What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-28 compared with 2023-03-16 · 928 added, 636 removed, 1617 unchanged (49% of the section changed)

12 unchanged sentences

Management Report on Internal Controls Over Financial Reporting

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in SEC Rules 13a-15(e) and 15d-15(e).

Based upon the evaluation, the Corporation’s Chief Executive Officer and Interim Chief Financial Officer concluded that, as of December 31, 2022, the Corporation’s disclosure controls and procedures are effective.

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in SEC Rules 13a-15(e) and 15d-15(e).

Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2023, the Corporation’s disclosure controls and procedures are effective.

Disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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The effectiveness of the Corporation’s internal control over financial reporting has been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Ritrievi /s/ Allison S.

Ritrievi Allison S.

Ritrievi /s/ Justin T.

Ritrievi Justin T.

President and Chief Financial Officer

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 1 and Note 4 to the financial statements, the Company has changed its method of accounting for allowance for credit losses in the year ended December 31, 2023, due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326) .

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to an account or disclosure that is material and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses – Qualitative Factors

The allowance for loan losses as of December 31, 2022 was $19.0 million.

As described in Notes 1 and 4 to the financial statements, the allowance for loan losses is established through a provision for loan loss and represents an amount which, in management’s judgement, will be adequate to absorb losses on existing loans.

The allowance for loan losses consists of specific and general components in the amounts of $0.9 million and $18.1 million, respectively.

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 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.

The evaluation of the qualitative factor adjustments requires a significant amount of judgement by management and involves a high degree of subjectivity.

We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as the estimate determined by management is highly subjective and sensitive to changes in management assumptions.

Our audit procedures related to the qualitative factors included the following, among others:

• We obtained an understanding of the relevant controls related to management’s assessment and review of the qualitative factors, and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative factors and the data used in determining the qualitative factors.

• We obtained an understanding of how management developed the estimates and related assumptions, including:

◦ Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources.

◦ Evaluating the reasonableness of the qualitative factors established by management as compared to the underlying internal or external information sources.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As described in Note 1 and Note 4 to the financial statements, the Company’s allowance for credit losses (ACL) on loans is established through a provision for credit losses on loans and represents management’s estimate of all expected credit losses over the expected contractual life of the Company’s loan portfolio.

The methodology for estimating the amount of expected credit losses reported in the ACL on loans has two basic components:

a collective, or pooled, component for estimated expected credit losses for pools of loans that share similar risk characteristics, and an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans.

In estimating the ACL on loans for the collective component, loans are segregated into loan pools based on loan purpose codes and similar risk characteristics.

The ACL on loans as of December 31, 2023 was $34.2 million, which consists of an ACL on loans collectively evaluated for credit losses of $33.1 million and an ACL on loans individually evaluated for credit losses of $1.1 million.

The Company estimates the collective ACL on loans utilizing a discounted cash flow (DCF) methodology applied to portfolio segments and their loan pools segregated by similar risk characteristics.

The Company’s DCF methodology adjusts loan level contractual cash flows for probability of default and loss given default and prepayment and curtailment rate assumptions to calculate expected future cash flows.

A correlation between the selected macroeconomic indicators of national unemployment rate and GDP and historic loss levels, adjusted to include representative peer group loss experience, was developed to predict loss expectations based on current economic conditions and a reasonable and supportable forecast period.

At the end of the reasonable and supportable forecast period, the Company reverts to the long-term mean of the macroeconomic indicator.

For the December 31, 2023 ACL on loans, the Company determined that reasonable and supportable forecasts could be made for a twelve-month period and used a reversion period of four quarters reverting to the historical mean on a straight-line basis.

The Company also calculates a qualitative portion of the ACL, which is based on general economic conditions and other internal and external factors affecting Mid Penn’s loan portfolio.

At December 31, 2023 qualitative factors considered for the ACL on loans included concentrations of credit, lending process, and peer group divergence.

We identified the adjustments to historical losses, both as it relates to the economic forecast selection and the qualitative factors, within the Company’s ACL on loans calculation as a critical audit matter as auditing the underlying adjustments required significant auditor judgment in the evaluation of the Company’s assumptions.

Our audit procedures related to the Company’s adjustments to historical loss information component of the ACL on loans included the following, among others:

• We obtained an understanding of the relevant controls related to the ACL on loans and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the ACL on loans calculation, management’s assessment and review of the adjustments to historical loss information component of the ACL on loans for current conditions and forecasted scenarios and management’s validation of underlying source data.

• We tested management’s calculation of adjustments to historical loss information within the ACL on loans calculation by:

◦ Agreeing calculation inputs to the Company’s internal and external source data, including for current and forecasted conditions;

◦ Verifying the mathematical accuracy of the calculation of adjustments to historical loss information;

◦ Evaluating whether adjustments to historical loss information within the ACL on loans, or lack thereof, were reasonable and consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.

• We assessed the reasonableness of management’s calculated changes in adjustments to historical loss information within the ACL on loans calculation by:

◦ Evaluating the magnitude and directional consistency of changes, or lack thereof, in the level of adjustments to historical loss information between periods;

◦ Evaluating whether management’s conclusions were reasonable and consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.

• We agreed management’s calculated adjustments to historical loss information to the ACL on loans calculation.

Business Combination – Valuation of the Acquired Loan Portfolio

As described in Note 2 to the financial statements, on May 19, 2023, the Company completed its acquisition of Brunswick Bancorp (Brunswick).

The Company recorded $12.8 million of goodwill as a result of the acquisition, which represents the excess of the purchase price over the fair value of net assets acquired using the acquisition method of accounting.

As part of the acquisition, the Company acquired $324.5 million in loans.

Acquired loans are initially recorded at their acquisition-date fair values.

The Company prepared loan fair value adjustments that it believed a market participant might employ in estimating the fair value for the acquired loan portfolio.

This analysis was performed for loans with signs of credit deterioration (purchase credit deteriorated loans (PCD)) as well as those without signs of credit deterioration (non-PCD loans).

The acquired non-PCD loan portfolio was recorded at an estimated fair value of $308.2 million at the acquisition date without carryover of Brunswick’s previously established ACL on loans.

Determining the fair value of 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 market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.

The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date.

We identified the fair value of acquired non-PCD loans as a critical audit matter, because of the judgments necessary to determine the fair value of the loans, the high degree of auditor judgment involved and the extensive audit effort involved in testing management estimates and assumptions, including the use of valuation specialists.

The fair value determination of acquired loans requires a significant amount of judgment by management and involves a higher degree of subjectivity than do the other assets and liabilities acquired.

Our audit procedures related to the valuation of the acquired non-PCD loan portfolio included the following, among others:

• We obtained an understanding of the relevant controls related to the estimated fair value of non-PCD loans acquired in the current year and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of assumptions such as interest rate risk, credit risk, discount rates, expected payments and prepayments, and liquidity premiums.

• We tested the completeness and accuracy of the data inputs used in the non-PCD loans estimated fair value calculations by comparing the data to source documents and external information sources.

• We utilized internal valuation specialists to assist in testing management’s methodologies and techniques for appropriateness, as well as evaluating significant assumptions by comparing the data to source documents provided by the Company, obtaining comparative information from external sources and performing mathematical accuracy checks.

• We utilized internal valuation specialists to assist in evaluating significant assumptions such as interest rate risk, credit risk, discount rates, expected payments and prepayments, and liquidity premiums.

Goodwill Impairment – Fair Value of Reporting Unit

As described in Note 6 of the financial statements, the Company’s goodwill balance was $127.0 million as of December 31, 2023.

Goodwill is evaluated annually for impairment or at interim periods if certain events occur which may cause the fair value of the reporting unit to fall below its carrying amount.

The Company estimates the fair value of the single reporting unit by making significant estimates and assumptions considering a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and current market data.

We identified the impairment assessment of goodwill as a critical audit matter due to the complexity of the analysis and certain significant assumptions such as projected cash flows, discount and growth rates, control premiums and comparable public companies.

Auditing management’s assumptions required a high degree of auditor judgement, subjectivity, and increased audit effort, including the use of internal specialists.

Our audit procedures related to the evaluation of goodwill impairment included the following, among others:

• We obtained an understanding of the relevant controls related to the assessment of goodwill impairment and test such controls for design and operating effectiveness, including controls over management’s preparation of cash flow projections and review of significant assumptions such as discount rate and long-term growth rate.

• We tested the completeness and accuracy of the underlying data used in the fair value estimates by agreeing Company financial data to internal records and using valuation specialists to obtain market data for a population of comparable companies.

• We evaluated management’s cash flow projections and significant assumptions considered within the business plan by considering the current and past performance of the Company and the consideration of the Company’s ability to meet financial projections.

• We utilized internal specialists who assisted in the following, among others:

◦ Evaluating the discount rate by comparing to publicly available market data.

◦ Evaluating the reasonableness and application of the methodologies used by management including the income approach and the market approach and the reasonableness of the control premium by reviewing publicly available market data and comparing it to management’s estimate of the control premium used by management.

/s/ RSM US LLP

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Consolidated Balance Sheets

(In thousands, except per share data) 2022 2021

(In thousands, except per share data) December 31, 2023 December 31, 2022

Cash and due from banks $ 45,435 $ 53,368

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399,128 399,494

Available for sale, at fair value 237,878 62,862

AFS, at fair value 223,555 237,878

Equity securities available for sale, at fair value 438 430

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Loans, net of unearned interest 4,252,792 3,514,119

Allowance for loan losses ( 18,957 ) ( 14,597 )

ACL - Loans ( 34,187 ) ( 18,957 )

Net loans 4,218,605 3,495,162

Premises and equipment, net 36,909 34,471

Bank premises and equipment held for sale 1,306 3,907

Operating lease right of use asset 8,953 8,798

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Long-term debt 59,003 4,409

Subordinated debt and trust preferred securities 56,941 74,274

Subordinated debt 46,354 56,941

Operating lease liability 9,285 9,725

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Shareholders' Equity:

Common stock, par value $ 1.00 ;

Common stock, par value $ 1.00 per share;

40,000,000 shares authorized;

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Retained earnings 145,982 133,114

Accumulated other comprehensive (loss) income ( 19,216 ) 158

Accumulated other comprehensive loss ( 16,637 ) ( 19,216 )

Treasury Stock, at cost;

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Net Interest Income 146,973 147,833 108,568

PROVISION FOR LOAN LOSSES 4,300 2,945 4,200

Net Interest Income After Provision for Loan Losses 143,533 105,623 84,008

Provision for credit losses - loans 3,295 4,300 2,945

Net Interest Income After Provision for Credit Losses - Loans 143,678 143,533 105,623

NONINTEREST INCOME

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FDIC Assessment 3,500 1,594 1,888

Charitable contributions qualifying for State tax credits 1,033 1,432 1,342

Mortgage banking profit-sharing 178 2,571 2,004

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

Gain on sale of foreclosed assets, net ( 144 ) ( 133 ) ( 25 )

Merger and acquisition 5,544 294 3,067

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Net income $ 37,397 $ 54,806 $ 29,319

Other comprehensive (loss) income:

Unrealized (losses) gains arising during the period on available for sale securities, net of income tax benefit (cost) of $ 5,070 , $ 50 and ($ 131 ), respectively (1)

Other comprehensive loss:

Unrealized gains (losses) arising during the period on available for sale securities, net of income tax (cost) benefit of ($ 144 ), $ 5,070 and $ 50 , respectively (1)

1,988 ( 19,072 ) ( 190 )

Reclassification adjustment for net gain on sales of available-for-sale securities included in net income, net of income tax benefit of $ 0 , $ 0 and $ 17 , respectively (1), (2)

— ( 62 ) ( 369 )

Unrealized holding gains arising during the period on interest rate derivatives used in cash flow hedges, net of income tax benefit of ($ 236 ), $ 0 , and $ 0 , respectively (1)

Change in defined benefit plans, net of income tax benefit (cost) of $ 56 , $ 78 and ($ 136 ), respectively (1), (3)

( 212 ) ( 294 ) 511

Reclassification adjustment for settlement gains and activity related to benefit plans, net of income tax benefit $ 2 , $ 12 and $ 6 , respectively (1), (4)

Reclassification adjustment for settlement gains and activity related to benefit plans, net of income tax cost $ 5 , $ 2 and $ 12 , respectively (1), (4)

( 17 ) ( 8 ) ( 44 )

Total other comprehensive (loss) income ( 19,374 ) 215 ( 400 )

Total other comprehensive income (loss) 2,579 ( 19,374 ) 215

Total comprehensive income $ 39,976 $ 35,432 $ 29,534

20 unchanged sentences

— — — ( 8,451 ) — — ( 8,451 )

Common shares issued through follow-on public offering, net of underwriting discounts and offering expenses (1)

2,990,000 2,990 67,248 — — — 70,238

Common stock issued to Riverview shareholders (2)

4,519,776 4,520 137,672 — — — 142,192

Repurchased stock ( 5,800 shares)

8 unchanged sentences

— — — ( 12,735 ) — — ( 12,735 )

Common shares issued through follow-on public offering, net of underwriting discounts and offering expenses (1)

2,990,000 2,990 67,248 — — — 70,238

Common stock issued to Riverview shareholders (2)

Riverview restricted stock (3)

— — 776 — — — 776

9 unchanged sentences

— — — ( 12,981 ) — — ( 12,981 )

Riverview restricted stock (3)

Common stock issued to Brunswick shareholders (5)

849,510 850 17,245 — — — 18,095

Impact of adopting CECL (4)

— — — ( 11,548 ) — — ( 11,548 )

Repurchased stock ( 216,879 shares) (6)

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(1) Shares issued in offering were net of expenses of $ 4.6 million.

(2) Shares issued on November 30, 2021 as a result of the acquisition of Riverview Financial Corporation ("Riverview").

See "Note 2 - Business Combinations", to the Consolidated Financial Statements for more information.

(2) Shares issued as a result of the acquisition of Riverview Financial Corporation ("Riverview").

(3) Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $ 776 thousand of cash consideration relating to stock awards.

(4) The Corporation adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" effective January 1, 2023.

See "Note 1 - Summary of Significant Accounting Policies" for further details.

(5) Shares issued as a result of the acquisition of Brunswick Bancorp ("Brunswick").

See "Note 2 - Business Combinations", to the Consolidated Financial Statements for more information.

(6) Includes tax effects of repurchased stock.

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

(In thousands) Years ended December 31,

(In thousands) Year Ended

2023 2022 2021

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Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses 4,300 2,945 4,200

Provision for credit losses - loans 3,295 4,300 2,945

Depreciation 4,900 4,283 3,316

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Noncash operating lease expense 1,945 1,755 1,698

Operating right of use asset abandonment — 1,348 —

Amortization of finance lease right of use asset 180 180 180

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Gain on sale of SBA loans ( 571 ) ( 262 ) ( 969 )

(Gain) loss on disposal or write-down of property, plant, and equipment ( 254 ) ( 105 ) 242

(Gain) loss on sale or write-down of foreclosed assets ( 133 ) ( 25 ) 333

Gain on sale of bank premises and equipment held for sale ( 797 ) — —

Gain (Loss) on sale of property, plant, and equipment — 938 ( 105 )

Gain on sale or write-down of foreclosed assets ( 144 ) ( 133 ) ( 25 )

Write-off of bank premises and equipment held for sale — 705 —

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Stock compensation expense 1,103 1,142 696

Deferred income tax benefit 2,262 484 ( 1,367 )

Change in deferred income tax benefit ( 1,551 ) 2,262 484

Fair value adjustment on equity investments — 70 —

Loss on sale of premises and equipment held for sale 1,989 — —

(Increase) decrease accrued interest receivable ( 7,080 ) 3,562 ( 5,007 )

Increase in other assets ( 13,261 ) ( 4,321 ) ( 1,971 )

Increase accrued interest receivable ( 6,244 ) ( 7,080 ) 3,562

Decrease (Increase) in other assets 9,736 ( 13,261 ) ( 4,321 )

Increase (decrease) in accrued interest payable 10,043 510 ( 655 )

Decrease in operating lease liability ( 2,540 ) ( 3,136 ) ( 1,781 )

Increase in other liabilities 2,439 13,867 3,549

(Decrease) Increase in other liabilities ( 4,214 ) 2,439 15,215

Net Cash Provided By Operating Activities 51,937 59,991 65,899

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Stock dividends of FHLB and other bank stock 864 289 345

Reduction (purchases) of restricted investment in bank stock 530 324 ( 3,052 )

Net cash (paid) received from acquisition ( 901 ) 315,287 —

Net (increase) decrease in loans ( 411,800 ) 115,367 ( 623,153 )

(Purchases) reduction of restricted investment in bank stock ( 9,317 ) 530 324

Net cash received from acquisition 1,068 ( 901 ) 315,287

Net increase in loans ( 424,535 ) ( 411,800 ) 115,367

Purchases of bank premises and equipment ( 2,770 ) ( 4,249 ) ( 3,497 )

1 unchanged sentence

Proceeds from the sale of foreclosed assets 1,256 242 212

Proceeds from bank-owned life insurance 774 — —

Gain on bank-owned life insurance ( 125 ) — —

Net change in investments in tax credits and other partnerships ( 4,588 ) — —

Net cash paid on branch sale — ( 18,918 ) —

1 unchanged sentence

Financing Activities:

Net (decrease) increase in deposits ( 202,607 ) 446,045 562,186

Proceeds from long-term debt — — 70,000

Net increase (decrease) in deposits 286,498 ( 202,607 ) 446,045

MID PENN BANCORP, INC.

Consolidated Statements of Cash Flows

Proceeds from long-term debt 25,000 — —

Common stock dividends paid ( 12,981 ) ( 12,735 ) ( 8,872 )

7 unchanged sentences

Subordinated debt redemption and trust preferred securities ( 10,000 ) ( 16,778 ) ( 6,870 )

Subordinated debt issuance — — 27,150

Net Cash (Used In) Provided By Financing Activities ( 208,151 ) 374,758 739,537

Net (decrease) increase in cash and cash equivalents ( 852,871 ) 610,028 164,694

Net Cash Provided by (Used In) Financing Activities 392,466 ( 208,151 ) 374,758

Net increase (decrease) in cash and cash equivalents 35,882 ( 852,871 ) 610,028

Cash and cash equivalents, beginning of period 60,881 913,752 303,724

9 unchanged sentences

Common Stock issued to Riverview Shareholders — — 4,520

Dividends declared and not paid before year-end — — 421

Carrying value of assets sold in branch sale — 2,159 —

1 unchanged sentence

Fair value of assets acquired in business combination, excluding cash (2)

362,070 — 905,847

Goodwill recorded (2)

Goodwill measurement period adjustment 36 0 —

12,800 — 50,995

Liabilities assumed in business combination (2)

(1) Shares issued in offering were net of expenses of $ 4.6 million.

345,043 — 1,129,937

Stock issued in business combination (2)

(1) Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $ 776 thousand of cash consideration relating to stock awards.

(3) This disclosure includes the impact of the acquisition of Riverview Financial Corporation on November 30, 2021.

(2) This disclosure includes the impact of the Brunswick Acquisition on May 19, 2023.

See "Note 2 - Business Combinations" to the Consolidated Financial Statements for more information.

(3) Shares issued in offering were net of expenses of $ 4.6 million.

The accompanying notes are an integral part of these Consolidated Financial Statements.

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All material intercompany accounts and transactions have been eliminated in consolidation.

On November 30, 2021, Mid Penn completed its acquisition of Riverview Financial Corporation ("Riverview"), pursuant to the previously announced Agreement and Plan of Merger dated as of June 30, 2021.

On November 30, 2021, Riverview was merged with and into Mid Penn, with Mid Penn being the surviving corporation ("Riverview Acquisition").

See "Note 2 - Business Combinations" , as well as the Corporation’s Current Report on Form 8-K filed on December 1, 2021, for more information.

The comparability of Mid Penn’s results of operations for the year ended December 31, 2022, compared to the years ended December 31, 2021 and 2020, in general, has been materially impacted by this acquisition, as further described in "Note 2 - Business Combinations", as well as events and legislation related to the Novel Coronavirus pandemic ("COVID-19") in 2021 and 2020.

Certain amounts have been reclassified in the 2021 and 2020 Consolidated Financial Statements to conform to the 2022 presentation.

For comparative purposes, the December 31, 2022 and December 31, 2021 balances have been reclassified, when necessary, to conform to the 2023 presentation.

Such reclassifications had no impact on net income or total shareholders’ equity.

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All such adjustments are of a normal, recurring nature.

Mid Penn has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

Mid Penn has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2023, 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.

The accounting and reporting policies of Mid Penn conform with accounting principles generally accepted in the United States ("GAAP") and to general practice within the financial industry.

Following is a description of the more significant accounting policies.

MID PENN BANCORP, INC.

liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could materially differ from those estimates.

Material estimates subject to significant change include the allowance for loan losses, the expected cash flows and collateral values associated with impaired loans, the carrying value of other real estate owned ("OREO"), the fair value of financial instruments, business combination fair value computations, the valuation of goodwill and other intangible assets, stock-based compensation and deferred income tax assets.

Material estimates subject to significant change include the allowance for credit losses, the expected cash flows and collateral values associated with loans that are individually evaluated for credit losses, the carrying value of other real estate owned ("OREO"), the fair value of financial instruments, business combination fair value computations, the valuation of goodwill and other intangible assets, stock-based compensation and deferred income tax assets.

Significant Group of Concentrations of Credit Risk - Most of the Corporation’s activities are with customers located within Pennsylvania .

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The Corporation does not have a significant concentration of credit risk with any one customer.

MID PENN BANCORP, INC.

Fair Value Measurements - The Corporation uses estimates of fair value in applying various accounting standards for its consolidated financial statements on either a recurring or non-recurring basis.

8 unchanged sentences

In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.

It is the Corporations’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair value.

It is the Corporation’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs in estimating fair value.

Unobservable inputs are utilized in determining fair value estimates only to the extent that observable inputs are not available.

11 unchanged sentences

Interest income and dividends on securities are recognized in interest income on an accrual basis.

Premiums and discounts on debt securities are amortized as an adjustment to interest income over the period to maturity of the related security using

MID PENN BANCORP, INC.

the effective interest method.

Premiums and discounts on debt securities are amortized as an adjustment to interest income over the period to maturity of the related security using the effective interest method.

Realized gains or losses on the sale of securities are determined using the specific identification method.

Mid Penn reviews investment securities for impairment on a quarterly basis or more frequently if events and circumstances warrant.

In order to determine if a decline in fair value below amortized cost represents other-than-temporary impairment ("OTTI"), management considers several factors, including but not limited to, the length of time and extent to which the fair value has been less than the amortized cost basis, the financial condition and near-term prospects of the issuer (considering factors such as adverse conditions specific to the issuer and the security and ratings agency actions) and the Corporation’s intent and ability to retain the investment in order to allow for an anticipated recovery in fair value.

Mid Penn recognizes OTTI of a debt security for which there has been a decline in fair value below amortized cost if (i) management intends to sell the security, (ii) it is more likely than not that Mid Penn will be required to sell the security before recovery of its amortized cost basis, or (iii) Mid Penn does not expect to recover the entire amortized cost basis of the security.

The amount by which amortized cost exceeds the fair value of a debt security that is considered to have OTTI is separated into a component representing the credit loss, which is recognized in earnings, and a component related to all other factors, which is recognized in other comprehensive income (loss).

The measurement of the credit loss component is equal to the difference between the debt security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield.

If Mid Penn intends to sell the security, or if it is more likely than not it will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security.

FASB ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments," was adopted by Mid Penn on January 1, 2023.

ASU 2016-13 introduces the CECL methodology for estimating allowances for credit losses.

ASU 2016-13 applies to all financial instruments carried at amortized cost, including HTM securities, and makes targeted improvements to the accounting for credit losses on AFS securities.

In order to comply with ASC 326, Mid Penn conducted a review of its investment portfolio and determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero.

This zero-credit loss assumption applies to debt issuances of the U.S.

Treasury and agencies and instrumentalities of the United States government.

The reasons behind the adoption of the zero-credit loss assumption are as follows:

• High credit rating

• Long history with no credit losses

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• Guaranteed by a sovereign entity

• Widely recognized as "risk-free rate"

• Can print its own currency

• Currency is routinely held by central banks, used in international commerce, and commonly viewed as reserve currency

• Currently under the U.S.

Government conservatorship or receivership

Mid Penn will continuously monitor any changes in economic conditions, credit downgrades, changes to explicit or implicit guarantees granted to certain debt issuers, and any other relevant information that would indicate potential credit deterioration and prompt Mid Penn to reconsider its zero-credit loss assumption.

At the date of adoption, Mid Penn’s estimated allowance for credit losses on AFS and HTM securities under ASU 2016-13 was deemed immaterial due to the composition of these portfolios.

Both portfolios consist primarily of U.S.

government agency guaranteed mortgage-backed securities for which the risk of loss is minimal.

Therefore, Mid Penn did not recognize a cumulative effect adjustment through retained earnings related to the AFS and HTM securities.

AFS Securities

ASU 2016-13 makes targeted improvements to the accounting for credit losses on AFS securities.

The concept of other-than-temporarily impaired has been replaced with the allowance for credit losses.

Unlike HTM securities, AFS securities are evaluated on an individual level and pooling of securities is not allowed.

Quarterly, Mid Penn evaluates if any security has a fair value less than its amortized cost.

Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, Mid Penn performs further analysis as outlined below:

• Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.

• The securities that violate the credit loss triggers above would be subjected to additional analysis that may include, but is not limited to:

changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

• If Mid Penn determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date.

The amount of credit loss Mid Penn records will be limited to the amount by which the amortized cost exceeds the fair value.

The DCF analysis utilizes contractual maturities, as well as third-party credit ratings and cumulative default rates published annually by a reputable third-party.

At December 31, 2023, the results of the analysis did not identify any securities that violate the credit loss triggers;

therefore, no DCF analysis was performed and no credit loss was recognized on any of the securities available for sale.

Accrued interest receivable is excluded from the estimate of credit losses for AFS securities.

At December 31, 2023, accrued interest receivable totaled $ 1.3 million for AFS securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.

HTM Securities

ASU 2016-13 requires institutions to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risks exist.

Mid Penn uses several levels of segmentation in order to measure expected credit losses:

• The portfolio is segmented into agency and non-agency securities.

• The non-agency securities are separated into state and political subdivision obligations and corporate debt securities.

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Each individual segment is categorized by third-party credit ratings.

As discussed above, Mid Penn has determined that for certain classes of securities it would be appropriate to assume the expected credit loss to be zero, which include debt issuances of the U.S.

Treasury and agencies and instrumentalities of the United States government.

This assumption will be reviewed and attested to quarterly.

At December 31, 2023, Mid Penn’s HTM securities totaled $ 399.1 million.

After applying appropriate probability of default and loss given default assumptions, the total amount of current expected credit losses was deemed immaterial.

Therefore, no reserve was recorded at December 31, 2023.

Accrued interest receivable is excluded from the estimate of credit losses for HTM securities.

At December 31, 2023, accrued interest receivable totaled $ 1.9 million for HTM securities and was reported in accrued interest receivable on the accompanying Consolidated Balance Sheet.

At December 31, 2023, Mid Penn had no HTM securities that were past due 30 days or more as to principal or interest payments.

Mid Penn had no HTM securities classified as nonaccrual at December 31, 2023.

Equity Securities - The Corporation reports its equity securities with readily determinable fair values at fair value on the Consolidated Balance Sheet, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income.

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The project was formally awarded $ 8.5 million in total LIHTCs by the Pennsylvania Housing Finance Agency, which will be recognized over the ten-year period from December 2020 through November 2029.

Mid Penn received low-income housing tax credits related to this project of $ 853 thousand for both tax years ended December 31, 2022 and 2021 and $ 74 thousand for the tax year ended December 31, 2020.

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Mid Penn received low-income housing tax credits related to this project of $ 1.3 million for the tax year ended December 31, 2023 and $ 853 thousand for both of the tax years ended December 31, 2022 and 2021.

Loans Held for Sale - During the third quarter of 2021, the Corporation made the election to measure mortgage loans held for sale at fair value.

Derivative financial instruments related to mortgage banking activities are also recorded at fair value, as detailed under the heading "Mortgage Banking Derivative Financial Instruments," below.

The Corporation determines fair value for its mortgage loans held for sale 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 Corporation determines

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fair value for its mortgage loans held for sale 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.

Changes in fair values during the period are recorded as components of mortgage banking income on the Consolidated Statements of Income.

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This activity, coupled with a relatively small volume of consumer loans, minimizes risk.

Acquired Loans - At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination.

Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans.

In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, Mid Penn takes into consideration loan grades, past due and nonaccrual

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Acquired Loans - Loans that Mid Penn acquires in connection with business combinations are recorded at fair value with no carryover of predecessor institutions’ related allowance for loan losses.

The balance of loans acquired at fair value and included in the balance of loans, net of unearned interest, on the Consolidated Balance Sheets totaled $ 768.5 million and $ 1.0 billion as of December 31, 2022 and December 31, 2021, respectively.

Loans acquired with credit deterioration are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality .

For these loans, 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.

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, using the level yield method, 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.

Acquired loans that met the criteria for impaired or non-accrual 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 established at the time of acquisition.

As such, Mid Penn may no longer consider the loan to be non-accrual or non-performing 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.

Mid Penn may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, and number of times past due.

At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit losses.

The initial recognition of expected credit losses on PCD loans has no impact on net income.

When the initial measurement of expected credit losses on PCD loans is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool.

Any difference between the initial amortized cost basis and the unpaid principal balance of the loan represents a noncredit discount or premium, which is accreted (or amortized) into interest income over the life of the loan.

Subsequent changes to the ACL on PCD loans are recorded through the PCL.

For purchased loans that are not deemed to have experienced more than insignificant credit deterioration since origination and are therefore not deemed PCD, any discounts or premiums included in the purchase price are accreted (or amortized) over the contractual life of the individual loan.

Loans are charged off against the ACL, with any subsequent recoveries credited back to the ACL account.

Expected recoveries may not exceed the aggregate of amounts previously charged off and expected to be charged off.

The balance of loans acquired included in the balance of loans, net of unearned interest, on the Consolidated Balance Sheets totaled $ 324.5 million and $ 768.5 million as of December 31, 2023 and December 31, 2022, respectively.

Non-accrual Loans - The Corporation classifies loans as past due when the payment of principal or interest is greater than 30 days delinquent based on the contractual next payment due date.

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Loans are removed from non-accrual status when they become current as to both principal and interest and the collectability of principal and interest is no longer doubtful.

Generally, a non-accrual loan that is restructured remains on non-accrual for a reasonable period of time (generally, at least nine consecutive months) to demonstrate the borrower can meet the restructured terms.

Generally, a non-accrual loan that is restructured remains on non-accrual for a reasonable period of time (generally, at least six consecutive months) to demonstrate the borrower can meet the restructured terms.

However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period.

If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a non-accrual loan.

Troubled Debt Restructuring ("TDR") - In certain situations, due to economic or legal reasons related to a borrower’s financial difficulties, the Corporation may grant a concession to the borrower for other than an insignificant period of time that it would not otherwise consider.

At that time, the related loan is classified as a TDR and considered impaired.

The concessions granted may include rate reductions, principal forgiveness, payment forbearance, extensions of maturity at

Modifications to Borrowers Experiencing Financial Difficulty - From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty.

In some cases, these modifications may result in new loans.

Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension, or a combination thereof, among other things.

Allowance for Credit Losses, effective January 1, 2023 - Mid Penn’s ACL - loans methodology is based upon guidance within FASB ASC Subtopic 326-20, as well as regulatory guidance from the FDIC, its primary federal regulator.

The ACL - loans 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 - loans.

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

The ACL - loans is adjusted through the PCL 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 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.

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rates of interest below those commensurate with the risk profile of the borrower, and other actions intended to minimize economic loss.

A troubled debt restructured loan is generally placed on non-accrual status at the time of the modification unless the borrower has no history of missed payments for six months prior to the restructuring.

If the borrower performs pursuant to the modified loan terms for at least six months and the remaining loan balance is considered collectible, the loan is returned to accrual status.

Section 4013 of the CARES Act provides financial institutions the opportunity to opt out of applying the TDR accounting guidance in ASC 310-40 for certain loan modifications.

Loan modifications made between March 1, 2020 and the earlier of (i) 60 days after the end of the national emergency proclamation or (ii) December 31, 2020.

Section 541 of the Consolidated Appropriations Act of 2021, amended Section 4013 of the CARES Act to extend this relief to the earlier of (i) 60 days after the end of the national emergency proclamation or (ii) January 1, 2022.

Impaired Loans - Loans are considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due, according to the contractual terms of the loan agreements.

All impaired loans are reviewed individually for specific reserves on a monthly basis.

Allowance for Loan Losses - The allowance for credit losses consists of the allowance for loan losses ("allowance"), and the reserve for unfunded lending commitments.

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.

The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components:

In estimating the ACL for the collective component, loans are segregated into loan pools based on loan purpose codes and similar risk characteristics.

The commercial real estate and residential mortgage loan portfolio segments include loans for both commercial and residential properties that are secured by real estate.

The underwriting process for these loans includes analysis of the financial position and strength of both the borrower and, if applicable, guarantor, experience with similar projects in the past, market demand and prospects for successful completion of the proposed project within the established budget and schedule, values of underlying collateral, availability of permanent financing, maximum loan-to-value ratios, minimum equity requirements, acceptable amortization periods and minimum debt service coverage requirements, based on property type.

The borrower’s financial strength and capacity to repay their obligations remain the primary focus of underwriting.

Financial strength is evaluated based upon analytical tools that consider historical and projected cash flows and performance, in addition to analysis of the proposed project for income-producing properties.

Additional support offered by guarantors is also considered when applicable.

Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity and availability of long-term financing.

The commercial and industrial loan portfolio segment includes commercial loans made to many types of businesses for various purposes, such as short-term working capital loans that are usually secured by accounts receivable and inventory, equipment and fixed asset purchases that are secured by those assets, and term financing for those within Mid Penn’s geographic markets.

Mid Penn’s credit underwriting process for commercial and industrial loans includes analysis of historical and projected cash flows and performance, evaluation of financial strength of both borrowers and guarantors as reflected in current and detailed financial information, and evaluation of underlying collateral to support the credit.

The consumer loan portfolio segment is comprised of loans which are underwritten after evaluating a borrower’s capacity, credit and collateral.

Several factors are considered when assessing a borrower’s capacity, including the borrower’s employment, income, current debt, assets and level of equity in the property.

Credit is assessed using a credit report that provides credit scores and the borrower’s current and past information about their credit history.

Loan-to-value and debt-to-income ratios, loan amount and lien position are also considered in assessing whether to originate a loan.

These borrowers are particularly susceptible to downturns in economic trends, such as conditions that negatively affect housing prices and demand and levels of unemployment.

Mid Penn utilizes a DCF method to estimate the quantitative portion of the allowance for credit losses for loan pools.

The DCF is based off of historical losses, including peer data, which is correlated to national unemployment and GDP.

The PD and LGD measures are used in conjunction with prepayment data as inputs into the DCF model to calculate the cash flows at the individual loan level.

Contractual cash flows based on loan terms are adjusted for PD, LGD and prepayments to derive loss cash flows.

These loss cash flows are discounted by the loan’s coupon rate to arrive at the discounted cash flow based quantitative loss.

The prepayment studies are updated quarterly by a third-party for each applicable pool.

Mid Penn determined that reasonable and supportable forecasts could be made for a twelve-month period for all of its loan pools.

To the extent the lives of the loans in the LHFI portfolio extend beyond this forecast period, Mid Penn uses a reversion period of four quarters and reverts to the historical mean on a straight-line basis over the remaining life of the loans.

Qualitative factors used in the ACL methodology include the following:

• Lending process

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• Concentrations of credit

• Peer Group Divergence

The ACL for individual loans, such as non-accrual and PCD, that do not share risk characteristics with other loans is measured as the difference between the discounted value of expected future cash flows, based on the effective interest rate at origination, and the amortized cost basis of the loan, or the net realizable value.

The ACL is the difference between the loan’s net realizable value and its amortized cost basis (net of previous charge-offs and deferred loan fees and costs), except for collateral-dependent loans.

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the sale of the collateral.

The expected credit loss for collateral-dependent loans is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, adjusted for the estimated cost to sell.

Fair value estimates for collateral-dependent loans are derived from appraised values based on the current market value or the "as is" value of the collateral, normally from recently received and reviewed appraisals.

Current appraisals are ordered on a regular basis based on the inspection date or more often if market conditions necessitate.

Appraisals are obtained from state-certified appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property.

These appraisals are reviewed by Mid Penn’s Appraisal Review Department to ensure they are acceptable, and values are adjusted down for costs associated with asset disposal.

If the calculated expected credit loss is determined to be permanent or not recoverable, the amount of the expected credit loss is charged off.

Mid Penn may also purchase loans or acquire loans through a business combination.

At the purchase or acquisition date, loans are evaluated to determine whether there has been more than insignificant credit deterioration since origination.

Loans that have experienced more than insignificant credit deterioration since origination are referred to as PCD loans.

In its evaluation of whether a loan has experienced more than insignificant deterioration in credit quality since origination, Mid Penn takes into consideration loan grades, past due and nonaccrual status.

Mid Penn may also consider external credit rating agency ratings for borrowers and for non-commercial loans, FICO score or band, probability of default levels, and number of times past due.

At the purchase or acquisition date, the amortized cost basis of PCD loans is equal to the purchase price and an initial estimate of credit losses.

The initial recognition of expected credit losses on PCD loans has no impact on net income.

When the initial measurement of expected credit losses on PCD loans is calculated on a pooled loan basis, the expected credit losses are allocated to each loan within the pool.

Subsequent changes to the ACL on PCD loans are recorded through the PCL.

Loans are charged off against the ACL, with any subsequent recoveries credited back to the ACL account.

Expected recoveries may not exceed the aggregate of amounts previously charged off and expected to be charged off.

Allowance for Loan Losses - Prior to January 1, 2023 - The allowance for credit losses consists of the allowance for loan losses ("allowance"), and the reserve for unfunded lending commitments.

The allowance 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 $ 85 thousand and $ 72 thousand at December 31, 2022 and 2021, respectively.

The allowance is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries.

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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.

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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.

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Adjustments to the factors are supported through documentation of changes in conditions and a narrative accompanying the allowance for loan loss calculation.

The unallocated component of the allowance for loan losses covers several considerations that are not specifically measurable through either the specific and general components.

The unallocated component allocation recognizes the

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inherent imprecision in our allowance for loan 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.

Mid Penn evaluates loans for charge-off on a monthly basis.

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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.

The value is based on net book value, as provided by the financial statements, and discounted accordingly based on

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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.

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All collateral values will be assessed by management at least every twelve months for revaluation by an independent third party.

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Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

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The Corporation reviews the carrying value of long-lived assets and certain identifiable intangibles for impairment whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable, as prescribed by ASC Topic 360, "Accounting for the Impairment or Disposal of Long-Lived Assets".

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 totaled $ 1.3 million and $ 3.9 million at December 31, 2022 and 2021, respectively.

The balance at December 31, 2021 related to the December 7, 2021 announcement of a Retail Network Optimization Plan pursuant to which the Bank announced its intention to close certain retail locations throughout its expanded footprint.

Bank Premises and Equipment Held For Sale - Bank premises and equipment designated as held for sale are included in Other Assets on the Balance Sheet, and are carried at the lower of cost or market value, and totaled $ 974 thousand and $ 1.3 million at December 31, 2023 and 2022, respectively.

The balance at December 31, 2022 related to the December 7, 2021 announcement of a Retail Network Optimization Plan pursuant to which the Bank announced its intention to close

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certain retail locations throughout its expanded footprint.

The branch closures occurred on about March 4, 2022.

As of December 31, 2022, three properties remained for sale.

As of December 31, 2023, two properties remained for sale.

Foreclosed Assets Held for Sale - Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at their fair value less estimated disposition costs.

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These policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement, if applicable.

Increases in the cash surrender value of these policies

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are included in noninterest income in the Consolidated Statements of Income.

Increases in the cash surrender value of these policies are included in noninterest income in the Consolidated Statements of Income.

The Corporation's BOLI policies are invested in general account and hybrid account products that have been underwritten by highly-rated third party insurance carriers.

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Changes in economic and operating conditions could result in goodwill impairment in future periods.

The Bank did not identify any impairment on its outstanding goodwill from its most recent testing, which was performed as of October 31, 2022.

The Bank did not identify any impairment on its outstanding goodwill from its most recent testing, which was perform ed as of October 31, 2023.

Core deposit intangible ("CDI") is a measure of the value of checking and savings deposits acquired in business combinations.

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Significantly all CDI is amortized using the sum of the years digits method.

Customer list intangibles are a measure of the the inherent value of certain customer arrangements acquired in business combinations.

Customer list intangibles are a measure of the inherent value of certain customer arrangements acquired in business combinations.

The fair value of the customer list is based on the income approach which employs a present value analysis, which calculates the expected after-tax cash flow benefits of the net revenues generated by the acquired customers over the expected life of the acquired customers, discounted at a long-term market-oriented after-tax rate of return on investment.

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The lease ROU asset consists of the amount of the initial measurement of the lease liability, adjusted for any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, and 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).

The related lease liability is equal to the present value of the future lease

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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 are calculated using Mid Penn’s incremental borrowing rate at lease inception, on a collateralized basis, for a similar term.

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Finance lease expense consists of the amortization of the ROU asset, recognized as a component of occupancy expense and interest expense on the lease liability, which is recorded as a component of other interest expense, both on the Consolidated Statements of Income.

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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 for a period of time in exchange for consideration, and grants Mid Penn the right to both obtain substantially all of the economic benefits from the identified asset’s use and the direct the use of the identified asset throughout the term of the agreement.

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The largest source of revenue for Mid Penn is interest income.

Noninterest income is earned from various banking and financial services that Mid Penn offers through its subsidiaries.

Noninterest income is earned from various banking and financial services that Mid Penn offers through its

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subsidiaries.

In certain circumstances, noninterest income is reported net of associated expenses.

Following is further detail on the various types of noninterest income Mid Penn earns and when it it recognized:

Following is further detail on the various types of noninterest income Mid Penn earns and when it recognized:

Interest Income - primarily recognized on an accrual basis according to loan agreements, investment securities contracts or other such written contracts.

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ATM Debit Card Interchange Income - consists 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

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used, the method used to process the EFT transaction, and the type of business at which the transaction was processed.

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.

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In making such determinations, the Corporation considers all available positive and negative evidence that may impact the realization of deferred tax assets.

These considerations include future reversals of existing taxable temporary differences, projected future taxable income, and available tax planning strategies.

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considerations include future reversals of existing taxable temporary differences, projected future taxable income, and available tax planning strategies.

The Corporation files a consolidated federal income tax return including the results of its wholly-owned subsidiaries.

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The Corporation’s policy is to classify interest and penalties associated with income taxes within other expenses.

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The Corporation is subject to routine audits by taxing jurisdictions;

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Derivative Financial Instruments

Loan-level Interest Rate Swaps - The Corporation offers certain derivative products directly to qualified commercial lending clients seeking to manage their interest rate risk.

The Corporation economically hedges interest rate swap transactions to execute with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants.

Loan-level Interest Rate Swaps

The Corporation offers certain derivative products directly to qualified commercial lending clients seeking to manage their interest rate risk.

The Corporation economically hedges interest rate swap transactions to execute

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with commercial lending clients by entering into offsetting interest rate swap transactions with institutional derivatives market participants.

Derivative transactions executed as part of this program are not designed as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded as noninterest income.

Because these derivatives have mirror-image contractual terms, in additional to collateral provisions which mitigate the impact of non-performance risk, the changes in fair value are expected to substantially offset.

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 BANCORP, INC.

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 a mandatory commitment, meaning that the loan must be delivered at an agreed-upon price within a specified timeframe, or 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 liabilities 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.

Cash Flow Hedges of Interest Rate Risk

Mid Penn’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements.

To accomplish this objective, Mid Penn primarily uses interest rate swaps as part of its interest rate risk management strategy.

Beginning in the first quarter of 2023, Mid Penn entered into interest rate swaps designated as cash flow hedges to hedge the cash flows associated with existing brokered CDs.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings.

Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on Mid Penn’s variable-rate liabilities.

Mortgage Banking Derivative Financial Instruments

In connection with its mortgage banking activities, Mid Penn entered into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks.

In addition, Mid Penn entered 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 have 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 was 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.

As of December 31, 2023.

Mid Penn no longer participates in mortgage banking derivative activities.

Recent Accounting Pronouncements

Accounting Standards Adopted

The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The ASU provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP.

It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying HTM securities.

The expedients and exceptions provided by the amendments were permitted to be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022.

The Corporation applied the guidance during 2022 to any contract modifications made due to reference rate reform.

The FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of Sunset Date of topic 848.

This update extends the sunset provision date of "ASU 2020-04" to December 31, 2024.

ASU 2022-06 became effective for the Corporation upon issuance of ASU 2022-06.

The Corporation does not expect ASU 2022-06 to have a material impact on its Consolidated Financial Statements.

On January 1, 2023, the Corporation 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.

The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities.

It also applies to OBS credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASC Topic 842.

The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures.

Results for reporting periods beginning after January 1, 2023 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology.

The Corporation 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.

On January 1, 2023, the Corporation adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification ("ASC") Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Additionally, ASU 2022-02 requires entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost.

See "Note 4 - Loans and Allowance for Credit Losses - Loans" for the new financial statement disclosures applicable under this update.

MID PENN BANCORP, INC.

The updates to the significant accounting policies related to CECL are further discussed in "Note 3 - Investment Securities", "Note 4 - Loans and Allowance for Credit Losses - Loans" and "Note 8 - Commitments and Contingencies".

Accounting Standards Pending Adoption

The FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

A reporting entity may make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments.

The amendments in this update also remove certain guidance for Qualified Affordable Housing Project investments and require the application of the delayed equity contribution guidance to all tax equity investments.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and must be applied on either a modified retrospective or a retrospective basis.

Early adoption is permitted in any interim period, however if adopted in an interim period the entity shall adopt the amendments in this update as of the beginning of the fiscal year that includes the interim period.

The Corporation does not expect the adoption of ASU No.

2023-02 to have a material impact on its consolidated financial statements.

The FASB issued ASU 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative .

ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No.

33-10532 - Disclosure Update and Simplification that was issued in 2018.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

ASU 2023-06 is not expected to have a significant impact on our financial statements.

The FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

ASU 2023-07 amends the ASC to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

ASU 2023-09 :

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 model ("CECL").

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.

MID PENN BANCORP, INC.

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 to determine the initial amortized cost basis, referred to as the gross up approach.

The subsequent accounting for PCD assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale ("AFS") 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, and 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.

Mid Penn qualified as an SRC as of the date this guidance was issued;

therefore, Mid Penn adopted this ASU effective January 1, 2023.

Mid Penn is continuing to validate the Corporation's CECL model and methodologies but expects an increase to the allowance for credit losses, which includes the reserves for unfunded commitments, as a result of the adoption of CECL.

Based on current estimates, management estimates that this increase will be no greater than 200% of the total credit loss reserve as of December 31, 2022.

This estimate is subject to change based on continuing refinement and validation of the model and methodologies.

The FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

This ASU eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan.

In addition, this ASU enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

For public business entities, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

For entities that have adopted the amendments in update 2016-13, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For entities that have not yet adopted the amendments in update 2016-13, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13.

The Corporation adopted this ASU effective January 1, 2023 .

The FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

Note 2 - Business Combinations

Riverview Financial Corporation Acquisition ("Riverview Acquisition")

On November 30, 2021, Mid Penn completed its acquisition of Riverview through the merger of Riverview with and into Mid Penn.

In connection with this acquisition, Riverview Bank, Riverview’s wholly-owned bank subsidiary, merged with and into Mid Penn Bank.

Pursuant to the merger agreement, shareholders of Riverview common stock received, for each share of Riverview common stock held at the effective time of the merger, 0.4833 shares of Mid Penn common stock as merger consideration with an acquisition date fair value of $ 142.2 million based on the closing stock price of Mid Penn’s common stock on November 30, 2021 of $ 31.46 .

This exchange ratio did not change as a result of changes in the Mid Penn share price.

Additionally, outstanding options at the time of the merger were converted into the right to receive an amount in cash equal to the product obtained by multiplying the aggregate number of shares of Riverview common stock that were issuable upon exercise of each option outstanding, and the closing sale price of Mid Penn’s common stock on the fifth (5th) business day prior to the merger closing date multiplied by the exchange ratio, less the per share exercise price of each option

Brunswick Acquisition

On May 19, 2023, Mid Penn completed its acquisition of Brunswick through the merger of Brunswick with and into Mid Penn with Mid Penn being the surviving corporation.

In connection with this acquisition, Brunswick Bank, a wholly-owned subsidiary of Brunswick, merged with and into Mid Penn Bank, a wholly-owned subsidiary of Mid Penn.

This transaction included the acquisition of 5 branches and extended Mid Penn’s footprint into Middlesex and Monmouth counties in central New Jersey.

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

Mid Penn has recognized total goodwill of $ 12.8 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed compared to the fair market value of identifiable assets acquired.

The fair value of the consideration exchanged related to Mid Penn’s common stock was calculated based upon the closing market price of Mid Penn’s common stock as of May 19, 2023.

None of the goodwill recognized is expected to be deductible for income tax purposes.

MID PENN BANCORP, INC.

outstanding, without interest.

There were 172,964 options outstanding to purchase Riverview common stock and the closing price of Mid Penn common stock was at $ 30.76 per share on the fifth business day prior to the merger closing date.

Additionally, 2,500 shares of restricted stock were paid out in cash, resulting in $ 776 thousand of cash consideration relating to stock awards.

Including $ 16 thousand of cash paid in lieu of fractional shares, the total fair value of consideration paid was $ 143.0 million.

The assets and liabilities of Riverview were recorded on the Consolidated Balance Sheets of Mid Penn at their estimated fair value as of November 30, 2021, and their results of operations have been included in the Consolidated Income Statement of the Corporation since such date.

Riverview has been fully integrated into Mid Penn;

therefore, the amount of revenue and earnings of Riverview included in the Consolidated Income Statement since the acquisition date is impracticable to provide.

The acquisition of Riverview resulted in the recognition and recording of $ 51.0 million of goodwill, a core deposit intangible of $ 3.4 million, and a customer list intangible of $ 2.2 million.

The core deposit intangible and customer list intangible will be amortized over a ten-year period using a sum of the years’ digits basis.

The goodwill will not be amortized but will be measured annually for impairment or more frequently if circumstances require.

See "Note 6 - Goodwill and Intangible Assets," for additional details.

Mid Penn incurred expenses related to the Brunswick Acquisition of $ 8.5 million for the year ended December 31, 2023, which is included in noninterest expense in the Consolidated Statements of Income.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD.

Mid Penn considers various factors in connection with the identification of more-than-insignificant deterioration in credit, including but not limited to nonperforming status, delinquency, risk ratings, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination.

For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment.

As part of the Brunswick Acquisition, Mid Penn acquired PCD loans and leases of $ 18.7 million.

Mid Penn established an ACL at acquisition of $ 336 thousand with a corresponding gross-up to the amortized cost of the PCD loans and leases.

The non-credit discount on the PCD loans and leases was $ 2.4 million and the Day 1 fair value was $ 16.3 million.

The initial provision expense for non-PCD loans associated with the Brunswick Acquisition was $ 2.0 million.

MID PENN BANCORP, INC.

The allocation of the purchase price is as follows:

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

(In thousands)

1 unchanged sentence

Cash and cash equivalents $ 21,029

Federal funds sold 7,604

Investment securities 2,423

Restricted stock 2,209

Loans 324,471

1 unchanged sentence

Core deposit intangible 999

Customer list intangible 2,160

Bank owned life insurance 32,120

Premises and equipment 4,568

Cash surrender value of life insurance 3,361

Deferred income taxes 6,393

8 unchanged sentences

Long-term debt 60,136

Subordinated debt and trust preferred securities 36,308

Accrued interest payable 1,911

4 unchanged sentences

Fair value of common stock issued 18,095

Accounting Standards Codification ("ASC") Topic 805, Business Combinations, allows for adjustments to goodwill up to one year after the merger date for information that becomes available during this post-merger period that reflects circumstances at the date of merger.

During 2022, the Corporation increased its goodwill $ 36 thousand to account for changes to the deferred income tax asset and current income tax receivable upon the completion of the Riverview final tax return.

MID PENN BANCORP, INC.

The following table summarizes the final estimated fair value of the assets acquired and liabilities and equity assumed in the Riverview transaction.

(In thousands)

Total purchase price (consideration paid) $ 142,984

Net assets acquired:

Cash and cash equivalents 316,079

Investment securities 226

Restricted stock 2,209

Loans 837,505

Core deposit intangible 3,391

Customer list intangible 2,160

Bank owned life insurance 32,120

Premises and equipment 12,524

Deferred income taxes 7,116

Accrued interest receivable 1,919

Other assets 6,641

Noninterest-bearing demand ( 182,291 )

Interest-bearing demand ( 371,283 )

Money Market ( 152,365 )

Savings ( 176,294 )

Time ( 199,414 )

Long-term debt ( 6,500 )

Subordinated debt and trust preferred securities ( 36,308 )

Accrued interest payable ( 439 )

Other liabilities ( 5,043 )

Net assets acquired 91,953

Goodwill $ 51,031

In general, factors contributing to goodwill recognized as a result of the Riverview acquisition included expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans.

The goodwill acquired as a result of the Riverview Acquisition is not tax deductible.

The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $ 837.5 million.

The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.

(In thousands)

Gross amortized cost basis at November 30, 2021 $ 850,920

Market rate adjustment 529

Credit fair value adjustment on pools of homogeneous loans ( 13,117 )

Credit fair value adjustment on impaired loans ( 827 )

Fair value of purchased loans at November 30, 2021 $ 837,505

During the fourth quarter of 2023, Management made corrections to certain balance sheet line items associated with Mid Penn's acquisition of Brunswick Bancorp.

These corrections include a $ 2.4 million decrease to Goodwill, a $ 2.0 million increase to Other Assets, and a $ 1.2 million decrease to non-interest bearing deposits.

Management has completed its evaluation of fair values of all assets and liabilities shown in the table above and all amounts are considered final.

MID PENN BANCORP, INC.

The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans.

The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date.

The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan.

The information about the acquired Riverview impaired loan portfolio as of November 30, 2021 is as follows:

(In thousands)

Contractually required principal and interest at acquisition $ 5,591

Contractual cash flows not expected to be collected (nonaccretable discount) ( 1,739 )

Expected cash flows at acquisition 3,852

Interest component of expected cash flows (accretable discount) ( 541 )

Fair value of acquired loans $ 3,311

The following table presents pro forma information as if the merger between Mid Penn and Riverview had been completed on January 1, 2020.

The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with Riverview at the beginning of 2020.

The supplemental pro forma earnings for the year ended December 31, 2020 exclude $ 3.1 million of merger related costs incurred by Mid Penn in 2021 related to the Riverview acquisition, and goodwill impairment of $ 24.8 million recognized by Riverview in 2020.

Pro Forma Income Statement (unaudited)

The following table presents pro forma information as if the merger between Mid Penn and Brunswick had been completed on January 1, 2021.

The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with Brunswick at the beginning of 2021.

The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.

6 unchanged sentences

Net income per common share 3.69 2.05

Managing Partners, Inc.

("MPI Acquisition")

On December 30, 2022, Mid Penn purchased the assets of Managing Partners, Inc.

in a business combination.

Managing Partners Insurance was an independent insurance agency that serviced the Central Pennsylvania area.

Goodwill totaling $ 360 thousand and a customer list with a fair market value of $ 541 thousand were booked as a result of this business combination.

See "Note 6 - Goodwill and Intangible Assets," for additional details.

Brunswick Bancorp Acquisition ("Brunswick Acquisition")

On December 20, 2022, Mid Penn entered into an Agreement and Plan of Merger ("Merger Agreement") with Brunswick Bancorp ("Brunswick") pursuant to which Brunswick will merge with and into Mid Penn ("Merger"), with Mid Penn being the surviving corporation in the Merger.

Upon consummation of the Merger, Brunswick Bank and Trust Company, a wholly-owned subsidiary of Brunswick, will be merged with and into Mid Penn Bank ("Bank Merger"), a wholly-owned subsidiary of Mid Penn, with Mid Penn Bank being the surviving bank in the Bank Merger.

The Merger Agreement was unanimously approved by the boards of directors of Mid Penn and Brunswick.

See "Form 8-K filed on December 20, 2022," for additional details.

Under the terms of the Merger Agreement, shareholders of Brunswick will have the right to elect to receive, subject to adjustment and proration as described in the Merger Agreement, either (A) 0.598 shares of Mid Penn common stock or (B) Eighteen Dollars ($ 18.00 ) for each share of Brunswick common stock they own.

It is expected that the Merger will be completed in the second quarter of 2023.

MID PENN BANCORP, INC.

Note 3 - Investment Securities