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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-16 · 310 added, 235 removed, 348 unchanged (61% of the section changed)

33 unchanged sentences

This Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of Mid Penn’s Consolidated Financial Statements from the view of management and should be read in conjunction with the Consolidated Financial Statements of the Corporation and Notes thereto and other detailed information appearing elsewhere in this Annual Report on Form 10-K.

The comparability of the results of operations for the year ended 2022, compared to 2021 and 2020, in general, have been materially impacted by the Riverview Acquisition, which closed on November 30, 2021.

For comparative purposes, some 2021 and 2020 balances have been reclassified to conform to the 2022 presentation.

Such reclassifications had no impact on net income available to common shareholders or shareholders’ equity.

The comparability of the results of operations for the year ended 2023, compared to 2022 and 2021, in general, have been materially impacted by the Brunswick Acquisition, which closed on May 19, 2023.

Mid Penn is not aware of any current trends, events, uncertainties or any current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on Mid Penn’s or the Bank’s liquidity, capital resources, or operations.

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The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties.

Offsetting these revenue sources are provisions for loan losses, non-interest expenses and income taxes.

Offsetting these revenue sources are provisions for credit losses, non-interest expenses and income taxes.

The following table presents a summary of the Corporation's earnings and selected performance ratios:

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See also the "Net Interest Income" section.

Financial Highlights

During the second quarter of 2023, Mid Penn completed the Brunswick Acquisition, which added total assets of $391.9 million comprised primarily of $324.5 million of loans.

This transaction resulted in the addition of 5 branches in central New Jersey.

Mid Penn issued 849,510 shares of its common stock as well as a net cash payment to Brunswick shareholders of $27.6 million, for total consideration of $45.7 million for all outstanding stock and the cancellation of options of Brunswick.

Summary of Financial Results

• Net Income Per Share - Mid Penn’s net income available to common shareholders ("earnings") for the year ended December 31, 2023 was $37.4 million or $2.29 per common share basic and diluted, compared to earnings of $54.8 million or $3.44 per common share basic and diluted for the year ended December 31, 2022.

The results for the year ended December 31, 2022 were favorably impacted by loan growth, an increase in net interest margin, noninterest income growth and the Riverview Acquisition.

The year ended December 31, 2022 included the recognition of $3.8 million of Paycheck Protection Program ("PPP") loan processing fees generated as a result of Mid Penn’s participation in the PPP compared to $22.0 million for the year ended December 31, 2021.

The results for the year ended December 31, 2023 were favorably impacted by loan growth, interest income growth and the Brunswick Acquisition.

The year ended December 31, 2023 included the recognition of $15 thousand of Paycheck Protection Program ("PPP") loan processing fees generated as a result of Mid Penn’s participation in the PPP compared to $3.8 million for the year ended December 31, 2022.

These PPP fees are recognized into interest income over the term of the respective loan, or sooner if the loans are forgiven by the Small Business Administration or the borrowers otherwise pay down principal prior to a loan’s stated maturity.

The year ended December 31, 2021 also include merger and acquisition expenses of $3.1 million and

The year ended

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

post-acquisition restructuring expenses totaling $9.9 million resulting from the Riverview Acquisition, which was announced on June 30, 2021 and legally closed on November 30, 2021.

December 31, 2023 also include merger and acquisition expenses of $5.5 million and post-acquisition restructuring expenses totaling $3.0 million resulting from the Brunswick Acquisition, which was announced on December 20, 2022 and legally closed on May 19, 2023.

• Net Interest Income

◦ Net Interest Margin - For the year ended December 31, 2023, Mid Penn’s FTE net interest margin was 3.26% versus 3.59% for the year ended December 31, 2022.

The Federal Reserve’s Federal Open Market Committee ("FOMC") increased rates seven times during 2022.

The yield on interest-earning assets increased 28 basis point(s) ("bp") in 2022 compared to 2021 and the rate on interest-bearing liabilities decreased 3 bp in 2022 compared to 2021.

The Federal Reserve’s Federal Open Market Committee ("FOMC") increased rates four times during 2023.

The yield on interest-earning assets increased 121 basis point(s) ("bp") in 2023 compared to 2022 and the rate on interest-bearing liabilities increased 197 bp in 2023 compared to 2022.

◦ Loan Growth - Total loans, net of unearned income, as of December 31, 2023 were $4.3 billion compared to $3.5 billion as of December 31, 2022 , an increase of $738.7 million, or 21.0%.

The loan growth occurred primarily within Mid Penn’s commercial real estate loan portfolio.

◦ Deposit Growth - Total deposits decreased $223.7 million, or 5.6% , from $4.0 billion at December 31, 2021 , to $3.8 billion at December 31, 2022 .

The decrease in total deposits was primarily due to the strategic decision to allow higher cost time deposits obtained through the Riverview Acquisition to run-off during the year.

• Asset Quality - Mid Penn’s allowance for loan losses at December 31, 2022 was $19.0 million, or 0.54% of total loans, as compared to $14.6 million, or 0.47% of total loans at December 31, 2021.

◦ Net Recoveries/Charge-offs - Mid Penn had net loan recoveries of $60 thousand and net loan charge-offs of $1.7 million for the years ended December 31, 2022 and 2021, respectively.

◦ Non-performing assets - Total non-performing assets were $9.3 million at December 31, 2022, a decrease compared to non-performing assets of $10.5 million at December 31, 2021.

◦ Provision for loan losses - The provision for loan losses was $4.3 million for the year ended December 31, 2022 compared to $2.9 million for the year ended December 31, 2021.

The increase was primarily the result of loan growth.

• Noninterest Income - Noninterest income totaled $23.7 million for the year ended December 31, 2022, a $2.1 million, or 9.9%, increase compared to the year ended December 31, 2021.

The growth was primarily attributable to the Riverview Acquisition.

As mentioned above, $324.5 million, or 43.9%, of that growth was a result of the Brunswick Acquisition.

The mix of commercial real estate and construction portfolios in relation to the total portfolio increased 33.61% and 1.93%, respectively from December 31, 2022 to December 31, 2023.

Non-owner occupied office commercial real estate exposure represents 7.1% of total loan balances and is primarily limited to suburban offices.

◦ Deposit Growth - Total deposits increased $567.9 million, or 15.0%, from $3.8 billion at December 31, 2022, to $4.3 billion at December 31, 2023.

T he Brunswick Acquisition contributed $282.6 million of additional deposits on the acquisition date.

• Asset Quality - Mid Penn adopted CECL on January 1, 2023.

ACL at December 31, 2023 was $34.2 million, or 0.80% of total loans, as compared to $19.0 million, or 0.54% of total loans at December 31, 2022.

◦ Net Recoveries/Charge-offs - Mid Penn had net loan charge-offs of $332 thousand and net loan recoveries of $60 thousand for the years ended December 31, 2023 and 2022, respectively.

◦ Non-performing assets - Total non-performing assets were $14.5 million at December 31, 2023, an increase compared to non-performing assets of $9.3 million at December 31, 2022.

The increase was partially a result of $3.9 million of non-accrual loans acquired from Brunswick.

◦ Provision for credit losses - Loans - The PCL - loans was $3.3 million for the year ended December 31, 2023 compared to $4.3 million for the year ended December 31, 2022.

The decrease in provision for the twelve months ended December 31, 2023, is primarily due to improved performance in Commercial and Industrial loans partially offset by increased delinquencies in the Commercial Real Estate portfolio.

Prior to 2023, ACL and related provision are presented in accordance with the previous accounting guidance using the incurred loss method.

The PCL for the year ended December 31, 2023 includes an initial provision for credit losses on non-PCD loans acquired in the Brunswick Acquisition of $2.0 million.

• Noninterest Income - Noninterest income totaled $20.0 million for the year ended December 31, 2023, a $3.6 million, or 15.4%, decrease compared to the year ended December 31, 2022.

The decrease was primarily attributable to a $1.2 million decrease in mortgage hedging, and a $1.8 million decrease in other miscellaneous income.

• Noninterest Expense - Noninterest expense totaled $119.0 million, an increase of $19.1 million, or 19.2%, compared to noninterest expense of $99.8 million for the year ended December 31, 2022.

Most noninterest expense items increased primarily as a result of the Riverview Acquisition.

The increase in noninterest expense is driven by $8.5 million of merger-related expenses, a $6.7 million increase in salaries and benefits expense, and a $1.9 million increase in FDIC charges.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

• Borrowings paid downs - During 2023, Mid Penn paid off $30.4 million of long-term debt and redeemed a total of $10.0 million of subordinated debt and trust preferred securities.

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• Business Combinations

◦ As announced on Form 8-K filed on December 20, 2022, Mid Penn entered into an Agreement and Plan of Merger with Brunswick Bancorp, pursuant to which Brunswick will merge with and into Mid Penn,

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

with Mid Penn being the surviving corporation in the Merger.

This transaction is expected to close in the second quarter of 2023.

◦ As announced on Form 8-K filed on December 20, 2022, Mid Penn entered into an Agreement and Plan of Merger with Brunswick Bancorp, pursuant to which Brunswick merged with and into Mid Penn, with Mid Penn being the surviving corporation in the Merger.

This transaction legally closed on May 19, 2023.

◦ On December 30, 2022, Mid Penn purchased the assets, in a business combination, of Managing Partners, Inc., an independent insurance agency that serviced the Central Pennsylvania area.

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Because of the nature of the judgments and estimates that have been 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 reported results of operations.

Management of the Corporation considers the accounting judgments relating to the allowance for loan losses to be the accounting area that requires the most subjective and complex judgments.

Allowance for loan losses ("allowance") - The allowance represents management’s estimate of probable incurred credit losses inherent in the loan portfolio.

Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of quantitative 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 adjusted for subjectively determined qualitative factors, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.

The loan portfolio also represents the largest asset type on the Consolidated Balance Sheet.

The allowance includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models.

Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality and inherent risks in the loan portfolio.

It should be noted that this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, the amounts and timing of expected cash flows on impaired loans and leases, the value of collateral, estimated losses on consumer loans and residential mortgages and the relevance of historical loss experience.

All of these factors may be susceptible to significant change.

While management uses the best information known to it in order to make loan loss allowance valuations, adjustments to the allowance may be necessary based on changes in economic and other conditions, changes in the composition of the loan portfolio, or changes in accounting guidance.

In times of economic slowdown, either local,regional or national, the risk inherent in the loan portfolio could increase resulting in the need for additional provisions to the allowance for loan losses in future periods.

Management of the Corporation considers the accounting judgments relating to the allowance for credit losses to be the accounting area that requires the most subjective and complex judgments.

Allowance for Credit Losses

In accordance with CECL, the ACL, which includes both the ACL - loans and the ACL for OBS credit exposures, is calculated with the objective of maintaining a reserve for current expected credit losses over the remaining expected life of the portfolio.

Management's determination of the appropriateness of the reserve is based on continuously monitoring and evaluating the loan portfolio, lending-related commitments, current as well as forecasted economic factors, and other relevant factors.

The ACL - loans is an estimate of expected losses inherent within Mid Penn's existing loan portfolio.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments.

When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.

Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations.

Determining the appropriateness of the allowance is complex and requires judgement by Management about the effect of matters that are inherently uncertain.

In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and credit loss expense.

Mid Penn estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

Mid Penn uses a third-party software application to calculate the quantitative portion of the ACL using a methodology and assumptions specific to each loan pool.

The qualitative portion of the allowance is based on general economic conditions and other internal and external factors affecting Mid Penn as a whole, as well as specific loans.

Factors considered include the following:

lending process, concentrations of credit, and credit quality.

The quantitative and qualitative portions of the allowance are added together to determine the total ACL, which reflects Management’s expectations of future conditions based on reasonable and supportable forecasts.

As such, the calculation of ACL is inherently subjective and requires management to exercise significant judgment.

The CECL estimate is highly sensitive to the economic forecasts used to develop the estimate.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

While management uses the best information known to it in order to make ACL valuations, adjustments to the ACL may be necessary based on changes in economic and other conditions, changes in the composition of the loan portfolio, or changes in accounting guidance.

In times of economic slowdown, either local, regional or national, the risk inherent in the loan portfolio could increase resulting in the need for additional provisions to the ACL in future periods.

An increase could also be necessitated by an increase in the size of the loan portfolio or in any of its components even though the credit quality of the overall portfolio may be improving.

Historically, the estimates of the allowance for loan losses have provided adequate coverage against actual losses incurred.

The allowance for loan losses was $19.0 million as of December 31, 2022, an increase of $4.4 million, or 29.9%, compared to $14.6 million as of December 31, 2021.

The increase was primarily the result of loan growth during 2022.

For further discussion of the methodology used in the determination of the ACL, refer to "Note 1, Summary of Significant Accounting Policies", "Note 3 - Investment Securities", "Note 4 - Loans and Allowance for Credit Losses - Loans" and "Note 18 - Commitments and Contingencies" to the Consolidated Financial Statements.

To the extent actual outcomes differ from management estimates, additional PCL may be required that would adversely impact earnings in future periods.

The allowance for credit losses - Loans was $34.2 million as of December 31, 2023, an increase of $15.2 million, or 80.3%, compared to $19.0 million as of December 31, 2022.

The increase was primarily the result of the CECL implementation in 2023.

Mid Penn evaluates goodwill annually for impairment unless events occur which indicate that impairment is possible, a triggering event.

In response to bank failures during the late first and early second quarters of 2023, Management performed a Step 1 Goodwill analysis as of May 31, 2023, given that the decline in the price of Mid Penn's stock below its book value following these events was deemed a triggering event.

At December 31, 2023, Mid Penn had goodwill of $127.0 million and Mid Penn's stock continues to trade below book value.

Our annual impairment test was conducted during the fourth quarter of 2023.

Factors considered include actual earnings in relation to forecasted earnings, liquidity levels, changes in deposit balances, and credit quality, among others.

No goodwill impairment has been recorded for 2023.

Management will continue to monitor internal metrics and macroeconomic trends to determine if there is likelihood of goodwill impairment.

Refer to Note 6 - Goodwill and Intangible Assets for further details on the Company's goodwill.

Business Combinations

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 the timing and amount of 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.

Refer to Note 2 - Business Combinations for further details.

Results of Operations

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Loan fees of $4.6 million, $8.4 million and $25.5 million are included with loan interest income in the following table for the years ended December 31, 2023, 2022, and 2021, respectively.

During the years ended December 31, 2022,

During the years ended December 31, 2023, 2022, and 2021, Mid Penn recognized $15 thousand, $3.8 million and $22.0 million of PPP fees, respectively, which are included in loan fees.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

2021, and 2020, Mid Penn recognized $3.8 million, $22.0 million and $13.1 million of PPP fees, respectively, which are included in loan fees.

Average balances, effective interest differential and interest yields for the years ended December 31:

Average Balances, Income and Interest Rates on a Taxable-Equivalent Basis

Average Balances, Income and Interest Rates

2023 2022 2021

(Dollars in thousands) Average Balance Interest (1)

Rate Average Balance Interest (1)

(Dollars in thousands) Average Balance Interest Yield/

Rate Average Balance Interest Yield/

Interest Bearing Balances $ 24,270 $ 361 1.49 % $ 26,633 $ 69 0.26 % $ 15,916 $ 13 0.08 %

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Management’s Discussion and Analysis

This table and the discussion that follows is based on FTE amounts.

Volume analysis of changes in net interest income as of December 31:

The volume analysis of changes in net interest income as of December 31 are as follows:

December 31, 2023 vs.

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For the year ended December 31, 2023, Mid Penn’s FTE net interest margin was 3.26% versus 3.59% for the year ended December 31, 2022 and 3.30% for the year ended December 31, 2021.

During 2022, FTE net interest income increased $39.4 million, or 36.1%, compared to 2021.

During 2023, FTE net interest income decreased $827 thousand, or 0.6%, compared to 2022.

Interest income increased $30.0 million as the result of a $406.9 million, or 9.1%, increase in average interest-earning assets in 2023 compared to 2022 and increased $40.8 million as the result of a 121 bp increase in the yield on interest-earning assets in 2023 compared to 2022.

The growth in average interest-earning assets and average interest-bearing liabilities was primarily the result of the the Riverview Acquisition.

The increase in the yield on interest-earning assets was the result of a combination of excess cash being re-deployed into higher yielding loans and investment securities and the increases in the federal fund rates during 2022.

The FOMC has increased rates seven times during 2022.

The decrease to net interest margin was primarily a result of an increase in funding costs and growth in average interest-bearing liabilities, partially offset by higher yields on interest-earning assets and growth in average interest-earning assets.

As previously noted, the FOMC has increased rates four times during 2023.

The growth in both average interest-earning assets and average interest-bearing liabilities was largely the result of the Brunswick Acquisition.

Both interest-earning assets and interest-bearing liabilities associated with the Brunswick Acquisition had substantially similar yields to the corresponding Mid Penn portfolios.

Average total loans, net, increased $651.0 million , or 20.2%, contributing $30.5 million to the increase in interest income.

The yield on average total loans, net, decreased from 4.69% for 2021 to 4.68% for 2022.

The slight decrease in the yield was the result of the recognition of $22.0 million of PPP loan processing fees generated in 2021 compared to $3.8 million received in 2022, which were included in FTE interest income, mostly offset by increases as of result of the higher interest rate environment during 2022.

The PPP loan processing fees were a result of Mid Penn’s participation in the PPP, and are

The yield on average total loans, net, increased from 4.68% for 2022 to 5.65% for 2023.

The increase in the yield was primarily the result of the higher interest rate environment during 2023.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

recognized into interest income over the term of the respective loan (most have a 24-month maturity), or sooner if the loans are forgiven by the Small Business Administration ("SBA") or the borrowers otherwise pay down principal prior to a loan’s stated maturity.

Total average investment securities increased $396.1 million , contributing $7.3 million to the increase in FTE interest income, the average yield investment securities increased 33 bps, contributing $2.6 million to the increase in FTE interest income.

Total average investment securities increased $44.9 million , contributing $1.0 million to the increase in FTE interest income, and the average yield investment securities increased 40 bps, contributing $2.5 million to the increase in FTE interest income.

Interest expense for 2023 increased by $71.6 million or 403.0% when compared to 2022.

The cost of interest-bearing liabilities decreased to 0.58% in 2022 from 0.60% in 2021 and 0.99% in 2020.

The rate on total interest-bearing deposits decreased to 0.48% in 2022 from 0.51% in 2021 and 0.92% in 2020.

The 3 bp decrease in the rate on interest-bearing liabilities was primarily a result of a lag in the repricing of deposits early in the year, as well as the strategic decision to allow higher cost time deposits obtained through the Riverview Acquisition to run-off, partially offset by an increase of $3.0 million in interest expense due to the $772.0 million, or 35.1%, increase in interest-bearing deposits compared to the same period of 2021.

The cost of interest-bearing liabilities increased to 2.55% in 2023 from 0.58% in 2022 and 0.60% in 2021.

The rate on total interest-bearing deposits increased to 2.40% in 2023 from 0.48% in 2022 and 0.51% in 2021.

The increase in the rate was primarily a result of a shift in the mix of deposits from demand, money market and savings to higher yielding time deposits.

Mid Penn continued to offer higher rates to both retain and attract deposits.

In addition, average short-term borrowings of $107.3 million were used to help fund loan growth, contributing to the $6.6 million increase in interest expense on short-term borrowings for the year ended December 31, 2023 as compared to 2022.

Although the effective interest rate impact on interest-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 Federal Reserve’s FOMC.

Provision for Loan Losses

The provision for loan losses is the expense necessary to maintain the allowance for loan losses at a level adequate to absorb management’s estimate of probable losses inherent in the loan portfolio.

Mid Penn’s provision for loan losses is based upon management’s monthly reviews of the loan portfolio throughout the year.

The purpose of the monthly reviews is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate actual and potential charge-offs and recoveries, assess general economic conditions in the markets we serve, and determine appropriate loan loss provisions to maintain an adequate allowance.

For the year ended December 31, 2022, the provision for loan losses was $4.3 million, an increase of 46.0% compared to a provision for loan losses of $2.9 million for the year ended December 31, 2021.

The provision for loan losses for the year ended December 31, 2021 was $1.3 million, or 29.9%, lower than the $4.2 million provision for loan losses for the year ended December 31, 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 was not required to adopt the current expected credit loss ("CECL") accounting standard, until January 1, 2023.

For the year ended December 31, 2022, Mid Penn had net recoveries of $60 thousand compared to net charge-offs of $1.7 million and $333 thousand for the years ended December 31, 2021 and 2020, respectively.

A summary of charge-offs and recoveries of loans and the provision for loan losses is shown in the table below.

Mid Penn expects an increase to the allowance for credit losses ("ACL"), including the reserves for unfunded commitments, is probable to the total credit loss reserve as of December 31, 2022 upon adoption of CECL on January 1, 2023.

The one-time increase will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2023.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

The following table represents the analysis of the allowance for loan losses:

Provision for Credit Losses - Loans

On January 1, 2023, Mid Penn adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL.

For the year ended December 31, 2023, the provision for credit losses was $3.3 million, a decrease of 23.4% compared to a provision for credit losses of $4.3 million for the year ended December 31, 2022.

The provision for credit losses for the year ended December 31, 2022 was $1.4 million, or 46.0%, lower than the $2.9 million provision for credit losses for the year ended December 31, 2021.

Prior to 2023, ACL and related provision are presented in accordance with the previous accounting guidance using the incurred loss method.

The PCL for year ended December 31, 2023 includes an initial provision for credit losses on non-PCD loans acquired in the Brunswick Acquisition of $2.0 million.

For the year ended December 31, 2023, Mid Penn had net charge-offs of $332 thousand compared to net recoveries of $60 thousand and net charge-offs of $1.7 million for the years ended December 31, 2022 and 2021, respectively.

A summary of charge-offs and recoveries of loans and the provision for loan losses is shown in the table below.

The following table represents the analysis of the allowance for credit losses:

Years ended December 31,

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Loans charged off:

Commercial and industrial 1 866 45

Commercial real estate 16 7 1,044

Commercial real estate - construction — 23 7

Commercial and industrial 238 1 866

Construction — — 23

Residential mortgage 13 26 13

Home equity 1 — 58

Consumer 135 97 42

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Recoveries on loans previously charged off:

Commercial and industrial 13 13 3

Commercial real estate — 128 207

Commercial real estate - construction 24 8 2

Commercial and industrial — 13 13

Construction — 24 8

Residential mortgage 38 4 11

Home equity 2 — 3

Consumer 32 22 19

Total loans recovered 70 191 258

Net (recoveries) charge-offs (60) 1,730 333

Net charge-offs (recoveries) 332 (60) 1,730

Provision for loan losses 3,295 4,300 2,945

Impact from the adoption of CECL $ 11,931 $ — $ —

Purchase Credit Deteriorated loans $ 336 $ — $ —

Balance, end of year $ 34,187 $ 18,957 $ 14,597

Net (recoveries) charge-offs to average loans (0.002) % 0.068 % 0.015 %

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

The following table represents the ratio of net charge-offs (recoveries) to total average loans outstanding:

(in thousands)

Year Ended December 31, 2023 Net charge-offs (Recoveries) Average Loans outstanding Ratio of net charge-offs (recoveries) to total average loans outstanding

Commercial real estate $ 16 $ 2,158,511 0.001 %

Commercial and industrial 238 641,264 0.037

Construction — 479,813 —

Residential mortgage (25) 725,003 (0.003)

Consumer 103 6,486 1.588

Total Loans $ 332 $ 4,011,077 0.008 %

Year Ended December 31, 2022

Commercial real estate $ (121) $ 1,886,587 (0.006) %

Commercial and industrial (12) 572,291 (0.002)

Construction (24) 399,921 (0.006)

Residential mortgage 22 416,596 0.005

Consumer 75 9,141 0.821

Total Loans $ (60) $ 3,284,535 (0.002) %

Year Ended December 31, 2021

Commercial real estate $ 837 $ 1,273,059 0.066 %

Commercial and industrial 853 749,848 0.114

Construction 15 308,728 0.005

Residential mortgage 2 313,588 0.001

Consumer 23 8,840 0.260

Total Loans $ 1,730 $ 2,654,063 0.065 %

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

Noninterest Income

Noninterest income and variance analysis as of December 31:

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Mortgage banking income 1,353 1,607 10,314 (254) (15.8)

Mortgage hedging income 1,471 64 167 1,407 N/M

Mortgage hedging income 324 1,471 64 (1,147) (78.0)

Net gain on sales of SBA loans 571 262 969 309 117.9

Earnings from cash surrender value of life insurance 1,112 1,013 358 99 9.8

Net gain on sales of investment activities — 79 467 (79) (100.0)

Net gain on sales of investment activities — — 79 — N/M

Other income 5,627 7,793 3,576 (2,166) (27.8)

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N/M - Not Meaningful

For the year ended December 31, 2022, noninterest income totaled $23.7 million, an increase of $2.1 million or 9.9%, compared to noninterest income of $21.5 million for the year ended December 31, 2021.

Income from fiduciary and wealth management activities, ATM debit card interchange income, service charges on deposits and earnings from cash surrender value of life insurance increased primarily as a result of the Riverview Acquisition.

In addition to increases as a result of the Riverview Acquisition, growth in income from fiduciary and wealth management activities was attributable to favorable increases in trust assets under management and increased sales of retail investment products.

Mortgage banking income decreased $8.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 .

For the year ended December 31, 2023, noninterest income totaled $20.0 million, a decrease of $3.6 million or 15.4%, compared to noninterest income of $23.7 million for the year ended December 31, 2022.

Income from fiduciary and wealth management activities, ATM debit card interchange income, service charges on deposits, mortgage banking, and mortgage hedging, and Other income all decreased compared to the prior year.

Mortgage banking income decreased $254 thousand for the year ended December 31, 2023 compared to the year ended December 31, 2022 .

Mortgage loan originations and secondary-market loan sales and gains slowed during 2023 as a result of increases in interest rates.

As a result of mortgage rate increases and an increase in property values driven by supply shortfalls and high liquidity levels among buyers, the mortgage loan refinancing market slowed and purchase money mortgage originations have slowed relative to the lending volumes experienced during 2021.

Mortgage hedging income was $1.5 million for the year ended December 31, 2022 compared to $64 thousand for the same period in 2021.

The increase was the result of a hedging program related to mortgage derivative activities that Mid Penn did not participate in during the majority of 2021.

Other income increased $4.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in other income was primarily driven by activities related to the Riverview Acquisition, increases in insurance commissions and higher volumes of letter of credit fees.

As mortgage rates have risen, demand for mortgages has slowed significantly.

As such, it is more difficult to properly hedge lower volumes within the mortgage pipeline.

Mortgage hedging income was $324 thousand for the year ended December 31, 2023 compared to $1.5 million for the same period in 2022.

Other income decreased $2.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease in other income was primarily driven by a $1.8 million decrease in other miscellaneous income and a $438 thousand decrease in insurance commissions.

For details on the variances of noninterest income for the year ended December 31, 2022 compared to the year ended December 31, 2021 refer to the "Noninterest Income" section of the Management's Discussion and Analysis in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

9 unchanged sentences

Equipment expense 5,121 4,493 3,101 628 14.0

Shares tax 2,786 800 — 1,986 N/M

Shares tax 2,713 2,786 800 (73) (2.6)

Legal and professional fees 2,945 2,761 1,979 184 6.7

2 unchanged sentences

FDIC assessment 3,500 1,594 1,888 1,906 119.6

Charitable contributions qualifying for State tax credits 1,033 1,432 1,342 (399) (27.9)

Mortgage banking profit-sharing expense 178 2,571 2,004 (2,393) (93.1)

(Gain) loss on sale or write-down of foreclosed assets, net (133) (25) 333 (108) N/M

(Gain) loss on sale or write-down of foreclosed assets, net (144) (133) (25) (11) 8.3

Merger and acquisition expense 5,544 294 3,067 5,250 1785.7

Post-acquisition restructuring expense 329 9,880 — (9,551) N/M

Post-acquisition restructuring expense 2,952 329 9,880 2,623 797.3

Other expenses 17,852 16,543 14,612 1,309 7.9

2 unchanged sentences

For the year ended December 31, 2023, noninterest expense totaled $119.0 million, an increase of $19.1 million, or 19.2%, compared to noninterest expense of $99.8 million for the year ended December 31, 2022.

Most noninterest expense items increased primarily as a result of the Riverview Acquisition as discussed in further detail below.

The increase in noninterest expense is primarily driven by the Brunswick Acquisition as discussed in further detail below.

Salaries and employee benefits were $59.3 million for the year ended December 31, 2023, an increase of $6.7 million, or 12.8%, compared to the year ended December 31, 2022.

The increase was attributable to the retail staff additions at the seven retail locations added through the Riverview Acquisition, the retention of various Riverview team members through the completion of the systems integration, which occurred on March 4, 2022, and the addition of wealth management professionals, commercial lending professionals, and other staff additions in alignment with Mid Penn’s core banking and non-banking growth initiatives.

Software licensing and utilization costs were $7.5 million for the year ended December 31, 2022, an increase of $1.2 million, or 18.8%, compared to $6.3 million for the year ended December 31, 2021.

The increase is a result of additional costs to license the additional Riverview branches, 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, and increases in certain core processing fees as our customer base and transaction volume continue to grow.

Both occupancy and equipment expenses increased $1.4 million, or 24.8% and 44.9%, respectively, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increases were driven by the facility operating costs and increased depreciation expense for building, furniture, and equipment, respectively, associated with the Riverview Acquisition.

Shares tax totaled $2.8 million for the year ended December 31, 2022, a $2.0 million increase compared to the year ended December 31, 2021 due to the increase in shareholders' equity, primarily a result of a stock offering completed in 2021 and the Riverview Acquisition.

The increase was attributable to the retail staff additions at the five retail locations added through the Brunswick Acquisition and the retention of various Brunswick team members through the completion of the systems integration, which occurred on May 19, 2023.

Software licensing and utilization costs were $7.9 million for the year ended December 31, 2023, an increase of $403 thousand, or 5.4%, compared to $7.5 million for the year ended December 31, 2022.

The increase is a result of additional costs to license the additional Brunswick branches, 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, and increases in certain core processing fees as our customer base and transaction volume continue to grow.

Occupancy increased $449 thousand and equipment expenses increased $628 thousand, or 6.5% and 14.0%, respectively, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increases were driven by the facility operating costs and increased depreciation expense for building, furniture, and equipment, respectively, associated with the Brunswick Acquisition.

FDIC assessment expenses increased $1.9 million to $3.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in FDIC charges was due primarily to a change in the assessment base from the Brunswick Acquisition and increased assessment rates from the bank failures in 2023.

For the year ended December 31, 2023, merger and acquisition expenses were $5.5 million and included investment banking fees, merger-related legal expenses, and other professional fees for advisory, valuation, and consulting services associated with the Brunswick.

For additional information on recent acquisitions, see "Note 2 - Business Combinations " , within Item 8, Notes to Consolidated Financial Statements.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

ATM/card processing expenses were $2.1 million for the year ended December 31, 2022, an increase of $1.1 million as a result of an increase in transaction volume resulting from the accounts assumed in the Riverview Acquisition.

Intangible amortization increased from $1.2 million during the year ended December 31, 2021 to $2.0 million during the year ended December 31, 2022 as a result of the customer list and core deposit intangible assets added from the Riverview Acquisition.

For the year ended December 31, 2021, merger and acquisition expenses were $3.1 million and included investment banking fees, merger-related legal expenses, and other professional fees for advisory, valuation, and consulting services associated with the Riverview Acquisition.

Similar expenses totaling $294 thousand were incurred during the year ended December 31, 2022 related to the MPI Acquisition and the announcement of the Brunswick Bancorp Acquisition.

For additional information on these two acquisitions, see "Note 2 - Business Combinations " , within Item 8, Notes to Consolidated Financial Statements.

Post-acquisition and restructuring expenses were $3.0 million for the year ended December 31, 2023 compared to $329 thousand for the year ended December 31, 2022.

The total of these expenses during 2022 primarily consisted of contract termination fees related to the Riverview Acquisition.

The total of these expenses during 2021 was comprised of $7.6 million of termination fees and severance costs, and $2.3 million related to the December 7, 2021 announcement of a Retail Network Optimization Plan under which the Bank announced its intention to close 16 of its retail locations throughout its expanded footprint.

The branch closures occurred on or about March 4, 2022.

As a result of this announcement, and in accordance with GAAP, Mid Penn reclassified the assets associated with these retail locations to held for sale totaling $3.9 million as of December 31, 2021.

This increase was primarily driven by the Brunswick Acquisition.

Other expenses increased $1.3 million from $16.5 million for the year ended December 31, 2022, to $17.9 million for the year ended December 31, 2023.

Several categories within other expense increased primarily as a result of the Riverview Acquisition and also organic growth, including marketing, telephone, postage, courier, payroll processing, employee travel costs, and director fees.

In addition, the year ended December 31, 2022 contained an impaired asset write-off of $664 thousand, representing the disposal of certain fixed assets and leasehold improvements from Riverview offices not being retained.

Several categories within other expense increased, primarily as a result of the Brunswick Acquisition and organic growth, including marketing, telephone, postage, courier, payroll processing, employee travel costs, and director fees.

For details on the variances of noninterest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 refer to the "Noninterest Expense" section of the Management's Discussion and Analysis in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The provision for income taxes was $12.5 million during the year ended December 31, 2022 , an increase of $5.8 million compared to $6.7 million for the same period in 2021.

The provision for income taxes was $7.3 million during the year ended December 31, 2023 , a decrease of $5.2 million compared to $12.5 million for the same period in 2022.

The provision for income taxes for the year ended December 31, 2023 reflects an effective combined Federal and state tax rate ("ETR") of 16.3%, compared to an ETR of 18.6% for the year ended December 31, 2022 .

The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on tax-free municipal securities, loans, and the impact of certain merger-related expenses which are nondeductible for Federal tax purposes.

The decrease in the effective tax rates in 2023 compared to 2022 was a result of recalculating Mid Penn's deferred tax assets as a result of now doing business in New Jersey due to the Brunswick Acquisition and receiving a benefit in state tax expense.

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

Mid Penn’s total assets were $4.5 billion as of December 31, 2022, reflecting a decrease of $191.5 million, or 4.1%, compared to total assets of $4.7 billion as of December 31, 2021.

Mid Penn’s total assets were $5.3 billion as of December 31, 2023, reflecting an increase of $792.8 million, or 17.6%, compared to total assets of $4.5 billion as of December 31, 2022.

Included in total assets as of December 31, 2023 are $1.4 million of PPP loans, net of deferred fees.

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Investment Securities

Mid Penn’s portfolio of held-to-maturity ("HTM") securities, recorded at amortized cost, increased $70.2 million to $399.5 million as of December 31, 2022, as compared to $329.3 million as of December 31, 2021.

Mid Penn’s total available-for-sale ("AFS") securities portfolio increased $175.0 million from $62.9 million at December 31, 2021 to $237.9 million at

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

December 31, 2022.

During 2022, Mid Penn re-deployed excess cash into higher yielding investment securities and also increased its investment securities for both strategic portfolio and asset liability management objectives.

At December 31, 2022, the unrealized loss on AFS investment securities resulted in a decrease in shareholders’ equity of $19.1 million (comprised of a gross unrealized loss on securities of $24.1 million net of a deferred income tax benefit of $5.1 million).

At December 31, 2021, the unrealized loss on AFS investment securities resulted in a decrease in shareholders’ equity of $254 thousand (comprised of a gross unrealized loss on securities of $322 thousand net of a deferred income tax benefit of $68 thousand).

Mid Penn’s portfolio of held-to-maturity ("HTM") securities, recorded at amortized cost, decreased $366 thousand to $399.1 million as of December 31, 2023, as compared to $399.5 million as of December 31, 2022.

Mid Penn’s total available-for-sale ("AFS") securities portfolio decreased $14.3 million from $237.9 million at December 31, 2022 to $223.6 million at December 31, 2023.

At December 31, 2023, the unrealized loss on AFS investment securities resulted in a positive impact to shareholders’ equity of $2.0 million (comprised of a gross unrealized gain on securities of $2.1 million net of a deferred income tax cost of $144 thousand).

At December 31, 2022, the unrealized loss on AFS investment securities resulted in a negative impact to shareholders’ equity of $19.1 million (comprised of a gross unrealized loss on securities of $24.1 million and net of a deferred income tax benefit of $5.1 million).

Mid Penn does not have any significant concentrations of non-governmental securities within its investment portfolio.

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Mid Penn’s investment portfolio includes both held-to-maturity securities and available-for-sale securities.

The following table presents the expected maturities of the investment portfolio and the weighted average yields (calculated based on historical cost) as of December 31, 2022:

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

The following table presents the expected maturities of the investment portfolio and the weighted average yields (calculated based on historical cost and tax-equivalent basis assuming a 21% tax rate) as of December 31, 2023:

(In Thousands) One Year

3 unchanged sentences

As of December 31, 2023

Amount Yield Amount Yield Amount Yield Amount Yield

Amount Weighted Average Yield Amount Weighted Average Yield Amount Weighted Average Yield Amount Weighted Average Yield

Available for sale securities, at fair value:

19 unchanged sentences

(Dollars in thousands) Balance % of Total Loans Balance % of Total Loans $ %

Commercial and industrial $ 596,042 17.0 % $ 619,562 20.0 % $ (23,520) (3.8) %

Commercial real estate

Commercial real estate - construction 441,246 12.6 372,734 12.0 68,512 18.4

CRE Nonowner Occupied $ 1,149,553 27.0 % $ 1,184,306 33.7 % $ (34,753) (2.9) %

CRE Owner Occupied 629,904 14.8 488,551 13.9 141,353 28.9

Multifamily 309,059 7.3 197,620 5.6 111,439 56.4

Farmland 212,690 5.0 182,457 5.2 30,233 16.6

Total Commercial Real Estate 2,301,206 54.1 2,052,934 58.4 248,272 12.1

Commercial and industrial

675,079 15.9 596,042 17.0 79,037 13.3

Residential Construction 92,843 2.2 90 — 92,753 103058.9

Other Construction 362,624 8.5 441,156 12.6 (78,532) (17.8)

Total Construction 455,467 10.7 441,246 12.6 14,221 3.2

Residential mortgage

Home equity 110,835 3.2 110,306 3.6 529 0.5

1-4 Family 1st Lien 339,142 8.0 305,386 8.7 33,756 11.1

1-4 Family Rental 341,937 8.0 — — 341,937 100.0

HELOC and Junior Liens 132,795 3.1 110,835 3.2 21,960 19.8

Total Residential Mortgage 813,874 19.1 416,221 11.8 397,653 95.5

Consumer 7,166 0.2 7,676 0.2 (510) (6.6)

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Total loans, net of unearned income, as of December 31, 2023 were $4.3 billion compared to $3.5 billion as of December 31, 2022, an increase of $738.7 million.

The $23.5 million, or 3.8%, decrease in commercial and industrial loans was the result of PPP loan forgiveness partially offset by organic growth.

Commercial real estate loans totaled $2.5 billion as of December 31, 2022, a 22.2% increase compared to $2.0 billion as of December 31, 2021.

Residential mortgage and consumer loan categories both experienced a decrease in demand in 2022 as rates and housing costs increased.

The majority of the Bank's loan portfolio is to businesses and individuals located within the Bank's primary market area of the Pennsylvania counties of Berks, Blair, Bucks, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Lycoming, Montgomery, Northumberland, Perry, Schuylkill and Westmoreland.

Organic loan growth for the year ended December 31, 2023, was $423.6 million, or 10.8% (excluding Brunswick Acquisition loans of $324.5 million).

Organic growth occurred primarily across the commercial and industrial and residential mortgage loan portfolios.

The majority of the Bank's loan portfolio is to businesses and individuals located within the Bank's primary market area of the Pennsylvania counties of Berks, Blair, Bucks, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Schuylkill and Westmoreland and New Jersey.

Commercial real estate, construction, and land development loans are collateralized mainly by mortgages on the income-producing real estate or land involved.

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The Bank’s highest concentration of credit by loan type is in commercial real estate.

Credit risk is managed through portfolio diversification, underwriting policies and procedures, and loan monitoring practices.

Lenders are provided with detailed underwriting policies for all types of credit risks accepted by the Bank and must obtain appropriate internal approvals for credit extensions.

The Bank also maintains strict documentation requirements and robust credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible, so any exposures that are discovered might be mitigated or potential losses reduced.

The Bank generally secures its loans with real estate, with such collateral values dependent and subject to change based on real estate market conditions within its market area.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

The following table represents the Commercial Real Estate portfolio by property type as of December 31, 2023:

(Dollars in thousands) December 31, 2023

Commercial Real Estate Balance % of portfolio Weighted Average LTV (2)

Owner Occupied (1)

$ 627,995 27.4 % N/A

212,690 9.2 N/A

Multifamily 308,886 13.4 58.9

Non Owner Occupied

Retail 414,485 18.0 51.0

Office 301,810 13.1 64.4

Industrial 156,075 6.8 49.3

Hospitality 137,718 6.0 49.4

Flex 39,374 1.7 56.0

Mobile Home Park 21,298 0.9 68.4

Health Care 15,618 0.7 54.6

Other Property Types 65,257 2.8 43.2

Total Commercial Real Estate $ 2,301,206 100.0 % 55.4 %

(1) LTV not available for Owner Occupied and Farmland properties.

(2) Weighted average Loan to Value is calculated based on estimated current market values of the properties.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

Maturity distribution by contractual maturity date and rate sensitivity information related to the loan portfolio is reflected in the table below:

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Fifteen Years Total

Commercial and industrial $ 10,061 $ 221,628 $ 133,931 $ 231,465 $ 597,085

Commercial real estate $ 79,182 $ 576,745 $ 1,530,687 $ 114,592 $ 2,301,206

Commercial real estate, construction 135,890 192,048 53,882 59,425 441,245

Commercial and industrial 18,749 351,607 118,639 186,084 675,079

Construction 112,651 248,191 74,819 19,806 455,467

Residential mortgage 33,111 114,234 396,320 270,209 813,874

Home equity 2,856 14,249 36,771 57,183 111,059

Consumer 1,133 2,271 1,425 2,337 7,166

$ 210,458 $ 768,374 $ 1,241,041 $ 1,289,630 $ 3,509,503

Rate Sensitivity

Predetermined rate

Commercial and industrial $ 4,488 $ 174,552 $ 44,670 $ 12,534 $ 236,244

Total loans held in portfolio 244,826 1,293,048 2,121,890 593,028 4,252,792

Predetermined (fixed) interest rates:

Commercial real estate 53,216 384,265 99,063 684 537,228

Commercial real estate, construction 55,312 87,470 2,436 6,795 152,013

Commercial and industrial 13,171 253,893 30,517 1,040 298,621

Construction 45,177 72,209 10,329 616 128,331

Residential mortgage 19,513 92,659 102,419 121,042 335,633

Home equity 1,120 5,516 20,588 2,742 29,966

Consumer 596 2,133 1,425 48 4,202

Floating or adjustable rate

Total predetermined (fixed) interest rates 131,673 805,159 243,753 123,430 1,304,015

Floating interest rates:

Commercial real estate 25,966 192,480 1,431,624 113,908 1,763,978

Commercial and industrial 5,579 97,713 88,122 185,044 376,458

Construction 67,473 175,982 64,490 19,191 327,136

Residential mortgage 13,598 21,575 293,901 149,167 478,241

Consumer 537 139 — 2,288 2,964

Total floating interest rates 113,153 487,889 1,878,137 469,598 2,948,777

Total fixed and floating interest rates $ 244,826 $ 1,293,048 $ 2,121,890 $ 593,028 $ 4,252,792

Credit Quality, Credit Risk, and Allowance for Credit Losses

Mid Penn adopted FASB ASC Topic 326, in accordance with the amendments of FASB ASU 2016-13, effective January 1, 2023.

The guidance in FASB ASC 326 replaces Mid Penn’s previous incurred loss methodology with a methodology that reflects the current expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit losses.

Mid Penn’s ACL methodology for loans is based upon guidance within FASB ASC Subtopic 326-20, "Financial Instruments – Credit Losses – Measured at Amortized Cost," as well as regulatory guidance from the FDIC, the Bank's primary federal regulator.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Credit quality within the loan portfolio is continuously monitored by management and is reflected within the ACL for loans.

The ACL is an estimate of expected losses inherent within Mid Penn’s existing loan portfolio.

The ACL is adjusted through the provision for credit losses and reduced by the charge off of loan amounts, net of recoveries.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments.

When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.

Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations.

Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain.

In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

The following table represents the allowance for credit loss as a percentage of total loans:

(In Thousands)

As of December 31, 2023 Total ACL - Loans Total Loans % of Total Loans Outstanding Allowance as a % of Loan Category

Commercial real estate

Commercial real estate, construction 80,578 104,578 51,447 52,630 289,233

CRE Nonowner Occupied $ 10,267 $ 1,149,553 27.0 % 0.9 %

CRE Owner Occupied 5,646 629,904 14.8 0.9

Multifamily 2,202 309,059 7.3 0.7

Farmland 2,064 212,690 5.0 1.0

Commercial and industrial 7,131 675,079 15.9 1.1

Residential Construction 1,256 92,843 2.2 1.4

Other Construction 2,146 362,624 8.5 0.6

Residential mortgage

Home equity 1,736 8,733 16,183 54,441 81,093

1-4 Family 1st Lien 1,207 339,142 8.0 0.4

1-4 Family Rental 1,859 341,937 8.0 0.5

HELOC and Junior Liens 389 132,795 3.1 0.3

Consumer 20 7,166 0.2 0.3

$ 210,458 $ 768,374 $ 1,241,041 $ 1,289,630 $ 3,509,503

Credit Quality, Credit Risk, and Allowance for Loan Losses

Other than as described herein, Mid Penn does not believe there are current significant credit-related trends, events or uncertainties relating to its loan portfolio that are reasonably expected to have a material impact on future results of operations, liquidity, or capital resources.

Mid Penn recognizes that the effects of current and past economic conditions and other unfavorable business conditions, including inflation, may eventually adversely influence certain borrowers’ abilities to comply with their repayment terms.

Mid Penn regularly monitors the financial strength of its borrowers, including those at higher risk of credit stress from the economic effects of COVID-19 or inflation, and does not 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 or perform 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.

Allowance for Loan Losses

Mid Penn has maintained the allowance for loan losses in accordance with Mid Penn’s portfolio credit risk and potential loss assessment process, which took into consideration the risk characteristics of the loan portfolio, shifting collateral

Total $ 34,187 $ 4,252,792 100.0 % 0.8 %

For a complete description of Mid Penn’s ACL methodology and the quantitative and qualitative factors included in the calculation, please see "Note 4 – Loans and Allowance for Credit Losses – Loans" included in Part I.

– Financial Statements of this report.

Upon the adoption of FASB ASC Topic 326 on January 1, 2023, Mid Penn recorded an overall increase of $15.0 million to the ACL on January 1, 2023 as a result of the adoption of CECL.

Retained earnings decreased $11.5 million and deferred tax assets increased by $3.1 million.

Included in the $15.0 million increase to the ACL was $3.1 million for certain OBS credit exposures that were previously recognized in other liabilities before the adoption of CECL.

The ACL and the related PCL for the year ended December 31, 2022 and 2021 reflect Mid Penn’s application of the incurred loss method for estimating credit losses.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

values, and the assessment of other relevant qualitative factors from December 31, 2022 to December 31, 2021.

The allowance for loan losses as a percentage of total loans was 0.54% at December 31, 2022 compared to 0.47% at December 31, 2021.

The following table represents non-performing assets as of:

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Non-performing Assets:

Non-accrual loans $ 8,195 $ 9,547 $ 15,047

Accruing troubled debt restructured loans 390 435 463

Total non-performing loans $ 14,216 $ 8,585 $ 9,982

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Non-performing loans as a percentage of total loans outstanding 0.33 % 0.24 % 0.32 %

Non-performing assets as a percentage of total loans outstanding and other real estate 0.25 % 0.32 % 0.66 %

Non-performing assets as a percentage of total loans outstanding and foreclosed real estate 0.34 % 0.25 % 0.32 %

Non-accrual loans as a percentage of total loans 0.33 % 0.23 % 0.31 %

Allowance for loan losses as a percentage of total loans 0.54 % 0.47 % 0.56 %

Allowance for loan losses as a percentage of non-accrual loans 231.33 % 152.90 % 88.93 %

Ratio of allowance for loan losses to non-performing loans 220.82 % 146.23 % 86.28 %

Allowance for loan losses as a percentage of non-performing assets 219.72 % 146.23 % 85.54 %

Mid Penn assesses a specific allocation for both commercial loans and commercial real estate loans prior to partially or fully charging off the loan.

If a partial charge off is taken, the remaining balance remains a non-performing loan with the original terms and interest rate intact and is not treated as a restructured credit.

Total non-performing assets were $8.6 million at December 31, 2022, a decrease compared to non-performing assets of $10.0 million at December 31, 2021.

As of December 31, 2022, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements.

For discussion of troubled debt restructured loans see "Note 4 - Loans and Allowance for Loan Losses", within Item 8, Notes to Consolidated Financial Statements.

Mid Penn considers a commercial loan or commercial real estate loan to be impaired when it becomes 90 days or more past due and the collection efforts indicate that receipt of all contractual amounts due is not probable.

Impairment may occur before a 90-day or more period of delinquency when it is probable, based upon the facts and circumstances, 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 likely be considered collateral dependent as the

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

discounted cash flow ("DCF") method would indicate no operating income is available to add to the respective loan’s collateral position;

therefore, most impaired loans are deemed to be collateral dependent.

Mid Penn had loans with an aggregate balance of $8.6 million which were deemed by management to be impaired at December 31, 2022, including $3.7 million in loans from previous acquisitions which were acquired with credit deterioration.

Of the $4.9 million of impaired loan relationships excluding the loans acquired with credit deterioration, $2.3 million were commercial real estate relationships, $1.2 million were commercial and industrial relationships, $1.1 million were residential relationships, and $285 thousand were home equity relationships.

As of December 31, 2022, there were specific loan loss reserve allocations of $801 thousand against the commercial and industrial relationships, $64 thousand against the commercial real estate relationships and $22 thousand against home equity relationships.

Management currently believes that the specific reserves are adequate to cover probable future losses related to these relationships.

The allowance for loan losses is maintained at a level believed to be adequate by management to provide for probable losses inherent in the loan portfolio, however, determination of the allowance is inherently subjective, as it requires estimates and consideration of the above-noted qualitative factors which may be susceptible to significant change.

Changes in these estimates may impact the provisions charged to expense in future periods.

The allocation of the allowance for loan losses are summarized as follows:

2022 2021 2020

(Dollars in thousands) Amount % Amount % Amount %

Commercial and industrial $ 4,593 24.2 % $ 3,439 23.6 % $ 3,066 22.9 %

Commercial real estate 13,142 69.3 9,415 64.5 8,655 64.7

Commercial real estate, construction — 0.0 38 0.3 134 1.0

Residential mortgage 658 3.5 459 3.1 429 3.2

Home equity 661 3.5 560 3.8 507 3.8

Consumer 29 0.2 2 0.0 1 0.0

Unallocated (126) 4.6 684 4.6 590 4.4

$ 18,957 100.0 % $ 14,597 100.0 % $ 13,382 100.0 %

The allowance for loan losses at December 31, 2022 was $19.0 million, or 0.54% of total loans, compared to $14.6 million, or 0.47% of total loans, at December 31, 2021 and $13.4 million, or 0.56% of total loans, at December 31, 2020.

The increase in the allowance balance was the result of loan growth during 2022, and one commercial relationship that was downgraded from substandard accrual to substandard non-accrual.

Management continues to monitor the portfolio very closely.

Management believes, based on information currently available, that the allowance for loan losses of $19.0 million as of December 31, 2022 is adequate 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.

See also the discussion in the "Provision for Loan Losses" section and see "Note 1- Summary of Significant Accounting Policies " , within Item 8, Notes to Consolidated Financial Statements for additional information regarding the allowance for loan losses.

Allowance for credit losses as a percentage of total loans 0.80 % 0.54 % 0.47 %

Allowance for credit losses as a percentage of non-accrual loans 240.48 % 231.33 % 152.90 %

Ratio of ACL to non-performing loans 240.48 % 220.82 % 146.23 %

Total nonperforming assets were $14.5 million at December 31, 2023, an increase compared to nonperforming assets of $8.6 million at December 31, 2022.

The increase since December 31, 2022 was primarily the result of the addition of $3.9 million of non-accrual loans from the Brunswick Acquisition and the migration of one relationship to non-accrual during the first quarter of 2023, which is collateralized in excess of the outstanding loan balances based on a current appraisal of the collateral.

Deposits and Other Funding Sources

Mid Penn's primary source of funds are retail deposits from businesses, public funds depositors, and consumers in its market area.

For the year ended December 31, 2022, deposits totaled $3.8 billion, a decrease of $223.7 million, or 5.6%.

The decrease was primarily due to the strategic decision to allow higher cost time deposits obtained through the Riverview Acquisition to run-off during the year.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

For the year ended December 31, 2023, deposits totaled $4.3 billion, an increase of $567.9 million, or 15.0%.

The Brunswick Acquisition contributed $281.4 million to the deposit growth, the remaining being attributed to organic deposit growth.

Average balances and average interest rates applicable to deposits by major classification for the years ended December 31:

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$ 4,105,547 1.93 % $ 3,821,531 0.37 % $ 284,016 7.43 %

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

As of December 31, 2023, uninsured deposits were approximately $1.2 billion compared to $1.6 billion as of December 31, 2022.

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Over twelve months 39,689

Short-term borrowings as of December 31, 2022 totaled $102.6 million and consisted of FHLB overnight borrowings.

Mid Penn had no short-term borrowings as of December 31, 2021.

Short-term borrowings as of December 31, 2023 totaled $241.5 million, compared to $102.6 million as of December 31, 2022 and consisted of $166.5 million of FHLB overnight borrowings and $75.0 million of other FHLB Short Term borrowings.

As of December 31, 2023, the Bank had long-term debt outstanding in the amount of $59.0 million compared to $4.4 million as of December 31, 2022.

The Bank paid off $76.5 million of FHLB fixed rate advances during 2022.

This increase consisted of $30.0 million from the Brunswick Acquisition and $25.0 million related to an additional borrowing entered into by Mid Penn.

Subordinated debt and trust preferred securities totaled $46.4 million as of December 31, 2023 compared to $56.9 million as of December 31, 2022.

On August 8, 2022 Mid Penn redeemed $7.5 million aggregate principal amount of subordinated debt that was in the seventh year since issuance;

as such, 60% of the principal balance of the notes would have been treated as Tier 2 capital for regulatory capital purposes as of December 31, 2022.

In December of 2022, Mid Penn also redeemed the $9.3 million in subordinated debentures assumed as a result of the Riverview Acquisition.

For details on the remaining subordinated debt, see "Note 11 - Subordinated Debt and Trust Preferred Securities " , within Item 8, Notes to Consolidated Financial Statements.

In April 2023, Mid Penn redeemed $10.0 million subordinated debt issued in December of 2017.

See "Note 11 - Subordinated Debt and Trust Preferred Securities " , within Item 8, Notes to Consolidated Financial Statements.

Shareholders' Equity and Capital

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Capital management practices have been, and will continue to be, of paramount importance to the Corporation in support of both its regulatory capital requirements and its shareholders.

Shareholders’ equity increased $22.0 million, or 4.5%, to $512.1 million as of December 31, 2022 from $490.1 million as of December 31, 2021, primarily as result of net income and restricted stock activity partially offset by a $19.4 million increase in accumulated comprehensive loss, dividends declared of $12.7 million and share repurchases totaling $3.0 million.

For details on the change in shareholders' equity for the year ended December 31, 2021 compared to the year ended December 31, 2020 refer to the "Capital Resources" section of the Management's Discussion and Analysis in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

Shareholders’ equity increased $30.3 million, or 5.9%, to $542.4 million as of December 31, 2023 from $512.1 million as of December 31, 2022, primarily as result of net income, common stock issued to Brunswick shareholders, and restricted stock activity partially offset by a decrease in retained earnings due to the impact of adopting CECL totaling $11.5 million, dividends declared of $13.0 million and share repurchases totaling $4.9 million.

Mid Penn maintained regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31, 2023 and 2022, as follows:

2022 2021 Regulatory Minimum for Capital Adequacy

Total Risk-Based Capital (to Risk-Weighted Assets) 13.19 % 14.60 % 10.50 %

Tier I Risk-Based Capital (to Risk-Weighted Assets) 11.18 12.00 8.50

Common Equity Tier I (to Risk-Weighted Assets) 11.18 11.70 7.00

December 31, 2023 December 31, 2022 Regulatory Minimum for Capital Adequacy

Tier I Leverage Capital (to Average Assets) 8.32 % 9.57 % 4.00 %

(1) Minimum amounts and ratios include the full phase in of the capital conservation buffer of 2.5 % required by the BASEL III framework.

Regulatory capital ratios for both Mid Penn and the Bank exceeded regulatory "well-capitalized" levels at both December 31, 2022 and December 31, 2021.

Mid Penn's asset-liability management policy addresses the management of Mid Penn's liquidity position and its ability to raise sufficient funds to meet deposit withdrawals, fund loan growth and meet other operational needs.

In addition to its cash and equivalents, Mid Penn utilizes its investments as a source of liquidity, along with deposit growth and increases in borrowings.

For additional information, see "Deposits and Other Funding Sources", which appears earlier in this discussion.

Liquidity from investments is provided primarily through investment calls, sales of AFS securities, prepayments on mortgage-backed securities, and from investments and interest-bearing balances with maturities of one year or less.

The Bank can obtain funds from overnight borrowings, short-term borrowings, and long-term borrowings from the FHLB, up to the Bank’s maximum borrowing capacity with the FHLB, which was $1.6 billion at December 31, 2022.

FHLB borrowings require the Bank to make certain restricted stock purchases in accordance with FHLB requirements.

Borrowings with the FHLB are collateralized by certain qualifying loans and investment securities of the Bank.

The Bank also has unused lines of credit with other correspondent banks amounting to $35.0 million at December 31, 2022.

Major sources of cash in 2022 came from the increase in short-term borrowings and net income.

Short-term borrowings were used to help fund the loan growth.

Major uses of cash in 2022 were the increase in the loan portfolio, purchase of investment securities, long-term debt repayment, subordinated debt redemption and trust preferred securities redemption.

The consolidated statements of cash flow provide additional information.

Common Equity Tier I (to Risk-Weighted Assets) 9.78 11.18 7.00

Tier I Risk-Based Capital (to Risk-Weighted Assets) 9.78 11.18 8.50

Total Risk-Based Capital (to Risk-Weighted Assets) 11.69 13.19 10.50

As of December 31, 2023 and December 31, 2022, Mid Penn and the Bank met all capital adequacy requirements and the Bank was considered "well-capitalized".

However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources.

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.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

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;

• payments received on loans and mortgage-backed securities;

• overnight correspondent bank borrowings on various credit lines;

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

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 current inflationary environment, 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.

The Consolidated Statements of Cash Flows provide additional information.

Mid Penn’s operating activities during the year ended December 31, 2023 provided $51.9 million of cash, mainly due to net income.

Cash used in investing activities during the year ended December 31, 2023 was $408.5 million, mainly the result of the net increase in loans.

Cash provided by financing activities during the year ended December 31, 2023 totaled $392.5 million, primarily the result of an increase in net deposits.

The net cash received from the Brunswick Acquisition totaled $1.1 million.

Contractual Obligations

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$ 1,632,409 $ 1,264,784 $ 277,078 $ 35,980 $ 54,567

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

Details on expected maturities of investments, loans and deposits are presented in the above sections of Management's Discussion and Analysis.

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As discussed previously, management seeks to manage the relationship between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

MID PENN BANCORP, INC.

Management’s Discussion and Analysis

Information included elsewhere in this report will assist in the understanding of how Mid Penn is positioned to react to changing interest rates and inflationary trends.

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Mid Penn makes contractual commitments to extend credit and extends lines of credit, which are subject to Mid Penn's credit approval and monitoring procedures.

As of December 31, 2022, commitments to extend credit amounted to $1.0 billion compared to $930.7 million as of December 31, 2021.

As of December 31, 2023, commitments to extend credit amounted to $1.5 billion compared to $1.0 billion as of December 31, 2022.

Mid Penn also issues standby letters of credit to its customers.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis