MID PENN BANCORP INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following audited financial statements are set forth in this Annual Report on Form 10-K on the following pages: Index to Financial Statements Management Report on Internal Controls Over Financial Reporting 56 Reports of Independent Registered Public Accounting Firms 57 Consolidated Balance Sheets 61 Consolidated Statements of Income 62 Consolidated Statements of Comprehensive Income 63 Consolidated Statements of Changes in Shareholders' Equity 64 Consolidated Statements of Cash Flows 65 Notes to Consolidated Financial Statements 67 55 MID PENN BANCORP, INC. 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 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. The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2023, the Corporation’s internal control over financial reporting is effective based on those criteria. 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. /s/ Rory G. Ritrievi /s/ Justin T. Webb Rory G. Ritrievi Justin T. Webb President and Chief Financial Officer Chief Executive Officer March 28, 2024 March 28, 2024 56 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Mid Penn Bancorp, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Mid Penn Bancorp, Inc. and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 28, 2024 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 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. 57 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; and ◦ 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; and ◦ 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. 58 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 We have served as the Company's auditor since 2020. Philadelphia, Pennsylvania March 28, 2024 59 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Mid Penn Bancorp, Inc. and Subsidiaries Opinion on the Internal Control Over Financial Reporting We have audited Mid Penn Bancorp, Inc. and Subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 28, 2024 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Philadelphia, Pennsylvania March 28, 2024 60 MID PENN BANCORP, INC. Consolidated Balance Sheets (In thousands, except per share data) December 31, 2023 December 31, 2022 ASSETS Cash and due from banks $ 45,435 $ 53,368 Interest-bearing balances with other financial institutions 34,668 4,405 Federal funds sold 16,660 3,108 Total cash and cash equivalents 96,763 60,881 Investment securities: Held to maturity, at amortized cost (fair value $ 357,521 and $ 348,505 ) 399,128 399,494 AFS, at fair value 223,555 237,878 Equity securities available for sale, at fair value 438 430 Loans held for sale, at fair value 3,855 2,475 Loans, net of unearned interest 4,252,792 3,514,119 Less: ACL - Loans ( 34,187 ) ( 18,957 ) Net loans 4,218,605 3,495,162 Premises and equipment, net 36,909 34,471 Operating lease right of use asset 8,953 8,798 Finance lease right of use asset 2,727 2,907 Cash surrender value of life insurance 54,497 50,674 Restricted investment in bank stocks 16,768 8,315 Accrued interest receivable 25,820 18,405 Deferred income taxes 24,146 13,674 Goodwill 127,031 114,231 Core deposit and other intangibles, net 6,479 7,260 Foreclosed assets held for sale 293 43 Other assets 44,825 42,856 Total Assets $ 5,290,792 $ 4,497,954 LIABILITIES & SHAREHOLDERS’ EQUITY Deposits: Noninterest-bearing demand $ 801,312 $ 793,939 Interest-bearing transaction accounts 2,086,450 2,325,847 Time 1,458,450 658,545 Total Deposits 4,346,212 3,778,331 Short-term borrowings 241,532 102,647 Long-term debt 59,003 4,409 Subordinated debt 46,354 56,941 Operating lease liability 9,285 9,725 Accrued interest payable 14,257 2,303 Other liabilities 31,799 31,499 Total Liabilities 4,748,442 3,985,855 Shareholders' Equity: Common stock, par value $ 1.00 per share; 40,000,000 shares authorized; 16,998,929 issued at December 31, 2023 and 16,094,486 at December 31, 2022; 16,573,707 outstanding at December 31, 2023 and 15,886,143 at December 31, 2022 16,999 16,094 Additional paid-in capital 405,725 386,987 Retained earnings 145,982 133,114 Accumulated other comprehensive loss ( 16,637 ) ( 19,216 ) Treasury Stock, at cost; 425,222 and 208,343 shares at December 31, 2023 and December 31, 2022 ( 9,719 ) ( 4,880 ) Total Shareholders’ Equity 542,350 512,099 Total Liabilities and Shareholders' Equity $ 5,290,792 $ 4,497,954 The accompanying notes are an integral part of these Consolidated Financial Statements. 61 MID PENN BANCORP, INC. Consolidated Statements of Income Years Ended December 31, (In thousands, except per share data) 2023 2022 2021 INTEREST INCOME Loans, including fees $ 218,060 $ 150,256 $ 118,776 Investment securities: Taxable 16,005 11,952 2,602 Tax-exempt 1,540 1,497 1,122 Other interest-bearing balances 361 69 13 Federal funds sold 373 1,826 809 Total Interest Income 236,339 165,600 123,322 INTEREST EXPENSE Deposits 79,295 14,144 11,327 Short-term borrowings 7,087 441 539 Long-term and subordinated debt 2,984 3,182 2,888 Total Interest Expense 89,366 17,767 14,754 Net Interest Income 146,973 147,833 108,568 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 Fiduciary and wealth management 5,059 5,071 2,494 ATM debit card interchange 4,019 4,362 2,688 Service charges on deposits 1,943 2,078 991 Mortgage banking 1,353 1,607 10,314 Mortgage hedging 324 1,471 64 Net gain on sales of SBA loans 571 262 969 Earnings from cash surrender value of life insurance 1,112 1,013 358 Net gain on sales of investment activities — — 79 Other 5,627 7,793 3,576 Total Noninterest Income 20,008 23,657 21,533 NONINTEREST EXPENSE Salaries and employee benefits 59,345 52,601 41,711 Software licensing and utilization 7,927 7,524 6,332 Occupancy, net 7,349 6,900 5,527 Equipment 5,121 4,493 3,101 Shares tax 2,713 2,786 800 Legal and professional fees 2,945 2,761 1,979 ATM/card processing 2,108 2,139 1,053 Intangible amortization 1,780 2,012 1,180 FDIC Assessment 3,500 1,594 1,888 Gain on sale of foreclosed assets, net ( 144 ) ( 133 ) ( 25 ) Merger and acquisition 5,544 294 3,067 Post-acquisition restructuring 2,952 329 9,880 Other 17,852 16,543 14,612 Total Noninterest Expense 118,992 99,843 91,105 INCOME BEFORE PROVISION FOR INCOME TAXES 44,694 67,347 36,051 Provision for income taxes 7,297 12,541 6,732 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 37,397 $ 54,806 $ 29,319 PER COMMON SHARE DATA: Basic Earnings Per Common Share $ 2.29 $ 3.44 $ 2.71 Diluted Earnings Per Common Share $ 2.29 $ 3.44 $ 2.71 Weighted-average basic shares outstanding 16,319,006 15,912,877 10,806,009 Weighted-average diluted shares outstanding 16,350,963 15,934,635 10,819,579 The accompanying notes are an integral part of these Consolidated Financial Statements 62 MID PENN BANCORP, INC. Consolidated Statements of Comprehensive Income Years Ended December 31, (In Thousands) 2023 2022 2021 Net income $ 37,397 $ 54,806 $ 29,319 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 ) 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) 820 — — 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 cost $ 5 , $ 2 and $ 12 , respectively (1), (4) ( 17 ) ( 8 ) ( 44 ) Total other comprehensive income (loss) 2,579 ( 19,374 ) 215 Total comprehensive income $ 39,976 $ 35,432 $ 29,534 (1) The income tax impacts of the components of other comprehensive income are calculated using the 21% statutory tax rate for 2023, 2022 and 2021. (2) Amounts are included in net gain on sales of investment securities on the Consolidated Statements of Income as a separate component within total noninterest income. (3) The change in defined benefit plans consists primarily of unrecognized actuarial (losses) gains on defined benefit plans during the period. (4) The reclassification adjustment for defined benefit plans includes settlement gains, amortization of prior service costs, and amortization of net gain or loss. Amounts are included in other income on the Consolidated Statements of Income within the total noninterest income. See "Note 14 - Postretirement Benefit Plans " , to the Consolidated Financial Statements for more information. The accompanying notes are an integral part of these Consolidated Financial Statements. 63 MID PENN BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Treasury Stock Total Shareholders' Equity (In thousands, except per share data) Shares Amount Balance, January 1, 2021 8,511,835 $ 8,512 $ 178,853 $ 70,175 $ ( 57 ) $ ( 1,795 ) $ 255,688 Net income — — — 29,319 — — 29,319 Total other comprehensive loss, net of taxes — — — — 215 — 215 Common stock cash dividends declared - $ 0.79 per share — — — ( 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) — — — — — ( 128 ) ( 128 ) Employee Stock Purchase Plan 6,066 6 166 — — — 172 Director Stock Purchase Plan 4,771 5 130 — — — 135 Restricted stock activity 23,834 23 673 — — — 696 Balance, December 31, 2021 16,056,282 $ 16,056 $ 384,742 $ 91,043 $ 158 $ ( 1,923 ) $ 490,076 Net income — — — 54,806 — — 54,806 Total other comprehensive income, net of taxes — — — — ( 19,374 ) — ( 19,374 ) Common stock cash dividends declared - $ 0.80 per share — — — ( 12,735 ) — — ( 12,735 ) Riverview restricted stock (3) — — 776 — — — 776 Repurchased stock ( 109,891 shares) — — — — — ( 2,957 ) ( 2,957 ) Employee Stock Purchase Plan 7,152 7 193 — — — 200 Director Stock Purchase Plan 5,876 6 159 — — — 165 Restricted stock activity 25,176 25 1,117 — — — 1,142 Balance, December 31, 2022 16,094,486 $ 16,094 $ 386,987 $ 133,114 $ ( 19,216 ) $ ( 4,880 ) $ 512,099 Net income — — — 37,397 — — 37,397 Total other comprehensive loss, net of taxes — — — — 2,579 — 2,579 Common stock cash dividends declared - $ 0.80 per share — — — ( 12,981 ) — — ( 12,981 ) 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) — — ( 37 ) — — ( 4,839 ) ( 4,876 ) Employee Stock Purchase Plan 13,459 13 290 — — — 303 Director Stock Purchase Plan 7,884 8 171 — — — 179 Restricted stock activity 33,590 34 1,069 — — — 1,103 Balance, December 31, 2023 16,998,929 $ 16,999 $ 405,725 $ 145,982 $ ( 16,637 ) $ ( 9,719 ) $ 542,350 (1) Shares issued in offering were net of expenses of $ 4.6 million. (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. 64 MID PENN BANCORP, INC. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 2021 Operating Activities: Net Income $ 37,397 $ 54,806 29,319 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses - loans 3,295 4,300 2,945 Depreciation 4,900 4,283 3,316 Amortization of intangibles 1,780 2,012 1,180 Net amortization of security discounts/premiums 472 729 636 Noncash operating lease expense 1,945 1,755 1,698 Amortization of finance lease right of use asset 180 180 180 Loss (gain) on sales of investment securities — — ( 79 ) Earnings on cash surrender value of life insurance ( 1,112 ) ( 1,013 ) ( 358 ) Mortgage loans originated for sale ( 82,714 ) ( 138,611 ) ( 316,849 ) Proceeds from sales of mortgage loans originated for sale 82,687 149,257 341,155 Gain on sale of mortgage loans ( 1,353 ) ( 1,607 ) ( 10,314 ) SBA loans originated for sale ( 11,211 ) ( 5,310 ) ( 10,890 ) Proceeds from sales of SBA loans originated for sale 10,640 5,571 11,859 Gain on sale of SBA loans ( 571 ) ( 262 ) ( 969 ) 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 — Accretion of subordinated debt ( 587 ) ( 555 ) — Stock compensation expense 1,103 1,142 696 Change in deferred income tax benefit ( 1,551 ) 2,262 484 Fair value adjustment on equity investments — 70 — 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 ) (Decrease) Increase in other liabilities ( 4,214 ) 2,439 15,215 Net Cash Provided By Operating Activities 51,937 59,991 65,899 Investing Activities: Proceeds from the sale of available-for-sale securities 1,751 — 5,178 Proceeds from the maturity or call of available-for-sale securities 16,611 14,574 2,856 Purchases of available-for-sale securities — ( 213,976 ) ( 65,192 ) Proceeds from the maturity or call of held-to-maturity securities 10,490 14,942 42,416 Purchases of held-to-maturity securities — ( 85,664 ) ( 243,987 ) Stock dividends of FHLB and other bank stock 864 289 345 (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 ) Proceeds from the sale of premises and equipment — 220 62 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 ) — Net Cash (Used In) Provided by Investing Activities ( 408,521 ) ( 704,711 ) 169,371 Financing Activities: Net increase (decrease) in deposits 286,498 ( 202,607 ) 446,045 65 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 ) Proceeds from Employee and Director Stock Purchase Plan stock issuance 482 364 307 Proceeds from follow-on common stock public offering (3) — — 70,238 Treasury stock purchased ( 4,876 ) ( 2,957 ) ( 128 ) Riverview restricted stock (1) — 776 — Net change in finance lease liability ( 93 ) ( 90 ) ( 87 ) Net change in short-term borrowings 138,885 102,647 ( 125,617 ) Long-term debt repayment ( 30,449 ) ( 76,771 ) ( 258 ) Subordinated debt redemption and trust preferred securities ( 10,000 ) ( 16,778 ) ( 6,870 ) 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 Cash and cash equivalents, end of period $ 96,763 $ 60,881 $ 913,752 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 77,413 $ 17,255 $ 14,970 Cash paid for income taxes 7,965 7,552 6,950 Supplemental Noncash Disclosures: Recognition of operating lease right of use assets $ 2,100 $ — $ 1,944 Recognition of operating lease liabilities 2,100 1,498 1,944 Obsolete Riverview asset write-off — 705 — Loans transferred to foreclosed assets held for sale 1,362 152 53 Common Stock issued to Riverview Shareholders — — 4,520 Carrying value of assets sold in branch sale — 2,159 — Liabilities assigned in branch sale — 21,076 — Fair value of assets acquired in business combination, excluding cash (2) 362,070 — 905,847 Goodwill recorded (2) 12,800 — 50,995 Liabilities assumed in business combination (2) 345,043 — 1,129,937 Stock issued in business combination (2) 18,095 — — (1) Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $ 776 thousand of cash consideration relating to stock awards. (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. 66 MID PENN BANCORP, INC. Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Nature of Operations Mid Penn Bancorp, Inc. ("Mid Penn" or the "Corporation"), through operations conducted by Mid Penn Bank (the "Bank") and its nonbank subsidiaries, engages in a full-service commercial banking and trust business, making available to the community a wide range of financial services, including, but not limited to, mortgage and home equity loans, secured and unsecured commercial and consumer loans, lines of credit, construction financing, farm loans, community development loans, loans to non-profit entities and local government loans, and various types of time and demand deposits including but not limited to, checking accounts, savings accounts, clubs, money market deposit accounts, certificates of deposit, and IRAs. In addition, the Bank provides a full range of trust and wealth management services through its Trust Department. Deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. Mid Penn also provides wealth management services, through its nonbank subsidiary MPB Wealth Management, LLC, and fulfills the insurance needs of both existing and potential customers through MPB Risk Services, LLC, doing business as MPB Insurance and Risk Management. The financial services are provided to individuals, partnerships, non-profit organizations, and corporations through its retail banking offices located in throughout Pennsylvania. Basis of Presentation For all periods presented, the accompanying Consolidated Financial Statements include the accounts of Mid Penn Bancorp, Inc., its wholly-owned subsidiary, Mid Penn Bank, and four nonbank subsidiaries, MPB Financial Services, LLC, which includes MPB Wealth Management, LLC and MPB Risk Services, LLC, and MPB Launchpad Fund I, LLC. As of December 31, 2023, the accounts and activities of these nonbank subsidiaries were not material to warrant separate disclosure or segment reporting. As a result, Mid Penn has only one reportable segment for financial reporting purposes. All material intercompany accounts and transactions have been eliminated in consolidation. 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. In the opinion of management, all adjustments necessary for fair presentation of the periods presented have been reflected in the accompanying consolidated financial statements. All such adjustments are of a normal, recurring nature. 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. 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 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 . "Note 3 - In vestment Securities" discusses the types of investment securities in which the Corporation invests. "Note 4 - L oans and Allowance for Loan Losses" discusses the types of lending that the Corporation engages in as well as loan concentrations. The Corporation does not have a significant concentration of credit risk with any one customer. 67 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. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The Corporation groups its assets and liabilities measured at fair value in three hierarchy levels, based on the observability and transparency of the inputs. These levels are as follows Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; Level 2 - Observable inputs other than level 1 inputs, including quoted prices for similar assets and liabilities, quoted prices for identical assets and liabilities in less active markets and other inputs that can be corroborated by observable market data; and Level 3 - Unobservable inputs supported by limited or no market activity or data and inputs requiring significant management judgment or estimation; valuation techniques utilizing level 3 inputs include option pricing models, discounted cash flow models and similar techniques. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. 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 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. The need to use unobservable inputs generally results from a lack of market liquidity and trading volume. Transfers between levels of fair value hierarchy are recorded at the end of the reporting period. Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days. Restrictions on Cash and Due from Bank Accounts - The Bank is required by banking regulations to maintain certain minimum cash reserves. As of both December 31, 2023 and 2022, there was no cash reserve balances required to be maintained at the Federal Reserve Bank of Philadelphia because the Bank had sufficient vault cash available. Debt Investment Securities - Mid Penn determines the classification of investment securities at the time of purchase. If Mid Penn has the intent and the ability at the time of purchase to hold debt securities until maturity, they are classified as held-to-maturity ("HTM"). HTM investment securities are stated at amortized cost. Debt securities Mid Penn does not intend to hold to maturity are classified as available for sale ("AFS") and carried at estimated fair value with unrealized gains or losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss), net of applicable income taxes. Available for sale securities are a part of Mid Penn’s asset/liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other market factors. Management has elected to reclassify realized gains and losses from accumulated other comprehensive income when securities are sold on the trade date. 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 the effective interest method. Realized gains or losses on the sale of securities are determined using the specific identification method. 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 68 MID PENN BANCORP, INC. • 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. 69 MID PENN BANCORP, INC. 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. As of December 31, 2023 and 2022, Mid Penn’s equity securities consisted of Community Reinvestment Act funds totaling $ 438 thousand and $ 430 thousand, respectively. No equity securities were sold during the years ended December 31, 2023, 2022 and 2021. Federal Home Loan Bank ("FHLB") and Atlantic Community Bankers' Bank ("ACBB") Stock - The Bank is a member of the FHLB and the ACBB and is required to maintain an investment in the stock of the FHLB and ACBB. No market exists for these stocks, and the Bank’s investment can be liquidated only through redemption by the FHLB or ACBB, at the discretion of and subject to conditions imposed by the FHLB and ACBB. Historically, FHLB and ACBB stock redemptions have been at cost (par value), which equals the Corporation’s carrying value. The Corporation monitors its investment in FHLB and ACBB stock for impairment through review of recent financial results of the FHLB and ACBB including capital adequacy and liquidity position, dividend payment history, redemption history and information from credit agencies. The Corporation has not identified any indicators of impairment of FHLB or ACBB stock. During the years ended December 31, 2023, 2022, and 2021 dividends received from the FHLB totaled $ 864 thousand, $ 289 thousand, and $ 345 thousand respectively. Investment in Limited Partnership - Mid Penn is a limited partner in a partnership that provides low-income housing in Enola, Pennsylvania. The carrying value of Mid Penn’s investment in the limited partnership was $ 15 thousand at December 31, 2023 and $ 58 thousand at December 31, 2022, net of amortization, using the straight-line method and is reported in other assets on the Consolidated Balance Sheets. Mid Penn’s maximum exposure to loss is limited to the carrying value of its investment. Mid Penn also owns a limited partnership interest in a low-income housing project to construct thirty-seven apartments and common amenities in Dauphin County, Pennsylvania. The total investment in this limited partnership, net of amortization, was $ 4.5 million and $ 5.2 million on December 31, 2023 and December 31, 2022, respectively, and was included in the reported balance of other assets on the Consolidated Balance Sheet. All of the units qualified for Federal Low-Income Housing Tax Credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment is $ 7.6 million, and the investment was fully funded within a three-year period beginning in 2019 and ending during the first quarter of 2021. The investment in the limited partnership is reported in other assets on the Consolidated Balance Sheet and is being amortized over a ten-year period using the cost amortization method which began upon commencement of operations of the facility in December 2020. 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 $ 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 70 MID PENN BANCORP, INC. 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. Interest income earned on mortgage loans held for sale is classified in interest income on the Consolidated Statements of Income. In periods prior to the third quarter of 2021, m ortgage loans originated and intended for sale in the secondary market were included in loans held for sale and were reported at the lower of cost or fair value, as determined by the aggregate commitments from investors or current investor yield requirements. Gains and losses on sales of mortgage loans are included in noninterest income in the Consolidated Statements of Income. Loans - Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances, net of an allowance for loan losses, unamortized deferred fees and costs and unamortized premiums or discounts. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the loans using methods which approximate the level yield method. Discounts and premiums are amortized or accreted to interest income over the estimated term of the loans using methods that approximate the level yield method. Interest income on loans is accrued based on the unpaid principal balance outstanding and the contractual terms of the loan agreements. A substantial portion of the loan portfolio is comprised of commercial and real estate loans throughout Pennsylvania. The ability of the Corporation’s debtors to honor their contracts is dependent upon the general economic conditions of this area. The loan portfolio is segmented into commercial and industrial loans, commercial real estate loans, commercial real estate – construction loans, residential mortgage loans, home equity loans and consumer loans. Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to repay the loan through operating profitably and effectively growing its business. The Corporation’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the credit quality and cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee to add strength to the credit and reduce the risk on a transaction to an acceptable level; however, some short-term loans may be made on an unsecured basis to the most credit worthy borrowers. Commercial loans also include loans originated under the Paycheck Protection Program ("PPP"). These loans are underwritten and originated in accordance with program guidelines. Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. With respect to loans to developers and builders, the Corporation generally requires the borrower to have a proven record of success and an expertise in the building industry. Commercial real estate - construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Commercial real estate - construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Commercial real estate - construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. The Corporation’s non-real estate consumer loans are based on the borrower’s proven earning capacity over the term of the loan. The Corporation monitors payment performance periodically for consumer loans to identify any deterioration in the borrower’s financial strength. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by management and staff. 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 71 MID PENN BANCORP, INC. 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. 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. The Corporation’s policies related to when loans are placed on non-accrual status conform to guidelines prescribed by regulatory authorities. Loans are placed on non-accrual status when it is probable that principal or interest is not fully collectible, or generally when principal or interest becomes 90 days past due, whichever occurs first. When loans are placed on non-accrual status, interest receivable is reversed against interest income in the current period and amortization of any discount ceases. Interest payments received thereafter are applied as a reduction to the remaining principal balance unless management believes that the ultimate collection of the principal is likely, in which case payments are recognized in earnings on a cash basis. 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 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. 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. 72 MID PENN BANCORP, INC. 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: 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 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 73 MID PENN BANCORP, INC. • 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. 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. 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 allowance is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged off to the allowance, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses. The allowance is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management performs a monthly evaluation of the adequacy of the allowance. The allowance is based on Mid Penn’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, 74 MID PENN BANCORP, INC. current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include changes in economic conditions, fluctuations in loan quality measures, changes in collateral values, changes in the experience of the lending staff and loan review systems, changes in lending policies and procedures (including underwriting standards), changes in the mix and volume of loans originated, the effect of other external factors, such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio, shifting industry or portfolio concentrations, and other relevant factors. Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions and a narrative accompanying the allowance for loan loss calculation. Mid Penn evaluates loans for charge-off on a monthly basis. Policies that govern the recommendation for charge-off are unique to the type of loan being considered. Commercial loans classified as substandard non-accrual, doubtful, having probable loss will first have a collateral evaluation completed in accordance with the guidance on impaired loans. Once the collateral evaluation has been completed, a specific allocation of allowance is made based upon the results of the evaluation. The remaining balance remains a non-performing loan with the original terms and interest rate intact (not restructured). In the event the loan is unsecured, the loan would have been charged-off at the recognition of impairment. Commercial real estate loans determined to be impaired will also have an initial collateral evaluation completed in accordance with the guidance on impaired loans. An updated real estate valuation is ordered and the collateral evaluation is modified to reflect any variations in value. A specific allocation of allowance is made for any anticipated collateral shortfall. The remaining balance remains a non-performing loan with the original terms and interest rate intact (not restructured). The process of charging off a residential mortgage loan begins when a loan becomes delinquent for 90 days and is not in the process of collection. The existing appraisal is reviewed and a lien search is obtained to determine lien position and any instances of intervening liens. A new appraisal of the property will be ordered if deemed necessary by management, and a collateral evaluation is completed. The loan will then be charged down to the value indicated in the evaluation. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of either bankruptcy or if there is an amount deemed uncollectible. The collateral shortfall of the consumer loan is recommended for charge-off at this point. As noted above, Mid Penn assesses a specific allocation for commercial loans and commercial real estate loans. The remaining balance remains a non-performing loan with the original terms and interest rate intact (not restructured). In addition, Mid Penn takes a preemptive step when any commercial loan becomes classified under its internal classification system. A preliminary collateral evaluation, in accordance with the guidance on impaired loans, is prepared using the existing collateral information in the loan file. This process allows Mid Penn to review both the credit and documentation files to determine the status of the information needed to make a collateral evaluation. This collateral evaluation is preliminary, but allows Mid Penn to determine if any potential collateral shortfalls exist. It is Mid Penn’s policy to obtain updated third-party collateral valuations on all impaired loans secured by real estate as soon as practically possible following the credit being classified as substandard non-accrual. Prior to receipt of the updated real estate valuation, Mid Penn will use any existing real estate valuation to determine any potential allowance issues; however, no allowance recommendation will be made until such time Mid Penn is in receipt of the updated valuation. The Asset Recovery department employs an electronic tracking system to monitor the receipt of and need for updated appraisals. To date, there have been no material time lapses noted with the above processes. In some instances, Mid Penn is not holding real estate as collateral and is relying on business assets (personal property) for repayment. In these circumstances, a collateral inspection is performed by Mid Penn personnel to determine an estimated value. The value is based on net book value, as provided by the financial statements, and discounted accordingly based on 75 MID PENN BANCORP, INC. determinations made by management. Occasionally, Mid Penn will employ an outside service to provide a fair estimate of value based on auction sales or private sales. Management reviews the estimates of these third parties and discounts them accordingly based on management’s judgment, if deemed necessary. For impaired loans with no valuation allowance required, the independent third-party market valuations on the subject property obtained by Mid Penn as soon as practically possible following the credit being placed on non-accrual status sometimes indicates that the loan-to-value ratio is sufficient to obviate the need for a specific allocation in spite of significant deterioration in real estate values in Mid Penn’s primary market area. These circumstances are determined on a case-by-case analysis of the impaired loans. Mid Penn actively monitors the values of collateral on impaired loans. This monitoring may require the modification of collateral values over time or changing circumstances by some factor, either positive or negative, from the original values. All collateral values will be assessed by management at least every twelve months for revaluation by an independent third party. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Mid Penn does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement. The allowance calculation methodology includes segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Any loans not classified as noted above are rated pass. In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance and may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate. Premises and Equipment - Land is carried at cost. Buildings, furniture, fixtures, equipment, land improvements, and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Building assets are depreciated using an estimated useful life of five to fifty years . Furniture, fixtures, and equipment are depreciated using an estimated useful life of three to ten years . Land improvements are depreciated over an estimated useful life of ten to twenty years . Leasehold improvements are depreciated using an estimated useful life that is the lesser of the remaining life of the lease or ten to fifteen years . Maintenance and normal repairs are charged to expense when incurred, while major additions and improvements are capitalized. Gains and losses on disposals are reflected in current operations . 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 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 76 MID PENN BANCORP, INC. certain retail locations throughout its expanded footprint. The branch closures occurred on about March 4, 2022. 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. When such assets are acquired, any shortfall between the loan carrying value and the estimated fair value of the underlying collateral less disposition costs is recorded as an adjustment to the allowance for loan losses while any excess is recognized in income. The Corporation periodically performs a valuation of the property held; any excess of carrying value over fair value less disposition costs is charged to earnings as impairment. Routine maintenance and real estate taxes are expensed as incurred. Bank-Owned Life Insurance ("BOLI") - Mid Penn is the owner and beneficiary of BOLI policies on current and former Mid Penn directors, as well as BOLI policies acquired through the Phoenix, First Priority and Riverview acquisitions covering certain former Miners Bank, First Priority, and Riverview employees. 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 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. Mid Penn is also party to certain Split-Dollar Life Insurance Arrangements, and in accordance with GAAP, has accrued a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement, and a liability for the future death benefit. Goodwill and Other Intangible Assets - Goodwill represents the excess of the purchase price over the underlying fair value of merged entities. We assess goodwill for impairment annually as of October 31 of each year. The Corporation has one reporting unit, community banking, which includes the Bank, the Corporation’s wholly-owned banking subsidiary. If certain events occur which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, we consider a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, etc. There are inherent uncertainties related to these factors and our judgment in applying them to the analysis of goodwill impairment. 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 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. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed ten years . Significantly all CDI is amortized using the sum of the years digits method. 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. The value assigned to the acquired customers represents the future economic benefit from acquiring the customers (net of operating expenses). The customer list is amortized over a 20-year projection period, a sufficient time to capture the economic value of the customer list given an assumed customer attrition rate. The Corporation evaluates such identifiable intangibles for impairment when events and circumstances indicate that its carrying amount may not be recoverable. If an impairment loss is determined to exist, the loss is reflected as an impairment charge in the Consolidated Statements of Income for the period in which such impairment is identified. No impairment charges were required for the years ended December 31, 2023, 2022, or 2021. Leases - Mid Penn leases certain premises and equipment and recognizes a right-of-use ("ROU") asset and a related lease liability for each distinct lease agreement. 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 77 MID PENN BANCORP, INC. 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. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. Operating and finance lease ROU assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt . Operating lease expense, recognized as a component of occupancy expense on the Consolidated Statements of Income, consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis. Operating lease expense also includes variable lease payments not included in the lease liability, and any impairment of the ROU asset. 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. 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. Upon identification that a lease agreement exists, Mid Penn performs an assessment of the consideration to be paid related to the identified asset and quantifies both the lease components, consisting of consideration paid to transfer a good or service to Mid Penn and non-lease components, consisting of consideration paid for distinct elements of the contract that are not related to securing the use of the leased asset, such as property taxes, common area maintenance, utilities, and insurance. Many of Mid Penn’s lease agreements include options to extend or renew contracts subsequent to the expiration of the initial lease term. Additionally, for leases that contain escalation clauses related to consumer or other price indices, Mid Penn includes the known lease payment amount as of the commencement date in the calculation of ROU assets and related lease liabilities. Subsequent increases in rental payments over the known amount at the commencement date due to increase in the indices will be expensed as incurred. None of Mid Penn’s lease agreements include residual value guarantees or material variable lease payments. Mid Penn does not have material restrictions or covenants imposed by leases that would impact Mid Penn’s ability to pay dividends or cause Mid Penn to incur additional financial obligations. Comprehensive Income - Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the period and reclassification adjustments for realized gains and losses on securities available for sale included in net income. Mid Penn has an unfunded noncontributory defined benefit plan for directors and other postretirement benefit plans covering full-time employees. These plans utilize assumptions and methods to calculate the fair value of plan assets and recognizing the overfunded and underfunded status of the plans on its Consolidated Balance Sheet. Gains and losses, prior service costs and credits are recognized in other comprehensive income (loss), net of tax, until they are amortized, or immediately upon curtailment. Trust Assets and Income - Assets held by the Bank in a fiduciary or agency capacity for customers of the trust department of the Bank are not included in the Consolidated Financial Statements since such items are not assets of the Bank. Most trust income is recognized on the cash basis, which is not materially different than if it were reported on the accrual basis. Revenue Recognition - Mid Penn recognizes revenue when earned based upon contractual terms, as transactions occur, or as related services are provided and collectability is reasonably assured. 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 78 MID PENN BANCORP, INC. 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 recognized: Interest Income - primarily recognized on an accrual basis according to loan agreements, investment securities contracts or other such written contracts. Income from Fiduciary and Wealth Management Activities - consists of trust, wealth management, and investment management fee income, brokerage transaction fee income, and estate fee income. Trust, wealth management, and investment management fee income consists of advisory fees that are typically based on market values of clients’ managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned. Brokerage transaction fee income includes advisory fees, which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur. Payment is typically received in the following month. Estate fee income is recognized as services are performed over the service period, generally eighteen months. 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 used, the method used to process the EFT transaction, and the type of business at which the transaction was processed. Revenue is recognized daily as transactions occur and interchange fees are subsequently processed. Payment for interchange activity is received primarily daily, while some fees are aggregated and payment is received in the following month. Service Charges on Deposits - consist of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts. Revenue is primarily transactional and recognized when earned, which is at the time the respective initiating transaction occurs and the related service charge is subsequently processed. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts. Mortgage Banking Income - consists of gains or losses on the sale of residential mortgage loans and is recognized when the sale is completed. Mortgage Hedging Income - relates to the changes in fair value of interest rate locks, forward mortgage loan sales commitments and hedging instruments on forward sales commitments. Other Income - includes credit card royalties, check orders, letter of credit fees and merchant services income. These fees are primarily transactional, and revenue is recognized when transactions occur and the related services are subsequently processed. Payment is primarily received immediately or in the following month. Mid Penn does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied. Income Taxes - Income tax expense is determined using the asset and liability method and consists of income taxes that are currently payable and deferred income taxes. Deferred income tax expense (benefit) is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date. A valuation allowance is established for deferred tax assets when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such determinations, the Corporation considers all available positive and negative evidence that may impact the realization of deferred tax assets. These 79 MID PENN BANCORP, INC. 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. The Corporation estimates income taxes payable based on the amount it expects to owe the various tax authorities (i.e., federal and state). Income taxes represent the net estimated amount due to, or to be received from, such tax authorities. In estimating income taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Corporation’s tax position. Although the Corporation uses the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing its overall tax position. An uncertain tax position is recognized only if it is more-likely-than-not to be sustained upon examination, including resolution of any related appeals or litigation process, based on the technical merits of the position. The amount of tax benefit recognized in the financial statements is the largest amount of benefit that is more than fifty percent likely to be sustained upon ultimate settlement of the uncertain tax position. If the initial assessment fails to result in recognition of a tax benefit, the Corporation subsequently recognizes a tax benefit if there are changes in tax law or case law that raise the likelihood of prevailing on the technical merits of the position to more-likely-than-not, the statute of limitations expires, or there is a completion of an examination resulting in a settlement of that tax year or position with the appropriate agency. The Corporation’s policy is to classify interest and penalties associated with income taxes within other expenses. The Corporation is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods. Management believes it is no longer subject to income tax examinations for years prior to 2020. Off-Balance Sheet Arrangements - The Corporation enters into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. The Corporation decreases its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Corporation would be required to fund the commitment. The maximum potential amount of future payments the Corporation could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Corporation would be entitled to seek recovery from the customer. The Corporation’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. Earnings per Common Share - The Corporation presents basic and diluted earnings per common share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to shareholders of the Corporation by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares of common stock outstanding adjusted for the effects of all dilutive potential common shares comprised of restricted stock awards. Treasury Stock - Common stock held in treasury is accounted for using the cost method, which treats stock held in treasury as a reduction to total stockholders’ equity. The shares may be purchased in the open market or in privately negotiated transactions from time to time depending upon the market conditions and other factors over a one-year period or such longer period of time as may be necessary to complete such repurchases. 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 80 MID PENN BANCORP, INC. 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. 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 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. 81 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 ASU No. 2023-02: 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. ASU 2023-06: 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. ASU 2023-07: 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 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures Note 2 - Business Combinations 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. 82 MID PENN BANCORP, INC. 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. 83 MID PENN BANCORP, INC. Estimated fair values of the assets acquired and liabilities assumed in the Brunswick Acquisition as of the closing date are as follows: (In thousands) Assets acquired: Cash and cash equivalents $ 21,029 Federal funds sold 7,604 Investment securities 2,423 Loans 324,471 Goodwill 12,800 Core deposit intangible 999 Premises and equipment 4,568 Cash surrender value of life insurance 3,361 Deferred income taxes 6,393 Accrued interest receivable 1,171 Other assets 5,884 Total assets acquired 390,703 Liabilities assumed: Deposits: Noninterest-bearing demand 60,888 Interest-bearing demand 11,767 Money Market 47,362 Savings 14,203 Time 147,163 Long-term debt 60,136 Accrued interest payable 1,911 Other liabilities 1,613 Total liabilities assumed 345,043 Consideration paid $ 45,660 Cash paid $ 27,565 Fair value of common stock issued 18,095 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. 84 MID PENN BANCORP, INC. 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. For the Year Ended December 31, (In thousands, except per share data) 2022 2021 Net interest income after loan loss provision $ 156,258 $ 117,015 Noninterest income 24,834 23,327 Noninterest expense 108,481 99,581 Net income 58,659 32,686 Net income per common share 3.69 2.05 85 MID PENN BANCORP, INC. Note 3 - Investment Securities 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 • 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. 86 MID PENN BANCORP, INC. 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. 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. 87 MID PENN BANCORP, INC. The amortized cost and fair value on investment securities as of December 31 are as follows: December 31, 2023 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available-for-sale U.S. Treasury and U.S. government agencies $ 36,637 $ — $ 988 $ 35,649 Mortgage-backed U.S. government agencies 169,184 — 16,501 152,683 State and political subdivision obligations 4,332 — 686 3,646 Corporate debt securities 35,733 — 4,156 31,577 Total available-for-sale debt securities $ 245,886 $ — $ 22,331 $ 223,555 Held-to-maturity U.S. Treasury and U.S. government agencies $ 245,805 $ 2 $ 28,676 $ 217,131 Mortgage-backed U.S. government agencies 43,818 — 5,523 38,295 State and political subdivision obligations 84,035 11 6,486 77,560 Corporate debt securities 25,470 — 935 24,535 Total held-to-maturity debt securities 399,128 13 41,620 357,521 Total $ 645,014 $ 13 $ 63,951 $ 581,076 December 31, 2022 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available-for-sale U.S. Treasury and U.S. government agencies $ 36,528 $ — $ 1,614 $ 34,914 Mortgage-backed U.S. government agencies 185,993 — 19,078 166,915 State and political subdivision obligations 4,354 — 815 3,539 Corporate debt securities 35,467 — 2,957 32,510 Total available-for-sale debt securities $ 262,342 $ — $ 24,464 $ 237,878 Held-to-maturity U.S. Treasury and U.S. government agencies $ 245,671 $ — $ 34,834 $ 210,837 Mortgage-backed U.S. government agencies 50,710 — 6,676 44,034 State and political subdivision obligations 87,125 — 8,345 78,780 Corporate debt securities 15,988 — 1,134 14,854 Total held-to-maturity debt securities 399,494 — 50,989 348,505 Total $ 661,836 $ — $ 75,453 $ 586,383 Estimated fair values of debt securities are based on quoted market prices, where applicable. If quoted market prices are not available, fair values are based on quoted market prices of instruments of a similar type, credit quality and structure, adjusted for differences between the quoted instruments and the instruments being valued. See "Note 7 - Fair Value Measurement," for additional information. Investment securities having a fair value of $ 380.3 million at December 31, 2023, and $ 338.8 million at December 31, 2022, were pledged primarily to secure public deposits, some Trust department deposit accounts, and certain other borrowings. In accordance with legal provisions for alternatives other than pledging of investments, Mid Penn also obtains letters of credit from the FHLB to secure certain public deposits. These FHLB letter of credit commitments totaled $ 153.5 million as of December 31, 2023 and $ 189.0 million as of December 31, 2022. 88 MID PENN BANCORP, INC. The following table presents gross unrealized losses and fair value of investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023 and 2022. (Dollars in thousands) Less Than 12 Months 12 Months or More Total December 31, 2023 Number of Securities Estimated Fair Value Gross Unrealized Losses Number of Securities Estimated Fair Value Gross Unrealized Losses Number of Securities Estimated Fair Value Gross Unrealized Losses Available-for-sale debt securities: U.S. Treasury and U.S. government agencies — $ — $ — 19 $ 35,649 $ 988 19 $ 35,649 $ 988 Mortgage-backed U.S. government agencies 1 4,015 26 92 148,668 16,475 93 152,683 16,501 State and political subdivision obligations — — — 8 3,646 686 8 3,646 686 Corporate debt securities 1 410 90 17 31,167 4,066 18 31,577 4,156 Total available-for-sale debt securities 2 4,425 116 136 219,130 22,215 138 223,555 22,331 Held-to-maturity debt securities: U.S. Treasury and U.S. government agencies 1 2,002 — 144 215,129 28,676 145 217,131 28,676 Mortgage-backed U.S. government agencies — — — 64 38,295 5,523 64 38,295 5,523 State and political subdivision obligations 25 8,729 63 170 68,831 6,423 195 77,560 6,486 Corporate debt securities 1 936 57 14 23,599 878 15 24,535 935 Total held-to-maturity debt securities 27 11,667 120 392 345,854 41,500 419 357,521 41,620 Total 29 $ 16,092 $ 236 528 $ 564,984 $ 63,715 557 $ 581,076 $ 63,951 (Dollars in thousands) Less Than 12 Months 12 Months or More Total December 31, 2022 Number of Securities Estimated Fair Value Gross Unrealized Losses Number of Securities Estimated Fair Value Gross Unrealized Losses Number of Securities Estimated Fair Value Gross Unrealized Losses Available-for-sale securities: U.S. Treasury and U.S. government agencies 19 $ 34,914 $ 1,614 — $ — $ — 19 $ 34,914 $ 1,614 Mortgage-backed U.S. government agencies 69 131,879 11,876 24 35,036 7,202 93 166,915 19,078 State and political subdivision obligations 6 2,521 671 2 1,018 144 8 3,539 815 Corporate debt securities 12 25,063 2,153 4 4,196 804 16 29,259 2,957 Total available-for-sale securities 106 194,377 16,314 30 40,250 8,150 136 234,627 24,464 Held-to-maturity securities: U.S. Treasury and U.S. government agencies 54 84,946 10,093 91 125,891 24,741 145 210,837 34,834 Mortgage-backed U.S. government agencies 40 13,866 1,071 24 30,168 5,605 64 44,034 6,676 State and political subdivision obligations 185 73,735 7,413 18 4,616 932 203 78,351 8,345 Corporate debt securities 4 5,721 317 5 5,182 817 9 10,903 1,134 Total held to maturity securities 283 178,268 18,894 138 165,857 32,095 421 344,125 50,989 Total 389 $ 372,645 $ 35,208 168 $ 206,107 $ 40,245 557 $ 578,752 $ 75,453 At December 31, 2023 and 2022, the majority of the unrealized losses on securities in an unrealized loss position were attributable to U.S. Treasury and U.S. government agencies, and mortgage-backed U.S. government agencies. Mid Penn had no securities considered by management to be credit related losses as of December 31, 2023 and December 31, 2022, and did not record any securities losses in the respective periods ended on these dates. Mid Penn does not consider the securities with unrealized losses on the respective dates to be credit related losses as the unrealized losses were deemed to be temporary changes in value related to market movements in interest yields at various periods similar to the maturity dates of holdings in the investment portfolio, and not reflective of an erosion of credit quality. The following table presents information related to gross realized gains and losses on sales of AFS securities: For the year ended December 31, (In thousands) 2023 2022 2021 Gross realized gains $ — $ — $ 79 Gross realized losses — — — Net gains $ — $ — $ 79 89 MID PENN BANCORP, INC. The table below illustrates the contractual maturity of debt investment securities at amortized cost and estimated fair value. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without call or prepayment penalties. (In thousands) Available-for-sale Held-to-maturity December 31, 2023 Amortized Cost Fair Value Amortized Cost Fair Value Due in 1 year or less $ 12,494 $ 12,340 $ 9,708 $ 9,627 Due after 1 year but within 5 years 32,400 30,977 130,686 123,005 Due after 5 years but within 10 years 29,474 25,614 191,793 166,811 Due after 10 years 2,334 1,941 23,123 19,783 76,702 70,872 355,310 319,226 Mortgage-backed securities 169,184 152,683 43,818 38,295 $ 245,886 $ 223,555 $ 399,128 $ 357,521 90 MID PENN BANCORP, INC. Note 4 - Loans and Allowance for Credit Losses - Loans Mid Penn adopted the amendments of FASB ASU 2016-13, on January 1, 2023. The amendments of ASU 2016-13 created FASB ASC Topic 326, "Financial Instruments – Credit Losses," which, among other things, replace much of the guidance and disclosures previously provided in FASB ASC Topic 310, "Receivables." The guidance in FASB ASC Topic 326 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit losses. In accordance with FASB ASC Subtopic 326-20, "Financial Instruments – Credit Losses – Measured at Amortized Cost," Mid Penn has developed an ACL methodology effective January 1, 2023, which replaces its previous allowance for loan losses methodology. See the section captioned "Allowance for Credit Losses, effective January 1, 2023" within this note for additional information regarding Mid Penn’s ACL. Mid Penn adopted FASB ASC Topic 326 using the modified retrospective approach prescribed by the amendments of ASU 2016-13; therefore, certain prior year disclosures are presented under legacy GAAP and may not be comparable to current period presentation. In conjunction with the adoption of CECL, the Corporation has revised its segmentation to align with the methodology applied in determining the ACL for loans and leases under CECL. As such, certain reclassifications were made to conform to prior period amounts to current presentation. Loans, net of unearned income, are summarized as follows by portfolio segment: (In thousands) December 31, 2023 December 31, 2022 Commercial real estate (1) CRE Nonowner Occupied $ 1,149,553 $ 1,184,306 CRE Owner Occupied 629,904 488,551 Multifamily 309,059 197,620 Farmland 212,690 182,457 Total Commercial real estate 2,301,206 2,052,934 Commercial and industrial 675,079 596,042 Construction Residential Construction 92,843 90 Other Construction 362,624 441,156 Total Construction 455,467 441,246 Residential mortgage (1) 1-4 Family 1st Lien 339,142 305,386 1-4 Family Rental 341,937 — HELOC and Junior Liens 132,795 110,835 Total Residential Mortgage 813,874 416,221 Consumer 7,166 7,676 Total loans $ 4,252,792 $ 3,514,119 (1) In accordance with the guidance in FASB ASC Topic 326, Mid Penn redefined its loan portfolio segments and related loan classes based on the level at which risk is monitored within the ACL methodology. As such, $ 181.9 million of loans were reclassified from Commercial real estate to Residential mortgage upon adoption of CECL on January 1, 2023. Total loans are stated at the amount of unpaid principal, adjusted for net deferred fees and costs. Net deferred loan fees were $ 4.2 million and $ 3.9 million as of December 31, 2023 and 2022, respectively. Accrued interest receivable is not included in the amortized cost basis of Mid Penn's loans. At December 31, 2023, accrued interest receivable for loans totaled $ 22.1 million with no related ACL and was reported in other assets on the accompanying Consolidated Balance Sheet. The Bank has granted loans to certain of its executive officers, directors, and their related interests. The aggregate amount of these loans was $ 22.0 million and $ 30.7 million at December 31, 2023 and 2022, respectively. During 2023, $ 5.5 million of new loans, advances and loans to new related parties were extended and repayments totaled $ 3.6 million. In addition, for the year ended December 31, 2023 there were $ 10.8 million of loans that were no longer extended to related parties. None of these loans were past due, in non-accrual status, or restructured at December 31, 2023. 91 MID PENN BANCORP, INC. Past Due and Nonaccrual Loans The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The classes of the loan portfolio summarized by the past due status as of December 31, 2023 and December 31, 2022, are summarized as follows: (In thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Loans Receivable > 90 Days and Accruing December 31, 2023 Commercial real estate $ 5,073 $ 682 $ 2,974 $ 8,729 $ 2,292,477 $ 2,301,206 $ — Commercial and industrial 638 24 1,270 1,932 673,147 675,079 — Construction — 270 2,559 2,829 452,638 455,467 — Residential mortgage 4,648 267 2,518 7,433 806,441 813,874 — Consumer 41 31 — 72 7,094 7,166 — Total $ 10,400 $ 1,274 $ 9,321 $ 20,995 $ 4,231,797 $ 4,252,792 $ — (In thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans Loans Receivable > 90 Days and Accruing December 31, 2022 Commercial real estate $ 1,792 $ — $ 1,438 $ 3,230 $ 2,047,167 $ 2,050,397 $ — Commercial and industrial 1,808 3 1,854 3,665 592,377 596,042 654 Construction 2,258 — — 2,258 438,988 441,246 — Residential mortgage 3,826 955 670 5,451 409,630 415,081 — Consumer 44 19 — 63 7,613 7,676 — Loans acquired with credit deterioration: Commercial real estate 78 — 826 904 1,633 2,537 — Commercial and industrial — — — — — — — Construction — — — — — — — Residential mortgage 223 228 241 692 448 1,140 — Consumer — — — — — — — Total $ 10,029 $ 1,205 $ 5,029 $ 16,263 $ 3,497,856 $ 3,514,119 $ 654 Loans are placed on nonaccrual status when management determines that the full repayment of principal and collection of interest according to contractual terms is no longer likely, generally when the loan becomes 90 days or more past due. 92 MID PENN BANCORP, INC. Nonaccrual loans by loan portfolio class, including loans acquired with credit deterioration, as of December 31, 2023 and 2022 are summarized as follows: December 31, 2023 December 31, 2022 Non-accrual Loans Total non-accrual Loans (In thousands) With a Related Allowance Without a Related Allowance Total Commercial real estate $ 454 $ 6,133 $ 6,587 $ 4,864 Commercial and industrial 1,222 64 1,286 1,222 Construction — 2,559 2,559 — Residential mortgage 2 3,782 3,784 2,109 Consumer — — — $ 1,678 $ 12,538 $ 14,216 $ 8,195 The amount of interest income recognized on nonaccrual loans was approximately $ 174 thousand and $ 124 thousand during the three months ended December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, the amount of interest income recognized on nonaccrual loans was approximately $ 1.2 million and $ 729 thousand, respectively. Credit Quality Indicators Mid Penn categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. On a minimum of a quarterly basis, Mid Penn analyzes loans individually to classify the loans as to their credit risk. PASS - This type of classification consists of 5 subcategories: Nominal Risk / Pass - This loan classification is a credit extension of the highest quality. Moderate Risk / Pass - This type of classification has strong financial ratios, substantial debt capacity, and low leverage with a very favorable comparison to industry peers or better than average improving trends are necessary to be in this classification. Good Acceptable Risk / Pass - The Borrower in this rating classification is a reasonable credit risk having financial ratios on par with its peers and demonstrates slightly improving trends over time; they list good quality assets and fairly low leverage plus ample debt capacity. Marginally Acceptable Risk / Pass - This type of classification has financial ratios and assets that are of above average quality, the leverage is worse than average compared to industry standards; the Borrower should have a good repayment history and possess consistent earnings with some growth. Weak/Monitor Risk (Watch list) / Pass - This type of classification has financial ratios consistent with industry averages, assets of average quality with ascertainable values, acceptable leverage, moderate capital assets and an acceptable reliance on trade debt. SPECIAL MENTION - These credits have developing weaknesses deserving extra attention from the lender and lending management. They are currently protected, but potentially weak. The weakness may be, cash flow, leverage, liquidity, management, industry or other factors which may, if not checked or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date. SUBSTANDARD - These credit extensions also have well defined weaknesses, which are inadequately protected by the current worth and debt service capacity of the Borrowers or the collateral pledged, if any. The repayment of principal and interest as originally intended can be jeopardized by defined weaknesses related to adverse financial, managerial, economic, market or political conditions. DOUBTFUL - These credits have definite weaknesses inherent in Substandard loans with added characteristics that are severe enough to make further collection in full highly questionable and improbable based on the current trends. 93 MID PENN BANCORP, INC. LOSS . These loans are considered uncollectible and no longer a viable asset of the Bank. They lack an identifiable source of repayment based on an inability to generate sufficient cash flow to service their debt. All trends are negative and the damage to the financial condition of the Borrower can’t be reversed now or in the near future. 94 MID PENN BANCORP, INC. The following table presents risk ratings by loan portfolio segment and origination year, which is the year of origination or renewal. December 31, 2023 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis (In thousands) 2023 2022 2021 2020 2019 Prior Total Commercial real estate Pass $ 271,655 $ 556,801 $ 386,911 $ 297,746 $ 178,434 $ 528,326 $ 38,261 $ 2,258,134 Special mention 194 — — — 6,009 10,482 186 16,871 Substandard or lower — 5,209 208 3,162 229 17,345 48 26,201 Total commercial real estate 271,849 562,010 387,119 300,908 184,672 556,153 38,495 2,301,206 Gross charge offs — — — — — ( 16 ) — ( 16 ) Net charge offs — — — — — ( 16 ) — ( 16 ) Commercial and industrial Pass 158,824 106,714 68,448 29,961 50,206 57,892 188,714 660,759 Special mention — 89 2,224 — 227 2,200 4,391 9,131 Substandard or lower — — 662 — — 1,978 2,549 5,189 Total commercial and industrial 158,824 106,803 71,334 29,961 50,433 62,070 195,654 675,079 Gross charge offs — ( 100 ) — ( 111 ) — ( 27 ) — ( 238 ) Net charge offs — ( 100 ) — ( 111 ) — ( 27 ) — ( 238 ) Construction Pass 153,596 181,214 54,658 22,357 10,247 5,856 23,262 451,190 Special mention — — — 1,447 — — — 1,447 Substandard or lower — 573 — — — 2,257 — 2,830 Total construction 153,596 181,787 54,658 23,804 10,247 8,113 23,262 455,467 Residential mortgage Performing 158,634 153,203 111,610 90,382 27,863 178,898 87,723 808,313 Non-performing — — 93 1,470 — 3,998 — 5,561 Total residential mortgage 158,634 153,203 111,703 91,852 27,863 182,896 87,723 813,874 Gross charge offs — — — — — ( 13 ) — ( 13 ) Current period recoveries — — — — — 38 — 38 Net recoveries — — — — — 25 — 25 Consumer Performing 2,361 754 649 273 223 103 2,803 7,166 Non-performing — — — — — — — — Total consumer 2,361 754 649 273 223 103 2,803 7,166 Gross charge offs ( 86 ) — ( 10 ) ( 9 ) — ( 30 ) — ( 135 ) Current period recoveries 26 — — 1 — 5 — 32 Net charge offs ( 60 ) — ( 10 ) ( 8 ) — ( 25 ) — ( 103 ) Total Pass 584,075 844,729 510,017 350,064 238,887 592,074 250,237 3,370,083 Special mention 194 89 2,224 1,447 6,236 12,682 4,577 27,449 Substandard or lower — 5,782 870 3,162 229 21,580 2,597 34,220 Performing 160,995 153,957 112,259 90,655 28,086 179,001 90,526 815,479 Nonperforming — — 93 1,470 — 3,998 — 5,561 Total $ 745,264 $ 1,004,557 $ 625,463 $ 446,798 $ 273,438 $ 809,335 $ 347,937 $ 4,252,792 95 MID PENN BANCORP, INC. (In thousands) Pass Special Mention Substandard Total December 31, 2022 Commercial real estate $ 2,018,088 $ 12,325 $ 22,521 $ 2,052,934 Commercial and industrial 582,540 4,212 9,290 596,042 Construction 438,990 2,256 — 441,246 Residential mortgage 409,259 3,104 3,858 416,221 Consumer 7,676 — — 7,676 Total loans $ 3,456,553 $ 21,897 $ 35,669 $ 3,514,119 Mid Penn had no loans classified as "Doubtful" as of December 31, 2023 and 2022. There was $ 121 thousand and $ 122 thousand in loans for which formal foreclosure proceedings were in process at December 31, 2023 and 2022, respectively. PPP loans, net of deferred fees, totaling $ 1.4 million and $ 2.6 million as of December 31, 2023 and 2022, respectively, are included in commercial and industrial loans in the tables above. All PPP loans are fully guaranteed by the SBA; therefore, all PPP loans outstanding (net of the related deferred PPP fees) are classified as "pass" within Mid Penn’s internal risk rating system as of December 31, 2023. Collateral-Dependent Loans A financial asset is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of financial assets deemed collateral-dependent, Mid Penn elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, Mid Penn records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate, including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land. 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. 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: 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 96 MID PENN BANCORP, INC. loans and the measurement of expected credit losses for such individual loans. 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 Loans held for investment (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 • 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 97 MID PENN BANCORP, INC. 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. 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 following table presents the activity in the ACL - loans as calculated under the CECL methodology by portfolio segment for the twelve months ended December 31, 2023: (In thousands) Balance at December 31, 2022 CECL Impact PCD Loans Charge offs Recoveries Net loans (charged off) recovered Provision for credit losses (1) Balance at December 31, 2023 Commercial Real Estate CRE Nonowner Occupied $ 8,284 $ 259 $ 312 $ — $ — $ — $ 1,412 $ 10,267 CRE Owner Occupied 2,916 91 2 ( 16 ) — ( 16 ) 2,653 5,646 Multifamily 1,111 35 — — — — 1,056 2,202 Farmland 831 26 — — — — 1,207 2,064 Commercial and industrial 4,593 6,601 5 ( 238 ) — ( 238 ) ( 3,830 ) 7,131 Construction Residential Construction — 1,270 12 — — — ( 26 ) 1,256 Other Construction — 1,931 1 — — — 214 2,146 Residential Mortgage 1-4 Family 1st Lien 370 1,307 4 ( 13 ) 7 ( 6 ) ( 468 ) 1,207 1-4 Family Rental 288 731 — — 31 31 809 1,859 HELOC and Junior Liens 661 ( 230 ) — — — — ( 42 ) 389 Consumer 29 154 — ( 135 ) 32 ( 103 ) ( 60 ) 20 Unallocated ( 126 ) ( 244 ) — — — — 370 — Total $ 18,957 $ 11,931 $ 336 $ ( 402 ) $ 70 $ ( 332 ) $ 3,295 $ 34,187 (1) Includes a $ 2.0 million initial provision for credit losses on non-PCD loans acquired in the Brunswick Acquisition 98 MID PENN BANCORP, INC. The following table presents the ACL for loans and the amortized cost basis of the loans by the measurement methodology used as of December 31, 2023: (In thousands) ACL - Loans Loans December 31, 2023 Collectively Evaluated for Credit Loss Individually Evaluated for Credit Loss Total ACL - Loans Collectively Evaluated for Credit Loss Individually Evaluated for Credit Loss Total Loans Commercial real estate CRE Nonowner Occupied $ 9,906 $ 361 $ 10,267 $ 1,145,048 $ 4,505 $ 1,149,553 CRE Owner Occupied 5,646 5,646 627,995 1,909 629,904 Multifamily 2,190 12 2,202 308,886 173 309,059 Farmland 2,064 2,064 212,690 212,690 Commercial and industrial 6,419 712 7,131 673,793 1,286 675,079 Construction Residential Construction 1,256 1,256 92,270 573 92,843 Other Construction 2,146 2,146 360,368 2,256 362,624 Residential mortgage 1-4 Family 1st Lien 1,207 1,207 337,267 1,875 339,142 1-4 Family Rental 1,857 2 1,859 341,236 701 341,937 HELOC and Junior Liens 389 389 131,587 1,208 132,795 Consumer 20 — 20 7,166 — 7,166 Total $ 33,100 $ 1,087 $ 34,187 $ 4,238,306 $ 14,486 $ 4,252,792 99 MID PENN BANCORP, INC. Allowance for Credit Losses, prior to January 1, 2023 The following table summarizes the allowance as calculated under the incurred loss methodology and recorded investments in loans receivable: (In thousands) Commercial Real Estate Commercial and Industrial Construction Residential Mortgage Consumer Unallocated Total Balance at December 31, 2020 8,655 3,066 134 936 1 590 13,382 Loans charged off ( 1,044 ) ( 866 ) ( 23 ) ( 13 ) ( 42 ) — ( 1,988 ) Recoveries 207 13 8 11 19 — 258 Provisions (credits) 1,597 1,226 ( 81 ) 85 24 94 2,945 Balance at December 31, 2021 9,415 3,439 38 1,019 2 684 14,597 Loans charged off ( 7 ) ( 1 ) — ( 26 ) ( 97 ) — ( 131 ) Recoveries 128 13 24 4 22 — 191 Provisions (credits) 3,606 1,142 ( 62 ) 322 102 ( 810 ) 4,300 Balance at December 31, 2022 $ 13,142 $ 4,593 $ — $ 1,319 $ 29 $ ( 126 ) $ 18,957 Allowance for Loan Losses at December 31, 2022 Collectively evaluated for impairment $ 13,078 $ 3,792 $ — $ 1,297 $ 29 $ ( 126 ) $ 18,070 Individually evaluated for impairment $ 64 $ 801 $ — $ 22 $ — $ — $ 887 $ 13,142 $ 4,593 $ — $ 1,319 $ 29 $ ( 126 ) $ 18,957 Loans, Net of Unearned Interest Collectively evaluated for impairment $ 2,048,074 $ 594,820 $ 441,246 $ 413,717 $ 7,676 $ — $ 3,505,533 Individually evaluated for impairment 2,323 1,222 — 1,364 — — 4,909 Acquired with credit deterioration 2,537 — — 1,140 — — 3,677 $ 2,052,934 $ 596,042 $ 441,246 $ 416,221 $ 7,676 $ — $ 3,514,119 The information presented in the designated internal risk categories by portfolio segment table presented above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit risk ratings, for the indicated loan portfolio segments as of December 31, 2022: (In thousands) Pass Special Mention Substandard Total December 31, 2022 Commercial real estate $ 2,018,088 $ 12,325 $ 22,521 $ 2,052,934 Commercial and industrial 582,540 4,212 9,290 596,042 Construction 438,990 2,256 — 441,246 Residential mortgage 409,259 3,104 3,858 416,221 Consumer 7,676 — — 7,676 Total loans $ 3,456,553 $ 21,897 $ 35,669 $ 3,514,119 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 100 MID PENN BANCORP, INC. 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. Information related to loans modified (by type of modification), whereby the borrower was experiencing financial difficulty at the time of modification as of December 31, 2023, is set forth in the following table: (In thousands) Interest Only Term Extension Combination: Interest Only and Term Extension Total % of Total Class of Financing Receivable Three months ended December 31, 2023 Commercial real estate $ — $ — $ — $ — — % Commercial and industrial — — — — — Construction — 700 — 700 0.15 Total $ — $ 700 $ — $ 700 0.02 % Year ended December 31, 2023 Commercial real estate $ 51 $ — $ 180 $ 231 0.01 % Commercial and industrial — 150 — 150 0.02 Construction — 700 — 700 0.15 Total $ 51 $ 850 $ 180 $ 1,081 0.16 % The financial effects of the interest-only loan modifications reduced the monthly payment amounts for the borrower and the term extensions in the table above added a weighted-average of 2.0 years to the life of the loans, which also reduced the monthly payment amounts for the borrowers. As of December 31, 2022, there were no defaulted troubled debt restructured loans, as all troubled debt restructured loans were current with respect to their associated forbearance agreements. There were also no defaults on troubled debt restructured loans within twelve months of restructure during 2022. (In thousands) Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Recorded Investment December 31, 2022 Commercial real estate $ 851 $ 815 $ 109 Residential mortgage 590 590 415 $ 1,441 $ 1,405 $ 524 101 MID PENN BANCORP, INC. Note 5 - Premises and Equipment The following is a summary of premises and equipment as of December 31: (In thousands) 2023 2022 Land $ 6,663 $ 5,534 Buildings 29,680 26,577 Furniture, fixtures, and equipment 23,091 20,950 Leasehold improvements 2,469 2,013 Capital expenditures in process 1,165 897 Total cost 63,068 55,971 Less accumulated depreciation ( 26,159 ) ( 21,500 ) Total premises and equipment $ 36,909 $ 34,471 Depreciation expense was $ 4.9 million in 2023, $ 4.3 million in 2022, and $ 3.3 million in 2021. During 2022, Mid Penn sold a branch which included the sale of $ 170 thousand and $ 2.0 million of furniture, fixtures and equipment and consumer loans, respectively, and the transfer of $ 21.1 million in deposits. Note 6 - Goodwill and Intangible Assets The following table summarizes the changes in goodwill: For the Years Ended December 31, ( In thousands ) 2023 2022 Goodwill balance, beginning of year $ 114,231 $ 113,835 Brunswick Acquisition 12,800 — Riverview Acquisition measurement period adjustment — 36 Insurance acquisition — 360 Goodwill balance, end of year $ 127,031 $ 114,231 On May 19, 2023, Mid Penn purchased Brunswick Bank and Trust in a business combination. Goodwill totaled $ 12.8 million. On December 31, 2022, Mid Penn purchased the assets of an independent insurance agency that serviced the Central Pennsylvania area in a business combination. 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. The following table summarizes the changes in core deposit intangible. For the Years Ended December 31, ( In thousands ) 2023 2022 2021 Core deposit intangible balance, beginning of year $ 4,964 $ 7,282 $ 4,311 Brunswick core deposit intangibles 999 — — Riverview (adjustment) acquisition — ( 705 ) 4,096 Amortization of core deposit intangibles 1,314 1,613 1,125 Core deposit and other intangible balances, end of year $ 4,649 $ 4,964 $ 7,282 102 MID PENN BANCORP, INC. The following table shows the amortization expense for future periods: (In thousands) 2024 $ 1,267 2025 1,035 2026 812 2027 591 2028 370 2029-thereafter 574 Customer List Intangible As a result of the Riverview Acquisition, Mid Penn recorded a customer list intangible asset included in total intangible assets related to the wealth management customers assumed in the acquisition. This intangible is amortized as an expense over ten years using the sum of the years’ amortization method. The following table summarizes the changes in the customer list intangible during the years ended December 31: (In thousands) 2023 2022 Customer list intangible balance, beginning of year $ 2,275 $ 2,127 Insurance acquisition — 541 Amortization of customer list intangible 445 393 Customer list intangible, end of year $ 1,830 $ 2,275 The following table shows the amortization expense for future periods: (In thousands) 2024 $ 399 2025 350 2026 301 2027 252 2028 203 2029-thereafter 325 Note 7 - Leases Mid Penn has operating and finance leases for cert ain premises and equipment. Operating and finance lease ROU assets, as well as operating lease liabilities, are presented as separate line items on the Consolidated Balance Sheet, while finance lease liabilities are classified as a component of long-term debt. 103 MID PENN BANCORP, INC. Supplemental consolidated balance sheet information for each of the lease classifications as of December 31 was as follows: 2023 2022 (Dollars in thousands) Operating Leases Finance Lease Operating Leases Finance Lease ROU $ 8,953 $ 2,727 $ 8,798 $ 2,907 Lease liability 9,285 3,197 9,725 3,290 Weighted average remaining lease term (in years) 5.60 15.17 6.30 16.17 Weighted average discount rate 3.66 % 3.81 % 3.25 % 3.81 % Interest expense on finance lease liabilities is included in other interest expense, while all other lease costs are included in occupancy expense on Mid Penn’s Consolidated Statements of Income. Following is a summary of lease costs during the years ended December 31: (In thousands) 2023 2022 2021 Finance lease cost: Amortization of ROU asset $ 180 $ 180 $ 180 Interest expense on lease liability 123 127 130 Total finance lease cost 303 307 310 Operating lease cost 2,081 2,057 2,002 Short-term and equipment lease costs — — 29 Sublease income ( 29 ) ( 24 ) ( 27 ) Total lease costs $ 2,355 $ 2,340 $ 2,314 The rental expense paid to related parties was $ 274 thousand for each of 2023, 2022 and 2021. Supplemental cash flow information related to operating and finance leases for the years ended December 31 was as follows: (In thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 123 $ 127 Operating cash flows from operating leases 2,556 2,939 Financing cash flows from finance leases 93 90 104 MID PENN BANCORP, INC. A maturity analysis of operating and finance lease liabilities and a reconciliation of the undiscounted cash flows to the total operating and finance lease liability amounts is presented below. December 31, 2023 (In thousands) Operating Leases Finance Lease Lease payments due: 2024 $ 2,432 $ 252 2025 1,998 259 2026 1,757 260 2027 1,508 260 2028 771 260 2029 and thereafter 1,795 2,954 Total lease payments 10,261 4,245 Less: imputed interest ( 976 ) ( 1,048 ) Present value of lease liabilities $ 9,285 $ 3,197 The future minimum payments to related parties are $ 274 thousand for 2024, $ 185 thousand for 2025, $ 178 thousand for 2026, 2027 and 2028 and $ 2.6 million thereafter. There were no sale and leaseback transactions or leveraged leases as of December 31, 2023. There were no leases that had not commenced as of December 31, 2023. Note 8 - Deposits Deposits consisted of the following as of December 31: (Dollars in thousands) 2023 2022 Noninterest-bearing demand deposits $ 801,312 $ 793,939 Interest-bearing demand deposits 947,372 1,024,351 Money market 850,674 962,265 Savings 288,404 339,231 Total demand and savings 2,887,762 3,119,786 Time 1,458,450 658,545 Total deposits $ 4,346,212 $ 3,778,331 Overdrafts $ 315 $ 401 The scheduled maturities of time deposits at December 31, 2023 were as follows: Time Deposits (In thousands) Less than $250,000 $250,000 or more Maturing in 2024 $ 886,322 $ 294,212 Maturing in 2025 172,002 35,816 Maturing in 2026 32,084 2,782 Maturing in 2027 20,424 1,182 Maturing in 2028 10,043 254 Maturing thereafter 3,037 292 $ 1,123,912 $ 334,538 105 MID PENN BANCORP, INC. Mid Penn had $ 244.8 million in brokered certificates of deposits as of December 31, 2023 and $ 100.0 million as of December 31, 2022. As of December 31, 2023 and 2022, Mid Penn had $ 96.7 million an d $ 29.6 million of CDAR deposits, respectively. Deposits and other funds from related parties held by Mid Penn at December 31, 2023 and 2022 amounted to $ 48.3 million and $ 56.8 million, respectively. Note 9 - Short-term Borrowings Total short-term borrowings were $ 241.5 million as of December 31, 2023 and $ 102.6 million as of December 31, 2022, respectively. Short-term borrowings generally consist of federal funds purchased and advances from the FHLB with an original maturity of less than a year. Federal funds purchased from correspondent banks mature in one business day and reprice daily based on the Federal Funds rate. Advances from the FHLB are collateralized by our investment in the common stock of the FHLB and by a blanket lien on selected loan receivables comprised principally of real estate secured loans within the Bank’s portfolio totaling $ 3.0 billion at December 31, 2023. The Bank had short-term borrowing capacity from the FHLB up to the Bank’s unused borrowing capacity of $ 1.6 billion (equal to $ 2.0 billion of maximum borrowing capacity less the aggregate amount of FHLB letter of credits securing public funds deposits, and other FHLB advances and obligations outstanding) upon satisfaction of any stock purchase requirements of the FHLB. The Bank also has unused overnight lines of credit with other correspondent banks amounting to $ 35.0 million at December 31, 2023. No draws have been made on these lines of credit and on December 31, 2023 and 2022, the balance was $ 0 . Note 10 - Long-term Debt The following table presents a summary of long-term debt as of December 31: (Dollars in thousands) December 31, 2023 December 31, 2022 FHLB fixed rate instruments: Due January 2024, 1.10 % $ 10,000 $ — Due March 2024, 5.60 % 25,000 — Due February 2026, 4.51 % 20,000 — Due August 2026, 4.80 % 782 1,088 Due February 2027, 6.71 % 24 31 Total FHLB fixed rate instruments 55,806 1,119 Lease obligations included in long-term debt 3,197 3,290 Total long-term debt $ 59,003 $ 4,409 Mid Penn prepaid no FHLB fixed rate instruments during the year ended December 31, 2023 and made $ 6.5 million prepayments of FHLB fixed rate instruments during the year ended December 31, 2022. As a member of the FHLB, the Bank can access a number of credit products which are utilized to provide liquidity. As of December 31, 2023, and 2022, the Bank had long-term debt outstanding in the amount of $ 59.0 million and $ 4.4 million, respectively, consisting of FHLB fixed rate instruments, and a finance lease liability. The FHLB fixed rate instruments are secured under the terms of a blanket collateral agreement with the FHLB consisting of FHLB stock and qualifying Mid Penn loan receivables, principally real estate secured loans. Mid Penn also obtains letters of credit from the FHLB to secure certain public fund deposits of municipality and school district customers who agree to use of the FHLB letters of credit. These FHLB letter of credit commitments totaled $ 153.5 million and $ 189.0 million as of December 31, 2023 and 2022, respectively. During the first quarter of 2019, Mid Penn entered into a lease agreement for one facility under a non-cancelable finance lease, which commenced March 1, 2019 and expires February 28, 2039 and is included in long-term debt on the Consolidated Balance Sheets. See "Note 7 - Leases", for more information related to Mid Penn’s finance lease obligation. 106 MID PENN BANCORP, INC. The aggregate principal amounts due on FHLB fixed rate instruments subsequent to December 31, 2023 are as follows: (In thousands) 2024 $ 35,271 2025 313 2026 20,220 Thereafter 2 $ 55,806 Note 11 - Subordinated Debt and Trust Preferred Securities Subordinated Debt Issued December 2017 On December 19, 2017, Mid Penn entered into agreements with investors to purchase $ 10.0 million aggregate principal amount of its subordinated notes due 2028 (the "2017 Notes"). The 2017 Notes were treated as Tier 2 capital for regulatory capital purposes. The 2017 Notes were redeemable in whole or in part, without premium or penalty, at any time on or after December 21, 2022, and prior to January 1, 2028. Mid Penn redeemed the 2017 Notes in whole on April 17, 2023. Subordinated Debt Assumed November 2021 with the Riverview Acquisition On November 30, 2021, Mid Penn completed its acquisition of Riverview and assumed $ 25.0 million of Subordinated Notes (the "Riverview Notes"). In accordance with purchase accounting principles, the Riverview Notes were assigned a fair value premium of $ 2.3 million. The notes are treated as Tier 2 capital for regulatory reporting purposes. The Riverview Notes were entered into by Riverview on October 6, 2020 with certain qualified institutional buyers and accredited institutional investors. The Riverview Notes have a maturity date of October 15, 2030 and initially bear interest, payable semi-annually, at a fixed annual rate of 5.75 % per annum until October 15, 2025. Commencing on that date, the interest rate applicable to the outstanding principal amount due will be reset quarterly to an interest rate per annum equal to the then current three-month secured overnight financing rate ("SOFR") plus 563 bp, payable quarterly until maturity. Mid Penn may redeem the Notes at par, in whole or in part, at its option, anytime beginning on October 15, 2025. Trust Preferred Securities Assumed November 2021 with the Riverview Acquisition In connection with the Riverview Acquisition, Mid Penn assumed the subordinated debentures that Riverview had assumed in its acquisition of CBT Financial Corp. ("CBT") on October 1, 2017 (the "CBT 2017 Notes"). In 2003 a trust formed by CBT which issued $ 5.2 million of floating rate trust preferred securities as part of a pooled offering of such securities. CBT was eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2008 at a price of 100 % of face value. The subordinated debentures were required to be redeemed no later than 2033. Similarly, in 2005, a trust formed by CBT issued $ 4.1 million of fixed rate trust preferred securities as part of a pooled offering of such securities (the "CBT 2015 Notes"). CBT was eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2010 at a price of 100 % of face value. In December 2022, Mid Penn redeemed all of the CBT 2017 Notes and CBT 2015 Notes. Subordinated Debt Issued December 2020 On December 22, 2020, Mid Penn entered into agreements for and sold, at 100% of their principal amount, an aggregate of $ 12.2 million of its Subordinated Notes due December 2030 (the "December 2020 Notes") on a private placement basis to accredited investors. The December 2020 Notes are treated as Tier 2 capital for regulatory capital purposes. The December 2020 Notes bear interest at a rate of 4.50 % per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the December 2020 Notes are floating will at no time be less than 4.50 %. Interest is payable quarterly in arrears on March 31, June 30, September 30 and December 31, of each year, beginning on March 31, 2021. The December 2020 Notes will mature on December 31, 2030 and are redeemable, in whole or in part, without premium or penalty, on any interest payment date on or after December 31, 2025 and prior to December 31, 2030, subject to any required regulatory approvals. Additionally, if (i) all or any portion of the December 2020 Notes cease to be deemed Tier 2 Capital, (ii) interest on the December 2020 Notes fails to be deductible for United States federal income tax purposes or (iii) Mid Penn will be considered an "investment company," Mid Penn may redeem the December 2020 Notes, in whole but not in part, by giving 10 days’ notice to the holders of the December 2020 Notes. In the event of a redemption described in the previous 107 MID PENN BANCORP, INC. sentence, Mid Penn will redeem the December 2020 Notes at 100 % of the principal amount of the December 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. Holders of the December 2020 Notes may not accelerate the maturity of the December 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $ 750 thousand of the December 2020 Notes as of December 31, 2023 and 2022. Subordinated Debt Issued March 2020 On March 20, 2020, Mid Penn entered into agreements with accredited investors who purchased $ 15.0 million aggregate principal amount of Mid Penn Subordinated Notes due March 2030 (the "March 2020 Notes"). As a result of Mid Penn’s merger with Riverview on November 30, 2021, $ 6.9 million of the March 2020 Notes balance was redeemed as Riverview was a holder of the March 2020 Notes. The balance of March 2020 Notes outstanding as of December 31, 2022 was $ 8.1 million. The March 2020 Notes held at December 31, 2023 are treated as Tier 2 capital for regulatory capital purposes. The March 2020 Notes bear interest at a rate of 4.00 % per year for the first five years and then float at the Wall Street Journal’s Prime Rate, provided that the interest rate applicable to the outstanding principal balance during the period the March 2020 Notes are floating will at no time be less than 4.25 %. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2020, for the first five years after issuance and will be payable quarterly in arrears thereafter on March 30, June 30, September 30 and December 30. The March 2020 Notes will mature on March 30, 2030 and are redeemable in whole or in part, without premium or penalty, at any time on or after March 30, 2025 and prior to March 30, 2030. Additionally, if all or any portion of the March 2020 Notes cease to be deemed Tier 2 Capital, Mid Penn may redeem, on any interest payment date, all or part of the 2020 Notes. In the event of a redemption described in the previous sentence, Mid Penn will redeem the March 2020 Notes at 100 % of the principal amount of the March 2020 Notes, plus accrued and unpaid interest thereon to but excluding the date of redemption. Holders of the March 2020 Notes may not accelerate the maturity of the March 2020 Notes, except upon the bankruptcy, insolvency, liquidation, receivership or similar event of Mid Penn or Mid Penn Bank, its principal banking subsidiary. Related parties held $ 1.7 million of the March 2020 Notes as of December 31, 2023 and 2022. Note 12 - Derivative Financial Instruments Mid Penn manages its exposure to certain interest rate risks through the use of derivatives; however, none are entered into for speculative purposes. During the year ended December 31, 2023, Mid Penn entered into outstanding derivative contracts designated as hedges. As of December 31, 2022, Mid Penn did not designate any derivative financial instruments as formal hedging relationships. Mid Penn’s free-standing derivative financial instruments are required to be carried at their fair value on the Consolidated Balance Sheets. 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 is not participating in mortgage banking derivative activities. 108 MID PENN BANCORP, INC. Information related to mortgage banking hedging activity is set forth in the following table: December 31, 2023 December 31, 2022 (In thousands) Notional Amount Asset (Liability) Fair Value Notional Amount Asset (Liability) Fair Value Interest Rate Lock Commitments Positive Fair Values $ — $ — $ 274 $ 3 Negative Fair Values — — 5,252 ( 40 ) Forward Commitments Positive Fair Values — — 4,750 43 Negative Fair Values $ — $ — $ — $ — For the year ended December 31, 2023 and 2022, Mid Penn recorded net gains from mortgage banking hedging activity of $ 324 thousand, $ 1.5 million, and $ 64 thousand, respectively. The following table presents derivative financial instruments and the amount of the net gains or losses recognized within other noninterest income on the Consolidated Statements of Income for the years ended December 31: (In thousands) 2023 2022 Interest Rate Lock Commitments $ 37 $ ( 93 ) Forward Commitments 287 46 Total $ 324 $ ( 47 ) Loan-level Interest Rate Swaps Mid Penn enters into loan-level interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. Mid Penn simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of the offsetting customer and dealer counterparty swap agreements is that the customer pays a fixed rate of interest and Mid Penn receives a floating rate. Mid Penn’s loan-level interest rate swaps are considered derivatives but are not accounted for using hedge accounting. 109 MID PENN BANCORP, INC. Information related to loan level swaps is set forth in the following table: December 31, 2023 December 31, 2022 (Dollars in thousands) Interest rate swaps on loans with customers Notional amount $ 187,192 $ 123,795 Weighted average remaining term (years) 6.24 7.85 Receive fixed rate (weighted average) 4.59 % 3.59 % Pay variable rate (weighted average) 7.50 % 6.09 % Estimated fair value (1) $ 10,484 $ 11,697 December 31, 2023 December 31, 2022 (Dollars in thousands) Interest rate swaps on loans with correspondents Notional amount $ 187,192 $ 123,795 Weighted average remaining term (years) 6.24 7.85 Receive variable rate (weighted average) 7.50 % 6.09 % Pay fixed rate (weighted average) 4.59 % 3.59 % Estimated fair value $ 10,484 $ 11,697 (1) The net amount of the estimated fair value is disclosed in Other Liabilities on the Consolidated Balance Sheet. 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. During the year ended December 31, 2023, Mid Penn entered into interest rate swaps designated as cash flow hedges to hedge the cash flows associated with existing brokered CDs. Information related to cash flow hedges is set forth in the following table: December 31, 2023 (Dollars in thousands) Cash flow hedges Notional amount $ 190,000 Weighted average remaining term (years) 2.22 Pay fixed rate (weighted average) 3.74 % Receive variable rate (weighted average) 4.07 % Estimated fair value $ 1,460 There were no cash flow hedges at December 31, 2022. 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. During the next twelve months, Mid Penn estimates that an additional $ 1.8 million will be reclassified as a decrease to interest expense. 110 MID PENN BANCORP, INC. Note 13 - Fair Value Measurement 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. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. Mid Penn groups its assets and liabilities measured at fair value in three hierarchy levels, based on the observability and transparency of the inputs. The fair value hierarchy is as follows: Level 1 - Inputs that represent quoted prices for identical instruments in active markets. Level 2 - Inputs that represent quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 3 - Inputs that are largely unobservable, as little or no market data exists for the instrument being valued. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no transfers of assets between fair value Level 1 and Level 2 during the year ended December 31, 2023 or the year ended December 31, 2022. The following tables illustrate the assets measured at fair value on a recurring basis and reported on the Consolidated Balance Sheets: December 31, 2023 (In thousands) Level 1 Level 2 Level 3 Total Available-for-sale securities: U.S. Treasury and U.S. government agencies $ — $ 35,649 $ — $ 35,649 Mortgage-backed U.S. government agencies — 152,683 — 152,683 State and political subdivision obligations — 3,646 — 3,646 Corporate debt securities — 31,577 — 31,577 Equity securities 438 — — 438 Loans held for sale — 3,855 — 3,855 Other assets: Derivative assets — 11,944 — 11,944 Total $ 438 $ 239,354 $ — $ 239,792 December 31, 2022 (In thousands) Level 1 Level 2 Level 3 Total Available-for-sale securities: U.S. Treasury and U.S. government agencies $ — $ 34,914 $ — $ 34,914 Mortgage-backed U.S. government agencies $ — $ 166,915 $ — $ 166,915 State and political subdivision obligations — 3,539 — 3,539 Corporate debt securities — 32,510 — 32,510 Equity securities 430 — — 430 Loans held for sale — 2,475 — 2,475 Other assets: Derivative assets — 11,703 — 11,703 Total $ 430 $ 252,056 $ — $ 252,486 111 MID PENN BANCORP, INC. The valuation methodologies and assumptions used to estimate the fair value for the items in the preceding tables are as follows: Available for sale investment securities - The fair value of equity and debt securities classified as available for sale is determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather, relying on the securities’ relationship to other benchmark quoted prices. Equity securities - The fair value of equity securities with readily determinable fair values is recorded on the Consolidated Balance Sheet, with realized and unrealized gains and losses reported in other expense on the Consolidated Statements of Income. Loans held for sale - This category includes mortgage loans held for sale that are measured at fair value. Fair values as of December 31, 2023 were measured as the price that secondary market investors were offering for loans with similar characteristics. Derivative assets - Interest rate swaps are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing sources values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2. Mortgage banking derivatives - represent the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors and the fair value of interest rate swaps. The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. These characteristics classify interest rate swap agreements as Level 2. See "Note 12 - Derivative Financial Instruments," for additional information. Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, upon their acquisition or when there is evidence of impairment). The following table illustrates Level 3 financial instruments measured at fair value on a nonrecurring basis: (In thousands) December 31, 2023 December 31, 2022 Individually evaluated loans, net of ACL $ 13,399 $ 4,022 Foreclosed assets held for sale 293 43 Net loans - This category consists of loans that were individually evaluated for credit losses, net of the related ACL, and have been classified as Level 3 assets. In 2022, the amount shown is the balance of individually evaluated loans reporting a specific allocation or that have been partially charged-off. All of these loans are considered collateral-dependent; therefore, all of Mid Penn’s individually evaluated loans for 2023, whether reporting a specific allowance allocation or not, are considered collateral- dependent. Mid Penn utilized Level 3 inputs such as independent appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable. Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. Foreclosed assets held for sale - Values are based on appraisals that consider the sales prices of property in the proximate vicinity. 112 MID PENN BANCORP, INC. The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of Mid Penn’s financial instruments as of: December 31, 2023 Estimated Fair Value (In thousands) Carrying Amount Level 1 Level 2 Level 3 Total Financial instruments - assets Cash and cash equivalents $ 96,763 $ 96,763 $ — $ — $ 96,763 Available-for-sale investment securities 223,555 — 223,555 — 223,555 Held-to-maturity investment securities 399,128 — 357,521 — 357,521 Equity securities 438 438 — — 438 Loans held for sale 3,855 — 3,855 — 3,855 Net loans 4,218,605 — — 4,221,926 4,221,926 Restricted investment in bank stocks 16,768 16,768 — — 16,768 Accrued interest receivable 25,820 25,820 — — 25,820 Derivative assets 11,944 — 11,944 — 11,944 Financial instruments - liabilities Deposits $ 4,346,212 $ — $ 4,337,723 $ — $ 4,337,723 Short-term borrowings 241,532 — 241,532 — 241,532 Long-term debt (1) 55,806 — 55,081 — 55,081 Subordinated debt 46,354 — 39,515 — 39,515 Accrued interest payable 14,257 14,257 — — 14,257 Derivative liabilities 10,484 — 10,484 — 10,484 (1) Long-term debt excludes finance lease obligations. 113 MID PENN BANCORP, INC. December 31, 2022 Estimated Fair Value (In thousands) Carrying Amount Level 1 Level 2 Level 3 Total Financial instruments - assets Cash and cash equivalents $ 60,881 $ 60,881 $ — $ — $ 60,881 Available-for-sale investment securities 237,878 — 237,878 — 237,878 Held-to-maturity investment securities 399,494 — 348,505 — 348,505 Equity securities 430 430 — — 430 Loans held for sale 2,475 — 2,475 — 2,475 Net loans 3,495,162 — — 3,439,948 3,439,948 Restricted investment in bank stocks 8,315 8,315 — — 8,315 Accrued interest receivable 18,405 18,405 — — 18,405 Derivative assets 11,703 — 11,703 — 11,703 Financial instruments - liabilities Deposits $ 3,778,331 $ — $ 3,761,260 $ — $ 3,761,260 Short-term debt 102,647 — 102,647 — 102,647 Long-term debt (1) 1,119 — 1,069 — 1,069 Subordinated debt 56,941 — 55,917 — 55,917 Accrued interest payable 2,303 2,303 — — 2,303 Derivative liabilities 11,737 — 11,737 — 11,737 (1) Long-term debt excludes finance lease obligations The Bank’s outstanding and unfunded credit commitments and financial standby letters of credit were deemed to have no significant fair value as of December 31, 2023 and 2022. Note 14 - Postretirement Benefit Plans Mid Penn has an unfunded noncontributory defined benefit plan for directors, which provides defined benefits based on the respective director’s years of service, as well as a postretirement healthcare and life insurance benefit plan, which is noncontributory, covering certain full-time employees. Mid Penn also assumed noncontributory defined benefit pension plans as a result of the acquisitions of Scottdale on January 8, 2018 and Riverview on November 30, 2021. None of Mid Penn’s plans contained a promised interest crediting rate. Service costs related to plans benefiting Mid Penn employees are reported as a component of salaries and employee benefits on the Consolidated Statements of Income, while interest costs, expected return on plan assets, amortization (accretion) of prior service cost, and settlement gain are reported as a component of other income . Service costs, interest costs, and amortization of prior service costs related to plans benefiting Mid Penn’s nonemployee directors are reported as a component of director fees and benefits expense within the other expense line item on the Consolidated Statement of Income. The accrued benefit liability, related income statement impacts, and other significant aspects of the plans are detailed below. Life Insurance - Full-time employees who had at least ten years of service as of January 1, 2008 and retire with the Bank after age 55 and at least 20 years of service are eligible for term life insurance coverage. The insurance amount will be $ 50 thousand until age 65. After age 65, the insurance amount will decrease by $ 5 thousand per year until age 74. Thereafter, the insurance amount will be $ 5 thousand. The payment of the life insurance premium by the Corporation shall terminate at any time if the retired employee obtains other employment. Health Benefit Plan - Full-time employees who had at least 10 years of service as of January 1, 2008 and who retire at age 55 or later, after completion of at least 20 years of service, are eligible for medical benefits. Medical benefits are provided for up to five years after retirement. Employees who retired prior to December 31, 2015 may elect the least expensive 114 MID PENN BANCORP, INC. single coverage in the employer’s group medical plan. If the retiree becomes eligible for Medicare during the five year duration of coverage, the Bank will pay, at its discretion, premiums for single 65-special coverage or similar supplemental coverage. For those employees who retired between September 18, 2015 and December 31, 2015, the Bank will only pay up to $ 5 thousand towards such medical coverage. Employees who retired after December 31, 2015 may not participate in the employer’s group medical plan. Instead, the Bank will reimburse the retiree for up to $ 5 thousand (grossed up by 36.79 % as of December 31, 2023) in medical costs. The reimbursement shall terminate at any time during the five-year period if the retired employee obtains other employment or the retired employee dies. The following tables provide a reconciliation of the changes in the plan’s health and life insurance benefit obligations and fair value of plan assets for the years ended December 31, 2023 and 2022, and a statement of the funded status at December 31, 2023 and 2022. (In thousands) December 31, Change in benefit obligations: 2023 2022 Benefit obligations, January 1 $ 297 $ 399 Service cost 1 2 Interest cost 13 8 Change in experience ( 22 ) ( 30 ) Change in assumptions — ( 67 ) Benefit payments ( 18 ) ( 15 ) Benefit obligations, December 31 $ 271 $ 297 Change in fair value of plan assets: Fair value of plan assets, January 1 $ — $ — Employer contributions 18 15 Benefit payments ( 18 ) ( 15 ) Fair value of plan assets, December 31 $ — $ — Funded status at year end $ ( 271 ) $ ( 297 ) Mid Penn has capped the benefit to future retirees under its post-retirement health benefit plan. Employees who had achieved ten years of service as of January 1, 2008 and subsequently retire after at least 20 years of service are eligible for reimbursement of major medical insurance premiums up to $ 5 thousand, if the employee has not yet reached age 65. Upon becoming eligible for Medicare, Mid Penn will reimburse up to $ 5 thousand in premiums for Medicare Advantage or a similar supplemental coverage. The maximum reimbursement period will not exceed five years regardless of retirement age and will end upon the participant obtaining other employment or the participant’s death. The amount recognized in other liabilities on the Consolidated Balance Sheets at December 31, is as follows: (In thousands) 2023 2022 Accrued benefit liability $ 271 $ 297 The amounts recognized in accumulated other comprehensive loss (income) as of December 31 consist of: (In thousands) 2023 2022 Net (gain) loss, pretax $ ( 38 ) $ ( 18 ) Net prior service cost, pretax — 10 The accumulated benefit obligation for health and life insurance plans was $ 271 thousand and $ 297 thousand at December 31, 2023 and 2022, respectively. 115 MID PENN BANCORP, INC. The components of net periodic postretirement benefit (income) cost for 2023, 2022 and 2021 are as follows: (In thousands) 2023 2022 2021 Service cost $ 1 $ 2 $ 2 Interest cost 13 8 9 Amortization of prior service cost 10 ( 24 ) ( 25 ) Amortization of net loss ( 2 ) 2 9 Net periodic postretirement benefit income $ 22 $ ( 12 ) $ ( 5 ) Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31 are as follows: Weighted-average assumptions: 2023 2022 Discount rate 4.67 % 4.90 % Rate of compensation increase — — Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31 are as follows: Weighted-average assumptions: 2023 2022 2021 Discount rate 4.90 % 2.40 % 2.25 % Rate of compensation increase — — 2.00 Assumed health care cost trend rates at December 31 are as follows: 2023 2022 2021 Health care cost trend rate assumed for next year 7.00 % 6.50 % 5.50 % Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.50 % 5.50 % 5.40 % Year that the rate reaches the ultimate trend rate 2027 2026 2024 The following table shows the estimated benefit payments for future periods: (In thousands) 2024 $ 25 2025 30 2026 28 2027 28 2028 19 2029-2033 93 116 MID PENN BANCORP, INC. Directors’ Retirement Plan - Mid Penn has an unfunded defined benefit retirement plan ("Director's Plan") for directors with benefits based on years of service. On October 1, 2023, the Bank decided to terminate the Plan and pay out any benefits to participants in a lump sum cash payout of $ 1.3 million to be paid out on October 1, 2024. The following tables provide a reconciliation of the changes in the Director's Plan benefit obligations and fair value of plan assets for the years ended December 31, 2023 and 2022, and a statement of the status at December 31, 2023 and 2022. This Plan is unfunded. (In thousands) December 31, Change in benefit obligations: 2023 2022 Benefit obligations, January 1 $ 1,299 $ 1,195 Service cost 56 75 Interest cost 61 30 Actuarial loss — 103 Change in assumptions ( 12 ) ( 23 ) Benefit payments ( 98 ) ( 81 ) Benefit obligations, December 31 $ 1,306 $ 1,299 Change in fair value of plan assets: Fair value of plan assets, January 1 $ — $ — Employer contributions 98 81 Benefit payments ( 98 ) ( 81 ) Fair value of plan assets, $ — $ — Funded status at year end $ ( 1,306 ) $ ( 1,299 ) Amounts recognized in other liabilities on the Consolidated Balance Sheet at December 31 are as follows: (In thousands) 2023 2022 Accrued benefit liability $ 1,306 $ 1,299 Amounts recognized in accumulated other comprehensive loss (income) as of December 31 consist of: (In thousands) 2023 2022 Net prior service cost, pretax $ — $ — Net loss, pretax 214 248 The accumulated benefit obligation for the retirement plan was $ 1.3 million and $ 1.3 million at December 31, 2023 and 2022, respectively. The components of net periodic retirement cost for 2023, 2022 and 2021 are as follows: (In thousands) 2023 2022 2021 Service cost $ 56 $ 75 $ 47 Interest cost 61 30 26 Amortization of net loss 34 20 7 Net periodic retirement cost $ 151 $ 125 $ 80 117 MID PENN BANCORP, INC. Assumptions used in the measurement of Mid Penn’s benefit obligations at December 31 are as follows: Weighted-average assumptions: 2023 2022 Discount rate 4.80 % 4.90 % Change in consumer price index 3.40 7.00 Assumptions used in the measurement of Mid Penn’s net periodic benefit cost for the years ended December 31 are as follows: Weighted-average assumptions: 2023 2022 2021 Discount rate 4.80 % 4.90 % 2.40 % Change in consumer price index 3.40 7.00 1.40 The Bank is the owner and beneficiary of insurance policies on the lives of certain officers and directors, which informally fund the retirement plan obligation. The aggregate cash surrender value of these policies was $ 4.2 million and $ 4.1 million at December 31, 2023 and 2022, respectively. Scottdale Defined Benefit Pension Plan - As a result of the acquisition of Scottdale on January 8, 2018, Mid Penn has assumed a noncontributory defined benefit pension plan ("Scottdale Plan") covering certain former employees of Scottdale. After the acquisition, Mid Penn does not allow for any further participants to join the Plan. Mid Penn’s policy is to fund pension benefits as accrued. The Scottdale Plan’s assets are managed by the trust department of the Bank and were primarily invested in corporate equity securities at the time of acquisition but have since been diversified into a more conservative investment profile, including fixed income debt securities. The investment objective of the plan is "Balanced" to provide relatively stable growth from assets offset by a moderate level of income with target portfolio allocations of up to 20 % cash, 30 - 50 % fixed income securities, and 40 - 60 % equity securities. The valuation of the plan’s assets is subject to market fluctuations. For the year ended December 31, 2023, Mid Penn recognized $ 322 thousand of settlement gains, as a result of certain lump sum payouts to participants of the Scottdale Plan. The settlement gains were recorded in noninterest income as a component of other income in the Consolidated Statements of Income for the year ended December 31, 2023. There were no lump sum payouts to participants of the Scottdale Plan for the year ended December 31, 2022. 118 MID PENN BANCORP, INC. The following tables provide a reconciliation of the changes in the Scottdale Plan’s benefit obligations and fair value of plan assets for the year ended December 31, 2023 and 2022, and a statement of the status at December 31, 2023 and 2022: (In thousands) December 31, Change in benefit obligations: 2023 2022 Benefit obligations, January 1 $ 3,805 $ 4,844 Service cost 58 69 Interest cost 197 144 Settlement (gain) loss ( 4 ) — Actuarial gain 168 ( 1,096 ) Settlement payments ( 1,472 ) — Benefit payments ( 93 ) ( 156 ) Benefit obligations, December 31 $ 2,659 $ 3,805 Change in fair value of plan assets: Fair value of plan assets, January 1 $ 4,722 $ 5,302 Return on plan assets 348 ( 385 ) Employer contributions — — Benefit payments ( 93 ) ( 156 ) Administrative expenses ( 37 ) ( 39 ) Settlement payments ( 1,472 ) — Fair value of plan assets, December 31 $ 3,468 $ 4,722 Funded status at year end $ 809 $ 917 Amounts recognized on the Consolidated Balance Sheets at December 31 are as follows: (In thousands) 2023 2022 Accrued pension benefit asset $ ( 809 ) $ ( 917 ) Amounts recognized in accumulated other comprehensive loss consist of the following as of December 31: (In thousands) 2023 2022 Unrecognized actuarial gain $ 581 $ 1,030 The accumulated benefit obligation for the retirement plan was $ 2.7 million and $ 3.8 million at December 31, 2023 and 2022, respectively. The components of net periodic retirement cost for December 31 are as follows: (In thousands) 2023 2022 Service cost $ 58 $ 69 Interest cost 197 144 Expected return on plan assets 211 237 Recognized net actuarial gain ( 63 ) ( 7 ) Net periodic retirement income $ ( 19 ) $ ( 31 ) 119 MID PENN BANCORP, INC. Assumptions used in the measurement of Mid Penn’s benefit obligations and net periodic pension costs at December 31 are as follows: Weighted-average assumptions: 2023 2022 Discount rate 5.00 % 5.25 % Expected long-term return on plan assets 4.50 4.50 Rate of compensation increases 2.50 2.50 The following table presents a summary of the Scottdale Plan’s assets at fair value and the weighted-average asset allocations by investment category as of December 31: Estimated Fair Value Percentage of Total Assets Estimated Fair Value Percentage of Total Assets (Dollars in thousands) 2023 2022 Cash and cash equivalents $ 90 2.6 % $ 108 2.3 % Common stock 2,186 63.0 2,773 58.7 Corporate bonds 1,192 34.4 1,841 39.0 $ 3,468 100.0 % $ 4,722 100.0 % The description of the valuation methodologies used for assets measured at fair value is disclosed below. Common Stocks Valued at the closing price reported on the active market on which the individual securities are traded and therefore would be categorized as Level 1 assets under the fair value hierarchy. Corporate Bonds Valued using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted prices and therefore would be categorized as Level 2 assets under the fair value hierarchy. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table shows the estimated benefit payments for future periods. (In thousands) 2024 $ 91 2025 142 2026 140 2027 171 2028 200 2029-2033 1,052 Riverview Defined Benefit Plan - As a result of the Riverview Acquisition on November 30, 2021, Mid Penn has assumed noncontributory defined benefit pension plans ("Riverview Plans") covering certain former employees of Riverview (or its predecessor-in-interest) as follows: Pursuant to the consolidation with Union Bancorp, Inc. ("Union") effective November 1, 2013, Riverview assumed Union’s noncontributory defined benefit pension plan, which substantially covered all Union employees. The plan benefits were based on average salary and years of service. Union elected to freeze all benefits earned under the plan effective January 1, 2007. 120 MID PENN BANCORP, INC. Riverview also assumed responsibility of Citizens National Bank of Meyersdale’s ("Citizens") noncontributory defined benefit pension plan effective as of the December 31, 2015 merger date. The plan substantially covered all Citizens employees, and the plan benefits were based on average salary and years of service. Citizens elected to freeze all benefits earned under the plan effective January 1, 2013. As a result of a merger effective October 1, 2017, Riverview assumed responsibility of CBT Financial Corp’s ("CBT") postretirement benefits plan, which is an unfunded postretirement benefit plan covering health insurance costs and post-retirement life insurance benefits for certain retirees. Subsequent to the Riverview Acquisition, Mid Penn disallowed any further participants to join the Riverview Plans. Mid Penn’s policy is to fund pension and post-retirement benefits as accrued. The Riverview Plans’ assets are managed by a third party and were primarily invested in a combination of cash and cash equivalents, equity securities and fixed income securities at the time of acquisition. The valuation of the Riverview Plans’ assets is subject to market fluctuations. The following tables provide a reconciliation of the changes in the Riverview Plans' benefit obligations and fair value of plan assets for year ended December 31, 2023 and the one-month period beginning with the November 30, 2021 acquisition date and ended December 31, 2021, and a statement of the status at December 31, 2023 and 2022. (In thousands) Change in benefit obligations: 2023 2022 Benefit obligations, January 1 $ 6,424 $ 8,165 Interest cost 309 223 Actuarial gain 228 ( 1,407 ) Benefit payments ( 519 ) ( 557 ) Benefit obligations, December 31 $ 6,442 $ 6,424 Change in fair value of plan assets: Fair value of plan assets, January 1, $ 6,720 $ 8,984 Return on plan assets 691 ( 1,709 ) Contributions 3 2 Benefit payments ( 519 ) ( 557 ) Fair value of plan assets, December 31 $ 6,895 $ 6,720 Funded status at year end $ 453 $ 296 Amounts recognized in other liabilities on the Consolidated Balance Sheets as of December 31 are as follows: (In thousands) 2023 2022 Accrued pension benefit asset $ ( 453 ) $ ( 296 ) As of December 31, 2023 amounts related to the Riverview Plans that have been recognized in accumulated other comprehensive loss but not yet recognized as a component of net periodic pension cost are as follows: (In thousands) 2023 2022 Unrecognized actuarial gain (loss) $ 76 $ ( 824 ) 121 MID PENN BANCORP, INC. The components of net periodic pension and postretirement benefit cost for the year ended December 31, 2023 and 2022 are as follows: (In thousands) 2023 2022 Interest cost $ 309 $ 223 Expected return on plan assets ( 387 ) ( 522 ) Net periodic pension benefit $ ( 78 ) $ ( 299 ) (In thousands) 2023 2022 Service credit $ — $ — Interest cost 1 1 Unrecognized gain ( 1 ) ( 1 ) Net periodic postretirement benefit $ — $ — The accumulated benefit obligation was $ 6.4 million at December 31, 2023 and 2022, respectively, for the Riverview Plans. Weighted average assumptions used in the measurement of Mid Penn’s benefit obligations and net periodic pension costs at December 31, 2023 and 2022 are as follows: Pension Benefits Postretirement Life Insurance Benefits 2023 Union Citizens CBT Discount rate 5.02 % 5.02 % 4.70 % Expected long-term return on plan assets 6.00 6.00 n/a 2022 Discount rate 2.83 % 2.83 % 3.00 % Expected long-term return on plan assets 6.00 6.00 n/a The following summarizes the actuarial assumptions used for the Riverview Plans: For the pension plan, the selected long-term rate of return on plan assets was primarily based on the asset allocation of the plan’s assets. Analysis of the historic returns on these asset classes and projections of expected future returns were considered in setting the long-term rate of return. The benefit offered under the postretirement benefits plan is fixed; therefore, the accumulated postretirement benefit obligation is not impacted by health care cost trends or the rate of compensation increase. 122 MID PENN BANCORP, INC. The following table presents a summary of the Riverview Plan’s assets at fair value and the weighted-average asset allocations by investment category as of December 31: Estimated Fair Value Percentage of Total Assets Estimated Fair Value Percentage of Total Assets Weighted-average asset allocations: 2023 2022 Cash and cash equivalents $ 48 0.7 % $ 69 1.0 % Mutual fund - equity 2,499 36.2 2,411 35.9 Mutual fund / EFTs - fixed income 4,038 58.6 3,906 58.1 Common / collective trusts equity 310 4.5 334 5.0 $ 6,895 100 % $ 6,720 100 % The valuation used is based on quoted market prices provided by an independent third party. The fair values of mutual fund investments are considered Level 1 assess in the fair value hierarchy and the collective trusts equity are considered Level 2 assets. The following table shows the estimated benefit payments for future periods. (In thousands) Pension Benefits Postretirement Life Insurance Benefits 2023 $ 552 $ 3 2024 531 4 2025 518 3 2026 501 3 2027 494 2 2028-2032 2,271 9 Note 15 - Other Benefit Plans Mid Penn maintains several benefit plans for both current and former employees of the Corporation. Liabilities related to the plans are recorded in other liabilities on the balance sheet, and aggregate cash surrender values assets related to the life insurance plans are recorded in the cash surrender value of life insurance line item on the balance sheet. Significant aspects of the plans are detailed below. Defined-Contribution 401(k) Plan - The Bank has a 401(k) plan that covers substantially all employees. The plan allows employees to contribute a portion of their salaries and wages to the plan and provides for Mid Penn to match a portion of employee-elected salary deferrals, subject to certain percentage maximums of their salaries and wages. The Corporation’s contribution to the 401(k) Plan was $ 1.7 million, $ 1.4 million, and $ 1 million for the years ending December 31, 2023, 2022, and 2021, respectively and is included as a component of salaries and benefits expense in the Consolidated Statements of Income. The plan also includes a funded contributory profit sharing provision for substantially all employees which is funded annually when applicable. The Corporation did not make a profit sharing contribution to the plan in 2023, 2022, or 2021. During 2021, Mid Penn assumed the 401(k) plan of Riverview. Riverview maintained a contributory 401(k) retirement plan for all eligible employees. The plan was frozen and all contributions were suspended subsequent to the merger. During the year ended December 31, 2022, the Riverview plan was terminated, and all remaining assets were either transferred to the Mid Penn 401(k) Plan or distributed to former employee participants. Deferred Compensation Plan - Mid Penn has a directors’ deferred compensation plan, which allows directors to defer receipt of director fees for a specified period in order to provide future retirement income. At December 31, 2023 and 2022, the Corporation accrued a liability of $ 2.4 million and $ 1.9 million, respectively, for this plan. The expense related to the 123 MID PENN BANCORP, INC. plan was $ 127 thousand, $ 64 thousand and $ 35 thousand in 2023, 2022 and 2021, respectively, and is included as a component of other expense in the Consolidated Statements of Income. Supplemental Executive Retirement Plan - On September 6, 2022, Mid Penn entered into new or amended and restated supplemental executive retirement plan agreements ("SERPs") with six named executive officers and three other members of the Bank’s executive management team. Each SERP provides for the monthly payment of a fixed cash benefit over a period of 15 years, commencing on the first day of the month following the Executive’s separation from service: (i) occurring on or after reaching normal retirement age (age 70 ); (ii) due to disability; (iii) due to death; or (iv) within two years following a change in control of the Bank. The annual benefit vests over a term of four to ten years , with a portion of the annual benefit having previously vested for several of the participants. Any unvested portion of the benefit fully vests upon a change in control of the Bank. The accrued liability for the supplemental retirement plans was $ 2.5 million and $ 1.8 million at December 31, 2023 and 2022, respectively. The expense related to the plan was $ 792 thousand, $ 609 thousand and $ 625 thousand in 2023, 2022 and 2021, respectively and is included as a component of salaries and benefits expense in the Consolidated Statements of Income. Split Dollar Life Insurance Arrangements - At December 31, 2023 and 2022, the Bank had Split Dollar Life Insurance arrangements with two former executives for which the aggregate collateral assignment and cash surrender values are approximately $ 1.4 million for December 31, 2023 and 2022. Mid Penn acquired Phoenix’s Split Dollar Life Insurance arrangements in 2015 on select employees, which had aggregate cash surrender values of $ 4.4 million and $ 4.3 million at December 31, 2023 and 2022. Mid Penn acquired First Priority’s Split Dollar Life Insurance arrangements in 2018 on select employees, which had aggregate cash surrender values of $ 3.7 million at both December 31, 2023 and 2022. Mid Penn acquired Riverview’s Split Dollar Life Insurance arrangements in 2021 on select employees, which had aggregate cash surrender values of $ 2.0 million at both December 31, 2023 and 2022. Rabbi Trust - As a result of the acquisition of Riverview, Mid Penn assumed certain benefit plan liabilities related to compensation arrangements totalin g $ 7.7 million within other liabilities on the Consolidated Balance Sheets, including certain executive non-qualified retirement benefits, deferred compensation plans, and executive employment and separation agreements associated with Riverview. The details of the compensation arrangements for the years ended December 31 include: (In thousands) Fully Funded Gross Amounts Compensation Arrangements 2023 2022 Supplemental executive retirement agreements $ 1,214 $ 1,316 Executive deferred compensation agreement 1,440 1,638 Director deferred fee agreement — 41 Executive employment agreements — 1,502 Separation agreement — 194 Total compensation agreements $ 2,654 $ 4,691 The obligations are fully funded through a Rabbi Trust having a cash balance of $ 2.9 million and $ 4.9 million within other assets on the Consolidated Balance Sheets as of December 31, 2023 and 2022 to provide a source of funds in satisfying the obligations under the respective compensation arrangements. 124 MID PENN BANCORP, INC. Note 16 - Income Taxes Significant components of the Corporation’s net deferred tax asset at December 31, 2023 and 2022 are shown below. (In thousands) 2023 2022 Deferred tax assets: Allowance for loan losses $ 7,642 $ 3,981 Loan fees 1,053 898 Deferred compensation 1,476 1,115 Benefit plans 60 56 Unrealized loss on securities 4,992 5,137 Lease adjustments 74 193 Business combination adjustments 5,669 2,066 Acquired NOL, Section 1231, and charitable contribution carryforwards 3,832 686 Rabbi Trust 593 985 Riverview AMT credits 696 771 Equity Comp 256 — Riverview subordinated debt fair value adjustment 327 353 Software renewal costs 335 420 Unfunded and loan basis adjustments 635 — Investments in Flow-through entities 391 — Other 378 874 28,409 17,535 Deferred tax liabilities: Depreciation ( 1,397 ) ( 1,175 ) Bond accretion ( 187 ) ( 97 ) Goodwill and intangibles ( 1,017 ) ( 362 ) Prepaid expenses ( 227 ) ( 797 ) Business combination adjustments — ( 398 ) Benefit plans ( 1,199 ) ( 1,049 ) Interest Rate Swaps ( 236 ) — ( 4,263 ) ( 3,878 ) Deferred tax asset, net $ 24,146 $ 13,657 In assessing the Corporation’s ability to realize deferred federal tax assets, management considers whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent, feasible and permissible as well as available tax planning strategies in making this assessment. At December 31, 2023, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Mid Penn will realize the benefits of these deferred tax assets and has no valuation allowances recorded against any components of its deferred tax asset, including the carryforward balances related to net operating losses ("NOL"), Section 1231 losses, and charitable contribution carryforwards. At December 31, 2023, Mid Penn had NOL carryforwards of $ 2.8 million resulting from the November 30, 2021 acquisition of Riverview. These NOLs were assumed by Riverview in a previous acquisition and were generated during the tax years ended December 31, 2013, 2014, and 2015 and begin to expire in 2032. The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, signed into law on March 27, 2020 to mitigate the economic effects of COVID-19, implemented a five-year carryback period for NOLs generated in tax years beginning in 2018, 2019, or 2020. As a result of 125 MID PENN BANCORP, INC. this CARES Act provision, during the year ended December 31, 2022, Mid Penn filed the required federal tax returns to carryback NOLs to the 2017 tax year, comprised of (i) $ 1.2 million of NOLs generated in 2018 and acquired from Scottdale, and (ii) $ 1.2 million of NOLs generated in 2018 and acquired from First Priority. The carryback of these NOLs to the 2017 tax year when the tax rate was 34 % (versus 21 % in 2018) generated a federal tax benefit of $ 318 thousand recorded in the provision for income taxes on the Consolidated Statements of Income for the year ended December 31, 2020. The remaining NOL balance of $ 119 thousand at December 31, 2021 was generated in the 2012 tax year, was acquired from First Priority, and expires in 2032. Mid Penn is limited to a deduction of the lesser of the available NOL carryforward or 80% of pre-NOL taxable income in a single tax year as set forth in the TCJA. At December 31, 2023, Mid Penn had no charitable contribution carryforwards, while at December 31, 2022, Mid Penn had $ 43 thousand charitable contribution carryforwards which were acquired from Riverview. During the years ended December 31, 2023, 2022 and 2021, Mid Penn generated sufficient taxable income to utilize all charitable contribution carryforwards. Mid Penn expects to generate sufficient taxable income to utilize all charitable contribution carryforwards in the future. The CARES Act also updated Alternative Minimum Tax ("AMT") credit rules to permit AMT credit to be 100 % refundable in the 2018 tax year. As a result, during the year ended December 31, 2020, Mid Penn filed the required federal tax returns to request a full refund of the AMT credits that had been acquired from First Priority and Scottdale. During 2021, and as a result of the Riverview Acquisition, Mid Penn assumed $ 696 thousand of AMT credits to be used on future tax returns. Acquired Section 1231 losses totaling $ 314 thousand were recorded as a result of filing the final First Priority return in 2019 and expired in 2022. The annual usage of acquired NOL, charitable contribution carryforwards, and Section 1231 losses is limited by IRS Section 382 regulations. These limitations are calculated separately for each acquisition as the federal long-term tax-exempt rate at the date of acquisition multiplied by the valuation of the selling company as calculated in accordance with GAAP. As a result, the usage of acquired NOLs, charitable contribution carryforwards, AMT carryforwards, and Section 1231 losses to offset taxable income related to the Riverview Acquisition is limited to $ 2.0 million per year and $ 1.9 million per year for the First Priority Acquisition. All contribution carryforwards related to the Scottdale Acquisition were utilized as of December 31, 2022. The provision for income taxes consists of the following: (In thousands) 2023 2022 2021 Current tax provision Federal $ 7,570 $ 10,212 $ 6,178 State 1,033 67 70 Total current tax provision $ 8,603 $ 10,279 $ 6,248 Deferred tax expense (benefit) Federal $ ( 525 ) $ 2,262 $ 484 State ( 781 ) — — Total deferred tax expense (benefit) ( 1,306 ) 2,262 484 Total provision for income taxes $ 7,297 $ 12,541 $ 6,732 126 MID PENN BANCORP, INC. A reconciliation of the federal income tax provision at the statutory rate of 21% for 2023, 2022 and 2021 to Mid Penn's actual federal income tax provision at its effective rate is as follows: (In thousands) 2023 2022 2021 Provision at the expected statutory rate $ 9,388 $ 14,143 $ 7,571 Low income housing partnership tax credits ( 1,337 ) ( 929 ) ( 853 ) Effect of tax-exempt income ( 641 ) ( 614 ) ( 477 ) Effect of investment in life insurance ( 252 ) ( 203 ) ( 75 ) Nondeductible merger and acquisition expense 207 60 364 State income taxes, net of federal tax benefit 199 53 55 Nondeductible interest 108 20 14 Other items ( 375 ) 11 133 Provision for income taxes $ 7,297 $ 12,541 $ 6,732 Mid Penn has no unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Mid Penn does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. No amounts for interest and penalties were recorded in income tax expense in the Consolidated Statement of Income for the years ended December 31, 2023, 2022, or 2021. There were no amounts accrued for interest and penalties at December 31, 2023 or 2022. Mid Penn and its subsidiaries are subject to U.S. federal income tax and income tax for the states of Pennsylvania, New Jersey, and Maryland. With limited exceptions, Mid Penn is no longer subject to examination by taxing authorities for years before 2017. Note 17 - Regulatory Matters The Corporation and the Bank are subject to regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory, and possibly additional discretionary, actions by the regulators that if, undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory account practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As of December 31, 2023 and 2022, the Corporation and the Bank met all capital adequacy requirements and the Bank was considered "well-capitalized". However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources. Minimum regulatory capital requirements established by Basel III rules require the Corporation and the Bank to: • Meet a minimum Common Equity Tier I capital ratio of 4.5 % of risk-weighted assets; • Meet a minimum Tier I capital ratio of 6.0 % of risk-weighted assets; • Meet a minimum Total capital ratio of 8.0 % of risk-weighted assets; • Meet a minimum Tier I leverage capital ratio of 4.0 % of average assets; • Maintain a "capital conservation buffer" of 2.5 % above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonuses; and • Comply with the definition of capital to improve the ability of regulatory capital instruments to absorb losses. 127 MID PENN BANCORP, INC. The Basel III Rules use a standardized approach for risk weightings. The rules provide that the failure to maintain the "capital conservation buffer" results in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As a result, under the Basel III Rules, if the Bank fails to maintain the required minimum capital conservation buffer, the Corporation will be subject to limits, and possibly prohibitions, on its ability to obtain capital distributions from the Bank. If the Corporation does not receive sufficient cash dividends from the Bank, it may not have sufficient funds to pay dividends on its common stock, service its debt obligations or repurchase its common stock. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans, or advances. The amount of dividends that may be paid from the Bank to the Corporation in any calendar year is limited to the Bank’s current year’s net profits, combined with the retained net profits of the preceding two years. For the year ended December 31, 2023, $ 46.1 million of undistributed earnings of the Bank, included in the consolidated shareholders’ equity balance, was available for distribution to the Corporation as dividends without prior regulatory approval, subject to regulatory capital requirements below. The following tables present the regulatory capital levels, leverage ratios, and risk-based capital ratios as of December 31: Actual Minimum for Basel III Capital Adequacy To Be Well-Capitalized Under Prompt Corrective Action Provisions (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Mid Penn Bancorp, Inc. 2023 Tier 1 Capital (to Average Assets) $ 427,353 8.3 % $ 204,935 4.0 % N/A N/A Common Equity Tier 1 Capital (to Risk Weighted Assets) 427,353 9.8 305,083 7.0 N/A N/A Tier 1 Capital (to Risk Weighted Assets) 427,353 9.8 370,458 8.5 N/A N/A Total Capital (to Risk Weighted Assets) 510,734 11.7 457,624 10.5 N/A N/A Mid Penn Bank 2023 Tier 1 Capital (to Average Assets) $ 458,077 8.9 % $ 204,777 4.0 % $ 255,971 5.0 % Common Equity Tier 1 Capital (to Risk Weighted Assets) 458,077 10.5 304,788 7.0 283,018 6.5 Tier 1 Capital (to Risk Weighted Assets) 458,077 10.5 370,100 8.5 348,330 8.0 Total Capital (to Risk Weighted Assets) 495,104 11.4 457,182 10.5 435,412 10.0 Mid Penn Bancorp, Inc. 2022 Tier 1 Capital (to Average Assets) $ 410,494 9.6 % $ 171,500 4.0 % N/A N/A Common Equity Tier 1 Capital (to Risk Weighted Assets) 410,494 11.2 257,130 7.0 N/A N/A Tier 1 Capital (to Risk Weighted Assets) 410,494 11.2 312,229 8.5 N/A N/A Total Capital (to Risk Weighted Assets) 484,477 13.2 385,695 10.5 N/A N/A Mid Penn Bank 2022 Tier 1 Capital (to Average Assets) $ 463,964 10.8 % $ 171,398 4.0 % $ 214,248 5.0 % Common Equity Tier 1 Capital (to Risk Weighted Assets) 463,964 12.6 256,895 7.0 238,545 6.5 Tier 1 Capital (to Risk Weighted Assets) 463,964 12.6 311,943 8.5 293,594 8.0 Total Capital (to Risk Weighted Assets) 483,006 13.2 385,342 10.5 $ 366,992 10.0 128 MID PENN BANCORP, INC. Note 18 - Commitments and Contingencies Mid Penn is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The commitments include various guarantees and commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Mid Penn evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer. Standby letters of credit and financial guarantees written are conditional commitments to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Mid Penn had $ 62.2 million and $ 57.2 million of standby letters of credit outstanding as of December 31, 2023 and December 31, 2022, respectively. Mid Penn does not anticipate any losses because of these transactions. The amount of the liability as of December 31, 2023 and December 31, 2022 for payment under standby letters of credit issued was not considered material. Mid Penn adopted FASB ASC Topic 326, effective January 1, 2023, which requires Mid Penn to estimate expected credit losses for OBS credit exposures which are not unconditionally cancellable. Mid Penn maintains a separate ACL on OBS credit exposures, including unfunded loan commitments and letters of credit, which is included in other liabilities on the accompanying Consolidated Balance Sheets. The ACL - OBS is adjusted as a provision for OBS commitments in noninterest expense. The estimate includes consideration of the likelihood that funding will occur, an estimate of exposure at default that is derived from utilization rate assumptions using a non-modeled approach, and PD and LGD estimates that are derived from the same models and approaches for Mid Penn's other loan portfolio segments described in "Note 4 - Loans and Allowance for Credit Losses - Loans" above, as these unfunded commitments share similar risk characteristics with these loan portfolio segments. The ACL - OBS at December 31, 2023 was $ 3.6 million compared to $ 85 thousand at December 31, 2022. On January 1, 2023 in conjunction with adopting ASC 326, Mid Penn recorded an additional $ 3.1 million of provision for OBS which was included in the adoption cumulative effect adjustment. Provision expense for OBS for the three months ended December 31, 2023 was ($ 886 ) thousand. Provision expense for OBS for the twelve months ended December 31, 2023 was $ 404 thousand. Low-income housing project commitments During the second quarter of 2020 Mid Penn’s Board of Directors approved Mid Penn Bank to enter into a commitment to purchase a limited partnership interest in a low-income housing project to construct thirty-nine apartments and common amenities in Cumberland County, Pennsylvania. All of the units are expected to qualify for Federal Low-Income Housing Tax Credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment is expected to be $ 10.8 million which will be paid in installments over the course of construction of the low-income housing facilities. The investment in the limited partnership will be reported in other assets on the balance sheet and amortized over a ten-year period. The project has been conditionally awarded $ 1.2 million in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $ 12.0 million to be received by Mid Penn over the ten-year amortization period. Mid Penn’s commitment to purchase the limited partnership interest is conditional upon the review and approval of all closing documents, an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs and review and approval by Mid Penn of other documents it may deem necessary. As a result of the Riverview Acquisition on November 30, 2021, Mid Penn assumed a commitment to purchase a limited partnership interest in a low-income housing project to preserve and rehabilitate three buildings consisting of 17 apartments and two commercial shops in Tamaqua, Schuylkill County. All the units are expected to qualify for Federal Low-Income Housing Tax Credits ("LIHTCs") as provided for in Section 42 of the Internal Revenue Code of 1986, as amended. Mid Penn’s limited partner capital contribution commitment is expected to be $ 4.4 million which will be paid in installments over the course of construction of the low-income housing facilities. The investment in the limited partnership will be reported in other assets on the balance sheet and amortized over a ten-year period. Additionally, the agreement commits Mid Penn to a construction loan in the maximum principal amount of $ 3.5 million which will bear interest at 5.5 % annum with a term of twenty-four months . The project has been conditionally awarded $ 484 thousand in annual LIHTCs by the Pennsylvania Housing Finance Agency, with a total anticipated LIHTC amount of $ 4.8 million to be received by Mid Penn over the ten-year amortization period. Mid Penn’s commitment to purchase the limited partnership interest is conditional 129 MID PENN BANCORP, INC. upon the review and approval of all closing documents, an opinion letter for tax counsel to the Partnership that the project qualifies for the LIHTCs and review and approval by Mid Penn of other documents it may deem necessary. Contingencies - As of December 31, 2023 and 2022, Mid Penn received a total of $ 14.8 thousand and $ 3.8 million, respectively, of nonrefundable loan processing fees related to the loans disbursed as a result of Mid Penn’s participation in the SBA’s Paycheck Protection Program ("PPP"). These fees, and any offsetting loan origination costs, were deferred in accordance with FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, and have since been and will continue to be amortized to interest and fees on loans and leases on the Consolidated Statements of Income over the life of the respective loans. As of December 31, 2023, Mid Penn is not aware of any PPP loans outstanding, or for which fees have been received from the SBA, that have been cancelled, terminated, or repaid due to a borrower being determined to be ineligible for a PPP loan. Litigation - Mid Penn is subject to lawsuits and claims arising out of its normal conduct of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of Mid Penn. 130 MID PENN BANCORP, INC. Note 19 - Earnings Per Share The following table presents the computation of basic and diluted EPS: (In thousands, except per share data) 2023 2022 2021 Net income $ 37,397 $ 54,806 $ 29,319 Weighted average shares outstanding (basic) 16,319,006 15,912,877 10,806,009 Effect of dilutive unvested restricted stock grants 31,957 21,758 13,570 Weighted average shares outstanding (diluted) 16,350,963 15,934,635 10,819,579 Basic earnings per common share $ 2.29 $ 3.44 $ 2.71 Diluted earnings per common share 2.29 3.44 2.71 There were no antidilutive shares at December 31, 2023, 2022, and 2021. As previously announced on a Form 8-K on May 4, 2021, Mid Penn completed an underwritten public offering of 2,990,000 shares of common stock at a price of $ 25.00 per share, with the aggregate gross proceeds of the offering totaling $ 74.8 million before underwriting discounts and offering expenses. The net proceeds of the offering after deducting the underwriting discount and other offering expenses were $ 70.2 million. Additionally, as previously announced on a Form 8-K on December 1, 2021, Mid Penn issued 4,519,776 shares of common stock as a result of the merger with Riverview on November 30, 2021. The additional shares issued on May 4, 2021 and November 30, 2021 significantly impacted the weighted average number of shares outstanding used for the year ended December 31, 2022 earnings per share calculations. 131 MID PENN BANCORP, INC. Note 20 - Shareholders' Equity Accumulated Other Comprehensive Loss (Income) The components of accumulated other comprehensive loss (income), net of taxes, are as follows: (I n thousands ) Unrealized Loss on Securities Unrealized Holding Losses on Interest Rate Derivatives used in Cash Flow Hedges Defined Benefit Plans Total Balance at December 31, 2020 $ ( 3 ) $ — $ ( 54 ) $ ( 57 ) OCI before reclassifications ( 190 ) — 511 321 Amounts reclassified from AOCI ( 62 ) — ( 44 ) ( 106 ) Balance - December 31, 2021 ( 255 ) — 413 158 OCI before reclassifications ( 19,072 ) — ( 294 ) ( 19,366 ) Amounts reclassified from AOCI — — ( 8 ) ( 8 ) Balance - December 31, 2022 ( 19,327 ) — 111 ( 19,216 ) OCI before reclassifications 1,988 820 ( 212 ) 2,596 Amounts reclassified from AOCI — — ( 17 ) ( 17 ) Balance - December 31, 2023 $ ( 17,339 ) $ 820 $ ( 118 ) $ ( 16,637 ) Treasury Stock Repurchase Program Mid Penn adopted a treasury stock repurchase program ("Program") initially effective March 19, 2020, and renewed through May 11, 2024 by Mid Penn’s Board of Directors on May 11, 2023. The Program authorizes the repurchase of up to $ 15.0 million of Mid Penn’s outstanding common stock. Under the Program, Mid Penn conducts repurchases of its common stock through open market transactions (which may be by means of a trading plan adopted under SEC Rule 10b5-1) or in privately negotiated transactions. Repurchases under the Program are made at the discretion of management and are subject to market conditions and other factors. There is no guarantee as to the exact number of shares that Mid Penn may repurchase. The Program is able to be modified, suspended or terminated at any time, at Mid Penn’s discretion, based upon a number of factors, including liquidity, market conditions, the availability of alternative investment opportunities and other factors Mid Penn deems appropriate. The Program does not obligate Mid Penn to repurchase any shares. Mid Penn repurchased 216,879 shares during 2023 at an average price per share of $ 22.31 under its share repurchase program. As of December 31, 2023, Mid Penn had repurchased 425,222 shares of common stock at an average price of $ 22.86 per share under the Program. The Program had $ 5.3 million remaining available for repurchase as of December 31, 2023. Dividend Reinvestment Plan Under Mid Penn’s amended and restated DRIP, 300,000 shares of Mid Penn’s authorized but unissued common stock are reserved for issuance. The DRIP also allows for voluntary cash payments, within specified limits, to be used for the purchase of additional shares. Note 21 - Stock-Based Compensation Plans On May 9, 2023, shareholders approved the 2023 Stock Incentive Plan, which authorizes Mid Penn to grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, deferred stock units and performance shares. The 2023 Plan was established for employees and directors of Mid Penn and the Bank, selected by the Compensation Committee of the Board of Directors, to incentivize the further success of the Company, and replaces the 2014 Restricted 132 MID PENN BANCORP, INC. Stock Plan. The aggregate number of shares of common stock of the Company available for issuance under the Plan is 350,000 shares . As of December 31, 2023, a total of 199,757 restricted shares were granted under the 2014 Plan, of which 88,269 shares were unvested. The 2014 Plan shares granted and vested resulted in $ 1.1 million and $ 701 thousand in share-based compensation expense for the years ended December 31, 2023 and 2022, respectively. Share-based compensation expense relating to restricted stock is calculated using grant date fair value and is recognized on a straight-line basis over the vesting periods of the awards. Restricted shares granted to employees vest in equal amounts on the anniversary of the grant date over the vesting period and the expense is a component of salaries and benefits expense on the Consolidated Statement of Income. The employee grant vesting period is determined by the terms of each respective grant, with vesting periods generally between one and four years . Restricted shares granted to directors have a twelve-month vesting period, and the expense is a component of directors’ fees and benefits within the other expense line item on the Consolidated Statement of Income. The following table presents compensation expense and related tax benefits for restricted stock awards recognized on the Consolidated Statements of Income: (In thousands) 2023 2022 2021 Compensation expense $ 1,103 $ 1,142 $ 696 Tax benefit ( 232 ) ( 240 ) ( 146 ) Net income effect $ 871 $ 902 $ 550 The following table presents information regarding the non-vested restricted stock for the year ended December 31, 2023: Shares Weighted-Average Grant Date Fair Value Non-vested at January 1, 2023 68,416 $ 26.20 Vested ( 9,069 ) 25.53 Forfeited ( 6,295 ) 25.24 Granted 35,217 25.53 Non-vested at December 31, 2023 88,269 26.07 At December 31, 2023, there was $ 1.8 million of unrecognized compensation cost related to all non-vested share-based compensation awards, which will be recognized as compensation expense through April 2027 with a weighted average recognition period of 3.3 years. Mid Penn recognizes the impact of forfeitures as of the forfeiture date. 133 MID PENN BANCORP, INC. Note 22 - Parent Company Statements CONDENSED BALANCE SHEETS December 31, (In thousands) 2023 2022 ASSETS Cash and cash equivalents $ 10,064 $ 1,849 Investment in subsidiaries 575,971 567,581 Other assets 4,252 845 Total assets $ 590,287 $ 570,275 LIABILITIES AND SHAREHOLDERS' EQUITY Subordinated debt and trust preferred securities $ 46,354 $ 56,941 Other liabilities 1,583 1,235 Shareholders' equity 542,350 512,099 Total liabilities and shareholders' equity $ 590,287 $ 570,275 CONDENSED STATEMENTS OF INCOME Years Ended December 31, (In thousands) 2023 2022 2021 Income Dividends from subsidiaries $ — $ — $ 3,897 Other income 147 1,130 35 Total Income 147 1,130 3,932 Expenses 10,865 7,333 15,391 (Loss) income before income tax and equity in undistributed earnings of subsidiaries ( 10,718 ) ( 6,203 ) ( 11,459 ) Income Tax Benefit 2,932 702 3,140 Equity in undistributed earnings of subsidiaries 45,183 60,307 37,638 Net Income $ 37,397 $ 54,806 $ 29,319 134 MID PENN BANCORP, INC. CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31, (In thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 37,397 $ 54,806 $ 29,319 Equity in undistributed earnings of subsidiaries ( 45,183 ) ( 60,307 ) ( 37,638 ) Stock based compensation 1,103 1,142 696 Amortization of debt issuance costs 7 26 26 Net change in other assets ( 3,407 ) 759 ( 1,735 ) Net change in other liabilities ( 246 ) ( 6,285 ) 13,356 Net cash (used in) provided by operating activities ( 10,329 ) ( 9,859 ) 4,024 CASH FLOWS FROM INVESTING ACTIVITIES Net cash paid for acquisition ( 25,574 ) — ( 792 ) Investment in subsidiary 71,493 ( 1,787 ) ( 27,353 ) Net cash provided by (used in) investing activities 45,919 ( 1,787 ) ( 28,145 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ( 12,981 ) ( 12,735 ) ( 8,872 ) Employee and Director Stock Purchase Plans stock issuance 482 364 307 Proceeds from issuance of common stock — — 70,545 Treasury stock purchased ( 4,876 ) ( 2,957 ) ( 128 ) Riverview restricted stock (1) — 776 — Subordinated debt and trust preferred securities redemption ( 10,000 ) ( 16,778 ) ( 6,870 ) Other, net — — ( 283 ) Net cash (used in) provided by financing activities ( 27,375 ) ( 31,330 ) 54,699 Net increase (decrease) in cash and cash equivalents 8,215 ( 42,976 ) 30,578 Cash and cash equivalents, beginning of year 1,849 44,825 14,247 Cash and cash equivalents, end of year $ 10,064 $ 1,849 $ 44,825 (1) Additionally, 2,500 shares of restricted stock were paid out in cash resulting in $ 776 thousand of cash consideration relating to stock awards. 135 MID PENN BANCORP, INC. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None