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. As of September 30, 2021, Mid Penn had received $38,880,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the PPP initiative, consisting of (i) $20,883,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $17,997,000 of loan processing fees received related to PPP loans funded during the nine months ended September 30, 2021. In addition to receiving and deferring the processing fees, Mid Penn recorded and deferred related loan origination costs, and in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, the processing fees and loan origination costs are being amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each respective loan. As of September 30, 2021, Mid Penn had $8,236,000 of PPP deferred loan processing fees not yet realized as income, consisting of (i) $90,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $8,146,000 of loan processing fees received related to PPP loans funded during the first half of 2021. Comparatively, as of December 31, 2020, Mid Penn had $7,746,000 of PPP deferred loan processing fees not yet realized as income, all resulting from PPP loans funded during the year ended December 31, 2020. Mid Penn recognized $6,237,000 of PPP processing fees during the quarter ended September 30, 2021, compared to $2,583,000 of PPP processing fees for the same period of 2020. During the nine months ended September 30, 2021 and 2020, Mid Penn recognized $17,528,000 and $4,954,000 of PPP processing fees, respectively. PPP processing fees are reflected within interest and fees on loans and leases on the Consolidated Statements of Income.

Allowance for Loan and Lease Losses

The allowance for credit losses (“allowance”) and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not required to adopted the current expected credit loss (“CECL”) accounting standard until January 1, 2023, and Mid Penn has not elected to early adopt CECL. The allowance consists of (i) the allowance for loan and lease losses, and (ii) the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The reserve for unfunded lending commitments was $68,000 at September 30, 2021 and $66,000 at December 31, 2020.

The allowance is increased by the provision for loan and lease losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance. The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in relevant analyses and a narrative accompanying the allowance for loan loss calculation.

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The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific and general components. For example, at times Mid Penn could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral, or unforeseeable effects on the portfolio from other influences, inducing the long-term impact of the pandemic. Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses. This includes, but is not limited to, (i) the unpredictable timing and amounts of charge-offs, (ii) the fact that historical loss averages don’t necessarily correlate to future loss trends, (iii) data and trends supporting qualitative factor judgements may not be indicative of the true nature of future period risks, and (iv) unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors.

Mid Penn generally considers a commercial loan (consisting of commercial and industrial, commercial real estate, commercial real estate-construction, and lease financing loan classes) to be impaired when it becomes 90 days or more past due and not in the process of collection, or sooner when it is probable that Mid Penn will be unable to collect all contractual principal and interest due. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time, the loan would generally be considered collateral dependent as the discounted cash flow method would generally indicate no operating income available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

In addition, Mid Penn’s rating system assumes any loans classified as nonaccrual, included in the substandard rating, to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans classified as substandard nonaccrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans. Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection. The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for commercial loans and commercial real estate loans. The remaining balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system. A preliminary collateral evaluation, in accordance with the guidance on impaired loans, is prepared using the existing collateral information in the loan file. This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation. This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist.

It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances, a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, the independent third party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on nonaccrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case by case analysis of the impaired loans.

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Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for nine consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired.

The allowance calculation methodology includes segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Any loans not classified as noted above are rated pass.

In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. No such additions were required from any recent examinations.

Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Mid Penn had $229,679,000 and $388,313,000 of PPP loans outstanding, net of deferred fees, as of September 30, 2021 and December 31, 2020, respectively, which though they are classified as commercial and industrial credits, the PPP loans are guaranteed by the Small Business Administration and, thus, have no loss reserve allocated to them.

Acquired Loans

Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses. Loans acquired at fair value and included in the balance of loans and leases, net of unearned interest on the Consolidated Balance Sheets totaled $213,878,000 and $276,701,000 as of September 30, 2021 and December 31, 2020, respectively. The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans, and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. These loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require Mid Penn to evaluate the need for an additional allowance. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Mid Penn will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows. To the extent that the expected cash flows of a loan have decreased due to credit deterioration, Mid Penn establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20. These loans are initially recorded at fair value and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

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Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Mid Penn expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Mid Penn may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Mortgage Banking Derivative Financial Instruments

During the third quarter of 2021, Mid Penn began using mortgage banking derivative financial instruments as part of our overall strategy to manage exposure to market risk within our mortgage banking operations, primarily due to fluctuations in interest rates, and to reduce the risk of price volatility of loans in the commitment phase.

In connection with its mortgage banking activities, Mid Penn enters into interest rate lock commitments (IRLCs) to extend credit to a mortgage applicant within a specified period of time, provided certain specified terms and conditions are met, and with both the interest rate and the maximum loan amount set prior to funding. This loan commitment binds Mid Penn (subject to approval of the loan) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. Outstanding IRLCs may expose Mid Penn to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The IRLC does not contractually obligate the borrower to close the loan, regardless of whether Mid Penn approves the loan.

Mid Penn originates all mortgage loans with the intention that the loans will be held for sale in the secondary market. Mid Penn enters into forward mortgage loan sales commitments shortly after extending an IRLC to the borrower to mitigate interest rate risk related to the IRLC for mortgage loans originated for sale. Mid Penn enters into mortgage loan sales commitments as either (i) a mandatory commitment, meaning that the loan must be delivered at an agreed-upon price within a specified timeframe, or (ii) a best-effort commitment, meaning that the loan will be delivered if and when it closes, with a price that is typically less favorable than a mandatory commitment and often with a large markup. If a mandatory commitment is not delivered within the agreed-upon timeframe or price point, Mid Penn would likely be required to “pair out” of the commitment and may be subject to a pair-off fee. In addition, Mid Penn enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale.

Mandatory forward loan sales commitments are accounted for as freestanding derivative instruments and are carried at fair value equal to the amount required to settle the commitment as of the reporting date based on the underlying mortgage loans and the probability of commitments being exercised. Gross derivative assets and labilities are recorded within other assets and other liabilities on the consolidated balance sheet, with changes in fair value during the period recorded in other noninterest income in the Consolidated Statements of Income.

Best effort forward sales commitments are financial instruments which are carried at fair value under ASC 825 – Financial Instruments. Fair value is estimated as the amount required to settle the commitment as of the reporting date, which is based on the underlying mortgage loans and the probability of commitments being exercised. Gross derivative assets and liabilities are recorded within other assets and other liabilities on the consolidated balance sheet, with changes in fair value during the period in other noninterest income in the Consolidated Statements of Income.

Loan-Level Interest Rate Swaps

Beginning during the second quarter of 2020, Mid Penn entered into loan-level interest rate swaps (“swaps”) to facilitate certain customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. A loan-level interest rate swap is a contract in which the series of interest rate flows (fixed and variable) are exchanged over the term of a loan with certain qualifying commercial loan customers, and Mid Penn simultaneously enters into an interest rate swap with a dealer counterparty with identical notional amounts and terms. The net result of these swaps is that the customer pays a fixed interest rate and Mid Penn receives a floating interest rate. The swap positions with customers are equally offset with the dealer counterparties to minimize the potential impact on Mid Penn’s financial statements.

Pursuant to our agreements with the dealer counterparties, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, including the possibility that we will incur a loss because a party to the agreements, which may be a dealer counterparty or a customer, fails to meet its contractual obligations. Derivative contracts may only be executed with dealer counterparties as approved by our Board of Directors. Similarly, derivatives with customers may only be executed with customers within credit exposure limits as approved by our Board of Directors. Loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

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Bank Premises and Equipment Held for Sale

Bank premises and equipment designated as held for sale are carried at the lower of cost or market value, and at September 30, 2021 and December 31, 2020, consisted of one former retail banking property which was closed and listed for sale on December 31, 2020 totaling $210,000. Bank premises and equipment designated as held for sale is included within other assets on the Consolidated Balance Sheets. There were no impairment charges recorded during the three or nine months ended September 30, 2021 or 2020.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale consist primarily of real estate acquired through, or in lieu of, foreclosure in settlement of debt, and are recorded at fair value less the selling costs at the date of transfer, establishing a new cost basis. Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses. Subsequent to acquisition, foreclosed assets are carried at fair value less estimated costs of disposal, based upon periodic evaluations that consider changes in market conditions and development and disposal costs. Operating results from assets acquired in satisfaction of debt, including rental income less operating costs and gains or losses on the sale of, or the periodic evaluation of foreclosed assets, are recorded in noninterest expense.

As of September 30, 2021, Mid Penn had no residential real estate held in other real estate owned and no loans for which formal foreclosure proceedings were in process. As of December 31, 2020, Mid Penn had $134,000 of residential real estate held in other real estate owned and $13,000 in loans for which formal foreclosure proceedings were in process.

Leases

Mid Penn leases certain premises and equipment and, as of January 1, 2019, for all leases in effect upon adoption of Accounting Standards Update 2016-02, Leases (Topic 842), as well as any leases commencing thereafter, Mid Penn has recognized a right-of-use asset and a related lease liability for each distinct lease agreement. The lease right-of-use asset consists of the amount of the initial measurement of the lease liability, adjusted for (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and (ii) any initial direct costs incurred by the lessee (defined as costs of a lease that would not have been incurred had the lease not been executed). The related lease liability is equal to the present value of the future lease payments, discounted using the rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Given that the rate implicit in the lease is rarely available, all lease liability amounts were calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.

Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis. Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the right-of-use asset. Finance lease expense consists of the amortization of the right-of-use asset, recognized as a component of occupancy expense on the Consolidated Statements of Income, and interest expense on the lease liability, which is recorded as a component of other interest expense on the Consolidated Statements of Income.

In assessing whether a contract contains a lease, Mid Penn reviews third-party agreements to determine if the contract conveys the right to control the use of identified property, plant, or equipment (defined as an identified asset by Topic 842) for a period of time in exchange for consideration, and grants Mid Penn the right to both (i) obtain substantially all of the economic benefits from the identified asset’s use, and (ii) direct the use of the identified asset throughout the term of the agreement.

Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the (i) lease components, consisting of consideration paid to transfer a good or service to Mid Penn, and (ii) non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance.

Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term. These renewal and extension options were not included in the calculation of the right-of-use assets and lease liabilities as Mid Penn is not reasonably certain that these renewals and extensions will be utilized. Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of right-of-use assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred.

None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments. Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations.

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MID PENN BANCORP, INC. |

Investments in Limited Partnerships

Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania. The carrying value of Mid Penn’s investment in the limited partnership was $113,000 at September 30, 2021, and $146,000 at December 31, 2020, net of amortization, using the straight-line method. The investment in this limited partnership is reported in other assets on the Consolidated Balance Sheets, and Mid Penn’s maximum exposure to loss is limited to the carrying value of the investment.

Mid Penn also has a limited partnership interest in a low-income housing project with thirty-seven apartments and common amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of amortization to date, was $6,150,000 and $6,682,000 on September 30, 2021 and December 31, 2020, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units qualified for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution totaled $7,506,000 and the investment was fully funded within a three-year period beginning in 2018 and ending during the first quarter of 2021. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period using the cost amortization method which began upon commencement of operations of the facility in December 2019. The project was formally awarded $8,530,000 in total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2019 through November 2029, with an annual LIHTC amount of approximately $853,000 to be awarded to Mid Penn in the year-ended December 31, 2021.

Core Deposit Intangible

Core deposit intangible is a measure of the value of consumer demand and savings deposits acquired in business combinations accounted for as purchases. The carrying amount of core deposit intangible was $3,506,000 and $4,311,000 at September 30, 2021 and December 31, 2020, respectively. Core deposit amortization expense is reflected in the Consolidated Statements of Income in intangible amortization and was $805,000 and $919,000 for the nine months ended September 30, 2021 and 2020, respectively. Core deposit amortization was $262,000 and $300,000 for the three months ended September 30, 2021 and 2020, respectively. The core deposit intangible is being amortized over a ten-year period starting at each respective acquisition date and using the sum-of-the-year’s digits amortization method. The current balance of the core deposit intangible includes unamortized assets from (i) the Phoenix Bancorp, Inc. acquisition (“Phoenix”) in March 2015 (ii) The Scottdale Bank and Trust Company acquisition (“Scottdale”) in January 2018, and (iii) the First Priority Financial Corp. acquisition (“First Priority) in July 2018. Core deposit intangible assets are subject to impairment testing whenever events or changes in circumstances indicate the need for such evaluation. For much of the year ended December 31, 2020, and through the nine months ended September 30, 2021, the novel coronavirus (“COVID-19”) global pandemic has continued to impact the United States including the State of Pennsylvania and Mid Penn’s market area and communities and customers. Accordingly, Mid Penn management evaluated whether this ongoing COVID-19 pandemic resulted in any impairment to Mid Penn’s business and the value of its acquired consumer demand and savings deposit base. Management’s determination was that there was no impairment to its core deposit intangible to date as a result of the pandemic or related factors. Supporting this assertion, and as reflected in the Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, Mid Penn has recognized substantial total deposit growth of $487,300,000 or 20 percent (26 percent annualized) during the first nine months of 2021, and total deposit growth of $562,186,000 or 29 percent during the year ended December 31, 2020, with none of this growth attributable to brokered deposits. Subsequent to September 30, 2021, and through the date of this filing, these increased deposit levels were sustained and continued to reflect no evidence of core deposit intangible impairment.

Goodwill

Goodwill is the excess of the purchase price over the fair value of assets acquired in connection with past business acquisitions. The goodwill balance was $62,840,000 at both September 30, 2021 and December 31, 2020, and was comprised of (i) $39,744,000 related to the July 31, 2018 First Priority acquisition, (ii) $19,178,000 related to the January 8, 2018 Scottdale acquisition and (iii) $3,918,000 recorded as a result of the Phoenix acquisition in 2015. Goodwill is evaluated annually for impairment; however, if certain events occur which indicate goodwill might be impaired between annual tests, goodwill would be tested for impairment when such events occur. In making a potential impairment assessment of goodwill, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of goodwill impairment. Mid Penn did not identify any impairment on its outstanding goodwill from its most recent comprehensive impairment evaluation which was performed as of October 31, 2020 and has been evaluated regularly for impairment given the ongoing pandemic.

For the prior year third quarter and nine-month reporting periods, and in support of the related Corporation and Bank financial reports, Mid Penn management performed a “Step One” goodwill analysis to determine whether the current or expected impact from the COVID-19 global pandemic resulted in any impairment to Mid Penn’s business and the recorded value of its goodwill intangible asset. Based upon this goodwill analysis, Mid Penn management determined that there was no impairment to its goodwill in the interim 2020 periods. Changes in economic and operating conditions, including those resulting from the continuing COVID-19 pandemic and its implications to the country, the economy, and specifically Mid Penn continue to evolve, could result in goodwill impairment in future periods.

Revenue from Contracts with Customers

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MID PENN BANCORP, INC. |

Mid Penn recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for Mid Penn is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts. Mid Penn earns noninterest income through a variety of financial and transactional services such as trust and wealth management services, deposit account transaction fees, ATM debit card fees, and mortgage banking fees. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses.

On January 1, 2018, Mid Penn adopted FASB Topic 606, Revenue from Contracts with Customers. This ASU establishes principles for reporting information about the nature, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods and services to customers. Topic 606 applies primarily to transactional-based non-interest income revenue streams and excludes mortgage banking income, earnings from cash surrender value of life insurance, and gains on SBA loans.

Mid Penn’s non-interest income revenue streams of income from fiduciary activities, service charges on deposits, ATM debit card interchange income, merchant service fees and certain components of other income are within the scope of Topic 606 and are discussed in greater detail below.

Income from Fiduciary and Wealth Management Activities

Income from fiduciary and wealth management activities consist of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income. Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned. Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur. Payment is typically received in the following month. Estate fee income is recognized as services are performed over the service period, generally eighteen months.

Service Charges on Deposits

Service charges on deposits consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts. Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.

ATM Debit Card Interchange Income

ATM debit card interchange income consists of interchange fees earned when Mid Penn’s debit cards are processed through card payments networks. The interchange fee is calculated as a percentage of the total electronic funds transfer (EFT) transaction plus a per-transaction fee, which varies based on the type of card used, the method used to process the EFT transaction, and the type of business at which the transaction was processed. Revenue is recognized daily as transactions occur and interchange fees are subsequently processed. Payment for most interchange activity is received daily, while some fees are aggregated and payment is received in the following month.

Merchant Services Income

Merchant services income is processed through third party providers with whom Mid Penn has partnered to provide merchant services to its business customers. Fees are charged to merchants to process their debit card transactions, cash advance services, and other related products. Mid Penn receives a percentage of the revenue generated from each joint customer relationship after the respective third-party provider has collected the fee income from the merchant. Payment is primarily received in the following month.

Other Income

Certain aspects of other income, such as credit card royalties, check orders, and letter of credit fees, are within the scope of Topic 606. These fees are primarily transactional, and revenue is recognized when transactions occur and the related services are subsequently processed. Payment is primarily received immediately or in the following month.

Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied. Mid Penn has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606.

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MID PENN BANCORP, INC. |

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income. Mid Penn also recognizes other comprehensive income (loss) from an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees. These plans utilize assumptions and methods to calculate the fair value of plan assets and Mid Penn recognizes the overfunded and underfunded status of the plans on its consolidated balance sheet. Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment.

The components of accumulated other comprehensive income (loss), net of taxes, are as follows:

(Dollars in thousands) |  | Unrealized Loss on Securities |  |  | Defined Benefit Plans |  |  | Accumulated Other Comprehensive Income (Loss) |
Balance - September 30, 2021 |  | $ | (14 | ) |  | $ | 161 |  |  | $ | 147 |
Balance - December 31, 2020 |  | $ | (3 | ) |  | $ | (54 | ) |  | $ | (57 | )

Earnings Per Common Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each of the periods presented. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus common shares that would have been outstanding if dilutive potential common shares, consisting of unvested restricted stock, had been issued. The effect of dilutive unvested restricted stock was not material and did not result in a difference, when rounded to the whole cent, between the basic earnings per share compared to the diluted earnings per share for any of the periods presented.

As previously announced on a Form 8-K on May 4, 2021, Mid Penn completed an underwritten public offering of 2,990,000 shares of common stock at a price of $25.00 per share, with the aggregate gross proceeds of the offering totaling $74,750,000 before underwriting discounts and offering expenses. The net proceeds of the offering after deducting the underwriting discount and other offering expenses were $70,238,000. The additional shares issued on May 4, 2021 significantly impacted the weighted average number of shares outstanding used for both the third quarter of 2021 and year-to-date 2021 earnings per share calculations.

The following data shows the amounts used in computing basic and diluted earnings per common share.

(Dollars in thousands, except per share data) | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2021 |  |  |  | 2020 |  |  | 2021 |  |  |  | 2020 |
Net income | $ | 9,787 |  |  | $ | 6,547 |  |  |  | $ | 28,712 |  |  | $ | 17,198 |
Weighted average common shares outstanding (basic) |  | 11,423,487 |  |  |  | 8,415,252 |  |  |  |  | 10,064,655 |  |  |  | 8,447,417 |
Effect of dilutive unvested restricted stock grants |  | 8,605 |  |  |  | 3,678 |  |  |  |  | 12,753 |  |  |  | 580 |
Weighted average common shares outstanding (diluted) |  | 11,432,092 |  |  |  | 8,418,930 |  |  |  |  | 10,077,408 |  |  |  | 8,447,997 |
Basic earnings per common share | $ | 0.86 |  |  | $ | 0.78 |  |  |  | $ | 2.85 |  |  | $ | 2.04 |
Diluted earnings per common share | $ | 0.86 |  |  | $ | 0.78 |  |  |  | $ | 2.85 |  |  | $ | 2.04 |

There were no antidilutive instruments at September 30, 2021 and 2020.

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MID PENN BANCORP, INC. |

(3)Investment Securities

The majority of the investment portfolio is comprised of securities issued by state and political subdivision obligations and U.S. Treasury and government agencies. The amortized cost, fair value, and unrealized gains and losses on investment securities at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands) |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed U.S. government agencies |  | $ | 2 |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |
Corporate debt securities |  |  | 5,031 |  |  |  | — |  |  |  | 18 |  |  |  | 5,013 |
Total available-for-sale debt securities |  |  | 5,033 |  |  |  | — |  |  |  | 18 |  |  |  | 5,015 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | $ | 43,732 |  |  | $ | 24 |  |  | $ | 334 |  |  | $ | 43,422 |
Mortgage-backed U.S. government agencies |  |  | 27,799 |  |  |  | 690 |  |  |  | 3 |  |  |  | 28,486 |
State and political subdivision obligations |  |  | 67,251 |  |  |  | 2,475 |  |  |  | 39 |  |  |  | 69,687 |
Corporate debt securities |  |  | 14,009 |  |  |  | 151 |  |  |  | 75 |  |  |  | 14,085 |
Total held-to-maturity debt securities |  |  | 152,791 |  |  |  | 3,340 |  |  |  | 451 |  |  |  | 155,680 |
Total |  | $ | 157,824 |  |  | $ | 3,340 |  |  | $ | 469 |  |  | $ | 160,695 |

(Dollars in thousands) |  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Fair |
|  | Cost |  |  | Gains |  |  | Losses |  |  | Value |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed U.S. government agencies |  | $ | 2 |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |
Corporate debt securities |  |  | 5,750 |  |  |  | — |  |  |  | 4 |  |  |  | 5,746 |
Total available-for-sale debt securities |  |  | 5,752 |  |  |  | — |  |  |  | 4 |  |  |  | 5,748 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | $ | 11,511 |  |  | $ | 66 |  |  | $ | — |  |  | $ | 11,577 |
Mortgage-backed U.S. government agencies |  |  | 40,810 |  |  |  | 948 |  |  |  | 15 |  |  |  | 41,743 |
State and political subdivision obligations |  |  | 65,449 |  |  |  | 3,295 |  |  |  | 6 |  |  |  | 68,738 |
Corporate debt securities |  |  | 10,522 |  |  |  | 215 |  |  |  | 1 |  |  |  | 10,736 |
Total held-to-maturity debt securities |  |  | 128,292 |  |  |  | 4,524 |  |  |  | 22 |  |  |  | 132,794 |
Total |  | $ | 134,044 |  |  | $ | 4,524 |  |  | $ | 26 |  |  | $ | 138,542 |

Estimated fair values of debt securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices of instruments of a similar type, credit quality and structure, adjusted for differences between the quoted instruments and the instruments being valued. Please refer to Note 7, Fair Value Measurement, for more information on the fair value of investment securities.

Investment securities having a fair value of $137,452,000 at September 30, 2021 and $102,959,000 at December 31, 2020 were pledged to secure public deposits, some Trust department deposit accounts, and certain other borrowings. In accordance with legal provisions for alternatives other than pledging of investments, Mid Penn also obtains letters of credit from the Federal Home Loan Bank of Pittsburgh (“FHLB”) to secure certain public deposits. These FHLB letter of credit commitments totaled $362,520,000 as of September 30, 2021 and $288,950,000 as of December 31, 2020.

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The following tables present gross unrealized losses and fair value of debt security investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020.

(Dollars in thousands) |  | Less Than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Number |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |
|  | of |  | Fair |  |  | Unrealized |  |  | of |  | Fair |  |  | Unrealized |  |  | of |  | Fair |  |  | Unrealized |
September 30, 2021 |  | Securities |  | Value |  |  | Losses |  |  | Securities |  | Value |  |  | Losses |  |  | Securities |  | Value |  |  | Losses |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate debt securities |  | 3 |  | $ | 2,982 |  |  | $ | 18 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 3 |  | $ | 2,982 |  |  | $ | 18 |
Total temporarily impaired available-for-sale debt securities |  | 3 |  | $ | 2,982 |  |  | $ | 18 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 3 |  | $ | 2,982 |  |  | $ | 18 |
Held-to-maturity debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury and U.S. government agencies |  | 25 |  | $ | 37,598 |  |  | $ | 334 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 25 |  | $ | 37,598 |  |  | $ | 334 |
Mortgage-backed U.S. government agencies |  | 2 |  |  | 566 |  |  |  | 3 |  |  | 0 |  |  | — |  |  |  | — |  |  | 2 |  |  | 566 |  |  |  | 3 |
State and political subdivision obligations |  | 14 |  |  | 3,849 |  |  |  | 32 |  |  | 1 |  |  | 250 |  |  |  | 7 |  |  | 15 |  |  | 4,099 |  |  |  | 39 |
Corporate debt securities |  | 5 |  |  | 5,924 |  |  |  | 75 |  |  | 0 |  |  | — |  |  |  | — |  |  | 5 |  |  | 5,924 |  |  |  | 75 |
Total temporarily impaired held-to-maturity debt securities |  | 46 |  |  | 47,937 |  |  |  | 444 |  |  | 1 |  |  | 250 |  |  |  | 7 |  |  | 47 |  |  | 48,187 |  |  |  | 451 |
Total |  | 49 |  | $ | 50,919 |  |  | $ | 462 |  |  | 1 |  | $ | 250 |  |  | $ | 7 |  |  | 50 |  | $ | 51,169 |  |  | $ | 469 |

(Dollars in thousands) |  | Less Than 12 Months |  |  | 12 Months or More |  |  | Total |
|  | Number |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |  |  | Number |  |  |  |  |  |  |  |
|  | of |  | Fair |  |  | Unrealized |  |  | of |  | Fair |  | Unrealized |  |  | of |  | Fair |  |  | Unrealized |
December 31, 2020 |  | Securities |  | Value |  |  | Losses |  |  | Securities |  | Value |  | Losses |  |  | Securities |  | Value |  |  | Losses |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate debt securities |  | 2 |  | $ | 3,497 |  |  | $ | 4 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 2 |  | $ | 3,497 |  |  | $ | 4 |
Total temporarily impaired available-for-sale securities |  | 2 |  | $ | 3,497 |  |  | $ | 4 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 2 |  | $ | 3,497 |  |  | $ | 4 |
Held-to-maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed U.S. government agencies |  | 8 |  | $ | 5,336 |  |  | $ | 15 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 8 |  | $ | 5,336 |  |  | $ | 15 |
State and political subdivision obligations |  | 2 |  |  | 801 |  |  |  | 6 |  |  | 0 |  |  | — |  |  |  | — |  |  | 2 |  |  | 801 |  |  |  | 6 |
Corporate debt securities |  | 1 |  |  | 449 |  |  |  | 1 |  |  | 0 |  |  | — |  |  |  | — |  |  | 1 |  |  | 449 |  |  |  | 1 |
Total temporarily impaired held to maturity securities |  | 11 |  |  | 6,586 |  |  |  | 22 |  |  | 0 |  |  | — |  |  |  | — |  |  | 11 |  |  | 6,586 |  |  |  | 22 |
Total |  | 13 |  | $ | 10,083 |  |  | $ | 26 |  |  | 0 |  | $ | — |  |  | $ | — |  |  | 13 |  | $ | 10,083 |  |  | $ | 26 |

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Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such additional evaluation. Consideration is given to the length of time and the extent to which the fair value of the security has been less than amortized cost, as well as the overall financial condition of the issuer. In addition, for debt securities, Mid Penn considers (i) whether management has the intent to sell the security, (ii) whether it is more likely than not that management will be required to sell the security prior to its anticipated recovery, and (iii) whether management expects to recover the entire amortized cost basis. At September 30, 2021, the majority of securities in an unrealized loss position were U.S. government agency securities and state and political subdivision obligations. At December 31, 2020, the majority of securities in an unrealized loss position were U.S. government agency and mortgage-back U.S. government agency securities.

Mid Penn had no securities considered by management to be other-than-temporarily impaired as of September 30, 2021, December 31, 2020, or September 30, 2020, and did not record any securities impairment charges in the respective periods ended on these dates. This determination reflects management’s assessment that no securities in its portfolio were impaired as a result of any COVID-19 pandemic impacts, to date, to the repayment ability of the underlying issuers of securities. Mid Penn does not consider the securities with unrealized losses on the respective dates to be other-than-temporarily impaired as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality.

Gross realized gains and losses on sales of available-for-sale debt securities for the three and nine months ended September 30, 2021 and 2020 are shown in the table below.

(Dollars in thousands) | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Realized gains |  | $ | 79 |  |  |  | $ | 150 |  |  |  | $ | 79 |  |  |  | $ | 405 |
Realized losses |  |  | — |  |  |  |  | — |  |  |  |  | — |  |  |  |  | (12 | )
Net gains |  | $ | 79 |  |  |  | $ | 150 |  |  |  | $ | 79 |  |  |  | $ | 393 |

The table below illustrates the maturity distribution of investment securities at amortized cost and fair value as of September 30, 2021.

(Dollars in thousands) |  | Available-for-sale |  |  | Held-to-maturity |
|  | Amortized |  |  | Fair |  |  | Amortized |  |  | Fair |
September 30, 2021 |  | Cost |  |  | Value |  |  | Cost |  |  | Value |
Due in 1 year or less |  | $ | — |  |  | $ | — |  |  | $ | 3,891 |  |  | $ | 3,920 |
Due after 1 year but within 5 years |  |  | 1,250 |  |  |  | 1,247 |  |  |  | 35,364 |  |  |  | 36,900 |
Due after 5 years but within 10 years |  |  | 3,781 |  |  |  | 3,766 |  |  |  | 85,737 |  |  |  | 86,374 |
Due after 10 years |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 5,031 |  |  |  | 5,013 |  |  |  | 124,992 |  |  |  | 127,194 |
Mortgage-backed securities |  |  | 2 |  |  |  | 2 |  |  |  | 27,799 |  |  |  | 28,486 |
|  | $ | 5,033 |  |  | $ | 5,015 |  |  | $ | 152,791 |  |  | $ | 155,680 |

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(4)Loans and Allowance for Loan and Lease Losses

As of September 30, 2021 and December 31, 2020, the types of loans in Mid Penn’s portfolio, summarized using Mid Penn’s internal risk rating system between those rated “pass” (net of deferred fees and costs of $10,676,000 as of September 30, 2021 and $9,084,000 as of December 31, 2020), which comprise the vast majority of the portfolio, and those classified as “special mention” and “substandard”, are as follows:

(Dollars in thousands) |  |  |  | Special |  |  |  |  |  |
September 30, 2021 |  | Pass |  |  | Mention |  |  | Substandard |  |  | Total |
Commercial and industrial |  | $ | 620,219 |  |  | $ | 9,957 |  |  | $ | 2,504 |  |  | $ | 632,680 |
Commercial real estate |  |  | 1,126,698 |  |  |  | 6,926 |  |  |  | 7,721 |  |  |  | 1,141,345 |
Commercial real estate - construction |  |  | 313,854 |  |  |  | 581 |  |  |  | 22 |  |  |  | 314,457 |
Residential mortgage |  |  | 193,831 |  |  |  | 103 |  |  |  | 1,702 |  |  |  | 195,636 |
Home equity |  |  | 75,338 |  |  |  | — |  |  |  | 2,674 |  |  |  | 78,012 |
Consumer |  |  | 8,299 |  |  |  | — |  |  |  | — |  |  |  | 8,299 |
|  | $ | 2,338,239 |  |  | $ | 17,567 |  |  | $ | 14,623 |  |  | $ | 2,370,429 |

(Dollars in thousands) |  |  |  |  |  | Special |  |  |  |  |  |  |  |  |
December 31, 2020 |  | Pass |  |  | Mention |  |  | Substandard |  |  | Total |
Commercial and industrial |  | $ | 739,306 |  |  | $ | 9,928 |  |  | $ | 3,120 |  |  | $ | 752,354 |
Commercial real estate |  |  | 1,084,123 |  |  |  | 1,708 |  |  |  | 13,825 |  |  |  | 1,099,656 |
Commercial real estate - construction |  |  | 248,882 |  |  |  | — |  |  |  | 31 |  |  |  | 248,913 |
Residential mortgage |  |  | 200,544 |  |  |  | 53 |  |  |  | 1,244 |  |  |  | 201,841 |
Home equity |  |  | 71,856 |  |  |  | 3 |  |  |  | 2,365 |  |  |  | 74,224 |
Consumer |  |  | 7,053 |  |  |  | — |  |  |  | — |  |  |  | 7,053 |
|  | $ | 2,351,764 |  |  | $ | 11,692 |  |  | $ | 20,585 |  |  | $ | 2,384,041 |

All PPP loans, whether disbursed in 2020 or 2021, are included in commercial and industrial loans and are fully guaranteed by the SBA; therefore, all PPP loans outstanding (net of the related deferred PPP fees) are classified as “pass” within Mid Penn’s internal risk rating system as of September 30, 2021.

Mid Penn had no loans classified as “doubtful” as of September 30, 2021 and December 31, 2020.

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MID PENN BANCORP, INC. |

Impaired loans by loan portfolio class as of September 30, 2021 and December 31, 2020 are summarized as follows:

|  | September 30, 2021 |  |  | December 31, 2020 |
(Dollars in thousands) |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 5 |  |  | $ | 36 |  |  | $ | — |  |  | $ | 899 |  |  | $ | 931 |  |  | $ | — |
Commercial real estate |  |  | 920 |  |  |  | 1,309 |  |  |  | — |  |  |  | 8,215 |  |  |  | 8,574 |  |  |  | — |
Commercial real estate - construction |  |  | 22 |  |  |  | 27 |  |  |  | — |  |  |  | 31 |  |  |  | 34 |  |  |  | — |
Residential mortgage |  |  | 1,276 |  |  |  | 1,309 |  |  |  | — |  |  |  | 818 |  |  |  | 842 |  |  |  | — |
Home equity |  |  | 2,420 |  |  |  | 2,423 |  |  |  | — |  |  |  | 2,365 |  |  |  | 2,395 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With no related allowance recorded and acquired with credit deterioration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial real estate |  |  | 1,355 |  |  |  | 1,590 |  |  |  | — |  |  |  | 1,419 |  |  |  | 1,693 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | 273 |  |  |  | 620 |  |  |  | — |  |  |  | 323 |  |  |  | 568 |  |  |  | — |
Home equity |  |  | — |  |  |  | 11 |  |  |  | — |  |  |  | — |  |  |  | 13 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 216 |  |  | $ | 247 |  |  | $ | 69 |  |  | $ | 553 |  |  | $ | 574 |  |  | $ | 533 |
Commercial real estate |  |  | 294 |  |  |  | 363 |  |  |  | 129 |  |  |  | 887 |  |  |  | 994 |  |  |  | 274 |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Impaired Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 221 |  |  | $ | 283 |  |  | $ | 69 |  |  | $ | 1,452 |  |  | $ | 1,505 |  |  | $ | 533 |
Commercial real estate |  |  | 2,569 |  |  |  | 3,262 |  |  |  | 129 |  |  |  | 10,521 |  |  |  | 11,261 |  |  |  | 274 |
Commercial real estate - construction |  |  | 22 |  |  |  | 27 |  |  |  | — |  |  |  | 31 |  |  |  | 34 |  |  |  | — |
Residential mortgage |  |  | 1,549 |  |  |  | 1,929 |  |  |  | — |  |  |  | 1,141 |  |  |  | 1,410 |  |  |  | — |
Home equity |  |  | 2,420 |  |  |  | 2,434 |  |  |  | — |  |  |  | 2,365 |  |  |  | 2,408 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |

25

MID PENN BANCORP, INC. |

The average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

|  | Three Months Ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
(Dollars in thousands) |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 5 |  |  | $ | — |  |  | $ | 932 |  |  | $ | — |
Commercial real estate |  |  | 938 |  |  |  | — |  |  |  | 7,171 |  |  |  | 5 |
Commercial real estate - construction |  |  | 23 |  |  |  | — |  |  |  | 32 |  |  |  | — |
Residential mortgage |  |  | 1,018 |  |  |  | 6 |  |  |  | 805 |  |  |  | 6 |
Home equity |  |  | 2,379 |  |  |  | — |  |  |  | 2,396 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With no related allowance recorded and acquired with credit deterioration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial real estate |  |  | 1,368 |  |  |  | — |  |  |  | 1,428 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | 281 |  |  |  | — |  |  |  | 347 |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 217 |  |  | $ | — |  |  | $ | 130 |  |  | $ | — |
Commercial real estate |  |  | 1,503 |  |  |  | — |  |  |  | 560 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Impaired Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 222 |  |  | $ | — |  |  | $ | 1,062 |  |  | $ | — |
Commercial real estate |  |  | 3,809 |  |  |  | — |  |  |  | 9,159 |  |  |  | 5 |
Commercial real estate - construction |  |  | 23 |  |  |  | — |  |  |  | 32 |  |  |  | — |
Residential mortgage |  |  | 1,299 |  |  |  | 6 |  |  |  | 1,152 |  |  |  | 6 |
Home equity |  |  | 2,379 |  |  |  | — |  |  |  | 2,396 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |

26

MID PENN BANCORP, INC. |

|  | Nine Months Ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
(Dollars in thousands) |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 379 |  |  | $ | — |  |  | $ | 911 |  |  | $ | — |
Commercial real estate |  |  | 2,671 |  |  |  | 1 |  |  |  | 7,325 |  |  |  | 5 |
Commercial real estate - construction |  |  | 27 |  |  |  | — |  |  |  | 36 |  |  |  | — |
Residential mortgage |  |  | 902 |  |  |  | 20 |  |  |  | 794 |  |  |  | 19 |
Home equity |  |  | 2,364 |  |  |  | — |  |  |  | 1,210 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With no related allowance recorded and acquired with credit deterioration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |
Commercial real estate |  |  | 1,383 |  |  |  | — |  |  |  | 1,423 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | 291 |  |  |  | — |  |  |  | 361 |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 187 |  |  | $ | — |  |  | $ | 67 |  |  | $ | — |
Commercial real estate |  |  | 1,192 |  |  |  | — |  |  |  | 530 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Impaired Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 566 |  |  | $ | — |  |  | $ | 979 |  |  | $ | — |
Commercial real estate |  |  | 5,246 |  |  |  | 1 |  |  |  | 9,278 |  |  |  | 5 |
Commercial real estate - construction |  |  | 27 |  |  |  | — |  |  |  | 36 |  |  |  | — |
Residential mortgage |  |  | 1,193 |  |  |  | 20 |  |  |  | 1,155 |  |  |  | 19 |
Home equity |  |  | 2,364 |  |  |  | — |  |  |  | 1,211 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |

Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of September 30, 2021 and December 31, 2020 are summarized as follows:

(Dollars in thousands) |  | September 30, 2021 |  |  | December 31, 2020 |
Commercial and industrial |  | $ | 221 |  |  | $ | 1,452 |
Commercial real estate |  |  | 2,569 |  |  |  | 10,520 |
Commercial real estate - construction |  |  | 22 |  |  |  | 31 |
Residential mortgage |  |  | 1,107 |  |  |  | 679 |
Home equity |  |  | 2,420 |  |  |  | 2,365 |
|  | $ | 6,339 |  |  | $ | 15,047 |

27

MID PENN BANCORP, INC. |

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The classes of the loan portfolio summarized by the past due status as of September 30, 2021 and December 31, 2020 are summarized as follows:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Loans |
(Dollars in thousands) |  | 30-59 |  |  | 60-89 |  |  | Greater |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Receivable > |
|  | Days Past |  |  | Days Past |  |  | than 90 |  |  | Total Past |  |  |  |  |  |  |  |  |  |  | 90 Days and |
September 30, 2021 |  | Due |  |  | Due |  |  | Days |  |  | Due |  |  | Current |  |  | Total Loans |  |  | Accruing |
Commercial and industrial |  | $ | 360 |  |  | $ | 25 |  |  | $ | 196 |  |  | $ | 581 |  |  | $ | 632,099 |  |  | $ | 632,680 |  |  | $ | — |
Commercial real estate |  |  | 79 |  |  |  | 32 |  |  |  | 779 |  |  |  | 890 |  |  |  | 1,139,100 |  |  |  | 1,139,990 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 314,457 |  |  |  | 314,457 |  |  |  | — |
Residential mortgage |  |  | 64 |  |  |  | 3 |  |  |  | 799 |  |  |  | 866 |  |  |  | 194,497 |  |  |  | 195,363 |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | 2,321 |  |  |  | 2,321 |  |  |  | 75,691 |  |  |  | 78,012 |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 8,299 |  |  |  | 8,299 |  |  |  | — |
Loans acquired with credit deterioration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial real estate |  |  | — |  |  |  | — |  |  |  | 1,349 |  |  |  | 1,349 |  |  |  | 6 |  |  |  | 1,355 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | — |  |  |  | — |  |  |  | 135 |  |  |  | 135 |  |  |  | 138 |  |  |  | 273 |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 503 |  |  | $ | 60 |  |  | $ | 5,579 |  |  | $ | 6,142 |  |  | $ | 2,364,287 |  |  | $ | 2,370,429 |  |  | $ | — |

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Loans |
(Dollars in thousands) |  | 30-59 |  |  | 60-89 |  |  | Greater |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Receivable > |
|  | Days Past |  |  | Days Past |  |  | than 90 |  |  | Total Past |  |  |  |  |  |  |  |  |  |  | 90 Days and |
December 31, 2020 |  | Due |  |  | Due |  |  | Days |  |  | Due |  |  | Current |  |  | Total Loans |  |  | Accruing |
Commercial and industrial |  | $ | 365 |  |  | $ | 1,017 |  |  | $ | 1,377 |  |  | $ | 2,759 |  |  | $ | 749,595 |  |  | $ | 752,354 |  |  | $ | — |
Commercial real estate |  |  | 1,096 |  |  |  | — |  |  |  | 7,668 |  |  |  | 8,764 |  |  |  | 1,089,473 |  |  |  | 1,098,237 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 248,913 |  |  |  | 248,913 |  |  |  | — |
Residential mortgage |  |  | 126 |  |  |  | — |  |  |  | 282 |  |  |  | 408 |  |  |  | 201,110 |  |  |  | 201,518 |  |  |  | — |
Home equity |  |  | 71 |  |  |  | 22 |  |  |  | 2,343 |  |  |  | 2,436 |  |  |  | 71,788 |  |  |  | 74,224 |  |  |  | — |
Consumer |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 6 |  |  |  | 7,047 |  |  |  | 7,053 |  |  |  | — |
Loans acquired with credit deterioration: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Commercial real estate |  |  | 9 |  |  |  | — |  |  |  | 1,402 |  |  |  | 1,411 |  |  |  | 8 |  |  |  | 1,419 |  |  |  | — |
Commercial real estate - construction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential mortgage |  |  | — |  |  |  | — |  |  |  | 168 |  |  |  | 168 |  |  |  | 155 |  |  |  | 323 |  |  |  | — |
Home equity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 1,667 |  |  | $ | 1,045 |  |  | $ | 13,240 |  |  | $ | 15,952 |  |  | $ | 2,368,089 |  |  | $ | 2,384,041 |  |  | $ | — |

28

MID PENN BANCORP, INC. |

The allowance for loan losses and the related loan loss provision for the periods presented reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023, and Mid Penn has not elected to early adopt CECL. PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, no allowance for loan losses was recorded against the $229,679,000 balance of PPP loans outstanding (net of related deferred PPP fees) as of September 30, 2021.

The following tables summarize the allowance and recorded investments in loans receivable.

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of, and for the three months ended, September 30, 2021 |  | Commercial and industrial |  |  | Commercial real estate |  |  | Commercial real estate - construction |  |  | Residential mortgage |  |  | Home equity |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
July 1, 2021 |  | $ | 3,165 |  |  | $ | 9,977 |  |  | $ | 130 |  |  | $ | 499 |  |  | $ | 588 |  |  | $ | 2 |  |  | $ | 355 |  |  | $ | 14,716 |
Charge-offs |  |  | — |  |  |  | (1,043 | ) |  |  | — |  |  |  | (3 | ) |  |  | — |  |  |  | (11 | ) |  |  | — |  |  |  | (1,057 | )
Recoveries |  |  | 1 |  |  |  | 140 |  |  |  | — |  |  |  | 2 |  |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 149 |
Provisions (credits) |  |  | 204 |  |  |  | (112 | ) |  |  | 3 |  |  |  | (8 | ) |  |  | 15 |  |  |  | 5 |  |  |  | 318 |  |  |  | 425 |
Ending balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2021 |  | $ | 3,370 |  |  | $ | 8,962 |  |  | $ | 133 |  |  | $ | 490 |  |  | $ | 603 |  |  | $ | 2 |  |  | $ | 673 |  |  | $ | 14,233 |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of, and for the nine months ended, September 30, 2021 |  | Commercial and industrial |  |  | Commercial real estate |  |  | Commercial real estate - construction |  |  | Residential mortgage |  |  | Home equity |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January 1, 2021 |  | $ | 3,066 |  |  | $ | 8,655 |  |  | $ | 134 |  |  | $ | 429 |  |  | $ | 507 |  |  | $ | 1 |  |  | $ | 590 |  |  | $ | 13,382 |
Charge-offs |  |  | (859 | ) |  |  | (1,043 | ) |  |  | (23 | ) |  |  | (13 | ) |  |  | — |  |  |  | (23 | ) |  |  | — |  |  |  | (1,961 | )
Recoveries |  |  | 2 |  |  |  | 206 |  |  |  | — |  |  |  | 13 |  |  |  | — |  |  |  | 16 |  |  |  | — |  |  |  | 237 |
Provisions |  |  | 1,161 |  |  |  | 1,144 |  |  |  | 22 |  |  |  | 61 |  |  |  | 96 |  |  |  | 8 |  |  |  | 83 |  |  |  | 2,575 |
Ending balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2021 |  |  | 3,370 |  |  |  | 8,962 |  |  |  | 133 |  |  |  | 490 |  |  |  | 603 |  |  |  | 2 |  |  |  | 673 |  |  |  | 14,233 |
Individually evaluated for impairment |  |  | 69 |  |  |  | 129 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 198 |
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collectively evaluated for impairment |  | $ | 3,301 |  |  | $ | 8,833 |  |  | $ | 133 |  |  | $ | 490 |  |  | $ | 603 |  |  | $ | 2 |  |  | $ | 673 |  |  | $ | 14,035 |
Loans receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 632,680 |  |  | $ | 1,141,345 |  |  | $ | 314,457 |  |  | $ | 195,636 |  |  | $ | 78,012 |  |  | $ | 8,299 |  |  | $ | — |  |  | $ | 2,370,429 |
Ending balance: individually evaluated for impairment |  |  | 221 |  |  |  | 1,214 |  |  |  | 22 |  |  |  | 1,276 |  |  |  | 2,420 |  |  |  | — |  |  |  | — |  |  |  | 5,153 |
Ending balance: acquired with credit deterioration |  |  | — |  |  |  | 1,355 |  |  |  | — |  |  |  | 273 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,628 |
Ending balance: collectively evaluated for impairment |  | $ | 632,459 |  |  | $ | 1,138,776 |  |  | $ | 314,435 |  |  | $ | 194,087 |  |  | $ | 75,592 |  |  | $ | 8,299 |  |  | $ | — |  |  | $ | 2,363,648 |

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MID PENN BANCORP, INC. |

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2020 |  | Commercial and industrial |  |  | Commercial real estate |  |  | Commercial real estate - construction |  |  | Residential mortgage |  |  | Home equity |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 3,066 |  |  | $ | 8,655 |  |  | $ | 134 |  |  | $ | 429 |  |  | $ | 507 |  |  | $ | 1 |  |  | $ | 590 |  |  | $ | 13,382 |
Ending balance: individually evaluated for impairment |  |  | 533 |  |  |  | 274 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 807 |
Ending balance: collectively evaluated for impairment |  | $ | 2,533 |  |  | $ | 8,381 |  |  | $ | 134 |  |  | $ | 429 |  |  | $ | 507 |  |  | $ | 1 |  |  | $ | 590 |  |  | $ | 12,575 |
Loans receivable: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 752,354 |  |  | $ | 1,099,656 |  |  | $ | 248,913 |  |  | $ | 201,841 |  |  | $ | 74,224 |  |  | $ | 7,053 |  |  | $ | — |  |  | $ | 2,384,041 |
Ending balance: individually evaluated for impairment |  |  | 1,452 |  |  |  | 9,102 |  |  |  | 31 |  |  |  | 818 |  |  |  | 2,365 |  |  |  | — |  |  |  | — |  |  |  | 13,768 |
Ending balance: acquired with credit deterioration |  |  | — |  |  |  | 1,419 |  |  |  | — |  |  |  | 323 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,742 |
Ending balance: collectively evaluated for impairment |  | $ | 750,902 |  |  | $ | 1,089,135 |  |  | $ | 248,882 |  |  | $ | 200,700 |  |  | $ | 71,859 |  |  | $ | 7,053 |  |  | $ | — |  |  | $ | 2,368,531 |

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of, and for the three months ended, September 30, 2020 |  | Commercial and industrial |  |  | Commercial real estate |  |  | Commercial real estate - construction |  |  | Residential mortgage |  |  | Home equity |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
July 1, 2020 |  | $ | 2,786 |  |  | $ | 7,241 |  |  | $ | 65 |  |  | $ | 427 |  |  | $ | 517 |  |  | $ | 2 |  |  | $ | 29 |  |  | $ | 11,067 |
Charge-offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4 | ) |  |  | — |  |  |  | (4 | ) |  |  | — |  |  |  | (8 | )
Recoveries |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11 |  |  |  | — |  |  |  | 11 |
Provisions (credits) |  |  | 138 |  |  |  | 529 |  |  |  | (4 | ) |  |  | 47 |  |  |  | 14 |  |  |  | (7 | ) |  |  | 383 |  |  |  | 1,100 |
Ending balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2020 |  | $ | 2,924 |  |  | $ | 7,770 |  |  | $ | 61 |  |  | $ | 470 |  |  | $ | 531 |  |  | $ | 2 |  |  | $ | 412 |  |  | $ | 12,170 |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of, and for the nine months ended, September 30, 2020 |  | Commercial and industrial |  |  | Commercial real estate |  |  | Commercial real estate - construction |  |  | Residential mortgage |  |  | Home equity |  |  | Consumer |  |  | Unallocated |  |  | Total |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January 1, 2020 |  |  | 2,341 |  |  |  | 6,259 |  |  |  | 51 |  |  |  | 417 |  |  |  | 442 |  |  |  | 2 |  |  |  | 3 |  |  | $ | 9,515 |
Charge-offs |  |  | (45 | ) |  |  | — |  |  |  | (7 | ) |  |  | (4 | ) |  |  | — |  |  |  | (22 | ) |  |  | — |  |  |  | (78 | )
Recoveries |  |  | 2 |  |  |  | 1 |  |  |  | 2 |  |  |  | 3 |  |  |  | 1 |  |  |  | 24 |  |  |  | — |  |  |  | 33 |
Provisions (credits) |  |  | 626 |  |  |  | 1,510 |  |  |  | 15 |  |  |  | 54 |  |  |  | 88 |  |  |  | (2 | ) |  |  | 409 |  |  |  | 2,700 |
Ending balance, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2020 |  |  | 2,924 |  |  |  | 7,770 |  |  |  | 61 |  |  |  | 470 |  |  |  | 531 |  |  |  | 2 |  |  |  | 412 |  |  |  | 12,170 |
Individually evaluated for impairment |  |  | 41 |  |  |  | 141 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 182 |
Ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
collectively evaluated for impairment |  | $ | 2,883 |  |  | $ | 7,629 |  |  | $ | 61 |  |  | $ | 470 |  |  | $ | 531 |  |  | $ | 2 |  |  | $ | 412 |  |  | $ | 11,988 |
Loans receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 968,875 |  |  | $ | 1,021,418 |  |  | $ | 238,208 |  |  | $ | 215,589 |  |  | $ | 70,400 |  |  | $ | 7,337 |  |  | $ | — |  |  | $ | 2,521,827 |
Ending balance: individually evaluated for impairment |  |  | 912 |  |  |  | 7,434 |  |  |  | 32 |  |  |  | 834 |  |  |  | 2,386 |  |  |  | — |  |  |  | — |  |  |  | 11,598 |
Ending balance: acquired with credit deterioration |  |  | — |  |  |  | 1,426 |  |  |  | — |  |  |  | 342 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,768 |
Ending balance: collectively evaluated for impairment |  | $ | 967,963 |  |  | $ | 1,012,558 |  |  | $ | 238,176 |  |  | $ | 214,413 |  |  | $ | 68,014 |  |  | $ | 7,337 |  |  | $ | — |  |  | $ | 2,508,461 |

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MID PENN BANCORP, INC. |

Mid Penn entered into forbearance or modification agreements on loans currently classified as troubled debt restructures, and these agreements have resulted in additional principal repayment. The terms of these forbearance agreements vary and generally involve modifications from the original loan agreements, including either a reduction in the amount of principal payments for certain or extended periods, interest rate reductions, and/or the intent for the loan to be repaid as collateral is sold.

Mid Penn’s troubled debt restructured loans at September 30, 2021 totaled $847,000 and included: (i) two accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $442,000, and (ii) $405,000 of troubled debt restructurings attributable to eight loans among six relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. The balance of these nonaccrual impaired troubled debt restructured loans as of September 30, 2021 was comprised of $339,000 in commercial real estate loans amongst two borrowers; one commercial real estate construction loan for $22,000, two residential mortgage loans for $39,000, and one commercial and industrial loan for $5,000. As of September 30, 2021, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements. In addition to contractual paydowns, the decrease in Mid Penn’s troubled debt restructured loan balance since December 31, 2020 reflects the successful workout of one nonaccrual impaired loan and the payoff of one accruing impaired loan during the third quarter of 2021.

Mid Penn’s troubled debt restructured loans at December 31, 2020 totaled $1,480,000, and included: (i) three accruing impaired residential mortgage loans to unrelated borrowers in compliance with the terms of the modifications totaling $463,000, and (ii) $1,017,000 of troubled debt restructurings attributable to nine loans among seven relationships which were classified as nonaccrual impaired based upon a collateral evaluation in accordance with the guidance on impaired loans. One large commercial real estate relationship accounted for $535,000 of the total $1,017,000 in nonaccrual impaired troubled debt restructured loans, with the remainder consisting of (i) four commercial real estate loans totaling $398,000 among two relationships, (ii) one commercial real estate – construction loan totaling $31,000, (iii) one commercial and industrial loan totaling $6,000, and (iv) two unrelated residential mortgage loans totaling $47,000. As of December 31, 2020, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements. There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2020.

The recorded investments in troubled debt restructured loans at September 30, 2021 and December 31, 2020 are as follows:

(Dollars in thousands) | Pre-Modification |  |  | Post-Modification |  |  |  |
September 30, 2021 | Outstanding Recorded Investment |  |  | Outstanding Recorded Investment |  |  | Recorded Investment |
Commercial and industrial | $ | 8 |  |  | $ | 8 |  |  | $ | 5 |
Commercial real estate |  | 1,214 |  |  |  | 1,115 |  |  |  | 339 |
Commercial real estate - construction |  | 40 |  |  |  | 40 |  |  |  | 22 |
Residential mortgage |  | 647 |  |  |  | 645 |  |  |  | 481 |
| $ | 1,909 |  |  | $ | 1,808 |  |  | $ | 847 |

(Dollars in thousands) | Pre-Modification |  |  | Post-Modification |  |  |  |
December 31, 2020 | Outstanding Recorded Investment |  |  | Outstanding Recorded Investment |  |  | Recorded Investment |
Commercial and industrial | $ | 8 |  |  | $ | 8 |  |  | $ | 6 |
Commercial real estate |  | 1,806 |  |  |  | 1,707 |  |  |  | 933 |
Commercial real estate - construction |  | 40 |  |  |  | 40 |  |  |  | 31 |
Residential mortgage |  | 728 |  |  |  | 725 |  |  |  | 510 |
| $ | 2,582 |  |  | $ | 2,480 |  |  | $ | 1,480 |

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MID PENN BANCORP, INC. |

The CARES Act, along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 do not need to be accounted for as troubled debt restructurings. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ranged from deferrals of both principal and interest payments, with some borrowers reverting to interest-only payments. The majority of the deferrals granted by Mid Penn were for a period of three months, but some as long as six months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest does continue to accrue on loans modified under the CARES Act during the deferral period. As of September 30, 2021, the principal balance of loans remaining in a CARES Act qualifying deferment status totaled $3,571,000, or less than 1 percent of the total loan portfolio, a reduction compared to December 31, 2020, when $11,681,000 of loans, also representing less than 1 percent of the total loan portfolio, were in this deferment status. Most borrowers who were granted a CARES Act deferral have returned to regular payment status. Mid Penn remains in communication with each of the borrowers still in deferral status to assess the ongoing credit standing of the borrowers, and may make further adjustments to a borrower’s relationship at some future time if warranted for the specific situation.

The following tables provide activity for the accretable yield of acquired impaired loans from the Phoenix (March 2015), Scottdale (January 2018), and First Priority (July 2018) acquisitions for the three and nine months ended September 30, 2021 and 2020.

(Dollars in thousands) |  |  |  |
|  | Three Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Accretable yield, beginning of period |  | $ | 40 |  |  | $ | 56 |
Accretable yield amortized to interest income |  |  | — |  |  |  | (7 | )
Accretable yield, end of period |  | $ | 40 |  |  | $ | 49 |

(Dollars in thousands) |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |
Accretable yield, beginning of period |  | $ | 40 |  |  | $ | 89 |
Accretable yield amortized to interest income |  |  | — |  |  |  | (40 | )
Accretable yield, end of period |  | $ | 40 |  |  | $ | 49 |

(5)Leases

On January 1, 2019, Mid Penn adopted FASB Topic 842, Leases, and all subsequent ASUs that modified Topic 842, which primarily affected the accounting treatment for operating lease agreements in which Mid Penn is the lessee. As of the January 1, 2019 adoption date, Mid Penn leased twenty-four branch locations under non-cancelable operating leases, which expire at various dates through the year ending December 31, 2035. Three of Mid Penn’s operating leases are with related parties. Subsequent to the adoption of Topic 842, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039.

In 2016, Mid Penn entered into a subleasing agreement with an unrelated party on one of its properties under an operating lease. The sublease included an escalation clause. The initial term of the sublease agreement began on July 1, 2016 and ended on March 31, 2021, and was extended for an additional one-year term ending March 31, 2022.

Operating and finance lease right-of-use assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt. Mid Penn has elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) or equipment leases (deemed immaterial) on the Consolidated Balance Sheets.

There were no sale and leaseback transactions, leveraged leases, or leases that had not commenced as of September 30, 2021.

Below is a summary of the operating and finance lease right-of-use assets and related lease liabilities, as well as the weighted average lease term (in years) and weighted average discount rate for each of the lease classifications as of September 30, 2021 and December 31, 2020.

(Dollars in thousands) |  | September 30, 2021 |  |  | December 31, 2020 |
|  | Operating Leases |  |  | Finance Lease |  |  | Operating Leases |  |  | Finance Lease |
Right of use asset |  | $ | 9,942 |  |  | $ | 3,132 |  |  | $ | 10,157 |  |  | $ | 3,267 |
Lease liability |  | $ | 10,950 |  |  | $ | 3,402 |  |  | $ | 11,200 |  |  | $ | 3,467 |
Weighted average remaining lease term (in years) |  |  | 7.49 |  |  |  | 17.42 |  |  |  | 8.05 |  |  |  | 18.17 |
Weighted average discount rate |  |  | 3.18 | % |  |  | 3.81 | % |  |  | 3.30 | % |  |  | 3.81 | %

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MID PENN BANCORP, INC. |

A summary of lease costs during the three and nine months ended September 30, 2021 and 2020 are presented below. Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income.

(Dollars in thousands) |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Finance lease cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of right-of-use asset |  | $ | 45 |  |  | $ | 45 |  |  | $ | 135 |  |  | $ | 135 |
Interest expense on lease liability |  |  | 33 |  |  |  | 33 |  |  |  | 98 |  |  |  | 100 |
Total finance lease cost |  |  | 78 |  |  |  | 78 |  |  |  | 233 |  |  |  | 235 |
Operating lease cost |  |  | 475 |  |  |  | 504 |  |  |  | 1,502 |  |  |  | 1,537 |
Short-term and equipment lease cost |  |  | 16 |  |  |  | 10 |  |  |  | 33 |  |  |  | 31 |
Variable lease cost |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Sublease income |  |  | (6 | ) |  |  | (3 | ) |  |  | (21 | ) |  |  | (13 | )
Total lease costs |  | $ | 563 |  |  | $ | 589 |  |  | $ | 1,747 |  |  | $ | 1,790 |

A summary of cash paid for amounts included in the measurement of lease liabilities is presented below.

(Dollars in thousands) |  | Nine Months Ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |
Operating cash flows from finance leases |  | $ | 98 |  |  | $ | 100 |
Operating cash flows from operating leases |  |  | 1,566 |  |  |  | 1,584 |
Financing cash flows from finance leases |  |  | 65 |  |  |  | 62 |

Future minimum payments for operating and finance leases and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below.

(Dollars in thousands) |  | September 30, 2021 |
|  | Operating Leases |  |  | Finance Lease |
Lease payments due for each of the years ending December 31, |  |  |  |  |  |  |  |
2021 |  | $ | 513 |  |  | $ | 54 |
2022 |  |  | 2,061 |  |  |  | 217 |
2023 |  |  | 1,815 |  |  |  | 217 |
2024 |  |  | 1,760 |  |  |  | 252 |
2025 |  |  | 1,373 |  |  |  | 259 |
Thereafter |  |  | 4,810 |  |  |  | 3,733 |
Total undiscounted cash flows |  |  | 12,332 |  |  |  | 4,732 |
Discount on cash flows |  |  | (1,382 | ) |  |  | (1,330 | )
Total lease liability |  | $ | 10,950 |  |  | $ | 3,402 |

33

MID PENN BANCORP, INC. |

(6) | Derivative Financial Instruments

As of September 30, 2021 and December 31, 2020, Mid Penn did not designate any derivative financial instruments as formal hedging relationships. Mid Penn’s free-standing derivative financial instruments are required to be carried at their fair value on Consolidated Balance Sheets.

Mortgage Banking Derivative Financial Instruments

In connection with its mortgage banking activities, Mid Penn enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, Mid Penn enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured.

The notional amount and fair value of Mid Penn’s mortgage banking derivative financial instruments as of September 30, 2021 and December 31, 2020 are presented below.

|  | September 30, 2021 |  |  | December 31, 2020 |
(Dollars in thousands) |  | Notional Amount |  |  | Fair Value |  |  | Notional Amount |  |  | Fair Value |
Interest Rate Lock Commitments |  | $ | 19,651 |  |  | $ | 134 |  |  | $ | — |  |  | $ | — |
Forward Commitments |  |  | 30,282 |  |  |  | 219 |  |  |  | — |  |  |  | — |

The following table presents Mid Penn’s mortgage banking derivative financial instruments, their fair values, and their location in the Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020.

|  | September 30, 2021 |  |  | December 31, 2020 |
(Dollars in thousands) |  | Asset Derivatives |  |  | Liability Derivatives |  |  | Asset Derivatives |  |  | Liability Derivatives |
Interest Rate Lock Commitments |  | $ | 134 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Forward Commitments |  |  | 219 |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 353 |  |  | $ | — |  |  | $ | — |  |  | $ | — |

The following table presents Mid Penn’s mortgage banking derivative financial instruments and the amount of the net gains or losses recognized within other noninterest income on the Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020.

|  | Three months ended |  |  | Nine months ended |
(Dollars in thousands) |  | September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
Interest Rate Lock Commitments |  | $ | 134 |  |  | $ | — |  |  | $ | 134 |  |  | $ | — |
Forward Commitments |  |  | (113 | ) |  |  | — |  |  |  | (113 | ) |  |  | — |
Total |  | $ | 21 |  |  | $ | — |  |  | $ | 21 |  |  | $ | — |

Loan-level Interest Rate Swaps

| Mid Penn enters into loan-level interest rate swaps with certain qualifying, creditworthy commercial loan customers to provide a loan pricing structure that meets both Mid Penn’s and the customer’s interest rate risk management needs. Mid Penn simultaneously enters into parallel interest rate swaps with a dealer counterparty, with identical notional amounts and terms. The net result of the offsetting customer and dealer counterparty swap agreements is that the customer pays a fixed rate of interest and Mid Penn receives a floating rate. Mid Penn’s loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting.

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MID PENN BANCORP, INC. |

The fair value, notional amount, and collateral posted related to loan-level interest rate swaps are presented below.

(Dollars in thousands) |  | September 30, 2021 |  |  | December 31, 2020 |
Interest Rate Swap Contracts - Commercial Loans: |  |  |  |  |  |  |  |
Fair Value (a) |  | $ | 56 |  |  | $ | 489 |
Notional Amount |  |  | 78,564 |  |  |  | 22,331 |
Cash Collateral Posted (b) |  |  | 1,600 |  |  |  | 500 |

| (a) | Represents the total of the equal and offsetting fair value assets and liabilities related to the loan level interest rate swaps

| (b) | Included in cash and due from banks on the Consolidated Balance Sheet

The gross amounts of commercial loan swap derivatives, the amounts offset and the carrying values in the Consolidated Balance Sheets, and the collateral pledged to support such agreements are presented below.

(Dollars in thousands) |  | September 30, 2021 |  |  | December 31, 2020 |
Interest Rate Swap Contracts - Commercial Loans: |  |  |  |  |  |  |  |
Gross amounts recognized |  | $ | 56 |  |  | $ | 489 |
Gross amounts offset |  |  | 56 |  |  |  | 489 |
Net Amounts Presented in the Consolidated Balance Sheets |  |  | — |  |  |  | — |
Gross amounts not offset: |  |  |  |  |  |  |  |
Financial instruments |  |  | — |  |  |  | — |
Cash collateral |  |  | 1,600 |  |  |  | 500 |
Net Amounts |  | $ | 1,600 |  |  | $ | 500 |

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MID PENN BANCORP, INC. |

(7) | Fair Value Measurement

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance provides additional information on determining when the volume and level of activity for the asset or liability has significantly decreased. Information on identifying circumstances when a transaction may not be considered orderly is also included within the guidance.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the fair value measurement and disclosure guidance.

This guidance clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Inputs to valuation techniques refer to the assumptions that market participants would use in measuring the fair value of an asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own belief about the assumptions market participants would use in pricing the asset or liability based upon the best information available in the circumstances. Fair value measurement and disclosure guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement or disclosure. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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MID PENN BANCORP, INC. |

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

There were no transfers of assets between fair value Level 1 and Level 2 during the nine months ended September 30, 2021 and 2020.

The following tables illustrate the assets measured at fair value on a recurring basis segregated by hierarchy fair value levels.

|  |  |  |  |  | Fair value measurements at September 30, 2021 using: |
(Dollars in thousands) |  | Total carrying value at |  |  | Quoted prices in active markets |  |  | Significant other observable inputs |  |  | Significant unobservable inputs |
Assets: |  | September 30, 2021 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed U.S. government agencies |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Corporate debt securities |  |  | 5,013 |  |  |  | — |  |  |  | 5,013 |  |  |  | — |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  | 505 |  |  |  | 505 |  |  |  | — |  |  |  | — |
Mortgage banking derivative assets |  |  | 353 |  |  |  | — |  |  |  | 353 |  |  |  | — |
Total |  | $ | 5,873 |  |  | $ | 505 |  |  | $ | 5,368 |  |  | $ | — |

|  |  |  |  |  | Fair value measurements at December 31, 2020 using: |
(Dollars in thousands) |  | Total carrying value at |  |  | Quoted prices in active markets |  |  | Significant other observable inputs |  |  | Significant unobservable inputs |
Assets: |  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agencies |  | $ | 2 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Corporate debt securities |  |  | 5,746 |  |  |  | — |  |  |  | 5,746 |  |  |  | — |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  |  | 515 |  |  |  | 515 |  |  |  | — |  |  |  | — |
Interest rate swap agreements |  |  | 489 |  |  |  | — |  |  |  | 489 |  |  |  | — |
Total |  | $ | 6,752 |  |  | $ | 515 |  |  | $ | 6,237 |  |  | $ | — |

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following tables illustrate the assets measured at fair value on a nonrecurring basis segregated by hierarchy fair value levels.

|  |  |  |  |  | Fair value measurements at September 30, 2021 using: |
(Dollars in thousands) |  | Total carrying value at |  |  | Quoted prices in active markets |  |  | Significant other observable inputs |  |  | Significant unobservable inputs |
Assets: |  | September 30, 2021 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Impaired Loans |  | $ | 421 |  |  | $ | — |  |  | $ | — |  |  | $ | 421 |

|  |  |  |  |  | Fair value measurements at December 31, 2020 using: |
(Dollars in thousands) |  | Total carrying value at |  |  | Quoted prices in active markets |  |  | Significant other observable inputs |  |  | Significant unobservable inputs |
Assets: |  | December 31, 2020 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Impaired Loans |  | $ | 800 |  |  | $ | — |  |  | $ | — |  |  | $ | 800 |
Foreclosed Assets Held for Sale |  |  | 77 |  |  |  | — |  |  |  | — |  |  |  | 77 |

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MID PENN BANCORP, INC. |

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Mid Penn has utilized Level 3 inputs to determine the fair value.

(Dollars in thousands) |  | Quantitative Information about Level 3 Fair Value Measurements |
September 30, 2021 |  | Fair Value Estimate |  |  | Valuation Technique |  | Unobservable Input |  | Range |  | Weighted Average |
Impaired Loans |  | $ | 421 |  |  | Appraisal of collateral (a), (b) |  | Appraisal adjustments (b) |  | 23% - 100% |  | 33% |

(Dollars in thousands) |  | Quantitative Information about Level 3 Fair Value Measurements |
December 31, 2020 |  | Fair Value Estimate |  |  | Valuation Technique |  | Unobservable Input |  | Range |  | Weighted Average |
Impaired Loans |  | $ | 800 |  |  | Appraisal of collateral (a), (b) |  | Appraisal adjustments (b) |  | 25% - 100% |  | 40% |
Foreclosed Assets Held for Sale |  |  | 77 |  |  | Appraisal of collateral (a), (b) |  | Appraisal adjustments (b) |  | 27% - 27% |  | 27% |

| (a) | Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.

| (b) | Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, or age of the appraisal.

There were no changes in unrealized gains and losses included in other comprehensive income during the nine months ended September 30, 2021 or 2020 related to Level 3 recurring fair value measurements as Mid Penn has no assets measured at fair value on a Level 3 recurring basis.

Mid Penn uses the following methodologies and assumptions to estimate the fair value of certain assets and liabilities.

Securities:

The fair value of equity securities and debt securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather, relying on the securities’ relationship to other benchmark quoted prices.

Mortgage Banking Derivative Assets:

Mortgage banking derivative assets represent the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors and the fair value of interest rate swaps. The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. These characteristics classify interest rate swap agreements as Level 2. See "Note 6 - Derivative Financial Instruments," for additional information.

Interest Rate Swap Agreements:

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2.

Impaired Loans (included in “Net Loans and Leases” in the following tables):

All performing troubled debt restructured loans and loans classified as nonaccrual are deemed to be impaired, and all of these loans are considered collateral dependent; therefore, all of Mid Penn’s impaired loans, whether reporting a specific allowance allocation or not, are considered collateral dependent.

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MID PENN BANCORP, INC. |

It is Mid Penn’s policy to obtain updated third-party valuations on all impaired loans collateralized by real estate within 30 days of the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation, Mid Penn will use existing real estate valuations to determine any potential allowance for loan loss issues, and will update the allowance impact calculation upon receipt of the updated real estate valuation.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. Mid Penn considers the estimates used in its impairment analysis to be Level 3 inputs.

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values, either in a positive or negative way, due to the passage of time or some other change in one or more valuation inputs. Collateral values for impaired loans will be reassessed by management at least every 12 months for possible revaluation by an independent third party.

Foreclosed Assets Held for Sale:

Certain assets included in foreclosed assets held for sale are carried at fair value and accordingly is presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

The following table summarizes the carrying value and fair value of financial instruments at September 30, 2021 and December 31, 2020.

(Dollars in thousands) | September 30, 2021 |  |  | December 31, 2020 |
| Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
| Value |  |  | Value |  |  | Value |  |  | Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 754,942 |  |  | $ | 754,942 |  |  | $ | 303,724 |  |  | $ | 303,724 |
Available-for-sale investment securities |  | 5,015 |  |  |  | 5,015 |  |  |  | 5,748 |  |  |  | 5,748 |
Held-to-maturity investment securities |  | 152,791 |  |  |  | 155,680 |  |  |  | 128,292 |  |  |  | 132,794 |
Equity securities |  | 505 |  |  |  | 505 |  |  |  | 515 |  |  |  | 515 |
Loans held for sale |  | 23,154 |  |  |  | 23,436 |  |  |  | 25,506 |  |  |  | 26,262 |
Net loans and leases |  | 2,356,196 |  |  |  | 2,439,640 |  |  |  | 2,370,659 |  |  |  | 2,444,105 |
Restricted investment in bank stocks |  | 7,906 |  |  |  | 7,906 |  |  |  | 7,594 |  |  |  | 7,594 |
Accrued interest receivable |  | 10,008 |  |  |  | 10,008 |  |  |  | 3,619 |  |  |  | 3,619 |
Interest rate swap agreements |  | — |  |  |  | — |  |  |  | 489 |  |  |  | 489 |
Mortgage banking derivative assets |  | 353 |  |  |  | 353 |  |  |  | — |  |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits | $ | 2,961,881 |  |  | $ | 2,964,309 |  |  | $ | 2,474,580 |  |  | $ | 2,496,799 |
Short-term borrowings |  | — |  |  |  | — |  |  |  | 125,617 |  |  |  | 125,617 |
Long-term debt (a) |  | 71,456 |  |  |  | 71,347 |  |  |  | 71,648 |  |  |  | 70,498 |
Subordinated debt |  | 44,599 |  |  |  | 46,218 |  |  |  | 44,580 |  |  |  | 43,098 |
Accrued interest payable |  | 1,901 |  |  |  | 1,901 |  |  |  | 2,007 |  |  |  | 2,007 |

| (a) | Long-term debt excludes finance lease obligations.

The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of September 30, 2021 and December 31, 2020.

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MID PENN BANCORP, INC. |

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of September 30, 2021 and December 31, 2020. Carrying values approximate fair values for cash and cash equivalents, restricted investment in bank stocks, accrued interest receivable and payable, and short-term borrowings. Other than cash and cash equivalents, which are considered Level 1 Inputs and mortgage servicing rights, which are Level 3 Inputs, these instruments are Level 2 Inputs. These tables exclude financial instruments for which the carrying amount approximates fair value, not previously disclosed.

|  |  |  |  |  |  |  |  |  | Fair Value Measurements |
|  |  |  |  |  |  |  |  |  | Quoted Prices |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | in Active Markets |  |  |  |  |  | Significant |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  | for Identical Assets |  |  | Significant Other |  |  | Unobservable |
|  | Carrying |  |  |  |  |  |  | or Liabilities |  |  | Observable Inputs |  |  | Inputs |
September 30, 2021 |  | Amount |  |  | Fair Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Financial instruments - assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Held-to-maturity investment securities |  | $ | 152,791 |  |  | $ | 155,680 |  |  | $ | — |  |  | $ | 155,680 |  |  | $ | — |
Loans held for sale |  |  | 23,154 |  |  |  | 23,436 |  |  |  | — |  |  |  | 23,436 |  |  |  | — |
Net loans and leases |  |  | 2,356,196 |  |  |  | 2,439,640 |  |  |  | — |  |  |  | — |  |  |  | 2,439,640 |
Financial instruments - liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 2,961,881 |  |  | $ | 2,964,309 |  |  | $ | — |  |  | $ | 2,964,309 |  |  | $ | — |
Long-term debt (a) |  |  | 71,456 |  |  |  | 71,347 |  |  |  | — |  |  |  | 71,347 |  |  |  | — |
Subordinated debt |  |  | 44,599 |  |  |  | 46,218 |  |  |  | — |  |  |  | 46,218 |  |  |  | — |

|  |  |  |  |  |  |  |  |  | Fair Value Measurements |
|  |  |  |  |  |  |  |  |  | Quoted Prices |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | in Active Markets |  |  |  |  |  | Significant |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  | for Identical Assets |  |  | Significant Other |  |  | Unobservable |
|  | Carrying |  |  |  |  |  |  | or Liabilities |  |  | Observable Inputs |  |  | Inputs |
December 31, 2020 |  | Amount |  |  | Fair Value |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
Financial instruments - assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Held-to-maturity investment securities |  | $ | 128,292 |  |  | $ | 132,794 |  |  | $ | — |  |  | $ | 132,794 |  |  | $ | — |
Loans held for sale |  |  | 25,506 |  |  |  | 26,262 |  |  |  | — |  |  |  | 26,262 |  |  |  | — |
Net loans and leases |  |  | 2,370,659 |  |  |  | 2,444,105 |  |  |  | — |  |  |  | — |  |  |  | 2,444,105 |
Financial instruments - liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 2,474,580 |  |  | $ | 2,496,799 |  |  | $ | — |  |  | $ | 2,496,799 |  |  | $ | — |
Long-term debt (a) |  |  | 71,648 |  |  |  | 70,498 |  |  |  | — |  |  |  | 70,498 |  |  |  | — |
Subordinated debt |  |  | 44,580 |  |  |  | 43,098 |  |  |  | — |  |  |  | 43,098 |  |  |  | — |

| (a) | Long-term debt excludes finance lease obligations.

(8) | Guarantees, Commitments, and Contingencies

Guarantees

In the normal course of business, Mid Penn makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying consolidated financial statements. The commitments include various guarantees and commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer. Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Mid Penn had $44,543,000 and $39,468,000 of standby letters of credit outstanding as of September 30, 2021 and December 31, 2020, respectively. Mid Penn does not anticipate any losses because of these transactions. The amount of the liability as of September 30, 2021 and December 31, 2020 for payment under standby letters of credit issued was not considered material.

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MID PENN BANCORP, INC. |

Commitments

As of June 30, 2021, Mid Penn’s Board of Directors had approved Mid Penn Bank to enter into a commitment to purchase a limited partnership interest in a low-income housing project to construct thirty-nine apartments and common amenities in Cumberland County, Pennsylvania. All of the units are expected to qualify for Federal Low-Income Housing Tax Credits (“LIHTCs”) as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment is expected to be $10,805,000 which will be paid in installments over the course of construction of the low-income housing facilities. The investment in the limited partnership will be reported in other assets on the balance sheet and amortized over a ten-year period. The project has been conditionally awarded $1,205,000 in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $12,046,000 to be received by Mid Penn over the ten-year amortization period. Mid Penn’s commitment to purchase the limited partnership interest is conditional upon (i) the review and approval of all closing documents, (ii) an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs, and (iii) review and approval by Mid Penn of other documents it may deem necessary.

Contingencies

As of September 30, 2021, Mid Penn had received $38,880,000 of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the SBA’s Payroll Protection Program (“PPP”), consisting of (i) $20,883,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $17,997,000 of loan processing fees received related to PPP loans funded during the nine months ended September 30, 2021. These PPP loan processing fees, and any offsetting loan origination costs, were deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, and have been, and will continue to be, amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the respective loans.

The processing fees received from the SBA for administering the application for, and disbursing of, the PPP loans may be subject to clawback (or if the SBA has not yet paid the fee, the fee may not be paid), after full disbursement of a PPP loan if (i) the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date, (ii) the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification safe harbor date) because the SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan, or (iii) the lender has not fulfilled its obligations under the PPP regulations.

As of September 30, 2021, Mid Penn is not aware of any PPP 2020 or 2021 loans outstanding (for which fees have been received from the SBA), that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan.

Litigation

Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of Mid Penn.

(9) | Debt

Short-term FHLB and Correspondent Bank Borrowings

Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by Mid Penn’s investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling $1,337,974,000 at September 30, 2021. The Bank had short-term borrowing capacity from the FHLB as of September 30, 2021 up to the Bank’s unused borrowing capacity of $497,748,000 (equal to $933,422,000 of maximum borrowing capacity, less the aggregate amount of FHLB letter of credits securing public funds deposits, and other FHLB advances and obligations outstanding) upon satisfaction of any stock purchase requirements of the FHLB. No draws were outstanding on short-term FHLB or correspondent bank borrowings as of September 30, 2021 and December 31, 2020.

The Bank also has unused overnight lines of credit with other correspondent banks amounting to $35,000,000 at September 30, 2021. No draws have been made on these lines of credit and accordingly the balance was zero on both September 30, 2021 and December 31, 2020.

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Short-term PPPLF Borrowings

The entire balance of short-term borrowings of $125,617,000 at December 31, 2020 consisted of funding obtained from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”). As of September 30, 2021, Mid Penn paid all funding obtained through this program, and had a zero balance. The PPPLF allows banks to pledge PPP loans as collateral to borrow funds for up to a term of five years (to match the term of the respective PPP loans) at an interest rate of 0.35%. PPPLF draws must be repaid to the Federal Reserve immediately after the specific PPP loans collateralizing the related draws are repaid to the Bank.

Long-term Debt

As of September 30, 2021, and December 31, 2020, the Bank had long-term debt outstanding in the amount of $74,858,000 and $75,115,000, respectively, consisting primarily of FHLB fixed rate instruments, as well as one finance lease obligation.

As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity. The FHLB fixed rate instruments obtained by the Bank are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans. Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit as a legally allowable alternative to investment pledging. These FHLB letter of credit commitments totaled $362,520,000 as of September 30, 2021 and $288,950,000 as of December 31, 2020.

The following table presents a summary of long-term debt as of September 30, 2021 and December 31, 2020.

(Dollars in thousands) |  | September 30, 2021 |  |  | December 31, 2020 |
FHLB fixed rate instruments: |  |  |  |  |  |  |  |
Due April 2022, 0.86343% |  | $ | 70,000 |  |  | $ | 70,000 |
Due August 2026, 4.80% |  |  | 1,418 |  |  |  | 1,606 |
Due February 2027, 6.71% |  |  | 38 |  |  |  | 42 |
Total FHLB fixed rate instruments |  |  | 71,456 |  |  |  | 71,648 |
Lease obligations included in long-term debt |  |  | 3,402 |  |  |  | 3,467 |
Total long-term debt |  | $ | 74,858 |  |  | $ | 75,115 |

Mid Penn did not prepay any long-term debt instruments during the nine months ended September 30, 2021. As part of asset/liability and interest rate risk management strategies, during the nine months ended September 30, 2020, Mid Penn prepaid $22,500,000 of FHLB fixed rate instruments originally due at various times in 2020, and recognized prepayment penalties of $26,000 for the three months ended September 30, 2020, and $165,000 for the nine months ended September 30, 2020. Prepayment penalties are included in other expenses for the three and nine months ended September 30, 2020 on the Consolidated Statement of Income.

(10) | Subordinated Debt

Subordinated Debt Issued December 2020

On December 22, 2020, Mid Penn Bancorp, Inc. entered into agreements for and sold, at 100% of their principal amount, an aggregate of $12,150,000 of its Subordinated Notes due December 2030 (the “December 2020 Notes”) on a private placement basis to accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes.

The December 2020 Notes bear interest at a rate of 4.5% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the December 2020 Notes are floating will at no time be less than 4.5%. Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on March 31, 2021. The December 2020 Notes will mature on December 31, 2030 and are redeemable, in whole or in part, without premium or penalty, on any interest payment date on or after December 31, 2025 and prior to December 31, 2030, subject to any required regulatory approvals. Additionally, if (i) all or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (ii) interest on the December 2020 Notes fails to be deductible for United States federal income tax purposes or (iii) Mid Penn will be considered an “investment company,” Mid Penn may redeem the December 2020 Notes, in whole but not in part, by giving 10 days’ notice to the holders of the December 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the December 2020 Notes at 100% of the principal amount of the December 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the December 2020 Notes may not accelerate the maturity of the December 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $750,000 of the December 2020 Notes as of September 30, 2021 and December 31, 2020.

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Subordinated Debt Issued March 2020

On March 20, 2020, Mid Penn Bancorp, Inc. entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid Penn Subordinated Notes due 2030 (the “March 2020 Notes”). The March 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The March 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the March 2020 Notes are floating will at no time be less than 4.25%. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30. The March 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030. Additionally, if all or any portion of the March 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the March 2020 Notes at 100% of the principal amount of the March 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the March 2020 Notes may not accelerate the maturity of the March 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1,700,000 of the March 2020 Notes as of September 30, 2021 and December 31, 2020.

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn Bancorp, Inc. entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The offering closed in December 2017.

The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15. The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1,450,000 of the 2017 Notes as of September 30, 2021 and December 31, 2020.

Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn Bancorp, Inc. sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025. Given that the 2015 Notes are in the sixth year since issuance, eighty-percent of the principal balance of the notes is treated as Tier 2 capital for regulatory capital purposes as of September 30, 2021.

The 2015 Notes paid interest at a rate of 5.15% per year for the first five years outstanding, including the three months ended March 31, 2020. Beginning January 1, 2021, the 2015 Notes bear interest at a floating rate based on the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%. Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025. Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event. Related parties held $1,930,000 of the 2015 Notes as of September 30, 2021 and December 31, 2020.

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ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability. The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively $51,000 at September 30, 2021 and $70,000 at December 31, 2020.

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On December 18, 2020, Mid Penn redeemed the full $9,500,000 of the First Priority Subordinated Debt Notes that were assumed by Mid Penn when it completed its acquisition of First Priority on July 31, 2018. Mid Penn redeemed these notes promptly following the expiration of the noncallable period and upon receipt of the required regulatory approval to redeem the Tier 2 capital qualifying debt. Mid Penn fully recognized the related redemption pricing fees of $143,000 in the fourth quarter of 2020.

(11) | Defined Benefit Plans

Mid Penn has an unfunded noncontributory defined benefit retirement plan for directors. The plan provides defined benefits based on years of service. Mid Penn also sponsors a defined benefit healthcare plan that provides post-retirement medical benefits and life insurance to qualifying full-time employees. These healthcare and life insurance plans are noncontributory and each plan uses a December 31 measurement date.

As a result of the acquisition of Scottdale on January 8, 2018, Mid Penn assumed a noncontributory defined benefit pension plan covering certain former employees of Scottdale. Mid Penn contributed $285,000 to the defined benefit plan during the second quarter of 2021, and no additional contributions are expected through the remainder of 2021. A December 31 measurement date for the plan is used.

The components of net periodic benefit costs from these defined benefit plans are as follows:

| Three Months Ended September 30, |
(Dollars in thousands) | Pension Benefits |  |  | Other Benefits |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Service cost | $ | 33 |  |  | $ | 32 |  |  | $ | 1 |  |  | $ | 1 |
Interest cost |  | 40 |  |  |  | 53 |  |  |  | 3 |  |  |  | 3 |
Expected return on plan assets |  | (57 | ) |  |  | (68 | ) |  |  | — |  |  |  | — |
Accretion of prior service cost |  | — |  |  |  | — |  |  |  | (5 | ) |  |  | (5 | )
Amortization of net loss (gain) |  | — |  |  |  | — |  |  |  | 1 |  |  |  | (1 | )
Net periodic benefit expense (income) | $ | 16 |  |  | $ | 17 |  |  | $ | — |  |  | $ | (2 | )
| Nine Months Ended September 30, |
(Dollars in thousands) | Pension Benefits |  |  | Other Benefits |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Service cost | $ | 98 |  |  | $ | 96 |  |  | $ | 2 |  |  | $ | 2 |
Interest cost |  | 120 |  |  |  | 158 |  |  |  | 7 |  |  |  | 9 |
Expected return on plan assets |  | (170 | ) |  |  | (205 | ) |  |  | — |  |  |  | — |
Accretion of prior service cost |  | — |  |  |  | — |  |  |  | (15 | ) |  |  | (15 | )
Amortization of net loss (gain) |  | — |  |  |  | — |  |  |  | 5 |  |  |  | (1 | )
Settlement (gain) loss |  | (49 | ) |  |  | 22 |  |  |  | — |  |  |  | — |
Net periodic benefit (income) expense | $ | (1 | ) |  | $ | 71 |  |  | $ | (1 | ) |  | $ | (5 | )

Service costs are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets and amortization (accretion) of prior service cost are reported as a component of other income.

(1 2) | Common Stock

Treasury Stock Repurchase Program

Mid Penn adopted a treasury stock repurchase program initially effective March 19, 2020, and the buyback remains available as it was extended through March 19, 2022 by Mid Penn’s Board of Directors on April 28, 2021. The treasury stock repurchase program authorized the repurchase of up to $15,000,000 of Mid Penn’s outstanding common stock, which represents approximately 4.7% of the issued shares based on Mid Penn’s closing stock price and shares issued as of September 30, 2021. Under the program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase.

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The repurchase plan may be modified, suspended or terminated at any time, in Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate. The repurchase program does not obligate Mid Penn to repurchase any shares.

As of September 30, 2021, Mid Penn had repurchased 98,452 shares of common stock at an average price of $19.53 per share under the treasury stock repurchase program. As of December 31, 2020, Mid Penn had repurchased 92,652 shares of common stock at an average price of $19.37 per share under the treasury stock repurchase program.

Underwritten Public Follow-On Common Stock Offering

As previously announced on a Form 8-K on May 4, 2021, Mid Penn completed an underwritten public offering of 2,990,000 shares of common stock at a price of $25.00 per share, with the aggregate gross proceeds of the offering totaling $74,750,000 before underwriting discounts and offering expenses. The net proceeds of the offering, after deducting $4,512,000 of combined underwriting discounts and other offering expenses, were $70,238,000. The additional shares issued on May 4, 2021 significantly impacted the weighted average number of shares outstanding used for both the third quarter of 2021 and year-to-date 2021 earnings per share calculations.

Dividend Reinvestment Plan

Under Mid Penn’s amended and restated dividend reinvestment plan (“DRIP”), 330,750 shares of Mid Penn’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments, within specified limits, to be used for the purchase of additional shares.

Restricted Stock Plan

Under Mid Penn’s 2014 Restricted Stock Plan, which was amended in 2020, Mid Penn may grant awards not exceeding, in the aggregate, 200,000 shares of common stock. The Plan was established for employees and directors of Mid Penn and the Bank, selected by the Compensation Committee of the Board of Directors, to align the interest of plan participants with those of Mid Penn’s shareholders. The plan provides those persons who have a responsibility for its growth with additional incentives by allowing them to acquire an ownership interest in Mid Penn and thereby encouraging them to contribute to the success of the company.

As of September 30, 2021, a total of 117,569 restricted shares were granted under the Plan, of which 4,873 shares were forfeited and available for reissuance, 63,874 shares were vested, and the remaining 48,822 shares were unvested. During the three and nine months ended September 30, 2021, 2,427 shares were forfeited due to voluntary terminations of two employees, while one hundred shares were forfeited due to a voluntary termination of an employee during the same period in 2020. The Plan shares granted and vested resulted in $227,000 in share-based compensation expense for the three months ended September 30, 2021, while $104,000 of share-based compensation expense was recorded for the three months ended September 30, 2020. Compensation expense related to the Plan was $533,000 for the nine months ended September 30, 2021 and $265,000 for the same period in 2020.

Share-based compensation expense relating to restricted stock is calculated using grant date fair value and is recognized on a straight-line basis over the vesting periods of the awards. Restricted shares granted to employees vest in equal amounts on the anniversary of the grant date over the vesting period and the expense is a component of salaries and benefits expense on the Consolidated Statements of Income. The employee grant vesting period is determined by the terms of each respective grant, with vesting periods generally between one and four years. Restricted shares granted to directors have a twelve-month vesting period, and the expense is a component of directors’ fees and benefits within the other expense line item on the Consolidated Statements of Income.

(1 3) | Recent Accounting Pronouncements

Accounting Standards Adopted in 2021

ASU 2018-14: The FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to defined benefit pension and other postretirement plans by removing and adding certain disclosures.

The ASU was effective for public business entities for fiscal years ending after December 15, 2020 and Mid Penn adopted this standard effective January 1, 2021 on a prospective basis.

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As a result of this ASU, several disclosures were removed from Topic 715, including: (i) disclosures of the amounts in accumulated comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and (ii) the effects of a one-percentage point change in the assumed health care cost trend rates on the aggregate of service and interest cost components of net periodic postretirement health care benefit costs. However, some additional disclosures will be required as a result of this ASU, including the requirement to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period. Mid Penn discloses condensed information related to its defined benefit plans in interim periods, therefore, the prospective adoption of this ASU will result in disclosure changes only to Mid Penn’s Annual Report on Form 10-K for the year ended December 31, 2021 when expanded disclosures are made. The adoption of this standard did not impact Mid Penn’s overall financial condition.

ASU 2019-12: The FASB issued ASU 2019-12, Income Taxes (Topic 740)

This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to (i) the approach for intra-period tax allocation, (ii) the methodology for calculating income taxes in an interim period, and (iii) the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for interim and annual reporting periods beginning after December 15, 2020. ASU 2019-12 did not have a material impact on Mid Penn’s overall financial condition.

Accounting Standards Adopted in 2020

ASU 2018-15: The FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Mid Penn adopted ASU 2018-15 effective January 1, 2020 on a prospective basis. ASU 2018-15 did not have a material impact on the results of operations.

ASU 2018-13: The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

This ASU, issued as part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in financial statements, amends the disclosure requirements related to recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures.

As a result of this ASU, several disclosures were removed from Topic 820, including: (i) disclosure of the valuation process for Level 3 fair value measurements, and (ii) amounts of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. However, some additional disclosures are required as a result of this ASU, including the requirement to disclose the changes in unrealized gains and losses included in other comprehensive income for the period related to Level 3 recurring fair value measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Mid Penn adopted ASU 2018-13 effective January 1, 2020 on a prospective basis. The adoption of this ASU resulted in disclosure changes only and did not impact Mid Penn’s overall financial condition.

Accounting Standards Pending Adoption

ASU 2016-13: The FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further amended.

The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”) should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.

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Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. Certain incremental disclosures are required.

Subsequently, the FASB issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02 to clarify, improve, or defer the adoption of ASU 2016-13.

In October 2019, the FASB issued ASU 2019-10 which deferred the implementation date of ASU 2016-13 for smaller reporting companies (SRCs) until January 1, 2023. The effective date for larger SEC filers would remain unchanged at January 1, 2020. Mid Penn qualifies as an SRC as of the most recent measurement date of September 30, 2019; therefore, Mid Penn has chosen to delay the adoption of ASU 2016-13.

Mid Penn is currently evaluating the details of this ASU and the impact the guidance will have on Mid Penn’s consolidated financial statements. Mid Penn expects that it is possible that the ASU may result in an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities. The amount of the change in the allowance for credit losses, if any, resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption. Mid Penn will continue to collect the required data elements needed implement the CECL model in advance of the January 1, 2023 adoption date.

(14) COVID-19 Pandemic Implications

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due the Novel Coronavirus (“COVID-19”), and on March 11, 2020, the WHO classified COVID-19 as a pandemic based on the rapid increase in exposure globally.

After initially closing its branch lobbies beginning on March 17, 2020 to curtail the spread of the virus, Mid Penn reopened its branch lobbies effective April 19, 2021 given the extensive measures taken to ensure the safety of the Bank’s customers and employees. Additionally, higher vaccination rates have resulted in lifting many state restrictions related to mask requirements, limited occupany levels, and social distancing.

The full impact of the coronavirus and its variants continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Corporation’s financial condition, liquidity, capital position, and future results of operations. In addition, the adverse economic effects of the coronavirus may lead to an increase in credit risk on the Corporation’s commercial and residential loan portfolios. Also, the Corporation is also monitoring the fluctuations in the markets as it pertains to interest rates and the fair value of our investments, as well as the impact of the pandemic of underlying bond issuers and the potential for OTTI.

Management is actively monitoring the global situation on its financial condition, liquidity, capital position, operations, industry, and workforce. Given the daily evolution of the coronavirus and the global responses to curb its spread, the Corporation is not able to estimate the effects of the coronavirus on its results of operations, financial condition, capital position, or liquidity for fiscal year 2021.

Coronavirus Aid, Relief, and Economic Security Act

Mid Penn has been a significant participating lender under the Paycheck Protection Program which was created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and concluded August 8, 2020. The PPP program was reinstated under the Consolidated Appropriations Act, 2021 which was signed into law on December 27, 2020 and concluded on May 31, 2021. The PPP loans, which are 100 percent guaranteed by the SBA, have up to a five-year term to maturity and carry a low interest rate of 1 percent throughout the loan term. The SBA also provided a processing fee per loan to financial institutions who participated in the PPP, with the amount of such fee generally ranging from 1 percent to 5 percent as pre-determined by the SBA dependent upon the size of each respective credit. As of September 30, 2021, Mid Penn had received $38,880,000 of nonrefundable loan processing fees related to the loans disbursed because of Mid Penn’s participation in the PPP initiative, consisting of (i) $20,883,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $17,997,000 of loan processing fees received related to PPP loans funded during the first nine months of 2021. In addition to receiving and deferring the processing fees, Mid Penn recorded and deferred related loan origination costs, and in accordance with ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, the processing fees and loan origination costs are being amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of each respective loan. As of September 30, 2021, Mid Penn had $8,236,000 of PPP deferred loan processing fees not yet realized as income, consisting of (i) $90,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $8,146,000 of loan processing fees received related to PPP loans funded during the first nine months of 2021. Comparatively, as of December 31, 2020, Mid Penn had $7,746,000 of PPP deferred loan processing fees not yet realized as income, all resulting from PPP loans funded during the year ended December 31, 2020. Mid Penn recognized $6,238,000 of PPP processing fees during the quarter ended September 30, 2021, compared to $2,583,000 of PPP processing fees for the same period of 2020. During the nine months ended September 30, 2021 and 2020, Mid Penn recognized $17,528,000 and $4,954,000 of PPP processing fees, respectively, within interest and fees on loans and leases on the Consolidated Statements of Income.

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Additionally, the CARES Act, along with a joint agency statement issued by banking agencies, provided that short-term modifications made through December 31, 2020 in response to COVID-19 did not need to be accounted for as troubled debt restructurings. The Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020, and extended this provision to January 1, 2022. As of September 30, 2021, the principal balance of loans in a CARES Act qualifying deferment status totaled $3,571,000, or less than 1 percent of the total loan portfolio, a reduction compared to December 31, 2020, when $11,681,000 of loans, also representing less than 1 percent of the total loan portfolio, were in this deferment status. Most borrowers granted a CARES Act deferral have returned to regular payment status. Depending upon the specific needs and circumstances affecting each borrower, the majority of these modifications ranged from deferrals of both principal and interest payments with some borrowers reverting to interest-only payments. Most of the deferrals granted by Mid Penn have been for a period of three months, but some as long as six months, depending upon management’s specific evaluation of each borrower’s circumstances. Interest continues to accrue on loans modified under the CARES Act during the deferral period. Mid Penn remains in communication with each of the borrowers still in deferral status to assess the ongoing credit standing of the borrowers and may make further adjustments to a borrower’s relationship at some future time if warranted for the specific situation.

(15) Agreement and Plan of Merger

On June 30, 2021, and as announced on a Form 8-K including related disclosures, Mid Penn entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Riverview Financial Corporation (“Riverview”) pursuant to which Riverview will merge with and into Mid Penn (the “Merger”), with Mid Penn being the surviving corporation in the Merger. The Merger Agreement was unanimously approved by the boards of directors of Mid Penn and Riverview. Under the terms of the Merger Agreement, shareholders of Riverview will have the right to receive 0.4833 shares of Mid Penn common stock for each share of Riverview common stock they own. Pending required bank regulatory agency and shareholder approvals, upon consummation of the Merger, Riverview Bank, a wholly owned subsidiary of Riverview, will be merged with and into Mid Penn Bank (the “Bank Merger”), a wholly owned subsidiary of Mid Penn, with Mid Penn Bank being the surviving bank in the Bank Merger.

Merger-related expenses totaled $198,000 and $720,000 for the three and nine months ended September 30, 2021, respectively, and consisted of legal and professional fees associated with the due diligence, fairness opinion, and other costs related to the planned Riverview acquisition. No merger-related expenses were recorded during the three- and nine-month periods ended September 30, 2020.

During the third quarter of 2021, all regulatory notifications and applications were filed in a timely manner with the appropriate agencies. It is expected that the Merger will be completed in the fourth quarter of 2021 with system conversion anticipated to occur during the first quarter of 2022.

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MID PENN BANCORP, INC. |

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is Management’s Discussion and Analysis of Consolidated Financial Condition as of September 30, 2021, compared to year-end 2020, and the Results of Operations for the three and nine months ended September 30, 2021, compared to the same periods in 2020. For comparative purposes, the September 30, 2020 and December 31, 2020 balances have been reclassified when, and if necessary, to conform to the 2021 presentation. Such reclassifications had no impact on net income or shareholders’ equity. This discussion should be read in conjunction with the financial tables, statistics, and the audited financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”). The results of operations for interim periods are not necessarily indicative of operating results expected for the full year.

Caution About Forward-Looking Statements

Forward-looking statements involve risks, uncertainties and assumptions. Although Mid Penn generally does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee the accuracy of any forward-looking statements. Actual results may differ materially from those expressed in any forward-looking statements due to a number of uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q, the 2020 Annual Report, and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on Mid Penn’s website or otherwise, and Mid Penn undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect”, “anticipates”, “intend”, “plan”, “believe”, “estimate”, and similar expressions are intended to identify such forward-looking statements. Mid Penn’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

| • | the effects of potentially slowing or volatile future economic conditions on Mid Penn and its customers;

| • | governmental monetary and fiscal policies, as well as legislative and regulatory changes;

| • | future actions or inactions of the federal or state governments, including a failure to increase the government debt limit or a prolonged shutdown of the federal government, or a federal or state government-mandated shutdowns of significant segments of the economy;

| • | business or economic disruptions from national or global epidemic or pandemic events, including those from the COVID-19 pandemic;

| • | the risks associated with our announced acquisition of Riverview, including (i) we are expected to incur substantial costs related to the merger and integration; (ii) the combination may be more difficult, costly or time consuming than expected; (iii) we may fail to realize the anticipated benefits of the merger; (iv) the future results of the combined company may suffer if the expanded operations are not effectively managed; (v) the combined company may be unable to retain personnel successfully while the merger is pending or after the merger is completed; (vi) the COVID-19 pandemic may delay and adversely affect the effectiveness or efficiency of the merger completion; (vii) regulatory approvals of the merger may not be received or may take longer than expected, and the regulators may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company; (viii) termination of the merger agreement could negatively affect Mid Penn; (ix) Mid Penn will be subject to business uncertainties and contractual restrictions while the merger is pending; (x) shareholder litigation could prevent or delay the closing of the merger or otherwise negatively affect the business and operations of Mid Penn; and (xi) the merger agreement subjects Mid Penn to certain restrictions on its business activities prior to the effective time of the merger;

| • | an increase in the Pennsylvania Bank Shares Tax to which Mid Penn Bank’s capital stock is currently subject, or imposition of any additional taxes on Mid Penn or Mid Penn Bank;

| • | changes in the capitalization of the Corporation, including the impacts of any capital and liquidity requirements imposed by regulatory pronouncements and rules;

| • | the effect of changes in accounting policies and practices, as may be adopted by the supervisory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, and other accounting standard setters;

| • | the risks of changes in interest rates and the yield curve on the level and composition of deposits and other funding sources, loan demand and yields, values of loan collateral, securities and yields, and interest rate protection agreements;

| • | the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in Mid Penn’s market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

| • | the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;

| • | technological changes and changes to data security systems including those with third-party information technology providers;

| • | our ability to implement business strategies, including our acquisition strategy;

| • | our ability to implement organic branch, product and service expansion strategies;

| • | our current and future acquisition strategies may not be successful in locating or acquiring advantageous targets at favorable prices;

| • | our ability to successfully integrate any banks, companies, assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames;

| • | potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;

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MID PENN BANCORP, INC. |

| • | our ability to attract and retain qualified management and personnel;

| • | our ability to maintain the value and image of our brand and protect our intellectual property rights;

| • | results of regulatory examination and supervision processes;

| • | our ability to maintain compliance with the exchange rules of The NASDAQ Stock Market LLC;

| • | the failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities;

| • | acts of war or terrorism; disruptions due to flooding, severe weather, or other natural disasters or Acts of God; and

| • | volatility in the securities markets; and

| • | other risks and uncertainties, including those detailed in our Annual Report on Form 10-K for the year ended December 31, 2020, under the sections “Risk Factors” and “Management Discussion and Analysis of Financial Condition and Results of Operations” and in subsequent filings with the SEC.

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

Critical Accounting Estimates

Mid Penn’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and conform to general practices within the banking industry. Application of these principles involves significant judgments and estimates by management that have a material impact on the carrying value of certain assets and liabilities. The judgments and estimates that we used are also based on historical experiences and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and estimates that we have made, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of our operations. Management of the Corporation considers the accounting judgments relating to the allowance, the evaluation of the Corporation’s investment securities for other-than-temporary impairment, the valuation of the Corporation’s goodwill and other merger-related intangible assets for impairment, and the valuation of assets acquired and liabilities assumed in business combinations, to be the accounting areas that require the most subjective and complex judgments.

The allowance represents management’s estimate of probable incurred credit losses inherent in the loan and lease portfolio. Determining the amount of the allowance is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan and lease portfolio also represents the largest asset type on the consolidated balance sheet. Throughout the remainder of this report, the terms “loan” or “loans” refers to both loans and leases.

Valuations for the investment portfolio are determined using quoted market prices, where available. If quoted market prices are not available, investment valuation is based on pricing models, quotes for similar investment securities, and observable yield curves and spreads. In addition to securities valuation, management must assess whether there are any declines in value below the carrying value of the investments that should be considered other than temporary or require an adjustment in carrying value and recognition of the loss in the consolidated statement of income.

Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment. Goodwill is tested annually for impairment, and if certain events occur which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, Mid Penn considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. Similarly, the amortized basis of the core deposit intangible asset is periodically assessed for impairment. There are inherent uncertainties related to these factors and Mid Penn’s judgment in applying them to the analysis of core deposit intangible, trade name intangible, and goodwill impairment. Changes in economic and operating conditions could result in goodwill or core deposit intangible or trade name intangible impairment in future periods.

Valuations of assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires Mid Penn to estimate cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.

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MID PENN BANCORP, INC. |

Results of Operations

Overview

Net income available to common shareholders was $9,787,000 or $0.86 per common share basic and diluted for the quarter ended September 30, 2021, compared to net income of $6,547,000 or $0.78 per common share basic and diluted for the quarter ended September 30, 2020. During the nine months ended September 30, 2021, net income available was $28,712,000 or $2.85 per common share basic and diluted, versus $17,198,000 or $2.04 per common share basic and diluted for the nine months ended September 30, 2020.

Net income as a percent of average assets (return on average assets, or “ROA”) and net income as a percentage of shareholders' equity (return on average equity, or “ROE”) were as follows (calculated and reported on an annualized basis):

| Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Return on average assets |  | 1.11 | % |  |  | 0.87 | % |  |  | 1.14 | % |  |  | 0.86 | %
Return on average equity |  | 11.23 | % |  |  | 10.64 | % |  |  | 12.55 | % |  |  | 9.51 | %

Net Interest Income/Funding Sources

Net interest income, Mid Penn’s primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings. The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities. Net interest income and corresponding yields are presented in the analysis below on a taxable-equivalent basis. Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 21 percent for the three and nine months ended September 30, 2021 and 2020.

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MID PENN BANCORP, INC. |

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the three months ended September 30, 2021 and 2020.

|  | Average Balances, Income and Interest Rates on a Taxable Equivalent Basis |
|  | For the Three Months Ended |
(Dollars in thousands) |  | September 30, 2021 |  |  | September 30, 2020 |
|  | Average |  |  |  |  |  | Average |  |  | Average |  |  |  |  |  | Average |
|  | Balance |  |  | Interest |  |  | Rates |  |  | Balance |  |  | Interest |  |  | Rates |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Balances |  | $ |  | 2,491 |  |  | $ |  | 1 |  |  |  | 0.16 | % |  | $ |  | 3,798 |  |  | $ |  | 3 |  |  |  | 0.31 | %
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  |  | 102,259 |  |  |  |  | 504 |  |  |  | 1.96 | % |  |  |  | 99,498 |  |  |  |  | 545 |  |  |  | 2.18 | %
Tax-Exempt |  |  |  | 56,037 |  |  |  |  | 353 |  | (a) |  | 2.50 | % |  |  |  | 51,668 |  |  |  |  | 335 |  | (a) |  | 2.58 | %
Total Securities |  |  |  | 158,296 |  |  |  |  | 857 |  |  |  | 2.15 | % |  |  |  | 151,166 |  |  |  |  | 880 |  |  |  | 2.32 | %
Federal Funds Sold |  |  |  | 715,365 |  |  |  |  | 308 |  |  |  | 0.17 | % |  |  |  | 132,002 |  |  |  |  | 34 |  |  |  | 0.10 | %
Loans and Leases, Net |  |  |  | 2,422,378 |  |  |  |  | 29,660 |  | (b) |  | 4.86 | % |  |  |  | 2,482,011 |  |  |  |  | 25,229 |  | (b) |  | 4.04 | %
Restricted Investment in Bank Stocks |  |  |  | 7,148 |  |  |  |  | 58 |  |  |  | 3.22 | % |  |  |  | 7,215 |  |  |  |  | 139 |  |  |  | 7.66 | %
Total Earning Assets |  |  |  | 3,305,678 |  |  |  |  | 30,884 |  |  |  | 3.71 | % |  |  |  | 2,776,192 |  |  |  |  | 26,285 |  |  |  | 3.77 | %
Cash and Due from Banks |  |  |  | 39,852 |  |  |  |  |  |  |  |  |  |  |  |  |  | 38,065 |  |  |  |  |  |  |  |  |  |
Other Assets |  |  |  | 163,227 |  |  |  |  |  |  |  |  |  |  |  |  |  | 177,724 |  |  |  |  |  |  |  |  |  |
Total Assets |  | $ |  | 3,508,757 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 2,991,981 |  |  |  |  |  |  |  |  |  |
LIABILITIES & SHAREHOLDERS' EQUITY: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing Demand |  | $ |  | 681,171 |  |  | $ |  | 625 |  |  |  | 0.36 | % |  | $ |  | 573,178 |  |  | $ |  | 814 |  |  |  | 0.56 | %
Money Market |  |  |  | 854,065 |  |  |  |  | 864 |  |  |  | 0.40 | % |  |  |  | 659,913 |  |  |  |  | 881 |  |  |  | 0.53 | %
Savings |  |  |  | 208,163 |  |  |  |  | 60 |  |  |  | 0.11 | % |  |  |  | 190,528 |  |  |  |  | 80 |  |  |  | 0.17 | %
Time |  |  |  | 446,256 |  |  |  |  | 1,360 |  |  |  | 1.21 | % |  |  |  | 419,612 |  |  |  |  | 1,992 |  |  |  | 1.89 | %
Total Interest-bearing Deposits |  |  |  | 2,189,655 |  |  |  |  | 2,909 |  |  |  | 0.53 | % |  |  |  | 1,843,231 |  |  |  |  | 3,767 |  |  |  | 0.81 | %
Short-term Borrowings |  |  |  | 149,505 |  |  |  |  | 133 |  |  |  | 0.35 | % |  |  |  | 203,854 |  |  |  |  | 181 |  |  |  | 0.35 | %
Long-term Debt |  |  |  | 74,888 |  |  |  |  | 205 |  |  |  | 1.09 | % |  |  |  | 81,534 |  |  |  |  | 258 |  |  |  | 1.26 | %
Subordinated Debt |  |  |  | 44,596 |  |  |  |  | 499 |  |  |  | 4.44 | % |  |  |  | 41,990 |  |  |  |  | 508 |  |  |  | 4.81 | %
Total Interest-bearing Liabilities |  |  |  | 2,458,644 |  |  |  |  | 3,746 |  |  |  | 0.60 | % |  |  |  | 2,170,609 |  |  |  |  | 4,714 |  |  |  | 0.86 | %
Noninterest-bearing Demand |  |  |  | 681,230 |  |  |  |  |  |  |  |  |  |  |  |  |  | 552,576 |  |  |  |  |  |  |  |  |  |
Other Liabilities |  |  |  | 23,067 |  |  |  |  |  |  |  |  |  |  |  |  |  | 24,032 |  |  |  |  |  |  |  |  |  |
Shareholders' Equity |  |  |  | 345,816 |  |  |  |  |  |  |  |  |  |  |  |  |  | 244,764 |  |  |  |  |  |  |  |  |  |
Total Liabilities & Shareholders' Equity |  | $ |  | 3,508,757 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 2,991,981 |  |  |  |  |  |  |  |  |  |
Net Interest Income (taxable equivalent basis) |  |  |  |  |  |  | $ |  | 27,138 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 21,571 |  |  |  |  |
Taxable Equivalent Adjustment |  |  |  |  |  |  |  |  | (144 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (163 | ) |  |  |  |
Net Interest Income |  |  |  |  |  |  | $ |  | 26,994 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 21,408 |  |  |  |  |
Total Yield on Earning Assets |  |  |  |  |  |  |  |  |  |  |  |  | 3.71 | % |  |  |  |  |  |  |  |  |  |  |  |  | 3.77 | %
Rate on Supporting Liabilities |  |  |  |  |  |  |  |  |  |  |  |  | 0.60 | % |  |  |  |  |  |  |  |  |  |  |  |  | 0.86 | %
Average Interest Spread |  |  |  |  |  |  |  |  |  |  |  |  | 3.10 | % |  |  |  |  |  |  |  |  |  |  |  |  | 2.90 | %
Net Interest Margin |  |  |  |  |  |  |  |  |  |  |  |  | 3.26 | % |  |  |  |  |  |  |  |  |  |  |  |  | 3.09 | %

(a) | Includes tax-equivalent adjustments (calculated using statutory rates of 21 percent) of $74,000 and $70,000 for the three months ended September 30, 2021 and 2020, respectively, resulting from tax-free municipal securities in the investment portfolio.

(b) | Includes tax-equivalent adjustments (calculated using statutory rates of 21 percent) of $70,000 and $93,000 for the three months ended September 30, 2021 and 2020, respectively, resulting from tax-free municipal loans in the commercial loan portfolio.

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MID PENN BANCORP, INC. |

|  | Three months ended |
|  | September 30, 2021 vs. September 30, 2020 |
(Dollars in thousands on a Taxable Equivalent Basis) |  | Increase (decrease) |
|  | Volume |  |  | Rate |  |  | Net |
INTEREST INCOME: |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Balances |  | $ | (1 | ) |  | $ | (1 | ) |  | $ | (2 | )
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 15 |  |  |  | (56 | ) |  |  | (41 | )
Tax-Exempt |  |  | 28 |  |  |  | (10 | ) |  |  | 18 |
Total Securities |  |  | 43 |  |  |  | (66 | ) |  |  | (23 | )
Federal Funds Sold |  |  | 151 |  |  |  | 123 |  |  |  | 274 |
Loans and Leases, Net |  |  | (608 | ) |  |  | 5,039 |  |  |  | 4,431 |
Restricted Investment Bank Stocks |  |  | (1 | ) |  |  | (80 | ) |  |  | (81 | )
Total Interest Income |  |  | (416 | ) |  |  | 5,015 |  |  |  | 4,599 |
INTEREST EXPENSE: |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Deposits: |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Demand |  |  | 154 |  |  |  | (343 | ) |  |  | (189 | )
Money Market |  |  | 260 |  |  |  | (277 | ) |  |  | (17 | )
Savings |  |  | 7 |  |  |  | (27 | ) |  |  | (20 | )
Time |  |  | 127 |  |  |  | (759 | ) |  |  | (632 | )
Total Interest Bearing Deposits |  |  | 548 |  |  |  | (1,406 | ) |  |  | (858 | )
Short-term Borrowings |  |  | (48 | ) |  |  | - |  |  |  | (48 | )
Long-term Debt |  |  | (21 | ) |  |  | (32 | ) |  |  | (53 | )
Subordinated Debt |  |  | 32 |  |  |  | (41 | ) |  |  | (9 | )
Total Interest Expense |  |  | 511 |  |  |  | (1,479 | ) |  |  | (968 | )
NET INTEREST INCOME |  | $ | (927 | ) |  | $ | 6,494 |  |  | $ | 5,567 |

Taxable-equivalent net interest income was $27,138,000 for the three months ended September 30, 2021, an increase of $5,567,000 or 26 percent compared to the three months ended September 30, 2020. This increase included the recognition of $6,237,000 of PPP loan processing fees generated as a result of Mid Penn’s participation in the PPP program compared to the $2,583,000 of PPP loan processing fees recognized during the third quarter of 2020. These PPP fees are recognized into interest income over the term of the respective loan, or sooner if the loans are forgiven by the SBA, or the borrowers otherwise pay down principal prior to a loan’s stated maturity. Also contributing to the net interest income increase were the interest and fees from core loan growth since September 30, 2020 and the reduced interest expense due to the lower cost of deposits in the third quarter of 2021 compared to the same period in 2020.

Mid Penn’s tax-equivalent net interest margin for the three months ended September 30, 2021 was 3.26 percent and comparable to the 3.09 percent net interest margin for the three months ended September 30, 2020. The yield on interest-earning assets decreased from 3.77 percent for the third quarter of 2020 to 3.71 percent for the third quarter of 2021. Though the quarterly average balance of interest-earning assets increased year over year, the yields on interest-earning assets declined due to both the reduction in rates, as well as the significant average balance of PPP loans outstanding in the third quarter of 2021, which earn interest at a rate of 1 percent while outstanding. The decrease in the yield on interest-earning assets was substantially offset by a favorable decrease in the cost of funds, as the total cost of deposits for the three months ended September 30, 2021 favorably decreased to 0.53 percent compared to 0.81 percent for the three months ended September 30, 2020. The reduction in the cost of funds primarily reflects deposit rate decreases, many of which resulted in response to market rate cuts from the COVID-19 pandemic.

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MID PENN BANCORP, INC. |

The following tables include average balances, amounts, and rates of interest income and expense, interest rate spread, and net interest margin for the nine months ended September 30, 2021 and 2020.

|  | Average Balances, Income and Interest Rates on a Taxable Equivalent Basis |
|  | For the Nine Months Ended |
(Dollars in thousands) |  | September 30, 2021 |  |  | September 30, 2020 |
|  | Average |  |  |  |  |  | Average |  |  | Average |  |  |  |  |  | Average |
|  | Balance |  |  | Interest |  |  | Rates |  |  | Balance |  |  | Interest |  |  | Rates |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Balances |  | $ |  | 1,729 |  |  | $ |  | 5 |  |  |  | 0.39 | % |  | $ |  | 4,871 |  |  | $ |  | 36 |  |  |  | 0.99 | %
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  |  | 91,379 |  |  |  |  | 1,319 |  |  |  | 1.93 | % |  |  |  | 119,458 |  |  |  |  | 2,034 |  |  |  | 2.27 | %
Tax-Exempt |  |  |  | 55,599 |  |  |  |  | 1,056 |  | (a) |  | 2.54 | % |  |  |  | 47,737 |  |  |  |  | 929 |  | (a) |  | 2.60 | %
Total Securities |  |  |  | 146,978 |  |  |  |  | 2,375 |  |  |  | 2.16 | % |  |  |  | 167,195 |  |  |  |  | 2,963 |  |  |  | 2.37 | %
Federal Funds Sold |  |  |  | 503,652 |  |  |  |  | 485 |  |  |  | 0.13 | % |  |  |  | 114,946 |  |  |  |  | 447 |  |  |  | 0.52 | %
Loans and Leases, Net |  |  |  | 2,520,965 |  |  |  |  | 87,974 |  | (b) |  | 4.67 | % |  |  |  | 2,181,340 |  |  |  |  | 72,777 |  | (b) |  | 4.46 | %
Restricted Investment in Bank Stocks |  |  |  | 7,022 |  |  |  |  | 239 |  |  |  | 4.55 | % |  |  |  | 6,308 |  |  |  |  | 257 |  |  |  | 5.44 | %
Total Earning Assets |  |  |  | 3,180,346 |  |  |  |  | 91,078 |  |  |  | 3.83 | % |  |  |  | 2,474,660 |  |  |  |  | 76,480 |  |  |  | 4.13 | %
Cash and Due from Banks |  |  |  | 36,213 |  |  |  |  |  |  |  |  |  |  |  |  |  | 32,361 |  |  |  |  |  |  |  |  |  |
Other Assets |  |  |  | 162,189 |  |  |  |  |  |  |  |  |  |  |  |  |  | 166,539 |  |  |  |  |  |  |  |  |  |
Total Assets |  | $ |  | 3,378,748 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 2,673,560 |  |  |  |  |  |  |  |  |  |
LIABILITIES & SHAREHOLDERS' EQUITY: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing Demand |  | $ |  | 632,830 |  |  | $ |  | 1,782 |  |  |  | 0.38 | % |  | $ |  | 514,035 |  |  | $ |  | 2,773 |  |  |  | 0.72 | %
Money Market |  |  |  | 796,922 |  |  |  |  | 2,461 |  |  |  | 0.41 | % |  |  |  | 579,638 |  |  |  |  | 3,359 |  |  |  | 0.77 | %
Savings |  |  |  | 203,206 |  |  |  |  | 182 |  |  |  | 0.12 | % |  |  |  | 183,735 |  |  |  |  | 279 |  |  |  | 0.20 | %
Time |  |  |  | 431,009 |  |  |  |  | 4,366 |  |  |  | 1.35 | % |  |  |  | 450,333 |  |  |  |  | 6,745 |  |  |  | 2.00 | %
Total Interest-bearing Deposits |  |  |  | 2,063,967 |  |  |  |  | 8,791 |  |  |  | 0.57 | % |  |  |  | 1,727,741 |  |  |  |  | 13,156 |  |  |  | 1.02 | %
Short-term Borrowings |  |  |  | 205,697 |  |  |  |  | 539 |  |  |  | 0.35 | % |  |  |  | 85,515 |  |  |  |  | 226 |  |  |  | 0.35 | %
Long-term Debt |  |  |  | 74,975 |  |  |  |  | 613 |  |  |  | 1.09 | % |  |  |  | 63,997 |  |  |  |  | 791 |  |  |  | 1.65 | %
Subordinated Debt |  |  |  | 44,589 |  |  |  |  | 1,498 |  |  |  | 4.49 | % |  |  |  | 37,705 |  |  |  |  | 1,417 |  |  |  | 5.02 | %
Total Interest-bearing Liabilities |  |  |  | 2,389,228 |  |  |  |  | 11,441 |  |  |  | 0.64 | % |  |  |  | 1,914,958 |  |  |  |  | 15,590 |  |  |  | 1.09 | %
Noninterest-bearing Demand |  |  |  | 659,554 |  |  |  |  |  |  |  |  |  |  |  |  |  | 491,803 |  |  |  |  |  |  |  |  |  |
Other Liabilities |  |  |  | 24,037 |  |  |  |  |  |  |  |  |  |  |  |  |  | 25,312 |  |  |  |  |  |  |  |  |  |
Shareholders' Equity |  |  |  | 305,929 |  |  |  |  |  |  |  |  |  |  |  |  |  | 241,487 |  |  |  |  |  |  |  |  |  |
Total Liabilities & Shareholders' Equity |  | $ |  | 3,378,748 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 2,673,560 |  |  |  |  |  |  |  |  |  |
Net Interest Income (taxable equivalent basis) |  |  |  |  |  |  | $ |  | 79,637 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 60,890 |  |  |  |  |
Taxable Equivalent Adjustment |  |  |  |  |  |  |  |  | (441 | ) |  |  |  |  |  |  |  |  |  |  |  |  | (471 | ) |  |  |  |
Net Interest Income |  |  |  |  |  |  | $ |  | 79,196 |  |  |  |  |  |  |  |  |  |  |  | $ |  | 60,419 |  |  |  |  |
Total Yield on Earning Assets |  |  |  |  |  |  |  |  |  |  |  |  | 3.83 | % |  |  |  |  |  |  |  |  |  |  |  |  | 4.13 | %
Rate on Supporting Liabilities |  |  |  |  |  |  |  |  |  |  |  |  | 0.64 | % |  |  |  |  |  |  |  |  |  |  |  |  | 1.09 | %
Average Interest Spread |  |  |  |  |  |  |  |  |  |  |  |  | 3.19 | % |  |  |  |  |  |  |  |  |  |  |  |  | 3.04 | %
Net Interest Margin |  |  |  |  |  |  |  |  |  |  |  |  | 3.35 | % |  |  |  |  |  |  |  |  |  |  |  |  | 3.29 | %

(c) | Includes tax-equivalent adjustments (calculated using statutory rates of 21 percent) of $222,000 and $195,000 for the nine months ended September 30, 2021 and 2020, respectively, resulting from tax-free municipal securities in the investment portfolio.

(d) | Includes tax-equivalent adjustments (calculated using statutory rates of 21 percent) of $219,000 and $276,000 for the nine months ended September 30, 2021 and 2020, respectively, resulting from tax-free municipal loans in the commercial loan portfolio.

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MID PENN BANCORP, INC. |

|  | Nine months ended |
|  | September 30, 2021 vs. September 30, 2020 |
(Dollars in thousands on a Taxable Equivalent Basis) |  | Increase (decrease) |
|  | Volume |  |  | Rate |  |  | Net |
INTEREST INCOME: |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Balances |  | $ | (23 | ) |  | $ | (8 | ) |  | $ | (31 | )
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | (478 | ) |  |  | (237 | ) |  |  | (715 | )
Tax-Exempt |  |  | 153 |  |  |  | (26 | ) |  |  | 127 |
Total Securities |  |  | (325 | ) |  |  | (263 | ) |  |  | (588 | )
Federal Funds Sold |  |  | 1,510 |  |  |  | (1,472 | ) |  |  | 38 |
Loans and Leases, Net |  |  | 11,321 |  |  |  | 3,876 |  |  |  | 15,197 |
Restricted Investment Bank Stocks |  |  | 29 |  |  |  | (47 | ) |  |  | (18 | )
Total Interest Income |  |  | 12,512 |  |  |  | 2,086 |  |  |  | 14,598 |
INTEREST EXPENSE: |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Deposits: |  |  |  |  |  |  |  |  |  |  |  |
Interest Bearing Demand |  |  | 640 |  |  |  | (1,631 | ) |  |  | (991 | )
Money Market |  |  | 1,258 |  |  |  | (2,156 | ) |  |  | (898 | )
Savings |  |  | 30 |  |  |  | (127 | ) |  |  | (97 | )
Time |  |  | (289 | ) |  |  | (2,090 | ) |  |  | (2,379 | )
Total Interest Bearing Deposits |  |  | 1,639 |  |  |  | (6,004 | ) |  |  | (4,365 | )
Short-term Borrowings |  |  | 317 |  |  |  | (4 | ) |  |  | 313 |
Long-term Debt |  |  | 136 |  |  |  | (314 | ) |  |  | (178 | )
Subordinated Debt |  |  | 258 |  |  |  | (177 | ) |  |  | 81 |
Total Interest Expense |  |  | 2,350 |  |  |  | (6,499 | ) |  |  | (4,149 | )
NET INTEREST INCOME |  | $ | 10,162 |  |  | $ | 8,585 |  |  | $ | 18,747 |

Taxable-equivalent net interest income was $79,637,000 for the nine months ended September 30, 2021, an increase of $18,747,000 or 31 percent compared to $60,890,000 of taxable-equivalent net interest income for the nine months ended September 30, 2020.

The year-over-year increase in taxable-equivalent net interest income for the first nine months was primarily the result of Mid Penn’s participation in the PPP program, as the nine months ended September 30, 2021 included the recognition of $17,528,000 of PPP loan processing fees, an increase of $12,574,000 compared to $4,954,000 of PPP loan processing fees recognized during the same period in 2020. The PPP fees recognized in the first nine months of 2021 included both 2020 round 1 and 2021 round 2 loan forgiveness, while the first nine months of 2020 included only amortized 2020 round 1 fees. These PPP fees are recognized within interest income over the term of the respective loan, or sooner if the loans are forgiven by the SBA, or the borrowers otherwise pay down principal prior to a loan’s stated maturity. Also contributing to the net interest income increase were the interest and fees from core loan growth since September 30, 2020 and the reduced interest expense due to the lower cost of deposits in the first nine months of 2021 compared to the same period in 2020.

For the nine months ended September 30, 2021, Mid Penn’s tax-equivalent net interest was 3.35 percent versus 3.29 percent for the nine months ended September 30, 2020. Though the year-to-date and quarterly average balance of interest-earning assets increased year over year, the yields on interest-earning assets declined due to both (i) the full impact in 2021 of the reduction in rates due to the Federal Open Market Committee (“FOMC”) rate cuts initiated during March 2020 in response to the COVID-19 pandemic, and (ii) the significant average balance of PPP loans outstanding during the nine month period ended September 30, 2021 comprised of PPP loans originated in both 2020 and 2021, which earn interest at a rate of 1 percent while outstanding. The decrease in the yield on interest-earning assets was substantially offset by a favorable decrease in the cost of funds, as the total cost of deposits for the nine months ended September 30, 2021 favorably decreased to 0.57 percent compared to 1.02 percent for the nine months ended September 30, 2020. The reduction in the cost of funds reflects deposit rate decreases, many of which resulted from both management-initiated and market rate cuts due to impact of the COVID-19 pandemic.

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

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MID PENN BANCORP, INC. |

Provision for Loan Losses

The provision for loan and lease losses is the expense necessary to maintain the allowance at a level adequate to absorb management’s estimate of probable losses in the loan and lease portfolio. Mid Penn’s provision for loan and lease losses is based upon management’s monthly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans and leases, analyze delinquencies, ascertain loan and lease growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets Mid Penn serves.

Mid Penn has maintained the allowance in accordance with Mid Penn’s assessment process, which takes into consideration, among other relevant factors, the risk characteristics of the loan portfolio, the growth in the loan portfolio during the first nine months of 2021, economic and external factor changes, and shifting collateral values from December 31, 2020 to September 30, 2021.

Management performed a current evaluation of the adequacy of the loan and lease loss allowance and, based on this evaluation, a loan loss provision of $425,000 and $1,100,000 was recorded for the three months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021, the provision for the loan and lease losses was $2,575,000 compared to $2,700,000 for the nine months ended September 30, 2020. The allowance for loan losses and the related provision reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses as Mid Penn is not yet required to adopt the current expected credit loss (“CECL”) accounting standard. The increase in the allowance for loan loss from $13,382,000 at December 31, 2020 to $14,233,000 at September 30, 2021 was primarily the result of (i) providing for core loan growth during the nine months ended September 30, 2021, and (ii) an increase in qualitative factors related to economic and external conditions when compared to prior periods, with such changes driven by the possibility for ongoing financial implications from the COVID-19 pandemic on Mid Penn’s customers and market area.

Noninterest Income

For the three months ended September 30, 2021, noninterest income totaled $5,509,000, an increase of $207,000 or 4 percent, compared to noninterest income of $5,302,000 for the three months ended September 30, 2020. For the nine months ended September 30, 2021, noninterest income totaled $15,873,000, an increase of $4,015,000 or 34 percent, compared to noninterest income of $11,858,000 for the same period in 2020.

The following components of noninterest income showed significant changes:

(Dollars in Thousands) | Three Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | $ Variance |  |  | % Variance |
Mortgage banking income | $ | 3,162 |  |  | $ | 3,107 |  |  | $ | 55 |  |  |  | 2 | %
Income from fiduciary and wealth management activities |  | 618 |  |  |  | 462 |  |  |  | 156 |  |  |  | 34 | %
ATM debit card interchange income |  | 630 |  |  |  | 535 |  |  |  | 95 |  |  |  | 18 | %
Merchant services income |  | 58 |  |  |  | 95 |  |  |  | (37 | ) |  |  | -39 | %
Net gain on sales of SBA loans |  | 105 |  |  |  | 173 |  |  |  | (68 | ) |  |  | -39 | %
Net gain on sales of investment securities |  | 79 |  |  |  | 150 |  |  |  | (71 | ) |  |  | -47 | %
Other income |  | 560 |  |  |  | 565 |  |  |  | (5 | ) |  |  | -1 | %

(Dollars in Thousands) | Nine Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | $ Variance |  |  | % Variance |
Mortgage banking income | $ | 8,382 |  |  | $ | 5,927 |  |  | $ | 2,455 |  |  |  | 41 | %
Income from fiduciary and wealth management activities |  | 1,716 |  |  |  | 1,267 |  |  |  | 449 |  |  |  | 35 | %
ATM debit card interchange income |  | 1,854 |  |  |  | 1,426 |  |  |  | 428 |  |  |  | 30 | %
Merchant services income |  | 359 |  |  |  | 276 |  |  |  | 83 |  |  |  | 30 | %
Net gain on sales of SBA loans |  | 560 |  |  |  | 435 |  |  |  | 125 |  |  |  | 29 | %
Net gain on sales of investment securities |  | 79 |  |  |  | 393 |  |  |  | (314 | ) |  |  | -80 | %
Other income |  | 2,148 |  |  |  | 1,447 |  |  |  | 701 |  |  |  | 48 | %

Mortgage banking income was $8,382,000 for the nine months ended September 30, 2021, an increase of $2,455,000 or 41 percent, compared to the nine months ended September 30, 2020. Mid Penn significantly increased residential mortgage originations and secondary-market loan sales and gains when comparing the first nine months of 2021 to the same period last year. Mortgage interest rates declined as a result of responses to the pandemic, and remained low in the twelve months since September 30, 2020, resulting in significantly increased mortgage loan production.

Income from fiduciary and wealth management activities was $1,716,000 for the nine months ended September 30, 2021, an increase of $449,000 or 35 percent, compared to fiduciary income of $1,267,000 for the same period in 2020. These additional revenues were attributed to favorable growth in trust assets under management and increased sales of retail investment products.

ATM debit card interchange income was $1,854,000 for the nine months ended September 30, 2021, an increase of $428,000 or 30 percent compared to interchange income of $1,426,000 for the nine months ended September 30, 2020. The increase resulted from increasing card-based transaction usage across our expanding checking account customer base.

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MID PENN BANCORP, INC. |

Net gains on sales of SBA loans were $560,000 for the nine months ended September 30, 2021, an increase of $125,000 or 29 percent compared to net gains on sales of SBA loans of $435,000 during the same period of 2020. During the first nine months of 2020, much of the focus of the SBA lending function was on the PPP loan program, resulting in a lower volume of traditional SBA loans being originated in 2020, while the volume of traditional SBA loan originations and sales have generally returned to pre-pandemic levels during the first nine months of 2021.

Merchant services income was $359,000 for the nine months ended September 30, 2021, an increase of $83,000 or 30 percent compared to merchant services income of $276,000 during the same period in 2020. The increase was primarily attributable to new and expanded cash management relationships, including those from new PPP customers.

Other income was $2,148,000 for the nine months ended September 30, 2021, an increase of $701,000 compared to other income of $1,447,000 for the nine months ended September 30, 2020. The increase in other income was primarily driven by higher volumes of fee-based income, including fees from new loan-level swaps, wire transfer fees, letter of credit fees, and credit card program referrals and royalties.

Net gain on sales of investment securities totaled $79,000 during the nine months ended September 30, 2021, compared to net gains on sales of securities of $393,000 for the nine months ended September 30, 2020. Sale volume and gains vary from period to period based upon market conditions, as well as investment portfolio and interest rate risk management activities.

Noninterest Expense

For the three months ended September 30, 2021, noninterest expense totaled $20,019,000, an increase of $1,845,000 or 10 percent, compared to noninterest expense of $18,174,000 for the same period in 2020. For the nine months ended September 30, 2021, noninterest expense totaled $57,033,000, an increase of $7,875,000 or 16 percent, compared to noninterest expense of $49,158,000 for the nine months ended September 30, 2020.

The changes were primarily a result of the following components of noninterest expense, which had significant variances when comparing results for periods ending in 2021 versus the corresponding period in 2020:

(Dollars in Thousands) | Three Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | $ Variance |  |  | % Variance |
Salaries and employee benefits | $ | 10,342 |  |  | $ | 10,279 |  |  | $ | 63 |  |  |  | 1 | %
Software licensing and utilization |  | 1,551 |  |  |  | 1,363 |  |  |  | 188 |  |  |  | 14 | %
Pennsylvania bank shares tax expense |  | 498 |  |  |  | 409 |  |  |  | 89 |  |  |  | 22 | %
FDIC Assessment |  | 461 |  |  |  | 547 |  |  |  | (86 | ) |  |  | -16 | %
Legal and professional fees |  | 610 |  |  |  | 336 |  |  |  | 274 |  |  |  | 82 | %
Mortgage banking profit-sharing expense |  | 1,140 |  |  |  | 390 |  |  |  | 750 |  |  |  | 192 | %
Merger and acquisition expense |  | 198 |  |  |  | — |  |  |  | 198 |  |  |  | 100 | %
Other expenses |  | 2,589 |  |  |  | 2,252 |  |  |  | 337 |  |  |  | 15 | %

(Dollars in Thousands) | Nine Months Ended September 30, |
| 2021 |  |  | 2020 |  |  | $ Variance |  |  | % Variance |
Salaries and employee benefits | $ | 29,873 |  |  | $ | 26,546 |  |  | $ | 3,327 |  |  |  | 13 | %
Software licensing and utilization |  | 4,493 |  |  |  | 3,881 |  |  |  | 612 |  |  |  | 16 | %
Pennsylvania bank shares tax expense |  | 1,022 |  |  |  | 869 |  |  |  | 153 |  |  |  | 18 | %
FDIC Assessment |  | 1,364 |  |  |  | 1,216 |  |  |  | 148 |  |  |  | 12 | %
Legal and professional fees |  | 1,591 |  |  |  | 1,037 |  |  |  | 554 |  |  |  | 53 | %
Mortgage banking profit-sharing expense |  | 2,005 |  |  |  | 540 |  |  |  | 1,465 |  |  |  | 271 | %
Merger and acquisition expense |  | 720 |  |  |  | — |  |  |  | 720 |  |  |  | 100 | %
Other expenses |  | 7,306 |  |  |  | 6,497 |  |  |  | 809 |  |  |  | 12 | %

Salaries and employee benefits were $29,873,000 for the nine months ended September 30, 2021, an increase of $3,327,000 or 13 percent, versus the same period in 2020, with the increase attributable to (i) increased mortgage commissions expense commensurate with the significant increases in mortgage loan originations and secondary market sales gains from the mortgage banking group, (ii) increased bonus expense in recognition of our employees and the successes of Mid Penn through the first nine months of 2021, (iii) increased medical expenses through the first nine months of 2021 when compared to the same period last year; and (iv) the addition of private banking and insurance business development professionals in our new nonbank subsidiaries focused on wealth management and insurance services.

Software licensing and utilization costs were $4,493,000 for the nine months ended September 30, 2021, an increase of $612,000 or 16 percent compared to $3,881,000 for the nine months ended September 30, 2020. Mid Penn continues to invest in upgrades to internal systems, networks, storage capabilities, cybersecurity management, and data security mechanisms to enhance data management and security capabilities responsive to both the larger company profile and the increasing complexity of information technology management. This increase also reflects the additional costs from both transaction volume-based charges, and licensing fees related to the addition of new staff added since September 30, 2020.

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MID PENN BANCORP, INC. |

Pennsylvania bank shares tax expense was $1,022,000 for the nine months ended September 30, 2021, an increase of $153,000 or 18 percent compared to $869,000 for the nine months ended September 30, 2020. The increase in shares tax expense generally reflects an increase in total shareholder’s equity upon which the tax is based.

FDIC assessment expense was $1,364,000 for the nine months ended September 30, 2021, an increase of $148,000 or 12 percent compared to $1,216,000 for the nine months ended September 30, 2020. The increased FDIC assessment aligns with the year-over-year growth of the average assets of the Bank on which the assessment is based.

Legal and professional fees were $1,591,000 for the nine months ended September 30, 2021, an increase of $554,000 or 53 percent compared to $1,037,000 for the nine months ended September 30, 2020, with this increase being attributable to consulting expenses related to strengthening and enhancing Mid Penn’s commercial online banking facility, as well as other information technology and cybersecurity management activities.

Mortgage banking profit-sharing expense totaled $2,005,000 for the nine months ended September 30, 2021 compared to $540,000 for the nine months ended September 30, 2020 and, for both periods, related to payments to third-party principals within the Southeastern Pennsylvania mortgage banking group at Mid Penn. The increase for 2021 reflects the substantial increase in the revenues and profits of the mortgage banking group year over year.

Merger-related expenses totaled $720,000 for the nine months ended September 30, 2021 and consisted of legal and professional fees associated with the due diligence, fairness opinion, and other costs related to the planned Riverview acquisition announced on June 30, 2021.

Other expenses increased $809,000 from $6,497,000 during the nine months ended September 30, 2020 to $7,306,000 for the same period in 2021 due to organizational growth resulting in increases across several components of other expense, including charitable giving, insurance, postage and courier fees, correspondent service fees, employee relations, travel and business meals, and directors’ fees.

Income Taxes

The provision for income taxes was $6,749,000 during the nine months ended September 30, 2021, compared to $3,221,000 of income tax provision recorded for the same period in 2020. The provision for income taxes for the nine months ended September 30, 2021 reflects a combined Federal and State effective tax rate of 19.0 percent compared to 15.8 percent for the nine months ended September 30, 2020. The increase in the effective tax rate reflects (i) higher pre-tax income when compared to the first nine months of 2020, (ii) less tax-exempt interest recognized due to less tax-exempt securities being held in the investment security portfolio when compared to the prior year, and (iii) the impact of certain merger-related expenses incurred in 2021 which are nondeductible for federal tax purposes.

Generally, Mid Penn’s effective tax rate is below the federal statutory rate due to earnings on tax-exempt loans, investments, and earnings from the cash surrender value of life insurance, as well as the impact of federal income tax credits, including those awarded from Mid Penn’s low-income housing investments. The realization of Mid Penn’s deferred tax assets is dependent on future earnings. Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets.

Financial Condition

Overview

Mid Penn’s total assets were $3,453,187,000 as of September 30, 2021, reflecting an increase of $454,239,000 or 15 percent compared to total assets of $2,998,948,000 as of December 31, 2020. Included in total assets as of September 30, 2021 are $229,679,000 of Paycheck Protection Program (“PPP”) loans, net of deferred fees, with this total being comprised of (i) $216,187,000 of PPP 2021 loans, net of deferred fees, originated during the first half of 2021; and (ii) $13,492,000 of PPP 2020 loans, net of deferred fees, originated during 2020 which, as of September 30, 2021, were still outstanding. Comparatively, as of December 31, 2020, Mid Penn had $388,313,000 of PPP 2020 loans outstanding, net of deferred fees. Mid Penn had $8,236,000 of PPP deferred loan processing fees not yet realized as income as of September 30, 2021, consisting of (i) $90,000 of loan processing fees received related to PPP loans funded during the year ended December 31, 2020, and (ii) $8,146,000 of loan processing fees received related to PPP loans funded during the first half of 2021. Comparatively, as of December 31, 2020, Mid Penn had $7,746,000 of PPP deferred loan processing fees not yet realized as income, all resulting from to PPP loans funded during the year ended December 31, 2020. Mid Penn was a significant participating lender under the PPP, which was originally created when the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, extended by the signing of the Consolidated Appropriations Act, 2021 into law on December 27, 2020, and further extended to May 31, 2021 by the PPP Extension Act of 2021.

Total core banking loans (a non-GAAP measure that reflects the amount of total loans excluding both the PPP loans outstanding, and residential mortgage loans held for sale) increased by $145,022,000 since year-end 2020 and totaled $2,140,750,000 as of September 30, 2021, representing an annualized growth rate of 10 percent. Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Measures (Unaudited)” for a discussion of our use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for these and certain other periods ended from September 30, 2020 to September 30, 2021. Deposit growth since year-end 2020 through September 30, 2021 totaled $487,301,000 representing an annualized deposit growth rate of over 20 percent, reflecting an increase of $125,666,000 in noninterest-bearing deposits, including some remaining proceeds deposited from PPP loan funding. Also, during the third quarter, the Bank repaid all borrowings from the Federal Reserve through the Paycheck Protection Program Liquidity Facility (“PPPLF”), the funding used to support the PPP 2021 loan production.

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Loans

Total loans as of September 30, 2021 were $2,370,429,000 compared to $2,384,041,000 as of December 31, 2020, a decrease of $13,612,000 or less than 1 percent since year-end 2020. This net decrease in loans was dramatically influenced by the forgiveness of PPP loans which served to offset the strong organic loan growth. Core banking loans (a non-GAAP measure calculated as total loans less PPP loans outstanding), totaled $2,140,750,000 as of September 30, 2021, an increase of $145,022,000 or 7 percent since year-end 2020, with this growth occurring primarily within Mid Penn’s commercial real estate and commercial and industrial financing loan portfolios. This increase represents an annualized core banking loan growth rate of 10 percent since December 31, 2020.

(Dollars in thousands) | September 30, 2021 |  |  | December 31, 2020 |
| Amount |  |  | % |  |  | Amount |  |  | % |
Commercial and industrial | $ | 632,680 |  |  |  | 26.7 | % |  | $ | 752,354 |  |  |  | 31.6 | %
Commercial real estate |  | 1,141,345 |  |  |  | 48.1 | % |  |  | 1,099,656 |  |  |  | 46.1 | %
Commercial real estate - construction |  | 314,457 |  |  |  | 13.3 | % |  |  | 248,913 |  |  |  | 10.4 | %
Residential mortgage |  | 195,636 |  |  |  | 8.2 | % |  |  | 201,841 |  |  |  | 8.5 | %
Home equity |  | 78,012 |  |  |  | 3.3 | % |  |  | 74,224 |  |  |  | 3.1 | %
Consumer |  | 8,299 |  |  |  | 0.4 | % |  |  | 7,053 |  |  |  | 0.5 | %
| $ | 2,370,429 |  |  |  | 100.0 | % |  | $ | 2,384,041 |  |  |  | 100.0 | %

Credit Quality, Credit Risk, and Allowance for Loan and Lease Losses

The allowance for loan losses and the related loan loss provision for the periods presented reflect Mid Penn’s continued application of the incurred loss method for estimating credit losses, as Mid Penn is not required to adopt the current expected credit loss (“CECL”) accounting standard until January 1, 2023, and Mid Penn has not elected to early adopt CECL. PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the Small Business Administration, no allowance for loan losses was recorded against the $229,679,000 balance of PPP loans outstanding (net of related deferred PPP fees) as of September 30, 2021.

For the nine months ended September 30, 2021, Mid Penn had net loan charge-offs of $1,724,000 compared to net charge-offs of $45,000 during the same period in 2020, with the increase largely attributable to the workout of three larger nonperforming loans during the first nine months of 2021. None of the charge offs during the nine months ended September 30, 2021 or 2020 were a result of the COVID-19 pandemic. Loans charged off during the first nine months of 2021 totaled $1,961,000 and included two commercial real estate loans for $1,043,000, three commercial and industrial loans for $859,000, two commercial real estate construction loans for $23,000, three residential mortgage loans for $14,000, three consumer loans for $8,000, and $14,000 in deposit account charge-offs. Mid Penn may need to make future adjustments to the allowance and the provision for loan and lease losses if economic conditions or loan credit quality differs substantially from the assumptions used in making Mid Penn’s evaluation of the level of the allowance for loan losses as compared to the balance of outstanding loans.

Changes in the allowance for the nine months ended September 30, 2021 and 2020 are summarized as follows:

(Dollars in thousands) | Nine Months Ended September 30, |
| 2021 |  |  | 2020 |
Balance, beginning of period | $ | 13,382 |  |  | $ | 9,515 |
Loans charged off during period |  | (1,961 | ) |  |  | (78 | )
Recoveries of loans previously charged off |  | 237 |  |  |  | 33 |
Net charge-offs |  | (1,724 | ) |  |  | (45 | )
Provision for loan and lease losses |  | 2,575 |  |  |  | 2,700 |
Balance, end of period | $ | 14,233 |  |  | $ | 12,170 |
Ratio of net loan charge-offs to average loans outstanding, annualized |  | 0.10 | % |  |  | 0.00 | %
Ratio of allowance for loan losses to net loans at end of period |  | 0.60 | % |  |  | 0.48 | %

Excluding PPP loans, which are guaranteed by the SBA and have no associated loss allowance, the allowance for loan and lease losses as a percentage of core loans (a non-GAAP financial measure) was 0.66 percent as of September 30, 2021 compared to 0.67 percent as of December 31, 2020 and 0.64 percent as of September 30, 2020. Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Measures (Unaudited)” for a discussion of our use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for these and certain other periods ended from September 30, 2020 to September 30, 2021.

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Other than as described herein, including the disclosures in previous sections regarding the continued impact of the COVID-19 pandemic, Mid Penn does not believe there are any trends or events at this time that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources. Based on known information, Mid Penn believes that the effects of current and past economic conditions and other unfavorable business conditions, including those related to COVID-19, may eventually impact some borrowers’ abilities to comply with their repayment terms. Accordingly, Mid Penn has adjusted its qualitative factors for economic and external conditions as part of its general component determination primarily in response to the economic conditions resulting from the pandemic. Mid Penn continues to monitor closely the financial strength of borrowers and the economic conditions impacting them, including those with a higher risk of impacts from the COVID-19 pandemic.

Mid Penn does not ordinarily engage in practices which may be used to artificially shield certain borrowers from the negative economic or business cycle effects that may compromise their ability to repay. Mid Penn does not normally structure construction loans with interest reserve components. Mid Penn has not in the past performed any commercial real estate or other type of loan workouts whereby an existing loan was restructured into multiple new loans. Also, Mid Penn does not extend loans at maturity solely due to the existence of guarantees, without recognizing the credit as impaired. While the existence of a guarantee may be a mitigating factor in determining the proper level of allowance once impairment has been identified, the guarantee does not affect the impairment analysis.

The following table presents the change in nonperforming asset categories as of September 30, 2021, December 31, 2020, and September 30, 2020.

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |
| September 30, 2021 |  |  | December 31, 2020 |  |  | September 30, 2020 |
Nonperforming Assets: |  |  |  |  |  |  |  |  |  |  |
Nonaccrual loans | $ | 6,339 |  |  | $ | 15,047 |  |  | $ | 12,896 |
Accruing troubled debt restructured loans |  | 442 |  |  |  | 463 |  |  |  | 470 |
Total nonperforming loans |  | 6,781 |  |  |  | 15,510 |  |  |  | 13,366 |
Foreclosed real estate |  | 11 |  |  |  | 134 |  |  |  | 1,716 |
Total non-performing assets |  | 6,792 |  |  |  | 15,644 |  |  |  | 15,082 |
Accruing loans 90 days or more past due |  | — |  |  |  | — |  |  |  | — |
Total risk elements | $ | 6,792 |  |  | $ | 15,644 |  |  | $ | 15,082 |
Nonperforming loans as a % of total |  |  |  |  |  |  |  |  |  |  |
loans outstanding |  | 0.29 | % |  |  | 0.65 | % |  |  | 0.53 | %
Nonperforming assets as a % of total |  |  |  |  |  |  |  |  |  |  |
loans outstanding and other real estate |  | 0.29 | % |  |  | 0.66 | % |  |  | 0.60 | %
Ratio of allowance for loan losses |  |  |  |  |  |  |  |  |  |  |
to nonperforming loans |  | 209.90 | % |  |  | 86.28 | % |  |  | 91.05 | %

In the table above, troubled debt restructured loans that are no longer accruing interest are included in nonaccrual loans.

Total nonperforming assets were $6,792,000 at September 30, 2021, a substantial decrease compared to nonperforming assets of $15,644,000 at December 31, 2020 and $15,082,000 at September 30, 2020. The decrease in nonperforming assets was primarily the result of the successful workout of two nonaccrual commercial relationships totaling $9,123,000, occurring in the first half of 2021:

| • | Management determined that an acquired commercial loan relationship with three loans totaling $7,354,000 (reclassified to nonaccrual status in 2019) would likely involve a long-term workout period and substantial legal and other collection costs in order for the Bank to execute its rights on the commercial real estate collateral. As part of its collection efforts, management identified a third party willing to purchase the Bank’s loans and rights for a $604,000 discount from the recorded balance. Management opted for this solution to both expedite the workout of the relationship, and eliminate the high and extended legal and collection costs associated with the long-term workout.

| • | Additionally, during the first quarter of 2021, as part of the workout plan related to one commercial loan relationship consisting of five loans totaling $1,769,000 (reclassified to nonaccrual status in 2020), management capitalized on a strong offer from a qualified buyer on property collateralizing the loans, thereby avoiding a likely costly, long-term bankruptcy and foreclosed real estate situation. The proceeds of the sale of the collateral were applied to the existing loans and management agreed to a partial charge-off of $255,000.

Given these large workouts, nonperforming assets were 0.29 percent of the total of loans plus other real estate assets as of September 30, 2021, a significant and favorable reduction compared to 0.66 percent at December 31, 2020 and 0.60 percent as of September 30, 2020. Loan loss reserves as a percentage of nonperforming loans increased to 210 percent at September 30, 2021, compared to 86 percent at December 31, 2020 and 91 percent at September 30, 2020.

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One loan relationship which accounts for $2,278,000 of the nonperforming loan balance as of September 30, 2021 is discussed in more detail below.

Loan relationship no. 1 - The contractual outstanding principal balance of this loan relationship was $2,278,000 at September 30, 2021 and was comprised of two loans acquired in 2018. These loans were transferred from accrual to nonaccrual status during the second quarter of 2020. These loans are collateralized primarily by commercial real estate, and, given that the fair value of the remaining collateral exceeds the outstanding principal balance, no specific allowance allocation has been currently assigned to this relationship. Management expects to recover the remaining outstanding balance through the sale of real estate collateral pledged in support of the loans.

The decrease in foreclosed real estate from $134,000 at December 31, 2020 to $11,000 at September 30, 2021 was driven by the sale of four foreclosed real estate properties totaling $175,000 during the first nine months of 2021. These sales were partially offset by the transfer of four smaller loans among three borrowers totaling $52,000 from nonaccrual status to foreclosed real estate during the first nine months of 2021.

Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to writing down or charging off the loan. Once the write down is taken, the remaining balance remains a nonperforming loan with the original terms and interest rate intact and is not treated as a restructured credit. The following table provides additional analysis of partially charged-off loans.

(Dollars in thousands) |  |  |  |  |  |  |
| September 30, 2021 |  |  | December 31, 2020 |
Period ending total loans outstanding | $ | 2,370,429 |  |  | $ | 2,384,041 |
Allowance for loan and lease losses |  | 14,233 |  |  |  | 13,382 |
Total Nonperforming loans |  | 6,781 |  |  |  | 15,510 |
Nonperforming and impaired loans with partial charge-offs |  | 113 |  |  |  | 836 |
Ratio of nonperforming loans with partial charge-offs |  |  |  |  |  |  |
to total loans |  | 0.00 | % |  |  | 0.04 | %
Ratio of nonperforming loans with partial charge-offs |  |  |  |  |  |  |
to total nonperforming loans |  | 1.67 | % |  |  | 5.39 | %
Coverage ratio net of nonperforming loans with |  |  |  |  |  |  |
partial charge-offs |  | 213.45 | % |  |  | 91.20 | %
Ratio of total allowance to total loans less |  |  |  |  |  |  |
nonperforming loans with partial charge-offs |  | 0.60 | % |  |  | 0.56 | %

Mid Penn considers a commercial loan or commercial real estate loan to be impaired when it becomes 90 days or more past due and not well-secured or otherwise not probable for collection. This methodology assumes the borrower cannot or will not continue to make additional payments. At that time the loan would be considered collateral dependent as the discounted cash flow method indicates no operating income is available for evaluating the collateral position; therefore, most impaired loans are deemed to be collateral dependent.

Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans rated as nonaccrual or lower will first have a collateral evaluation completed in accordance with the guidance on impaired loans. Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans rated as impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variation in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). The process of charge-off for residential mortgage loans begins upon a loan becoming delinquent for 90 days and not in the process of collection. The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Consumer loans are recommended for charge-off after reaching delinquency of 90 days and the loan is not well-secured or otherwise not probable for collection. The collateral shortfall of the consumer loan is recommended for charge-off at this point.

As noted above, Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans. The balance remains a nonperforming loan with the original terms and interest rate intact (not restructured). In addition, Mid Penn takes a preemptive step when any commercial loan or commercial real estate loan becomes classified under its internal classification system. A preliminary collateral evaluation in accordance with the guidance on impaired loans is prepared using the existing collateral information in the loan file. This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation. This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist.

Larger groups of small-balance loans, such as residential mortgages and consumer installment loans are collectively evaluated for impairment. Accordingly, individual consumer and residential loans are not separately identified for impairment disclosures unless such loans are the subject of a restructuring agreement.

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Mid Penn’s rating system assumes any loans classified as substandard nonaccrual to be impaired, and most of these loans are considered collateral dependent; therefore, most of Mid Penn’s impaired loans, whether reporting a specific allocation or not, are considered collateral dependent.

It is Mid Penn’s policy to obtain updated third-party valuations on all impaired loans collateralized by real estate as soon as practically possible following the credit being classified as substandard nonaccrual. Prior to receipt of the updated real estate valuation Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes.

In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary.

For impaired loans with no valuation allowance required, Mid Penn’s practice of obtaining independent third-party market valuations on the subject property as soon as practically possible of being placed on nonaccrual status sometimes indicates that the loan to value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case-by-case analysis of the impaired loans.

Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every 12 months for possible revaluation by an independent third party.

Mid Penn had loans with an aggregate balance of $6,781,000 which were deemed by management to be impaired at September 30, 2021, including $1,628,000 in loans acquired with credit deterioration in connection with the closing of the Phoenix acquisition in 2015 and the Scottdale and First Priority acquisitions in 2018. Of the $5,153,000 of impaired loan relationships excluding the loans acquired with credit deterioration, $221,000 were commercial and industrial relationships, $1,214,000 were commercial real estate relationships, $2,420,000 were home equity relationships, $1,276,000 were residential relationships, and $22,000 were commercial real estate – construction relationships. There were specific loan loss reserve allocations of $129,000 against $294,000 of commercial real estate loan relationships and $69,000 of specific loan loss reserve allocations against $216,000 of commercial and industrial loan relationships. Management currently believes that the specific reserves are adequate to cover probable future losses related to these relationships.

The allowance is a reserve established in the form of a provision expense for loan and lease losses and is reduced by loan charge-offs net of recoveries. In conjunction with an internal loan review function that operates independently of the lending function, management monitors the loan portfolio to identify risk on a monthly basis so that an appropriate allowance is maintained. Based on an evaluation of the loan portfolio, management presents a monthly review of the allowance to the Board of Directors, indicating any changes in the allowance since the last review. In making the evaluation, management considers the results of recent regulatory examinations, which typically include a review of the allowance as an integral part of the examination process. As part of the examination process, federal or state regulatory agencies may require Mid Penn to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

In establishing the allowance, management evaluates on a quantitative basis individual classified loans and nonaccrual loans, and determines an aggregate reserve for those loans based on that review. In addition, an allowance for the remainder of the loan and lease portfolio is determined based on historical loss experience within certain components of the portfolio. These allocations may be modified if current conditions indicate that loan and lease losses may differ from historical experience.

In addition, a portion of the allowance is established for losses inherent in the loan and lease portfolio which have not been identified by the quantitative processes described above. This determination inherently involves a higher degree of subjectivity, and considers risk factors that may not have yet manifested themselves in historical loss experience. These factors include:

| • | changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (and the potential adverse impacts on the economy from the COVID-19 pandemic);

| • | changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

| • | changes in the value of underlying collateral for collateral-dependent loans;

| • | changes in the experience, ability, and depth of lending management and other relevant staff;

| • | changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

| • | changes in the quality of the institution's loan review system;

| • | changes in the nature and volume of the portfolio and in the terms of loans;

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| • | the effect of other external factors such as competition, legal and regulatory requirements, governmental restrictions impacting business activity as a result of the COVID-19 pandemic, and other factors beyond the control of Mid Penn which could affect the level of estimated credit losses in the institution's existing portfolio; and

| • | the existence and effect of any concentrations of credit and changes in the level of such concentrations.

While the allowance is maintained at a level believed to be adequate by management to provide for probable losses inherent in the loan and lease portfolio, determination of the allowance is inherently subjective, as it requires estimates, all of which may be susceptible to significant change. The unallocated component of the allowance for loan and lease losses covers several considerations that are not specifically measurable through either the specific or general components. For example, we believe that we could face increasing credit risks and uncertainties, not yet reflected in recent historical losses or qualitative factor assessments and underlying data and evaluations, associated with unpredictable changes in economic growth or business conditions in our markets or for certain industries in which we have commercial loan borrowers, or unanticipated stresses to the values of real estate held as collateral, including the prospective unknown impacts of the persisting COVID-19 pandemic. Any or all of these additional issues can adversely affect our borrowers’ ability to timely repay their loans. Additionally, we have experienced continued strong commercial loan growth, including growth in newer markets where we have less of a loss history. Also, the unallocated component allocation recognizes the inherent imprecision in our allowance for loan and lease loss methodology, or any alternative methodology, for estimating specific and general loan losses, including the unpredictable timing and amounts of charge-offs, the fact that historical loss averages don’t necessarily correlate to future loss trends, and unexpected changes to specific-credit or general portfolio future cash flows and collateral values which could negatively impact unimpaired portfolio loss factors. Changes from these various other uncertainties and considerations may impact the provisions charged to expense in future periods.

Management believes, based on information currently available, that the allowance for loan losses of $14,233,000 is adequate as of September 30, 2021 to cover specifically identifiable loan losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.

Liquidity

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

| • | a growing core deposit base;

| • | proceeds from the sale or maturity of investment securities;

| • | proceeds from interest-bearing time deposits with other financial institutions;

| • | payments received on loans and mortgage-backed securities;

| • | overnight correspondent bank borrowings on various credit lines; and

| • | borrowing capacity available from the FHLB and the Federal Reserve Discount Window available to Mid Penn.

The major sources of cash received in the first nine months of 2021 were from the $487,301,000 net increase in deposits, $267,867,000 of proceeds from sales of mortgage loans originated for sale, and $70,238,000 of net proceeds from a common stock public offering.

Major uses of cash in the first nine months of 2021 were $257,133,000 to fund mortgage loans originated for sale, $125,617,000 net decrease in short-term borrowings (from the paydown of the PPPLF), and $64,972,000 of purchases of held-to-maturity investment securities.

Mid Penn believes its core deposits are generally stable even in periods of changing interest rates. Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. These measurements indicate that liquidity generally remains stable and exceeds our minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, and the uncertain impact of the persisting COVID-19 pandemic, there are no known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.

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

Subordinated Debt

Subordinated Debt Issued December 2020

On December 22, 2020, Mid Penn Bancorp, Inc. entered into agreements for and sold, at 100% of their principal amount, an aggregate of $12,150,000 of its Subordinated Notes due December 2030 (the “December 2020 Notes”) on a private placement basis to accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes.

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The December 2020 Notes bear interest at a rate of 4.5% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the December 2020 Notes are floating will at no time be less than 4.5%. Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on March 31, 2021. The December 2020 Notes will mature on December 31, 2030 and are redeemable, in whole or in part, without premium or penalty, on any interest payment date on or after December 31, 2025 and prior to December 31, 2030, subject to any required regulatory approvals. Additionally, if (i) all or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (ii) interest on the December 2020 Notes fails to be deductible for United States federal income tax purposes or (iii) Mid Penn will be considered an “investment company,” Mid Penn may redeem the December 2020 Notes, in whole but not in part, by giving 10 days’ notice to the holders of the December 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the December 2020 Notes at 100% of the principal amount of the December 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the December 2020 Notes may not accelerate the maturity of the December 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $750,000 of the December 2020 Notes as of September 30, 2021 and December 31, 2020.

Subordinated Debt Issued March 2020

On March 20, 2020, Mid Penn Bancorp, Inc. entered into agreements with accredited investors who purchased $15,000,000 aggregate principal amount of Mid Penn Subordinated Notes due 2030 (the “March 2020 Notes”). The March 2020 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes.

The March 2020 Notes bear interest at a rate of 4.0% per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the March 2020 Notes are floating will at no time be less than 4.25%. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30. The March 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030. Additionally, if all or any portion of the March 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the March 2020 Notes at 100% of the principal amount of the March 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the March 2020 Notes may not accelerate the maturity of the March 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1,700,000 of the March 2020 Notes as of September 30, 2021 and December 31, 2020.

Subordinated Debt Issued December 2017

On December 19, 2017, Mid Penn Bancorp, Inc. entered into agreements with investors to purchase $10,000,000 aggregate principal amount of its Subordinated Notes due 2028 (the “2017 Notes”). The 2017 Notes are intended to be treated as Tier 2 capital for regulatory capital purposes. The offering closed in December 2017. The 2017 Notes bear interest at a rate of 5.25% per year for the first five years and then float at the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 5.0%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018, for the first five years after issuance and will be payable quarterly in arrears thereafter on January 15, April 15, July 15, and October 15.

The 2017 Notes will mature on January 1, 2028 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Additionally, Mid Penn may redeem the 2017 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2017 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2017 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended. In the event of a redemption described in the previous sentence, Mid Penn will redeem the 2017 Notes at 100% of the principal amount of the 2017 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2017 Notes may not accelerate the maturity of the 2017 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $1,450,000 of the 2017 Notes as of September 30, 2021 and December 31, 2020.

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Subordinated Debt Issued December 2015

On December 9, 2015, Mid Penn Bancorp, Inc. sold $7,500,000 aggregate principal amount of Subordinated Debt (the “2015 Notes”) due 2025. Given that the 2015 Notes are in the sixth year since issuance, eighty-percent of the principal balance of the notes is treated as Tier 2 capital for regulatory capital purposes as of September 30, 2021.

The 2015 Notes paid interest at a rate of 5.15% per year for the first five years outstanding, including the three months ended March 31, 2020. Beginning January 1, 2021, the 2015 Notes bear interest at a floating rate based on the Wall Street Journal’s Prime Rate plus 0.50%, provided that the interest rate applicable to the outstanding principal balance will at no time be less than 4.0%. Interest is payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on January 1, 2016. The 2015 Notes will mature on December 9, 2025 and are redeemable in whole or in part, without premium or penalty, at any time on or after December 9, 2020, and prior to December 9, 2025. Additionally, Mid Penn may redeem the 2015 Notes in whole at any time, or in part from time to time, upon at least 30 days’ notice if: (i) a change or prospective change in law occurs that could prevent Mid Penn from deducting interest payable on the 2015 Notes for U.S. federal income tax purposes; (ii) an event occurs that precludes the 2015 Notes from being recognized as Tier 2 capital for regulatory capital purposes; or (iii) Mid Penn becomes required to register as an investment company under the Investment Company Act of 1940, as amended, in each case at 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption.

Holders of the 2015 Notes may not accelerate the maturity of the 2015 Notes, except upon Mid Penn’s or Mid Penn Bank’s bankruptcy, insolvency, liquidation, receivership or similar event. Related parties held $1,930,000 of the 2015 Notes as of September 30, 2021 and December 31, 2020.

ASC Subtopic 835-30, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability. The unamortized debt issuance costs associated with the 2015 Notes and the 2017 Notes were collectively $51,000 at September 30, 2021 and $70,000 at December 31, 2020.

Subordinated Debt Assumed July 2018 with the First Priority Acquisition

On December 18, 2020, Mid Penn redeemed the full $9,500,000 of the First Priority subordinated debt notes assumed on July 31, 2018 with the First Priority acquisition. The redemption occurred promptly following the expiration of the Notes’ noncallable period and upon receipt of the required regulatory approval as the notes were Tier 2 qualifying capital. Mid Penn fully recognized the related redemption pricing fees of $143,000 in the fourth quarter of 2020.

Regulatory Capital Changes

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The final rules implemented higher minimum capital requirements, added a new common equity Tier 1 capital requirement, and established criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements, which amount must be greater than 2.5% of total risk-weighted assets.

A summary of the payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer (as a % of risk-weighted assets) |  | Maximum Payout (as a % of eligible retained income) |
> 2.5% |  | No payout limitation applies |
≤2.5% and >1.875% |  | 60% |
≤1.875% and >1.25% |  | 40% |
≤1.25% and >0.625% |  | 20% |
≤0.625% |  | 0% |

The final rules allowed community banks to make a one-time election not to include the additional components of accumulated other comprehensive income (“AOCI”) in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. Mid Penn made the election not to include the additional components of AOCI in regulatory capital.

Consistent with the Dodd-Frank Act, the new rules replaced the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-ups approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250% risk weight.

Under the new rules, mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk weights for past-due loans, certain risk weights and credit conversion factors.

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Mid Penn has implemented these changes in determining and reporting the regulatory ratios of Mid Penn and the Bank, and has concluded that the new rules do not have a material adverse effect on Mid Penn’s financial condition.

Capital Resources

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

Shareholders’ equity increased by $93,620,000 or 37 percent from $255,688,000 as of December 31, 2020 to $349,308,000 as of September 30, 2021. As previously announced Mid Penn completed a public offering of 2,990,000 shares of common stock at a price of $25.00 per share, with the aggregate gross proceeds of the offering totaling $74,750,000. The net proceeds of the offering after deducting the underwriting discount and offering expenses were $70,238,000. The additional shares issued on May 4, 2021 significantly impacted the weighted average number of shares outstanding used for both the third quarter of 2021 and year-to-date 2021 earnings per share calculations.

Banks are evaluated for capital adequacy by regulatory supervisory agencies based on the ratio of capital to risk-weighted assets and total assets. The minimum capital to risk-weighted assets requirements, including the capital conservation buffers, which became effective for Mid Penn and the Bank on January 1, 2016 are illustrated below. At September 30, 2021, regulatory capital ratios for both Mid Penn and the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action, and exceeded the minimum capital requirements under Basel III.

Mid Penn and Mid Penn Bank maintained the following regulatory capital levels, leverage ratios, and risk-based capital ratios as of September 30, 2021 and December 31, 2020:

| Capital Adequacy |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | To Be Well-Capitalized |
(Dollars in thousands) |  |  |  |  |  |  |  |  | Minimum for |  |  | Under Prompt |
|  |  |  |  |  |  |  |  | Basel III Capital |  |  | Corrective |
| Actual |  |  | Adequacy (a) |  |  | Action Provisions |
| Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |  |  | Amount |  |  | Ratio |
Mid Penn Bancorp, Inc. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tier 1 Capital (to Average Assets) | $ | 282,814 |  |  |  | 8.6 | % |  | $ | 131,716 |  |  |  | 4.0 | % |  | N/A |  |  | N/A |
Common Equity Tier 1 Capital (to Risk Weighted Assets) |  | 282,814 |  |  |  | 13.2 | % |  |  | 150,425 |  |  |  | 7.0 | % |  | N/A |  |  | N/A |
Tier 1 Capital (to Risk Weighted Assets) |  | 282,814 |  |  |  | 13.2 | % |  |  | 182,659 |  |  |  | 8.5 | % |  | N/A |  |  | N/A |
Total Capital (to Risk Weighted Assets) |  | 340,218 |  |  |  | 15.8 | % |  |  | 225,638 |  |  |  | 10.5 | % |  | N/A |  |  | N/A |
Mid Penn Bank |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tier 1 Capital (to Average Assets) | $ | 278,511 |  |  |  | 8.5 | % |  | $ | 131,684 |  |  |  | 4.0 | % |  | $ | 164,605 |  |  |  | 5.0 | %
Common Equity Tier 1 Capital (to Risk Weighted Assets) |  | 278,511 |  |  |  | 13.0 | % |  |  | 150,369 |  |  |  | 7.0 | % |  |  | 139,628 |  |  |  | 6.5 | %
Tier 1 Capital (to Risk Weighted Assets) |  | 278,511 |  |  |  | 13.0 | % |  |  | 182,591 |  |  |  | 8.5 | % |  |  | 171,850 |  |  |  | 8.0 | %
Total Capital (to Risk Weighted Assets) |  | 292,816 |  |  |  | 13.6 | % |  |  | 225,553 |  |  |  | 10.5 | % |  |  | 214,812 |  |  |  | 10.0 | %
Mid Penn Bancorp, Inc. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2020: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tier 1 Capital (to Average Assets) | $ | 188,501 |  |  |  | 6.8 | % |  | $ | 111,201 |  |  |  | 4.0 | % |  | N/A |  |  | N/A |
Common Equity Tier 1 Capital (to Risk Weighted Assets) |  | 188,501 |  |  |  | 9.6 | % |  |  | 137,351 |  |  |  | 7.0 | % |  | N/A |  |  | N/A |
Tier 1 Capital (to Risk Weighted Assets) |  | 188,501 |  |  |  | 9.6 | % |  |  | 166,783 |  |  |  | 8.5 | % |  | N/A |  |  | N/A |
Total Capital (to Risk Weighted Assets) |  | 246,529 |  |  |  | 12.6 | % |  |  | 206,026 |  |  |  | 10.5 | % |  | N/A |  |  | N/A |
Mid Penn Bank |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2020: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tier 1 Capital (to Average Assets) | $ | 218,676 |  |  |  | 7.9 | % |  | $ | 111,166 |  |  |  | 4.0 | % |  | $ | 138,958 |  |  |  | 5.0 | %
Common Equity Tier 1 Capital (to Risk Weighted Assets) |  | 218,676 |  |  |  | 11.1 | % |  |  | 137,288 |  |  |  | 7.0 | % |  |  | 127,482 |  |  |  | 6.5 | %
Tier 1 Capital (to Risk Weighted Assets) |  | 218,676 |  |  |  | 11.1 | % |  |  | 166,707 |  |  |  | 8.5 | % |  |  | 156,901 |  |  |  | 8.0 | %
Total Capital (to Risk Weighted Assets) |  | 232,124 |  |  |  | 11.8 | % |  |  | 205,933 |  |  |  | 10.5 | % |  |  | 196,126 |  |  |  | 10.0 | %

| (a) | Minimum amounts and ratios include the full phase in of the capital conservation buffer of 2.5 percent required by the Basel III framework.

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RECONCILIATION OF NON-GAAP MEASURES (Unaudited):

This Form 10-Q contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Mid Penn believes that reporting non-PPP core banking loans is useful to investors as they refelct portfolio loans and related growth from traditional bank activities, and excludes short-term or nonrecurring loans from special programs like the PPP. The ratio of the allowance for loan losses to non-PPP core banking loans is useful to investors as it highlights the true coverage ratio of the allowance excluding those loans that are 100 percent guaranteed by the SBA through the PPP and, therefore, do not require an allowance assessment. These non-GAAP disclosures have limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Mid Penn’s results and financial condition as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information will be helpful in understanding Mid Penn’s ongoing operating results. This supplemental presentation should not be construed as an inference that Mid Penn’s future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

(Dollars in thousands) |  | September 30, |  |  | December 31, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2020 |
Loans and leases, net of unearned interest |  | $ | 2,370,429 |  |  | $ | 2,384,041 |  |  | $ | 2,521,827 |
Less: PPP loans, net of deferred fees |  |  | 229,679 |  |  |  | 388,313 |  |  |  | 613,924 |
Non-PPP core banking loans |  |  | 2,140,750 |  |  |  | 1,995,728 |  |  |  | 1,907,903 |
Allowance for loan and lease losses |  | $ | 14,233 |  |  | $ | 13,382 |  |  | $ | 12,170 |
Ratio of allowance for loan losses to net loans at end of period |  |  | 0.60 | % |  |  | 0.56 | % |  |  | 0.48 | %
Ratio of allowance for loan losses to non-PPP core banking loans at end of period |  |  | 0.66 | % |  |  | 0.67 | % |  |  | 0.64 | %

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MID PENN BANCORP, INC. |

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

Management reviews interest rate risk on a quarterly basis. This analysis includes earnings scenarios whereby interest rates are increased and decreased by 100, 200, and 300 basis points. These scenarios, detailed in the table below, indicate that Mid Penn would experience enhanced net interest income over a one-year time frame due to upward interest rate changes, while a reduction in interest rates would result in a decline in net interest income over a one-year time frame; however, actual results could vary significantly from the calculations prepared by management. At September 30, 2021, all interest rate risk levels according to the model were within the tolerance limits of the Board-approved policy.

September 30, 2021 |  | December 31, 2020
|  | % Change in |  |  |  |  |  |  | % Change in |  |  |
Change in |  | Net Interest |  |  | Policy |  | Change in |  | Net Interest |  |  | Policy
Basis Points |  | Income |  |  | Risk Limit |  | Basis Points |  | Income |  |  | Risk Limit
300 |  | 35.08% |  |  | ≥ -20% |  | 300 |  | 15.69% |  |  | ≥ -20%
200 |  | 22.93% |  |  | ≥ -15% |  | 200 |  | 10.03% |  |  | ≥ -15%
100 |  | 11.07% |  |  | ≥ -10% |  | 100 |  | 4.72% |  |  | ≥ -10%
0 |  |  |  |  |  |  |  | 0 |  |  |  |  |  |
(100) |  | -4.88% |  |  | ≥ -10% |  | (100) |  | -3.97% |  |  | ≥ -10%
(200) |  | -10.33% |  |  | ≥ -15% |  | (200) |  | -9.30% |  |  | ≥ -15%
(300) |  | -15.71% |  |  | ≥ -20% |  | (300) |  | -14.45% |  |  | ≥ -20%

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Mid Penn maintains controls and procedures designed to ensure that information required to be disclosed in the reports that Mid Penn files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures as of September 30, 2021, Mid Penn’s management, with the participation of the Principal Executive Officer and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Controls

There were no changes in Mid Penn’s internal control over financial reporting that have materially affected, or are reasonable likely to materially affect, Mid Penn’s internal control over financial reporting during the nine months ended September 30, 2021.

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MID PENN BANCORP, INC. |

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Based on information currently available, management is not aware of any litigation that would reasonably be expected to have a material adverse effect on the consolidated financial position of Mid Penn or its subsidiaries taken as a whole. There are no proceedings pending other than ordinary routine litigation occurring in the normal course of business. In addition, management does not know of any material proceedings contemplated by governmental authorities against Mid Penn or any of its properties.

ITEM 1A – RISK FACTORS

Management has reviewed the risk factors that were previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as supplemented in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, to determine if there were material changes applicable to the three and nine months ended September 30, 2021. There are no material changes to such risk factors.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Mid Penn adopted a treasury stock repurchase program initially effective March 19, 2020, and the program remains available as it was extended through March 19, 2022 by Mid Penn’s Board of Directors on April 28, 2021. The treasury stock repurchase program authorizes the repurchase of up to $15,000,000 of Mid Penn’s outstanding common stock, which represents approximately 4.7% of the issued shares based on Mid Penn’s closing stock price and shares issued as of September 30, 2021. Under the program, Mid Penn may conduct repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase.

A summary of treasury stock activity during the nine months ended September 30, 2021 is presented below.

|  |  |  |  |  |  |  |  |  |  |  |  |  | Approximate Dollar |
|  |  |  |  |  |  |  |  |  | Total Number of Shares |  |  | Value of Shares That |
|  | Total Number |  |  | Average |  |  | Purchased as Part of |  |  | May Yet Be |
|  | of Shares |  |  | Price |  |  | Publicly Announced |  |  | Purchased Under |
Period |  | Purchased |  |  | Per Share |  |  | Plans or Programs |  |  | the Plans or Programs |
January 1 - January 31, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,205,325 |
February 1 - February 28, 2021 |  |  | 5,800 |  |  | $ | 22.09 |  |  |  | 98,452 |  |  | $ | 13,077,211 |
March 1 - March 31, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |
April 1 - April 30, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |
May 1 - May 31, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |
June 1 - June 30, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |
July 1 - July 31, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |
August 1 - August 31, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |
September 1 - September 30, 2021 |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | 13,077,211 |

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5 – OTHER INFORMATION

None

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MID PENN BANCORP, INC. |

ITEM 6 – EXHIBITS

| • | Exhibit 2.1 – First Amendment to Agreement and Plan of Merger, dated as of June 30, 2021, by and between Riverview Financial Corporation and Mid Penn Bancorp, Inc. (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K (File No. 001-13677) filed with the SEC on August 27, 2021.)

| • | Exhibit 3(i) – The Registrant’s amended Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to Registrant’s Quarterly Report on Form 10-Q filed for the quarterly period ended September 30, 2019).

| • | Exhibit 3(ii) – The Registrant’s By-laws (Incorporated by reference to Exhibit 3(ii) to Registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2010.)

| • | Exhibit 31.1 – Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section 302 of the Sarbanes-Oxley Act of 2002.

| • | Exhibit 31.2 - Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section 302 of the Sarbanes-Oxley Act of 2002.

| • | Exhibit 32 – Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as added by Section 906 of the Sarbanes-Oxley Act of 2002.

| • | Exhibit 101.SCH – Inline XBRL Taxonomy Extension Schema Document

| • | Exhibit 101.CAL – Inline XBRL Taxonomy Extension Calculation Linkbase Document

| • | Exhibit 101.DEF – Inline XBRL Taxonomy Extension Definition Linkbase Document

| • | Exhibit 101.LAB – Inline XBRL Taxonomy Extension Label Linkbase Document

| • | Exhibit 101.PRE – Inline XBRL Taxonomy Extension Presentation Linkbase Document

| • | Exhibit 104 – Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)

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MID PENN BANCORP, INC. |

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | Mid Penn Bancorp, Inc. (Registrant)
By: |  | /s/ Rory G. Ritrievi
|  | Rory G. Ritrievi
|  | Chair, President and CEO
|  | (Principal Executive Officer)
Date: |  | November 8, 2021
By: |  | /s/ Donald F. Holt
|  | Donald F. Holt
|  | Interim Chief Financial Officer
Date: |  | November 8, 2021

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