MID PENN BANCORP INC 10-Q

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management Discussion relates to the Corporation, a financial holding company incorporated in the Commonwealth of Pennsylvania, and its wholly owned subsidiaries. Management's Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report. Caution About Forward-Looking Statements Forward-looking statements involve risks, uncertainties and assumptions. Although Mid Penn generally does not make forward-looking statements unless Mid Penn’s management believes its management has a reasonable basis for doing so, Mid Penn cannot guarantee the accuracy of any forward-looking statements. Actual results may differ materially from those expressed in any forward-looking statements due to a number of uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q, the 2023 Annual Report, and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on Mid Penn’s website or otherwise, and Mid Penn undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations", may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mid Penn or the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words "expect", "anticipates", "intend", "plan", "believe", "estimate", and similar expressions are intended to identify such forward-looking statements. Mid Penn’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: • the effects of future economic conditions on Mid Penn, its bank and nonbank subsidiaries, and their markets and customers; • governmental monetary and fiscal policies, as well as legislative and regulatory changes; • future actions or inactions of the United States government, including a failure to increase the government debt limit or a prolonged shutdown of the federal government; • business or economic disruption from national or global epidemic or pandemic events; • the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, the value of investment securities, and interest rate protection agreements; • the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in Mid Penn’s market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet; • an increase in the Pennsylvania Bank Shares Tax to which Mid Penn Bank’s capital stock is currently subject, or imposition of any additional taxes on the capital stock of Mid Penn or Mid Penn Bank; • impacts of the capital and liquidity requirements imposed by bank regulatory agencies; • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, Financial Accounting Standards Board, the SEC, and other accounting and reporting standard setters; • the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; • technological changes; • our ability to successfully implement business strategies, including our acquisition strategy; • our ability to successfully expand our franchise, including acquisitions or establishing new offices at favorable prices; • our ability to successfully integrate any banks, companies, offices, assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames; 44 Table of Contents MID PENN BANCORP, INC. • potential goodwill impairment charges, or future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames; • our ability to attract and retain qualified management and personnel; • results of regulatory examination and supervision processes; • the failure of assumptions underlying the establishment of reserves for loan losses, the assessment of potential impairment of investment securities, and estimations of values of collateral and various financial assets and liabilities; • our ability to maintain compliance with the listing rules of NASDAQ; • our ability to maintain the value and image of our brand and protect our intellectual property rights; • volatility in the securities markets; • disruptions due to flooding, severe weather, or other natural disasters or Acts of God; • acts of war, terrorism, or global military conflict; • supply chain disruption; and • the factors described in Item 1A of the Corporation's 2023 Annual Report and subsequent filings with the SEC. The above list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with this understanding of inherent uncertainty. Additional information regarding these as well as other factors that could affect future financial results can be found in the sections entitled "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Corporation's 2023 Annual Report. The results of operations for interim periods are not necessarily indicative of operating results expected for the full year. Overview Mid Penn is a financial holding company, which generates the majority of its revenues through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income as a percentage of average interest-earning assets. Mid Penn also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties. Offsetting these revenue sources are provisions for credit losses, non-interest expenses and income taxes. The following table presents a summary of Mid Penn's earnings and selected performance ratios: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net Income $ 11,771 $ 4,836 $ 23,904 $ 16,063 Diluted EPS $ 0.71 $ 0.29 $ 1.44 $ 1.00 Dividends Declared $ 0.20 $ 0.20 $ 0.40 $ 0.40 Return on average assets 0.88 % 0.40 % 1.79 % 0.34 % Return on average equity 8.55 % 3.84 % 17.44 % 3.16 % Net interest margin (1) 3.12 % 3.29 % 3.04 % 3.39 % Non-performing assets to total assets 0.19 % 0.32 % 0.19 % 0.32 % Net charge-offs to average loans (annualized) 0.002 % 0.018 % 0.006 % 0.030 % (1) Presented on a FTE basis using a 21% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section. During the second quarter of 2023, Mid Penn completed the Brunswick Acquisition, which added total assets of $390.7 million comprised primarily of $324.5 million of loans. This transaction resulted in the addition of 5 branches in central New Jersey. Mid Penn issued 849,510 shares of its common stock as well as a net cash payment to Brunswick shareholders of $27.6 million, for total consideration of $45.7 million for all outstanding stock and the cancellation of options of Brunswick. 45 Table of Contents MID PENN BANCORP, INC. Summary of Financial Results • Net Income Per Share - Mid Penn’s net income available to common shareholders ("earnings") for the three months ended June 30, 2024 was $11.8 million, or $0.71 per both common share basic and diluted, compared to earnings of $4.8 million, or $0.29 per both common share basic and diluted for the three months ended June 30, 2023. Mid Penn's earnings for the six months ended June 30, 2024 was $23.9 million, or $1.44 per both common share basic and diluted, compared to earnings of $16.1 million, or $1.00 per both common share basic and diluted for the six months ended June 30, 2023. ◦ Net Interest Margin - For the second quarter of 2024, Mid Penn’s net interest margin was 3.12% versus 3.29% for the same period of 2023. For the six months ended June 30, 2024, net interest margin was 3.04% versus 3.39% for the same period of 2023. The decrease is primarily driven by higher interest rates resulting from persistent inflation. The yield on interest-earning assets for the second quarter of 2024 increased 61 basis points from the same period of 2023. The rate on interest-bearing liabilities increased 93 basis points from the same period of 2023. ◦ Loan Growth - Total loans, net of une arned income, as of June 30, 2024 were $4.4 billion compared to $4.3 billion as of December 31, 2023, an increase of $111.8 million, or 2.6%. The growth was primarily driven by an increase in multifamily of $65.1 million, an increase in nonowner occupied commercial real estate of $37.5 million , and an increase in commercial and industrial loans of $17.6 million . ◦ Deposit Growth - Total deposits increased $150.8 million, or 3.5%, from $4.3 billion at December 31, 2023, to $4.5 billion at June 30, 2024. The growth was driven by an increase of $108.5 million in interest-bearing transaction accounts, and an increase of $77.6 million in time deposits, offset by a $35.3 million decrease in non-interest bearing accounts. • Asset Quality - ACL at June 30, 2024 was $35.3 million, or 0.81% of total loans, as compared to $34.2 million, or 0.80% of total loans at December 31, 2023. ◦ Net Charge-offs/Recoveries - Mid Penn had net charge-offs of $18 thousand and $170 thousand for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024, net charge-offs were $62 thousand compared to $283 thousand for the same period of 2023. ◦ Non-performing assets - Total non-performing assets were $10.4 million at June 30, 2024, a decrease compared to non-performing assets of $14.5 million at December 31, 2023. The decrease is primarily related to the sale of one foreclosed property, which resulted in a loss on sale of approximately $26 thousand. Delinquency as a percentage of total loans was 0.57% at June 30, 2024. ◦ Provision/Benefit for credit losses - loans - The provision for credit losses - loans was $1.8 million for the three months ended June 30, 2024 compared to $1.2 million for the same period of 2023. The benefit for credit losses on off-balance sheet credit exposures was $178 thousand for the three months ended June 30, 2024, compared to a benefit of $496 thousand for the same period of 2023. The provision for credit losses - loans was $1.2 million for the six months ended June 30, 2024 compared to $1.6 million for the same period of 2023. The decrease in provision for the six months ended June 30, 2024, is primarily due to a decrease in loss factors across all portfolios. • Noninterest Income - Noninterest income totaled $5.3 million for the three months ended June 30, 2024 compared to $5.2 million for the same period of 2023. The increase in noninterest income is primarily due to a $1.5 million increase in other miscellaneous income, partially offset by a $381 thousand decrease in mortgage banking. Noninterest income totaled $11.2 million for the six months ended June 30, 2024 compared to $9.5 million for the same period of 2023. 46 Table of Contents MID PENN BANCORP, INC. • Noninterest Expense - Noninterest expense totaled $28.2 million for the three months ended June 30, 2024, a decrease of $6.9 million, or 19.7%, compared to noninterest expense of $35.1 million for the same period of 2023. The decrease was primarily due to $7.9 million of Brunswick acquisition costs in 2023, partially offset by a $506 thousand increase in salaries and benefits expense, also driven by the Brunswick acquisition, and a $548 thousand increase in FDIC charges due to increased assessment rates. Noninterest expense totaled $56.7 million for the six months ended June 30, 2024, a decrease of $4.2 million, or 6.93%, compared to noninterest expense of $61.0 million for the same period of 2023. • Liquidity - Current liquidity, including borrowing capacity, enhanced to nearly $1.79 billion or 140.4% of uninsured and uncollateralized deposits, or approximately 39.8% of total deposits. 47 Table of Contents MID PENN BANCORP, INC. Critical Accounting Estimates The 2023 Annual Report includes a summary of critical accounting estimates that Mid Penn considers to be most important to the presentation of its financial condition and results of operations, because they require management’s most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain. The following discussion is regarding the critical accounting estimates related to the application of CECL and business combinations. Allowance for Credit Losses In accordance with CECL, the ACL, which includes both the ACL - loans and the ACL for OBS credit exposures, is calculated with the objective of maintaining a reserve for current expected credit losses over the remaining expected life of the portfolio. Management's determination of the appropriateness of the reserve is based on continuously monitoring and evaluating the loan portfolio, lending-related commitments, current as well as forecasted economic factors, and other relevant factors. The ACL - loans is an estimate of expected losses inherent within Mid Penn's existing loan portfolio. The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by Management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the ACL and credit loss expense. Mid Penn estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Mid Penn uses a third-party software application to calculate the quantitative portion of the ACL using a methodology and assumptions specific to each loan pool. The qualitative portion of the allowance is based on general economic conditions and other internal and external factors affecting Mid Penn as a whole as well as specific loans. Factors considered include the following: lending process, concentrations of credit, and credit quality. The quantitative and qualitative portions of the allowance are added together to determine the total ACL, which reflects Management’s expectations of future conditions based on reasonable and supportable forecasts. As such, the calculation of ACL is inherently subjective and requires management to exercise significant judgment. The CECL estimate is highly sensitive to the economic forecasts used to develop the estimate. While management endeavors to use the best information known to it in order to make ACL valuations, adjustments to the ACL may be necessary based on changes in economic and other conditions, changes in the composition of the loan portfolio, or changes in accounting guidance. In times of economic slowdown, either local, regional or national, the risk inherent in the loan portfolio could increase resulting in the need for additional provisions to the ACL in future periods. An increase could also be necessitated by an increase in the size of the loan portfolio or in any of its components even though the credit quality of the overall portfolio may be improving. For further discussion of the methodology used in the determination of the ACL, refer to "Note 1 - Summary of Significant Accounting Policies", "Note 3 - Investment Securities", "Note 4 - Loans and Allowance for Credit Losses - Loans" and "Note 9 - Commitments and Contingencies" to the Consolidated Financial Statements. To the extent actual outcomes differ from management estimates, additional PCL may be required that would adversely impact earnings in future periods. Goodwill Mid Penn evaluates goodwill annually for impairment unless events occur which indicate that impairment is possible, a triggering event. At June 30, 2024, Mid Penn had goodwill of $127.0 million and Mid Penn's stock continues to trade below book value. Our annual impairment test was conducted during the fourth quarter of 2023. Factors considered include actual earnings in relation to forecasted earnings, liquidity levels, changes in deposit balances, and credit quality, among others. No 48 Table of Contents MID PENN BANCORP, INC. goodwill impairment has been recorded for 2024. Management will continue to monitor internal metrics and macroeconomic trends to determine if there is likelihood of goodwill impairment. Business Combinations Assets acquired and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires Mid Penn to estimate the timing and amount of cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition. Results of Operations Net Interest Income Net interest income, Mid Penn’s primary source of revenue, is the amount by which interest income on loans and investments exceeds interest incurred on deposits and borrowings. The amount of net interest income is affected by changes in interest rates and changes in the volume and mix of interest-sensitive assets and liabilities. Net interest income is also shown on a taxable-equivalent basis in total. Income from tax-exempt assets, primarily loans to or securities issued by state and local governments, is adjusted by an amount equivalent to the federal income taxes which would have been paid if the income received on these assets was taxable at the statutory rate of 21% for the periods presented. 49 Table of Contents MID PENN BANCORP, INC. The following table includes average balances, amounts, and yields of interest income and rates of expense, interest rate spread, and net interest margin for the periods presented: Average Balances, Income and Interest Rates For the Three Months Ended June 30, 2024 June 30, 2023 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate ASSETS: Interest Bearing Balances $ 35,618 $ 347 3.92 % $ 7,777 $ 83 4.28 % Investment Securities: Taxable 533,748 3,701 2.79 % 551,832 3,783 2.75 % Tax-Exempt 74,425 371 2.00 % 78,918 391 1.99 % Total Investment Securities 608,173 4,072 2.69 % 630,750 4,174 2.65 % Federal Funds Sold 19,432 282 5.84 % 6,035 49 3.26 % Loans 4,353,360 66,096 6.11 % 3,808,717 52,094 5.49 % Restricted Investment in Bank Stocks 16,066 442 11.07 % 10,177 179 7.05 % Total Interest-earning Assets 5,032,649 71,239 5.69 % 4,463,456 56,579 5.08 % Cash and Due from Banks 39,053 70,378 Other Assets 307,195 293,953 Total Assets $ 5,378,897 $ 4,827,787 LIABILITIES & SHAREHOLDERS' EQUITY: Interest-bearing Demand $ 972,852 $ 4,477 1.85 % $ 936,687 $ 3,216 1.38 % Money Market 908,807 6,632 2.94 % 929,774 5,104 2.20 % Savings 281,560 52 0.07 % 319,728 64 0.08 % Time 1,510,079 17,302 4.61 % 1,061,276 9,543 3.61 % Total Interest-bearing Deposits 3,673,298 28,463 3.12 % 3,247,465 17,927 2.21 % Short-term borrowings 241,713 3,324 5.53 % 94,067 1,507 6.43 % Long-term debt 23,870 262 4.41 % 54,347 194 1.43 % Subordinated debt and trust preferred securities 46,122 424 3.70 % 47,782 507 4.26 % Total Interest-bearing Liabilities 3,985,003 32,473 3.28 % 3,443,661 20,135 2.35 % Noninterest-bearing Demand 778,380 810,140 Other Liabilities 61,839 69,451 Shareholders' Equity 553,675 504,535 Total Liabilities & Shareholders' Equity $ 5,378,897 $ 4,827,787 Net Interest Income $ 38,766 $ 36,444 Taxable Equivalent Adjustment (1) 253 202 Net Interest Income (taxable-equivalent basis) $ 39,019 $ 36,646 Total Yield on Earning Assets 5.69 % 5.10 % Rate on Supporting Liabilities 3.28 % 2.35 % Average Interest Spread 2.41 % 2.76 % Net Interest Margin (1) 3.12 % 3.29 % (1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances. 50 Table of Contents MID PENN BANCORP, INC. The following table summarizes the changes in interest income and interest expense resulting from changes in average balances, volume, and changes in rates for the three months ended June 30, 2024 in comparison to the same period in 2023: Three months ended June 30, 2024 vs. June 30, 2023 Increase (decrease) (Dollars in thousands) Volume Rate Net INTEREST INCOME: Interest Bearing Balances $ 296 $ (32) $ 264 Investment Securities: Taxable (124) 42 (82) Tax-Exempt (22) 2 (20) Total Investment Securities (146) 44 (102) Federal Funds Sold 108 125 233 Loans 7,434 6,568 14,002 Restricted Investment Bank Stocks 103 160 263 Total Interest Income 7,795 6,865 14,660 INTEREST EXPENSE: Interest Bearing Deposits: Interest Bearing Demand 124 1,137 1,261 Money Market (115) 1,643 1,528 Savings (8) (4) (12) Time 4,025 3,734 7,759 Total Interest-Bearing Deposits 4,026 6,510 10,536 Short-term Borrowings 2,359 (542) 1,817 Long-term Debt (108) 176 68 Subordinated Debt (18) (65) (83) Total Interest Expense 6,259 6,079 12,338 NET INTEREST INCOME $ 1,536 $ 786 $ 2,322 For the three months ended June 30, 2024, net interest income was $38.8 million compared to net interest income of $36.4 million for the three months ended June 30, 2023. The tax-equivalent net interest margin for the three months ended June 30, 2024 was 3.12% compared to 3.31% for the second quarter of 2023, representing a 17 bp decrease compared to the same period in 2023. The yield on interest-earning assets increased to 5.69% for the quarter ended June 30, 2024, from 5.08% for the quarter ended June 30, 2023. These increases were due to assets continuing to reprice at higher rates during the second quarter of 2024, continued discipline on new loan pricing, and increase in Fed funds sold. Increased yields on interest-earning assets were offset by increases in funding costs for the second quarter of 2024, with the overall cost of interest-bearing liabilities increasing to 3.28% during the second quarter of 2024, compared to 2.35% for the three months ended June 30, 2023. Average investment securities decreased $22.6 million and the yield on those investment securities decreased 4 bps during the second quarter of 2024 compared to the second quarter of 2023, reducing interest income due to volume by $146 thousand, and reducing interest income due to rates by $44 thousand. Average loans increased $544.6 million, and the yield on those loans increased 62 bps, contributing $7.4 million and $6.6 million, respectively, to the increase in interest income. Interest expense increased $12.3 million during the second quarter of 2024 compared to the second quarter of 2023. The rate of interest-bearing liabilities increased from 2.35% for the second quarter of 2023 to 3.28% for the second quarter of 2024. The increase in the rate was primarily a result of a shift in the mix of deposits from demand, money market and 51 Table of Contents MID PENN BANCORP, INC. savings to higher yielding time deposits. Mid Penn continued to offer higher rates over the comparable period to both retain and attract deposits. In addition, average short-term borrowings of $241.7 million were used to help fund loan growth, contributing $1.8 million to interest expense during the second quarter of 2024. Although the effective interest rate impact on interest-earning assets and funding sources can be reasonably estimated at current interest rate levels, the interest-bearing product and pricing options selected by customers, and the future mix of the loan, investment, and deposit products in the Bank's portfolios, may significantly change the estimates used in Mid Penn’s asset and liability management and related interest rate risk simulation models. In addition, our net interest income may be impacted by further interest rate actions of the Federal Reserve’s FOMC. 52 Table of Contents MID PENN BANCORP, INC. Average Balances, Income and Interest Rates on a Taxable-Equivalent Basis For the Six Months Ended June 30, 2024 2023 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate ASSETS: Interest Bearing Balances $ 37,809 $ 750 3.99 % $ 6,774 $ 136 4.05 % Investment Securities: Taxable 536,711 7,501 2.81 554,352 7,340 2.75 Tax-Exempt 75,219 747 2.00 79,083 987 2.52 Total Investment Securities 611,930 8,248 2.71 633,435 8,327 2.72 Federal Funds Sold 14,902 418 5.64 4,911 94 3.86 Loans, Net 4,323,594 129,332 6.02 3,682,747 97,959 5.37 Restricted Investment in Bank Stocks 17,752 682 7.73 9,861 289 5.91 Total Interest-earning Assets 5,005,987 139,430 5.60 4,337,728 106,805 4.98 Cash and Due from Banks 38,658 60,964 Other Assets 304,644 276,484 Total Assets $ 5,349,289 $ 4,675,176 LIABILITIES & SHAREHOLDERS' EQUITY: Interest-bearing Demand $ 935,596 $ 8,361 1.80 % $ 952,730 $ 5,907 1.25 % Money Market 892,525 12,600 2.84 935,000 9,188 1.98 Savings 284,662 124 0.09 325,219 118 0.07 Time 1,489,345 33,710 4.55 906,299 14,715 3.27 Total Interest-bearing Deposits 3,602,128 54,795 3.06 3,119,248 29,928 1.93 Short-term borrowings 278,869 7,770 5.60 107,906 2,997 5.60 Long-term debt 32,220 795 4.96 29,487 238 1.63 Subordinated debt and trust preferred securities 46,199 848 3.69 52,304 1,149 4.43 Total Interest-bearing Liabilities 3,959,416 64,208 3.26 3,308,945 34,312 2.09 Noninterest-bearing Demand 779,758 801,807 Other Liabilities 60,277 56,746 Shareholders' Equity 549,838 507,678 Total Liabilities & Shareholders' Equity $ 5,349,289 $ 4,675,176 Net Interest Income $ 75,222 $ 72,493 Taxable Equivalent Adjustment (1) 513 400 Net Interest Income (taxable-equivalent basis) $ 75,735 $ 72,893 Total Yield on Earning Assets 5.60 % 4.98 % Rate on Supporting Liabilities 3.26 2.09 Average Interest Spread 2.34 2.89 Net Interest Margin 3.04 3.39 (1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances 53 Table of Contents MID PENN BANCORP, INC. The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances, volume, and changes in rates for the six months ended June 30, 2024 in comparison to the same period in 2023: Six Months Ended June 30, 2024 vs. June 30, 2023 (Dollars in thousands) Increase (decrease) Volume Rate Net INTEREST INCOME: Interest Bearing Balances $ 625 $ (11) $ 614 Investment Securities: Taxable (241) 402 161 Tax-Exempt (48) (192) (240) Total Investment Securities (289) 210 (79) Federal Funds Sold 192 132 324 Loans, Net 17,113 14,260 31,373 Restricted Investment Bank Stocks 232 161 393 Total Interest Income 17,873 14,752 32,625 INTEREST EXPENSE: Interest Bearing Deposits: Interest Bearing Demand (107) 2,561 2,454 Money Market (418) 3,830 3,412 Savings (14) 20 6 Time 9,481 9,514 18,995 Total Interest-Bearing Deposits 8,942 15,925 24,867 Short-term Borrowings 4,763 10 4,773 Long-term Debt 22 535 557 Subordinated Debt (134) (167) (301) Total Interest Expense 13,593 16,303 29,896 NET INTEREST INCOME $ 4,280 $ (1,551) $ 2,729 For the six months ended June 30, 2024, net interest income was $75.2 million compared to net interest income of $72.5 million for the six months ended June 30, 2023. FTE net interest income was $75.7 million for the six months ended June 30, 2024, an increase of $2.8 million, or 3.9%, compared to the same period of June 30, 2023. Mid Penn’s FTE net interest margin for the six months ended June 30, 2024 was 3.04% compared to 3.39% for the same period of June 30, 2023, representing a 35 bp decrease compared to the same period in 2023, primarily driven by higher interest rates resulting from persistent inflation. The higher yields and the growth in interest-earning assets contributed $14.8 million and $17.9 million, respectively, to the increase in interest income. The yield on interest-earning assets increased 62 bps to 5.60% for the six months ended June 30, 2024 compared to 4.98% for the same period of 2023. Average interest-earning assets increased $16.5 million, or 15.4%, during the six months ended June 30, 2024 compared to the same period of 2023. Average investment securities decreased $21.5 million, or 3.4%, and the yield on those investment securities decreased 1 bp, deducting $289 thousand and contributing $210 thousand, respectively, to interest income. Average loans increased $640.8 million, and the yield on those loans increased 65 bps contributing $17.1 million and $14.3 million, respectively, to the increase in interest income. 54 Table of Contents MID PENN BANCORP, INC. Interest expense increased $29.9 million during the first six months of 2024 compared to the same period of 2023. The rate of interest-bearing liabilities increased from 2.09% for the first six months of 2023 to 3.26% for the first six months of 2024. The increase in the rate was primarily a result of a shift in the mix of deposits from demand, money market and savings to higher yielding time deposits. The rate on average interest-bearing deposits increased 117 bps contributing $15.9 million to the increase in interest expense during the six months ended June 30, 2024 compared to the same period in 2023. In addition, average short-term borrowings of $278.9 million were used to help fund loan growth, contributing $4.8 million to interest expense during the six months ended June 30, 2024 compared to the same period in 2023. Provision for Credit Losses - Loans On January 1, 2023, Mid Penn adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology, and is referred to as CECL. The provision for credit losses on loans was $1.8 million for the three months ended June 30, 2024 compared to a provision of $1.2 million for the three months ended June 30, 2023. The increase in provision was driven by an increase in loss factors across the commercial and commercial real estate portfolios. The provision for credit losses on loans was $1.2 million for the six months ended June 30, 2024 compared to a provision of $1.6 million for the six months ended June 30, 2023. The decrease is primarily due to a decrease in loss factors across all portfolios. Noninterest Income Noninterest income for the three months ended June 30, 2024 was $5.3 million and $5.2 million for the three months ended June 30, 2023. The following table and explanations that follow provide additional analysis of noninterest income. Noninterest income and variance analysis: Three Months Ended June 30, (Dollars in Thousands) 2024 2023 $ Variance % Variance Fiduciary and wealth management $ 1,129 $ 1,204 $ (75) (6.2 %) ATM debit card interchange 973 998 (25) (2.5) Service charges on deposits 539 514 25 4.9 Mortgage banking 628 287 341 118.8 Mortgage hedging — 128 (128) (100.0) Net gain on sales of SBA loans 74 128 (54) (42.2) Earnings from cash surrender value of life insurance 301 292 9 3.1 Other 1,685 1,669 16 1.0 Total $ 5,329 $ 5,220 $ 109 2.1 % For the three months ended June 30, 2024, noninterest income totaled $5.3 million, an increase of $109 thousand, or 2.09%, compared to noninterest income of $5.2 million for the three months ended June 30, 2023. The increase in noninterest income is primarily due to $341 thousand increase in mortgage banking income, partially offset by a $128 thousand decrease in mortgage hedging. Six Months Ended June 30, (Dollars in Thousands) 2024 2023 $ Variance % Variance Fiduciary and wealth management $ 2,261 $ 2,440 $ (179) (7.3 %) ATM debit card interchange 1,918 2,054 (136) (6.6) Service charges on deposits 1,048 949 99 10.4 Mortgage banking 1,052 671 381 56.8 Mortgage hedging — 148 (148) (100.0) Net gain on sales of SBA loans 181 128 53 41.4 Earnings from cash surrender value of life insurance 585 546 39 7.1 Other 4,121 2,609 1,512 58.0 Total $ 11,166 $ 9,545 $ 1,621 17.0 % 55 Table of Contents MID PENN BANCORP, INC. For the six months ended June 30, 2024, noninterest income totaled $11.2 million, an increase of $1.6 million, or 16.98%, compared to noninterest income of $9.5 million for the six months ended June 30, 2023. The increase in noninterest income is primarily due to a $1.5 million increase in other miscellaneous noninterest income, driven by a $1.5 million death benefit from Bank owned life insurance. Noninterest Expense For the three months ended June 30, 2024, noninterest expense totaled $28.2 million, a decrease of $6.9 million, or 19.7%, compared to noninterest expense of $35.1 million for the same period in 2023. The following table and explanations that follow provide additional analysis of noninterest expense: Three Months Ended June 30, (Dollars in Thousands) 2024 2023 $ Variance % Variance Salaries and employee benefits $ 15,533 $ 15,027 $ 506 3.4 % Software licensing and utilization 2,208 2,070 138 6.7 Occupancy expense, net 1,861 1,750 111 6.3 Equipment expense 1,287 1,248 39 3.1 Shares tax 124 751 (627) (83.5) Legal and professional fees 689 602 87 14.5 ATM/card processing 510 532 (22) (4.1) Intangible amortization 425 461 (36) (7.8) FDIC Assessment 1,232 684 548 80.1 Gain on sale of foreclosed assets, net 42 (126) 168 (133.3) Merger and acquisition expense — 4,992 (4,992) (100.0) Post-acquisition restructuring expense — 2,952 (2,952) (100.0) Other expenses 4,313 4,185 128 3.1 Total Noninterest Expense $ 28,224 $ 35,128 $ (6,904) (19.7 %) For the six months ended June 30, 2024, noninterest expense totaled $56.7 million, a decrease of $4.2 million, or 6.9%, compared to noninterest expense of $61.0 million for the six months ended June 30, 2023. The decrease was primarily the result of a $8.2 million decrease in merger and acquisition costs related to the Brunswick Acquisition, partially offset by an increase of $2.1 million in salaries and benefits also related to the Brunswick Acquisition, and a $1.2 million increase in FDIC charges due to increased assessment rates. 56 Table of Contents MID PENN BANCORP, INC. Six Months Ended June 30, (Dollars in Thousands) 2024 2023 $ Variance % Variance Salaries and employee benefits $ 30,995 $ 28,871 $ 2,124 7.4 % Software licensing and utilization 4,328 4,016 312 7.8 Occupancy expense, net 3,843 3,636 207 5.7 Equipment expense 2,509 2,499 10 0.4 Shares tax 1,121 1,650 (529) (32.1) Legal and professional fees 1,687 1,402 285 20.3 ATM/card processing 1,044 1,025 19 1.9 Intangible amortization 853 805 48 6.0 FDIC Assessment 2,177 1,024 1,153 112.6 Gain on sale of foreclosed assets, net 42 (126) 168 (133.3) Merger and acquisition expense — 5,216 (5,216) (100.0) Post-acquisition restructuring expense — 2,952 (2,952) (100.0) Other expenses 8,145 8,000 145 1.8 Total Noninterest Expense $ 56,744 $ 60,970 $ (4,226) (6.9 %) Income Taxes The provision for income taxes was $2.5 million for the three months ended June 30, 2024 compared to $142 thousand for the same period in 2023. The provision for income taxes for the six months ended June 30, 2024 reflects a combined Federal and State effective tax rate of 17.5% and 2.9%, for the six months ended June 30, 2024 and June 30, 2023, respectively. Generally, Mid Penn’s effective tax rate is below the federal statutory rate due to earnings on tax-exempt loans, investments, and earnings from the cash surrender value of life insurance, as well as the impact of federal income tax credits, including those awarded from Mid Penn’s low-income housing investments. The realization of Mid Penn’s deferred tax assets is dependent on future earnings. Mid Penn currently anticipates that future earnings will be adequate to fully realize the currently recorded deferred tax assets. Financial Condition Mid Penn’s total assets were $5.4 billion as of June 30, 2024, reflecting an increase of $101.0 million, or 1.9%, compared to total assets of $5.3 billion as of December 31, 2023. The increase was primarily driven by organic loan growth, offset by a reduction in investment securities. Investment Securities Mid Penn’s investment portfolio is utilized primarily to support overall liquidity and interest rate risk management, to provide collateral supporting pledging requirements for public funds on deposit, and to generate additional interest income within reasonable risk parameters. Total investment securities as of June 30, 2024 were $601.3 million compared to $622.7 million as of December 31, 2023. Mid Penn does not intend to grow the investment portfolio beyond levels necessary to support pledging requirements. 57 Table of Contents MID PENN BANCORP, INC. The following table presents the expected maturities of the investment portfolio and the weighted average yields (calculated based on historical cost): Maturing (In Thousands) One Year and Less After One Year thru Five Years After Five Years Thru Ten Years After Ten Years As of June 30, 2024 Amount Weighted Average Yield Amount Weighted Average Yield Amount Weighted Average Yield Amount Weighted Average Yield Available for sale securities, at fair value: U.S. Treasury and U.S. government agencies $ 11,871 3.35 % $ 16,939 2.62 % $ 1,809 3.30 % $ — — % Mortgage-backed U.S. government agencies — — — — 5,385 2.53 136,652 3.01 State and political subdivision obligations — — — — 2,522 2.42 1,069 2.46 Corporate debt securities — — 11,456 4.68 20,233 4.41 — — $ 11,871 3.35 % $ 28,395 3.46 % $ 29,949 3.84 % $ 137,721 3.00 % Held to maturity securities, at amortized cost: U.S. Treasury and U.S. government agencies $ 10,500 3.45 % $ 85,211 1.89 % $ 148,662 2.08 % $ 1,500 2.45 % Mortgage-backed U.S. government agencies — — 2,526 2.97 5,543 2.79 32,776 2.02 State and political subdivision obligations 6,958 2.44 34,229 2.49 21,328 2.25 18,627 2.59 Corporate debt securities — — 6,010 3.45 19,450 4.19 — — $ 17,458 3.04 % $ 127,976 2.14 % $ 194,983 2.33 % $ 52,903 2.23 % Loans, net of unearned interest Total loans, net of unearned interest, as of June 30, 2024 were $4.4 billion compared to $4.3 billion as of December 31, 2023. The growth of $111.8 million, or 2.6%, since December 31, 2023 was primarily the result of organic loan growth across the commercial real estate and commercial and industrial portfolios, offset by decreases in residential mortgage loan portfolios. 58 Table of Contents MID PENN BANCORP, INC. June 30, 2024 December 31, 2023 Change in Balance (Dollars in thousands) Balance % of Total Loans Balance % of Total Loans $ % Commercial real estate CRE Nonowner Occupied $ 1,187,050 27.2 % $ 1,149,553 27.0 % $ 37,497 3.3 % CRE Owner Occupied 623,756 14.3 629,904 14.8 (6,148) (1.0) Multifamily 374,175 8.6 309,059 7.3 65,116 21.1 Farmland 213,002 4.9 212,690 5.0 312 0.1 Total Commercial Real Estate 2,397,983 54.9 2,301,206 54.1 96,777 4.2 Commercial and industrial 692,703 15.9 675,079 15.9 17,624 2.6 Construction Residential Construction 105,676 2.4 92,843 2.2 12,833 13.8 Other Construction 348,289 8.0 362,624 8.5 (14,335) (4.0) Total Construction 453,965 10.4 455,467 10.7 (1,502) (0.3) Residential mortgage 1-4 Family 1st Lien 327,302 7.5 339,142 8.0 (11,840) (3.5) 1-4 Family Rental 351,554 8.1 341,937 8.0 9,617 2.8 HELOC and Junior Liens 134,686 3.1 132,795 3.1 1,891 1.4 Total Residential Mortgage 813,542 18.6 813,874 19.1 (332) — Consumer 6,368 0.1 7,166 0.2 (798) (11.1) $ 4,364,561 100.0 % $ 4,252,792 100.0 % $ 111,769 2.6 % The majority of the Bank's loan portfolio is to businesses and individuals located within the Bank's primary market area of the Pennsylvania counties of Berks, Blair, Bucks, Centre, Chester, Clearfield, Cumberland, Dauphin, Fayette, Huntingdon, Lancaster, Lehigh, Luzerne, Montgomery, Perry, Schuylkill and Westmoreland, along with Middlesex and Monmouth counties of New Jersey. Commercial real estate, construction, and land development loans are collateralized mainly by mortgages on the income-producing real estate or land involved. Commercial, industrial, and agricultural loans are primarily made to business entities and may be secured by business assets, including commercial real estate, or may be unsecured. Residential real estate loans are secured by liens on the residential property. Consumer loans include installment loans, lines of credit and home equity loans. The Bank has no significant concentration of credit to any one borrower. The Bank’s highest concentration of credit by loan type is in commercial real estate. Credit risk is managed through portfolio diversification, underwriting policies and procedures, and loan monitoring practices. Lenders are provided with detailed underwriting policies for all types of credit risks accepted by the Bank and must obtain appropriate internal approvals for credit extensions. The Bank also maintains strict documentation requirements and robust credit quality assurance practices in order to identify credit portfolio weaknesses as early as possible, so any exposures that are discovered might be mitigated or potential losses reduced. The Bank generally secures its loans with real estate, with such collateral values dependent and subject to change based on real estate market conditions within its market area. The following table presents the commercial real estate portfolio by property type along with the weighted average loan to value: 59 Table of Contents MID PENN BANCORP, INC. (Dollars in thousands) June 30, 2024 December 31, 2023 Commercial Real Estate Balance % of portfolio Weighted Average LTV (2) Balance % of portfolio Weighted Average LTV (2) Owner Occupied (1) $ 623,756 25.9 % N/A $ 627,995 27.4 % N/A Farmland (1) 212,772 8.9 N/A 212,690 9.2 N/A Multifamily 374,175 15.6 63.8 308,886 13.4 58.9 Non Owner Occupied Retail 416,030 17.3 60.3 414,485 18.0 51.0 Office 293,177 12.2 63.2 301,810 13.1 64.4 Industrial 153,548 6.4 53.2 156,075 6.8 49.3 Hospitality 143,508 6.0 51.2 137,718 6.0 49.4 Flex 42,804 1.8 44.2 39,374 1.7 56.0 Mobile Home Park 21,931 0.9 67.7 21,298 0.9 68.4 Health Care 14,777 0.6 55.3 15,618 0.7 54.6 Other Property Types 101,505 4.4 64.1 65,257 2.8 43.2 Total Commercial Real Estate $ 2,397,983 100.0 % 59.9 % $ 2,301,206 2301206000000 100.0 % 55.4 % (1) LTV not available for Owner Occupied and Farmland properties. (2) Weighted average Loan to Value is calculated based on estimated current market values of the properties. Maturity distribution by contractual maturity date and rate sensitivity information related to the loan portfolio is reflected in the table below: (In Thousands) As of June 30, 2024 One Year and Less One to Five Years Five to Fifteen Years Over Fifteen Years Total Commercial real estate CRE Nonowner Occupied $ 50,316 $ 347,733 $ 490,261 $ 298,740 $ 1,187,050 CRE Owner Occupied 22,135 69,829 262,709 269,083 623,756 Multifamily 44,762 107,632 118,365 103,416 374,175 Farmland 520 8,209 61,218 143,055 213,002 Total Commercial real estate 117,733 533,403 932,553 814,294 2,397,983 Commercial and industrial 21,545 339,011 105,976 226,171 692,703 Construction Residential Construction 51,479 42,759 5,889 5,549 105,676 Other Construction 75,355 202,941 54,206 15,787 348,289 Total Construction 126,834 245,700 60,095 21,336 453,965 Residential mortgage 1-4 Family 1st Lien 10,647 23,911 90,290 202,454 327,302 1-4 Family Rental 11,501 52,716 107,377 179,960 351,554 HELOC and Junior Liens 8,259 15,433 36,109 74,885 134,686 Total Residential Mortgage 30,407 92,060 233,776 457,299 813,542 Consumer 932 1,771 1,421 2,244 6,368 Total loans held in portfolio $ 297,451 $ 1,211,945 $ 1,333,821 $ 1,521,344 $ 4,364,561 60 Table of Contents MID PENN BANCORP, INC. Fixed interest rates Commercial real estate CRE Nonowner Occupied $ 40,797 $ 205,219 $ 76,188 $ 9,542 $ 331,746 CRE Owner Occupied 14,874 50,472 25,515 2,046 92,907 Multifamily 8,361 59,520 6,785 — 74,666 Farmland 386 7,087 7,945 56 15,474 Total Commercial real estate 64,418 322,298 116,433 11,644 514,793 Commercial and industrial 16,132 210,639 33,478 11,604 271,853 Construction Residential Construction 22,259 9,861 — — 32,120 Other Construction 31,582 57,370 36,544 824 126,320 Total Construction 53,841 67,231 36,544 824 158,440 Residential mortgage 1-4 Family 1st Lien 10,636 21,129 57,859 125,977 215,601 1-4 Family Rental 7,932 48,376 6,945 6,205 69,458 HELOC and Junior Liens 188 6,363 25,123 2,528 34,202 Total Residential Mortgage 18,756 75,868 89,927 134,710 319,261 Consumer 522 1,730 1,421 11,790 15,463 Total fixed interest rates $ 153,669 $ 677,766 $ 277,803 $ 170,572 $ 1,279,810 Floating interest rates: Commercial real estate CRE Nonowner Occupied $ 9,517 $ 142,514 $ 414,073 $ 289,198 $ 855,302 CRE Owner Occupied 7,261 19,357 237,194 267,036 530,848 Multifamily 36,403 48,112 111,578 103,415 299,508 Farmland 132 1,123 53,274 142,999 197,528 Total Commercial real estate 53,313 211,106 816,119 802,648 1,883,186 Commercial and industrial 5,413 128,372 72,498 214,567 420,850 Construction Residential Construction 29,221 32,897 5,889 5,549 73,556 Other Construction 43,773 145,572 17,663 14,963 221,971 Total Construction 72,994 178,469 23,552 20,512 295,527 Residential mortgage 1-4 Family 1st Lien 12 2,781 32,431 64,900 100,124 1-4 Family Rental 3,569 4,340 100,432 173,755 282,096 HELOC and Junior Liens 8,071 9,070 10,986 72,358 100,485 Total Residential Mortgage 11,652 16,191 143,849 311,013 482,705 Consumer 410 41 — 2,032 2,483 Total floating interest rates 143,782 534,179 1,056,018 1,350,772 3,084,751 Total fixed and floating interest rates $ 297,451 $ 1,211,945 $ 1,333,821 $ 1,521,344 $ 4,364,561 61 Table of Contents MID PENN BANCORP, INC. Credit Quality, Credit Risk, and Allowance for Credit Losses Mid Penn adopted FASB ASC Topic 326, in accordance with the amendments of FASB ASU 2016-13, effective January 1, 2023. The guidance in FASB ASC 326 replaces Mid Penn’s previous incurred loss methodology with a methodology that reflects the current expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit losses. Mid Penn’s ACL methodology for loans is based upon guidance within FASB ASC Subtopic 326-20, "Financial Instruments – Credit Losses – Measured at Amortized Cost," as well as regulatory guidance from the FDIC, the Bank's primary federal regulator. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Credit quality within the loan portfolio is continuously monitored by management and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within Mid Penn’s existing loan portfolio. The ACL is adjusted through the provision for credit losses and reduced by the charge off of loan amounts, net of recoveries. The loan loss estimation process involves procedures to appropriately consider the unique characteristics of Mid Penn’s loan portfolio segments. When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances of particular situations. Determining the appropriateness of the allowance is complex and requires judgement by management about the effect of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense. For a complete description of Mid Penn’s ACL methodology and the quantitative and qualitative factors included in the calculation, please see "Note 4 – Loans and Allowance for Credit Losses – Loans" included in Part I. Item 1. – Financial Statements of this report. Upon the adoption of FASB ASC Topic 326 on January 1, 2023, Mid Penn recorded an overall increase of $15.0 million to the ACL on January 1, 2023 as a result of the adoption of CECL. Retained earnings decreased $11.5 million and deferred tax assets increased by $3.1 million. Changes in the ACL are summarized as follows: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Balance, beginning of period $ 33,524 $ 31,265 $ 34,187 $ 18,957 Impact of adopting CECL — — — 11,931 Purchase credit deteriorated loans — 336 — 336 Loans charged off during period (62) (174) (112) (324) Recoveries of loans previously charged off 44 4 50 41 Net (charge-offs) recoveries (18) (170) (62) (283) Provision for credit losses (1) 1,782 1,157 1,163 1,647 Balance, end of period $ 35,288 $ 32,588 $ 35,288 $ 32,588 Ratio of net charge-offs (recoveries) to average loans outstanding (annualized) 0.002 % 0.018 % 0.003 % 0.015 % Ratio of ACL - loans to net loans at end of period 0.81 % 0.81 % 0.81 % 0.81 % .(1) Includes a $2.0 million initial provision for the three and six months ended June 30,2023, for credit losses on non-PCD loans acquired in the Brunswick Acquisition. in 2023. 62 Table of Contents MID PENN BANCORP, INC. The following table presents the change in nonperforming asset categories as of June 30, 2024, December 31, 2023, and June 30, 2023. (Dollars in thousands) June 30, 2024 December 31, 2023 June 30, 2023 Non-performing Assets: Total non-performing loans $ 9,999 $ 14,216 $ 15,846 Foreclosed real estate 441 293 489 Total non-performing assets 10,440 14,509 16,335 Accruing loans 90 days or more past due — — 9 Total risk elements $ 10,440 $ 14,509 $ 16,344 Non-performing loans as a percentage of total loans outstanding 0.23 % 0.33 % 0.39 % Non-performing assets as a percentage of total loans outstanding and foreclosed real estate 0.24 % 0.34 % 0.40 % Ratio of ACL to non-performing loans 352.92 % 240.48 % 205.65 % Total nonperforming assets were $10.4 million at June 30, 2024, a decrease compared to nonperforming assets of $14.5 million at December 31, 2023. The decrease during the second quarter of 2024 primarily related to the sale of one foreclosed property, which resulted in a loss on sale of approximately $26 thousand. Delinquency as a percentage of total loans was 0.57% at June 30, 2024. Goodwill Mid Penn evaluates goodwill annually for impairment unless events occur which indicate that impairment is possible, a triggering event. At June 30, 2024, Mid Penn had goodwill of $127.0 million and Mid Penn's stock continues to trade below book value. Management has not noted any factors either internally or externally which would indicate that a triggering event has occurred during the second quarter of 2024 warranting an additional impairment test. Factors considered include actual earnings in relation to forecasted earnings, liquidity levels, changes in deposit balances, and credit quality, among others. Management will continue to monitor internal metrics and macroeconomic trends to determine if there is likelihood of goodwill impairment. Mid Penn's annual impairment test is scheduled to be conducted as of October 31, 2024. Deposits Total deposits increased $150.8 million, or 3.5%, from $4.3 billion on December 31, 2023, to $4.5 billion at June 30, 2024. The growth was driven by a $108.5 million increase in interest bearing accounts, and a $77.6 million increase in time deposits, offset by a $35.3 million decrease in noninterest bearing accounts. As of June 30, 2024, uninsured deposits were approximately $1.2 billion compared to $1.2 billion as of December 31, 2023. The maturities of the uninsured time deposits as of June 30, 2024 were as follows: (In thousands) 2024 Three months or less $ 136,892 Over three months to six months 101,947 Over six months to twelve months 128,779 Over twelve months 17,018 $ 384,636 63 Table of Contents MID PENN BANCORP, INC. Borrowings Total short-term borrowings decreased $41.5 million, or 17.2%, from December 31, 2023. FHLB overnight borrowings decreased $166.5 million, offset by an increase of $125.0 million in short term FHLB borrowings. Total long-term borrowings were $23.8 million at June 30, 2024, a decrease of $35.2 million from December 31, 2023. Liquidity Mid Penn’s objective is to maintain adequate liquidity to meet funding needs at a reasonable cost and to provide contingency plans to meet unanticipated funding needs or a loss of funding sources, while minimizing interest rate risk. Adequate liquidity provides resources for credit needs of borrowers, for depositor withdrawals, and for funding corporate operations. Sources of liquidity are as follows: • a growing core deposit base; • proceeds from the sale or maturity of investment securities; • payments received on loans and mortgage-backed securities; • overnight correspondent bank borrowings on various credit lines; and • borrowing capacity available from the FHLB and the Federal Reserve Discount Window available to Mid Penn. Mid Penn believes its core deposits are generally stable even in periods of changing interest rates. Liquidity is measured and monitored daily, allowing management to better understand and react to balance sheet trends. These measurements indicate that liquidity generally remains stable and exceeds our minimum defined levels of adequacy. Other than the trends of continued competitive pressures and volatile interest rates, and the uncertain impact of the current inflationary environment, there are no known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way. On at least a quarterly basis, a comprehensive liquidity analysis is reviewed by the Asset Liability Committee and Board of Directors. The analysis provides a summary of the current liquidity measurements, projections, and future liquidity positions given various levels of liquidity stress. Management also maintains a detailed Contingency Funding Plan designed to respond to overall stress in the financial condition of the banking industry or a prospective liquidity problem specific to Mid Penn. The Consolidated Statements of Cash Flows provide additional information. Mid Penn’s operating activities during the six months ended June 30, 2024 provided $30.4 million of cash, mainly due to net income. Cash used in investing activities during the six months ended June 30, 2024 was $88.9 million, mainly the result of the net increase in loans. Cash provided by financing activities during the six months ended June 30, 2024 totaled $67.4 million, primarily the result of an increase in net deposits. Regulatory Capital Mid Penn 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 Mid Penn'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. Minimum regulatory capital requirements established by Basel III rules require Mid Penn 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 64 Table of Contents MID PENN BANCORP, INC. • Comply with the definition of capital to improve the ability of regulatory capital instruments to absorb losses. The Basel III Rules use a standardized approach for risk weightings that expands the risk-weighting for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures and resulting in higher risk weightings for a variety of asset categories. Banks are evaluated for capital adequacy by regulatory supervisory agencies based on the ratio of capital to risk-weighted assets and total assets. The minimum capital to risk-weighted assets requirements, including the capital conservation buffers, which became effective for Mid Penn and the Bank on January 1, 2016, are illustrated below. At June 30, 2024, regulatory capital ratios for both Mid Penn and the Bank met the definition of a "well-capitalized" institution under the regulatory framework for prompt corrective action, and exceeded the minimum capital requirements under Basel III. Mid Penn maintained the following regulatory capital ratios in comparison to regulatory requirements: June 30, 2024 December 31, 2023 Regulatory Minimum for Capital Adequacy Fully Phased-In, with Capital Conversation Buffers Total Risk-Based Capital (to Risk-Weighted Assets) 11.78 % 11.69 % 10.50 % 4.00 % Tier I Risk-Based Capital (to Risk-Weighted Assets) 9.91 9.78 8.50 7.00 Common Equity Tier I (to Risk-Weighted Assets) 9.91 9.78 7.00 8.50 Tier I Leverage Capital (to Average Assets) 8.38 8.32 4.00 10.50 As of June 30, 2024 and December 31, 2023, Mid Penn and the Bank met all capital adequacy requirements and the Bank was considered "well-capitalized". However, future changes in regulations could increase capital requirements and may have an adverse effect on capital resources. Shareholders' Equity Shareholders' equity, or capital, is evaluated in relation to total assets and the risk associated with those assets, and the desire to collectively maintain and enhance shareholders’ value, and satisfactorily address regulatory capital requirements. Accordingly, capital management has been, and will continue to be, of paramount importance to Mid Penn. Shareholders’ equity increased by $17.3 million, or 3.2%, from $542.4 million as of December 31, 2023 to $559.7 million as of June 30, 2024, primarily due to earnings of $23.9 million, partially offset by dividends declared of $6.6 million and stock repurchases of $323 thousand. 65 Table of Contents MID PENN BANCORP, INC.